Senco Gold Ltd IPO: For short, medium-term gains

Senco Gold Ltd is tapping the capital markets with its fresh issue of Rs270 crore and an offer for sale (OFS) of Rs135 crore. The issue opens for subscription on July 4 (Tuesday) and closes on Thursday (July 6). The price band of the issue is Rs301-317.

The company as the name suggests is into the business of selling gold, diamonds and platinum jewellery besides gold and silver coins and also jewellery made from precious and semi-precious stones. The company is very strong in its presence in the Eastern part of India. It has 108 stores which are company owned and franchise owned in East and North East. On a pan-India basis Senco has 136 showrooms which include, 75 owned and operated, 61 operated on franchisee basis. The company has added 24 showrooms in the last two years of which 15 were company owned and 9 were franchisee owned. Going forward the rate of opening new showrooms would be on a similar basis if not higher.

Senco has introduced differentiated jewellery for different customer segments. It has D’Signia which is the premium segment and the average ticket size is Rs51,000. The standard range has a ticket size of Rs48,000. It has a brand Everlite for the younger generation and upwardly mobile, where the ticket size is Rs28,000. All jewellery sold by Senco come with hallmarking, something which brings trust between the customer and the company. It has a loyalty program, attractive exchange policy, free insurance for one year for higher value jewellery purchase and many more customer friendly schemes and initiatives.

Senco is a leading jeweller chain from West Bengal and dominates the retail business amongst its peer group in West Bengal and the North East. It is spreading itself across the country and is currently present in 13 States and Union Territories (UTs).

The company would be focusing on growing the franchise business as it is asset light and leads to growth without capex. The Senco franchisee model envisages upfront inventory sale to the franchisee and nil investment in the new store. Against this, in a company store there is a capital expenditure of around Rs1.5 crore in creating the interiors besides the cost of inventory. The inventory turn ratio for Senco is about 2.5 times, which is a decent number when compared to the industry. Titan which is the industry leader leads on this parameter as well and is about 2.62 times.

In terms of the revenue mix from company owned and franchise owned stores, the same was 65 per cent for company owned and 21.5 per cent for franchisee owned for the financial year ended March 23. The company has an omni-channel distribution model with products available on-line, through Digi-gold where one can buy gold digitally and many more such customer friendly initiatives. They use 3-D printing for making templates of the designs, which help in reducing metal wastage when making jewellery.

The company reported revenues of Rs4,108 crore for the year ended March 2023. The company had a profit after tax of Rs158.47 crore for the year ended March 2023. The EPS on a fully diluted basis was Rs22.87. The PE multiple on this fully diluted basis EPS is an attractive 13.16-13.86 times. Considering its peer set, markets at lifetime highs, the price that the company is asking for its shares is fair.

In conclusion, a decent brand with a strong presence in its home base Eastern India, and growing across the nation is offering its shares to the public. They have gone through the private equity route twice, the first time in 2014 and then in 2022. This ensures that systems, corporate governance are in place and make prospective investors comfortable. With the asking price reasonable, this offers ample scope for appreciation in the short and medium term.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)