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The stock of PC Jeweller, which rallied smartly after listing last December, has given up its gains and then some more. At its current price of Rs 113, the stock trades 17 per cent lower than its issue price of Rs 135. Concerns over the Government’s moves to curb the country’s gold appetite contributed to the reversal. But this presents a good buying opportunity for investors with a long-term perspective. The current stock price discounts its annualised FY-13 earnings by around 7 times, lower than levels peers such as TBZ and Gitanjali Gems trade at (9 to 19 times).
This is despite the fact that PC Jeweller has been posting better margins than its peers and its business is continuing to grow at a healthy pace. Based on its recent nine-month performance, the company should raise its FY-13 sales and profits by over 20 per cent. The outlook for PC Jeweller also seems sanguine. The company, which has 30 showrooms at present, mainly in North and Central India, plans to add 20 more stores by FY-14. Sales of wedding jewellery, in which PC Jeweller specialises, should get a boost in the upcoming wedding season. The softening in gold prices in recent times should also help.
The company has been shifting its sales mix from its mainstay domestic gold jewellery sales towards the high-margin diamond jewellery business. From around 16 per cent of domestic sales in FY-10, diamond jewellery sales accounted for 27 per cent of the company’s turnover in FY-12. Though the recent December quarter saw the share of diamond jewellery moderate, PC Jeweller expects it to bounce to 35 per cent for FY-13. Likewise, the company’s strategy of increasing focus on the more lucrative domestic retail business bodes well for margin improvement. From around 33 per cent in FY-12, the share of export sales in the company’s revenues fell to around 27 per cent in the 9 months ended December 2012. Despite rapid expansion, PC Jeweller’s debt-to-equity is comfortable at 0.29.
The increasing customer preference for large organised jewellery retailers should benefit players such as PC Jeweller. The company has a strong brand image in its home market of North India, especially in Delhi. But penetrating other markets, especially the South and the West, may take time and expense, given the presence of large-sized established retailers in these regions.
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