One of the most awaited IPOs, especially amongst Keralites, has opened for subscription today— March 16, 2021. Kalyan Jewellers, which is part of one of the oldest business groups with a strong legacy in India, will soon go public. This IPO will be amongst four others that are hitting the markets this week. Let us have a detailed understanding of Kalyan Jewellers and its IPO.
Company Profile – Kalyan Jewellers
Kalyan Jewellers is one of the largest jewellery companies in India. It primarily designs, manufactures, and sells gold, studded, and other jewellery products for special occasions such as weddings and festivals. They offer a wide variety of traditional and contemporary jewellery designs in gold, diamond, and other precious metals. It opened its first showroom in Thrissur, Kerala in 1993. Since then, it has expanded rapidly and has established 107 showrooms across 21 states and union territories in India. The jewellery company has a strong presence in the Middle East with around 30 showrooms. Kalyan Jewellers also operates a network of 766 ‘My Kalyan’ stores (service centres) around the world. As of December 2020, nearly 78.19% of its revenue came from India, and the remaining 21.81% from the Middle East.
Over the years, Kalyan Jewellers has allocated a major part of its finances towards eye-catching advertisements or promotional activities. It has roped in a large number of prominent stars such as Amitabh Bachan, Katrina Kaif, Nagarjuna, and Manju Warrier, to name a few. These campaigns have played a vital role in driving sales growth.
The company’s strong growth and expansion can be attributed to the vision and efforts of the Kerala-based Kalyan Group. The jeweller is run by a set of experienced promoters and managers, headed by T.S. Kalyanaraman Iyer. It is also backed by one of the largest private equity firms in the world— Warburg Pincus. Kalyan Jewellers has established itself as the second-largest pan-India jeweller after Titan Company (Tanishq).
About the IPO
Kalyan Jewellers had received approval from market regulator SEBI to float an initial public offering (IPO) in October 2020. The public issue will open on March 16, 2021, and close on March 18, 2021. The total issue size of the IPO is Rs 1,175 crore. This comprises a fresh issue of 9.19 crore equity shares aggregating up to Rs 800 crore. It also includes an offer for sale (OFS) of 4.31 crore equity shares (aggregating up to Rs 375 crore) by its promoters. The price band for the IPO has been fixed at Rs 86-87 per share.
Retail investors like you and I can bid for a minimum of 172 equity shares (1 lot), which will amount to Rs 14,964. The maximum number of shares that can be applied by an individual investor is 2,236 equity shares (or 13 lots). Thus, the maximum amount one can invest in the IPO is Rs 1,94,532. But take care not to apply for more than 1 lot, as your capital may get blocked for no reason if the IPO is oversubscribed.
Kalyan Jewellers will utilise the net proceeds from the IPO for two main purposes:
- To finance the company’s working capital requirements. A sum of Rs 600 crore from the total proceeds will be allocated for the same.
- The remaining amount will be used to meet general corporate purposes.
The promoters, led by T.S Kalyanaraman and Highdell Investments Ltd, currently hold a 67.99% stake in the company. This figure will fall to 60.53% post the successful completion of the IPO.
|.||31 Dec 2020(FY 21)||31 March 2020 (FY20)||31 March 2019 (FY19)||31 March 2018 (FY18)|
|Profit/Loss After Tax||(79.94)||142.27||(4.86)||140.9|
From the chart, it is clear that Kalyan Jewellers’ revenues have been fairly consistent/stable since 2018. However, it posted a net loss of Rs 4.8 crore in FY19. This can be attributed to the effect of the flash floods in 2018-19 in the southern regions of India (where the company has a strong foothold). It was able to return to a profit of Rs 142 crore in the next financial year. And now, the Covid-19 pandemic has severely impacted its overall operations and revenues in the current financial year. The company faced a one-time hit of Rs 40.2 crore for closing down showrooms in the Middle East (as they were making losses).
Over the past 3 years, the company’s revenue has grown at a CAGR of -2%. Earnings Before Interest and Tax (EBIT) has grown at a yearly rate of -0.9% during the same period. Total assets have remained in the range of Rs 8,000-crore levels. Thus, it is clear that Kalyan Jewellers is showing very sluggish (slow-paced) growth. Its Return on Net Worth (RoNW) is just 6.63%, which is very low compared to Titan Company’s RoNW of 22.38.
The company’s large debts are also a cause of concern. Currently, it has Rs 55.7 crore in long-term borrowings and Rs 2,635.5 crore in short-term borrowings. Total debt, including metal gold loans, stood at Rs 3,667 crore as of December 2020.
- The Covid-19 pandemic is likely to have caused a significant impact on the company’s business operations, revenues, and future results. Kalyan Jewellers had to temporarily close down its showrooms and ‘My Kalyan’ centres in India and the Middle East for a few months due to lockdown restrictions.
- To a large extent, the company’s revenue and operations are impacted by global and domestic economic conditions. If there is a downturn in these factors (such as large fluctuations in gold prices), consumer spending on Kalyan’s products may be affected.
- The company may be unable to respond to changes in consumer demands and market trends in a timely manner. It is quite difficult to assess or predict the preferences of customers, which keeps changing rapidly.
- Kalyan Jewellers may not be able to establish arrangements with contract manufacturers and suppliers. It may also experience supply-chain disruptions or quality control risks in the operations of such parties.
- The current geographic concentration of Kalyan’s operations exposes it to regional economic downturns or natural disasters. For example, the company’s operations were severely hit in 2018-19 due to flash floods in Kerala. The Kerala market accounts for nearly 10% of the overall revenue.
- The ownership of retail outlets in Middle East countries is subject to restrictions of the Gulf Cooperation Council (GCC).
IPO Details in a Nutshell
|IPO Date||March 16, 2021 – March 18, 2021|
|Issue Type||Book Built Issue IPO|
|Face Value||Rs 10 per equity share|
|IPO Price||Rs 86 to Rs 87 per equity share|
|Lot Size||172 shares|
|Issue Size||Aggregating up to 1,175 crore|
|Fresh Issue (goes to the company)||Aggregating up to Rs 800 crore|
|Offer for Sale (goes to promoters)||Aggregating up to Rs 375 crore|
|Listing Date||March 26, 2021|
|Listing At||BSE, NSE|
Axis Capital, Citigroup Global, ICICI Securities, SBI Capital Markets, and BOB Capital Markets have been appointed as the book-running lead managers to the public issue. Kalyan Jewellers had filed draft papers for its IPO in August 2020. You can read it here.
In the current scenario, Kalyan Jewellers is having a tough time improving its revenues. However, the power behind its brand and legacy is well-known by most of us. Over the years, the company has been able to cater to the needs of Indians and their never-ending love for buying gold. As always, do consider the risks associated with this company and come to your own conclusion.
Before applying for Kalyan Jewellers’ IPO, I will personally wait to see if the portion reserved for institutional investors gets oversubscribed. Looking at the recent trend, most IPOs are providing a select few with amazing listing gains. Kalyan Jewellers’ IPO is most likely to attract significant investor participation as well.
What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section.