Stock Note

RETAIL RESEARCH

02 Sep 2016

PC Jeweller Ltd
Industry

CMP

Recommendation

Add on Dips to band

Sequential Targets

Time Horizon

Jewellery

Rs. 463.2

Buy at CMP and add on declines

Rs. 421-431

Rs. 525-574

2-3 quarters

HDFCSec Scrip Code

PCJEWEEQNR

BSE Code

534809

NSE Code

PCJEWELLER

Bloomberg
CMP (as on 01 Sep, 16)

PCJL IN
Rs. 463.2

Equity Capital (Rs crs)

179.1

Face Value (Rs)

10.00

Equity Sh Outstanding crs

17.91

Market Cap (Rs crs)

Investment Rationale
One of the leading jewellery companies in India in the organized retail sector with good presence in North & Central India
Focus on studded jewellery to drive margin expansion
In-house manufacturing setup
Regulatory changes to boost organized jewellers
Normal monsoon and Rollout of 7th Pay Commission to boost demand
Recent fundraising to aid stores expansion and increase in manufacturing capacity

8295.9

Book Value (Rs)

130

Avg. 52 Week Volumes

330863

52 Week High

Rs. 478.7

52 Week Low

Rs. 295.8

Shareholding Pattern % (June 2016)

Indian Promoters

70.55

Institutions

21.14

Non Institutions
Total

Fundamental Research Analyst:

Zececa Mehta
zececa.mehta@hdfcsec.com

RETAIL RESEARCH

PC Jewellers (PCJ) is one of the leading jewellery companies in India in the organized retail sector. It is a first generation
business promoted by two brothers- Padam Chand Gupta and Balram Garg. Its businesses include the manufacture, retail and
export of jewellery.

8.31
100.00

Risks and Concerns

Correction in gold prices poses risk to margins
Regulatory risks, Customer PAN Card / Tax collection at source
Increasing competition
Business seasonal, large volumes restricted to marriage season and festivals
Outlook and view
PC Jeweller (PCJ) is on its way to be one of the top-3 pan-India jewellers by an aggressive rollout of stores planned for the
next three years. The company has strengthened the balance sheet after fund-raising from DVI Mauritius and Fidelity. The
company has a good strategy of launching different types of stores for consumers across income classes.
Going ahead, improving macro environment post: 1) normal monsoon, 2) 7th Pay Commission rollouts, and 3) improving
consumer sentiment in urban India will provide enough stimuli to PCJs aggressive store rollout plan. Also by having
established good brand recall in North and Central India, PCJ is now expected to establish a pan-India presence (with limited
presence in South). It would be a key beneficiary of the rapid growth that Indias branded jewellery segment offers.
We think that investors could buy the stock at the CMP and add on declines to Rs. 421-431 band (~13x FY18E EPS) for
sequential targets of Rs. 525 and Rs. 574 (16x and 17.5x FY18E EPS) over 2-3 quarters.

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Financial Summary
Particulars (Rs in Cr)
Total Operating Income
Operating Profit
Reported Profit After Tax after MI
EPS (Rs.)
P/E (x)
EV/EBITDA
RoNW (%)

FY12
3041.9
331.6
231.0
17.2
10.9
19.2
41.6

FY13
4018.4
481.8
291.0
16.2
11.6
15.6
29.9

FY14
5324.8
581.5
356.3
19.9
9.4
14.0
23.2

FY15
6361.3
723.2
378.4
21.1
8.9
11.1
20.6

FY16
7330.2
725.4
399.7
22.3
8.4
11.5
18.5

FY17E
8393.1
843.5
504.0
28.1
6.7
9.8
16.7

FY18E
9987.7
1028.7
646.0
32.8
5.7
8.7
16.2

(Source: Company, HDFC Sec)

Company Overview
PC Jewellers (PCJ) is one of the leading jewellery companies in India in the organized retail sector. It is a first generation
business promoted by two brothers- Padam Chand Gupta and Balram Garg. Its businesses include the manufacture, retail and
export of jewellery. It offers a wide range of products including 100% hallmarked gold jewellery, certified diamond jewellery
and other jewellery including silver articles, with a focus on diamond jewellery and jewellery for weddings. PCJ has a strong
foothold with over 65 showrooms that are spread across 52 cities and 18 states with exclusive lounges at 11 showrooms in
India. The share of domestic and export sales in the revenue from operations on standalone basis is Rs. 5,166.13 crores
(71.17%) and Rs. 2,092.94 crores (28.83%) respectively.
PCJ celebrated its 10th anniversary in April 2015. It has grown from a single showroom at Karol Bagh (Delhi) to 65 showrooms
in 52 cities across 18 States.

