IPO Review: C. Mahendra Exports

Company Name: C. Mahendra Exports

Issue Size: 142.5-165 crore

Price Band: 95-110
Issue Date: Dec 31,2010 to Jan 6,2011

C Mahendra Exports (CMEL) is hitting capital market for raising funds to set up diamond polishing and jewellery manufacturing units and retail stores. Post IPO, the promoters' stake would fall by 25% to 75%.

BUSINESS:

C Mahindra is an integrated diamond jewellery player involved in sourcing and trading of rough diamonds, polished diamonds and making of diamond jewellery. It has nine offices in India and overseas.

FINANCIALS:

CMEL's revenue grew at a four year CAGR of 15.3% to 1,853 crore in FY10. But its net profit fluctuated due to volatile foreign exchange. By FY09, its profit had risen five times to 66 crore in four years.

VALUATIONS:

At the higher end of the price band, CMEL demands a P/E of four on post-IPO equity after annualising its June quarter earnings. Its peers — Gitanjali Gems ( 6,527 crore in FY10 consolidated sales), Shrenuj & Co ( 1,908 crore), and Suashish Diamonds ( 1,195 crore), trade at a P/E of 4-7. At 1.5%, CMEL's return on net worth is lower than 9-16% for its peers. Nearly 57% of its current assets are in the form of sales receivables. The ratio is 10% for Suashish and 44% for Shrenuj. Also, a little less than two-third of CEML's revenue was yet to be collected in FY10. This compares with 11% for Suashish and 42% for Shrenuj. At 2.4, CEML's debt-equity ratio is high. This is likely to fall below two post IPO. While CEML's operating margin has improved in the June 2010 quarter on lower forex loss. Its earnings tend to fluctuate with forex volatility. Given these factors, investors may avoid the CEML's issue.