There is a huge gap in branded jewellery in tier I and tier II cities, says Sanjeev Bhatia, CFO, PC Jeweller. The only thing that is stopping the company from taking the brand to these cities is real estate. It wants to open stores at the right locations, for the right price.
Going ahead, Bhatia expects to see improvement in sentiment during the upcoming festive season.
In the June quarter, he says diamond sales contributed in a big way in terms of topline growth, which came in at 14 percent.
Below is the transcript of Sanjeev Bhatia's interview with Nigel D’Souza on CNBC-TV18.
Q: On the topline itself we are seeing a growth of close to around 14 percent. What drove this topline growth, was it prices, was it volumes?
A: There is a growth in volume also. However, we are not concerned with the volumes because as you would have seen, there is a substantial increase in the diamond jewellery percentage. So, in the diamond jewellery, the gold content is lower but it always helps in the margins as well as the topline. So, it is not volumes which would be driving PC Jeweller.
Q: Going ahead you believe that volumes will pick up? What exactly was the volume growth in this quarter itself if I look at it on a year-on-year (Y-o-Y) basis?
A: There was a 20 percent growth in volumes. As the gold prices have corrected to a very large extent and then increased in last couple of days but now the festive season has started and even after yesterday’s increase, gold price is still relatively attractive option. So, we are looking at an improvement in customer sentiment and footfalls.
Q: Let us talk about another aspect you were just mentioning to us. The diamond jewellery segment has moved from around 27 percent to close to around 32 percent of your total mix. Going ahead as well do you see it move higher? Also, what is that margin you are talking about; margins are better on diamond jewellery, could you give us that breakup?
A: Going ahead we feel 32 percent is a very good percentage. If we are able to retain this also, it will be a substantial jump. Margins are better on diamond jewellery, nearly three times those on gold jewellery. So, selling more of diamond jewellery helps the company in improving its margin also.
Q: Let us talk about your gross margins. I was going through your presentation; it is at around 14-15 percent approximately. As you said we have seen that gold prices have moved up marginally, we have seen the Indian rupee as well depreciated a tad bit to around 65.20 per dollar. So, that is a good 3 percent move if you take it on average to the last quarter. What kind of an impact will it have on your gross margins for a company like PC Jeweller?
A: Since we take all our gold on lease basis so any gold price movement wouldn’t affect our margins. Our margins are made up of what we pay as making charges and what we receive as making charges – the differential between the same. As a company we don’t gain or lose on the gold price movements. Since more than 30 percent is of the sale is made up of diamond jewellery, so, in diamond jewellery this gold price movements in fact don’t have any affect. So, as a company gold price movements will not affect our margins and we continue to see steady margins going ahead as well.
Q: Your finance cost as well, they have come down substantially, if you just look at it, it is at around Rs 48 crore, it was Rs 50 crore last year and on sequential basis as well it was at around Rs 60 crore and you have mentioned that due to renewable of gold on lease format. Going ahead as well do you see it come down even from this Rs 48 crore per quarter?
A: This finance cost also includes the lease cost. So, as we go ahead and increase our operations and continue to take more gold on lease, there will be a decline in the absolute manner but not very substantial decline in the absolute number. However, if you take finance cost as a percentage of topline that percentage is going to come down.
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