Kalyan Jewellers IPO review (May apply)

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Review By Dilip Davda on March 11, 2021

•    KJIL the second mega player in the retail jewellery showrooms business.
•    It suffered a setback for FY19 following natural calamities in southern regions.
•    Due to pandemic, it also suffered set back for FY21-9M and marked losses.
•    The issue is having negative P/E considering the latest negative performance.
•    Risk savvy, cash surplus investors may consider investment at their own risks.

ABOUT COMPANY:
Kalyan Jewellers India Ltd. (KJIL) is one of the largest jewellery companies in India based on revenue as of March 31, 2020, according to the Technopak Report. It has since expanded to become a pan-India jewellery company, with 107 showrooms located across 21 states and union territories in India, and also have an international presence with 30 showrooms located in the Middle East as of December 31, 2020. All of its showrooms are operated and managed by themselves.

KJIL intends to continue to open additional showrooms as it expects significant opportunity for further penetration in existing markets as well as in new markets, primarily in India. The company also sells jewellery through our online platform at www.candere.com.

KJIL designs, manufactures and sells a wide range of gold, studded and other jewellery products across various price points ranging from jewellery for special occasions, such as weddings, which is our highest-selling product category, to daily-wear jewellery.

The company's domestic showrooms covered a total aggregate area of 465235 sq. ft. and Middle East showrooms covered a total aggregate area of 38056 sq. ft. For the FY18 to FY20 and 9 months period ended on December 31, 2020, the company's advertisement spending was in the range of 2.07% to 3.04%.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 600 cr.) and general corpus funds, KJIL is coming out with its maiden combo IPO of fresh equity issue worth Rs. 800 cr. and an offer for sale (OFS) of Rs. 375 cr. taking the total issue size to Rs. 1175 cr. It has fixed a price band of Rs. 86 - Rs. 87 per share for shares having a face value of Rs. 10 per share. The company will be issuing 91954124 as fresh equity shares and 43103448 shares as OFS (total 135057572 shares). The Minimum application is to be made for 172 shares and in multiples thereon, thereafter.  The issue opens for subscription on March 16, 2021, and will close on March 18, 2021. The issue constitutes 13.11% of the post issue paid-up capital of the company. The company has reserved shares worth Rs. 2 cr. For eligible employees and offering a discount of Rs. 8 per share to them. From the residual portion, the allocation of IPO quota is 50% for QIBs, 15% for HNIs and 35% for Retail investors.

Having issued initial equity at par, KJIL issued further equity in the price range of Rs. 50.58 to Rs. 100 per share (FV of Rs. 10 per share) between March 2011 and March 2021. It has also issued bonus shares in the ratio of 9 for 1 in October 2014. The average cost of acquisition of shares by the promoters and selling shareholders is Rs. NIL, Rs. 0.04, Rs. 0.31 and Rs. 56.61 per share.

KJIL's current paid-up equity capital of Rs. 938.10 cr. will stand enhanced to Rs. 1030.05 cr. Based on the upper price band of the issue, the company is looking for a market cap of Rs. 8961.46 cr.

Book Running Lead Managers (BRLMs) for this issue are Axis Capital Ltd., Citigroup Global Markets India Pvt. Ltd., ICICI Securities Ltd., SBI Capital Markets Ltd., and BoB Capital Markets Ltd. While Link Intime India Pvt. Ltd., is the registrar to the issue. Post allotment, shares will be listed on BSE and NSE.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, KJIL has (on a consolidated basis) posted total income/net profits (loss) of Rs. 10580.02 cr. / Rs. 141.00 cr. (FY18), Rs. 9814.03 cr. / Rs. - (4.86) cr. (FY19) and Rs. 10181.02 cr. / Rs. 142.28 cr. (FY20). For the first nine months of FY21 ended on December 31, 2020, it has incurred a loss of Rs. - (79.95) cr. on a turnover of Rs. 5549.80 cr. Thus, based on 9M-FY21, the issue is having negative P/E.

For the last three fiscals, KJIL has (on a consolidated basis) posted an average EPS of Rs. 0.98 and an average RoNW of 4.46%. The issue is priced at a P/BV of 3.97 based on its NAV of Rs. 21.94 per share as of December 31, 2020, and at a P/BV of 3.14 based on post issue NAV of Rs. 27.75 (at the upper price band).

Based on FY20 earnings the issue is priced at a P/E of 63.04 (based on fully diluted equity post issue). But considering its negative earnings for FY21-9M, it is at a negative P/E.

COMPARISION WITH LISTED PEERS:
As per offer documents, KJIL has shown Titan Company Ltd. as its listed peer. It is currently trading at a P/E of around 172.88. (as of March 10, 2021). However, it is not truly comparable on an apple-to-apple basis. There is a big difference between this No. 1 (Titan) and No.2 (Kalyan) players on the financial parameters i.e., total turnover, RoNW, NAV etc.

DIVIDEND POLICY:
The company has paid a dividend for the last four fiscals including the ongoing one. For FY18 it paid 55% on pre-bonus equity. After that, it paid a dividend on ex-bonus equity at 10% for FY19 and FY20 and 15% for FY21. The company has paid a dividend of 0.001% of CCPS for all these years. However, the company is confident of maintaining a prudent dividend policy going forward.

BRLM'S TRACK RECORDS:
The five Book Running Lead Managers associated with the offer have handled 32 public issues in the past three financial years out of which 11issues closed below the offer price on the listing date.

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