Shree Ganesh Jewellery House Limited is entering the capital markets with an initial public offering (IPO) of 14,269,831 equity shares of Rs. 10 each with a price band of Rs. 260-270 per share. The Company is looking to raise in excess Rs. 3.71 bn through this issue. The offer comprises a fresh issue of 12,136,497 equity shares by the issuer and an offer for sale of 2,133,334 equity shares by Credit Suisse Pe Asia Investments (Mauritius) Limited. The issue will constitute 23.52% of the fully diluted post issue paid-up capital of the Company. The fresh issue will constitute 20% of the fully diluted post issue paid-up capital of the Company.
Valuation and recommendation:
We value the stock at Rs. 280, by using the DCF method (WACC: 16.6% and Terminal Growth 5%), which offers an upside of 7.7% over the lower end of the price band. Moreover, the issue appears attractive with a forward FY11E P/E of 9.3x compared to an average of 10.3x for peer (Rajesh Exports and Gitanjali). Additionally, SGJHL has enjoyed a superior ROE of over 30% compared to a peer average of ~10%. Thus, we recommend subscribing to the issue at lower end of the price band.
The issue closes on March 23, 2010.
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