IPO Size: Rs. 405 cr 

• Rs. 270 cr fresh issue for working capital (Rs. 196 cr)
• Rs. 135 cr offer for sale (OFS) by PE investor SAIF Partners (19% to reduce to 12%), part-exiting nine-year investment at 21% return.

Price band: Rs. 301-317 per share

M cap: Rs. 2,462 cr, implying 16% dilution

IPO Date: Tue 4^th Jul to Thu 6^th Jul 2023, Listing Fri 14^th Jul 2023

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Largest Organised Gold Jeweller in East India

Senco Gold, with 136 showrooms (75 company operated, 61 franchisee), is East India’s largest organized gold jewellery retailer. Of the Rs. 4,077 cr revenue clocked in FY23, 82% came from East and North-East India (70% from West Bengal). It sells lightweight jewellery, with average ticket size of Rs. 50,000. Promoters, 4^th generation jeweller, hold 77% stake and are not selling any shares in the IPO (68% holding post issue).

Sound Fundamentals

With share of higher-margin diamond, semi-precious stone and platinum jewellery rising to 9% in FY23 revenue, it earned Rs. 348 cr EBITDA margin (8.5%). PAT rose 23% YoY to Rs. 158 cr, translating into 3.9% net margin. FY23 RoE stood at 19%, with net worth of Rs. 945 cr and gross debt of Rs. 1,175 cr.  Company’s inventory turnover, the most important matrix in any retailer business, is 2.5x, much higher than Kalyan (2.0x) and comparable to Titan (2.4x). Since fresh issue proceeds will fund working capital needs, Senco’s growth outlook remains healthy, with current margins also looking sustainable.

Lucrative Pricing

On FY23 EPS of Rs. 23, shares are being offered at a historic PE multiple of 14x, which is seen very attractive and at a significant discount to fair value. Kalyan Jewellers, with Rs.14,000 cr revenue, 3.1% net margin and 13% RoE, is trading at a PE multiple of 32x, while 54 stored Thangamayil, having Rs. 3,150 cr revenue and 2.5% net margin is ruling at a PE multiple of 26x. Comparison with Titan’s PE of 80x is futile, as Senco’s size and margins are nowhere near Titan’s Rs.40,000 cr revenue, 8% net margin and 30% RoE. Even TBZ, with Rs. 2,400 cr topline, 2x inventory turnover ratio and 1.7% net margin is ruling at a PE multiple of 14x, making Senco’s IPO at a throw-away price.  

Just 12% Premium in 15 Months

In April 2022, Senco raised Rs. 75 cr from Oman India Joint Investment Fund (OIJIF II) via a private placement, at Rs. 282 per share. The IPO price, at mere 12% premium in 15 months, is extremely reasonable, even based on the last transaction, as FY23 revenue growth was 15% YoY and PAT grew by 23% YoY.  

Conclusion (to be viewed only by the members):

Except for an outlier, most jewellery sector stocks have not rewarded investors in the past. But, occasionally, one does come across good business at an ‘investor-friendly’ pricing. That too, when indices are at life-high!

Senco appears to fall in the latter.