PC Jewellers: Buy at CMP and add on declines to Rs421-431 band

HDFC Sec | Jan. 28, 2015, midnight

Company Profile


PC Jewellers (PCJ) is one of the leading jewellery companies in India in the organized retail sector. It is a first generation business promoted by two brothers - Padam Chand Gupta and Balram Garg. Its businesses include the manufacture, retail and export of jewellery.

 

Investment Rationale


- One of the leading jewellery companies in India in the organized retail sector with good presence in North & Central India

- Focus on studded jewellery to drive margin expansion

- In-house manufacturing setup

- Regulatory changes to boost organized jewellers

- Normal monsoon and Rollout of 7th Pay Commission to boost demand

- Recent fund raising to aid stores expansion and increase in manufacturing capacity


Risks and Concerns


- Correction in gold prices poses risk to margins

- Regulatory risks, Customer PAN Card / Tax collection at source

- Increasing competition

- Business seasonal, large volumes restricted to marriage season and festivals


Outlook and view


PC Jeweller (PCJ) is on its way to be one of the top-3 pan-India jewellers by an aggressive rollout of stores planned for the next three years. The company has strengthened the balance sheet after fund-raising from DVI Mauritius and Fidelity. The company has a good strategy of launching different types of stores for consumers across income classes.

 

Going ahead, improving macro environment – post: 1) normal monsoon, 2) 7th Pay Commission rollouts, and 3) improving consumer sentiment in urban India – will provide enough stimuli to PCJ’s aggressive store rollout plan. Also by having established good brand recall in North and Central India, PCJ is now expected to establish a pan-India presence (with limited presence in South). It would be a key beneficiary of the rapid growth that India’s branded jewellery segment offers.

 

We think that investors could buy the stock at the CMP and add on declines to Rs. 421-431 band (~13x FY18E EPS) for sequential targets of Rs. 525 and Rs. 574 (16x and 17.5x FY18E EPS) over 2-3 quarters.


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