Senco Gold: This jewellery stock is trading at 145% premium to its IPO price; is there room for more gains?
The company’s shares debuted on the Indian stock exchanges on July 14 at ₹405.3 per share, a 28% premium over the issue price of ₹317. The stock continued its upward trend over the next five months, reaching an all-time high of ₹823.25 per share in today’s trade. Currently, the stock is trading at a 145% premium over its IPO price.
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Senco Gold is a pan-India jewellery retail player with a history spanning more than five decades. The company’s products are sold under the brand ‘Senco Gold & Diamonds’ through multiple channels, which include owned stores, franchise stores, and various online platforms.
In its recent note, domestic brokerage firm SBI Securities initiated coverage on the stock with a ‘buy’ rating, setting a target price of ₹920 apiece. This target price indicates an upside of 18.35% for the stock from its current trading price of ₹777.35 apiece.
The brokerage foresees significant growth prospects for Senco Gold in the Indian retail jewellery market, citing its strong legacy, focus on affordable jewellery, robust business model, growing presence across regions, and proper hedging practices.
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Strong legacy of over 5 decades: The brokerage highlighted the company’s strong track record of over 5 decades in the jewellery business, ensuring trust and transparency among the customers.
It said that the company holds the position of the largest organised jewellery retail player in the eastern region of India, both in terms of store count and among jewellery retailers based in eastern India.
Focus on lightweight, modern, and affordable jewellery: The brokerage noted Senco Gold’s strategic focus on lightweight, modern, and affordable jewellery, targeting the upwardly mobile and younger demographic. This approach aligns with evolving consumer preferences, as there is a discernible shift away from traditional, bulky jewellery towards more contemporary and lighter fashion pieces, it added.
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Healthy overall margins and return ratios: Senco Gold operates through a mix of company-operated stores and franchise stores. While margins from the franchise store are lower than margins at CO stores, sales through the franchise store command relatively better RoE/RoCE, which helps to improve overall company-level return ratios.
Additionally, the brokerage highlighted the company’s margin-accretive stud ratio (diamond sales), which has increased from 5% in FY18 to 7% in FY23. As of 1HFY24, the blended stud ratio stands at 11.4%, with a company goal of reaching 15% within the next 3–4 years, the brokerage underscored.
Proper hedging practices: It emphasised Senco Gold’s effective hedging practices, highlighting the company’s strategy to hedge its gold inventory, ranging from a minimum of 51% to a maximum of 100% by weight.
Positive industry outlook favouring the growth of organised players: India is the second-largest consumer of gold in the world after China. As per industry statistics, the market size of the Indian jewellery retail sector is likely to grow at a CAGR of 15.4% between FY23 and FY27E.
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Keeping its positive stance, the brokerage also outlined some of the key risks, including intense competition, volatility in gold prices that may dampen jewellery demand, high working capital requirements, and dependence on skilled signers and Karigars.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 14 Dec 2023, 03:23 PM IST
