In this week’s Finshots Market we talk about Kalyan Jeweller’s IPO


The Story

Kalyan Jewellers is one of the biggest jewellery chains in India. Normally at this point, we would talk a bit about the history of the company. However, seeing as this is a story on the IPO, we will skip that bit and get straight to the point. What’s the company’s unique value proposition. How is a Kalyan different from a Tanishq? And why can’t somebody replicate their success?

Well, that’s a difficult question to answer. But if you ask the company, they’ll probably tell you something like this — “ India is a mishmash of different cultural preferences. A buyer in Kashmir and a buyer in Karnataka won’t seek the same kind of jewellery. In the southern states, consumers are more likely to purchase plain gold jewellery, where margins aren’t that great. Consumers in the northern and western parts of India are more likely to go for studded jewellery. But a bride in Kerala wears more than double the weight of gold compared to a bride in Gujarat. And if you extend that argument a bit, you’ll see that southern states lap up close to 40% of all the gold sold in India. Eastern states meanwhile account for just 15%. So there’s a lot of intricacies in each micro-market and you can only establish a pan India presence if you are attuned to these subtle difference.”

So Kalyan would argue that there are strong barriers to entry for regional players trying to scale up quickly. You have to understand each market, adopt a different selling strategy, source different kind of products, collaborate with local artisans, purchase enough gold and entice them to work with you. It’s not an easy gig by any stretch of the imagination. But then things get even more complicated.

When Kalyan was trying to expand its footprint in Kerala, it was doing so on the back of an excellent run in Thrissur. So they had every reason to believe that foraying into a new city (Palakkad) would be a walk in the park. And the response was overwhelming at first. People frequented the store like there was no tomorrow. However, it didn’t translate to a meaningful uptick in sales. At which point, the company realised they needed to further localise their product offering. They had to go hyperlocal.

And the argument goes that any player trying to replicate their strategy will have to do the same things. In fact, if you ask the company, they’d tell you only two jewellers have truly managed to carve a pan India presence in the organised retail market — Tanishq and Kalyan.

But Tanishq is a whole different beast compared to Kalyan. They have a much more uniform product offering across their stores and their financials are more robust. Kalyan as we already noted, adopts a hyperlocal strategy i.e. Designs in the Bombay showroom will be very different from the designs in Bangalore. And while this is a USP in itself, we are not quite sure if it offers a meaningful financial advantage.

However, the company does boast 107 showrooms across 21 states in India right now. In 2013, they also ventured into the Middle East. They have 30 showrooms abroad. All in all, the company rakes in revenues to the tune of 10,000 crores (FY20) and has been doing so rather consistently. Not too shabby for a company that’s generally considered a regional player, eh?

That being said, you can see how revenue growth hasn’t been great these past three years. There was also a time when Kalyan lost focus and experimented with a few things that didn’t work out. Add to it a spate of natural calamities in Southern India and you can see why the company posted a loss during FY 2019.

However, Kalyan is still a massive organized player. And their future prospects will ultimately hinge on India’s appetite for gold. So the real question ought to be this — How is the industry shaping up?

Well, as we wrote one of our articles recently — “With moves like GST and Demonetization, people are now forced to transact transparently.” The unorganized players don’t have an advantage like they used to. They are being forced to adapt or shut shop. So clearly, the industry favours the likes of Tanishq and Kalyan.

But what about the market itself? What’s happening there?

Well, people buy gold for all sorts of reasons. Some buy it as an accessory. Some buy it because it’s a good store of value. More importantly, people buy it when weddings are due. So let’s look at the major market here — bridal jewellery. Since Covid made landfall, people haven’t been splurging on big bash weddings as much. It’s much more low-key these days. And this has led some to speculate that demand for bridal jewellery might crater with these changing dynamics. However, there’s another side to this story. It’s quite possible that people might now allocate a higher proportion of their wedding budget elsewhere. Maybe they’ll consider buying more jewellery, especially since it can also serve as a good investment. So yeah, things could go either way.

But that doesn’t mean everything is nice and dandy either. As the company itself noted — “As of the end of Fiscals 2020, 2019 and 2018 our revenue from operations in South India, which includes Kerala, Tamil Nadu, Andhra Pradesh, Telangana, Pondicherry and Karnataka, represented 52.19%, 51.73% and 57.95% of our total revenue from operations, respectively, for such periods. As a result, our business is susceptible to regional conditions in South India, and we are vulnerable to economic downturns in the region.”

More importantly, if economic conditions sour across India, the likes of Kalyan won’t be thriving.

So yeah, as it stands the company is well placed. But where it goes from here — Well, that’ll depend on the trajectory this nation takes as a whole.

Also, the company’s asking price for the IPO translates to a P/E of 58 based on the numbers from FY 20. And if you are planning to write to us asking for a more elaborate exposition on the matter, we don’t have one. On the flip side, if you have a hot take on the IPO, and you want to talk about the company’s valuation we would love to listen to you.

So let us know your thoughts on Twitter.

Until then…

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