A

PROJECT REPORT
On
“A DETAILED STUDY OF KALYAN
JEWELLERS IPO”
SUBMITTED TO
IMPERIAL SCHOOL OF BANKING AND
MANAGEMENT STUDIES

By
Vivek Bangde
MBA (BANKING AND FINANCE)
(2020-2022)

1
 ACKNOWLEDGEMENT
This project was a memorable and learning experience for me. The sole efforts of any individual
are not sufficient enough to complete the project. The completion of a project involves the effort
and interest of many people. I would like to extend my gratitude and thanks to all those that gave
up their time, and invaluable knowledge, to make this project successful.

I would like to thank my project guide Prof. Bimlesh Mishra Sir for providing me an
opportunity to undertake the project encouragement and invaluable guidance for the completion
of the project.

I would like to take this opportunity to articulate my sense of gratefulness to Imperial School of
Banking and Management Studies for his continuous

I wish to express my special thanks to all Faculties of Imperial School of Banking and
management studies for their continuous support.

Date: 5th June 2021

Place: Pune Name: Vivek Bangde

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 DECLARATION
I do hereby declare that this project work entitled “A Detailed Study of Kalyan Jewellers IPO”
submitted by me to Imperial School of Banking and Management Studies is a record of my own
research work. The report embodies the finding based on my study and observation and has not
been submitted earlier for the award of any degree or diploma to any Institute or University.

Date: 5th June 2021 Name: Vivek Bangde

Place: Pune

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 INDEX
Sr. No. Content Page No.

1 Introduction 5 to 6

2 Allocation of Shares in an IPO 7

3 Initial Public Offering (IPO) Process 8

4 Working of Initial Public Offering (IPO) 9

5 Types of IPO 10

6 Company Profile 11 to 13

7 Kalyan Jewellers IPO 14 to 15

8 Objects of Issue 16

9 Factors that Favor This IPO 17 to 18

10 Risk Factors in This IPO 18 to 19

11 Strategies of Kalyan Jewellers 20 to 21

12 Strengths of Kalyan Jewellers India Limited 22 to 23

13 Weaknesses of Kalyan Jewellers India Limited 24 to 25

14 Peer Comparison 26

15 Valuation of Kalyan Jewellers IPO 27 to 28

16 Financial Overview 29 to 31

17 Competitors of Kalyan Jewellers 32

18 Industry Analysis 33 to 36

19 Conclusion 37

20 Bibliography 38

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1. INTRODUCTION
INITIAL PUBLIC OFFER (IPO)
What is an IPO?

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the
public in a new stock issuance. Public share issuance allows a company to raise capital from public
investors. The transition from a private to a public company can be an important time for private
investors to fully realize gains from their investment as it typically includes share premiums for
current private investors. Meanwhile, it also allows public investors to participate in the offering.

KEY TAKEAWAYS

• An initial public offering (IPO) refers to the process of offering shares of a private corporation
to the public in a new stock issuance.
• Companies must meet requirements by exchanges and the Securities and Exchange
Commission (SEC) to hold an initial public offering (IPO).
• IPOs provide companies with an opportunity to obtain capital by offering shares through the
primary market.
• Companies hire investment banks to market, gauge demand, set the IPO price and date, and
more.
• An IPO can be seen as an exit strategy for the company’s founders and early investors,
realizing the full profit from their private investment.

How an Initial Public Offering (IPO) Works

Prior to an IPO, a company is considered private. As a private company, the business has grown with
a relatively small number of shareholders including early investors like the founders, family, and
friends along with professional investors such as venture capitalists or angel investors.

When a company reaches a stage in its growth process where it believes it is mature enough for the
rigors of SEC regulations along with the benefits and responsibilities to public shareholders, it will
begin to advertise its interest in going public.

Typically, this stage of growth will occur when a company has reached a private valuation of
approximately $1 billion, also known as unicorn status. However, private companies at various
valuations with strong fundamentals and proven profitability potential can also qualify for an IPO,
depending on the market competition and their ability to meet listing requirements.

An IPO is a big step for a company as it provides the company with access to raising a lot of money.

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This gives the company a greater ability to grow and expand. The increased transparency and share
listing credibility can also be a factor in helping it obtain better terms when seeking borrowed funds as
well.

IPO shares of a company are priced through underwriting due diligence. When a company goes
public, the previously owned private share ownership converts to public ownership, and the existing
private shareholders’ shares become worth the public trading price.

Share underwriting can also include special provisions for private to public share ownership.
Generally, the transition from private to public is a key time for private investors to cash in and earn
the returns they were expecting. Private shareholders may hold onto their shares in the public market
or sell a portion or all of them for gains.

Meanwhile, the public market opens up a huge opportunity for millions of investors to buy shares in
the company and contribute capital to a company’s shareholders' equity. The public consists of any
individual or institutional investor who is interested in investing in the company.

Overall, the number of shares the company sells and the price for which shares sell are the generating
factors for the company’s new shareholders' equity value. Shareholders' equity still represents shares
owned by investors when it is both private and public, but with an IPO the shareholders' equity
increases significantly with cash from the primary issuance.

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 ALLOCATION OF SHARES IN AN IPO
There are different investor categories when it comes to IPOs. This includes:

• Qualified Institutional Buyers (QIBs).

• Non-Institutional Investors (NIIs).
• Retail Individual Investors (RIIs).

The allocation of shares differs for all the above groups in an IPO. As an individual investor, you
come under the last category.

As an individual investor, you are allowed to invest in small lots worth Rs 10,000-15,000. You can
apply for a maximum of Rs 2 lakh in an IPO. The total demand for shares in the retail category is
judged by the number of applications received. If the demand is less than or equal to the number of
shares in the retail category, you are offered a full allotment of shares.

