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The business and the earnings have been surging. So, where’s the problem? We check their balance sheet.
Senco Gold has delivered a dazzling growth story on paper. Its profit before tax and exceptional items has grown at an impressive clip of 44 per cent annually over FY21-24. Its median return on capital over this period, too, stands strong at a respectable 17 per cent, thanks to robust asset efficiency.
However, the stock has seen 39 per cent of its value shaved off in the last one year. The trouble lies in the company’s poor cash generation.
Where’s the cash?
Over the last three financial years, Senco’s operating cash flow has been negative. In FY24 alone, it reported a cash outflow of nearly Rs 294 crore from operations. Even more telling is this: Cumulatively over the last five years, its cash flow from operations (before tax) amounts to just 4 per cent of EBITDA. In other words, the profits are largely stuck on paper.
The inventory bloat
The main culprit? Ballooning working capital—more specifically, inventory. Senco’s working capital has ballooned from Rs 449 crore in FY21 to a staggering Rs 1,172 crore in FY24. Inventory to revenue shot up to 47 per cent from 39 per cent in FY22.
That’s because jewellery retail demands hefty stockpiles to display across showrooms. Senco typically holds five to six months of inventory, and this jumps even higher during festive seasons.
The recent surge in gold prices has only made matters worse. In FY25, out of an Rs 821 crore rise in inventory value, Rs 500 crore was purely due to higher gold prices.
At the same time, Senco has been on an expansion spree. It opened 23 new stores in FY24 and another 16 in FY25. That means more locations to stock, more working capital to fund.
How it’s being funded
To feed this growing appetite for capital, Senco is relying heavily on short-term borrowings. Its short-term debt-to-equity was a staggering 90 per cent as of March 2025. A significant portion of this comes via gold metal loans (GMLs), which have lower rates but recently saw a jump, from 3.2 per cent in January to 6.6 per cent in March 2025, tightening the liquidity noose further.
Apart from loans, the company has tapped equity markets, raising Rs 448 crore through a recent QIP. Most of this has gone into working capital.
Is liquidity really comfortable?
Despite negative cash flow, Senco says its liquidity remains adequate, citing internal accruals, surplus bank balances and expected future inflows.
But given the rising interest burden, dependence on external capital and the sharp rise in inventory, investors would be wise to dig deeper than management assurances. The business model remains capital-intensive and vulnerable to volatility in gold prices and demand.
Your takeaway
Earnings growth is only half the story. The other half—whether those profits convert into cash—matters just as much. In Senco Gold’s case, the glitter is surface-deep.
Additionally, operating margins remain low at under 7 per cent since jewellery retail is a highly competitive, low-margin game.
Senco operates in a fragmented industry teeming with both organised chains and unorganised local jewellers. This limits pricing power and caps margin expansion, no matter how fast the topline grows.
On top of that, there’s the persistent dependence on working capital borrowings, leaving little breathing room on the liquidity front. Unless the company can rein in its inventory and reduce reliance on external funding, its financial flexibility and cash flows will remain under strain.
Also read: Down 40% since IPO, is Akums Drugs finally a bargain?
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