Senco Gold ‘Gold’en opportunity – At a bargain; initiate with BUY: Emkay

Senco Gold boasts of being one of the top-2 as regards revenue share in the ~Rs800bn eastern market, abetted by strongest brand accessibility vs peers, in terms of product, price & penetration. Growth headroom is huge, as its market share is still at a mid-single-digit in the East, and focused efforts are afoot to capitalize on non-East prospects. Better access to capital, upbeat franchisee interest and shift to organized should drive a strong revenue-led EPS CAGR of >20% for Senco in FY23-26E. Growth would be backed by near-equal input from new stores and SSG. Senco follows hygiene practices for sourcing/hedging gold (50% stated policy), thus reducing the commodity’s volatility risk. Unit metrics are better than/in line with peers’ (ex TTAN) and should further improve with rise in franchisee mix. Despite similar growth prospects, Senco’s 19x 1-yr fwd P/E is at a major discount to peer valuations, offering scope for rerating. We initiate coverage on Senco with BUY and TP of Rs630/share (20x Sep-25E EPS).

Low share in its stronghold East and focused non-East entry offer huge growth runway: Senco is #2 in the East (Emkay: a Rs800bn market), given deepest penetration in West Bengal (85 stores in 55 cities vs a 15-30-city presence for peers). Senco’s unrivalled reach in WB is enabled by its effective franchisee partnerships, where peers lack proficiency. Its East market share still being low at mid-single digit, Senco’s aheadof-the-curve investments in brand/franchisees are aiding extension into the adjoining states of Bihar, Assam, Orissa and Jharkhand, and the Northeast. Also, Senco’s focus on non-East (mainly Delhi-NCR/UP for now) will supplement its expansion in core eastern areas. We expect the East and non-East to jointly add 60stores for Senco in FY23-26E, on a base of 136 stores (12% store CAGR over FY23-26E vs. 8% CAGR over FY20-23).

Light-weight strengths ensure best accessibility; focus on new retail formats for catering to affluent/GenZ customers: Senco’s basic offering entails a <10gm product in most categories which facilitates it to offer a similar look at lower grammage than peers. Leveraging its multi-decadal liaison with karigars (experts in making lightweight items), Senco offers best-in-class accessibility, which has assisted it to permeate deeper into tier-2/3 cities. Further, Senco is expanding its customer base via the D’Signia and Everlite store formats, targeting affluent/GenZ customers (4-5% of FY23 sales). Senco’s return ratios in line with or better than most organized players’ While Senco logs 13-14% RoE in COCO (company-owned company-operated) stores, returns in FOFO (franchisee-owned franchisee-operated) stores are much higher, on nil inventory investment. Versus peers, Senco’s return is aligned with Kalyan’s/better than most listed jewelry retailers’. Senco’s margin surpasses peers’, albeit rev/store is lesser, on low per-capita in the East; but this gets adjusted, on lower inventory need at stores.

Big valuation gap; candidate for huge rerating, on earnings delivery certainty We expect Senco to clock ~20% PAT CAGR over FY23-26E which is in line with some best-performing sector players’. Despite similar growth prospects, Senco trades at ~40% discount to Kalyan Jewelers. While Kalyan has relatively better brand strength for faster Pan-India expansion, we believe such a steep discount is unwarranted and provides scope for re-rating, as Senco delivers on our expectations going ahead.