Senco Gold’s Remarkable Surge: Trades at 145% Premium to IPO Price

Senco Gold, a leading pan-India jewellery retail player with a rich history spanning over five decades, has witnessed a significant surge in its stock value since its debut on the Indian stock exchanges in July. The company’s shares initially launched at ₹405.3 per share, marking a 28% premium over the IPO price of ₹317. The stock has continued its upward trajectory, reaching an all-time high of ₹823.25 per share in today’s trading session, now trading at an impressive 145% premium over its IPO price.

SBI Securities, a domestic brokerage firm, recently initiated coverage on Senco Gold, giving it a ‘buy’ rating and setting a target price of ₹920 per share. This target reflects an 18.35% upside from the current trading price of ₹777.35 per share.

The brokerage identified several factors contributing to Senco Gold’s growth prospects in the Indian retail jewellery market. Notably, the company’s strong legacy, focus on affordable and modern jewellery, robust business model, expanding regional presence, and effective hedging practices were highlighted as key strengths.

Key Strengths Highlighted by SBI Securities:

1. Strong Legacy and Market Leadership: Senco Gold boasts a remarkable track record of over 50 years in the jewellery business, establishing trust and transparency among customers. The company holds the position of the largest organized jewellery retail player in the eastern region of India, both in terms of store count and among jewellery retailers based in the eastern part of the country.
2. Strategic Focus on Affordable and Modern Jewellery: The brokerage emphasized Senco Gold’s strategic focus on lightweight, modern, and affordable jewellery, aligning with evolving consumer preferences. This targeted approach caters to the upwardly mobile and younger demographic, addressing the shift away from traditional, bulky jewellery.
3. Healthy Margins and Return Ratios: Senco Gold operates through a combination of company-operated and franchise stores, maintaining overall healthy return ratios. The company’s margin-accretive stud ratio (diamond sales) has steadily increased, reaching 11.4% as of 1HFY24, with a goal of reaching 15% within the next 3–4 years.
4. Effective Hedging Practices: The brokerage highlighted Senco Gold’s effective hedging practices, particularly its strategy to hedge gold inventory, ranging from 51% to 100% by weight.

Positive Industry Outlook and Identified Risks: The positive outlook for the Indian jewellery retail sector, with an expected CAGR of 15.4% between FY23 and FY27E, supports Senco Gold’s growth trajectory. However, the brokerage acknowledged potential risks, including intense competition, gold price volatility affecting demand, high working capital requirements, and reliance on skilled artisans.

Investors are closely monitoring Senco Gold’s performance as it continues to demonstrate resilience and strength in the dynamic market.