Kalyan Jewellers shares fall 16% against issue price on stock market debut

26-03-2021

Kalyan Jewellers shares fell as much as 16% to Rs 73 on the BSE compared to its issue price of Rs 87 as it got listed on stock exchanges on Friday (March 26) after a successful IPO. Despite overall positive markets, shares of India's second-biggest jeweller made a weak listing as analysts believe its shares were overvalued while its profitability was low compared to market leader Titan Company. As of 10:18 am, Kalyan Jeweller shares traded 9.07% lower at Rs 80.60 apiece.

The Rs 1,175 crore IPO of Kalyan Jewellers, which was open for subscription between March 16 and 18, was subscribed 2.61 times. At the issue price, the stock was valued at 63 times FY20 EPS as compared to 85 times for Titan. Despite being relatively cheaper than Titan, analysts were not very optimistic about the issue because of its weak profitability and weak balance sheet.

Kalyan Jewellers was established in 1993 and was a regional player for a long time. Later it expanded pan-India and in the Middle East as well. As of December 31, 2020, it had 107 showrooms in India and 30 in the Middle East. The company designs, manufactures and sells gold, studded and other jewellery products. Gold jewellery contributes more than 70% of the total revenue of the company while the rest comes from studded and other jewellery products.

Although Kalyan Jeweller is the second-largest jeweller in India after Titan Company, its financial performance is nowhere close to Titan. Between FY18 and FY20, Kalyan Jeweller’s net sales dropped by 4% to Rs 10,101 crore, while net profit was Rs 142 crore with a net margin of 1.4%. During the same period, Titan’s jewellery business grew by 31%. Kalyan's operating margin (EBIT margin) stood at 5.2% as compared to 12% for Titan. Titan’s return on equity (RoE) for FY20 was 24% while it was 6.6% for Kalyan.

In the first nine months of the current financial year (FY21), Kalyan’s revenue fell by 30% year-on-year to Rs 5,516 crore due to store closure amid the nation-wide lockdown imposed to contain the spread of the Covid-19 pandemic. The company posted a net loss of rs 80 crore against Rs 94 crore profit a year ago. The company had total borrowings of Rs 2,691 crore at the end of December, mostly short-term loans for working capital requirements.