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As on March 31, 2016, PCJ has three wholly owned non-material Indian subsidiary companies:
(1) PC Universal Private Limited: It is engaged in the business of manufacturing and export of all kinds of gold, silver, diamond
jewellery and ornaments. It has one manufacturing unit located in Noida Special Economic Zone, Noida (U.P.). Its turnover
and net profit for FY16 were Rs.6980.13 lakhs and Rs.90.61 lakhs respectively.
(2)Transforming Retail Private Limited: It is engaged in the business of trading of all kinds of gold, silver, diamond jewellery
and ornaments. Presently, it sells jewellery through its online sale portal www.wearyourshine.com. Its turnover for FY16 was
Rs.1105.13 lakhs and it incurred a net loss of Rs.155.04 lakhs.
(3) Luxury Products Trendsetter Private Limited: It was incorporated as wholly owned subsidiary of the Company during the
year under review. It is engaged in the business of manufacture, buy, sell etc. of jewellery. During the year under review, it
has acquired AZVA brand, Indias first branded gold jewellery. It incurred a net loss of Rs.57.70 lakhs during FY16.
Investment Rationale
PC Jeweller - one of the leading jewellery companies in India in the organized retail sector with good presence in North
and Central India
PC Jeweller is engaged in the business of jewellery manufacturing, retail and export. The companys offerings comprise a
wide range of products including 100% hallmarked gold jewellery, certified diamond jewellery and other jewellery, including
silver articles, with a focus on diamond jewellery and bridal jewellery. PCJ offers a wide range of casual and bridal ornaments.
The Company designs and manufactures ornaments of gold, diamonds and other precious gemstones.
The company has four manufacturing units with a covered area of more than 80,000 sq ft. The company produces nearly 65%
of its jewellery in-house. The balance is outsourced to skilled artisans all over the country for getting region specific jewellery.
This dual sourcing not only enables the company to control quality and costs on the one hand but also provides flexibility on
the other to cater to demand spikes coinciding with occasions/seasons.
In sync with evolving consumer tastes and requirements, PCJ launched the Flexia brand in November 2014 that comprises
detachable and inter-changeable jewellery that can be adorned as per preference or occasion. Also it recently launched lightweight Flexia Jewellery collection (Rs. 25,000+) which is doing quite well across the showrooms.
PCJ has set up a focused e-commerce vertical www.WearYourShine.com with an aim to become Indias finest online fine
diamond jewellery portal focusing 100% on customer experience, pricing and designs. This foray in online space is currently
growing at a steady pace (FY16 8 months sales Rs.11 cr). The companys focus is on customer acquisition and a profitable
growth leveraging its nationwide presence providing a seamless online-offline experience to the customer.
During the end of February 2016, PC Jeweller Ltd has acquired bridal jewellery brand Azva from the World Gold Council
(WGC) for an undisclosed amount. The acquisition has been routed through one of its wholly-owned subsidiaries.
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Launched in 2012 by WGC, Azva Is derived from the Sanskrit word ashvaa and was India's first concept-based gold bridal
jewellery brand inspired by the seven sacred vows of the Indian wedding. Fashioned in 22 karat gold, the Azva collection
ranges from 70 grams to over 300 grams and comprises necklace, earrings and bracelets. PCJ is planning to launch a new
bridal jewellery collection by Azva for the upcoming festive and wedding season.
In-house manufacturing setup
PCJ has a strong in-house design team (over 50 designers) and four jewellery manufacturing units to support its retail
footprint. Of its 50 designers, ~20% are in the field to study design trends and the competitions offerings to keep PCJ abreast
with evolving consumer needs. Manufacturing of gold jewellery is largely outsourced. PCJ procures gold mostly via gold-onlease mechanism, which allows it to keep its interest cost under control. It manufactures diamond jewellery at its unit
situated in Noida and procures diamonds from traders in Mumbai and Surat. PCJ has a state-of-the-art manufacturing facility,
with majority of the production being mechanized. However, 1-2% of gold gets wasted in the process of manufacturing
diamond jewelry, for which PCJL has employed processes such as burning discarded clothes of karigars (~200gm of gold is
recovered every month) and burning discarded carpets (~250gm of gold is recovered every six months).
Regulatory changes to boost organized jewellers
Though implementation of various government regulations has been impacting organised jewellers for the past 1-2 quarters,
we believe these regulations will provide stimulus for shift from unorganised to organised jewellers. While the total jewellery
market size in India is pegged at an enormous Rs 3,50,000 crore, the space is mostly dominated by the unorganised jewellery
segment, which commands around 75% of the total market size. Key regulatory changes that will help drive growth ahead
are:
Implementation of PAN card on transactions above Rs. 2 lakh.
Mandatory hallmarking of jewellery
Imposition of 1% excise duty on gold jewellery (on jewellers having annual sales of Rs.10 cr)
Increase in upfront EMI (like Tanishqs Golden Harvest) scheme collections
Organised jewellery retailers see their market share going up after implementation of the Goods and Services Tax (GST)
Bill, but if the tax rate and customs duty are not brought down, it could lead to a rise in smuggling of gold. Also sellers
of old jewellery will receive a lower amount in the GST regime.
The number of wedding days is higher in H2FY17 compared to H2FY16 and this will lead to higher demand for wedding
jewellery in H2FY17. PCJ will benefit the most due to higher revenue share of wedding jewellery.
The top-3 reasons listed above will result in curbing illegal trade practices prevalent in the jewellery market. As the
unorganised jewellers will be required to hallmark all jewellery, it will increase their costs. Imposition of 1% excise duty will
force large unorganised jewellers to maintain books of accounts as well as inventory details. The governments intention is to
keep track of unaccounted money and curb illegal trade practices. Stricter implementation of first three of the abovementioned rules will result in higher growth for organised jewellers like PCJ.

