Jaipur-based Motisons Jewellers will launch its Rs 151.09-crore IPO on December 18. The price band has been fixed at Rs 52-Rs 55 per share.
Joint MD Laksh Chhabra and CFO Kaustubh Chhabra join us with more details.
Joint MD Laksh Chhabra and CFO Kaustubh Chhabra join us with more details.
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00:00 Hello and welcome to NDTV Profit. You are watching IPO. And the company in focus today
00:04 is Motisan Jewelers. It's a Rajasthan-based retailer, retailer. The IPO is coming out
00:10 on December 18 and closes on December 20. Price between Rs. 552 to Rs. 55 per share
00:16 is a fresh issue of Rs. 149.5 crores. And joining me is Laksh Chhabra, who is the joint
00:21 managing director of the company, and Kausam Chhabra, who is the chief financial officer
00:25 of the company. Gentlemen, thank you very much for joining us on NDTV Profit. My first
00:32 question to you is Laksh, can you take us through the business that you have? How is
00:39 it divided? And because you are just a one city player, what is the kind of growth strategy
00:46 that you have? So thank you for having us. It's good to be here. And as you asked the
00:53 question about the business model, I would say that we are one of the largest jewelry
00:59 retailers in Rajasthan. And the company is divided into like, we are more focused on
01:06 gold than diamond. We are a jewelry trading company. And most of our, we are more focused
01:17 on gold and diamond and silver. And we started from 1997. And we are in the business for
01:32 last 25 years and counting forward. And yeah. Okay. Now give me a sense that you have four
01:40 retail stores based out of Jaipur. I was looking at your business revenue, which was generated
01:47 there. Nearly 94.9% of revenue comes from trading. Unlike other jewelers where there
01:54 is a manufacturing and sales which happens. So it's basically a jewelry trading company.
02:00 Is that what you're saying? Yes. So we manufacture only when there is a specific order that has
02:07 come along and that's it. And how does it vary from or is different from the other jewelers
02:16 which you are, which are there in your sector? It depends. Our focus is very focused that
02:27 we are only into trading. We are not diversifying our focus on different, different sectors.
02:35 We are good and we are perfect at one segment of the business and we are catering towards
02:40 that only. So when you say you are doing jewelry trading, just to understand a little more
02:47 on that, that the customer comes to your store and he selects a design and then you get it,
02:55 you outsource the manufacturing and then it comes to you. Is that the way it is? Yeah.
03:00 So we have multiple vendors from all over India that we get our jewelry from and then
03:09 we display it on our stores and that's how it gets sold. What is the kind of inventory
03:14 that you normally carry in a store? In a store, it depends as I can give you a total number
03:23 that we are carrying the inventory of 297 crores. Okay. And that's at the end of September,
03:31 right? Just a second. I'm sorry for the number. It's 320 crores. 320 crores at the end of
03:38 September to 2023. Yeah. At the end of first half of this financial year. There is something
03:45 also in your RHP about revenue from in-house manufacturing. You have a manufacturing facility
03:56 in Jaipur itself. How big is it and how much of that has been used? So basically we have
04:02 two manufacturing units which caters to 400 kilos of, it can cater to 400 kilos of utilizations,
04:12 but we are not focusing on that and our main focus is that if a customer comes for customization,
04:21 we tend to create it in our manufacturing unit. It's a very small portion of our business.
04:28 Kostub, you are the CFO. Just give us a sense of how should a trading company be valued
04:37 in terms of the multiples because traditionally we have seen jewelry trading retailers have
04:46 their own manufacturing and they have a higher margin profile. You are mostly into trading
04:51 of jewelry. So how is it, how do you compare yourself with others?
04:56 Sir, thank you for that question. The thing is firstly for the manufacturing, as our joint
05:06 manager said, we have a capacity of 400 kgs but we utilize 0% of that. It's because Rajasthan
05:13 is a state where it's like you have a different kind of a taste. And if we focus on the, we
05:23 try to go with the manufacturing unit but we didn't get that kind of orders which was
05:31 like profitable to us. So we focus on that because as we have like in Rajasthan, we are
05:38 the jewelers who has 3 lakh plus designs. We serve to all kind of customers. So we focus
05:47 on retail as like all the time in jewelry sector, the trend change like very quickly
05:53 like within a month or two, trend changes. And in Rajasthan, people like, people, they
06:01 just want to buy like more kind of a heavy jewelry or sometimes they want a light jewelry.
06:07 So we have a different type of customer base. So we focus on that mostly. And from the other
06:13 jewelers, our profit margins are different. We have a highest profit margin as compared
06:19 to others like our PAT is 6.06% in 2023. And EBITDA is also like higher. But traditionally,
06:33 you know, the reason I am asking is that we have seen a lot of your competitors listing
06:39 on the stock market. They are, you know, Pan National or even region specific jewelers.
06:48 But the best thing is that they need to have job, they need to do job work but a large
06:52 part of it is manufactured in-house and they are sold and they are into high margin business.
