Senco Gold IPO booked 2.68 times by second day of bidding

The public issue of Senco Gold has received good response from investors, especially retail and high net-worth individuals, with 2.68 times subscription through bids for 2.52 crore equity shares against an IPO size of 94.18 lakh on July 5, the second day of bidding.

Retail investors have bid 3.67 times the allotted quota and the portion reserved for high net-worth individuals has been booked 3.58 times, while qualified institutional investors have bought 7.23 lakh shares against the part of 26.91 lakh shares set aside for them.

Half of the issue portion is reserved for qualified institutional buyers, 15 percent for high net-worth individuals (non-institutional investors) and the rest 35 percent for retail investors.

The Kolkata-based jewellery company aims to raise Rs 405 crore through the its public issue, with a price band of Rs 301-317 per share.

The public issue comprises fresh issuance of Rs 270 crore and an offer-for-sale of Rs 135 crore by investor SAIF Partners. The funding to working capital requirements is the main purpose behind the offer launch. Bidding ends tomorrow, July 6.

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Senco Gold is one of the largest organised jewellery retail players in the eastern region, based on the number of stores and among East-based jewellery retailers, with the widest geographical footprint in non-eastern states.

At the end of March 2023, the jewellery major operated business through 75 owned showrooms and 61 franchisee showrooms, besides various online platforms.

Most of brokerage houses recommended subscribing to the offer considering the strong brand name and a legacy of over five decades in the industry, along with asset-light franchise model, despite its high debt-to-equity ratio.

Also read: Senco Gold to leverage its balance sheet for growth; region-specific focus to continue: CEO

"At the upper price band of Rs 317, Senco Gold is available at a P/E of 15.5x (FY23), lower than industry peers' valuations," Geojit Financial Services wrote. The company aims at a market capitalisation of Rs 2,462 crore at the upper price band.

"Improving economic growth, rising urbanisation, increasing disposable income levels, and mandatory hallmarking are positive for the organized players. A strong brand name and a legacy of over five decades, strong company-operated showrooms, and an established asset-light ‘franchise’ model are expected to benefit SGL," Geojit said.

The brokerage has assigned a 'subscribe' rating for the issue on a medium- to long-term basis.

Anand Rathi also believes that issue is fairly priced and recommended 'subscribe – long term' rating to the IPO.

Also read: PKH Ventures calls off public issue on muted response from QIBs

Senco recorded a robust financial performance with revenue increasing from Rs 2,660 crore in FY21 to Rs 4,077 crore in FY23 at a CAGR of 24 percent and net profit clocking a CAGR of 61 percent from Rs 61.5 crore to Rs 158.5 crore.

The company has a robust return ratio, with an ROE (return on equity) of 16.8 percent and an ROCE (return on capital employed) of 11 percent at the end of FY23, which are expected to improve after the IPO funding, Geojit believes.

However, the debt-to-equity ratio of the company stands at 1.25x for FY23 as compared to an industry average of 0.80x, which can create pressure on the future prospects of the company, Canara Bank Securities feels.

Hence, the investor needs to be cautious on the company’s higher debt, though the company is available at lower valuations as compared to its competitors, said the brokerage, recommending the issue for listing gains.

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