IPO Analysis: Senco Gold Limited

IPO Rating: Apply for long term

About the issue:

Incorporated in 1994, Senco Gold Limited is a pan-India jewellery retailer. The products are sold under its brand name "Senco Gold & Diamonds". The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 301 to Rs 317 per equity share. The issue size is Rs 405 crore at a higher price band.

The IPO opening date is July 04, 2023, and it will be closing on July 06, 2023. The issue is likely to be listed on the exchange on July 14, 2023. The IPO market lot size is 47 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (611 shares or Rs 193,687) at the upper price band.

Objects of the Issue

The company proposes to utilise the net proceeds towards funding the following objects:

1. Funding working capital requirements of the company, and
2. General corporate purposes.

Promoter holding

The pre-issue shareholding is 76.92 per cent, post the IPO the promoter stake will be 68.48 per cent.

Company Insights

Senco Gold Ltd (SGL) is engaged in selling Gold and Diamond Jewellery and Jewellery made of Silver, Platinum and precious and semi-precious stones and other metals. It also sells costume jewellery, Gold and Silver Coins, and silver kitchenware. SGL is a Pan-India jewellery retail company with a more than five-decade history and a fourth-generation entrepreneur in the jewellery sector as Promoter. SGL is the largest organised jewellery retail player in the eastern part of India in terms of store count, and it has the largest geographical footprint in non-eastern states among eastern India-based jewellery retailers.

It primarily sells jewellery made of gold and diamonds, as well as silver, platinum, precious and semi-precious stones, and other metals. Costume jewellery, gold and silver coins, and silver utensils are all available at SGL. Its products are sold under the "Senco Gold & Diamonds" brand through a variety of channels, including 75 Company Operated Showrooms and 61 Franchisee Showrooms (as of March 31, 2023), as well as various online platforms, including its own website, www.sencogoldanddiamonds.com.

Its strategy of operating through several channels allows it to allocate cash as needed as it expands its geographic presence and works towards an Omni channel network. With a catalogue that includes more than 120,000 designs for gold jewellery and 69,000 designs for diamond jewellery, it offers a wide range of handcrafted jewellery designs, the majority of which are designed and manufactured in-house by its designers in close collaboration with skilled local craftsmen (known as Karigars) in Kolkata and across the country. Machine-made lightweight gold and diamond jewellery is also produced at its facility, based on designs prepared by in-house designers as well as third-party manufacturing vendors.

As of March 31, 2023, it had 136 showrooms in 96 cities and towns throughout 13 states, with a total size of approximately 409,882 sq. ft. Some of its Franchisee Showrooms are located outside of metros and Tier-I cities, giving it a larger presence in Tier-II markets.

Financial

On the financial performance front, for the last three fiscals, SGL has (on a consolidated basis) posted a revenue/net profit of Rs 2,674.92 crore /Rs 61.48 crore (FY21), Rs 3,547.41 crore/Rs 129.1 crore (FY22), and Rs 4,108.54 crore/Rs 158.48 crore (FY23).

Valuation and Outlook

If we attribute FY23 earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 15.53x. The issue is priced at a P/BV of 2.32x based on its NAV of Rs 136.83 as of March 31, 2023, and at a P/BV of 2.03 based on its post-IPO NAV of Rs 156.51 per share (at the upper band). Hence, the IPO appears reasonably priced.

The company paid dividends of 15 per cent for FY21 to FY23. It will adopt a prudent dividend policy based on its financial performance and future prospects.

The company has shown Kalyan Jewellers and Titan Company as its listed peers in its offer document. If we compare the P/E of its peers, they are currently trading at 37.54x and 80.52x, respectively. Hence, we recommend subscribing to the issue for the long term.