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December 06, 2012

IPO - Note

P C Jewellers

Recommendation: Subscribe

December 06, 2012 IPO - Note P C Jewellers Recommendation: Subscribe Diamonds, Gems and Jewellery P
December 06, 2012 IPO - Note P C Jewellers Recommendation: Subscribe Diamonds, Gems and Jewellery P
December 06, 2012 IPO - Note P C Jewellers Recommendation: Subscribe Diamonds, Gems and Jewellery P

Diamonds, Gems and Jewellery

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

INR 5642 mn - INR5867 mn

Market Cap

INR 22387mn - INR 25186mn

*Discount of 5% for retail investors

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

Issue Size (No. of Shares)

45,133,500

45,133,500

of jewellery products, particularly diamond jewellery and

QIB:

22,387,500

22,387,500

jewellery for weddings. Its focus on quality, design range,

Non-Institutional:

6,716,250

6,716,250

customer oriented policies and loyalty programs, together with

Retail:

15,671,250

15,671,250

the targeted marketing efforts, have enabled it to develop strong

Employee Reservation Portion

358,500

358,500

brand recognition and customer loyalty.

Face Value:

1 0

1 0

Exports contributing ~34% to the top-line

Book Value/Share:

1.81

In addition to the sale of jewellery through showrooms, it also

EPS:

15.90

15.90

sells gold and diamond jewellery through online sales on its

 

website. It also export gold and diamond jewellery on a wholesale

 

Capital Structure

basis to international distributors in Dubai and Hong Kong. In fiscal 2010, 2011, 2012 and for the six months ended September

Pre Issue Equity

INR 1339.65 mn

30, 2012, the export sales represented 33.5%, 34.4%, 33.0% and

Post Issue Equity

INR 1791 mn

32.6%, respectively, of revenue from operations in these periods.

Bid Lot

9 0

Wide product range with an increasing focus on diamond jewellery

Minimun Bid Amount @ INR 125

 

INR 11,250

Its wide range of product offerings caters to diverse customer

Minimun Amount @ INR 130

INR 11,700

segments, from the value market to high-end customized jewellery.

IPO Grade

3 (CRISIL)

Its product profile includes traditional, contemporary and

 

combination designs across jewellery lines, usages and price points.

 

Shareholding Pattern (%)

Pre Issue No. of Equity

%

Post issue No. of Equity

%

Key strengths

PCJ's focus on design and innovation, ability to recognize consumer

Promoter & promoter group

125,404,500

93.60

125,404,500

70.00

preferences and market trends, the intricacy of designs and the

Padam Chand Gupta

50,371,800

37.60

50,371,800

28.10

quality and finishing of products are its key strengths. PCJ's

Balram Garg

66,002,700

49.30

66,002,700

36.90

approach to a wide range of independent manufacturers from

Promoter group

9,030,000

6.70

9,030,000

5.00

various parts of India allows it to offer a diverse product range.

Others

8,562,000

6.40

8,562,000

4.80

Valuation and outlook

Public

45,133,500

25.20

At the upper band of the issue price, PCJ is available at a P/BV of 1.8x

 
 

Total

133966500

100.00

179,100,000 100.00

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.

 

Neha Agarwal

   

neha.agarwal@spagroupindia.com Ph. No. 91 33 4011 4800 (Ext. 837)

 

1

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.

Industry Overview Global Gems and Jewellery Industry Global gems and jewellery sales are estimated to grow
Industry Overview Global Gems and Jewellery Industry Global gems and jewellery sales are estimated to grow
Industry Overview Global Gems and Jewellery Industry Global gems and jewellery sales are estimated to grow

Diamonds, Gems and Jewellery

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.

 

2

 

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.

Jewellery exports (33% of FY12 revenue from operations) PCJ exports gold and diamond jewellery to international
Jewellery exports (33% of FY12 revenue from operations) PCJ exports gold and diamond jewellery to international
Jewellery exports (33% of FY12 revenue from operations) PCJ exports gold and diamond jewellery to international

Diamonds, Gems and Jewellery

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
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 the upper band ** H1FY13 annualized

 

3

 

Financials Standalone

Financials Standalone Diamonds, Gems and Jewellery Income statement Balance Sheet Year ended 31st March FY09 FY10
Financials Standalone Diamonds, Gems and Jewellery Income statement Balance Sheet Year ended 31st March FY09 FY10
Financials Standalone Diamonds, Gems and Jewellery Income statement Balance Sheet Year ended 31st March FY09 FY10

Diamonds, Gems and Jewellery

 

Income statement

Balance Sheet

Year ended 31st March

FY09

FY10

FY11

FY12

 

Year ended 31st March

FY09

FY10

FY11

FY12

 

Net Sales

6227

9849

19771

3041 9

Share Capital

2 22

412

447

1340

% Growth

93.79

58.15

100.75

53.86

Reserves and Surplus

3 24

1108

281 0

4 218

Cost of Goods Sold

5461

8582

17211

2517 3

Total Networth

5 46

1520

325 7

5 557

Employee Cost

3 0

44

77

249

Minority Interest

Other Optg. Exps.

2 42

23 8

494

1684

Secured

2157

80 1

1364

5761

 

Total Optg. Exps.

