Kalyan Jewellers IPO

INTRODUCTION TO THE COMPANY

This is one of the most anticipated IPOs of the year 2021 as the last IPO related to jewellery was that of PC Jewellers, in 2012. This company is one of the most known manufacturer and seller of gold and diamond jewellery, due to the large amount of advertisement and marketing done by them. They have around 27 years of retail industry experience under their belt, thus building a strong brand presence in India as well as a few other countries, with 200+ outlets all over the world. As of June,2020 they have around 107 outlets in India and 30 in the Middle East.

INDIA’S AFFINITY TO GOLD AND DIAMOND

India is the second largest consumer of gold and the demand stood at 694.2 tonnes in 2019. Gold and jewellery contribute to around 7% of the GDP of India. It is extremely labour oriented and export oriented. India is the world’s largest diamond cutting and polishing centre and exports 75% of the world’s polished diamonds. The cumulative FDI inflow in diamond and gold jewellery from April 2000- March 2020 was US $1.17 billion, according to DPIIT.

Online sales are expected to account for around 1-2% of the total sales of gold and other jewellery by 2021-22.

KALYAN JEWELLER AND CORONAVIRUS

Kalyan jewellers has 80% of its showrooms functioning normally and the footfalls have returned to normal now.

The increased cost of gold has increased the faith of the customers on gold being a good investment product. Now that small weddings are essential, there is a larger amount of income going towards the jewellery aspect of the wedding. The ecommerce counterpart of Kalyan jeweller, www.candere.com has seen a 3x growth since the beginning of 2020. The live video shopping facility is also a big hit.

Kalyan jewellers set aside Rs.10 crores towards fighting COVID-19 crisis. This fund was used to ensure availability of food and essential supplies. The firm has worked with the state and local governments to ensure that the funds have been properly allocated. They also committed to pay all their full-time employees, their full salaries for the month of March and April.

FINANCIALS

If we look at the financial reports of the company for the fiscal year 2019-20, we can see that the Revenue from operation earned by the company is said to be Rs.10, 181 cr, which is an increase of 3.73% over the fiscal year 2018-2019, which is Rs. 9814 cr. There has been a huge amount of profit of Rs.142.27 cr as compared to the loss of Rs.4.86 cr, experienced in the year 2018-19.

SHAREHOLDING PATTERN

One of the major shareholders of this company is the private equity giant, Warburg Pincus, who has invested Rs.1700 cr. This can be taken as a positive sentiment regarding this IPO. This investment was done in 2 tranches, Rs.1200 cr in 2014 and Rs.500 cr in 2017. Their holding is around 24% stake.

The MD and chairman of the company, TS Kalyanaraman holds a stake of 27.41% and his two sons, TK Seetharam and TK Ramesh hold 22.17% stake, each.

COMPARISION WITH PEERS

We can see in the table that the revenue growth for Kalyan jewellers is only second to Vaibhav global, and it’s the same case for the Return on assets. But, the operating margin, which is the income left after covering the operating and non- operating expenses, is lesser than any of its peers. Operating margin is a very important measure of profitability and this low number presented by Kalyan jewellers indicates that it is not making as much profit as it should according to the operating income.

IPO DETAILS

1. The company is opening an IPO of Rs.1750 cr.

2. It is backed by Warburg Pincus and Kalyan jewellers.

3. There will be a fresh equity issue of Rs.1000 cr.

4. Promoters will sell their shares through OFS (offer for sale), which will come to around 750 cr. (Highdell investments and TS Kalyanraman)

5. The book running lead managers are Axis capital, Citigroup Global markets India, ICICI Securities and SBI Capital markets.

Due to the high liquidity in the market right now, it can be estimated that the IPO will do well, also taking into account the positive market sentiments regarding the company. As and when the dates for the IPO are set, more details regarding the price band etc, will come into light.