06:59 And you have a different model altogether of trading which is there. So my question
07:04 is that, you know, why haven't you opted for that? And are you looking to expand beyond
07:09 Rajasthan or you are going to remain within Rajasthan?
07:14 To be very honest, like we are focusing to go ahead and we are focusing to go for the
07:21 expansion and we are planning like wherever we get the opportunity, we will definitely
07:27 will go like to the different geographical cities.
07:30 Laksh, give me a sense of the expansion strategy that you have considering that, you know,
07:37 you are now only based at Jaipur, maybe one of the largest in Jaipur. How do you plan
07:42 to go into other cities?
07:44 So we focus on most cost efficient manner. We have to like use a brand name also. And
07:51 for expansion, we find a better location for our store. And seeing geographically, we are
08:00 more focused on in Rajasthan than compared to any other city. And so, yeah, we tend to
08:08 grow in Rajasthan particularly compared to tier one cities.
08:15 You are raising nearly 149 crores. What is the use of proceeds for that?
08:21 So 58 crores will be paid back to our commercial banks and 71 crores will be used for working
08:30 capital and the left use for corporate purpose usage.
08:36 And none for growth purposes?
08:39 In working capital, we are tend to increase our inventory. So it will help us to increase
08:45 our sales and we can cater to more new designs. And of course, as our working capital increasing
08:52 and we have some corpus left, we can also expand our stores in different cities too.
09:03 And do you have enough capital to do that? Because you already have more than 300 crores
09:09 of inventory which you have done. You think that the 71 crores is also going to be used
09:14 for working capital. So what is the and given the fact that you are a trading company, why
09:21 do you need such a high inventory?
09:24 It's basically because of more diversification of our portfolio. We want to add more modern
09:31 designs. We want to add more innovative and fusion type of jewelry in our product portfolio.
09:37 It will cater to more modern consumers. Like if you can see that more competitors are coming
09:47 and doing modern type of jewelry, lightweight jewelry. So we are focusing on that and intend
09:54 to increase our sales over that. And having said that, as you said, our working capital
10:00 is already, our inventory is already 320 crores and utilizing 70 more crores of working capital.
10:09 Yes, it will increase our inventory again, but opening more stores, it will diversify
10:14 our inventory into different stores too.
10:17 What is the strategy of opening stores? Because I have been looking at the RRSP and RRSP has
10:22 mentioned that your lease agreement for stores are at 11 month. You go for an 11 month lease
10:28 agreement for stores while all other retailers go for multi-year lease agreements. Except
10:33 for your Tonk, which is a flagship store you have, which has a five-year lease agreement,
10:38 all other stores have an 11 month lease agreement. Why is that?
10:45 So basically all the stores where Mogisands is located is pre-owned by the promoters and
10:55 that is why there is this type of agreement. So if it is pre-owned by the promoter, then
11:01 it can be a long lease, right? Why is it only 11 months?
11:08 I will get back to you with this answer and I will make sure that I will give you the
11:12 proper answer for this.
11:15 My other thing is that you have a lot of relative party transactions which are there, which
11:19 you have mentioned in the RHP. My question is that all your stores and factory and manufacturing,
11:27 everything is being owned by the promoter and you pay a rent to the promoter for that.
11:33 And just a while back you also mentioned that though you have two manufacturing facilities,
11:37 you have zero revenues coming from there because you are mostly doing trading. So why are you
11:43 holding on to that manufacturing facilities if it is not going to be used and paying company
11:49 money to the promoters?
11:50 No, it is basically because we have manufacturing unit, we need to cater to every customer.
11:57 So each and every customer are different and they come up with their own, sometimes they
12:02 come with their own customization product and we tend to cater to them. Plus the old
12:08 stock that we have, we try to replenish them in our own manufacturing unit. So it reduces
12:14 the cost and it maintains the cost efficient business for us.
12:20 So what percentage of your manufacturing facilities currently being used?
12:24 Around 10 to 15 percent.
12:29 And do you plan to ramp up this usage or it will remain in this range?
12:36 It will remain in this range.
12:40 So basically the highly underutilized facilities will be maintained by you going forward, that
12:44 is what you are saying?
12:45 No, I am not saying that. I am saying that our utilization will be around this much.
12:51 It can increase as the demand of consumer increases of customization product and as
12:55 our inventory is already high. So we try to replenish most of the old stocks that we have
13:02 and try to utilize the manufacturing in that manner.
13:06 Your revenues are roughly around if I am not wrong 366 crores for FY23. You are carrying
13:13 an inventory of nearly 320 odd crores over and above that. It is a huge carriage which
13:19 is there and the cost which is carrying on your books. What are you doing to bring down
13:25 the inventory cycle because you are primarily into trading which basically means as demand
13:31 comes you order those for manufacturing from third party and then deliver it back to them.
13:37 So why do you have to keep a higher inventory?
13:42 As I already said that we have 300 plus SKUs in our portfolio and that is what making us
13:49 very different in the market and again said that the inventory days are high and we are
13:56 taking a quick measures for that to reduce our inventory days. As we have 364 of inventory
14:04 days we are planning to reduce it to around 300 days in this year.
