Does the Kalyan Jewellers IPO have enough shine?

%name Does the Kalyan Jewellers IPO have enough shine?


Among the various IPOs opening in the coming week, Kalyan Jewellers IPO has been one that has been discussed for some time now. Like most IPOs in the recent past, the Kalyan Jewellers will be a combination of a fresh issue of shares plus an offer for sale. Kalyan Jewellers has a massive network of jewellery stores across India and abroad and is present in most Indian cities with a reasonably large presence in the Middle East.

Key terms of the Kalyan Jewellers IPO

The Rs.1,175 crore IPO of Kalyan Jewellers opens for subscription during the forthcoming week. Here are key terms and facts about the IPO.

Key IPO DetailsParticularsKey IPO DatesParticulars
Nature of issueBook BuildingIssue Opens on16-Mar-2021
Face value of shareRs.10 per shareIssue Closes on18-Mar-2021
IPO Price BandRs.86 – Rs.87Basis of Allotment date23-Mar-2021
Market Lot172 sharesRefund Initiation date24-Mar-2021
Retail Investment limit13 Lots (2,236 shares)Credit to Demat25-Mar-2021
Fresh Issue SizeRs.800 croreIPO Listing date26-Mar-2021
Offer for Sale SizeRs.375 croreQIB Allocation50%
Total IPO SizeRs.1,175 croreRetail Allocation35%
Listing onBSE and NSENon-Institutional – HNI15%

Data Source: IPO Filings

Application of the IPO funds by Kalyan Jewellers

The total size of the issue is Rs.1,175 crore of which Rs,300 crore will be an OFS and no fresh funds will come into the company. The fresh issue of Rs.800 crore will be used for the following purposes.

  • The jewellery business is highly working capital intensive as precious metals have to be inventoried till they are sold and part of the proceeds will be used to take care of the working capital needs.
  • A small part of the funds raised through the issue will also be used by the company for general corporate purposes.
  • The company has debt to the tune of Rs.3250 crore and the proceeds will also be used to partly defray this debt

Understanding the business model of Kalyan Jewellers

The company started off as a regional player in Kerala but over the years it has expanded its presence to over 107 showrooms across 21 major Indian states and union territories. The predominant focus is South India which has 35 outlets and the Middle East, which has 30 outlets, the remaining outlets are spread across other places, with more than 50% of the outlets in non-Tier-1 cities across India.

In FY20, Kalyan Jewellers derived 78% of its revenues from India and the balance 22% from the Middle East. While it has a predominant presence in the Southern part of India, it is the non-South operations that are more profitable. For example, the non-South outlets of Kalyan generate 47.8% of its revenues but 58% of its total gross profits. Kalyan has made a net loss in the 9 months of the current year but that is more due to the lockdown impacting retail sales in a big way.

Does Kalyan Jewellers have a business case?

There are certainly some advantages that the company brings to the table. Here are a few of them encapsulated.

  • Since it is one of the largest jewellery retail outlets in India, it has the benefit of scale when it comes to procurement and design.
  • The strong global outreach, is a good diversification strategy for the company as it de-risks from overdependence on India.
  • Kalyan is a trusted brand in jewellery and an industry where most consumers don’t understand a lot about quality issues, trust is a major benefit.
  • Like most jewellery companies, Kalyan is also likely to benefit from higher gold prices due to inventory translation.

Does the IPO really have shine to invest?

The company has made losses in the first 9 months of this quarter but that is true across most retail outlets and this would be the wrong year to benchmark. Hence valuation metrics may not really be relevant. The IPO price is nearly 70% more than the recent placement done with the investment arm of Warburg Pincus and that makes it a tad richly priced. However, if you are looking to participate in a proxy for Indian gold consumption and in a trusted brand, you can look at Kalyan Jewellers as a long-term bet in your portfolio.

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