Senco Gold Ltd. IPO: Will it Shine or Shatter?

In the jewellery market, names like Gitanjali and Tanishq have made big waves. Gitanjali Jewellers closed down with Nirav Modi's fraud, and many investors were devastated when they failed to subscribe to Tanishq's IPO. So, when it comes to the jewellery sector, competition never ends. To ramp up the tough war, a gold and diamonds retail company, Senco Gold Ltd., is coming out with an IPO.

Being a renowned name in the gold market, Senco Gold Ltd. is the largest organised jewellery retail player in the eastern region of the nation. They are also a Pan India jewellery retailer with around 127 showrooms in different parts of the country.

Senco Gold Ltd. IPO is opening today, on 4th July 2023, and the closing date is set to be 6th July 2023. The shares are going to be listed on BSE and NSE, with the price band being ₹301-317. Before the launch of the IPO, Senco Gold also raised a fund of ₹121 crores in the anchor round from marquee investors like Nippon MF, White Oak, Jupiter asset management, Bandhan MF, 3P India Equity Fund, etc.

Get the answer to crucial queries like what does this prominent player in the jewellery industry propose with this IPO? Should you subscribe to it? And many more by going ahead in this article.

About The Company

Originally incorporated as Senco Gold Private Limited on August 22, 1994, the private limited company dominates the field with the brand name Senco Gold and Diamonds. As part of its pan-run in the nation, the company changed its name to Senco Gold Limited in August 2007. This also marked the day of the private limited company’s conversion to a public limited company.

With the vision of the founder & chairman, Late Shri Shankar Sen, the company progressively flourished in the jewellery market and now has a well-reputed presence in 13+ Indian states. At present, the chairperson is Ranjana Sen, who upholds 29 years of experience in the jewellery industry. The Chief Executive Officer and Managing Director of the company is Suvankar Sen, who was re-appointed as Whole Time Director in 2021. He is also the lead promoter for the IPO alongside Jai Hanuman Shri Siddhivinayak Trust and Om Gaan Ganpataye Bajrangbali Trust.

Senco Gold started establishing showrooms in West Bengal by opening the first franchisee showroom in Durgapur, West Bengal. The next milestone was the launch of the largest showroom in 2004, 8,000 sq. ft. in size, in Kolkata. With the conversion of the private firm into a public company in 2007, Senco Gold has been spreading its reputation of being the best in the sector in various states.

The company has succeeded in showcasing promising results over the past few years with a rapid yet continuous hike in its revenue from operations as well as PAT. The decision to turn the company public for becoming a pan-India jewellery retailer proved to be a smart choice. The financials of the company over the last three years speak for themselves.

Product Portfolio

As per DRHP, there are 127 showrooms operating under the company, with 80 showrooms in West Bengal, 11 in Uttar Pradesh, 7 in Odisha, and many other states. With the most BIS-registered hallmarked jewellery retailers in West Bengal, around 18%, the company has successfully made its presence known.

Along with being the largest jewellery retailer in the eastern side, Senco Gold Ltd. also has the widest geographical footprint in non-eastern states. The company sells gold and diamond jewellery along with silver, platinum as well as jewels made from various precious stones and metals. Apart from jewellery, Senco Gold & Diamonds showrooms also cater to customers interested in purchasing gold and silver coins, costume jewellery, and silver utensils.

As per the information available via the Draft Red Herring Prospectus (DRHP), Senco Gold & Diamonds boasts a catalogue of 108,000 gold jewellery designs and 46,000 diamond jewellery designs. The altogether area of showrooms managed and run by the company is 393,342 sq. ft. outspread in 89 cities & towns.

Industry Overview

The consumption of gold, whether in jewellery, bars, coins, ETFs, or industrial purposes, has been high in the countries with the most population, India and China. India retained its position of being the second-largest consumer of gold in the world in 2021. The total world demand for gold in 2021 was found to b 3,924 tonnes. Amidst this, the overall gold demand in varying categories is mentioned in this pie chart:

Today, India consumes 23% of worldwide gold in different categories. With India being a rich country in terms of cultural aspects, the demand for jewellery, especially gold jewels, can be terminated as constant. This is a huge factor in improving the gold demand after the pandemic lockdown in 2020.

Another factor that contributes heavily towards the gold demand and price movements is inflation. As gold is considered to act as a hedge against inflation, it is often preferred by investors finding equity and other financial products to be unstable.

Strengths of the Company

Many factors contribute towards making Senco Gold Ltd. a well-famed company in the jewellery industry. Here are a few of them:

• Excel in providing authentic and BIS-hallmarked products to customers since 2012. Purity checks with XRF machines, which are gold testing machines, are done with strict schedules.
• Senco Gold Ltd. boasts a legacy of over five decades with a strong brand recognition moat and a promising future.
• The company’s footprint is very large, with over 127 showrooms in 13 states and 80+ cities in the nation.
• The company is a pan-India jewellery retailer as well as the largest one in the eastern region of the country. This gives them a better advantage over competitors in terms of loyal customers, extensive jewellery lines, and good customer service.

Challenges for the Company

Despite showing positive financials, Senco Gold Ltd. has its own concerns, which can be crucial to identify while making investments. Here are some of the challenges they are or might face:

• When comparing the financials of the company, the revenue from operations depends highly upon gold jewellery. For the fiscal years 2023 and 2022, 89.69% and 91.53% of the total revenue generated comes from the sale of gold jewellery. Hence, dependence upon this particular sector in the company’s portfolio can have a negative impact when gold prices fall.
• The company falls under such an industry which mandates the requirement for a large inventory and, thus, raw materials. This causes the need for large working capital for raw materials and the management of showrooms and warehouses. This often leads to the net cash used in operating activities being negative, as is the case with the company’s cash flow statement.

About the IPO

As per DRHP and announcements from the firm, Senco Gold Ltd. wishes to raise ₹426.52 crore with the initial public offering. 1,34,55,148 shares of ₹10 each in lots of 47 shares are available for initial public offering. A maximum of 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), which will include a 5% allocation to the mutual funds. 15% of the issue is available for the non-institutional bidders, and the rest 35% is present for the retail investors.

The IPO is 100% book-building type, and the book-running lead managers to the issue are IIFL Securities, Ambit Private Limited and SBI Capital Markets Limited.

Senco Gold Ltd. IPO Details 

How Senco Plans to Utilise the Raised Funds?

The company proposes to utilise ₹240 crores of net proceeds from the fresh issue towards funding working capital requirements and the rest towards general corporate purposes. There was no further detailing on the company has agenda for using the raised funds from this IPO. Since the company's working capital takes up a large part of the overall revenue, most of the raised funds are likely to be devoted to that purpose.

The Bottom Line

As per the constant rise in financials, revenue from operations, profit after tax, and even total assets data mentioned above, the IPO share price set seems to be accurate. With being a prominent player in the jewellery industry, the IPO looks promising. There might be certain obstacles from being in a rigorously competitive sector, but the future of the company and the IPO falls towards a positive outcome.

*Disclaimer: The stock discussed above isn't a recommendation from Insider by Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.