Subscribe to P C Jewellers IPO - SPA Securities

P C Jewellers (PCJ) was established in 2005. The Delhi-based company is promoted by brothers Mr Padam Chand Gupta and Mr Balram Garg. The company retails gold jewellery (66% of FY12 revenue from operations) and diamond-studded jewellery (32%) under the "PC Jeweller" brand. It has 30 showrooms across 23 cities in North and Central India totaling ~164,572 sq ft as on September 30, 2012. PCJ is planning to open 20 new large formats, which will require a capex of ~INR 599 mn, with an area of 133000 sq ft translating into capex of INR 4500 per sq ft. The company will use the IPO proceeds to set up these new showrooms and to finance the incremental working capital requirement.

Investment Rationale

Leading position in Retail Sector

PCJ is one of the leading jewellery companies in India in the organized jewellery retail sector. It has developed "PC Jeweller" as a strong brand in its markets in north and central India as a jewellery retailer with a wide range of jewellery products, particularly diamond jewellery and jewellery for weddings. It has expanded the retail network from one showroom as of April 13, 2005 to 30 showrooms as of September 30, 2012.

Shift towards branded jewellery

It has developed "PC Jeweller" as a strong brand in its markets in north and central India as a jewellery retailer with a wide range of jewellery products, particularly diamond jewellery and jewellery for weddings. Its focus on quality, design range, customer oriented policies and loyalty programs, together with the targeted marketing efforts, have enabled it to develop strong brand recognition and customer loyalty.

Exports contributing ~34% to the top-line

In addition to the sale of jewellery through showrooms, it also sells gold and diamond jewellery through online sales on its website. It also export gold and diamond jewellery on a wholesale basis to international distributors in Dubai and Hong Kong. In fiscal 2010, 2011, 2012 and for the six months ended September 30, 2012, the export sales represented 33.5%, 34.4%, 33.0% and 32.6%, respectively, of revenue from operations in these periods. Wide product range with an increasing focus on diamond jewellery Its wide range of product offerings caters to diverse customer segments, from the value market to high-end customized jewellery. Its product profile includes traditional, contemporary and combination designs across jewellery lines, usages and price points.

Key strengths

PCJ's focus on design and innovation, ability to recognize consumer preferences and market trends, the intricacy of designs and the quality and finishing of products are its key strengths. PCJ's approach to a wide range of independent manufacturers from various parts of India allows it to offer a diverse product range.

Valuation and outlook

At the upper band of the issue price, PCJ is available at a P/BV of 1.8x and P/E of 8.2x. Although this is inline with valuation commanded by Gitanjali Gems, however, PCJ enjoys higher margin. The company plans to open 20 stores by FY14 (currently 30) which should ensure healthy growth rates over the next 2-3 years. Hence, we expect the stock to trade at a premium to Gitanjali Gems and recommend to SUBSCRIBE to the issue for listing gains as well as for the long term.

Source : Equity Bulls

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