Senco Gold Limited was listed on the bourses earlier today. The initial public offering (IPO) received a strong response as it was subscribed 73.35 times.

We recommended subscribing for the IPO because the company was valued reasonably at 15 times PE of its FY23 earnings, and its financials were decent.

The stock opened at ₹430 on NSE and ₹431 on BSE, at a premium of nearly 36 per cent compared to the issue price of ₹317. At ₹430, the PE will be ₹21. The PEs of Senco Gold’s listed peers Titan Company, Kalyan Jewellers and Thanga Mayil Jewellery are at 84, 35 and 26, respectively.

Senco Gold’s risk-reward remains evenly balanced post the listing gains. Hence, long-term investors can continue to hold the stock.

Opportunities and Risks

Senco Gold is the largest jeweller in the East and Northeast (E&NE) region of the country. The company operates through 136 stores spread across 96 cities in 13 States.

While 75 stores are company owned, the remaining 61 are franchise operated. In fact, it is one of the few listed companies in the jewellery segment.

Around 90 per cent of the company’s revenue comes from making and selling gold jewellery. The company also deals with diamonds, which account for 7 per cent of the total revenue.

The company is optimistic on growth prospects on the back of its plans to deepen presence in the Eastern and Northern regions that account for 32-39 per cent of India’s total jewellery market.

India’s affinity towards gold, growing share of the working population and the consequent increase in disposable income are likely to lift the demand for jewellery in India.

Senco Gold has been increasing its focus on diamonds as they command higher margins, leading to improved profitability.

Regulatory developments such as HUID (Hallmark Unique Identification) is a positive for organised players like Senco Gold.

Financials

The company’s revenue from operations has grown at 19 per cent CAGR between FY20 and FY23. The gross and EBITDA margins stood at 16.1 and 8.5 per cent, respectively in the last fiscal. Profit-after-tax stood at ₹159 crore in FY23, a growth of 20 per cent over the last three fiscals. The inventory turnover ratio of 2.5 for FY23 is one the best in the industry.

On the flip side, there is a risk that demand for gold could decline if the price rises sharply. The jewellery business is inherently low-margin and requires a high level of working capital

Nonetheless, the company has a history of successfully weathering periods of sharp gold price appreciation. Also, the company has been maintaining healthy financials despite competition. So, investors can hold the stock for now. 

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