When the demand is greater than the allocation, it is known as oversubscription. Many times, an IPO
can be over-subscribed five times over. This means that the demand for shares exceeds the supply by
five times!

In such cases, the shares in retail category are offered to investors on the basis of a lottery. This is a
computerized process that ensures impartial allocation of shares to investors.

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 INITIAL PUBLIC OFFERING (IPO) PROCESS
• A private company decides to raise capital through an IPO.
• The company contracts an underwriter, usually a consortium of investment banks which assess
the company's financial needs and decide the price/price band of shares, number of shares to be
offered etc.
• The underwriter then participates in the drafting of the application (to SEBI) for approval with
details of the company's past financial records including profits, debts/liabilities, assets and net
worth. Also, the draft mentions how the funds to be raised will be used.
• SEBI carefully scrutinizes the application and after making sure that all eligibility norms are
fulfilled, it gives the company the go ahead to release the ‘red herring prospectuses.
• The ‘red herring’ prospectus is a document released by the company mentioning the number of
shares and the issue price/price band (price of one share) to be offered in the IPO. It also has
details of the company's past performance.
• In what is called a ‘Road show’, executives travel to meet with and woo potential investors to
buy their company’s shares.
• An IPO opens and can last for 3-21 days, though it is usually open for 5 days.
• During this time, retail investors can bid for stocks through their banks/brokerages via the
Internet. Learn how to buy IPO.
• Investors need to have a demat account to participate in an IPO, and a PAN card.
• If the stocks you bid for are allotted, they'll be credited to your demat account. If not, you'll get
your money back.

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 WORKING OF INITIAL PUBLIC OFFERING (IPO)

In case a private company requires capital that is way beyond its individual ability to generate through
regular operations there are a few alternatives that the management can take up to work out that
capital. Popular methods to do so include private investment, taking debt or a public investment
through an IPO.

The process of IPO starts when the firm hires an investment bank or banks, to take care of the IPO.
The company may also choose to sell its shares on its own as well but, that can be taxing. Banks
handover bids to companies that have decided to go public on the amount of money the firm will make
in the IPO and what the bank will earn. This process of an investment bank taking care of the IPO is
called underwriting.

When an investment bank is hired to do so, the company and investment bank talk about how much
money they think they aim to raise from the IPO, type of securities to be issued and all other related-
details are mentioned in the underwriting agreement. After the company and investment bank come to
terms with the underwriting deal, the bank presents a registration statement that has to be filed with
the Securities and Exchange Commission (SEC).

This statement contains all the detailed information about the offering and the particular company,
including management background, any legal problems, financial statements, who owned any stock
before the company goes public and so on. The SEC investigates the company and ensures that all the
information submitted to it is correct and all relevant financial data has been disclosed.

If everything is approved, the SEC works with the company to set a date to post the IPO. After the
SEC approval, the underwriter must put together a prospectus, including all financial information on
the company that's doing the IPO.

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 TYPES OF IPOs
Generally, there are two types of IPOs. A company gets a boost when people start buying their
equities. The two basic types of IPOs are

Fixed Price Issue

In a Fixed Price Issue, the price of the offerings is evaluated by the company along with their
underwriters. They evaluate the company's assets, liabilities, and every financial aspect. They then
work on these figures and fix a price for their offerings. The price is fixed after considering all the
qualitative and quantitative factors. In a fixed price issue, the fixed price may be undervalued during
the company’s IPO. The price is mostly lower than the market value. As a result, investors are always
very interested in fixed price issue and ultimately revalue the company positively.

Book Building Issue

A book building issue is a comparatively new concept in India compared to other parts of the world.
In a book building issue, there is no fixed price, but a price band or range. The lowest and the highest
price is called ‘floor price’ and ‘cap price’ respectively. You can bid for the shares with the desired
price you would like to pay. Thereafter the price of the stock is fixed after evaluating the bids. The
demand of the share is known after each day as the book is built.

An IPO can be done through Fixed Price Issue or Book Building Issue or a combination of both.

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 ABOUT KALYAN JEWELLERS

Kalyan Jewellers was founded by T. S. Kalyanaraman, who opened the first jewellery showroom in
1993 in Thrissur, Kerala, India with an initial capital of ₹7.5 million (US$110,000). The company
also has strong roots in the textile trading, distribution and wholesale business.

Initially, Kalyan Jewellers strengthened their presence in the South Indian states of Kerala, Tamil
Nadu, Karnataka, Andhra Pradesh and Telangana. In 2012, they expanded outside South India by
opening a showroom in Ahmedabad, Gujarat and signed Amitabh Bachchan as their first National
Brand Ambassador.

In 2013, Kalyan Jewellers entered international markets by opening six showrooms on the same day
in UAE. Since then, it has grown to operate 30 showrooms in the Middle East across UAE, Qatar,
Kuwait and Oman. As of February, 2020 Kalyan Jewellers has a wide presence of over 137
showrooms, of which 107 are in India and the remaining 30 on the Middle East.

The company has also set up ‘My Kalyan’, a customer service center, offering advance booking for
wedding purchases, Kalyan Gold Purchase Advance Scheme, Gold Insurance for gold ornaments,
etc. Currently there are over 761 ‘My Kalyan’ outlets in India.

Kalyan Jewellers designs, manufacture and sells a wide range of gold, studded diamond and other
jewellery products across various price points. Its offerings range from jewellery for special
occasions to daily-wear jewellery.

However, given the craze for gold ornaments in Indian weddings, bridal jewellery has been the
highest-selling product category for Kalyan. No wonder why in FY20, gold jewellery accounted for
about three-fourths of its total revenue.

It operates both offline stores (no franchise models) as well as an online platform-
www.candere.com.

