Senco Gold, a retail jewellery maker, has hit the capital market with its Rs 405 crore initial public offering (IPO) on July 4. The company has raised Rs 121 crore in the anchor round, which saw the participation of marquee investors like Nippon MF, White Oak, Jupiter Asset Management, Bandhan MF and 3P India Equity Fund that is promoted by Prashant Jain, a renowned name in the mutual fund industry.
The company isn’t looking to repay its debt or bring down its debt-to-equity ratio anytime soon and intends to utilise the IPO proceeds for growth.
According to the company’s CEO Suvankar Sen and CFO Sanjay Banka, Senco would rather deploy the funds for generating a superior rate of return for its shareholders and leverage its balance sheet for growth.
The company’s debt-to-equity ratio has been on the rise since the start of FY21.
Senco Gold's debt to equity graphics
Also, a large part of the company's debt is in the form of gold metal loans, which is essentially borrowing gold from banks on a lease basis – an arrangement which serves the hedging purpose. So the major portion of the company’s debt is in the form of supply of raw materials, said the CFO in a pre-IPO interview with Moneycontrol.
Simply put, a gold metal loan means jewellery companies taking gold on lease at an unfixed price and the price gets fixed only when the actual sale takes place.
The company’s debt at the end of March 31, 2023, stood at Rs 1,179.2 crore as compared to Rs 864.8 crore in the previous financial year, according to the red herring prospectus.
Concentrated Geography Model:
Overall, Senco has 136 stores, out of which 75 are company-owned and 61 are franchisees. It aims to utilise the proceeds to fund expansion. Senco’s working capital days stand at 160 and inventory turnover at 2.5.
However, the company in a cautious approach continues to focus on revenue growth in the eastern and north-eastern regions. CEO Suvankar Sen said the company follows a strategy similar to DMart and aims to capitalise on economies of scale, brand recognition, goodwill and marketing efforts to cater to its customers.
It intends to continue to derive over 70 percent of its revenue share from the eastern and northern parts of the country and would focus on Tier 2, 3 and 4 cities, where it already has a presence.
Senco Gold's revenue split
Slower Revenue CAGR Versus Peers:
Having said that, the company acknowledges that its revenue compounded average growth rate (CAGR) from FY21-23 has been lagging behind its peers such as Kalyan Jewellers and Titan. The company aims to utilise the IPO proceeds to fulfil its working capital requirements, which will support its efforts to achieve stronger top-line growth.
Senco Gold's FY21-FY23 revenue CAGR
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