Penta Gold Ltd (withdrawn)

Started in 2012, Penta Gold Ltd is engaged in wholesale distribution of jewelry, precious stones and metals, costume jewelry, watches, clocks, and silverware. They have a retail outlet in Mumbai. PGL export products (gold jewellery studded with diamond) to overseas buyers and also sells to wholesalers domestically. The company primarily sells gold jewellery i.e. Chains, Rings, Bangles, Necklace, Mangalsutra, Bracelet, Earrings and other jewellery studded or non-studded with pearls, diamonds, American diamonds and other precious stones. Further, it also has product line of antique and kundan Jewellery and variety of Italian jewellery products which is famous for its machine designs and light weighted jewellery. PGL majorly procures required gold from various banks and also procures gold and precious stones from local markets. They also customize Jewellery for individual needs. They outsource manufacture of jewellery to various domestic corporate, local artisans and craftsmen. They supply raw material to the job workers who in turn take 7 to 10 days for manufacturing the Jewellery depending upon the size and design of the order. On performance front, for last four fiscals PGL has posted turnover/net profits of Rs. 838.26 cr. / Rs. 1.38 cr. (FY14), , Rs. 250.02 cr. / Rs. 1.58 cr. (FY15), Rs. 244.92 cr. / Rs. 1.78 cr. (FY16) and Rs. 237.58 cr. / Rs. 1.69 cr. (FY17). Its working for FY 14 posted gigantic top line with no commensurate rise in bottom line. For last three fiscals it has posted an average EPS of Rs. 1.92 and RoNW of 11.96%. If we attribute latest earnings on fully diluted equity post issue, then asking price is at a P/E of 25 plus and at a P/BV of 2 plus. Peers are trading in the range of 12 to 33 P/Es. Thus issue appears to have been priced aggressively. As per financials, company's top-line and bottom-line are almost stable or lower side in last three fiscals, RoNW is 11.96% for last three fiscals and issue is priced aggressively as other big companies like Gitanjali Gems, Thangamayil Jewellery are also trading below 25 P/E multiple. So we give AVOID rating to this SME IPO.

• 1 Ketan M Shroff