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P C J ewellers
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Diamonds, Gems and J ewellery
December 06, 2012 I PO - Note
Investment Rationale
Leading position in Retail Sector
PCJ is one of the leading jewellery companies in India in the organized
jewellery retail sector. It has developed "PC Jeweller" as a strong
brand in its markets in north and central India as a jewellery retailer
with a wide range of jewellery products, particularly diamond
jewellery and jewellery for weddings. It has expanded the retail
network from one showroom as of April 13, 2005 to 30 showrooms
as of September 30, 2012.
Shift towards branded jewellery
It has developed "PC Jeweller" as a strong brand in its markets in
north and central India as a jewellery retailer with a wide range
of jewellery products, particularly diamond jewellery and
jewellery for weddings. Its focus on quality, design range,
customer oriented policies and loyalty programs, together with
the targeted marketing efforts, have enabled it to develop strong
brand recognition and customer loyalty.
Exports contributing ~34%to the top-line
In addition to the sale of jewellery through showrooms, it also
sells gold and diamond jewellery through online sales on its
website. It also export gold and diamond jewellery on a wholesale
basis to international distributors in Dubai and Hong Kong. In
fiscal 2010, 2011, 2012 and for the six months ended September
30, 2012, the export sales represented 33.5%, 34.4%, 33.0%and
32.6%, respectively, of revenue from operations in these periods.
Wide product range with an increasing focus on diamond jewellery
Its wide range of product offerings caters to diverse customer
segments, from the value market to high-end customized jewellery.
Its product profile includes traditional, contemporary and
combination designs across jewellery lines, usages and price points.
Key strengths
PCJ's focus on design and innovation, ability to recognize consumer
preferences and market trends, the intricacy of designs and the
quality and finishing of products are its key strengths. PCJ's
approach to a wide range of independent manufacturers from
various parts of India allows it to offer a diverse product range.
Valuation and outlook
At the upper band of the issue price, PCJ is available at a P/BV of 1.8x
and P/E of 8.2x. Although this is inline with valuation commanded by
Gitanjali Gems, however, PCJ enjoys higher margin. The company
plans to open 20 stores by FY14 (currently 30) which should ensure
healthy growth rates over the next 2-3 years. Hence, we expect the
stock to trade at a premium to Gitanjali Gems and recommend to
SUBSCRIBE to the issue for listing gains as well as for the long term.
P C Jewellers (PCJ) was established in 2005. The Delhi-based company is promoted by brothers Mr Padam Chand Gupta and Mr
Balram Garg. The company retails gold jewellery (66% of FY12 revenue from operations) and diamond-studded jewellery
(32%) under the "PC Jeweller" brand. It has 30 showrooms across 23 cities in North and Central India totaling ~164,572 sq ft as
on September 30, 2012. PCJ is planning to open 20 new large formats, which will require a capex of ~INR 599 mn, with an area
of 133000 sq ft translating into capex of INR 4500 per sq ft. The company will use the IPO proceeds to set up these new
showrooms and to finance the incremental working capital requirement.
Issue Snapshot
Issue Open: 10-Dec-12
Issue Close: 12-Dec-12
Price Band INR 125-INR 130*
Issue Size INR5642 mn - INR5867 mn
Market Cap INR 22387mn - INR 25186mn
*Discount of 5%for retail investors
@ INR 125 @ INR 130
Issue Size (No. of Shares) 45,133,500 45,133,500
QIB: 22,387,500 22,387,500
Non-Institutional: 6,716,250 6,716,250
Retail: 15,671,250 15,671,250
Employee Reservation Portion 358,500 358,500
Face Value: 10 10
Book Value/Share: 1.81
EPS: 15.90 15.90
Capital Structure
Pre Issue Equity INR 1339.65 mn
Post Issue Equity INR 1791 mn
Bid Lot 90
Minimun Bid Amount @ INR 125 INR 11,250
Minimun Amount @ INR 130 INR 11,700
IPO Grade 3 (CRISIL)
Shareholding Pattern (%) Pre Issue % Post issue %
No. of Equity No. of Equity
Promoter & promoter group 125,404,500 93.60 125,404,500 70.00
PadamChand Gupta 50,371,800 37.60 50,371,800 28.10
Balram Garg 66,002,700 49.30 66,002,700 36.90
Promoter group 9,030,000 6.70 9,030,000 5.00
Others 8,562,000 6.40 8,562,000 4.80
Public 45,133,500 25.20
Total 133966500 100.00 179,100,000 100.00
Neha Agarwal
neha.agarwal@spagroupindia.com
Ph. No. 91 33 4011 4800 (Ext. 837)
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Industry Overview
Global Gems and Jewellery Industry
Global gems and jewellery sales are estimated to grow at a CAGR
of 4%during 2011-2015 to ~USD 230 bn by calendar year 2015.
