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Salient features of the IPO:

* The Kerala-based jewelry maker, Kalyan Jewellers India Ltd. (Kalyan Jewellers) is planning to raise up to Rs. 11,750mn through an IPO, which opens on 16th Mar. and closes on 18th Mar. 2021. The price band is Rs. 86 - 87 per share.

* The issue is a combination of fresh issue and OFS. The company will not receive any proceeds from the OFS part. Of the net proceeds from the fresh issue, around Rs. 6,000mn will be utilized to fund the working capital requirement of the company. Residual funds will be used for general corporate purposes

Key competitive strengths:

* Established brand built on the core values of trust and transparency

* One of India’s largest jewellery companies with a pan-India presence

* Hyperlocal strategy enabling it to cater to a wide range of geographies and customer segments

* Extensive grassroots “My Kalyan” network with strong distribution capabilities enabling deep customer outreach

* Visionary promoters with strong leadership and a demonstrated track record supported by a highly experienced and accomplished senior management team & board of directors

* Wide range of product offerings targeted at a diverse set of customers

* Robust and effective internal control processes to support a growing organization and showroom network with a pan-India presence

Risk and concerns:

* Subdued macro economic environment

* Unfavorable product-mix

* Continued losses in the Middle East operations

* Slower expansion in the showroom network

* Difficulties in getting metal gold loans

* Unfavorable forex movements

* Intense competition

Peer comparison and valuation:

At higher price band of Rs. 87, the company is demanding a TTM P/S valuation of 1.2x, which is at a significant premium to the peer average of 0.4x (excluding Titan Company Ltd.).

Below are a few key observations of the issue: 

* Based on FY20 revenue, Kalyan Jewellers is one of the largest jewellery companies in India (Source: RHP). Starting with a single showroom in Thrissur, Kerala in 1993, the company has since than expanded to become a pan-India jeweller 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 31st Dec. 2020). All the showrooms are operated and managed by it. The company also sells jewellery through its online platform www.candere.com.

* Over FY18-20, Kalyan Jewellers generated an average 78% of the total revenue from the domestic market, while the rest from the Middle East operations. In FY20 around 50% of the domestic revenue was generated outside the tier-I cities.

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