Senco Gold IPO: Strong Response in Grey Market and Investor Interest.
An Overview of Senco Gold IPO and Grey Market Performance
The Senco Gold IPO has garnered significant attention in the market, with shares enjoying a premium of over 35 percent in the grey market. This marks the third IPO company in 2023 to receive a substantial premium, following Ideaforge Technology with 75 percent and Cyient DLM with 45 percent. The public issue, valued at Rs 405 crore, is scheduled to close on July 6. During the second day of bidding, the issue received an impressive response from investors, with a subscription rate of 2.07 times based on available data.
Investor Interest and Subscription Details
Retail investors and high-net-worth individuals have shown strong support for the Senco Gold IPO. Retail investors have subscribed to 3.05 times the allotted quota, while high-net-worth individuals have subscribed to 2.34 times. Qualified institutional investors have bid for 14 percent of the shares reserved for them. This substantial interest from various investor groups indicates the positive sentiment surrounding the IPO.
A Closer Look at Senco Gold
With a rich history spanning over five decades, Senco Gold is a prominent jewellery retailer with a strong presence in eastern India. The company follows an asset-light franchise model, resulting in robust financial performance. Analysts highlight that Senco Gold offers attractive valuations, with a price-to-earnings ratio (P/E) of 15.5 based on FY23 financials. In comparison, Titan Company and Kalyan Jewellers India trade at P/E levels of around 83 and 33.8, respectively.
Projected Market Capitalization and Store Presence
After the IPO, Senco Gold is expected to achieve a market capitalization of Rs 2,462 crore at the higher end of the price band, which ranges from Rs 301 to Rs 317 per share. As the largest organized jewellery retail player in eastern India, Senco Gold operates a total of 136 stores as of March 2023. Of these, 75 showrooms are operated directly by the company, while the remaining 61 are franchisee showrooms.
Business Model and Growth Potential
Senco Gold focuses on maintaining a balance between its operated showrooms and expanding its asset-light franchisee model. The company adopts a hub-and-spoke approach to enter new geographies and optimize inventory management. This strategy has contributed to its consistent growth. Senco Gold has achieved a revenue growth of 23.8 percent and a profit increase of 60.6 percent, both on a compound annual growth rate (CAGR) basis, during the fiscal years from FY21 to FY23. Additionally, its EBITDA has grown at a CAGR of 34.4 percent over the same period.
Expert Recommendations and Concerns
Stoxbox, a reputed firm, recommends subscribing to the Senco Gold IPO, citing the company's optimal business model and fair valuation. Hem Securities also expresses confidence in the company's growth rate and financials, supporting the subscription to the IPO. However, some brokerages have raised concerns about the debt on Senco's books. By the end of March FY23, the company's borrowings had increased to Rs 1,177.2 crore from Rs 863 crore in FY22 and Rs 532 crore in FY21. The debt-to-equity ratio stands at 1.25x, higher than the industry average of 0.80x, potentially impacting the company's future prospects.
Conclusion and Final Thoughts
The Senco Gold IPO has garnered significant interest from investors, with shares commanding a premium in the grey market. The company's strong presence in eastern India, coupled with its asset-light franchise model and robust financial performance, has attracted positive attention. The IPO is reasonably valued compared to its peers, making it an attractive investment opportunity. Retail investors and high-net-worth individuals have shown substantial support for the IPO, further indicating confidence in Senco Gold.
However, it is important to consider the concerns raised by some brokerages regarding the company's debt levels. The higher debt-to-equity ratio compared to the industry average could pose challenges to Senco Gold's future prospects. Investors are advised to exercise caution and seek expert advice before making any investment decisions.
Overall, the Senco Gold IPO presents an opportunity to invest in a well-established jewellery retailer with a strong track record and growth potential. With careful consideration of the risks and expert guidance, investors can make informed choices in their investment portfolios.