PC Jeweller Ltd IPO Review by KM Global (Apply)

Review By K.M. Global Financial Services Ltd on December 11, 2012

Issue Period: December 10th-12th
Issue Price (Rs): 125-135
Issue Size (Rs Cr): 564-609
Minimum Order Size: 90 Shares
Mcap (Rs Cr): 2,239-2,418
Listing: NSE, BSE
Promoters: Mr. PC Gupta & Mr. Balram Garg
Grey Market Estimate Premium of: Rs 20
IPO Grading: CARE 3/5, CRISIL 3/5
BRLM: Kotak Investment / IDBI Capital / SBI Capital

PC Jeweller Ltd (PCJ) is one of India's leading organized jewellery retailers having a presence in 23 cities with a retail area of 164,572 sq. ft. Domestic retail constitutes over 60% of sales while exports contribute to approximately 30%. The firm is focused on diamond and wedding jewellery. They have 2 manufacturing facilities in Noida SEZ for exports & 2 in Uttarakhand for domestic sales.

Strengths & Expansion Plans:

Large Format Stores in High Street Areas - PCJ's large format stores (of at least 3,000 sq. ft. each) in prominent high street locations have helped it build a strong brand. These stores are especially suited for the wedding jewellery market. PCJ has grown rapidly in North & Central India from 3 showrooms in 2007 to 30 showrooms in 2012. It hopes to maintain this momentum going forward by adding 20 large stores in West and South India.
Margin Expansion Lead by Diamond Jewellery - Sales of diamond jewellery as a percentage of total domestic revenues has increased from 18% in FY10 to 27% in FY12. Continued focus on diamond jewellery should boost margins going forward.

Risks:

Revenue Concentration & Intensifying Competition - A large part of PCJ's sales are from its stores in Delhi. It might be difficult for PCJ to break into new regions and monetize its brand due to rising competition from its competitors and the unorganized segment.
Change in Gold Loan Schemes - Currently PCJ is using non-fund based credit facilities to procure gold. These schemes help PCJ derisk its operations from gold price volatility. Any changes in the regulations or features of these scheme could lead to rising working capital requirements and falling margins.

Conclusion / Investment Strategy

We recommend that investors subscribe to the PC Jeweller's IPO as the promoters have been successful in maintaining margins while scaling up rapidly to 30 stores. The issue is attractively priced relative to peers which provides investors a reasonable margin of safety.

Reviewer recommends Subscribing to the issue.