Over the years, the company has built its business through increased transparency and highly
customized offerings for different regions it operates in. It has created a wide array of sub-brands
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(12) to cater to various segments, such as 'Muhurat' for wedding jewellery; 'Mudhra' for antique
(non-yellow gold finish); 'Glo' for casual diamond jewellery, etc. This has enabled the company to
address specific customer niches at various price points.

Also, Kalyan Jewellers employs a marketing strategy to set up dedicated centers (called 'My
Kalyan'), which are solely focused on channelizing customers to their various stores. Since a
significant proportion of the demand for gold jewellery originates from rural and semi-urban
locations, where the presence of organized jewellery is low, the staff (numbering almost 2700) at
these centers also play an active role in door-to-door marketing efforts and customer engagement.
Barring a brief misadventure in FY2019, when an attempt to convert these promotional centers into
points of sale for small-ticket items backfired (resulting in reduced marketing and overall sales),
these centers have served the company well (it contributed a fifth to the company's top line in the
current fiscal).

Gold jewellery contributes more than 70% of the total sales and remaining comes from studded and
other jewellery products.

Indian jewellery business contributed 78.19% to the company's revenues in FY20, and exports
accounted for 21.8%. For the nine months ended December 2020, contribution of domestic business
to revenue stood at 86.21% and exports at 13.79%.

One of the key strengths of Kalyan Jewellers is its ability to operate as a hyperlocal jewellery
company. It tries to cater to the unique preferences of its customers that can vary significantly by
geography and micro-market, through its local market expertise and region-specific marketing
strategy and advertising campaigns. The company also engages local artisans to manufacture
jewellery that suits local tastes. It is primarily due to this approach that Kalyan Jewellers has
managed to become one of the few pan-India jewellery companies in India.

Kalyan Jewellers was one of the first jewellery companies in India to voluntarily have all of its
jewellery BIS hallmarked and accompanied by a detailed price tag detailing the price of various
components used in the final product. This initiative along with customer education and awareness
campaigns around the lack of transparency in the Indian jewellery industry has helped the brand
become a trusted name in jewellery in India.

Brand ambassadors

In 2012, Kalyan Jewellers signed Amitabh Bachchan as its first National brand ambassador.
Amitabh Bachchan and Jaya Bachchan are the Global brand ambassadors while their daughter
Shweta Bachchan Nanda is the celebrity influencer. Later, Katrina Kaif was also hired to endorse
the brand globally in April 2018.

Kalyan Jewellers has also partnered with a number of leading celebrities to be regional brand
ambassadors including Manju Warrier in Kerala, Nagarjuna Akkineni in Andhra Pradesh and
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Telangana, Shiva Rajkumar in Karnataka, Prabhu Ganesan in Tamil Nadu.

In the past, Kalyan Jewellers has been represented by Bollywood celebrities like Sushmita Sen,
Aishwarya Rai and Sonam Kapoor. While Shah Rukh Khan represented them in the Middle East.

Aishwarya Rai Bachchan was paid ₹100 million (US$1.4 million) per year for a two-year deal with
Kalyan Jewellers to be a nationwide brand ambassador, which was formerly Sushmita Sen. The
advertising and marketing budget of Kalyan is around ₹900 million (US$13 million).

Later they have also signed a number of regional brand ambassadors like Pooja Sawant in
Maharashtra, Kinjal Raj Priya in Gujarat, Wamiqa Gabbi in Punjab and Ritabhari Chakraborty in
West Bengal.

“In March 2020, Kalyan Jewellers released ₹100 million (US$1.4 million) funds for COVID-19
relief work.”

Product Lines

Over the years, Kalyan Jewellers has launched various product lines. Some of their jewellery
collections are:

• Muhurat – Wedding jewellery

• Mudhra – Handcrafted antique jewellery
• Nimah – Timeless heritage jewellery
• Anokhi – Uncut diamond jewellery
• Rang – Precious stones jewellery
• Tejasvi – Polki diamonds jewellery
• Ziah – Diamond jewellery collection
• Laya – Contemporary gold & diamond jewellery
• Glo – Dancing diamond jewellery
• Vedha – Heritage jewellery with Uncut diamonds
• Apoorva – Diamonds
• Hera – Daily wear diamonds

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 KALYAN JEWELLERS IPO
The initial public offer (IPO) of Kalyan Jewellers India opened for public bidding on Tuesday.
Analysts say the issue is richly valued but there are reasons to subscribe for the long term.

The company and its shareholders plan to raise Rs 1,175 crore from the market. The issue, priced in
the range of Rs 86-87, comprises a fresh issue aggregating up to Rs 800 crore, and an offer for sale
worth up to Rs 375 crore.

At Rs 87 per share, the stock is available at 0.9 times FY20 market cap/sales, and 63 times FY20 EPS.
In comparison, at the current price, Titan is valued at 186.74 times earnings. Despite being relatively
cheaper, investors do not seem that enthused about the issue.

In the grey market, the stock is trading in the range of Rs 93-95, translating in a premium of about 8
per cent, which is not much compared to how other issues that are slated for this week are trading.
However, analysts see potential in the company’s future growth.

Basis Structure of Kalyan Jewellers IPO

• The Kalyan Jewellers IPO is expected to hit the Indian Stock Markets in March 2021. The
company received a nod from SEBI on October 15, 2020.

• This will be an entirely book-building IPO. The shares being offered will be quoted with a
price band.

• This issue has been sized at about Rs. 1,175 crores. This will be a combination of an offer for
sale (OFS) and a fresh issue.

• An offer for sale refers to the sale of those shares which are not being newly issued by the
company. These shares have already been diluted, and belong to someone or some
organization.

• The offer for sale segment is thus sold directly by the existing shareholder and any proceeds
from the sale are credited directly to that shareholder. The company does not receive any of the
profits. In this case, the offer for sale segment has been estimated at Rs. 375 crores.

