The ₹405-crore initial public offering (IPO) of jewellery maker Senco Gold kicked off for subscription on Tuesday, July 4, 2023, and will close on July 6. The price band for the IPO has been set in the range of ₹301-317 per share. This is the first IPO for the month of July and the second half of the current calendar year.
Subscription: The issue was subscribed 25 percent at 12: 20 pm on Day 1 of bidding. The company has received bids for 21.95 lakh shares against 89.43 lakh shares on offer.
The part reserved for retail investors was subscribed to the most, 43 percent, followed by the non-institutional investors' (NII) quota, which saw a 15 percent subscription. Meanwhile, the qualified institutional buyers' (QIB) portion did not see any bids till now.
GMP: The company's shares traded at a premium of ₹122 in the grey market on Tuesday, indicating a strong demand for the IPO as well as a robust listing.
However, one must note that grey market premium is only an indicator of how the company's shares are performing in the unlisted market and can change quickly.
About the IPO: The offer comprises a fresh issuance of shares worth ₹270 crore and an offer-for-sale (OFS) of ₹135 crore by investor SAIF Partners India IV.
Lot size: Investors can bid for a minimum of 47 equity shares and in multiples of 47 shares thereafter. At the upper end of the price band, retail investors would have to invest ₹14,899 for one lot. A retail investor can invest in up to 13 lots.
Objective: The net proceeds from the issue shall be utilized towards funding the working capital requirements of the company, and general corporate purposes.
Anchor investors: A day ahead of its IPO, the company raised ₹121.50 crore from 21 anchor investors by allocating 38,32,807 equity shares at ₹317. Anchor investors included Ashoka Whiteoak Emerging Markets Trusts, Jupiter India Fund, Sundaram Mutual Funds, Bandhan Emerging Business Fund, Templeton India, and 3P India Equity Fund among others.
Reservation: Half of the issue size is reserved for qualified institutional buyers (QIBs), 15 percent for HNIs (non-institutional investors) and the rest 35 percent for retail investors. Of the QIB, 60 percent is reserved for anchor investors.
About the firm: Incorporated in 1994, Senco Gold Limited is a pan-India jewellery retail player with a legacy of more than five decades. It is the largest organised jewellery retail player in the eastern region of India based on a number of stores and among eastern India-based jewellery retailers, they have the widest geographical footprint in non-eastern states. The company primarily sells gold and diamond jewellery as well as jewellery made of silver, platinum and precious and semi-precious stones, other metals, costume jewellery, gold & silver coins and utensils made of silver. The company has a network of 136 stores as on Mar’23 out of which 75 are company-operated and 61 are franchisee showrooms. The products are sold under its brand name 'Senco Gold & Diamonds'.
Financials: Over FY21-23, the company’s revenue, EBITDA and adj PAT have grown at a CAGR of 23.8 percent, 34.4 percent, and 60.6 percent, respectively. The company witnessed a 200 bps gross margin expansion over FY21-23 to 16.1 percent due to an increase in the share of margin accretive diamond and precious stones to overall revenue (from 5.1 percent to 6.8 percent over FY21-23). EBITDA margin also expanded by 120 bps over FY21-23 to 7.8 percent.
Return ratios are also healthy with average RoE and RoCE of 14.9 percent and 11.9 percent during FY21-23. Average net asset turnover during FY21-23 was at 14.3x.
For the financial year FY23, the company posted a net profit at ₹158.48 crore versus ₹129.10 crore in FY22, while its total revenue stood at ₹4,108.54 crore in FY23 as against ₹3,547.41 crore in the previous financial year.
Important dates: The finalisation of the allotment basis will take place by July 11 and the company will be listed on the bourses on July 14.
Book-running managers: IIFL Securities, Ambit Capital and SBI Capital Markets are book-running lead managers to the issue, while Kfin Technologies has been appointed as the registrar.
What do brokerages say?
Most brokerages have assigned a ‘subscribe’ rating to the issue on the back of a strong brand name and a five-decade legacy. Strong financial performance, robust growth outlook and the attractively priced IPO also kept the brokerages positive.
Senco with its strong brand name and a legacy of over five-decade is well placed to benefit from the expected growth rate in the jewellery industry and also benefit from the structural shift from un-organised to organised sector. The company has demonstrated one of the best financial performances among its peers. Hence, based on current performance, we assign SUBSCRIBE for listing gain. At the higher price band, Senco is commanding a P/E multiple of 13.9x (on FY23 EPS on the upper price band), which is lower than the peer average. Thus the IPO is attractively priced.
Geojit Financial Services: Subscribe
At the upper price band of ₹317, Senco is available at a P/E of 15.5 times FY23, lower than industry peers' valuations. Improving economic growth, rising urbanisation, increasing disposable income levels, and mandatory hallmarking is positive for the organized players. We have a 'subscribe' rating for the issue on a medium-to-long-term basis.
Choice Broking: Subscribe
At a higher price band, Senco is demanding a P/E multiple of 15.5 times to its FY23 earning, which is at a discount to the peer average. Considering its dominant market position in eastern India, diversified product offerings and well-managed operations, we are optimistic on the company’s medium-term outlook. We have a 'subscribe' rating for the issue.
Canara Bank Securities: Subscribe for listing gains
Senco's past financial performance is also robust as its revenue and profit after tax have grown by 24 percent and 61 percent in terms of 2-year CAGR, respectively. The debt to equity of the company stands at 1.25 times for FY2023 as compared to the industry average of 0.80 times, which can create pressure on future prospect. We have a 'subscribe for listing gains' rating.
Reliance Research: Not Rated
On FY23 financials, the IPO is valued at 15.5x P/E, 10.1x EV/EBITDA and 0.8x EV/Sales, at the upper price band, which seems reasonable for the company. While the company’s financials have improved over the last 2 years, its higher concentration in the Eastern region pauses the challenge. As the diamond jewellery market is relatively unorganised, expansive product offerings and the plans to venture into other regions in the country to improve its brand recall and customer base would take some more time for the company. On the other hand, market growth provides an opportunity for expansion going ahead. The current valuation leaves limited upside. We believe it is more or less fairly valued.