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Focus on studded jewellery/diamond to drive margin expansion
PCJ is targeting to improve its margin profile by driving diamond studded jewellery sales, given the 3.4x gross margin
differential between plain gold and studded jewellery (gross margin in diamond jewellery is 35% compared with 11-12% in
gold jewellery). PCJs plans to boost diamond jewellery sales include: (1) investments in advertising for diamond studded
jewellery, (2) promotion schemes for diamond jewellery, (3) display of diamond jewellery on the ground floor of its multistorey showrooms, (4) new launches with penetrative price points to entice entry-level buyers, (5) cross-selling of diamond
jewellery to gold jewellery customers, and (6) launch of new design concepts in diamond jewellery (like Flexia
interchangeable diamond jewellery). The contribution of diamond jewellery in overall domestic revenues has risen from
26.4% in FY14 and 31.5% in FY15 to 28.2% in FY16. With increasing consumer discretionary spends, PCJ believes it could
increase the salience of diamond jewellery to 40% in the medium term, which could drive operating margin expansion.
Manufacturing process of diamond jewellery
Preparation of Manual Design and uploading the same into the system and
conversion to CAD.

CAM - Preparation of design master piece in silver and preparation of jewellery

sample from master piece.

Sample approval, which consists of approval of design as well as its cost

components. Once the samples are approved then a die is prepared from the
Master Piece through the wax injection process.

Casting of the jewellery piece, with or without diamonds and if the jewellery
piece was casted without diamonds, studding is then done.

Filling, polishing and buffing of jewellery item is done. Then Rodium polishing is
done, if required.

Finally, tagging is done and jewellery is then dispatched

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Domestic Standalone Sales (Rs. in Cr)
Gold Jewellery
YoY Chg (%)
% of Sales
Diamond Jewellery
YoY Chg (%)
% of Sales
Silver made ups and others
YoY Chg (%)
% of Sales
Domestic Sales
Particulars
% of Diamond sales to overall sales

FY13
2048.5
68.6
921.7
30.9
17.61
0.6
2987.7
Q1FY15
27.5

Q2FY15
32.5

Q3FY15
35.0

Q4FY15
30.0

FY14
2929.1
43.0%
73.2
1058.5
14.8%
26.4
14.5
-17.7%
0.4
4002.1
Q1FY16
32.4

Q2FY16
31.2

FY15
3091.3
5.5%
68.1
1430.5
35.1%
31.5
15.3
5.4%
0.3
4538.7
Q3FY16
29.9

FY16
3713.6
20.1%
71.9
1456.2
1.8%
28.2
19.4
26.9%
0.4
5166.6
Q4FY16
20.0

Q1FY17
37.2

Rollout of 7th Pay Commission in major cities

The 7th Pay Commission rollouts are expected to start from Sep16. The ~3mn Central government employees will get arrears
for Jan-Jul16 as well as August salary (as per revised rates) in Sep16. As the money flow in the hands of consumers coincides
with beginning of festive season in India, we expect healthy demand for products such as jewellery, consumer durables,
premium FMCG products, etc.
Aggressive rollout of new stores
PCJ has upped the ante post fund-raising and has aggressive plans to roll out new stores ahead. It has indicated plans to set
up 20-25 stores in FY17 and add another 65-75 over the next three years. In FY17, the company plans to start 5-7 small
format stores, 5 franchised stores and 13-15 large stores. In Q2FY17, PCJ is targeting to set up 4 new showrooms.
Multi-pronged growth strategy in place
PCJ is focusing on launching different store formats across different cities of India to attract consumers across income levels
1) lounges in metros for the ultra-rich, 2) large format stores in tier-1 and tier-2 cities for the rich and the upper middle class,
3) franchisee stores in tier-2 and tier-3 for the rich and the upper middle class, 4) small format stores for the middle class and
the lower middle class, and 5) Flexia and online portal for casual wear catering to the young consumers and working women.
Indias demand for gold to pick up in H2FY17
According to the World Gold Council, India's gold demand may rise in the second half of 2016 after falling to the lowest in
seven years in the first half as beneficial monsoon rains will spur rural demand during the peak festive season. Two-thirds of
demand in India, the world's second-biggest gold consumer, comes from villages, where jewellery is a traditional investment.

