Kalyan Jewellers plans to launch IPO by March

After a tumultuous 2020, Warburg Pincus-backed Kalyan Jewellers Ltd is gearing up to hit the primary market before the fiscal-end. Once launched, Kalyan’s share offering of Rs 1,750 crore will be the second biggest by a retail company after DMart’s Rs 1,870 crore share sale in March 2017.

The Kerala-based jewellery retail chain had received the approval from the Securities and Exchange Board of India on October 15. But the demand recession in the gold retail business, induced by the pandemic, high gold prices and restrictions by the government on cash sales, had forced the company to go slow on its IPO plan.

“We are going ahead with the IPO, hoping to start the roadshow soon. Our plan is to hit the market before March-end. After the first two difficult quarters of 2020-21, the third quarter has thrown up positive numbers and we expect a good Q4 too. In the first quarter, almost all our retail outlets were shut, and did only 20% business. In the second quarter, only 80% shops were opened, and we were affected by frequent local lockdowns,” said a senior official.

Its Rs 1,750-crore issue is one of the most anticipated IPOs. The IPO would consist of a fresh equity issue of Rs 1,000 crore and an offer for sale (OFS) worth Rs 750 crore, according to the draft red-herring prospectus (DRHP). Through OFS, the company promoter TS Kalyanaraman is offloading shares worth up to Rs 250 crore, while Highdell Investment, a Warburg Pincus company, selling up to Rs 500 crore worth of its investment. While Kalyanaraman owns 27.41% in the company, the other promoters — his sons TK Seetharam and TK Ramesh — own 22.17% stake each in the retail chain.

The company, which began the journey in 1993 with a single showroom at Thrissur in Kerala, now has 107 stores across 21 states and union territories in India. It also has an international presence with 30 showrooms located in the Middle East as of June 30, 2020. All of its showrooms are operated and managed by the company.

“The number of outlets stands at 137 as of today,” said the official.

In 2019-20, Kalyan Jewellers’ revenue from operations stood at Rs 10,181 crore, a marginal increase of 3.73% from previous year’s Rs 9,814 crore. It also reported a profit of Rs 142.27 crore as compared to a loss of Rs 4.86 crore in 2018-19.

While the success of recent IPOs had given enough confidence to the company, a few issues related to the gold retail industry delayed its debut on the market.

“Like several other gold retail giants, Kalyan is also facing some liquidity-related problems after their business faced headwinds during the pandemic. Some contract manufacturers had cut down their business after the company delayed the payment cycle to them for over a month, after slashing the margin earlier with a promise of quick payment,” said an industry official.

The company sources products through a network of contract manufacturers and procure raw materials through suppliers.

“We procure gold used for our jewellery from various banks in India and in the Middle East for our respective operations in each region as well as from customers directly. As of March 31, 2020, we had outstanding metal gold loans of Rs1,167.14 crore that we procured from various banks,” as per the DRHP. The company’s total outstanding debt, including metal gold loans, stood at Rs 3,640.3 crore as on March 31, 2020.

Axis Capital, Citigroup Global Markets India, ICICI Securities and SBI Capital Markets are the global co-ordinators and book running lead managers to the offer.