As gold prices flirt with all-time highs, India’s deeply entrenched love affair with the yellow metal shines brighter than ever. Riding this wave, Lalithaa Jewellery — a brand synonymous with affordability and accessibility — is gearing up for its stock market debut. The move marks a pivotal moment for the Chennai-headquartered company, which started its journey in 1999 when it was acquired from a struggling jeweller. Over the past two decades, it has transformed into a regional powerhouse.

Now, with an ambitious ₹1,700 crore initial public offering (IPO) on the horizon, Lalithaa aims to solidify its hold over the south Indian jewellery market and capture new growth opportunities. But is this shimmering growth story all gold, or are there hidden fissures investors should watch for?

IPO Plans: Expansion on the Agenda

Lalithaa Jewellery’s draft red herring prospectus outlines a public issue worth ₹1,700 crore — comprising a ₹1,200 crore fresh issue and a ₹500 crore offer for sale by its promoter. The company has earmarked over ₹1,000 crore of these proceeds to expand its retail footprint, promising to bring its value-driven designs to more cities and towns.

This aggressive growth strategy is underpinned by its focus on tier-2 and tier-3 cities, where customers are price-conscious and brand loyalty runs deep. As India’s middle class grows, so does the demand for branded, trusted jewellery — a trend Lalithaa seeks to capitalize on.

South India: The Glittering Core Market

India remains the second-largest consumer of gold globally, and jewellery accounts for 70% of this demand. In south India, gold isn’t just adornment — it’s a cultural cornerstone, symbolizing wealth and security, especially for women.

Lalithaa’s strategic focus on this region has paid rich dividends. Around 95% of its revenue is derived from gold jewellery, with store clusters across Tamil Nadu, Andhra Pradesh, Karnataka, Telangana, and Pondicherry. This southern stronghold accounts for nearly 40% of India’s gold jewellery consumption, offering a lucrative and loyal customer base.

However, while Lalithaa enjoys dominance in Tamil Nadu — which has driven over half of its recent revenue growth — the same cannot be said for other states. Despite a higher number of stores in Andhra Pradesh, sales traction there has lagged behind.

Solid Growth, Prudent Debt Management

From FY17 to FY24, Lalithaa’s revenues grew at a robust 16% CAGR, climbing from ₹6,083 crore to ₹16,788 crore. The first nine months of FY25 alone saw it rake in ₹12,595 crore.

Notably, this growth hasn’t come at the cost of financial health. The company’s debt-to-equity ratio has been steadily reduced from a concerning 2.0 in FY17 to 0.5 in December 2024. By April 2025, Lalithaa reported total debt of ₹1,215 crore, reflecting careful fiscal discipline alongside rapid expansion.

Margins: The Flip Side of the Low-Price Strategy

Lalithaa has built its brand around offering the lowest prices possible. Its advertising dares consumers to find better prices elsewhere — a promise that resonates strongly in smaller cities.

However, this strategy squeezes margins. Lalithaa’s PAT margin stands at just 2.08%, among the lowest in the sector. By contrast, Titan enjoys margins above 5%, and even a peer like Kalyan Jewellers operates at close to 3%. This razor-thin margin profile is a double-edged sword: while it ensures high volume sales, it leaves little room to absorb shocks such as fluctuating gold prices or operational hiccups.

Cash-Flow and Inventory Concerns

While revenues have soared, cash-flow management has been a recurring challenge. Lalithaa has experienced negative cash flows from operations in multiple years, partly due to heavy reliance on a small pool of vendors.

Moreover, its inventory has ballooned, rising from 25.6% of revenues in FY24 to 42% in the first nine months of FY25. Higher inventory means more locked-up capital, potentially aggravating cash-flow pressures if demand softens.

Gold Price Volatility: A Double-Edged Sword

Gold’s rally has fueled inventory gains, but it also poses risks. Rising prices can dampen demand while simultaneously inflating raw-material costs.

Uniquely, Lalithaa doesn’t hedge its gold exposure, leaving it vulnerable to price swings. With gold trading near its peak and the company holding multi-year high inventory levels, this could dent profitability further in the quarters ahead.

Governance and Regulatory Red Flags

While the brand ambassador controversy — involving payments to its promoter — has been addressed with the deal now terminated, it raises questions about governance culture.

Additionally, there are other governance-related clouds:

• Deemed promoter group under liquidation: Dilip Chhabria Design is under liquidation, with critical information unavailable.
• Non-compliances under the Companies Act: Lapses here reflect procedural weaknesses.
• Pending legal matters: Lalithaa faces legal claims exceeding ₹600 crore and a tax dispute over ₹1,000 crore — amounts that dwarf its FY24 net profit of ₹360 crore.

Valuation: Cheaper, But For A Reason?

At 44 times earnings, Lalithaa is priced lower than Kalyan Jewellers (98 times). However, Kalyan’s stronger growth trajectory and higher margins justify its premium valuation.

The valuation gap suggests that investors are factoring in Lalithaa’s governance risks, lower margins, and cash-flow challenges.

Final Take: Glitter or Grit?

Lalithaa Jewellery’s IPO offers a chance to invest in a deeply entrenched regional brand riding on India’s unshakeable love for gold. Its strong revenue growth, disciplined deleveraging, and ambitious expansion plans paint a compelling growth story.

However, wafer-thin margins, weak cash flows, high inventory, and governance red flags temper this optimism. The success of its IPO — and long-term investor returns — will depend on Lalithaa’s ability to streamline operations, enforce stronger governance standards, and capture value beyond volume-driven growth.

For investors, the question remains: does Lalithaa’s shine reflect enduring value, or is it a glittering surface that conceals deeper flaws?

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Disclaimer

This article should not be interpreted as investment advice. For any investment decisions, consult a reputable financial advisor. The author and publisher are not responsible for any losses incurred by investors or traders based on the information provided.