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Consumption of the yellow metal should rise as farmers reap the benefit of this year's monsoon and that should further
support the global bullion price that is trading near the highest since March 2014.
According to WGCs, it anticipates gold demand in India to return to normalcy during the peak season of weddings and
festivals closer to Diwali, supported by widespread monsoons that will positively impact rural demand.
The quarter ending in December typically accounts for about a third of India's gold sales since it includes the start of the
wedding season and festivals like Dhanteras and Diwali, when buying gold is considered auspicious. Diwali this year falls in
the last week of October in 2016.
Gold demand in the first half of 2016 fell 30 percent from a year ago to 247.4 tonnes, the lowest since 2009, due to a
jewellers strike, higher prices and as government measures to bring transparency disturbed trading. WGC estimates second
half demand to rise to between 503 to 603 tonnes despite a 26 percent rally in local prices.
According to the WGC report, by the end of Q1FY17, India's jewellery demand dropped 20 percent from a year ago, while
investment demand fell 12%. As a result, the WGC lowered its 2016 demand forecast to between 750 to 850 tonnes, from
earlier projections of 850 to 950 tonnes. In 2015 Indian demand stood at 864.3 tonnes.
Gold in India has been trading at a heavy discount to global prices due to rising supplies from unofficial channels, leading
Indian refiners to suspend operations. Supplies from unofficial channels could rise to up to 160 tonnes in 2016, from nearly
120 tonnes a year ago.
Widespread monsoon augurs well for rural income and food production
Rural demand has fallen in the past few quarters after the first back-to-back drought in nearly three decades squeezed
farmers' earnings. However, India is forecast to receive surplus rainfall during the June to September monsoon season. Indian
monsoon has been 2% below normal, rather than surplus, as predicted, despite a season of floods taking hold in several
states of the country. The annual rainy season that runs from June through September has, however, been active and fairly
well-spread, which augurs well for rural incomes and food production after two years of drought. In terms of distribution,
64% of the total area in the country has got normal rainfall, while 16% has recorded deficient rainfall. About 20% has seen
excess rains, the reason for the flooding.
According to data from the IMD, the country has received 647.5 mm rainfall between June 1 and August 24, against a normal
of 663.5 mm. The official weather bureau has forecast the rains to be above normal. A near-normal monsoon is a blessing, as
surplus rains could have damaged crops and led to more severe flooding.
From an agricultural point of view, the rains have progressed well, with 30 of the 36 meteorological divisions receiving
normal to excess rainfall. Until August 19, farmers had planted summer crops on 99.3 million hectares, up 5.8% compared to
the same period last year.
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Strong Financials
In last four years (FY2012-16), PCJ has grown its consolidated revenue at a CAGR of about 24.6%, Operating profit by 21.6%
and PAT by 14.7%. Its debt equity ratio has been improving consistently from 1 in FY12 to 0.4 in FY16. Also the return ratios
have been quite robust. We assume a 5 year (FY13-18E) CAGR of 20% in its consolidated revenue, 16.4% in Operating Profit
and 17.3% in PAT. Debt equity ratio would be at 0.2 in FY18E whereas RoNW would be 16.2% and RoCE would be 22.6% in
FY18.
The company has raised a total of about Rs. 685 crore by way of Preference shares and debentures (details are given below)
during July 2016 and May 2016 respectively. Out of these funds, 60% is to be used for store expansion while the balance 40%
is for expanding its manufacturing capacity. Though the company wants to open 65-75 stores in next three years, we have
assumed about 60 stores to be opened and relevant costs to be incurred. Pending the spending in stores expansion and
manufacturing facility, we assume that the company would temporarily repay some of its short term borrowings which
explains are lower interest cost in FY17E and FY18E. The depreciation charges are expected to rise due to increase in the
number of stores and manufacturing capacity and assets required for the same. Proportionately, dividend on preference
shares and interest on debentures have been adjusted in P&L account. Growth in sales would lag the growth in stores due to
lower maturity of new stores.
As far as the balance sheet is concerned, we have given effect of the latest amount raised through CCPS and debentures. In
FY18E we assume that all of the preference shares and debentures would be converted to equity (by the terms explained
below) and hence FY18 equity capital would rise from Rs. 179.1 crore in FY16 to Rs. 197.1 crore in FY18 and reserves and
surplus have been adjusted. We have assumed complete 12 months would be taken for converting the preference shares
into equity, however, it can be converted before end of 12 months also.
Q1FY17 Result Review
In Q1FY17, total sales were Rs. 1,664.45 crores (10.2% growth over Q1FY16). Sales for Q1FY17 grew across both - domestic as
well as exports. Domestic retail sales witnessed an overall growth of 10.6% YoY. A part of April was impacted due to
jewellers protest, however, the quarter also had Akshaya Tritiya during which PCJ registered good sales. The Company has
been in the export business for a fairly long time and focus has been on handmade designer gold jewellery. It plans to
participate in select B2B and B2C exhibitions to display its exclusive jewellery ranges - Azva, Flexia, Smart Jewellery and other
designer items. This strategy of focusing on high margin jewellery for exports should improve the export margins.
The company also experienced a healthy growth in diamond jewellery sales in this quarter (37.18% in Q1FY17 as compared to
32.34% in Q1FY16). This increase was owing to significant pent up demand from the month of March 2016 when owing to
nationwide protests, customer could not make jewellery purchases. The company continues to remain focused on improving
the sales mix in favour of diamond/ high margin gold jewellery.

