Subscribe to PC Jeweller IPO, says SBICAP Securities
SBICAP Securities has come out with its report on PCJ IPO. According to the research firm, factors like good demand for gold jewellery among Indians, higher scope for organized players in the jewellery space, improved sales and profitability over the years coupled with higher margins as compared to its peer group makes the issue worth investing.
December 12, 2012 / 15:31 IST
SBICAP Securities has come out with its report on PC Jeweller (PCJ) IPO. According to the research firm, factors like good demand for gold jewellery among Indians, higher scope for organized players in the jewellery space, improved sales and profitability over the years coupled with higher margins as compared to its peer group makes the issue worth investing.
The Company operates 30 showrooms under the "PC Jeweller" brand located across 23 cities in north and central India with an aggregate area of approximately 164,572 sq.ft as of September 30, 2012. Out of these 27 stores are large format with an area of more than 3000 sq.ft.PCJ exports gold and diamond jewellery on a wholesale basis to international distributors in Dubai and Hong Kong. In FY12 and H1FY13, export sales represented 33.0% and 32.6% respectively of revenue from operations.PCJ has two jewellery manufacturing facilities in Uttarakhand that cater to its sales in India. It has also set-up two jewellery manufacturing facilities at the Noida SEZ, Uttar Pradesh, which caters to its export sales. In addition, in November, 2011, it commenced manufacturing operations at an additional 34,000 sq.ft jewellery manufacturing facility in Noida, Uttar Pradesh, to further increase its manufacturing capabilities.Also Read: HC seeks SEBI records on plea against Bharti Infratel's IPOIn FY12, domestic gold jewellery, diamond jewellery and other jewellery contributed 72.5%, 26.7% and 0.8%, respectively, of its revenue from domestic sales.The Company's revenue from operations increased from Rs.321.3 Cr in FY08 to Rs.3041.93 Cr in FY12 at a CAGR of 75.41%, while its PAT increased from Rs.11.89 Cr in FY08 to Rs. 230.05 Cr in FY12 at a CAGR of 109.74% largely driven by branch additons and steady increase in gold prices.Established brand
The Company has been able to develop "PC Jeweller" as a strong brand in northern and central India as a jewellery retailer with a wide range of jewellery products particularly diamond jewellery and jewellery for Weddings. It has expanded at a faster rate compared to its other organised peers and has been able to turn the store profitable right from first year of its operationsNetwork of strategically located large-format showrooms
In recent years, the Company has rapidly expanded its retail network of strategically located showrooms. As of September 30, 2012, PCJ had 30 showrooms under the "PC Jeweller" brand located across 23 cities in north and central India. Of these 30 showrooms, 27 are large-format with an area of 3,000 sq.ft or more. PCJ's large-format showrooms, located typically in high street areas with high visibility and customer traffic, provides customers with a luxury retail experience, which reinforces its positioning as a trusted jewellery retailer. The Company further plans to expand its retail network by opening 20 additional showrooms by FY14.Focus on diamond jewellery
Sales of diamond jewellery have a higher profit margin than sales of gold jewellery. In FY10, FY11, FY12 and H1FY13, domestic diamond jewellery sales constituted 17.9%, 22.9%, 26.7%, and 32.6% respectively of its domestic sales and 11.9%, 15.0%, 17.9%, and 21.9% respectively of total revenue from operations. The Company intends to increase relative proportion of domestic diamond jewellery in the revenue mix.Healthy Financials
The Company's revenue from operations increased from Rs.321.3 Cr in FY08 to Rs.3041.93 Cr in FY12 at a CAGR of 75.41%, while its PAT increased from Rs.11.89 Cr in FY08 to Rs. 230.05 Cr in FY12 at a CAGR of 109.74% largely driven by branch additons, improvement in same store sales and steady increase in gold prices. It's EBITDA and PAT margins have considerably risen over the years owing to greater contribution by diamond jewellery in the revenue mix and prudent hedging against gold price fluctuations. It has operated in a cost effective tax rate due to zero tax on exports from its SEZ in Noida.Recommendation: PCJ Ltd. is currently valued at 7.9x and 8.5x of its HIFY13 annualized earnings at lower and upper price band respectively whereas it is valued at 3.0x and 3.3x on P/BV multiple. While comparing the company to its closest peers, the company appears to be fairly valued on most of the valuation parameters. PCJ has a higher thrust to capture retail gems and jewellery market considering its present store network which is wider than its peers and its focus on further scaling up its store count from the issue proceeds. In view of factors like good demand for gold jewellery among Indians, higher scope for organized players in the jewellery space, improved sales and profitability over the years coupled with higher margins as compared to its peer group makes the issue worth investing. Hence we recommend Investors to Subscribe the issue.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies 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.To read the full report click on the attachment 
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