• As for the fresh issue, that comprises of the shares which are being freshly diluted by the
company. This segment amounts to Rs. 800 crores.

• The capital from the fresh issue goes directly to the company. In this case, Kalyan Jewellers
will be utilizing that amount to strengthen the working capital requirements as well as for
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 general corporate purposes.

• The table below summarizes all the details regarding the IPO. Details like the Kalyan Jewellers
IPO date, Kalyan Jewellers IPO share price and others have been summarized.

Key details of Kalyan Jewellers’ IPO

The IPO will remain live for subscription from March 16 to March 18, 2021. The shares will list in the
stock exchanges, most probably, on March 26, 2021.

IPO Opening Date March 16, 2021

IPO Closing Date March 18, 2021

Issue size of IPO Rs. 1,175 crores

Issue price band Rs. 86 – 87

Face value Rs. 10

Type of issue Book building issue

Listing at BSE & NSE

Application range details

Particulars No. of lots Equivalent no. of Cut-off amount

shares

Minimum you can 1 172 equity shares ₹14,964

apply

Maximum you can 13 2236 equity shares ₹194,532

apply

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 OBJECTS OF THE ISSUE
Kalyan Jewellers India Limited proposes to utilize the net proceeds from the fresh issue for:

• Funding working capital requirements; and

• General Corporate Expenses

This IPO of Rs. 1,175 Crores is actually a mix of Fresh Issue and Offer For Sale (OFS). The
bifurcation is as follows -

Fresh Issue:

Fresh Issue is, basically, the issuance of new equity shares that brings in fresh money into the
company. Simply put, the company receives the proceeds only from Fresh Issue and not from OFS.
This IPO will have a fresh issue of Rs. 800 Crores, which shall be utilized for the following
objectives:
• Rs. 600 Crores for funding Working Capital requirements of FY22.
• Rs. 200 Crores for general corporate expenses.

Offer For Sale (OFS):

OFS is simply an exit route for existing promoters/investors. The company does not receive this
amount. This IPO will have an OFS of Rs. 375 Crores and the following stakes will be sold:
• Promoter: T.S. Kalyanaraman will sell Rs. 125 Crores of his stake.
• Investor: High dell Investment will sell Rs. 250 Crores of its stake.

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 FACTORS THAT FAVOUR THIS IPO

India is one of the top 3 markets for gold jewellery. You see, we have 10 million weddings annually,
and it’s not hard to imagine why every year, over 400 tons of gold is consumed in marriages only.
What’s more, is that jewellery ranks third in terms of our highest expenditure in the retail category,
and it is expected that by 2025, it can even overtake the apparel and accessories category to stand
second in the list.

Well, we didn’t mean to throw numbers at you, but it’s just to let you know that it’s an ever-growing
industry. You see, in our country, gold has a symbolic significance and also is an investment
proposition, which is why there’s no reason to think that Indians would ever unlove gold. And thus,
there are good growth prospects for the industry leaders.

Now, let’s see what makes Kalyan Jewellers stand out of its peers:

• One of the primary advantages that Kalyan Jewellers enjoys is the fact that it has a pan-India
presence. With showrooms across 21 states and union territories, the company has access to a
diverse and vast group of customers.

• Kalyan Jewellers follows a hyperlocal jewellery business model, whereby it employs local
artisans to customize its products as per the client’s preference (e.g., studded jewelries in north
India whereas gold jewelries in south India).

• Gold purchases by customers are influenced by brand loyalty. Kalyan has built a brand value
for its products on the pillars of trust and transparency. For instance, it is one of the first
Indian jewellery companies to voluntarily get all of its product’s BIS-hallmarked.

• Rural India accounts for 60% of the jewellery demand in the Indian market. With its operations
spread across urban, semi-urban as well as rural areas (unlike its peers), Kalyan has better
opportunities to scale.

• It thrives to become the ‘neighborhood jeweller’ using its customer outreach and service
center program ‘My Kalyan’. My Kalyan has tie-ups with marriage halls, astrologers, caterers,
event managers and other wedding planners who identify potential jewellery customers. This
program brings in more than 10 Mn customers each year and accounts for over 17% of revenue
from operations (FY20).

• It leverages its IT infrastructure to allow online shopping as well as ‘near me’ search for My
Kalyan centers.

• In order to take full advantage of this access, Kalyan has actually designed location-specific
portfolios of design. This means, the different showrooms across the country actually stock
different designs.

• Apart from that, Kalyan has also developed a network of smaller centers called the “My
Kalyan” network, that serves as satellite locations. This enables them to tap into those areas
which are underserved and otherwise expand their outreach. Currently, there are 761 “My
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 Kalyan” centers across India.

• As mentioned above, Kalyan Jewellers operates in a market where there is intense competition
among peers.

• The products that are sold by the different companies are quite similar and this is why the
marketing strategies and other promotional plans often make a difference in capturing the
market.

• In 2020, Kalyan Jewellers spent approximately Rs. 282.19 crores on marketing. This amounted
to almost 3% of its total revenue from operations.

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 RISK FACTORS IN THIS IPO
Jewellery is very sensitive to consumer spending. Someday, a pandemic breaks out, families are
running short of money, and the first thing they can delay is the purchase of jewellery. Moreover, the
Indian jewellery market is dominated by unorganized players (70% market share) like local companies
and artisans. This poses a threat to big players like Kalyan.

• As mentioned above, Kalyan Jewellers operates in a monopolistically competitive market. This

means there are many sellers who sell similar products.

• There is a very high level of competition among Kalyan Jewellers and its peers. If Kalyan’s
performance drops for some reason, it will be very easy to lose out on market share.

