Jewellery retailer Senco Gold shares enjoyed more than 35 percent premium in the grey market over the upper end of the price band, analysts said on anonymity. This is the third IPO company getting a substantial premium in the grey market, after Ideaforge Technology (75 percent premium) and Cyient DLM (45 percent), in the current calendar year 2023.
The Rs 405-crore public issue is set to close on July 6. On its second day of bidding, the issue continued to get a decent response from investors, subscribing 2.07 times as per the subscription data available on exchanges.
So far retail investors and high-networth individuals remained at the forefront to support the offer, buying 3.05 times and 2.34 times the allotted quota, while qualified institutional investors have bid 14 percent shares of the portion set aside for them.
The grey market is an unofficial market for trading in IPO shares till the listing. Investors look at the grey market just for listing price expectations.
With a history of over five decades, a strong presence in eastern India, and robust financial performance with the asset-light franchise model, the Kolkata-based organised jewellery retail company is available at reasonable valuations, analysts said.
Senco is available at a P/E (price-to-earnings ratio) of 15.5 on the FY23 financials, against Titan Company and Kalyan Jewellers India which traded at P/E of around 83 and 33.8 levels respectively.
Also read: Ideaforge draws 75% premium in grey market, analysts see silver-lining in strong demand
Post issue, it is expected to get a market capitalisation of Rs 2,462 crore at the higher end of the price band of Rs 301-317 per share.
Senco Gold 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 total of 136 stores as of March 2023, of which 75 showrooms are operated by them and the rest 61 are franchisee showrooms.
"Senco focuses on attaining an optimal balance between their operated showrooms and expanding their asset-light franchisee model. They use a hub-and-spoke approach to enter new geographies and optimize their inventory management. The issue is fairly valued," said Stoxbox which recommended subscribing to the issue.
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The company has grown its revenue at a CAGR of 23.8 percent during fiscal FY21-FY23. Profit increased at a CAGR of 60.6 percent and EBITDA (earnings before interest, tax, depreciation and amortisation) at 34.4 percent in the same period.
Hem Securities likes the business model of company and growth rate at which company has grown its topline & bottom line over the period of time. Looking after decent financials & reasonable valuation, the brokerage recommends subscribing to the issue.
The offer comprises a fresh issuance of shares worth Rs 270 crore and an offer for sale of Rs 135 crore by investor SAIF Partners India IV which has been an investor in the company since 2014. Most of the fresh issue proceeds will be utilised for working capital requirements.
Also read: Senco Gold IPO | 10 key things to know before bidding for the offer
The only concern few brokerages raised is the debt on Senco's books. As of March FY23, it had borrowings of Rs 1,177.2 crore, increasing from Rs 863 crore in FY22 and Rs 532 crore in FY21.
"Debt to equity of the company stands at 1.25x for FY2023 as compared to industry average of 0.80x, which can create pressure on the future prospects of the company," Canara Bank Securities said. Hence, they advised that investor needs to be cautious about the company’s higher debt.
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