Gold and diamond jewellery are expected to continue to be the
most important products, constituting approximately 82% of the
gems and jewellery market by calendar year 2015. (Source: CARE
Report) The U.S. is currently the largest jewellery retail market in
the world while India and China together are expected to emerge
as a market equivalent to the U.S. market by calendar year 2015.
(Source: CARE Report)
The U.S. accounts for 29%of the world's gems and jewellery market.
The U.S. is followed by China, India, the Middle East and Japan as
the largest consumers of jewellery. In Western Europe, the U.K.
and Italy are the largest consumers, and Italy is also one of the
world's largest jewellery fabrication centres.
Indian Gems and Jewellery Industry
The Indian gems and jewellery industry can be classified into
various segments: cut and polished diamonds, gemstones, gold
and diamond jewellery, pearl and synthetic stones and others.
However, the two major industry segments in India are gold and
diamond jewellery. India also dominates the diamond processing
trade with 11 out of 12 diamonds being cut and polished in India.
India is the largest consumer of gold in the world. The industry
accounted for approximately 14.1% of India's export revenue in
fiscal 2012 and provides employment to approximately 3.5 mn
people directly and indirectly. The Indian gems and jewellery
industry is one of the most competitive markets due to the low
cost of production and highly skilled labour internationally.
The Indian gems and jewellery export industry
The Indian gems and jewellery export industry, has the potential
to grow from the USD 42.83 bn in FY12 to USD 47-48 bn by FY14
while the domestic gems and jewellery industry has the potential
to grow from an estimated USD 45.3 bn (INR 2165.9 bn) (of which
gold jewellery (including recycled gold) constitutes ~USD 36.0-
38.0 bn (INR 1721-1817 bn), (i.e. approximately 80%-85%) while
the remaining constitutes diamond and others) in FY12 to USD 60
bn (INR 3000 bn) (of which gold jewellery will constitute around
75%-80%while the remaining will be diamond and others) by
FY14 at a CAGR of 14% -15%, in particular the organized sector is
expected to increase by over 30%during the same period.
The Key demand drivers for Indian Jewellery consumption
Economic growth - increase in per capita income
India's GDP is projected to grow at a rate of 4.9%in the calendar
year 2012 and at the rate of 6.0% in CY13. In FY10, the percentage
of the Indian population in the medium income and high income
brackets is expected to increase to 12.8%and 1.7%, respectively,
as compared to 5.7%and 0.4%, respectively, in FY02. The number
of HNI individuals in India has increased significantly in recent
years. India had a population of 125000 HNIs in CY11 as per the
World Wealth Report 2012. These trends result in an increased
amount of disposable income being available for discretionary
luxury purchases such as jewellery.
Increasing consumer class
People between the ages of 15 and 64 are regarded as most likely
to have disposable income and to be willing to spend it on
consumer goods such as jewellery. The proportion of India's
population in this age group has increased from 56.9% in CY01 to
a projected 65.2%in FY11. This provides greater potential for the
jewellery industry to expand in India.
Emphasis on brand promotion and advertising
Jewellery retailers have increasingly resorted to advertisement,
brand promotion and marketing activities such as celebrity
endorsements and event sponsorship. Such promotional activities
contribute to increasing demand for jewellery in India.
