Senco Gold

Organized jewellery retail player

Company generated 81.55% of its revenue from eastern regions of India in FY23

Senco Gold is a pan-India jewellery retail player with a history of more than five decades. The company is the largest organized jewellery retail player in the eastern region of India based on number of stores. Among eastern India based jewellery retailers, it has the widest geographical footprint in non-eastern states.

The company primarily sell gold and diamond jewellery. It also sell jewellery made of silver, platinum, precious, and semi-precious stones and other metals. The company’s other offerings include costume jewellery, gold and silver coins and utensils made of silver.

In FY2023, gold jewellery contributed 89.69% to total revenue, diamond and precious/semi-precious stones 6.77% and others 3.54%.

The company’s products are sold under the “Senco Gold & Diamonds” tradename, through multiple channels like 75 Company Operated Showrooms, 61 Franchisee Showrooms (including four franchisee-owned and Company Operated Showrooms) located across 96 cities and towns in India and through various online platforms, including its own website, as of 31 March 2023.

As of 27 June 2023, the company has a manufacturing facility located at the Gems and Jewellery Park, Ankurhati in Howrah, West Bengal.

The company has a catalogue offering more than 120,000 designs for gold jewellery and more than 69,000 designs for diamond jewellery. It offers 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 (generally termed Karigars) in Kolkata and across the country. Machine-made lightweight jewellery in gold and diamonds are manufactured at its manufacturing facility based on designs prepared by in-house designers and sourced from third partner manufacturing vendors.

The company uses a ‘hub and spoke’ approach to enter new geographies and optimize its inventory management, which means that it typically forays into large or new cities by way of Company Operated Showrooms and then leverage its ‘franchise’ model to expand into tier-II and tier-III locations.

As on March 31, 2023, the company had 136 showrooms, which have a total area of approximately 409,882 sq. ft., in 96 cities and towns over 13 states across India.

In FY2023, West Bengal contributed 69.5% to total revenue, East & North East 12.05%, Rest of India 15.10% and others (exports, DG Gold, DG Silver, corporate and e-commerce sales) 3.36%.

In terms of revenue split by regions, metro cities contributed 34.77% to total revenue in FY23, Tier-I 32.87%, Tier-II 29% and others 3.36%.

The company offers a diverse jewellery collection, which includes gold jewellery, diamond jewellery, platinum jewellery and studded jewellery of various forms, across various price points (ranging from approximately Rs 2,000 to approximately Rs 500,000) to maximise customer base.

The company also undertake wholesale exports of its jewellery primarily to Dubai, Malaysia and Singapore.

The company’s strategy and experience in selling light weight jewellery, with gold content between 1 gm – 10 gm for gold jewellery and with diamonds of less than 50 cents for diamond jewellery has enabled it to reach out to a wide customer base across age groups.

Demand for lightweight, daily-wear fashion jewellery is expected to rise as the younger generation enters the workforce. Through its Everlite (light weight jewellery), Gossip (silver and fashion jewellery) brands company aims to cater to the younger generation.

Through its D’Signia Showrooms and Vivaha collection, the company aims to cater to customers seeking heavier or premium designer jewellery. Its standard Showrooms have an Average Ticket Size of Rs 48,000, while its D’Signia Showrooms have an Average Ticket Size of Rs 51,000 and Everlite Showrooms have an Average Ticket Size of Rs 29,000, each for the Fiscal 2023.

The company intend to continue growing by setting up new Company Operated Showrooms, new franchisee operated showrooms and increase its focus on sale of diamond jewellery.

To enhance customer reach and service during the COVID-19 pandemic, company added video calling and tele calling services to provide the flexibility to its customers to purchase jewellery from anywhere, including from the comfort of their homes. The company has been able to increase customer traffic to its various websites by 639.88% % in a span of 4 years, from 1,268,189 in Fiscal 2019 to 9,383,105 in Fiscal 2023.

Offer and its objects

The IPO comprises fresh issue of equity shares worth up to Rs 270 crore and an offer for sale of Rs 135 crore by existing shareholder SAIF Partners India IV.

The price band for the IPO is Rs 301 to Rs 317 per equity share of face value Rs 10 each.

Objectives for fresh issue include- Rs 196 crore for funding working capital requirements and balance amount for General Corporate Purposes.

Promoters of the company are Suvankar Sen, Jai Hanuman Shri Siddhivinayak Trust and Om Gaan Ganpataye Bajrangbali Trust. Promoters and promoter group hold an aggregate of 53,183,712 equity shares, aggregating to 76.92% of the pre-offer issued and paid-up Equity Share capital. The post IPO shareholding for the same is expected to be around 68.48%.

The issue, through the book-building process, will open on 04 July 2023 and will close on 06 July 2023.

Strengths

The company’s revenue increased at a CAGR of 23.80% from Fiscal 2021 to Fiscal 2023, while its profit for the year has increased at a CAGR of 60.62% from Fiscal 2021 to Fiscal 2023.

