Kalyan Jewellers IPO opens tomorrow, should you subscribe?

Warburg Pincus-backed Kalyan Jewellers Rs 1,175 crore initial public offering (IPO) is set to hit the streets on Tuesday, March 16. The price band for the issue has been fixed at Rs 86-87 per share. Investors can bid for a minimum of 172 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,964 at the higher end of the price band. A retail investor can at max apply for 13 lots or 2,236 shares for 1,94,532.

The public offer of Kerala-based jeweller comprises a fresh issue of equity shares worth Rs 800 crore and offer-for-sale (OFS) worth Rs 375 crore by promoters and shareholders. Promoters will sell Rs 125 crore worth of shares while the private equity investor, Warburg Pincus will sell Rs 250 crore worth of shares.

Kalyan Jewellers India Ltd. (KJIL) is one of the largest jewellery companies in India. It has become a pan-India jewellery company, with 107 showrooms located across 21 states and union territories in India, and also have an international presence with 30 showrooms located in the Middle East as of December 31, 2020. All of its showrooms are operated and managed by themselves.

Grey market premium

In the grey market, Kalyan Jewellers shares were trading at Rs 95, implying a premium of Rs 8 or 9% over the IPO price.

“Except Titan in listed space, most of the jewellery stocks are underperforming. On the financial front, growth looks tepid while the valuations looks expensive,” said grey market commentator Abhay Doshi, Founder, UnlistedArena.com.

Brokerage view

Angel Broking – Subscribe

“In terms of valuations, the pre-issue TTM EV/Sales works out to 1.4 (at the upper end of the issue price band), which is low compared to Titan Company (trading at 7.7x). However, Titan company has a better financial track record compared to KJIL. Going forward, we believe that KJIL would perform better on the back of a strong brand and number of stores in India & internationally. Thus, we recommend a subscribe rating on the issue,” said Amarjeet Maurya, AVP – Mid Caps at Angel Broking

Geojit Financial Services – Subscribe

“At the upper price band of Rs.87, the pricing is on the higher side, but on a longterm basis, Kalyan jewellers is available at 1 year forward estimated P/E of 25x (on FY23E basis). Given the forecasted improvement in profitability & balance sheet, India’s appetite for gold, strong pan India presence, brand recall and diversified product offering, we assign a “Subscribe” rating on a long-term basis,” stated the brokerage firm in a report.

Marwadi Shares and Finance – Subscribe

“Considering FY20 adjusted EPS of 1.38 on a post-issue basis, the company is going to list at a P/E of 62.99X with the market cap of Rs.89,615 mn while its peer Titan is at a P/E of 84.23X. We recommend to ‘Subscribe’ this issue as the company has established brand value with a strong distribution network and pan India presence with a wide range of product offerings for a diverse set of customers. The IPO is reasonably priced as compared to the peers and long-term prospects of the company looks promising,” noted the report.

ICICI Securities – Unrated

“The company has witnessed an improvement in gross margins from 16 per cent in FY18 to 18 per cent in 9MFY21 owing to an enhanced share of studded ratio. It has faced headwinds in the past couple of years. As of FY20, it reported revenue and net profit worth Rs 10,101 crore and Rs 142 crore, respectively. At Rs 87, the stock is available at 0.9x FY20 market cap/sales and 63x FY20 EPS,” the report said.

The issue will close on March 18, the basis of allotment will be finalized by March 23, and the initialization of funds will take place by March 24. While the credit of equity shares to depository accounts of allottee will be done on March 25. The jeweller is expected to make its stock market debut on March 26, 2021.