Deepa Jewellers' initial public offering (IPO) concluded with overwhelming investor demand, as the issue was subscribed 42.61 times the shares on offer. The strong subscription, however, shifts the spotlight to a more pressing concern: the company's cash conversion cycle and its need for fresh capital to fund inventory.
The Hyderabad-based gold wholesaler reported a net profit of ₹104.79 crore for fiscal 2026, a 158% jump from the previous year. Yet, its operating cash flow remained in the red for the second consecutive year, at negative ₹14.73 crore. This divergence between profitability and cash generation underscores the capital-intensive nature of the business.
Subscription breakdown
According to exchange data, the IPO received bids for 789.1 million shares against 18.52 million available, reflecting robust interest across investor categories. Non-institutional investors led the charge with a 105.96-fold subscription, followed by qualified institutional buyers (QIBs) at 37.01 times and retail investors at 18.55 times.
The allotment process was scheduled for Friday, with share credits and refunds expected by September 7. Trading is proposed to commence on September 8 on both major exchanges. Until then, investors will have to wait for the stock to make its market debut.
The ₹215 crore question
The company's revenue grew 37.9% to ₹1,926.68 crore in fiscal 2026, as per the SEBI-filed prospectus. EBITDA more than doubled to ₹146.34 crore, with margins expanding to 7.6% from 4.01%. These are impressive improvements, but the cash flow story remains stubborn.
Operating cash flow turned from a positive ₹4.85 crore in fiscal 2024 to outflows of ₹9.86 crore and ₹14.73 crore in the following two years. Debtor days also increased to 36, indicating slower collections from customers.
Why cash flow lags profit
This is a classic case of a fast-growing business that needs to finance its working capital. Deepa Jewellers pays for gold upfront, holds inventory for an average of 18 days, and waits longer for customers to pay. Its net operating cycle stands at 53 days, with suppliers providing only one day of credit. Consequently, the IPO is not just about expansion; it's about easing the pressure on the cash cycle.
Issue structure
The ₹459.72 crore IPO comprises a fresh issue of ₹250 crore and an offer for sale (OFS) of ₹209.72 crore by promoters Ashish Agarwal and Seema Agarwal, who are selling up to 5.92 million shares each at the upper price band of ₹177. The promoters' disclosed weighted average cost is ₹0.50 per share, implying substantial gains.
Fresh capital will primarily be used to fund inventory (₹215 crore), with the remaining for general corporate purposes. The OFS proceeds will go to the selling shareholders.
Valuation and risks
At the upper price band, the company is valued at around ₹1,701 crore on a post-offer basis. Pro-forma earnings per share (EPS) stand at ₹10.90, translating to a price-to-earnings (P/E) ratio of approximately 16.2 times. This valuation does not account for the potential benefits of the fresh capital.
However, the company faces significant concentration risks. The top five customers account for 44.7% of revenue, and the top ten for 64.67%. Similarly, the ten largest suppliers provide 91.81% of purchases. This narrow base makes the business vulnerable to disruptions in either customer relationships or supply chains.
Higher gold prices could inflate both revenue and inventory funding requirements, while delayed collections would exacerbate working capital needs. The opening price on Tuesday will reflect market sentiment, but the long-term verdict will depend on the company's ability to improve its cash conversion cycle and manage receivables.