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Gross margins for Q1FY17 was 16% as compared to 15.2% in Q1FY16. The key reason for this increase was growth in the
diamond jewellery sales. Operating margin came in at 12.4% up by 119 bps YoY and operating profit came in at Rs. 205.7
crore, up by 22% YoY.
The company is planning an aggressive media campaign in the upcoming festive seasons and expect the advertisement cost
(as % of total revenue) to grow in the coming few quarters.
During Q1FY17, P C Jeweller has raised up to Rs. 257.37 crore through issue of Compulsorily Convertible Preference Shares
(CCPS) by way of preferential allotment to US-based investment firm Fidelity for business expansion. This significant
investment by them is a testimony to the trust and conviction that Fidelity team has placed in the jewellery industry
potential, PCJs robust business model and experienced management. The CCPS shall be compulsorily convertible in to equity
shares of the company within a maximum period of 12 months from the date of allotment @ Rs.382.54 per share and in the
meanwhile carry dividend @13%. Post conversion Fidelity will hold 3.6% stake in the company.
In May 2016, PCJ had raised Rs. 427 crore from DVI Fund (Deccan Value) Mauritius by allotting it Compulsorily Convertible
Debentures (CCD). The same will be converted in equity shares at a price of Rs. 380/share within 18 months and carries a
coupon rate of 13% per annum until converted.
The company had a target to raise about Rs. 600-700 crore and the same has been completed. The company is adding more
stores every fiscal and is exploring to set up new manufacturing facilities.
Peer Comparison
Companies

Total
Revenue
(Rs in Cr)

PAT
(Rs in Cr)

EPS
(Rs)

PC Jeweller
Tara Jewels
Thangamayil Jewellery
Renaissance Jewellery
TBZ
Titan

7330.2
1801.3
1274.8
1319.3
1654.3
11189.8

399.7
25.4
10.5
47.4
-27.5
689.4

22.3
10.3
7.7
24.9
-4.1
7.8

CMP as
on
010916
(Rs)
463.2
44.0
280.5
136.0
70.0
413.5

PE

FY16
Book
value

P/BV

EV/EBITDA

Debt/Equity

Mkt
Cap/Sales

20.8
4.3
36.5
5.5
-16.9
53.3

129.9
247.8
100.3
241.8
65.4
39.3

3.6
0.2
2.8
0.6
1.1
10.5

11.5
3.7
10.9
5.4
14.9
0.0

0.4
0.8
0.9
0.5
1.5
0.0

1.1
0.1
0.3
0.2
0.3
3.3

Risks and Concerns

Indian jewellery demand continues to struggle
India did not experience the expected bounce back in jewellery demand in the June quarter. Paltry import numbers and
steep local discounts were omens of a disappointingly weak quarter. Official imports of gold halved to below 100t (the lowest
quarterly imports since Q4 2013). And the local price was in discount for the whole of June quarter moving out as wide as
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US$46/oz below the London benchmark price by the end of the quarter (Chart below). Although Akshaya Tritiya sales
provided a brief boost to demand in May, this was insufficient to prevent a severe quarterly contraction. The market faced
some key issues:
A sharp jump in the gold price
Government regulation
Jewellery demand for H1 was the lowest since 2009 at just 186.3t.
After the national jewellers strike ended in April, demand remained under pressure, and not least due to gold prices
hitting their highest levels since August 2013.
Rural incomes have come under pressure, which further undermined gold jewellery consumption.
Indian gold price remains in discount to global prices due to subdued demand

Correction in gold prices poses risk to margins

The margin of gold jewellery manufacturing companies is from making charges, which is a function of gold prices. So if gold
prices come down, making charges would also come down. Further jewellers would have to take a MTM hit on inventories
that they hold. But, fall in gold prices could increase consumption and thereby increase volumes, so company would be able
to offset the fall in making charges. However, if volumes dont rise, then companys margins could come under pressure.

