Senco Gold IPO Review: Should You Invest?

Senco Gold – the Kolkata-based pan-India jewellery retail player – plans to raise as much as INR 405 crore through the IPO which is priced in the range of INR 301 – 317 apiece. Here is our Senco Gold IPO Review.

#1 Senco Gold IPO Review: Business Overview

Incorporated in 1994, Senco Gold is a pan-India jewellery retail player and the largest organized player in the eastern region of India based on the number of stores. Senco Gold primarily sells gold and diamond jewellery and also sells jewellery made of silver, platinum and precious and semi-precious stones, and other metals. Its other offerings also include costume jewellery, gold and silver coins, and utensils made of silver.

Its products are sold under the “Senco Gold & Diamonds” tradename, through multiple channels, including 75 Company Operated Showrooms and 61 Franchisee Showrooms, and various online platforms. With a catalogue offering more than 120,000 designs for gold jewellery and more than 69,000 designs for diamond jewellery, Senco Gold offers a large variety of designs of handcrafted jewellery, most of which are designed and manufactured in-house by its designers in close collaboration with skilled local craftsmen in Kolkata and across the country.

As on 31 March 2023, the company has a total working capital sanction limit amounting to INR 2,073 crores, which includes consortium sanctioned limit of cash credit/ working capital demand loan facilities amounting to INR 750 crores having interchangeability of INR 296 crore as gold metal loan (earmark cash credit) and outside consortium sanction of cash credit/ working capital demand loan facilities amounting to INR 212 crores (which includes INR 85 crore of interchangeable limit).

The company sources gold for its operations under gold-metal loans through bullion banks. It has obtained an approximately INR 6.00 crore Covid Loan facility from the State Bank of India.

As on 31 March 2023, the company had a dedicated design team of 20 designers focused on developing new products and designs that meet customers’ expectations.

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#2 Senco Gold IPO Review – Industry Overview

Annual gold demand surged 18% to 4,741 tonnes during CY 2022 on account of robust investment demand. Demand for bars and coins grew by 2% to 1,217 tonnes. Higher central bank holdings for two consecutive quarters brought the annual holdings to 1,136 tonnes and contributed to the overall growth in demand. However, the jewellery market posted a dismal performance during the year.

Global jewellery market softened a tad during calendar year 2022 as higher gold prices, slowdown in global economic growth and a demand crunch in China, the largest consumer of gold, weighed on overall gold demand. Global demand stood at 2,086 tonnes during 2022, 3% down from the 2,148 tonnes registered in calendar year 2021.

China consumed 571 tonne of gold jewellery in 2022 down from 673 tonnes consumed in CY 2021, recording a fall of 15%. India too witnessed a drop in jewellery demand, but the fall was nominal at 2%. Resultantly, India emerged as the largest consumer of gold jewellery in the world.

#3 Senco Gold IPO Review: Franchisee Showrooms & Company Operated Showrooms

As on 31 March 2023, Senco Gold had 136 Showrooms, including 75 Company Operated Showrooms, and 61 Franchisee Showrooms (including four Franchisee owned and Company operated Showrooms) located across 96 cities and towns over 13 states across India.

FY 2023, 2022, and 2021, the company had a total of 61, 57, and 52 Franchisee Showrooms, respectively, which formed 44.85%, 44.88%, and 46.43% of the total number of Showrooms as of the respective year ends. FY 2023, 2022, and 2021, revenue from the sale of products to the Franchisee’s Showrooms amounted to INR 1,290.50 crores, INR 1,259.55 crores, and INR 933.76 crores respectively, and FY 2023, 2022, and 2021, the company formed 65.15%, 61.95% and 61.87% its generated revenue of INR 2,669.50 crores, INR 2,199.71 crores and INR 1,654.71 crores respectively, from Company Operated Showrooms.

#4 Senco Gold IPO Analysis: Financial Performance

The company revenue CAGR (calculated as growth of revenue from operations from FY21 to FY23) increased at a CAGR of 15.36% from FY 2022 to FY 2023 while the profit for the year increased at a CAGR of 21.63% from FY 2022 to FY 2023.

#5 Senco Gold IPO Analysis: Shareholding Pattern

The details of shareholders holding 5% or more of the paid-up Equity Share Capital of the company as of the date of filing this Red Herring Prospectus are set forth below:

#6 Senco Gold IPO Review: Valuations and Margins

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#7 Senco Gold IPO: Employees

As of 31 March 2023, Senco Gold had 2,138 full-time employees. Out of its employees, 1,615 are based at showrooms driving retail sales and customer operations, 435 are based in the head office and 88 are based at the factory. Additionally, the company has 780 security personnel, other contractual personnel, and housekeeping staff whom it appoints on a contractual basis.

Compared to its peers, Senco Gold has an upper hand in the financial performance and valuation departments. Senco has a steady growth in its ROCE (return on capital employed) compared to its peers. At the same time, its revenues have posted strong advances. This makes Senco a more value adding proposition to get invested in.

In Senco Gold IPO Review, we find that the company has several advantages to its credit, despite competitive forces in its segment. High customer loyalty, strong distribution network are some other strengths of the company. It also helps that the offer is commanding strong grey market premium in the informal market.