The company and its shareholders plan to raise Rs 1,175 crore from the market. The issue, priced in the range of Rs 86-87, comprises a fresh issue aggregating up to Rs 800 crore, and an offer for sale worth up to Rs 375 crore.
At Rs 87 per share, the stock is available at 0.9 times FY20 market cap/sales, and 63 times FY20 EPS. In comparison, at the current price, Titan is valued at 186.74 times earnings. Despite being relatively cheaper, investors do not seem that enthused about the issue.
In the grey market, the stock is trading in the range of Rs 93-95, translating in a premium of about 8 per cent, which is not much compared to how other issues that are slated for this week are trading. However, analysts see potential in the company’s future growth.
“In terms of valuations, the pre-issue TTM EV/Sales works out to 1.4x (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 Kalyan,” said Amarjeet Maurya – AVP – Mid Caps, Angel Broking.
“Going forward, we believe that the company would perform better on the back of a strong brand and number of stores in India and internationally. Thus, we recommend a ‘subscribe’ rating on the issue,” he added.
Kalyan Jewellers (KJIL) is one of India’s largest jewellery companies. The key business activities of the company include designing, manufacturing, and selling a variety of gold, studded and other jewellery products focused on various occasions, such as weddings and festivals. It has 107 showrooms located across 21 states and 30 showrooms located in the Middle East.
Analysts at Geojit Financial Services said at the upper price band of Rs.87, the price is on the higher side, but on a long-term basis, KJIL is available at one-year forward estimated PE of 25 times (on an expected FY23 EPS basis).
“Given forecast improvement in profitability and 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,” the broker said.
The company has proposed to utilise the funds for funding working capital requirements and for general corporate purposes.
Analysts at Geojit and ICICI Securities state the following key risks:
- Inability to maintain brand strength and development of brands
- Inability to maintain and establish arrangements with contract manufacturers and suppliers
- Rich valuation versus peers may be a bearing on short-term performance
- Volatility in gold prices, seasonality of business and impact of government policies
- High competition from both organised and unorganised players
The Kalyan Jewellers India IPO will close for subscription on March 18.