Motisons Jewellery

Regional jewellery retailer

The IPO is to fund working capital requirements and reduce debt

MotisonsJewellers(MJL) retails jewellery made of gold, diamond, kundan and sale of other jewellery products including pearl, silver, platinum, precious, semi-precious stones and other metals. Its other offerings include gold and silver coins, utensils and other artifacts.

The company commenced its business through a partnership firm Motisons Jewellers in 1997, which was subsequently converted into public limited company in 2011. It currently has presence across multiple prominent locations in Jaipur, Rajasthan.

The company currently operates four showrooms under the Motisons brand, located across the city of Jaipur, Rajasthan. The flagship store, Motisons Tower, is located at the high street of Tonk Road,Jaipur, Rajasthan. The showroom at Tonk Road spans an area of 16,002.06 sq ft and has 3 floors with a dedicated floor space for silver, gold, and diamond jewellery, respectively. The most recent outlet, opened in the year 2021, is situated in the affluent neighborhood in the southwestern part ofJaipur, Rajasthan at Vaishali Nagar.

In addition to showrooms, MJL also sells its products through its online platform at www.motisonsjewellers.com. The company launched its website in 2011. Online sales commenced from 2018. The company also arranges virtual appointments to assist its customers. Products generally offered through online marketplaces are diverse and not available in the showrooms.

MJL primarily sources finished jewellery from third party suppliers located across India. Additionally, to cater to the increasing demand in the market, it engages artisans on job work basis and has its own manufacturing facilities located at Jaipur, Rajasthan, for diamond and gemstone studded jewellery. The company outsources the work of making ornaments to various artisans with whom it has developed relationships.

MJL offers a large variety of handcrafted jewellery designed and manufactured by its in-house designers in close collaboration along with skilled local craftsman located across the country. To ensure optimum prices and mitigate the risk of suppliers‘ concentration, MJL procures raw materials from various suppliers across the country. This procurement process enables it to offer a wide range of products.

MJL product profile includes traditional, contemporary and combination designs across jewellery lines for special occasions such as weddings and festivals to daily wear jewellery for all ages, genders and across various price points. Its offerings include gold jewellery, diamond jewellery and other silverware from handmade Indian ethnic to the cutting-edge styles of the urban world.

MJL is a part of the Motisons Group (MG) whose business interests span across jewellery, real estate, shares and commodity broking.

Object of the offer

The offer comprises a fresh issue of 2,74,71,000 equity shares.

Out of the proceeds from the fresh issue, Rs 58 crore will be used towards repayment of debt, Rs 71 crore will be used towards working capital requirements,and the balance towards general corporate purposes.

The company had undertaken the pre-IPO placement of 60,00,000 equity shares at an issue price of Rs 55 per equity share for an amount aggregating to Rs 33 crore by way of a private placement in October 2023.

Strengths

The company has an established brand name with heritage and a legacy of over two decades in Jaipur, Rajasthan.

Strategic location of company’s showrooms.

A diversified product portfolio of over 3,00,000+ jewellery designs under various categories such as Gold/Diamond Bangles, Necklaces, Earrings, Pendants, Rings and Chains and Silver Items, with price points.

Established systems and procedure to mitigate risks and efficiencies in inventory management; quality control technology focus; safety, security and Surveillance Systems and procurement of raw materials to avoid the adverse affects of the same on the financial conditions and operations of the company.

Promoter’s with strong leadership and a demonstrated track record supported by a highly experienced and accomplished senior management team and board of directors.

Weaknesses

The company is dependent on third parties for supplying its products. The company may be unable to maintain or establish formal arrangements with such third parties, and any disruptions at such third-party production or manufacturing facilities and their supply chains arrangements, or failure of such third parties to adhere to the relevant quality standards may have a negative effect on the company‘s business.

IPO proceeds are used to prepay loans from scheduled commercial banks which carry lesser interest rate of 8.58% per annum, when compared to borrowings from promoters and members of promoter group, which carry interest rate of 11.60% per annum.

The operations of the company are constrained due to geographical concentration of its operation as all of its four showrooms are in Jaipur, Rajasthan.

Operations of the company are vulnerability to intense competition amidst fragmented gems & jewellery industry.

