IPO Analysis: Kalyan Jewellers

IPO rating- Invest for listing gains 

About the issue 

The company is entering the capital market with its initial public offering (IPO) of equity shares of the face value of Rs 10 each. The public issue comprises a fresh issue of equity shares worth Rs 800 crore and offer-for-sale (OFS) of up to Rs 375 crore. The price band of the issue has been fixed at Rs 86 to Rs 87 per equity share. The IPO opens on March 16, 2021, while it closes on March 18, 2021. The issue may list on March 26, 2021. The IPO market lot size is 172 shares. A retail-individual investor can apply for up to 13 lots. Half of the issue is reserved for qualified institutional buyers, 35 per cent for retail investors and 15 per cent for non-institutional bidders. The objective of the offer is to finance business working capital requirements and also, to meet general corporate purposes. 

About the company 

Kalyan Jewellers started its jewellery business in 1993. It has expanded to become a pan-India jewellery company with 107 showrooms across 21 states & union territories in India. It is one of India's largest jewellery companies. The company has an international presence with 30 showrooms in the Middle East as of December 2020. As of December 2020, 72 out of its total 137 showrooms are located outside of South India. All of its showrooms are operated and managed by the company itself. The key business activities of the company are to design, manufacture & sell a variety of gold, studded and other jewellery products for various occasions such as wedding, festivals, etc. The company also sells jewellery via its online platform, candere.com.

Strengths 

One of India's largest jewellery companies (with a pan-India presence) on the basis of revenue for the year ended March 2020. 

The company's hyperlocal strategy enabled it to cater to a wide range of geographies and customer segments. 

It has a wide range of product offerings targeted at diverse set of customers. 

Strong network distribution with global outreach. 

Financials 

Kalyan Jewellers reported a profit of Rs 142.27 crore for the year ended March 2020 against a loss of Rs 4.86 crore in FY19 and a profit of Rs 141 crore in FY18. Revenue in FY20 grew by 3.4 per cent YoY to Rs 10,100.9 crore. In FY19, its revenue fell by 7.4 per cent YoY to Rs 9,770.76 crore. In the nine-month period ended December 2020, the company posted a loss of Rs 79.95 crore against profit of Rs 94.3 crore in the corresponding period. In the same period, revenue declined sharply by 30.7 per cent to Rs 5,516.70 crore. Indian jewellery business contributed 78.19 per cent to the company's revenue in FY20 while its exports accounted for 21.81 per cent. For the nine-month period ended December 2020, contribution of domestic business to revenue stood at 86.21 per cent and exports at 13.79 per cent. The company had a total borrowing of Rs 2,691 crore at the end of December, which are mostly short-term borrowings for working capital requirement. 

Valuation & recommendation  

Kalyan Jewellers plans to leverage its scalable business model to expand showroom network and diversify channels of distribution. It also intends to widen product offerings to further increase consumer reach. The company is focussing on customer relationship management, strategies, campaigns and technologies to analyse & manage customer interactions as well as related data throughout the customer lifecycle, for building customer retention and driving sales. At the upper price band of Rs 87, the company is demanding a market capitalisation of Rs 8,961 crore, valuing it at 58 times FY20 diluted earnings. Titan trades at 85 times FY20 earnings given its superior performance. Kalyan Jewellers is expanding pan-India to take advantage of organised sector growth. It has focussed on advertising, top-notch retail stores outlet for building trust, and localising the design for winning customers. Going forward, we believe that Kalyan Jewellers would perform better on the back of a strong brand and also, due to its number of stores in India & internationally. Thus, we recommend a subscribe rating on the issue.