The company designs, manufactures and sells a wide range of gold, studded and other jewellery products across various price points ranging from jewellery for special occasions, such as weddings, which is the highest-selling product category for the company, to daily-wear jewellery.

The number of total showrooms of the company has increased from 77 end March 2015 to 137 showrooms end December 2020 and the company intends to continue to open additional showrooms as the company expects significant opportunity for further penetration in its existing markets as well as in new markets, primarily in India. The company also sells jewellery through an online platform at www.candere.com.

Out of 72 of 137 showrooms were located outside of South India and operations outside of South India contributed 57.69% of gross profit and 47.81% of revenue in FY2020. In addition, the company has a relatively diversified presence across larger and smaller cities, semi-urban and rural regions. For FY2020 and in the nine months ended December 31, 2020, approximately 51.29% and 53.08% of revenue in India was generated from sales outside of tier-I cities.

The revenues of the company stood at Rs 5516.70 crore in 9MFY2021 and Rs 10100.92 crore in FY2020. The sale of gold jewellery contributed 75.88% of revenue from operations, sale of studded jewellery (which includes diamonds and precious stones) 21.72% and sale of other jewellery 2.40% in 9MFY2021 compared with 74.77%, 23.36% and 1.87% in FY2020. The domestic business contributed 86.21% of revenues in 9MFY2021 and 78.19% in FY2020, while the rest of the revenues came from the Middle East.

The company is operating as a hyperlocal jewellery company. Its grassroots My Kalyan customer outreach and service centre network is another key element of hyperlocal strategy which enables it to be a neighbourhood jeweller and is focused on marketing and customer engagement across urban, semi-urban and rural areas in India. My Kalyan network consists of multiple service centres that are located in a wide radius around most of its showrooms. The company employs dedicated My Kalyan personnel at these service centres who engage in door-to-door and other direct marketing efforts within their local communities to promote brand, showcase product catalogue, enroll customers in purchase advance schemes, enrich customer database and help drive traffic to showrooms nearest to that area. The company had 766 My Kalyan locations and 2,699 dedicated My Kalyan employees at the end December 2020. My Kalyan network contributed 17.02% and 20.82% of revenue from operations in India and 30.88% and 36.02% of the enrolment to purchase advance schemes in India in FY2020 and in 9MFY2021.

The company was founded by Chairman, Managing Director and Promoter, T.S. Kalyanaraman. The company is led by whole-time Directors and Promoters, T.K. Seetharam and T.K. Ramesh who oversees the development of business strategy. The company has built an experienced team of senior management professionals, led by Chief Executive Officer, Sanjay Raghuraman, who joined the company in 2012 when the company was only present in South India and has been a key figure in geographical expansion of the company and evolution into a pan-India business.

Given the slowdown in the general economy of the Middle East countries, the company chose to permanently close seven showrooms during the lockdown. To reduce the impact of covid-19 on operations, the company has proactively taken various steps to manage expenses and liquidity, while the company did not lay off any of employees or terminate contractual arrangements with suppliers and contract manufacturers during the lockdown period. In May 2020, the company resumed operations and in June 2020 the company opened most of the showrooms. In Q3FY2021, the company generated revenues in showrooms in India that were higher than pre-covid-19 levels. Furthermore, in the long-term, the company expect the impact of the COVID-19 pandemic to further accelerate the shift of the jewellery market from unorganized players to organized chains and provide the company with a competitive advantage in the long-term and hence the company intend to leverage the strength of the brand, pan-India presence and My Kalyan network to increase sales and expand presence in several markets.

The company intends to Leverage its scalable business model to expand the showroom network and diversify channels of distribution. It would widen product offerings to further increase consumer reach. The company intends to continue leveraging My Kalyan network to deepen customer outreach and strengthen the distribution network in core markets. The company also plans to expand My Kalyan network in tandem with showroom footprint in order to promote the brand, showcase product catalogue, enrich customer database and help drive traffic to showrooms. The company intends to continue to invest in customer relationship management, or CRM, strategies, campaigns, and technologies to analyze and manage customer interactions and related data throughout the customer lifecycle, with the goal of creating a long-term relationship with customers, building customer retention and driving sales.

The Offer and the Objects

The initial public offer comprises fresh issue of equity share of Rs 800 crore, aggregating to 9.30 crore equity shares at the lower price of Rs 86 and 9.20 crore equity shares at the upper price band of Rs 87. The issue also comprises an offer for sale (OFS) of Rs 375 crore, aggregating to 4.36 crore equity shares at the lower price of Rs 86 and 4.31 crore equity shares at the upper price band of Rs 87.

The offer for sale of equity shares comprises OFS aggregating of equity shares up to Rs 125 crore by one of the promoters T.S. Kalyanaraman and investing shareholder Highdell Investment for Rs 250 crore.

The post issue promoters shareholding in the company would decline to 60.53% from 67.99%.

The offer includes a reservation of equity shares aggregating up to Rs 2 crore, for subscription by eligible employees with the discount of Rs 8 per share.

The issue, through the book-building process, will open on 16 March 2021 and will close on 18 March 2021.

The company proposes to utilise Rs 600 crore from the net proceeds from fresh issue of equity shares to fund its working capital requirements and rest for the general corporate purpose.

The company expects that listing of the Equity Shares will enhance visibility and brand image and provide liquidity to Shareholders and will also provide a public market for the Equity Shares in India.

Strengths

The company has endeavoured to establish a strong brand in the Indian jewellery market. The company was among the pioneers in the Indian jewellery market in instituting the highest quality standards for its jewellery and introducing complete price transparency with products, while helping to strengthen its brand by building customer trust and promoting transparency.