• Apart from that, there is, of course, the unignorable effect of COVID-19. Due to COVID-19
and the immense drop in demand it caused, the company’s revenue has been impacted.

• To deal with the implications of the virus on the retail jewellery industry, Kalyan has availed
of loans amounting to Rs. 132 crores from State Bank of India and Bank of Baroda.

• This will put a strain on the company’s balance sheet and increase its liabilities and debt
burden.

• There is also the matter of the previous lines of credit which were already pending repayment.

• Kalyan Jewellers, like most other jewellery companies, avail of lines of credit at the beginning
of the production cycle to pay for the raw materials required.

• Once the production process is complete and the sale of the jewellery begins, revenue starts to
flow in. Companies use this revenue to repay the original capital.

• As of March 31, 2020, the total amount of debt outstanding for Kalyan Jewellers came up to
Rs. 3,640.31 crores.

• The market for precious jewellery is subject to certain regulations and restrictions. Because the
production deals with precious metals like gold, Kalyan requires certain approvals and permits
from the government.

• If at any point, Kalyan Jewellers fails to meet the regulatory requirements of the government,
their license can be withdrawn and their business operations can be negatively impacted.

• Based on FY20 earnings and fully diluted post-issue equity, the P/E is about 58x. If you
consider 9M-FY21 earnings, P/E will come out to be negative. Thus, the price range of Rs. 86-
87 seems to be over-priced.

• Refer to the financials above, and you’ll know that the company’s revenues have been static in
recent years. Cash flows, too, have turned negative in the period. In spite of that, it has
19
 incurred expenditures that may prove to be wasteful.
• It has a concentrated geographical presence, with South India accounting to over half of its
revenue in FY20. Thus, it’s exposed to local discrepancies like natural calamities, changing
trends, downturns, etc.

• Its operations in the Middle East are subjected to trade barriers and foreign currency risk.

• It has taken loans with promoters’ guarantee, and its subsidiaries have taken unsecured loans
payable on demand (Rs. 61.6 crores). Revocation of the former or urgent call for the later
could lead to a sudden outflow of funds.

• It has contingent liabilities worth Rs. 1,209 Crores and other pending legal procedures against
itself, its subsidiaries, promoters and directors. This may dent its cash flows and its reputation
as well.

• High operating leverage:

The company's business model is characterized by high operating leverage and a very low
margin. This combination makes it vulnerable to any fluctuations in the business cycle. For
example, during the nine months of the current fiscal, although the top line decreased by only
about 30 per cent (due to the impact of the pandemic-induced lockdown) as compared to the
year-ago, the company's bottom line swung from a profit of around 97 crores to a loss of 81
crore.

• The recent issue of equity:

The company allotted 9.8 crore equity shares to High dell Investment Ltd at a price of Rs
50.58 on March 4, 2021. Given this price, the company's asking price of Rs 87 for the IPO,
which represents a premium of 72 per cent, seems quite high.

• High debt and low margins:

Given the nature of the business, the company requires a high amount of working capital to
finance the purchase of gold, which is an expensive raw material. The high amount of debt has
increased its interest expenses and depressed the margins.

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 STRATEGIES OF KALYAN JEWELLERS
Early Disruptor:
Kalyan Jewellers, when started off, is said to have taught its customers how to test the purity of their
gold and to expose cheating craftsmen. Their first game-changing card was played when they became
the first jewelers in town to attach price tags to their gold and gem collection, thus angering
competitors who accused them of ruining the trade.

Transparency:
Earlier in India, customers paid for the jewelry based on its weight. Thus, the Jewelers’ used to make
their profits by adding wastage and putting up extra jewelry making charges, which lead to wide price
variation between different stores. Kalyanaraman recognized this and attempted to bring transparency
with detailed price tags mentioning making and wastage charges. Even most of their diamond
ornaments come studded with a hallmark which marks its purity and hence guarantees the worth of
customer’s money. All this created a loyal base of customers who knew what they were paying for.

Kalyan Jewellers also introduced other firsts like ‘loyalty program’ and a ‘BIS (Bureau of Indian
Standards)’ certification on gold jewelry.

The customer is the King approach:

Every Kalyan store is different yet delivering options from across the country. Rajesh and Ramesh
Kalyanaraman explained the diversity of their stores in this way “We have a chameleon approach, we
change to become the winner in every local market – that is one of the greatest advantages,”. “Take
Mumbai as an example. We have a store each in Thane, Vashi, and Borivali. In Borivali, our designs
cater to the Gujarati population. In Vashi, we showcase what South Indians like, and in Thane, jewelry
is designed to the taste of Maharashtrians.” Thus, stating that they change their stores as per their
customers’ likings.

Price:
At Kalyan Jewellers they always ensured that they give the maximum value to their customers for the
price that they charge. Coming from a business family that did businesses in various fields, they have
always kept strong values as their pillar. Hence, they offer 100 percent gold and zero amalgamation,
alongside the mantra of less margin, more customers.

Place:
Kalyan Jewellers have always had quite huge stores with a lot of diversified collections, to meet the
demand of different population in different places with different tastes. They have followed more of a
region-centric approach. They supply the product to an area as per the crowd and taste of that area.
The more the demand of a product in a particular region, the more the supply and the more the variety
has always been their motto and that is how they have marked their presence in almost 90 places
across India.

Promotion:
The Company spends about two percent of its revenue on marketing. They have always had a region-
centric approach and so they have different ambassadors for different states, as for Mumbai, Tamil
Nadu, Karnataka and North of India. Kalyan Jewellers have chosen the best and the most renowned
21
ones in all the places to promote their brand. It has roped in Amitabh Bachchan, Aishwarya Rai,
Shivaraj Kumar, Nagarjuna Akkineni, Prabhu Ganesan, Manju Warrier, Sonam Kapoor and Katrina
Kaif (being a recent addition) as their brand ambassadors.

