Key Management

Promoter T.S. Kalyanaraman, who reportedly has over 45 years of retail experience, of which over 25 years is in the jewellery industry, is the Chairman & Managing Director. Co-promoters T.K. Seetharam and T.K. Ramesh are designated as wholetime directors. Former CEO of Shoppers Stop, Salil Nair has been roped in as a Non-Executive Director since May last year. Chartered Accountant Anish Kumar Saraf, MD of Warburg Pincus, is representing Highdell as a Non-Executive, Nominee Director. Former ED of Indian Overseas Bank, Agnihotra Dakshina Murty Chavali, and former MD of State Bank of Travancore, Mahalingam Ramaswamy , are also on the board as independent directors.

 

Stakeholders  

Currently, the promoter-family holds 67.99% of the equity of Rs 938 cr at a negligible cost. Highdell is holding the balance 32.01% at an average cost of Rs 56.61. Post-IPO, of the enlarged equity of Rs 1030 cr, the promoters would hold 60.53% and Highdell will have 26.36%. Whereas the IPO investors would be holding 13.11% at a cost of Rs 87, the promoters and the private equity will hold at a negative cost.

Business Track 

Kalyan is one of the largest jewellery retailers in India based on revenue. At the end of December 2020, the company had 107 showrooms across 21 states and union territories in India and 30 showrooms in the Middle East. Kalyan designs, manufactures and sells a wide range of jewellery products at varying price points for uses ranging from jewellery for special occasions such as weddings, which is its highest sold product category, to daily-wear jewellery. The company offers gold jewellery, studded jewellery (including diamond) and other jewellery (including platinum and silver). In Fiscal 2020 and in the nine months ended December 2020, 74.77% and 75.88% of its revenue was from the sale of gold jewellery, 23.36% and 21.72% was from the sale of studded jewellery and 1.87% and 2.40% was from the sale of other jewellery.

Within these product categories, Kalyan offers jewellery for personal milestones and occasions, festival jewellery, wedding jewellery, daily-wear jewellery and men’s jewellery, with many different jewellery options, including rings, earrings, pendants, bracelets, necklaces, chains, waist bands and bangles. While the company produces popular jewellery at scale, it also offers niche jewellery for specific target markets and consumer groups.

The broad product range enables the company to cater to customers across age groups, socio-economic status levels and genders, and also meet the needs of customers at all stages of their lives, where the company attempts to target customers at earlier stages of their life cycles and hence meet their jewellery needs over time. Further, Kalyan is aiming at catering to local preferences in the geographies in which the company operates by using local artisans as contract manufacturers to produce jewellery that aligns with local tastes.

Financial Track 

Jewellery companies’ performance is always linked the gold price as price surge will boost the inventory value. However, Kalyan has registered an unimpressive growth in recent years despite the upsurge in gold prices. The company’s consolidated sales stood at Rs 10,548 cr in FY18 on which it netted a profit of Rs 138 cr. In FY19 sales dropped to Rs 9,771 and the bottom line crashed to less than Rs 1 cr as increased depreciation and interest pulled almost wiped out the profit.

The company partially recouped its performance in FY20 but, the pandemic took a heavy toll which resulted in loss in the first 9 months of the fiscal 2021. What’s more, for the first time after a long gap, the company had negative cash flow from operations in this period.

Kalyan Jewellers Consolidated Financials (in Cr)
Period Ended	Dec-20	Mar-20	Dec-19	Mar-19	Mar-18
Months	9	12	9	12	12
Revenue	5516.70	10100.92	7960.20	9770.76	10547.95
Operating Profit	366.62	760.27	580.71	580.34	732.75
OPM%	6.6	7.5	7.3	5.9	6.9
Other Income	33.09	80.10	39.77	43.27	32.25
EBIDTA	399.71	840.37	620.48	623.60	765.00
EBIDTA %	7.2	8.3	7.8	6.4	7.2
Interest	288.78	380.32	287.53	379.06	349.18
Depreciation	170.05	239.17	179.09	223.62	202.03
Net Profit	-104.59	161.76	113.75	0.49	138.42
Equity (Implied)	1030.05	839.24	839.24	839.24	839.24
Reserves (Implied)	2208.36	1202.82	1142.77	1045.93	1012.09

As compared to the consolidated performance, the company’s standalone financials were relatively better. This indicates that the subsidiaries were a drag on the company. The company’s capital base is already very large at Rs 839 cr which will increase to Rs 1030 post-IPO. The current profitability is too low to adequately service the unjustifiably large capital base.

