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Sunday, December 9, 2012

PC Jewellers (PCJ) is coming out with an initial public offering (IPO) of 4.51 crore equity shares with a Face Value of Rs.10 each (including employee reservation of 3.6 Lakh shares). The shares will be offered in a price band of Rs.125/- to Rs.135/- per equity share. The Issue will remain open between December 10, 2012 and December 12, 2012. Retail Investors and Employees of the company will be offered a discount of Rs.5/- per equity share


Company Profile and Promoters:

PC Jeweller Ltd is an established jewellery retailer in North India. Company's operations include the manufacture, retail and wholesale of jewellery. PCJ offers a wide range of products including gold jewellery, diamond jewellery and other jewellery including silver articles. The company provides 100% Hallmarked jewellery and Certified Diamond jewellery. PC Jeweller have 30 showrooms under the "PC Jeweller" brand located across 23 cities in north and central India. Company is planning to expand their showroom network across India by adding 20 more in next two years, including in southern and western parts of India. They have manufacturing facilities at 5 locations. The company is promoted by Balram Garg and Padam Chand Gupta


IPO Rating:

CRISIL has assigned a CRISIL IPO Grade "3/5" (pronounced "three on five") to the proposed initial public offer (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. CRISIL assigns IPO grading on a scale of IPO Grade 5 to IPO Grade 1, with IPO Grade 5 indicating strong fundamentals and IPO Grade 1 indicating poor fundamentals. 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, or a comment on the graded instrument’s future market price or its suitability for a particular investor

According to the grading report, 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%.

However, competition in the jewellery retailing market - likely to intensify following planned expansions by regional/traditional players - poses a significant risk



Key Strengths:
  • Compared with other gold jewellery players, PCJ’s revenue mix leans towards higher-margin diamond jewellery
  • The organised players account for approximately 16-18% share (including the regional players) of the Indian jewellery industry. The low penetration presents a good growth opportunity for a player like PCJ on account of the rising disposable incomes, which are likely to fuel the growth of jewellery consumption in the country
  • The operating profit grew at a CAGR of 96.3% in the last 4-5 years from around Rs.20 crore in FY2008 to Rs.330 crore in FY2012. The operating profit margin of the company at approximately 11%, is respectable enough when compared with peers. The Net Profit Margin stands at around 7.7% which also is one of highest amongst peers

Risks:
  • The company generates a major portion of its domestic sales from its showrooms in Delhi 
  • PCJ’s plans to add 20 showrooms by FY14 across India should mitigate the risk of regional concentration but the opening of new stores in a competitive market is likely to put pressure on profitability due to higher marketing expenses and working capital requirement. 
  • Moreover, the compensation structure for key management personnel appears low, which can lead to attrition.
  • Uncertain macro environment may put pressure on sales. The jewellery segment is discretionary in nature and is a luxury item. The current uncertain macro economic environment may drag on the company’s performance for the near term.

Remarks:

The share offered at roughly 7-8 times PE multiple, which is neighter generous nor blown out of proportions. Though participating in the IPO may be apt, however, investors may not be willing to go full throttle on the IPO

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