Wednesday, March 30, 2022

Joyalukkas IPO - A Good Balance of Growth & Profitability

Joy Alukkas, Founder

When it comes to capital markets, jewellery chains don’t have a coveted name. Part of the problem is their inconsistency in profit growth, as they are often saddled with large equities as well as large debts to fund new store growth. But Joyalukkas has been following a totally different strategy for growth, relying on own capital, high capital efficiency, internal accruals and reasonable debt to power growth across India. That is why Joyalukkas’ plans for its Rs. 2300 crore IPO are keenly discussed by investors.

Leading national jewellery retailer, Joyalukkas has filed a Draft Red Herring Prospectus (DRHP) for its proposed Rs. 2300 crore Initial Public Offer (IPO). Joyalukkas is one of the best managed gold and diamond jewellery retailers in the country, and the DRHP sheds light on several of its strengths.

Despite growing at a faster clip than most of its peers, Joyalukkas had so far shunned private equity, instead relying on own capital, internal accruals and debt for funding the growth of its formidable retail chain. The promoter Alukkas Varghese Joy (better known as Joy Alukkas) and his family still holds close to 100% of the equity (99.98% to be precise) of Joyalukkas.

Such careful guarding of its own equity by the promoter group is extending to the IPO too, and despite its huge IPO size of Rs. 2300 crore, it doesn’t have an Offer for Sale (OFS) by the promoter group, which it could have easily done. This respect for their own equity by the promoters is likely to be noticed by the discerning investors in the market.

The luxury brand’s reliance on debt has also been quite reasonable unlike some of its peers that are saddled with high debt. As on September 30, 2021, Joyalukkas’ net debt to equity ratio was 0.77. And as of 28 February 2022, the total outstanding debt of the firm was Rs 1,524.47 crore.

The company has been on a prudent path of debt reduction for a few years now. Net Debt to Equity Ratio had fallen from 1.04 in 2019 to the 0.77 level achieved as on September 30, 2021. Even the bulk of the IPO proceeds - Rs 1400 crore out of Rs. 2300 crore - would be for debt reduction, and this will help Joyalukkas cancel 92% of its current debt and help its journey towards being a debt-free company.

Joyalukkas is also noted for its consistency in generating profits, unlike many of its peers. Its weighted average return on net worth (RoE / RoNW) for the past three fiscals stands at a healthy 16.43%, and this is despite two out of these three years being the pandemic years. According to a report by Technopak, the company has the highest EBITDA and one of the highest PAT per square foot among all large jewellers in the country.

In FY21, Joyalukkas had clocked a net profit of Rs 472 crore on revenues of Rs 8,066 crore. The company had posted Rs 40.71 crore as profits in the year-ago period, which was the most affected by Covid-19 lockdowns.

The growth in the current fiscal is also going stronger than the previous fiscal. For the half year ended in September 2021, its revenue was at Rs 4,012.26 crore against Rs 2,088.77 crore a year ago. Net profit for the period stood at Rs 268.95 crore versus Rs 248.61 crore last year.

With a face value of Rs10 each share, the current paid-up capital of the company is Rs 770.3 crore divided into 77.03 crore shares. The Net Worth or Shareholders Equity of the company as of September end, 2021, was around Rs 1917 crore, which works out to a book value per share of Rs 283.68, pre-issue.

Joyalukkas’ founder Alukkas Varghese Joy, hails from a leading business family in Thrissur, Kerala, and has over 33 years of expertise in the jewellery industry in India, Middle East and several other global markets. The company began operations in 2002 by opening a showroom in Kottayam, Kerala, and has grown ever since then at a blistering pace.

Today, the company operates 85 showrooms under the ‘Joyalukkas’ brand located across 68 cities in India with an aggregate area of approximately 3,44,458 square feet, as of January 31, 2022. Of these 85 showrooms, six are large-format showrooms with an area of 8,000 square feet or more. Its largest showroom so far is at Chennai, Tamil Nadu, which has an area of over 13,000 square feet.

Quite interestingly, three business groups founded by Thrissur-based businesspersons – namely, ESAF Small Finance Bank, Popular Vehicles and Sales Ltd and now, Joyalukkas, are set to become public listed companies during the ensuing financial year itself as they all have filed initial proposals for their IPOs. The city is also known for producing leading listed financial institutions like CSB Bank, South Indian Bank, & Manappuram Finance.

At present, Joyalukkas generates over 90% of its revenues from southern states followed by the Western region. The company is in the process of expanding its geographical footprint, even while maintaining its leadership in its key markets of Southern and Western regions.

