Shares of Senco Gold, a Kolkata-based jewellery retailer, listed at a 35.96 percent premium on July 14 at Rs 431 apiece. The strong opening was on expected lines thanks to the robust subscription for its IPO, Senco’s strong brand name in eastern India, healthy financials, attractive valuations compared to listed peers, and asset-light franchise model.
The stock started off the first-day first trade at Rs 431 on the BSE, against the issue price of Rs 317 per share.
Analysts had expected Senco Gold to list with a 35-40 percent premium and the grey market premium was 41 percent over the issue price.
This is the first listing in the jewellery industry after Kalyan Jewellers India in March 2021.
The initial public offering of Senco Gold had 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.
Qualified institutional investors subscribed to 181 times the shares reserved for them. High networth individuals also showed great interest, bidding 65 times the allotted quota, while the part set aside for retail investors was subscribed 15.5 times.
Senco’s share issue was also at a discount to listed peers based on FY23 financials. Titan traded at 83.5x P/E and Kalyan Jewellers 35x, while Senco Gold was at 15.5x with a market capitalisation of Rs 2,462 crore.
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"At higher price band, Senco Gold is demanding a P/E multiple of 15.5x (to its FY23 earning), which is at a discount to the peer average. Considering its dominant market position in eastern India, diversified product offerings and well-managed operations, we are optimistic about the company’s medium-term outlook. Thus we assign a 'subscribe' rating for the issue," Choice Broking had recommended. It forecast an 8.5 percent CAGR expansion in the jewellery showroom network and an 8.1 percent CAGR increase in retail sales area under operations over FY23-25.
Consequently, "consolidated operating revenue is anticipated to be at Rs 5,334.2 crore in FY25, a growth of 14.4 percent CAGR. 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.
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Senco Gold has raised Rs 405 crore via the public issue including a fresh issuance of shares worth Rs 270 crore which (excluding issue expenses) will mainly be used for working capital requirements. The price band for the offer was Rs 301-317 per share.
That said, some brokerages had raised a few concerns too, mostly related to its debts and challenges generating a positive operating cash flow during the last 2 years.
"Although, 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 company’s profitability," said Nirmal Bang who had recommended ‘subscribe’ to the issue for listing gains.
The debts on its books at the end of March FY23 stood at Rs 1,177.2 crore, increasing from Rs 863 crore in FY22, while cash flow from operations was at Rs (76) crore in FY23 against Rs (70) crore the previous year, and cash flow from investing came in at Rs (198) crore against Rs (157) crore in FY22.
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