After a strong listing on bourses, shares of Senco Gold saw some profit booking, which was on the expected lines. Most analysts were also of the opinion that selling a part of the allotment was a good idea even as the long-term growth prospect for the firm looks solid.
The Kolkata-based jewellery retailer listed at a 35.96 percent premium on July 14 at Rs 431 apiece. As of 12 noon, it traded at Rs 410, down about 5 percent from the listing price.
“We recommend booking partial profit and holding the remaining allotment for the long term as the company has a strong brand name with heritage and a legacy of over five decades,” said Astha Jain, Senior Research Analyst at Hem Securities. “We like the business model of the company & growth rate at which the company has grown its topline and bottomline over the period of time. Also, looking after the peer comparison, we find valuations reasonable too.”
Senco’s shares were issued at a discount to listed peers based on FY23 financials. At about 15 times its earnings, Seco Gold was available much cheaper than Titan’s 83.5x P/E and Kalyan Jewellers’s 35x during the initial public offer.
No wonder the issue received an overwhelming response from investors, subscribing over 73 times during July 4-6, the second highest subscription after Ideaforge Technologies in the current calendar year. This also led to demand during the listing.
“While we have a positive view of the stock, we do not recommend a fresh buy on listing day, as the stock is likely to be priced at a higher premium,” said Anubhuti Mishra, Equity Research Analyst at Swastika Investmart. “However, existing investors can hold the shares for the long term, as the company has good growth prospects.”
The company’s financials were also robust, said analysts, adding that its dominant market position in eastern India, diversified product offerings and well-managed operations were some of the positive drivers. However, a high working capital requirement was a key risk.
Analysts at Choice Broking forecast an 8.5 percent CAGR expansion in the jewellery showroom network and an 8.1 percent CAGR increase in the retail sales area under operations over FY23-25. It expects consolidated operating revenue to be at Rs 5,334.2 crore in FY25, a growth of 14.4 percent CAGR from FY23 level. EBITDA (earnings before interest, tax, depreciation and amortisation) and PAT are likely to expand by 26bps and 17bps, respectively, to at 8 percent and 4.1 percent in FY25, the brokerage said.
Prashanth Tapse, Senior VP Research at Mehta Equities, said that reasonably discounted ask valuations are leaving something on the table for new investors when compared to its peers. However, he also sees few risks in highly competitive sectors, fragmented and regulated businesses.
“Hence considering historic industry trends and economic rationales in the segment of Gold and Diamond Jewellery business, we recommend allotted investors to book profits if the stock delivers 40 percent returns,” Tapse said.
Manish Chowdhury, Head of Research at StoxBox was among those analysts who believe it was better to hold onto the stock as the long-term growth prospects outshine short-term risks.
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