The 405-crore worth initial public offering (IPO) of jewellery retail chain Senco Gold will open for subscription July 4 at a price band of ₹301-317 per share. At the upper end of the band, the IPO will value the company at ₹2,460 crore.
Senco Gold IPO consists of a fresh issue of shares worth ₹270 crore and an offer for sale (OFS) of shares worth up to ₹135 crore by selling shareholder SAIF Partners India IV Ltd which holds 19.23% stake in the company.
The company primarily sells gold and diamond jewelry along with jewelry made of silver, platinum, precious and semi-precious stones, and other metals. The company sells its products under its brand name “Senco Gold & Diamonds”.
It is the largest organized jewelry retailer in eastern India when considering the number of stores. The company runs 136 showrooms across 96 cities and towns in 13 states in India.
Before investing in the Senco Gold IPO, it is essential to take a look at the key risk factors that the company has highlighted in its red-herring prospectus.
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Taxation and criminal proceedings
Senco Gold has been subject to a ‘search and seizure’ operation conducted by the income tax department in January 2027, which has resulted in taxation and criminal proceedings being initiated against the company and its individual promoter.
As per the RHP, the company has also been subject to an on spot search from the Directorate General of Central Excise Intelligence, Kolkata along with show cause notice.
Further, a search has also been conducted by the customs department at its registered and corporate office in relation to an investigation against one of its job workers and vendors and a spot summons was issued to the company.
Any adverse outcome of such proceedings might have an adverse effect on our business, financial condition and results of operations, the company said in its RHP.
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Legal and regulatory proceedings
Senco Gold and its Directors and Promoters are involved in certain legal and regulatory proceedings. These proceedings are pending at different levels of adjudication before various courts, tribunals, quasi-judicial authorities and appellate tribunals.
Agreement with DeBeers
The company had entered into an agreement with DeBeers in 2015, renewed on an annual basis for supply of diamonds and sale of ‘Forevermark’ diamonds, studded in jewellery sold by it through certain of its showrooms.
In terms of the agreement, Senco Gold is obligated to maintain minimum inventory levels of certain ‘Forevermark’ jewellery and is required to pay minimum fees to DeBeers. The terms of this agreement may compel it to maintain levels of diamond jewellery in excess of its requirements or make payment of minimum amounts, irrespective of sales of associated diamond jewellery.
Failure to meet these obligations under these agreements may subject it to minimum payments, penalties and associated reputational risk. Further, the termination of its agreements with DeBeers may cause it to seek other more viable alternatives or to stop sale of certain designs or kinds of jewellery altogether.
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Heavy dependency on gold
The company’s revenues have been significantly dependent on the sale of gold jewellery, which accounted for 89.69%, 91.53% and 91.90% of its total revenue from operations for fiscals 2023, 2022 and 2021, respectively.
The company’s business and financial conditions may be negatively impacted due to any factors adversely affecting the procurement of gold or its sales of gold jewellery.
Price volatility
Volatility in the market price of gold and diamonds has a bearing on the value of the company’s inventory and may affect its income, profitability and scale of operations.
Though an increase in the price of gold may result in an increase in income from inventory held for sales, but a significant increase in the price of gold or a negative outlook on future gold prices could adversely affect company’s sales volumes in short term, as per SBI Securities.
Regulatory risks
The company obtains gold on loan basis, primarily from bullion banks which remains subject to RBI regulations. Thus, there is a risk of any adverse change in the regulations governing gold on loan basis.
High competition
Senco Gold faces significant competition in the Indian jewellery market, and risks losing a substantial portion of its customers and its market share. The company has highlighted Titan Company Ltd and Kalyan Jewellers India as its listed peers.
Along with these, Senco Gold has listed many other internal and external risks that may affect its business and profitability going ahead.
About Senco Gold IPO
IIFL Securities, Ambit Capital and SBI Capital Markets are book-running lead managers for the issue, while Kfin Technologies is the IPO registrar.
The company has reserved 50% of the equity shares for qualified institutional bidders (QIBs), while 15% for non-institutional investors (NIIs) in the IPO. Remaining 35% of the equity shares has been allocated to the retail investors.
The company’s promoters are Suvankar Sen, Jai Hanuman Shri Siddhivinayak Trust, and Om Gaan Ganpataye Bajrangbali Trust.
Meanwhile, Senco Gold reported a revenue of ₹4,077.40 crore in FY23 as against ₹3,534.64 crore a year ago. Its net profit for the year stood at ₹158.48 crore as compared to ₹129.10 crore last year.
The company has delivered consistent revenue growth, profitability and Return on Equity (RoE) over the last three years. The company’s topline and bottomline has grown at a 3-year CAGR of 19% and 20%, respectively.
Analyst’s take
Analysts at SMIFS Ltd say Senco Gold IPO is attractively priced and the company, 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 structural shift from un-organised to organised sector.
“Company has demonstrated one of the best financial performances among peers. Hence, based on current performance, we assign Subscribe for listing gain. At higher price band, Senco is commanding a P/E multiple of 13.9x (on FY23 EPS on upper price band), which is lower than the peer average,” the analysts at SMIFS Ltd said in a report.
Senco Gold IPO GMP
Senco Gold IPO GMP or grey market premium is ₹60, as of June 30. The shares of Senco Gold are trading at a premium of ₹60 in the grey market, as per market observers.
Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