The margins of the company are exposed to volatility in prices of gold and silver.

The operations of the company are working capital intensive with significant working capital requirements (around 55%) being funded through borrowings during the last 3 financial years and for the period ended June 30,2023. If the company is unable to secure adequate borrowings on commercially reasonable terms it could have a material adverse effect on the company’s business and operations.

The company’s inventory holding is 381.31%, 87.47%, 90.27% and 112.58% of its revenue and its inventory turnover days were 417, 364, 360 and 494 for the period ending on June 30, 2023, and for the fiscal years 2023, 2022 and 2021. High inventory holdings and inventory turnover days will affect the company’s ability to respond to changes in consumer demands and market trends in a timely manner, which may impact the company’s operations adversely.

The promoters of the company, Mr. Sanjay Chhabra and Mr. Sandeep Chhabra, in the past, were involved in proceedings initiated by investigation agency in relation to betting in the cricket matches of Indian Premier League. Though they have been duly discharged, any re-opening of matter could have an adverse impact on the company’s business.

Four of the company’s promoters, Sanjay Chhabra, Sandeep Chhabra and Kajal Chhabra and Motisons Entertainment (India) Private Limited, and three members of promoter group, Motisons Shares Private Limited,Motisons Commodities Private Limited and Bholenath Real Estate Private Limited, are involved in proceedings initiated by SEBI and other regulatory authorities. In the event SEBI or any other regulatory authority passes any unfavorable order imposing a penalty or debarment of the four promoters or three members of the promoter group from accessing the capital market, it will impact the business of the company.

In the past, two of the company’s promoters, Sanjay Chhabra and Sandeep Chhabra, and eight of the promoter group members had contravened the provisions of the SEBI Act and Regulations for which SEBI imposed penalties in the nature of fine amounting to Rs 5,00,000 each on its promoters,a total fine of Rs 34,00,000 on eight members of the promoter group, and temporary debarment from accessing capital market of the promoter group company Motisons Commodities Private Limited during the period 20 August 2015 to 05 April 2018. Post 05 April 2018, there was no debarment of any promoter or member of promoter group or any directors. In one matter, the company’s two promoters have been acquitted also. If any such violation occurs in future, it may affect the goodwill and future aspects of the company.

There are pending litigation‘s against the promoters of the company amounting to Rs 77.10 crore.

Contingent liabilities of the company stood at Rs 11.34 crore as on June 30, 2023.

Valuation

For the three months ended June 2023, the company’s PAT stood at Rs 5.48 crore on revenues of Rs 86.73 crore.

For FY 2023, sales were up by 16.5% to Rs 366.2 crore. Increase in revenue was on account of inclusion of the revenue of the entire year for the new showroom at Vaishali Nagar. OPM rose 110 bps to 13.38% which led to a26.9% increase in operating profit to Rs 48.99 crore. Other income increased 332.2% to Rs 0.61 crore.Interest cost increased 11.6% to Rs 17.77crore,while depreciation declined by 32.5% to Rs 1.91 crore. PBT increased by 49.7% to Rs 29.92 crore. Tax expenses increased by47.3% to Rs 7.72 crore. Net profit stood at Rs 22.20 crore as against net profit of Rs 14.75crore in FY2022.

In October 2023, the company had undertaken pre-IPO placement of 60,00,000 equity shares at an issue price of Rs 55 per equity share for an amount aggregating to Rs 33 crore by way of a private placement to Sunil Kothari& Sons and others.

At the higher price band of Rs 55, the offer is made at a P/E of 24.4 times FY2023 EPS (of Rs 2.25).

Listed industry peers of the company are Senco Gold, Goldiam International, Thangamayil Jewellery, Manoj Vaibhav Gems N Jewellers and Kalyan Jewellery.In comparison Senco Gold trades at 25.18 times its P/FY2023 EPS,Goldiam International trades at 22.26 times its P/FY2023 ,Thangamayil Jewellery trades at 47.97 times its P/ FY2023 EPS, Manoj Vaibhav Gems N Jewellers trades at 19.3 P/FY2023 EPS, and Kalyan Jewellers trades at 75.40 times its P/FY2023 EPS.