14:13 Cost of 14 percent of EBITDA margin for H1 13 and a half for full year with the trading
14:22 and the kind of that you are going to that strategy that you would employ with the money
14:28 which you are using from the primary market. How do you expect margins to move from here
14:33 on? I expect like by 150, 160 it will increase.
14:42 Sorry, can you repeat again? I expect like by 150, 160 it will increase.
14:50 And this is in the new future you are saying? Is it in this financial year or the next financial
15:00 year? This financial year.
15:04 I just wanted to get to some more understanding of the strategy of growth because it is a
15:12 different jewelry company and in terms of strategy that you are following. To get us
15:19 an understanding of this, Jaipur, how big is the Jaipur market because you are saying
15:25 that you are looking at other markets. You have not gone and taken growth capital for
15:31 expanding your retail footprint. It is primarily to de-leverage your footprint and increase
15:36 your inventories. So, how does it, how do you plan to see a growth in this market?
15:45 I said that we have four stores right now and we are more focused on the quality that
15:53 we provide to our customers. It is a family owned business which was carried in 1997 and
16:02 we are taking a slow process. But yes, in near future we are going to grow and expand
16:09 into different cities and as you said the Jaipur market is a huge market. We can see
16:16 people from other cities like Bikaner, Ajmer, people are coming from there to buy jewelry
16:24 plus all the weddings and Jaipur has been created a city of wedding. If you say that
16:33 all the weddings have been shifted to Jaipur in recent years and we can get increase in
16:39 trend of jewelry demand that has gone, that has increased in last two years.
16:48 You said that there is a large dependent on third party suppliers for you. So, how does
16:55 it, that third party supplier is the one which is procuring gold and supplying it to you
17:00 or do you procure gold and give it to them for them to process it and send it back to
17:05 you? No, they only procure the gold and we buy
17:09 the whole finished goods from them and very little business we do with our job workers
17:16 that we tend to give our raw material to them and they create the jewelry for us.
17:21 Can you give me some color on who this third party suppliers are for you?
17:27 I cannot provide you with the names as a. Are they promoted entities or non-promoted
17:31 entities? It is a non-promoted entity.
17:34 Okay, and is it, are they available, means are they present based out of Rajasthan or
17:39 is a pan India thing for them? It is pan India. We have suppliers from Kolkata,
17:44 we have suppliers from Delhi, Bombay, from everywhere.
17:50 And how do you ensure quality in such a thing because if procurement gold and processing
17:56 is handled by the third party, how do you manage that?
18:00 We do our quality checks, we have rigorous quality check setups at our store, at our
18:08 office, corporate office and we deal everything over there in terms of quality. Any harm in
18:17 the quality of gold or any silver material, it is already taken care by our quality team.
18:26 So currently you are basically focusing on gold, silver as the main jewelry. Many of
18:34 the retailers have ventured into studded market as well. Have you looked at that market? Is
18:39 there no market for, because Rajasthan has this heavy jewelry studded jewelry market
18:44 as well. So why have not you looked at that market?
18:47 No, we are into that also. We are, we provide jewelry of Kundan Polki also and yeah, most
18:55 of our jewelry and most of our customers are tend to buy for, buy jewelry of Bridal Collection
19:02 and so we keep all type of jewelries in our stores.
19:05 So what is the breakup between jewelry, plain gold and silver jewelry and the studded jewelry
19:09 that you sell for in your revenue? I will get back to you with this number. I
19:14 am not sure about the correct number about this.
19:18 Okay. I just have one more query. I was going to the RHB and there were a couple of investigations
19:23 pending against promoter and promoter entities. How do you see this investigation proceeding
19:30 and do you have any update on these proceedings?
19:38 So the most of the proceedings have been, the promoters have been duly discharged by
19:43 it and some of ours is left and again I will get back to you with all the proper answers
19:52 with the, I will get back to you with my team and I will make sure that all the answers
20:00 are correctly answered to you. Kausub, give me a sense of what could be the
20:08 gains in interest, interest which you will benefit once you pay 58 crores of the term
20:17 loans and are you going to use some of the working capital which you are raising to repay
20:23 short term liabilities as well because if I am not wrong short term liabilities are
20:28 also quite high, right? That is high but they are with the, they all
20:34 are with the promoters thing and which are being from the beginning and after paying
20:41 the 58 CR of the commercial banks loan it will affect us in the profits as there will
20:50 be no debt for the company and as we are keeping the balance sheet asset allied. So, it will
20:58 benefit with the profit margins and it will affect like it will give a good return to
21:04 our shareholders too. Okay. Gentlemen, it was a pleasure talking
21:09 to you today. Your IPO Motizen Jewelers is opening on December 18th. Price between 52
21:16 to 55 rupees per share is a fresh issue of 149.5 crores giving it a market value of nearly
21:22 30, 90 out crores at the upper end of the price band. The company is issuing nearly
21:27 27.69% of equity on a fully diluted basis and it opens on December 18th. Thank you for
21:34 watching NDTV Profit and joining us on AIPO.
21:38 Thank you.
21:39 Thank you.
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