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Regulatory risks
As gold is one of the key import articles, Government may take action to curb its demand thereby impacting the jewellery
business by reducing demand and/or increasing costs like customs duty, lease rate, etc.
Increasing competition
Competition is likely to increase in the jewellery segment as new players and retailers enter the markets. Rapid roll out of
stores and a wide distribution network by competitors could pose a challenge to PCJs market share.
Deterioration of macro conditions
Poor macro outlook could lead to prolonged slowdown in the companys growth as the companys revenues depend on
discretionary spend.
Customer PAN Card required for purchase above Rs. 2 lakhs/ Tax collection at source
The government of India has imposed a rule that makes it mandatory for customers to provide a PAN card on all jewellery
transactions of Rs. 2 lakh and above. This could impact sales as customers would be reluctant to share these details. Quoting
PAN will help create an audit trail of all high-value transactions by one particular individual and help the tax department
determine if it is in line with the declared income of that person. This will help the government widen its tax base, curb the
circulation of black money and move towards a cashless economy.
Income Tax Department has been levying 1 per cent TCS on cash purchase of bullion in excess of Rs 2 lakh and jewellery in
excess of Rs 5 lakh since July 1, 2012 and there has been no change in that position. However, Finance Minister Arun Jaitley in
his Budget 2016-17, had imposed TCS of one per cent on goods and services purchased in cash in excess of Rs 2 lakh. CBDT
has issued a new circular on Tax Collected at Source (TCS) clarifying that the levy will not be applicable when cash part of the
payment for certain goods or services is less than Rs.2 lakh, even when the total payment is more than this amount.
Business seasonal, restricted to marriage season and festivals
The jewellery segment is seasonal in nature with large sales seen in marriage season and festivals. Additionally, the number
of wedding dates varies in a year. This could impact the companys revenue from quarter to quarter.
Regional concentration
Although PCJ has established a strong brand value in North, Central and East India, areas in and around Delhi contribute a
large portion of sales. Any disturbance in those areas could impact the sale of PCJ.
Working capital intensive nature of business and risk of inventory loss
A lot of funds of PCJ are locked up in inventory. This increases in proportion to the number of stores opened. This entails
borrowing monies at interest. Further in case the gold prices fall in any quarter, then PCJ faces the risk of MTM loss on
inventory.
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Pledge shares
Promoters have 70.87% or 8,95,50,000 equity shares of their holding as pledged shares. These shares are offered as collateral
to banks in exchange for loans. Shares of companies with high pledging of promoter holding tend to witness volatility in its
share price in a falling market in case the MTM margins are not deposited in time by the borrowers.
Forex Fluctuation
As on FY16, PCJ had about 19% of its consolidated revenues come from exports, hence the company is exposed to foreign
exchange fluctuations. The Company uses foreign exchange forward contracts to hedge its exposure towards highly probable
forecast transactions. These foreign exchange forward contracts are not used for trading or speculation purposes. The
Company does mark to market valuation on outstanding forward contracts on highly probable forecast transactions and
recognises the unrealised gains and losses.
Conclusion & Recommendation
PC Jeweller (PCJ) is on its way to be one of the top-3 pan-India jewellers by an aggressive rollout of stores planned for the
next three years. The company has strengthened the balance sheet after fund-raising from DVI Mauritius and Fidelity.
The company has a good strategy of launching different types of stores (lounge, large format, small format, franchisee, and
online platform) for consumers across income classes. This strategy has worked well for the company as: 1) it has successfully
prototyped these stores in FY16, and 2) it has a strong balance sheet to execute the strategy. Ahead, due to improving macro
environment post: 1) normal monsoon, 2) 7th Pay Commission rollouts, and 3) improving consumer sentiment in urban
India will provide enough stimuli to PCJs aggressive store rollout plan. Also by having established good brand recall in
North and Central India, PCJ is now expected to establish a pan-India presence. It would be a key beneficiary of the rapid
growth that Indias branded jewellery segment offers.
We think that investors could buy the stock at the CMP and add on declines to Rs. 421-431 band (13x FY18E EPS) for
sequential targets of Rs. 525 and Rs. 574 (16x and 17.5x FY18E EPS) over 2-3 quarters.
Particulars (Rs in Cr)
Total Operating Income
Operating Profit
Reported Profit After Tax after MI
EPS (Rs.)
P/E (x)
EV/EBITDA
RoNW (%)

FY12
3041.9
331.6
231.0
17.2
10.9
19.2
41.6

FY13
4018.4
481.8
291.0
16.2
11.6
15.6
29.9

FY14
5324.8
581.5
356.3
19.9
9.4
14.0
23.2

FY15
6361.3
723.2
378.4
21.1
8.9
11.1
20.6

FY16
7330.2
725.4
399.7
22.3
8.4
11.5
18.5

FY17E
8393.1
843.5
504.0
28.1
6.7
9.8
16.7

FY18E
9987.7
1028.7
646.0
32.8
5.7
8.7
16.2

(Source: Company, HDFC sec)

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RETAIL RESEARCH
RETAIL RESEARCH
Financials
Quarterly Standalone
Particulars (Rs cr)
Income from Operations
Raw Material Cost
Employee Expenses
Other Expenses
Total Expenditure
Operating Profit
Other Income
PBIDT
Interest
PBDT
Depreciation
PBT
Tax (including DT & FBT)
Reported Profit After Tax
EPS (Rs.)
Equity
OPM (%)
PATM (%)

Q1FY17
1664.5
1398.7
20.3
39.8
1458.8
205.7
10.1
215.8
63.6
152.2
5.0
147.2
40.6
106.6
6.0
179.1

Q1FY16
1510.7
1281.6
16.8
43.7
1342.0
168.6
6.4
175.0
55.7
119.3
5.1
114.2
32.9
81.3
4.5
179.1

12.36
6.40

11.16
5.38

% chg
10.2%
9.1%
21.1%
-8.9%
8.7%
22.0%
58.8%
23.3%
14.2%
27.6%
-1.8%
28.9%
23.3%
31.2%

