Motisons Jewellers Ltd IPO

Risks

• The company is heavily dependent on third parties for supplying its products. The company may be unable to maintain or establish formal arrangements with such third parties, and any disruptions at such third-party production or manufacturing facilities and their supply chains arrangements, or failure of such third parties to adhere to the relevant quality standards may have a negative effect on its reputation, business and financial condition.

• Its Promoters, Sanjay Chhabra and Sandeep Chhabra, in past, were involved in proceedings initiated by investigation agency in relation to betting in the cricket matches of Indian Premier League. Though they have been duly discharged, any re-opening of matter could have an adverse impact on its business and reputation.

• Four (4) of its Promoters, Sanjay Chhabra, Sandeep Chhabra and Kajal Chhabra and Motisons Entertainment (India) Private Limited and three (3) members of its Promoter Group, Motisons Shares Private Limited and Motisons Commodities Private Limited and Bholenath Real Estate Private Limited, are involved in proceedings involving SEBI and/or the Stock Exchange and other regulatory authorities. In the event SEBI or any other regulatory authority passes any unfavorable order imposing a penalty or debarment of the four (4) promoters or three (3) members of its Promoter Group from accessing the capital market, the same may have an impact on the business and reputation of the Company.

• In the past, two (2) of its Promoters, Sanjay Chhabra and Sandeep Chhabra and eight (8) of its Promoter Group Members have contravened the provisions of the SEBI Act and Regulations made thereunder for which SEBI imposed penalties in nature of fine amounting to Rs. 5,00,000 each on its Promoters and the total fine of Rs. 34,00,000 on eight (8) members of its Promoter Group and temporary debarment from accessing capital market of its promoter group company Motisons Commodities Private Limited during the period 20.08.2015 to 05.04.2018. Post 05.04.2018, there were no debarment of any promoter or member of promoter group or any directors. In one (1) matter, its two (2) Promoters have been acquitted also. If any such violation occurs in future, it may affect its goodwill and future aspects.

• The company has availed unsecured loans from its promoters and members of promoter group carrying 11.60% Average Rate of Interest and secured loans from scheduled commercial banks and FIs carrying 8.58% Average Rate of Interest. Its making prepayment of borrowings other than auto loans from scheduled commercial banks from the proceeds of IPO carrying lessor Rate of Interest over borrowings availed from promoter and promoter group.

• All its four (4) showrooms are in one geography namely Jaipur, Rajasthan. Any adverse development affecting such a region may have an adverse effect on its business, prospects, financial condition, and results of operations.

• All its four (4) showrooms, including its registered office and one of its manufacturing facilities are taken on lease from the company promoters and members of its promoter group and the Company pays Rs. 285.80 Lakhs annually towards the lease or rent of these properties to its promoters and members of the company promoter group.

• The company face competition in the markets in which its operate and may not be able to effectively compete in the future.

• Under-utilization of manufacturing capacity may have a negative impact on the future financial condition of the Company.

• Any customer complaints or negative publicity or concerns pertaining to purity and quality of its gold/ jewellery, making charges or hall markings or relating to any failure in its quality control processes, may have an adverse effect on its business, brand, results of operations and financial condition.

• The company has in the past entered related party transactions and may continue to do so in the future.

• All its four (4) showrooms, including the company registered office and one of its manufacturing facility are on lease premises owned by its promoters and promoter group companies and one of which is located in residential area. If the company fail to renew these leases or if its unable to manage its lease rental costs and any objection by competent authority/resident for carrying commercial activity on residential area, its results of operations would be materially and adversely affected.

• The company could face customer complaints or negative publicity about its customer service.

• If the low-capacity utilization of its manufacturing units continues, the component of the costs in the operations of the manufacturing units as on June 30, 2023 and March 31, 2023 amounts to Rs. 21.32 Lakhs and 91.57 Lakhs which is 0.25% and 0.23% of our total revenue. This will adversely affect the profits of the company, ultimately impacting its financial strength and it would lead to increasing dependency on the performance of its trading business.

• Its ability to attract customers is dependent on the success and visibility of the company showrooms.

• The company has significant working capital requirements which are funded 53.15%, 53.80%, 55.87%, and 57.39% through borrowings for the period June 30, 2023, and for the fiscal years 2023, 2022 and 2021. If its unable to secure adequate borrowings on commercially reasonable terms it could have a material adverse effect on its business, financial condition and results of operations.

• Its inventory holding is 381.31%, 87.47%, 90.27% and 112.58% of its revenue and the company Inventory turnover days are 417, 364, 360 and 494 for the period ending on June 30, 2023, and for the fiscal years 2023, 2022 and 2021. High inventory holdings and inventory turnover days will affect its ability to respond to changes in consumer demands and market trends in a timely manner, which may impact its operations adversely.

• The Company has availed unsecured loans from Promoters, Directors, Promoter Group entity, Group Companies and other companies, aggregating to Rs. 11,225.41 Lakh as of June 30, 2023, that are repayable on demand, and which may be recalled by such lenders at any time. The Company has paid interest ranging from 9% p.a. to 12% p.a. on these loans. The funds were utilized to meet its working capital requirements, as certified by the company Statutory Auditor. However, if lenders demand repayment, its may face difficulty finding alternative sources of financing, which could negatively impact its business, financial condition, and results of operations.

