CRISIL assigns 3/5 grade to PC Jeweller IPO
CRISIL has assigned a CRISIL IPO grade of '3/5' to the proposed IPO of PC Jeweller Ltd (PCJ). This grade indicates that the fundamentals of the IPO are average relative to the other listed equity securities in India.
November 06, 2012 / 15:40 IST
CRISIL has assigned a CRISIL IPO grade of '3/5' to the proposed IPO of PC Jeweller Ltd (PCJ). This grade indicates that the fundamentals of the IPO are average relative to the other listed equity securities in India. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy, sell or hold the graded instrument, its future market price or suitability for a particular investor.
PCJ is an established jewellery retailer in North India. The assigned grade reflects its seven-year-old presence and the ensuing strong reputation in an industry quintessentially benefited by the country’s obsession for gold. Strong brand recall, successful branch expansion (from one to 30 showrooms in the past seven years) and stellar increase in gold prices have added shine to PCJ’s top line, which has grown at a three-year CAGR of 69%. The grade factors in the resilience of demand for gold jewellery in India despite high gold prices; we expect demand to revive in the long term as gold prices stabilise. Compared with other gold jewellery players, PCJ’s revenue mix leans towards higher-margin diamond jewellery, which is rewarding in the wake of increasing acceptance of diamond jewellery in India. The grade has also taken into account the expected increase in organised retail penetration in jewellery vis-à-vis the single-store format, which will benefit established players such as PCJ.However, competition in the jewellery retailing market - likely to intensify following planned expansions by regional/traditional players - poses a significant risk. Further, PCJ’s stores are concentrated in North India (four showrooms in New Delhi accounted for 44% of FY12 revenue from operations). PCJ’s plans to add 20 showrooms by FY14 across India should mitigate the risk of regional concentration but the opening of new showrooms in a competitive market is likely to put pressure on profitability due to higher marketing expenses and working capital requirement. Also the compensation structure for key management personnel appears low which can result in attrition.PCJ’s revenue from operation increased at a three-year CAGR of 69% between FY09 and FY12 to Rs 30.4 bn, largely driven by branch additions and steady increase in gold prices. EBITDA margin remained steady at 9-10% over FY09- FY12 due to hedging of gold and stable overhead costs. PAT increased sevenfold over the past three years to Rs 2,313 mn in FY12. The company registered robust RoE of 55% over FY09-FY12.With rise in competition, ability to replicate success in West and South India is a monitorablePCJ opened one showroom each in Kanpur, Indirapuram and Ghaziabad and three in New Delhi in H1FY13. It plans to add 20 more showrooms by FY14 across India - 12 in the South and West and the remaining in the North and East. In larger cities, especially in western and southern India, the jewellery retailing market is getting increasingly competitive, evidenced by slow growth and decline in the same store sales of existing organised players. With many regional and national jewellery retailers as well as jewellery manufacturers and exporters lining up aggressive expansion plans, competition is expected to intensify.While this pans out, the shift from unbranded jewellery to branded jewellery should provide some room for the players to co-exist and compete on customer loyalty and variety, underlined by quality assurance. On the flip side, this will likely lead to higher spending on advertising, lower volumes and realisations and/or suppressed margins on gold jewellery. The company does not have any presence in the southern and western regions. Given, the lower pick-up in stores outside Delhi, PCJ’s ability to successfully penetrate these regions and establish a brand is a key monitorable.To read the full report click on the attachmentDisclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"
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