Domestic retail margins of 18.5% sustainable: PC Jeweller

Below is the transcript of Sanjeev Bhatia’s interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18.Reema: Your tax rate has gone up to nearly 33 percent this quarter. Can we assume such a high tax rate even for the coming few quarters or is this one an aberration? A: This is not an aberration, this we have been telling all of our investors right from last year that the exemptions which the company enjoyed have been gradually phasing out and by March 2015 we should win the full tax bracket and that has now happened. However, one thing which I would like to specifically point out that in spite of higher tax rate if you look at our actual business profits which is the profits which don’t take into account the M2M gains, those profits have increased by nearly 27 percent even after higher tax gains which I feel is a pretty good strong indicator of company’s financial health and its sound business practices.

Latha: What is a little startling about your numbers your export business fell or revenues fell 55 percent but your domestic revenue was up 45 percent. In most companies we spoke to, not jewellery business but other business is other way round. It is exports that are the engine of growth, can you explain this?A: Our exports are order based and we execute as we get orders. So, they do keep on fluctuating from quarter-to-quarter. So, this variation is pretty normal for us. We don’t bother about it that much. However, I would again like to point out people to concentrate on our domestic business which is almost 75-80 percent of our topline and look how we have performed there. In domestic our topline has gone up by nearly 45 percent, profits have gone up by more than 100 percent which I feel shows the sound business model of the company.

Latha: How do you expect the business to pan out? Is this 45 percent a sustainable run rate for the second half as well and how is this 80:20 gold import scheme affecting you? Is that making gold any expensive, is it very difficult to push exports, is procuring gold itself a problem? A: Since we always had this export in domestic model not from last year but from past so many years, we haven’t had any issues in procuring of gold from the banks because of our dual operations. Two, we feel that 80:20 is there to stay and we are pretty much attune to it and this is now operational for more than a year and things have got down to a pretty routine affair by now. Regarding domestic sales and second half the main festive season started from October onwards. With the correction in the gold prices we are seeing huge footfalls and customers are coming back and we are very much optimistic that our second half would be much better than the first half.Latha: As good as 45 percent? A: Though I cannot specify any figure but yes why not perhaps even more. Reema: Your domestic margins stand at 18.5 percent in Q2. The company is working towards increasing your domestic retail margins by focusing on diamond jewellery. So, from 18.5 percent how much can it rise in the next two quarters, give us some numbers? A: Number one what I would like to say that 18.5 percent is a pretty sustainable margin and we should not go less than that. Having said that, we can or we should hope for another 1 percent increase at least because if the diamond jewellery sales continue at the same level we should be having that.