Attention To Detail:
A news that did rounds sometimes back was when a person called Narayan Gowda (Karnataka Public
Works Department) was Pleasantly taken aback at receiving a call from the top honcho of the
company. This was kalyanaraman ’s way of ensuring personal attention. He every month talks to at
least 10 customers, selected on a random basis, to get a first-hand feedback. Mr. Gowda post that said
he intends to be a repeat customer.

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 STRENGTHS OF KALYAN JEWELLERS INDIA
LIMITED
• Trusted brand:
The company has disrupted the unorganized market by adopting higher transparency
methods, such as hallmarking, price disaggregation, etc., and offering higher quality
products. Customer awareness and education campaigns have also helped increase the trust
factor.

• Presence of a large unorganized market:

The company has a market share of 5.9 per cent of the organized jewellery market and given
that the overall share of the organized players is only 32 per cent, there is a lot of headroom
to grow. Changes in the regulatory environment, such as GST, demonetization and
compulsory hallmarking, are likely to help accelerate the switch from unorganized to
organized players.

• Ability to cater to regional tastes:

The company's hyperlocal strategy helps differentiate itself from other pan-India players. It
uses regional celebrities, employs local artisans and endeavors to make designs to cater to
different micro-markets it operates in.

• Kalyan Jewellers India Limited is an established brand built on the core values of trust and
transparency. With more than five lakh local jewellers and goldsmiths, the Indian jewellery
industry has been fragmented and unorganized for a long time. Kalyan Jewellers has strived
to establish a brand that is associated with trust and transparency.
• Kalyan Jewellers has a pan-India presence and is one of the country’s largest jewellery
companies based on revenue as of March 31, 2020. It has 107 showrooms across India and
30 in the Middle East.
• The company has a hyperlocal strategy where it localizes its product portfolio, brand
communication & strategy, showroom experience, and My Kalyan network, according to
each market segment.
• The ‘My Kalyan’ network has extensive grassroots with strong distribution capabilities
enabling deep customer outreach. Currently, there are 761 ‘My Kalyan’ locations across
India.
• The company has visionary promoters with strong leadership and a demonstrated track
record supported by a highly experienced and accomplished senior management team and
board of directors.
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• The company’s products span jewellery for special occasions, such as weddings, to daily-
wear jewellery. Further, its product portfolio caters to a wide range of price points. It has
numerous sub-brands for specific customer niches like ‘Muhurat’, ‘Aishwaryam’, ‘Mudhra’,
‘Sankalp’, ‘Nimah’, and ‘Anokhi’.
• Kalyan Jewellers has established a robust set of operational and control processes to manage
its business operations and to support its future growth at both the showroom and corporate
level. Given the high-value nature of its jewellery, the inventory management and internal
audit procedures are critical to the success of its business.

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WEAKNESSES OF KALYAN JEWELLERS INDIA
LIMITED
• The business and results of operations of Kalyan Jewellers are influenced by the strength of
its brands, including the level of consumer recognition and perception of its brands. If the
company fails to continue to maintain and develop its brands, its results of operations can
get impacted.
• The recent outbreak of the novel coronavirus could have a significant effect on the
company’s business, and could negatively impact its business, revenues, financial condition,
and results of operations.
• The company’s success depends on its 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.
Failure to do so can impact its business and the results of operations.
• Kalyan Jewellers may be unable to maintain or establish arrangements with contract
manufacturers and suppliers through whom it manufactures its products and procures raw
materials, and may experience other disruptions or quality control risks in the operations of
such parties.
• Kalyan Jewellers endeavors to open showrooms in optimal locations and generally consider
a relevant location’s demographics, spending capacity, economic conditions, cost-benefit
analysis, and proximity to its competitors’ showrooms. Its ability to attract customers
depends on the success and visibility of its showroom.
• The company’s business is dependent on the trust its customers have in its brand and the
quality of its products. Any negative publicity regarding the company, its brand, products,
or the jewellery industry generally could adversely affect its reputation and its results of
operations.
• The company may not be able to successfully adapt its systems, including internal controls
and procedures over financial reporting, as a result of increasing business complexity.
• The current geographic concentration of the company’s operations creates an exposure to
local economies, regional downturns, and severe weather or other catastrophic occurrences.
• Changes or a downturn in economic conditions, in particular in the company’s principal
markets, may affect consumer spending, including on its products.
• The income and sales of Kalyan Jewellers are subject to seasonal fluctuations and lower-
income in a peak season may have a disproportionate effect on its results of operations.
• Kalyan Jewellers obtains a part of its gold requirement through metal gold loans which are
subject to RBI regulations in India. Any adverse change in the regulations governing metal
gold loans may adversely affect its financial condition and results of operations.
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• The majority of the company’s existing showrooms and “My Kalyan” centers are located on
leased properties. If the company fails to renew leases for its existing or new showrooms or
My Kalyan centers on commercially acceptable terms, then its profitability and results of
operations could be adversely affected.
• Kalyan Jewellers changes its jewellery designs on a regular basis and does not register such
designs under the Design Act, 2000. As such, it would be difficult for it to enforce
intellectual property rights in its designs, and if its competitors copy the designs, in
particular the designs of the products available on its website or the designs given to third-
party contractors, it could lead to a loss of revenue, which could adversely affect its results
of operations and financial condition.
• The gold purchase represents the largest component of the company’s expenses, and
fluctuations in the price of gold can have an effect on its business, results of operations, and
financial condition. 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 is also subject to price fluctuations.

