Akash Jain
We believe one can buy PC Jeweller at current market price post significant correction witnessed in last 3 months was owing to uncertainty in gems & jewellery sector post Nirav Modi – PNB scam. The company has clarified that it does not use the instruments of LUT/LOC etc in its business transactions. It does not have any international transactions in diamonds; it procures all its diamonds from local markets on cash basis only. We can expect a target of Rs 450 by FY19 end.
The company is a strong play on India’s jewellery sector. Organized players have only ~30 percent share of the Rs 200000 crore jewellry market in India, with the national players having less than 10 percent share. The company is second largest organized player after Tanishq.
It currently has four factories in the NCR region. The company boasts of its strengths on design (craft) and low cost manufacturing which can keep help it to fight competition from unorganized players as well. It has introduced a range of wedding jewelry (including premium jewelry under the Azva brand) as well as light-weight jewelry to stay ahead of the competition (unorganised and regional organised players).
It has also increased its annual ad spends to support the new collection and brand image. Its ad campaign introducing new brand ambassadors, Akshay Kumar and Twinkle Khanna, has received good response.
We believe value migration has taken place from unorganised segment to organized segment and a player like PC Jeweller is expected to do well in coming years.
The management of the company expects 25-30 percent CAGR in the domestic jewelry retail business over the next five years led by 10-15 percent SSSG and 15 percent growth through new store additions.
Post demonetisation, the proportion of cash sales has declined from 60 percent earlier to 35-40 percent. Another 40 percent of sales now come from credit cards and 20-25 percent from gold exchange, indicating changing customer practices.
The Franchisee model is working well for the Company with RoCEs of 20 percent, the business is attractive to potential franchisees, who also get gold on lease from the banks. Going forward, franchisee stores will be 80 percentof annual store openings.
Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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