Senco Gold CEO on IPO, competition in jewellery market
The ₹405 crore initial public offering (IPO) of Senco Gold, a Kolkata-based jewellery retailer, opened for subscription on July 4 and will conclude on July 6. In a conversation with Fortune India, Suvankar Sen, MD and CEO, Senco Gold talks about the company's business model, future growth plans, and competition in the gold retail market. The company, which has a strong presence in Eastern and Northern India, follows D-Mart-like expansion plan and wants to focus on these regions and penetrate into smaller towns.
Speaking about the business model, Sen says of the company's ₹4,000 crore turnover as on March 31, 2023, 65% of sales were generated from company operated stores and 35% through its exclusive franchises.
“85% of our business is through sale of gold jewellery, 10-11% from diamond jewellery and the remaining 3-4% via platinum, silver, and other products,” Sen explains.
“The third aspect to look at is the company’s gross margin. When we sell to the franchisee, they invest in the inventory and the capex. And we keep 30-35% of the gross margin and pass on 65% to the franchisee.”
Responding to a question on how Senco manages fluctuations in gold prices, Sen says, “We are majorly hedged. We take gold as gold loans from banks, which works as an auto hedging process. Then we do future sales or sell (call) or buy (put) in the options. The majority of our inventory is hedged and it is guided by the board policy and the treasury committee. The treasury team reports to us every day. We feel that if the gold prices go down due to our hedging process, we will lose on inventory, but gain in the hedging.”
“And if the gold prices go up, then we will lose in hedging and gain in inventory. This is how risk is mitigated,” he explains.
“In the last financial year, our margin has only gone up by 0.3%. This is because in spite of the gold price rise, we have done hedging and that is why the impact has only been 0.3%. So, this is the outcome of the process that we follow.”
On competition in the gold retail business, Sen says organised segment is around 45%-50% of the market, while the rest 50% is unorganised. “We want to capture more of the unorganised markets. And in our own ways and efforts, we are trying to do the same. The competition is ultimately between 15-20 top players in various markets who will capture the market share.”
He says that one of the strengths of Senco is the “Calcutta Karigari” and the company works directly with them. “And that is like French wine, Belgian chocolate. Calcutta Karigari is what we want to take forward. But the designs are hyper local. We have 120,000 designs to cater to the unique needs and tastes and preferences of the 13 Indian states we cover. We have a 20-member design merchandising team. They are creating designs so that we can cater to the customer's needs.
“And another aspect is that our average ticket size is only ₹60,000-70,000. So, it is 8-9 grams of gold, which is within the budget of our middle and upper middle class customer base,” he adds.