IGI IPO Analysis: Will Investors Certify this Diamond Expert?

International Gemmological Institute Ltd (IGI) launched its initial public offering (IPO) on December 13, 2024, with bidding set to close on December 17. The IPO, carrying a grey market premium (GMP) of 18%, received a muted response on the first day.

Investors should get a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

IGI IPO Details

• Issue Details: Mainstream
• Issue Size: Rs 4,225 crore 
• Fresh Issue: Rs 1,475 crore
• OFS: Rs 2,750 crore
• Price Band: Rs 397 – Rs 417
• Lot size: 35 shares
• Listing Date: December 20, 2024

IGI IPO Subscription Status

The IGI IPO saw an overall subscription of 0.18 times by 5 p.m. on its opening day. Retail investors led the charge with a subscription rate of 0.74 times, while non-institutional investors subscribed 0.15 times. Qualified institutional buyers (QIBs), however, had yet to subscribe to their allocated portion.

Overview of International Gemmological Institute Ltd

IGI offers a wide range of certifications for both lab-grown and natural diamonds, catering to diverse consumer needs. Their offerings include certified diamonds in both studded jewellery and loose formats. 

IGI serves all segments of the jewellery value chain, including manufacturers, growers, wholesalers, retailers, and end consumers. With 31 laboratories and 18 gemology schools worldwide, IGI has established the largest global network in the industry, solidifying its dominant market presence.

IGI Key Strengths

• Market Leadership: IGI is the world’s second-largest independent provider of certification and accreditation services for diamonds, studded jewellery, and coloured stones, holding a 33% global market share (CY23). In India, it dominates with a 50% market share.
• Global Leader in Lab-Grown Diamonds: IGI holds a 65% market share globally for laboratory-grown diamond certifications (CY23). Its strong leadership in India and globally, combined with the largest pan-India laboratory network (as of September 30, 2024) and extensive global presence, provides it with significant competitive advantages.
• Strong Financial Performance: IGI has achieved impressive growth, with operational revenue and net profit recording robust compounded annual growth rates (CAGRs) of 32% and 38%, respectively, between CY21 and CY23. 
• Robust Profit Margins: IGI maintains high profitability, with an EBITDA margin of 70% and a net profit margin of 51% as of CY23.
• Solid Return Metrics: IGI boasts impressive return ratios, with a Return on Equity (RoE) of 77% and Return on Capital Employed (ROCE) of 81% as of CY23.
• Consistent Dividend Payouts: IGI has a strong track record of dividend payouts, with 37,500% (CY21), 37,000% (CY22), 35,3906% (CY23), and 293% (9M-CY24). A formal dividend policy was adopted in August 2024.

IGI Risk Factors

• Client Concentration: The top 10 customers contributed 44% of the operating revenue for the nine-month period ending September 2024. The loss of a key customer or significant contract could materially affect the company’s business, financial stability, and operational performance.
• Geographic Concentration: During the nine-month period ending September 2024, IGI derived 54% and 36% of its operating revenue from the states of Gujarat and Maharashtra, respectively. Any unfavourable developments in these regions could negatively impact the company’s business, financial condition, operational results, and cash flow.
• Proposed Acquisitions: The promoter entity (an affiliate of Blackstone) currently holds full ownership of IGI India, IGI Netherlands, and IGI Belgium. Under the proposed restructuring, IGI India will acquire IGI Belgium and IGI Netherlands from the promoter for Rs 1,325 crore. Post-acquisition, IGI India will manage the global IGI business, both within and outside India. However, managing an internationally dispersed operation could present challenges, potentially hindering operational efficiencies and adversely affecting business performance or results.

Conclusion: Should You Subscribe to IGI’s IPO?

IGI has demonstrated robust growth in both revenue and profits in recent years, maintaining strong return ratios. As the world’s second-largest diamond certification company, IGI operates in a niche category of independent diamond certification and has established a leadership position in the rapidly expanding lab-grown diamond market.

From a valuation perspective, the IPO is priced at a P/E ratio of 51x based on CY23 earnings. While there are no direct listed competitors for comparison, the valuation seems justified considering IGI’s dominant market position and solid growth trajectory.

The market for loose stones and studded jewellery certification, valued at Rs 4,600-5,400 crore in 2023, is expected to grow at a CAGR of 9-13% from CY23-28. Additionally, the share of lab-grown diamonds, which are 75-80% cheaper than natural diamonds, is projected to grow from 11% in CY23 to 15% by CY28.

Given IGI’s niche positioning, solid track record and strong industry tailwinds, investors may consider subscribing to the IPO with a long-term perspective.

For a deep dive into other IPOs, explore: IPO Corner on Liquide