kalyan jewellers ipo: Kalyan Jewellers’ IPO opens tomorrow. Should you subscribe?

ET Intelligence Group: On the back of rally in the broader markets including all jewellery stocks, Kalyan Jewellers India is coming out with its maiden IPO to offer partial exit to its investor Highdell, a Warburg Pincus Group company (Rs 250 crore) and promoters (Rs 125 crore) and remaining Rs 800 crore to meet its working capital requirements and other corporate purposes. After the issue, the promoter holding will reduce to 60.5% from 68%. The company’s revenue has been near flat over the past three years with single-digit profitability. In this backdrop, the IPO valuation seems to be on a higher side. Given this, the issue may not appeal to most investors.

Issue date: Mar 16-18, 2021

Issue price: Rs 86-87 per share

Issue size: Rs 1,175 crore

Lot size: 172 shares


Business

Established in 1993, the south based jeweller has expanded pan India and also in the middle east to become the second largest jeweler in the country after Titan (Tanishq). As on December 31,2020, it had 107 showrooms in India and 30 in the middle-east. It designs, manufactures and sells gold, studded and other jewellery products. Gold jewellery contributes more than 70% of the total sales and remaining comes from studded and other jewellery products.

Financials

Between FY18 and FY20, Kalyan Jewellers’ net sales dropped by 4% to Rs 10,101 crore, while net profit was Rs 142 crore with a net margin of 1.4%. During the same period, the industry leader Titan’s jewellery business grew by 31%. Titan also had a higher operating margin (EBIT margin) at 12% compared with 5.2% for Kalyan. Titan’s return on equity (RoE) for FY20 was 24% while it was 6.6% for the latter.

In the first nine months of FY21, Kalyan’s revenue fell by 30% year-on-year to Rs 5516 crore due to the pandemic. The company posted a net loss of Rs 80 crore against Rs 94 crore profit a year ago. The company had a total borrowings of Rs 2,691 crore at the end of December, mostly short-term borrowings for working capital requirement.

Valuations

At the upper price band of Rs 87, the company is demanding a market capitalization of Rs 8,961 crore, valuing it at 58 times FY20 diluted earnings. It would be more appropriate to value the company on FY20 earnings as FY21 earnings are hit by the pandemic. Titan trades at 85 times FY20 earnings given its superior performance.