Spread of jewellery stores in tier II & tier III cities
The jewellery retail brands operating in India have expanded their
reach to tier-II & III cities during the last three to four years. Even
though such chains are primarily concentrated in tier-I cities,
jewellery retailers have recently been attracted by the prospects
of higher economic growth, emanating from small towns and cities,
wherein consumers are willing to spend more than their
counterparts in tier-I cities, owing to the low cost of living while
still being able to maintain a higher standard of living.
Business Overview
Retailing of gold and diamond-studded jewellery
PCJ sells jewellery made of gold, diamond and other precious
stones, platinum and silver. As on September 30, 2012 it has 30
showrooms in 23 cities in North and Central India. PCJ sells its
jewellery under the brand "PC Jeweller". In FY11, gold jewellery
contributed 66% to revenue from operations followed by diamond
jewellery (32%) and other types of jewellery (2%). Diamond
jewellery's contribution to revenue from operations has risen
significantly from 6%in FY09 to 18%in FY11.
Diamonds, Gems and J ewellery
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Jewellery exports (33%of FY12 revenue from operations)
PCJ exports gold and diamond jewellery to international
distributors in Dubai, Singapore and Hong Kong. In FY11 and FY10,
exports contributed 34%to total sales.
Great acceptance of Branded Jewellery
Jewellery sales remain the stronghold of traditional jewellers
and local outlets. However, the share of organized players (defined
as retailers with more than one store in similar formats) is expected
to increase from the current 8-10%. Multistore players including
regional/traditional players such as PCJ, Thangamayil Jewellery,
Tribhovandas Bhimji Zaveri, Joyalukkas, GRT Jewellers, Swarovski,
etc. as well as pan India jewellery players such as Tanishq and
the diamond focused Gitanjali, who sell jewellery under various
brand names, are set to gain. Extensive marketing promotion by
major players, rising awareness about hallmarked jewellery,
contemporary designs and inspirational value of brands are
collectively prompting a preference for organized jewellers from
traditional family jewellers.
Has established own jewellery Manufacturing Facilities
It has two jewellery manufacturing facilities in Selaqui, Dehradun,
Uttarakhand that cater to its sales in India. It has set-up two
jewellery manufacturing facilities at the Noida SEZ, Uttar Pradesh,
which caters to export revenues.
Peer Comparison
PCJ has been able to diversify its revenue through domestic and
export markets. In the domestic market it has a presence in gold
and diamond-studded jewellery, with wedding jewellery
accounting for 80%. As the focus is more on higher value items
(wedding jewellery purchases are planned purchases, unlike
fashion jewellery sales which are largely impulsive) the average
size of a showroom is more than 5500 sq ft compared to 2500-
3500 sq ft for other players. It currently operates 30 showrooms
and plans to open 20 showrooms by FY14 across India; these
showrooms with average size of 6650 sq ft are also expected to
come up on high streets and market places.
Co. Name CMP (INR) Mkt Cap (mn) Sales (INR mn) PAT (INR mn) PATM (%) EPS (INR) P/E (x) P/BV (x) D/E (x) EV/EBITDA (x) RoNW (%)
PCJ 130* 23283 30419 2309 7.59 15.90** 8.17 1.81 1.02 1.62 41.00
