Senco Gold IPO review (Apply)

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Review By Dilip Davda on June 30, 2023

•    SGL is one of the oldest players in the Gold and Diamond Jewellery business.
•    It has a Pan-India presence with 136 showrooms and also has an Omni channel network.
•    The company has posted steady growth in its top and bottom lines for the reported periods.
•    Based on FY23 earnings, the IPO appears reasonably priced. 
•    Investors may consider investment for the medium to long term.

PREFACE:
SGL filed its DRHP in April 2022 for an IPO of Rs. 525 cr. (Rs. 325 cr. fresh equity issue + Rs. 200 cr. OFS) is finally entering the market with a lower size of IPO. It mulls mobilizing Rs. 405 cr. (Rs. 270 cr. for fresh equity + Rs. 135 cr. for OFS). According to the management, the reduction in IPO size is in view of the market conditions. The company is a leader in North, South and Eastern regions enjoying an overall double-digit market share in this segment.  

ABOUT COMPANY:
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 offers costume jewellery, Gold and Silver Coins, and utensils made of silver. SGL is a Pan-India jewellery retail player with a history of more than five decades and has a fourth-generation entrepreneur in the jewellery industry as Promoter. SGL is the largest organized jewellery retail player in the eastern region of India based on the number of stores and among eastern India-based jewellery retailers, it has the widest geographical footprint in non-eastern states (Source: CRISIL Report). 

It primarily sells gold and diamond jewellery and jewellery made of silver, platinum and precious and semi-precious stones and other metals. SGL's other offerings also include costume jewellery, gold and silver coins and utensils made of silver. Its products are sold under the "Senco Gold & Diamonds" tradename, through multiple channels, including 75 Company Operated Showrooms and 61 Franchisee Showrooms (as on March 31, 2023) (including four franchisee-owned and Company operated Showrooms) and various online platforms, including its own website www.sencogoldanddiamonds.com. 

Its strategy of operating through multiple channels enables the company to allocate capital as required, as it continues to expand its geographic presence and work towards an Omni channel network. With a catalogue offering more than 120,000 designs for gold jewellery and more than 69,000 designs for diamond jewellery, it offers a large variety of designs of handcrafted jewellery, most of which are designed and manufactured in-house by its designers in close collaboration with skilled local craftsmen (generally termed Karigars) in Kolkata and across the country. Machine-made lightweight jewellery in gold and diamonds are also manufactured at its manufacturing facility based on designs prepared by in-house designers and also sourced from third-partner manufacturing vendors.

As on March 31, 2023, it has 136 showrooms, which have a total area of approximately 409,882 sq. ft., in 96 cities and towns over 13 states across India. Some of its Franchisee Showrooms are located in areas other than metros and Tier-I, providing it greater reach in Tier-II locations. As of March 31, 2023, it had 2138 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its long waited for maiden (book-building route) combo IPO of fresh equity issue worth Rs. 270.00 cr. (approx. 8517350 equity shares at the upper cap), and an Offer for Sale (OFS) of Rs. 135.00 cr. (Approx. 4258675 equity shares at the upper cap), making an overall IPO size of Rs. 405.00 cr. (Approx. 12776025 equity shares at the upper cap). The issue opens for subscription on July 04, 2023, and will close on July 06, 2023. SGL has announced a price band of Rs. 301.00 - Rs. 317 per equity share of Rs. 10 each. The minimum number of shares to be applied is 47 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 16.45% of the post-IPO paid-up capital of the company. SGL has allocated not more than 50% for QIBs, not less than 15% for NIIs, and not less than 35% for Retail investors.

From the net proceeds of the fresh equity issue, the company will utilize Rs. 196.00 cr. for working capital, and the balance for general corporate purposes.  

IIFL Securities Ltd., Ambit Pvt. Ltd., and SBI Capital Markets Ltd. are the joint Book Running Lead Managers (BRLMs) for this issue, and KFin Technologies Ltd. is the registrar of the issue. 

Having issued/converted initial equity shares at par value (based on Rs. 10 FV), it issued/converted further equity shares in the price range of Rs. 16.56 - Rs. 281.58 per share between March 2007 and June 2023. It has also issued bonus shares in the ratio of 1 for 2 in August 2008, 1 for 6 in October 2012, and 2 for 1 in May 2018. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.52, and Rs. 60.17 per share.  

Post-IPO, SGL's current paid-up equity capital of Rs. 69.15 cr. will stand enhanced to Rs. 77.66 cr. Based on the upper price band of the IPO price, the company is looking for a market cap of Rs. 2461.92 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SGL has (on a consolidated basis) posted a turnover/net profit of Rs.2674.92 cr. / Rs. 61.48 cr. (FY21), Rs. 3547.41 cr. / Rs. 129.10 cr. (FY22), and Rs. 4108.54 cr. / Rs. 158.48 cr. (FY23).  Thus it posted steady growth in its top and bottom lines for the reported financial periods. 

For the last three fiscals, SGL has (on a consolidated basis) reported an average EPS of Rs.19.43 and an average RoNW of 17.73%. The issue is priced at a P/BV of 2.32 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 cap). 

For the last three fiscals, SGL has posted RoE of 10.65% (FY21), 19.43% (FY22), and 18.96% (FY23), and its inventory turnover ratio for these three years stood at 2.50, 2.91 and 2.49 respectively. 

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 15.53. Thus the IPO appears reasonably priced. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, SGL has shown Kalyan Jewellers and Titan Company as their listed peers. They are currently trading at a P/E of 37.54, and 80.52 (as of June 28, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
Three BRLMs associated with this issue have handled 41 issues in the past three fiscals, out of which 15 issues closed below the issue price on the date of listing. 

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