The company has a strong brand name with heritage and a legacy of over five decades.Among eastern India based jewellery retailers, it has the widest geographical footprint in non-eastern states.

The company offers a wide range of products, ranging from approximately Rs 2,000 to approximately Rs 500,000 to diverse customer segments. Company has an active catalogue of more than 120,000 designs for gold jewellery designs and more than 69,000 designs for diamond jewellery.

West Bengal is a prominent jewellery-manufacturing hub in east India, reputed for light weight and handmade jewellery. The company’s presence in West Bengal gives it access to skilled karigars, who have been working with the company for several years.

The company follows an asset-light, franchisee route for expanding their geographical presence. This helps reduce the capital expenditure (capex) requirement and enable faster expansion.

As consumer preferences is shifting away from traditional bulky jewellery to light-weight fashion items, company is well prepared to offer light and affordable jewellery through its Everlite brand.

The company has a qualified and experienced management team. Its Individual Promoter and Managing Director and Chief Executive Officer, Suvankar Sen has been involved in the jewellery business in India for more than a decade and is a fourth generation entrepreneur, with an established track record and extensive experience in the jewellery industry.

The company is focused on increasing the overall operating margins by adapting optimal product mix. The company intends to prioritize diamond jewellery, as diamond studded jewellery typically involves higher gross margins than gold jewellery.

The company has robust plans for increasing its presence in the digital space through online platforms as well as through online marketplaces. The company has launched its online platforms, and a mobile application, MySenco, through which it offers jewellery products and gold coins to a diverse range of customers.

Weaknesses

The company operates in highly competitive and fragmented markets. Any failure to compete effectively may have an adverse effect on its business.

The company’s sales is significantly dependent on sale of gold jewellery, which accounted for 89.69%, 91.53% and 91.90% of total revenue for Fiscals 2023, 2022 and 2021, respectively. Any negative volatility in the market price of gold or its inability to effectively procure gold at competitive rates will affect business.

The company’s sales are concentrated in the eastern and north-eastern regions of India. The company generated 81.55%, 84.89% and 84.04% of its revenue in fiscal 2023, 2022 and 2021, respectively, from these regions. Any adverse development that affects the performance of the showrooms located in these regions could have a material adverse effect on business.

The company requires significant amounts of working capital for continued growth. As on March 31, 2023, the company has a total working capital sanction limit amounting to Rs 2073 crore. Any inability to meet its working capital requirements, on commercially acceptable terms, may have an adverse impact on business.

Jewellery purchases are discretionary and often perceived as luxury purchases. Any factor negatively impacting discretionary spending by consumers may adversely affect business.

The company requires certain approvals, permits, and licenses in the ordinary course of business, and any failure or delay to obtain or renew them or to comply with their conditions in the future may adversely affect operations.

The company has been subject to a ‘search and seizure’ operation by the income-tax department in the past, which has resulted in taxation and criminal proceedings being initiated against the company and its Individual Promoter. Any adverse outcome of such proceedings might have an adverse effect on its business.

The company has not yet received certain trademarks significant to its business, including its logo. In the absence of such protection, company may not be able to prevent infringement of its trademark and a passing off action may not provide sufficient protection until such time that this registration is granted.

The company has recorded negative cash flows from operating activities over extended periods. It generated negative operating cash flow of Rs 76.1 crore and Rs 69.8 crore in FY2023 and FY2022, respectively.

The company’s business strategy depends partially on the successful franchising of its brand. Inability to renew existing franchisees or secure new franchisees on commercially acceptable terms, may impact business. For the years ended March 31, 2023, March 31, 2022 and March 31, 2021, revenue from sale of products to franchisees represented 31.49%, 35.47% and 34.91%, respectively.

Valuation

In FY2023, consolidated sales were up by 15.36% to Rs 4077.40 crore compared to FY2022. OPM decreased by 7 bps to 7.77%, which led to 14.23% increase in operating profit to Rs 316.62 crore. Other income increased 143.84% to Rs 31.14 crore, while interest cost increased 21.41% to Rs 86.05 crore and depreciation increased 8.16% to Rs 45.55 crore. PBT increased 22.15% to Rs 216.15 crore. Tax expenses for FY23 was Rs 57.67 crore compared to tax expense of Rs 47.86 crore in FY2022. Net profit increased 22.76% to Rs 158.48 crore.

FY2023 EPS on post-issue equity works out to Rs 20.41. At the upper price band of Rs 317, P/E works out to 15.53.

As of 2 July 2023, its listed peers such as Kalyan Jewellers India trades at TTM P/E of 33.13 and Titan (relatively larger company) trades at TTM P/E of 83.25. For FY2023, Senco gold OPM and ROE stood at 7.77% and 16.76% respectively, compared to 7.92% and 10.63% for Kalyan Jewellers India and 12.02% and 27.42% for Titan, respectively.