26
 PEER COMPARISON
• The retail market for jewellery is characterized by free entry and exit. Barring the cost of
production, and the permits required for obtaining the precious raw materials, firms can
enter into this market easily.
• This means there is a high level of competition among the large players in the market.
• Here is a quick look at the performance of Kalyan Jewellers in comparison to its peers on
some key aspects for FY 2020. While the DRHP lists Titan Company Limited as the only
peer, we will take a few more names to offer a better perspective:
• The table below lists out the key financial figures of Kalyan Jewellers and compares them
with its listed peers:

Profit After Tax Debt to Equity Return on Net

Ratio Worth (RoNW)
Kalyan Jewellers India 142.28 0.69% 6.63%
Limited
Titan Company Limited 1518.00 0.09% 23.34%
TBZ 21.42 1.14% 4.46%
Asian Star 63.40 36% 1.48%
Vaibhav Global 190.26 14.87% 26%

Note: All Amounts in INR Crore

• If you compare the figures of Kalyan Jewellers with the other prominent listed jewellery
retailers, you will notice that Kalyan Jewellers has performed better on the aggregate.

• Of course, do remember to keep in mind that these figures include the disastrous impacts of
COVID-19 on this market.

• In terms of revenue growth, return on assets and return on equity, Kalyan is second only to
Vaibhav Global.

• When it comes to the operating margin, however, we can see that Kalyan’s operating margin is
the lowest, in comparison to its peers.

• The operating margin to the profit that the company makes on each rupee of sales, i.e., revenue
from operations. It is a profitability metric and indicates how effective the company’s core
operations are.

• In this case, Kalyan’s operating margin is quite low, which indicates that it is not making much
profit in terms of its core revenue.
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 VALUATION OF KALYAN JEWELLERS IPO
The table below summarizes the key valuation parameters for Kalyan Jewellers and its listed peers.

IPO Details (Book Building Process)

Total Number of Equity Shares Rs. 1,750 Crores
Fresh Issue Rs. 1,000 Crores
Equity for Sale Rs. 750 Crores
Face Value of Each Share Rs. 10
Price Band Rs. 86-87
Size of Each Lot 172 Shares
Subscription Window March 16 – 18, 2021
Allotment Date March 23, 2021
Listing Date March 26, 2021

• In order to check the valuation of a company, there are several measures that we can use.
• The most popular metric is the Price to Earnings ratio. It shows the amount that an investor
has to invest in the company in order to get Rs. 1 of the company’s earnings.
• In other words, the lower the P/E ratio, the better it is for the company.
• As a thumb rule, the P/E ratio is compared with the average P/E value for the industry.
• If the company’s P/E ratio is higher than the industry average, this means the company is
overvalued. On the other hand, if the P/E ratio is lower than the industry average, then the
company is undervalued.
• In this case, the average P/E ratio for the industry is 62.75. This means, the Kalyan
Jewellers IPO is undervalued.
• Kalyan Jewellers has single-digit growth in the last four years but we expect low double-
digit growth over the next 5-10 years in line with growth in jewellery and organized market
in jewellery industry.
• Kalyan Jewellers has a higher share of South India which means a higher share of gold-rich
jewellery which has lower margins versus diamond studded ones. This is the reason it has a
lower operating margin versus Titan.
• With Enterprise value to Sales of ~1x and EBITDA margin of 7%, the P/E ratio of Kalyan
Jewellers is ~27x on normalized earnings.

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 • Large inventory backed with debt and thin margins makes profits outlook and ROE% very
unpredictable. We do not believe the market will price the company at a higher valuation till
the return metrics improve.
• We would recommend to AVOID for now and watch for improvement in returns
before taking a long-term position.
• Those who wish to invest for Listing gains can go for 1 lot but we can’t be certain whether
the market will cheer a company with no numbers to prove its mettle.

Note: We do not recommend buy just because the IPO market is hot. We do not earn any
commission or fee for promoting IPOs so expect an honest review from us on a business model and
valuation.

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 FINANCIAL OVERVIEW
Kalyan’s sales have been in the range of Rs. 8,500-10,000 Cr in last 4-5 years. Several disruptions
from Demonetization, GST, and strikes have led to limited growth in the last 4-5 years. However,
one can expect future sales growth in line with the growth of the organized sector.

• During FY18-20, the company has reported a 2.1% CAGR decline in consolidated
topline in FY20. The key driver for lower business growth was disruptions in the
domestic operations (contributing around 78 percent to the total revenue), which declined
by 2.5 percent CAGR. Middle East operations also declined by 0.7 percent CAGR.
• Average RoIC and RoE stood at 8.8 percent and 4.6 percent for FY18-20 period.
• The total operating expenditure declined by 2.4% CAGR (relatively higher than the
topline), leading to a 1.9% CAGR rise in consolidated EBITDA in FY20. The margin
expansion in EBITDA is also due to a better revenue mix. High margin studded jewellery
now contributes to 23.36% of the revenue, up from 21.72% at the end of FY20.
• Covid-19 has impacted the company’s performance in the Apr-Dec 20 period. The
topline declined by 30% YoY. The company reported a loss at Rs 79.95 crore compared
to a profit of Rs 94.32 crore in the same period in 2020.
• The company has paid dividends consistently in the last three years, and is confident of
maintaining a prudent dividend policy going forward.
• More than 51% of Kalyan's FY20 revenue came from outside of tier-I cities. That rose to
53.08% in Apr-Dec 20. Operations outside South India contributed 57.69% of its gross
profit and 47.81% of its revenue in the financial year ended March 2020.
• The company has a Debt /Equity ratio of 2.1 (in FY20), which is likely to see a decline
going forward due to the fresh issue of shares.

As we can see, the total revenue earned by Kalyan Jewellers does not show a consistent increase.

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• In fact, in FY 2019, the revenue earned fell by over 9%. This is attributed to an
experimental strategy that the company adopted in that year. Because of this reason, the
sales revenue fell by 7%.

