The maiden public offering of Senco Gold continued to attract investors, possibly due to reasonable valuations, healthy financials, a strong presence in eastern India, and five decades of experience, despite concerns about higher debts and challenges in generating positive operating cash flow in the past years. The issue has received bids for 69.08 crore equity shares against the offer size of 94.18 lakh shares, subscribing 73.35 times on July 6, the final day of bidding.
We have seen healthy demand for the issue from retail investors as well as high networth individuals, whose reserved portion was booked 15.46 times and 64.998 times respectively.
The part set aside for qualified institutional buyers (QIB) was subscribed 180.94 times.
The issue, which was opened for subscription on July 4, had subscribed 2.68 times till July 5.
The Kolkata-based jewellery retailer intends to mop up Rs 405 crore via public issue, at a price band of Rs 301-317 per share.
The offer consists of a fresh issue of Rs 270 crore worth shares and an offer for sale of Rs 135 crore by investor SAIF Partners India IV. SAIF has been an investor in the company since 2014, having a 19.23 percent shareholding in the company.
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The company is going to utilise the fresh issue proceeds mainly for working capital requirements.
Senco Gold with an extensive retail network consisting of 136 showrooms across 96 cities has recorded revenue growth at a CAGR of 24 percent at Rs 4,077 crore during FY21-FY23 and profit grew at a CAGR of 61 percent to Rs 158.5 crore in the same period, but in the same period, the debt on its books jumped to Rs 1,177.2 crore, from Rs 532.44 crore.
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"Although, the company’s decent performance in terms of profitability amongst its peers, it has observed challenges generating positive operating cash flow during the last 2 years. Further, debt to equity ratio at 1.2x as on March 2023 may lead to a further contraction in the company’s profitability," said Nirmal Bang, who has advised the issue for listing gains.
The brokerage feels the IPO is issued at 15.5x PE valuation based on its FY23 EPS which is at a discount relative to the average PE valuation of its peers (Titan Company PE at 81 and Kalyan Jewellers India at 35)
Hensex Securities, which advised investors to subscribe to the issue for listing gains as well as long-term, also highlighted negative operating cash flows concerns.
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"Senco Gold has experienced negative cash flows from operating and investing activities in previous fiscals and cannot assure that the company might not experience negative cash flows in future periods. Negative cash flows may adversely affect their financials," the brokerage said.
The jewellery retailer recorded cash flows from operating activities and investing activities at Rs (-761) crore and Rs (-1,980) crore in FY23, widening from Rs (-699) crore and Rs (-1,571) crore in FY22, respectively, whereas cash flows from financing activities increased to Rs 2,741 crore from Rs 2,280 crore during the same fiscals.
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