Titan Industries Ltd 306 2713890 88484 6015 6.80 7.26 42.11 15.19 0.03 20.80 48.19
Gitanjali Gems Ltd 477 43910 124983 4895 3.92 57.85 8.25 1.61 1.24 6.09 17.07
Tribhovandas Bhimji Zaveri Ltd 275 18310 13848 572 4.13 9.57 28.71 4.64 1.54 9.20 42.82
* At theupper band
** H1FY13 annualized
Diamonds, Gems and J ewellery
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Financials Standalone
Income statement
Year ended 31st March FY09 FY10 FY11 FY12
Net Sales 6227 9849 19771 30419
%Growth 93.79 58.15 100.75 53.86
Cost of Goods Sold 5461 8582 17211 25173
Employee Cost 30 44 77 249
Other Optg. Exps. 242 238 494 1684
Total Optg. Exps. 5733 8864 17782 27107
EBIDTA (excl OI) 495 985 1989 3313
%Growth 121.89 99.09 101.98 66.56
EBITDA Margin % 7.94 10.00 10.06 10.89
Dep./Amortization 12 19 30 66
EBIT 483 966 1959 3247
EBIT Margin % 7.75 9.81 9.91 10.67
Interest Expense 216 382 496 783
Other Income 72 182 168 186
Exceptionals
EBT 339 766 1631 2650
Tax Expenses 29 101 183 337
PAT 310 665 1449 2313
Minority Interest
Adjustment to PAT 0 0 (0) (2)
APAT 310 665 1449 2314
%Growth 138.86 114.56 118.01 59.73
APAT Margin % 4.97 6.75 7.33 7.61
Balance Sheet
Year ended 31st March FY09 FY10 FY11 FY12
Share Capital 222 412 447 1340
Reserves and Surplus 324 1108 2810 4218
Total Networth 546 1520 3257 5557
Minority Interest
Secured 2157 801 1364 5761
Unsecured 27 34 31 22
Total Debt 2184 835 1396 5783
Deferred Tax Liability 1 0 0 0
Other Liabilities 1 3 3 6
Sources of Funds 2732 2358 4656 11346
Net Block 96 215 325 576
CWIP 0 0 0 0
Investments 0 0 0 0
Current Assets 3968 6813 10194 19051
Current Liabilities 1387 4772 6133 9002
Net Current Assets 2580 2042 4060 10048
Misc. Expenditure 0 0 0 0
Deferred Tax Assets 42 8 6 10
Other Assets 14 93 264 712
Application of Funds 2732 2358 4656 11346
Cash Flow
Year ended 31st March FY09 FY10 FY11 FY12
EBT 339 766 1631 2650
Less: Other Income/Exceptionals (72) (182) (168) (186)
Add:Depreciation 14 17 30 64
Add: Interest paid 216 382 496 783
Direct taxes paid (29) (101) (208) (534)
Changein WorkingCapital (1588) 705 (2236) (6065)
Others
Cash Flow from operations (a) (975) 1951 (119) (2917)
Change in Fixed Assets (30) (119) (110) (250)
Others
Cash Flow from Investing (b) (30) (119) (110) (251)
Change in Equity 0 180 270 0
Debt Raised/(Repaid) 1635 (1349) 561 4387
Interest paid (216) (382) (496) (783)
Others
Cash Flow from Financing (c) 1418 (1551) 335 3605
Net Change in Cash (a+b+c) 414 280 105 437
OpeningCash 74 241 408 191
Closing Cash 241 408 191 113
Key Ratios
Year ended 31st March FY09 FY10 FY11 FY12
Per Share Data (INR)
Reported EPS 13.98 16.55 32.44 17.26
Adj. EPS 13.98 16.55 32.44 17.26
Growth (%) 138.97 18.38 96.01 (46.79)
CEPS 14.52 17.01 33.10 17.76
DPS 0.00 0.00 0.00 0.00
BVPS 24.63 37.60 72.92 41.48
Return Ratios (%)
RoACE 30.53 45.10 60.66 42.90
RoANW 68.75 64.32 60.65 52.48
RoIC 27.91 39.15 53.87 37.45
Liquidity Ratios
Net Debt/Equity 3.56 0.28 0.37 1.02
Interest Coverage Ratio 2.57 3.00 4.29 4.39
Current Ratio 2.55 1.76 1.56 1.93
Quick Ratio 1.39 0.64 0.77 0.81
Efficiency Ratios
Asset Turnover Ratio 3.44 3.95 5.94 4.05
Inventory Days 120 140 101 141
Debtor Days 95 92 78 82
Creditor Days 67 163 109 95
Valuation Ratios
P/E(x) 0.00 0.00 0.00 0.00
P/BV (x) 0.00 0.00 0.00 0.00
P/CEPS(x) 0.00 0.00 0.00 0.00
Dividend Yield (%)
EV/Net Sales (x) 0.31 0.04 0.06 0.19
EV/EBIDTA (x) 3.43 0.37 0.56 1.62
Diamonds, Gems and J ewellery
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Diamonds, Gems and J ewellery