• The questionable strategy was withdrawn after that year, and as we can see, in FY 2020, the
revenue again increased by 3.58%.

• Another factor that can contribute to the dismal performance in FY 2019 is the severe floods
that hit the southern part of India during this time. Owing to this, the demand for gold
jewellery was affected.

• The total assets owned by the company has shown a CAGR of 5.02% between 2017 and
2020.

• As the revenue from operations declined in FY 2019, this is also reflected by the net profit
earned by the profit.

• From 2018 to 2019, the net profit declined by 67.35%.

• In FY 2020 however, the company bounced back and the net profit earned increased by
71.26%.

• One positive fact to note here is that the long-term debt of Kalyan Jewellers has shown a
consistent decline over the years. The CAGR between 2017 and 2020 is (38.64) %.

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Here is a quick look at the financial performance of Kalyan Jewellers India Ltd over the last 3
years:

March 2020 March 2019 March 2018

Total Assets 8218.68 8059.91 8551.23
Total Income 10181.02 9814.03 10580.20
Total Expenses 9960.13 9793.10 10366.41
Profit After Tax 142.28 -4.86 140.99
Long-Term debt 84.84 107.50 178.61
All Amounts in INR Crore

A quick glance at the financial performance of Kalyan Jewellers over the last three years offers the
following insights:
• The financial performance of the company has been inconsistent from 2018 to 2020.
• In 2019, Kalyan Jewellers adopted an experimental strategy leading to a drop in its revenue.
It was withdrawn in 2020 and the revenue increased again.
• In 2019, severe floods hit the southern part of India affecting the demand for gold jewellery
too.
• The long-term debt has decreased by a CAGR of around 31%.

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 COMPETITORS OF KALYAN JEWELLERS

Tanishq (Titan Company Limited) is the leader in the Indian Jewellery market with ~4% share of
the overall jewellery market and 12.5% share of the organized jewellery market, based on FY19.
For the same period, Kalyan Jewellers, based on revenues, had ~2% share of the overall jewellery
market and ~6% share of the organized jewellery market.

Other competition includes regional players which have a relationship with customers for decades.
Many local jewellers are upgrading their services and offerings.

Kalyan Jewellers face competition from both organized and unorganized players. However, the
market share of unorganized
players is expected to continue to decline going forward.
Tanishq, a key brand of 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, based on
Fiscal 2019.
For the same period, Kalyan Jewellers, also one of the largest jewellery companies in India based
on revenues, had 1.8% share of the overall jewellery market and 5.9% share of the organized
jewellery market.
The table below compares key financial metrics for Kalyan and Titan.
Titan’s margins as well as return ratios are much superior to Kalyan Jewellers.

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 INDUSTRY ANALYSIS

The global jewellery market was sized at about $220 billion in 2018. China is the largest
contributor here, and India comes in at a second place.

As for India, expenditure on jewellery is one of the top constituents of retail consumption. In 2020,
the amount spent on jewellery amounted to Rs. 449 thousand crores. This is expected to grow to Rs.
633 thousand crores by 2025.

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This means the size of the retail jewellery market was Rs. 448 thousand crores in 2020. Out of this,
the organized size of the retail market is Rs. 147 thousand crores.

In fact, this is one of the fastest-growing organized retail markets in India. From a share of 6% in
2007 to 32% in 2020, the organized share of the jewellery retail market is increasing steadily. It is
expected to grow to 37% by 2025.

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The organized retail market is dominated by large players like Tanishq and Kalyan. It is expected
that the organized segment will gradually take over the unorganized segment of the market.

The structure of the market is indicative of the fact that there is a high level of competition among
the large players in the field.

As for the market itself, that is of a monopolistic competition structure. There are many sellers and
a large number of buyers.
36
Such markets are characterized by intense competition among the players for a larger market share.

The players themselves are similar in nature, especially the larger players. Any strategies or price
policies that one might adopt will probably get mirrored by the other similar size.

In the overall jewellery market in India, Kalyan Jewellers commands a 1.8% market share. As for
the organized segment of the jewellery market, here, Kalyan has a 5.9% market share.

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 CONCLUSION

Kalyan has been a victim of the pandemic-induced business halt. You see, Indian jewellery markets
lost 37% of the gold demand due to Covid. And Kalyan was no escape. Its showrooms were shut
for over two months; people weren’t buying jewelries either due to the absence of income or low-
scale weddings. This impacted its bottom line. Moreover, its operations in 2019 were impacted by
natural calamities in south India, its highest revenue-generating region. Simply put, it has been in
nature’s mercy in recent years. However, as we saw, it’s not the vulnerability alone that’s holding
back its business.

You could say that its business model and brand value beg brownie points, but there are a number
of issues boggling its operations. And thus, it could be a risky bet. Also, the IPO itself appears to be
over-priced. Anyway, now that you have all the relevant information curated, and explained to you,
use your own intellect and rationale to decide whether, for you, it’s an attempt or a pass.

Kalyan Jewellers at present has 132 company-owned stores, of which 100 are in India and 32 are in
the Middle East, including Kuwait, Qatar, Oman and the UAE.

The company has an e-commerce presence through acquisition of Candere in FY18. They believe it
will serve a miniscule segment as their turnover is very huge. They consider E-commerce as a very
small part of their business, with Kalyan Candere contributing only 1-1.5 per cent of the total
business. The company expects the e-commerce platform to grow its share to 2-3 per cent of the
overall business in two to three years.

But amid all this, Kalyanaraman sticks to his well-tested golden rule: “Whether national or
international, customer satisfaction is most important for us and we will act local to meet customer
expectations.”

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15. BIBLIOGRAPHY
www.wikipedia.com
www.news18.com
www.paisabazaar.com
www.bankbazaar.com
www.financialexpress.com

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