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Home >Markets >Mark To Market >Kalyan Jewellers shares make dull debut, with investors appreciating risks more

MUMBAI: All that glitters is not gold. Kalyan Jewellers India Ltd’s initial public offering (IPO) is a case in point. The shares listed on the bourses today and traded about 10% lower than the issue price of Rs87 apiece on the National Stock Exchange at the time of writing this story.

Kalyan’s debut follows the subdued listing pattern that some of the recent IPOs have seen. Shares of Anupam Rasayan India Ltd and Suryoday Small Finance Bank Ltd also listed below their issue price. Indeed, the miserable show put up on listing day in the month of March suggests that the post-covid IPO bubble has burst.

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To be sure, some analysts had pointed out that Kalyan’s IPO valuations were pricey. Geojit Financial Services Ltd said in a report, “At the upper price band of Rs.87, the pricing is on the higher side." Geojit added, “Rich valuation versus peers may bear on short term performance."

Moreover, it’s not as if the prospects for Kalyan Jewellers were bright to begin with. For one, jewellery companies, barring a few names, have not been able to generate returns for investors. Moreover, Kalyan’s financials show it has lagged on the revenue performance meaningfully. Over FY18-20, the company’s revenues have declined at a compounded annual growth rate (CAGR) of 2%. One reason for the subdued performance, according to Kalyan, is that its financial year 2019 performance was adversely impacted owing to floods in the southern parts of India.

Even so, it’s remarkable that jewellery retailer, Titan Co. Ltd has been able to grow its revenues in recent years. For perspective: Titan’s jewellery business revenues have increased to about Rs17,300 crore in FY20 from Rs13,250 crore in FY18.

Unsurprisingly then, analysts aren’t gung-ho on Kalyan’s delivery on revenue growth.

But that’s not the only worry. As analysts at Prabhudas Lilladher Pvt. Ltd point out in a report on 15 March, “Although we expect Kalyan to bounce back in FY22 backed by improved demand, peaked out losses in middle east (Rs160 crore in 9mFY21) and benefits of working capital infusion through IPO, return ratios will likely remain anemic in the medium term."

Going ahead, demand remains a key moniterable. Broadly, jewellery companies have done well in the December quarter, helped by the pent-up demand and festive season. Investors should watch whether the positive momentum continues in the current quarter as well. Increasing competition is a risk too, point out analysts.

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