Q4FY16
1898.3
1654.9
15.9
67.8
1738.6
159.7
12.6
172.3
57.5
114.7
6.0
108.8
29.7
79.1
4.4
179.1

bps
119
102

% chg
-12.3%
-15.5%
27.9%
-41.4%
-16.1%
28.8%
-19.3%
25.3%
10.6%
32.6%
-15.8%
35.3%
36.5%
34.8%

bps
394
224

8.41
4.16

FY16
7259.1
6244.8
70.2
217.8
6532.7
726.4
49.6
775.9
214.7
561.3
22.6
538.7
137.8
400.9
22.4
179.1

FY15
6348.5
5382.3
55.6
186.6
5624.5
724.0
59.2
783.2
220.9
562.3
23.0
539.3
161.1
378.2
21.1
179.1

10.01
5.52

11.40
5.96

% chg
14.3%
16.0%
26.3%
16.7%
16.1%
0.3%
-16.3%
-0.9%
-2.8%
-0.2%
-1.8%
-0.1%
-14.5%
6.0%

bps
-140
-44

(Source: Company, HDFC sec)

Segment Revenue
Exports
Domestic
Total
Segment Revenue Contribution (%)
Exports
Domestic
Segment Results
Exports
Domestic
Total
Less: Interest
Less: Other Unallocable Expd
PBT

RETAIL RESEARCH

Q1FY15
540.7
782.31
1323.0

Q2FY15
189.8
993.83
1183.6

Q3FY15
523.8
1297.91
1821.7

Q4FY15
555.5
1464.65
2020.2

Q1FY16
561.1
949.55
1510.7

Q2FY16
376.2
1293.37
1669.6

Q3FY16
594.5
1586.03
2180.5

Q4FY16
560.7
1337.68
1898.3

Q1FY17
614.7
1049.77
1664.5

40.9
59.1

16.0
84.0

28.8
71.2

27.5
72.5

37.1
62.9

22.5
77.5

27.3
72.7

29.5
70.5

36.9
63.1

27.7
124.89
152.6
50.4
3.05
99.2

21.3
156.45
177.8
54.19
4.47
119.1

56.8
158.72
215.6
53.9
9.32
152.3

42.3
190.29
232.6
55.3
8.55
168.7

57.8
115.57
173.4
55.26
3.91
114.2

26.7
162.51
189.2
49.81
2.01
137.3

45.6
190.37
236.0
52.77
6.7
176.5

25.3
143.15
168.4
52.8
6.85
108.8

37.3
172.76
210.1
63.6
-0.71
147.2

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RETAIL RESEARCH
RETAIL RESEARCH
Segment EBIT Margins (%)
Exports
Domestic

5.1
16.0

11.2
15.7

10.8
12.2

7.6
13.0

10.3
12.2

7.1
12.6

7.7
12.0

4.5
10.7

6.1
16.5

(Source: Company, HDFC sec)

Profit & Loss Consolidated

Particulars
Net Sales
Total Expenditure
Raw Material Cost
Employee expense
Other Expenses
Operating Profit
Other Income
PBIDT
Interest
PBDT
Depreciation
PBT
Tax (including DT & FBT)
Reported Profit After Tax

FY12
3041.9
2710.4
2517.4
24.9
168.1
331.6
17.2
348.8
77.2
271.5
6.9
264.7
33.7
231.0

FY13
4018.4
3536.6
3362.3
35.3
139.0
481.8
20.6
502.4
127.5
374.9
10.0
364.9
73.9
291.0

FY14
5324.8
4743.3
4478.2
44.7
220.4
581.5
47.2
628.8
147.1
481.7
12.3
469.4
113.1
356.3

FY15
6361.3
5638.1
5394.6
55.7
187.8
723.2
59.2
782.4
219.9
562.5
23.0
539.5
161.1
378.4

FY16
7330.2
6604.8
6312.4
72.1
220.3
725.4
48.7
774.1
215.0
559.2
22.7
536.5
136.9
399.7

FY17E
8393.1
7549.6
7176.1
96.5
277.0
843.5
60.9
904.4
178.0
726.4
45.3
681.1
177.1
504.0

FY18E
9987.7
8959.0
8469.6
129.8
359.6
1028.7
71.8
1100.6
154.3
946.3
61.4
884.9
238.9
646.0

(Source: Company, HDFCSec)

Balance Sheet Consolidated

Particulars (Rs in Cr)
Equity & Liabilities
Shareholders Funds
Equity Share Capital
Compulsory Convertible Preference Shares
Reserves & Surplus

RETAIL RESEARCH

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

555.4
134.0
0.0
421.5

1388.8
179.1
0.0
1209.7

1682.2
179.1
0.0
1503.1

1990.6
179.1
0.0
1811.5

2326.4
179.1
0.0
2147.3

3012.3
179.1
257.4
2575.8

3990.3
197.1
0.0
3793.2

Non-Current Liabilities
Long Term borrowings
Long Term Provisions

2.8
2.2
0.6

2.4
1.2
1.2

2.2
0.4
1.8

3.3
0.4
2.9

62.6
58.2
4.3

550.1
545.2
4.9

128.6
123.2
5.3

Current Liabilities
Short Term Borrowings
Trade Payables
Other Current Liabilities
Short Term Provisions