The company is one of the largest jewellery companies in India based on revenue with a pan-India presence with 107 showrooms located across 21 states and union territories in India and also has 30 showrooms located in the Middle East.

One of the key competitive strengths of the company is its ability to operate as a hyperlocal jewellery company. The company endeavours to cater to its customers' unique preferences, which often vary significantly by geography, through local market expertise and region-specific marketing strategy and advertising campaigns. The company engages local artisans to manufacture jewellery that is suited to local tastes.

A significant proportion of India's gold jewellery demand originates from rural and semi-urban markets where the penetration of organised jewellery companies has historically been even lower, and its Extensive grassroots network of My Kalyan centres provides with a marketing tool to help address the latent demand that exists in some of these markets with strong distribution capabilities enabling deep customer outreach.

The company provides a wide range of product offerings targeted at a diverse set of customers. Its product spans from jewellery for special occasions, such as weddings, to daily-wear jewellery, and the product portfolio also caters to a wide range of price points. The company has launched numerous sub-brands that address specific customer niches

The company caters to Technology savvy customers through an online platform. Recognizing early the powerful potential of engaging customers online in an increasingly digitally connected world, the company invested and acquired a majority stake in Enovate Lifestyles and its online platform, www.candere.com. Through this platform, customers can purchase a wide variety of jewellery under the Candere and Kalyan brands, as well as enroll in purchase advance schemes.

The company has established a robust set of operational and control processes to manage business operations and to support future growth at both the showroom and corporate level. The company has built robust information technology and operational management systems for operations. These systems are specific to business needs to ensure best-in-class standards of controls and operational efficiency.

Weaknesses

The brand 'Kalyan Jewellers' and other sub-brands are very important for the business. The jewellery business is influenced by the strength of brands, including the level of consumer recognition and perception of brands, which is turn depends on factors such as growth, product designs, the materials used to make products, the quality of products, the distinct character and presentation of products as well as the presentation and layout of showrooms.

The company depends on staff to promote and sell products in an environment that is consistent with the perception and reputation of brands.

The business success depends on ability to identify, originate and define product and market trends, both on a pan- India, international and more local level, as well as to anticipate, gauge and react to rapidly changing consumer demands in a timely manner.

The operations located in countries in the Gulf Cooperation Council (GCC), which contributes around 20% of revenues have foreign ownership laws that provide that nationals of these countries must hold a certain percentage of the shares of companies incorporated in these countries.

The business is dependent on the trust customers have in brand and the quality of products. Any negative publicity regarding the company, brand, products or the jewellery industry generally could adversely affect reputation and business.

The business requires a substantial amount of working capital, primarily to finance inventory, including the purchase of raw materials. The working capital loans on a consolidated basis stands at Rs 3438.99 crore end December 2020. The cost and availability of capital, among other factors, depends on credit rating. The outstanding metal gold loans stands at Rs 803.53 crore end December 2020.

The business is subject to incidents of theft or damage to inventory in transit, prior to or during showroom stocking and display. The company maintains large amounts of inventory at all showrooms at all times and had a total inventory of Rs 5168.2 crore as of 31 December 2020.

The market in which the company operates is highly competitive and competitors include both organised pan-India jewellers as well as unorganised local players in the various markets.

The principal raw material is gold and is the largest component of expenses, so fluctuations in the price of gold can have an effect on business. The company also uses diamonds, other precious and semi-precious stones, pearls, platinum, silver and other raw materials, including various alloys to create jewellery, which are also subject to price fluctuations.

Valuation

Kalyan Jewellers revenues on consolidated basis rose 3% to Rs 5516.70 crore in FY2020. With the improvement in operating margins by 159 bps to 7.5%, the operating profit increased 31% to Rs 760.27 crore. Net profit galloped to Rs 143.00 crore in FY2020 from loss of Rs 3.61 crore in FY2019. The revenues of the company have declined 31% to Rs 5516.70 crore, while the operating profit dipped 37% to Rs 366.662 crore with 65 bps decline in operating margin. The company has posted net loss of Rs 80.49 crore in 9MFY2021 compared with net profit of Rs 94.89 crore in 9MFY2020.

The EPS stood at Rs 1.4 for FY2020 on a consolidated basis. At the higher price band of Rs 87, the offer is made at 62.7 times of FY2020 consolidated EPS.

The company has issued and allotted 98,857,435 equity shares to Highdell at a price of Rs 50.58 on 4 March 2021, pursuant to conversion of 119,047,619 compulsorily convertible preference shares (CCPS) held by Highdell, which were allotted to them at Rs 42 per CCPS of Rs 10 each in May 2017.

Kalyan Jewellers is a leading jewellery company with 1.8% share of the overall jewellery market and 5.9% share of the organized jewellery market based on FY2019 figures. Titan Company is the leader in the Indian Jewellery market with 3.9% share of the overall jewellery market and 12.5% share of the organized jewellery market.

Among the comparable peer listed companies, Titan Company having healthy track record is trading at 87.7 times consolidated EPS of Rs 16.9 for FY2020, while Tribhovandas Bhimji Zaveri is trading at 24.0 times consolidated EPS of Rs 3.2 for FY2020 and PC Jewellers is trading at 17.5 times consolidated EPS of Rs 1.8 for FY2020.

In terms of m-cap to revenues ratio, Kalyan Jewellers valued at Rs 8961 crore at upper price band of Rs 87 per share is offered at m-cap to revenues ratio of 0.89 times consolidated FY2020 revenues. Among the peers, Titan Company is trading 6.34 times consolidated FY2020 revenues, while Tribhovandas Bhimji Zaveri is trading at 0.28 times consolidated FY2020 revenues and PC Jewellers is also trading at 0.28 times consolidated FY2020 revenues.

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