Kalyan Jewellers Standalone Financials (in Cr)
Period Ended	Dec-20	Mar-20	Dec-19	Mar-19	Mar-18
Months	9	12	9	12	12
Revenue	4710.57	7845.83	6218.04	7448.17	8303.67
Operating Profit	430.38	636.13	475.34	461.95	622.85
OPM%	9.1	8.1	7.6	6.2	7.5
Other Income	41.58	98.30	57.58	58.42	18.75
EBIDTA	471.97	734.43	532.92	520.36	641.60
EBIDTA %	9.9	9.2	8.5	6.9	7.7
Interest	242.81	313.13	234.27	309.42	302.94
Depreciation	131.91	185.98	140.22	174.53	149.91
Net Profit	51.84	176.27	118.33	15.98	113.38

Valuation 

Kalyan has priced its IPO at a P/E multiple of over 55x. The pricing may look reasonable if one compares it with Titan. But, Titan’s financials are far better than Kalyan. Moreover, Kalyan is floating the IPO when the market is in an upbeat mood. Should the market take a turn, in the absence of a credible bottom line, Kalyan’s stock may face trouble. Moreover, post-lock-in period, the private equity (Highdell) can dump the residual stake as its cost of holding is negative.

Financials
(Amount in Cr)	Kalyan	Titan	PC Jewel	Thangamayil	Tribhovandas
Market Cap	8961	131943	1235	847	513
Revenue	10101	20768	5207	1692	1810
Other Income	80	153	80	0	4
EBIDTA	840	2616	532	101	116
Interest	380	166	369	21	56
Net Profit	162	1531	78	50	19
Equity Cap	1030	89	395	14	67
Reserves	2208	6580	3608	206	414
Stock Features
Current Price (Rs)	87	1483	31	618	77
Face Value (Rs)	10	1	10	10	10
Book Value	31	75	101	160	72
Promoter Stake %	61.5	52.9	46.4	69.9	74.1
Debt/Equity (x)	0.75	0.11	0.57	1.07	1.14
Profitability
OPM %	7.5	11.9	8.7	6.0	6.2
Net Margin %	1.6	7.3	1.5	3.0	1.1
Cash EPS	3.90	21.22	2.91	43.80	7.75
Earnings Per Share	1.58	17.31	1.97	36.38	2.92
Growth
CAGR 3Yr Sales %	7.8	17.8	-14.2	9.9	2.1
CAGR 3Yr EBIDTA %	16.6	32.6	-14.6	26.7	17.4
PEG (P-E/EPS Growth %)	0.0	6.5	0.0	0.3	0.6
Return
RONW %	7.5	23	1.9	22.7	4.1
ROCE %	13.1	30.7	7.9	19.9	8.2
Discounting
Price/Earnings	55.2	85.7	15.9	17.0	26.3
Price/Cash EPS	22.3	69.9	10.7	14.1	9.9
Price/Book Value	2.8	19.8	0.3	3.9	1.1
Price/EBIDTA	10.7	50.4	2.3	8.4	4.4
Distribution
Dividend %	0	400	0	50	10
Yield %	0	0.3	0	0.8	1.3

Concern 

• Any further spread of the Corona virus could negatively impact Kalyan’s business, revenues and financial condition.

• Claims against the company related to direct and indirect taxes amount to a hefty Rs 445 cr.

• The jewellery retailer has spent Rs 270 cr on aircrafts acquisition which is certainly not in the interest of the public shareholders. Not long ago, Government of India (DGCA) directed the company to submit an explanation on the induction of directors on its Board without prior security clearance. Pursuant to a letter dated November 23, 2020, the DGCA has allowed the company to resume flight operations under private category subject to grant of security clearance. If an adverse order is passed in this matter against the company, or if the Directors on its Board who were inducted without prior security clearance do not receive the same, the private category aviation operations may be suspended or such directors may be subject to removal from Kalyan’s board.