IGI IPO analysis

International Gemological Institute (IGI)'s IPO (initial public offering) will open for subscription on December 13, 2024, and close on December 17, 2024. We break down the diamond, gemstone and jewellery grader's strengths, weaknesses and growth prospects to help investors make an informed decision. IGI IPO in a nutshell Quality : Between FY22 and FY24, the company reported a three-year average ROE and ROCE of around 76.8 and 96.1 per cent, respectively. Growth : Between FY22 and FY24, its revenue and profit after tax grew by 32 and 38 per cent per annum. Valuation : At the upper end of the price band, the stock is valued at a P/E and a P/B ratio of nearly 76.6 and 8.5 times, respectively. Overview: IGI, a leading gem certification company, is expected to benefit from the growth of the jewellery market, including studded jewellery, which is expected to compound at 6-9 per cent per annum till 2028. Rising discretionary incomes and women's growing workforce participation can also support growth. However, factors like competition from unorganised players and concerns regarding a slowdown in the diamond industry, which has been ongoing for the last three years, may hamper the company's growth prospects. About IGI International Gemological Institute (IGI India) provides certification and accreditation services for diamonds, studded jewellery and coloured stones. The company is known for its expertise in providing certification for natural and laboratory-grown diamonds and is a global leader in the latter. As of the nine months ended September 30, 2024, revenue from natural diamonds accounted for around 60 per cent of IGI's revenue. The IPO proceeds from the fresh issue of Rs 1,475 crore will be transferred from IGI India to its promoter company, Blackstone Asia, for acquiring the operations of IGI Belgium and IGI Netherlands. Hence, this move will consolidate IGI's international operations under IGI India. Strengths of IGI Oligopolistic industry: The precious stones certification market is dominated by a handful of players, with IGI being the second largest and the only listed company (as of FY24, the company had a global market share of 33 per cent). This is because companies in the industry need to build credibility and possess the required expertise and equipment, making it difficult for new players to enter. Weaknesses of IGI Revenue concentration: The pre-acquisition group derives a significant portion of its revenue from its top 15 clients only. For the nine months ended September 30 2024, these customers accounted for 51.5 per cent of revenue. Post-acquisition: A potential concern for IGI India post-acquisition is that, despite projected increases in revenue, its valuation may not see a corresponding rise due to decreased EBITDA and PAT margins. While the valuations can be increased by expanding into international markets, it can lead to operational inefficiency and currency exchange rate volatility. IPO details Total IPO size (Rs cr) 4,225 Offer for sale (Rs cr) 2,750 Fresh issue (Rs cr) 1,475 Price band (Rs) 397-417 Subscription dates December 13 and December 16-17, 2024 Purpose of issue Offer for sale and acquisition of group companies from promoter Post-IPO M-cap (Rs cr) 18,020.9 Net worth (Rs cr) 2,118.4 Promoter holding () 76.6 Price/earnings ratio (P/E) 55.5 Price/book ratio (P/B) 8.5 Financial history