5733

8864

17782

2710 7

 

Unsecured

2 7

34

31

2 2

EBIDTA (excl OI)

4 95

98 5

1989

3313

Total Debt

2184

835

1396

5783

% Growth

121.89

99.09

101.98

66.56

EBITDA Margin %

7.94

10.00

10.06

10.89

Deferred Tax Liability

1

0

0

0

Dep./Amortization

1 2

19

30

66

Other Liabilities

1

3

3

6

EBIT

4 83

96 6

1959

3247

Sources of Funds

2732

2358

4656

11346

EBIT Margin %

7.75

9.81

9.91

10.67

Interest Expense

2 16

38 2

496

783

Net Block

9 6

215

325

57 6

Other Income

7 2

18 2

168

186

CWIP

0

0

0

0

Exceptionals

Investments

0

0

0

0

EBT

3 39

76 6

1631

2650

Current Assets

3968

6813

10194

190 51

Tax Expenses

2 9

10 1

183

337

Current Liabilities

1387

4772

6133

9002

PAT

3 10

66 5

1449

2313

 

Net Current Assets

2580

2042

4060

10048

 
 

Minority Interest

Adjustment to PAT

0

0

(0)

(2)

Misc. Expenditure

0

0

0

0

APAT

3 10

66 5

1449

2314

Deferred Tax Assets

4 2

8

6

1 0

% Growth

138.86

114.56

118.01

59.73

Other Assets

1 4

93

264

71 2

APAT Margin %

4.97

6.75

7.33

7.61

Application of Funds

2732

2358

4656

11346

Key Ratios

Cash Flow

Year ended 31st March

FY09

FY10

FY11

FY12

 

Year ended 31st March

FY09

FY10

FY11

FY12

 

Per Share Data (INR)

EBT

339

766

1631

2650

Reported EPS

13.98

16.55

32.44

17.26

Adj. EPS

13.98

16.55

32.44

17.26

Less: Other Income/Exceptionals

(72)

(182)

(168)

(186)

Growth (%)

138.97

18.38

96.01

(46.79)

Add:Depreciation

14

17

30

64

CEPS

14.52

17.01

33.10

17.76

DPS

0.00

0.00

0.00

0.00

Add: Interest paid

216

382

496

783

BVPS

24.63

37.60

72.92

41.48

Direct taxes paid

(29)

(101)

(208)

(534)

Return Ratios (%)

Change in Working Capital

(1588)

705

(2236)

(6065)

 

RoACE

30.53

45.10

60.66

42.90

RoANW

68.75

64.32

60.65

52.48

Others

RoIC

27.91

39.15

53.87

37.45

 

Cash Flow from operations (a)

(975)

1951

(119)

(2917)

 
 

Liquidity Ratios

Net Debt/Equity

3.56

0.28

0.37

1.02

Change in Fixed Assets

(30)

(119)

(110)

(250)

Interest Coverage Ratio

2.57

3.00

4.29

4.39

Others

 

Current Ratio

2.55

1.76

1.56

1.93

Quick Ratio

1.39

0.64

0.77

0.81

Cash Flow from Investing (b)

(30)

(119)

(110)

(251)

Efficiency Ratios

Change in Equity

0

180

270

0

Asset Turnover Ratio

3.44

3.95

5.94

4.05

 

Inventory Days

1 20

14 0

101

141

Debt Raised/(Repaid)

1635

(1349)

561

4387

Debtor Days

9 5

92

78

8 2

Interest paid

(216)

(382)

(496)

(783)

 

Creditor Days

6 7

16 3

109

9 5

Valuation Ratios

Others

P/E (x)

0.00

0.00

0.00

0.00

Cash Flow from Financing (c )

1418

(1551)

335

3605

P/BV (x)

0.00

0.00

0.00

0.00

P/CEPS (x)

0.00

0.00

0.00

0.00

Net Change in Cash (a+b+c)

414

280

105

437

Dividend Yield (%)

Opening Cash

74

241

408

191

EV/Net Sales (x)

0.31

0.04

0.06

0.19

EV/EBIDTA (x)

3.43

0.37

0.56

1.62

Closing Cash

241

408

191

113

 
     

4

 
Diamonds, Gems and Jewellery Sharad Avasthi Dy Head - Equity Research sharad.avasthi@spagroupindia.com Tel.: +91-33-4011 4800 Ext.832
Diamonds, Gems and Jewellery Sharad Avasthi Dy Head - Equity Research sharad.avasthi@spagroupindia.com Tel.: +91-33-4011 4800 Ext.832
Diamonds, Gems and Jewellery Sharad Avasthi Dy Head - Equity Research sharad.avasthi@spagroupindia.com Tel.: +91-33-4011 4800 Ext.832

Diamonds, Gems and Jewellery

Sharad Avasthi

Dy Head - Equity Research

sharad.avasthi@spagroupindia.com

Tel.: +91-33-4011 4800

Ext.832

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Disclosure of Interest Statement

  • 1. Analyst ownership of the stock

-

No

  • 2. Group/Directors ownership of the stock

-

No

  • 3. Broking relationship with company covered

-

No

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