• Its failure to recoup funds that have been designated as debts and payment defaults from its debtors may negatively impact the company operational performance.

• Seven (7) of its Promoters and two (2) members of its Promoter Group have provided personal/ corporate guarantees for secured loan facilities obtained by it, and any failure or default by the company to repay such loans could trigger repayment obligations on its Promoters and members of the Promoter Group, which may also impact its Promoter`s ability to effectively service its obligations as its Promoter and thereby, adversely impact the company`s business and operations.

• The company in past made delays in making timely payment of Provident Fund contributions for all eligible employees. This non-compliance with statutory obligations may lead to potential legal and financial repercussions, including penalties, interest charges, and possible litigation. This could impact its ability to attract and retain talent, operational continuity, and overall business performance.

• The Company, Promoters and Directors are involved in certain legal proceedings. Any adverse decision in such proceedings may render it/them liable to liabilities/penalties and may adversely affect its business and results of operations.

• The strength of its brand is crucial to the company`s success, and its may not succeed in continuing to maintain and develop its brand. The company Expenditure on advertisement & brand promotion expenses - Print Media, Electronic, Digital etc. is 0.04%, 0.20%, 0.21% and 0.11% of its revenue for the period ended on June 30, 2023 and for the Fiscal Years ended on March 31, 2023, 2022 and 2021.

• High inventory costs may adversely impact its business and financial conditions of the Company.

• The Company anticipates a projected working capital requirement of Rs. 36,721.49 lakhs in the fiscal year 2023-24, reflecting a notable increase of 24.09% from the preceding year. This augmentation primarily stems from elevated levels of inventories and other financial and current assets, coupled with a reduction in trade payables.

• Certain sections of this Red Herring Prospectus disclose information from the industry report which has been commissioned and paid for by it exclusively in connection with the Issue and any reliance on such information for making an investment decision in the Issue is subject to inherent risks.

• Its management will have deploy net proceeds pending utilization for objects to issue in scheduled commercial banks and there is no assurance that the objects of the Issue will be achieved within the time frame expected or at all, or that the deployment of the Net Proceeds in the manner intended by it will result in any increase in the value of your investment. Any variation in the utilisation of the Net Proceeds or in the terms as disclosed in the Red Herring Prospectus would be subject to certain compliance requirements, including prior shareholders` approval.

• The agreements governing its indebtedness contain conditions and restrictions on the company operations, additional financing and capital structure.

• The company is required to obtain, renew or maintain certain statutory and regulatory permits and approvals required to operate its business. Non-compliance with existing or changes to environmental, health and safety, labour laws and other applicable regulations by it may adversely affect its business, financial condition, results of operations and cash flows.

• The occurrence of natural or man-made disasters or outbreak of global pandemics, such as the COVID-19 pandemic, could adversely affect its results of operations, cash flows and financial condition. Hostilities, terrorist attacks, civil unrest and other acts of violence could adversely affect the financial markets and its business.

• Any failure of or disruption to its information technology systems could adversely impact the company`s business and operations.

• Its income and sales are subject to seasonal fluctuations and lower income in a peak season may have a disproportionate effect on its results of operations.

• The non-availability or high cost of quality gold bullion and other precious and semi-precious stones may have an adverse effect on its business, results of operations and financial condition.

• Its business depends on the company Promoters and senior management and its ability to attract and retain sales personnel.

• Its may not be able to protect the company trademarks from infringement.

• The company may fail to protect its jewellery designs.

• Most of its Directors does not have any prior experience of being a director in any other listed company in India.

• Its Promoter, Directors or key management personnel have interests in the Company, other than reimbursement of expenses incurred or normal remuneration or benefits.

• Its may be subject to fraud, theft, employee negligence or similar incidents.

• Its may be subject to labour unrest, slow downs and increased wage costs.

• Its insurance may be insufficient to cover all losses associated with its business operations.

• If the company is unable to protect credit card or debit card data or any data related to any other electronic mode of payment, or any other personal information that its collect, the company reputation could be significantly harmed.

• The company has contingent liabilities.

• Certain of its Promoters are directors of many other entities and the activities of such companies may cause diversion of their attention from the Company. Further, any conflict of interest which may occur between its business and the activities undertaken by such entities could adversely affect its business and prospects. Conflicts of interest may arise out of common business objects between the Company and Group Companies.

• Its ability to pay dividends or conduct share buybacks in the future will depends upon its future earnings, financial condition, cash flows, working capital requirements and capital expenditures and lender consents and its cannot assure you that the company will be able to pay dividends or conduct Share buybacks in the future.

• The company has included certain non-GAAP financial and operational measures related to its operations and financial performance that may vary from any standard methodology that may be applicable across the industry in which the company operate, and which may not be comparable with financial, operational or industry related statistical information of similar nomenclature computed and presented by similar companies.