Senco Gold Shares Surge Over 8% as Emkay Global Predicts 24% Upside Potential

Senco Gold’s share price exhibited a robust surge of 8.44%, reaching ₹509.25 per share on the BSE during Thursday’s trading session. Since its listing in July, Senco Gold shares have witnessed an impressive rally, accumulating gains of more than 18%.

Senco Gold made a remarkable debut on Indian stock market exchanges on July 14, entering the market with a premium of over 35%, opening at ₹431 on the BSE.

Market analysts believe that Senco Gold shares are currently trading at a substantial discount compared to their industry peers, leaving room for further potential growth.

Emkay Global Financial Services has initiated coverage on Senco Gold, assigning it a ‘Buy’ rating and setting a target price of ₹630 per share. This target price suggests an estimated upside of approximately 24% from the recent high on Thursday.

Senco Gold proudly claims its position as one of the top two companies in terms of revenue share in the ₹800 billion eastern market. This strong position is bolstered by its superior brand accessibility compared to its competitors, encompassing product range, pricing, and market penetration.

Emkay Global stated in a report, “The growth potential is substantial, as Senco’s market share in the East still remains in the mid-single digits, and concerted efforts are underway to capitalize on non-Eastern markets. Improved access to capital, heightened franchisee interest, and a shift towards organized operations are expected to drive a robust revenue-led Earnings Per Share (EPS) Compound Annual Growth Rate (CAGR) of over 20% for Senco from FY23 to FY26.”

The analysts at Emkay Global anticipate that growth will be driven by a combination of new store openings and Same Store Sales Growth (SSG). Senco’s meticulous practices in sourcing and hedging gold (with a 50% stated policy) help mitigate the volatility risk associated with this commodity.

While Senco achieves a Return on Equity (RoE) of 13-14% in Company-Owned Company-Operated (COCO) stores, returns in Franchisee-Owned Franchisee-Operated (FOFO) stores are significantly higher due to minimal inventory investments.

In comparison to its peers, Senco’s returns are on par with Kalyan Jewelers or even surpass them, outperforming most listed jewelry retailers. Despite having lower revenue per store, mainly due to the lower per-capita income in the East, this is offset by the reduced inventory requirements at Senco’s stores, according to Emkay Global analysts Devanshu Bansal and Bhavika Choudhary.

In terms of valuations, analysts believe that Senco Gold’s stock currently trades at a substantial discount compared to its peers, making it a potential candidate for a significant rerating based on earnings certainty. Emkay Global points out that Senco Gold’s forward Price-to-Earnings (P/E) ratio of 19x for the next year offers substantial room for rerating, especially when compared to the valuations of its industry peers.

Emkay Global further stated, “We anticipate Senco to achieve approximately 20% PAT CAGR over FY23-26E, which aligns with some of the best-performing companies in the sector. Despite similar growth prospects, Senco is trading at approximately a 40% discount to Kalyan Jewelers. While Kalyan possesses a relatively stronger brand presence for faster nationwide expansion, we believe such a significant discount is unjustified and creates the potential for a rerating as Senco continues to meet our expectations going forward.”

As of 2:20 pm, Senco Gold shares were trading 5.85% higher at ₹497.05 per share on the BSE.

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