1539.1
575.1
852.5
86.7
24.8

2044.0
230.9
1625.0
132.3
55.7

2548.1
1003.0
1284.1
163.6
97.4

2730.1
681.0
1821.5
49.7
177.9

3373.4
881.9
2184.5
112.3
194.8

3462.1
617.4
2512.1
114.5
218.1

3793.2
493.9
2939.2
120.2
239.9

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RETAIL RESEARCH
RETAIL RESEARCH
Total Equity & Liabilities

2097.3

3435.2

4232.5

4724.0

5762.3

7024.5

7912.1

Assets
Non-Current Assets
Fixed Assets
Deferred Tax Asset (net)
Long -term Loans and Advances
Other Non-Current Assets

137.3
66.7
0.4
62.1
8.1

163.7
63.8
5.1
80.0
14.8

194.0
85.0
10.7
89.0
9.2

179.2
89.6
12.5
73.8
3.3

177.3
91.2
17.3
63.7
5.1

274.7
181.2
19.1
68.8
5.7

445.1
341.2
21.9
75.7
6.4

Current Assets
Current Investments
Inventories
Trade Receivables
Cash & Cash Equivalents
Short Term Loans & Advances
Other Current Assets

1960.0
0.0
1172.4
686.6
74.9
24.1
1.9

3271.6
442.9
1713.7
674.8
264.9
170.0
5.3

4038.6
185.0
2377.1
623.2
330.1
442.5
80.7

4544.8
13.1
3229.9
780.4
284.0
228.8
8.7

5585.1
7.4
3872.2
976.0
336.8
368.3
24.5

6749.8
300.0
4569.2
1122.4
307.3
423.5
27.4

7467.0
0.0
5437.3
1313.2
211.4
474.3
30.7

Total Assets

2097.3

3435.2

4232.5

4724.0

5762.3

7024.5

7912.1

(Source: Company, HDFCSec)

Key Financial Ratios

Particulars
No of Equity Shares
Current Market Price
Market Capitalization
Enterprise Value
FD EPS
Cash EPS (PAT + Depreciation)
PE(x)
Book Value (Rs.)
P/BV (x)
OPM (%)
PBT (%)
NPM (%)
ROCE (%)
RONW (%)
Debt-Equity
Current Ratio
Mcap/Sales(x)

RETAIL RESEARCH

FY12
13.4
463.2
6205.5
6707.9
17.2
17.8
26.9
41.5
11.2
10.9
8.7
7.6
30.2
41.6
1.0
1.3
2.0

FY13
17.9
463.2
8295.9
7820.3
16.2
16.8
28.5
77.5
6.0
12.0
9.1
7.2
30.4
29.9
0.2
1.6
2.1

FY14
17.9
463.2
8295.9
8784.3
19.9
20.6
23.3
93.9
4.9
10.9
8.8
6.7
23.0
23.2
0.6
1.6
1.6

FY15
17.9
463.2
8295.9
8680.2
21.1
22.4
21.9
111.1
4.2
11.4
8.5
5.9
28.4
20.6
0.3
1.7
1.3

FY16
17.9
463.2
8295.9
8891.9
22.3
23.6
20.8
129.9
3.6
9.9
7.3
5.5
23.0
18.5
0.4
1.7
1.1

FY17E
17.9
463.2
8295.9
8851.2
28.1
30.7
16.5
168.2
2.8
10.1
8.1
6.0
20.6
16.7
0.4
1.9
1.0

FY18E
19.7
463.2
9129.7
9535.3
32.8
35.9
14.1
202.5
2.3
10.3
8.9
6.5
22.6
16.2
0.2
2.0
0.9

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RETAIL RESEARCH
RETAIL RESEARCH
EV/EBITDA

19.2

15.6

14.0

11.1

11.5

9.8

8.7

(Source: Company, HDFCSec)

One Year Price Chart

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RETAIL RESEARCH
RETAIL RESEARCH

Fundamental Research Analyst: Zececa Mehta (zececa.mehta@hdfcsec.com)

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Website:
www.hdfcsec.com Email: hdfcsecretailresearch@hdfcsec.com.
____________________________________________________________________________________________________________________________________________________________________________________________

"HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475."
Disclosure:
We /I, (Zececa Mehta), (MMS), authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also
certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of
1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any
material conflict of interest. Any holding in stock No
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obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or
correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended
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HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other
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HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or comanaging public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business.
HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HDFC
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Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any
compensation/benefits from the subject company or third party in connection with the Research Report.
This report has been prepared by the Retail Research team of HDFC Securities Ltd. The views, opinions, estimates, ratings, target price, entry prices and/or other parameters mentioned in this document may or may not match or
may be contrary with those of the other Research teams (Institutional, PCG) of HDFC Securities Ltd.

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