As mentioned earlier, the net proceeds of the IPO will be utilised for repayment or prepayment, in full or part, of certain borrowings availed by the company of around Rs 1,400 crore. The leading retailer will also use around Rs 464 crore for financing the opening of eight new showrooms. The remaining funds will be utilised for general corporate purposes.

Over the next two years, Joyalukkas plans to open eight new showrooms in Telengana, Maharashtra, Odisha and Karnataka. In FY23, four new showrooms will be opened in Mumbai, Habsiguda and Mehdipatnam in Telangana and Bhubaneshwar. Those in Siddipet, Suchitra and Chandanagar in Telangana and Gulbarga in Karnataka will come up in FY24. Total investment on these showrooms will be Rs 492 crore.

Not more than 50% of the issue will be available for allocation to qualified institutional buyers (QIBs) and up to 60% of the QIB portion would be allocated to anchor investors on a discretionary basis. Not less than 15% will be available to non-institutional bidders and not less than 35% of the issue shall be available for allocation to retail individual bidders.

The book running lead managers to the issue are Edelweiss Financial Services, Haitong Securities India Private, Motilal Oswal Investment Advisors, and SBI Capital Markets. The registrar to Joyalukkas IPO is Link Intime India.

Joyalukkas has a range of over 100,000 jewellery designs, across various price points, and caters to customers across all market segments. The firm maintains an inventory of jewellery made of gold, diamond and other precious stones, platinum and silver, all with an extensive array of designs. Its gold, diamond and other jewellery inventory in each individual showroom reflects regional customer preferences and designs.

In FY21, the gold category accounted for 84.24% of its overall revenue from operations, whereas diamonds and others, including silver and pearls, made up 14.14% and 1.62% respectively.

Its product profile includes traditional, contemporary and combination designs across jewellery lines, usages and price points. Its focus on design and innovation, ability to recognize consumer preferences and market trends, the intricacy of their designs and the quality of the products are among its key strengths in jewellery retailing.

Its large format showrooms provide a luxury experience and customer service, with a combination of inventory and variety of jewellery products enabling it to attract and retain a growing customer base exceeding over 2 million customers so far in India.

Joyalukkas diamond jewellery is certified by Forevermark, IGI, GIA and DHC. They have developed a number of sub-brands that include Pride, Eleganza, Veda, Ratna, Zenina, Apurva, Masaaki Pearls and Li’l Joy Kids Jewellery.

The Indian opportunity in jewellery retailing is unique in the global jewellery market, which is estimated at $320 billion currently. India is the second largest consumer for gold ornaments after China, and one among the top-three in the world when it comes to all kinds of jewelleries, behind USA & China. Global jewellery market is projected to reach $350 billion by 2025. There is no inventory obsolescence risk in jewellery retailing as products can be recycled to make new ones.

But the Indian market opportunity is also unique in two other ways. In India, gold serves a dual purpose of ornamentation and investment, and is therefore never a hard sale like many other lifestyle retail segments. India also plays a significant role in the supply chain of both gold and diamond jewellery market.

The Indian market’s growth dynamics also favours organized retailers like Joyalukkas. The size of the Indian jewellery retail sector was close to Rs 4,58,000 crore in fiscal 2020, and it is projected to increase at a CAGR of 9% to reach Rs 6,94,000 crore by fiscal 2025. However, organised jewellery retailers like Joyalukkas would increase at a quicker rate, at a CAGR of roughly 14% from Rs 1,45,000 crore in fiscal 2020 to Rs 2,75,000 crore in fiscal 2025. The share of organised jewellery retail in the whole jewellery market is projected to rise from 32% in fiscal 2020 to 40% in fiscal 2025.

To serve to younger and tech-savvy clientele, Joyalukkas had launched its online portal,, in March 2018 where customers can browse the ornaments based on their preferences, collections, and designs, then purchase it and have it delivered to their homes through a partnership with third-party logistics companies.

It also offers a purchase advance scheme on its online platform, called the Easy Gold Scheme, where customers can plan for gold jewellery purchases in fixed monthly instalments up to ten months in advance, at the current gold rate, and finally receive their purchase at their doorstep.

Joyalukkas is one of the jewellers credited with professionalizing the jewellery retailing business in India into an organized sector. Along with this, its high respect for equity, prudent financial management, better capital efficiencies and high growth trajectory are likely to garner high investor interest in this IPO.

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