PC Jeweller Limited (PCJ) is tapping the capital markets with its IPO for 451.33 lac shares in a price band of Rs 125-135. There is a discount of Rs 5 for retail investors and eligible employees. The issue would raise Rs 609.30 crs at the upper end of the price band. The company has allotted 67,16,250 equity shares at the upper price band of Rs 135. The issue opens on Monday the 10th of December and closes on Wednesday the 12th of December.
| Price Band | Rs 125 – 135 with discount of Rs 5 to retail and employees |
| Total issue size in Rupees | Rs 564.17 crs at the lower band to Rs 609.30 crs at the upper end of the price abnd |
| Issue size in number of Shares | 4,51,33,500 Equity Shares |
| Employee Reservation | 3,58,500 shares |
| Net issue to Public | 4,47,75,000 Equity Shares |
| QIB’s | 2,23,87,500 Equity Shares |
| Non Institutional Investors | 67,16,250 Equity Shares |
| Retail Investors | 1,56,71,250 Equity Shares |
| Book Running Lead Managers | SBI Capital Markets Limited |
| Kotak Mahindra Capital Company Limited | |
| Co-Book Running Lead Managers | IDBI Capital Market Services Limited |
| Isssue Opening Date | Monday 10th December 2012 |
| Isssue closing date | Wednesday 12th December 2012 |
| IPO Grade | CARE grade 3/5 and CRISIL grade 3/5 indicating average fundamentals |
| Anchor Investors | Alloted 11,58,945 equity Shares at Rs 230 |
| Paid -up Capital Pre IPO | 13,39,66,500 Equity Shares |
| Paid -up Capital Post IPO | 17,91,00,000 Equity Shares |
| Market Cap pre listing | Rs 1674.58 crs at the lower end and Rs 1808.55 crs at the upper end |
| Market Cap post listing | Rs 2238.75 crs at the lower end and Rs 2417.85 crs at the upper end |
| Bid Lot | 90 Equity Shares |
| Bidding Amount for Retail | 1530 Equity shares at Rs or Rs 1,98,900 per application |
Business
PCJ is one of the leading jewellery companies in India in the organized jewellery retail sector, as per CARE Report. The operations include manufacture, retail and export of jewellery. PCJbelieves that they have developed a strong brand in our markets in north and central India. They offer a wide range of products including gold jewellery, diamond jewellery and other jewellery including silver articles, with a focus on diamond jewellery and jewellery for weddings. In fiscal 2012, domestic gold jewellery, diamond jewellery and other jewellery contributed 72.5%, 26.7% and 0.8%, respectively, of the revenue from domestic sales. In the six months ended September 30, 2012, domestic gold jewellery, diamond jewellery and other jewellery contributed 67.1%, 32.6% and 0.3%, respectively, of the revenue from domestic sales. As of September 30, 2012, PCJ had 30 showrooms under the “PC Jeweller” brand located across 23 cities in north and central India with an aggregate area of approximately 164,572 sq.ft. All of these showrooms are operated and managed by PCJ, with the exception of Chandigarh showroom, which is operated and managed by a third party. Of these showrooms, 27 showrooms are large-format (with an area of 3,000 sq.ft. or more), including 11 showrooms which have an area of more than 5,000 sq. ft., of which four showrooms are more than 10,000 sq.ft.
The company plans to open 20 new showrooms of which seven would open in the remaining part of the current financial year and 13 stores in the financial year 2013-14. These stores would be opened in the Western and Southern parts of India. The company has an online sales portal as well. The company exports jewellery on wholesale basis to distributors in Dubai and Hong Kong. From the total sales, export sales accounted for 33.5% in FY2010, 34.4% in FY 2011, 33.0% in FY2012 and 32.6% in six months ended September 2012. One can easily say that 1/3rd of the sales come from exports. The company has established its brand and has employed national advertising for the same. Expenditure on advertising has increased from Rs 6 crs in FY10 to Rs 26.4 crs in FY12.
The key strengths of the company are as follows: –
- Established Brand
- Network of Strategically located large format stores.
- Wide product range with increasing focus on Diamond Jewellery
- Business de-risked from gold price fluctuations
- Vertically integrated operations and effective operational control processes
- Experienced promoters and senior management team.
The company PCJ also has a scheme known as “Jewels for less” in which an investor or member pays a fixed amount per month for 12 months and is entitled to buy jewellery for an amount equal or more than 14 instalments. The company pays two instalments and reduces the amount from the bill of the investor or member. As of 30th September 2012 the company had a total of 50,582 members who had paid in total a sum of Rs 69.69 crs towards monthly contribution in this scheme.
Objects of the Issue
The objects of the issue are as follows: –
| 1. To finance establishment of new showrooms | Rs 5168.50 million |
| General Corporate Purposes | Rs XXXX |
| TOTAL | Rs XXXXXX |
The primary aim is to open 20 new showrooms in the next 15 months in the Western and Southern region of India. These 20 showrooms would have a combined space of 1,33,000sqft at a total cost of Rs 60 crs or roughly Rs 3 crs per shop. The inventory required in these 20 stores would be Rs 517 crs or Rs 23 crs per store. The new 20 stores would in total need an investment of Rs 26 crs per store or a total of Rs 520 crs. The business model of PCJ is to have large format stores and the average size of these stores would be 6,650 square feet.
Financials
The net revenue of PCJ has grown from Rs 1,104 crs in FY10 to Rs 2,210 crs in FY11 and further to Rs 3,674 crs in FY12. In the six months ended September 12 the revenues were Rs 2,064 crs. The net profit in the same period has grown from Rs 78 crs to Rs 142 crs to Rs 230 crs. In the six months of the current half year ended September 2012 the net profits were Rs 142 crs. There is cyclicality in the jewellery business and the first half business is roughly 45 % of annual revenues awhile the second half accounts for 55 % of annual revenues.
| Rupees in millions | ||||
| 6 Months | ||||
| Income | Mar-10 | Mar-11 | Mar-12 | Sep-12 |
| Revenue from operations | 9848.47 | 19770.55 | 30419.27 | 18557.00 |
| cost of Raw Material Consumed | 1014.47 | 2157.77 | 6137.24 | 2009.4 |
| Other Income | 181.59 | 167.91 | 185.56 | 76.00 |
| Total Revenue | 11044.53 | 22096.23 | 36745.07 | 20642.40 |
| Expenses | ||||
| Cost of Raw Material Consumed | 9196.78 | 18339.48 | 31273.55 | 17527.64 |
| Purchase of Traded Goods | 399.63 | 1029.65 | 36.82 | 3.26 |
| Employee Benefits Expenses | 44.21 | 76.85 | 248.97 | 162.28 |
| Finance Costs | 382.09 | 496.02 | 782.55 | 590.71 |
| Depriciation and Amortisation Expenses | 18.58 | 29.71 | 65.90 | 47.57 |
| Other Expenses | 237.62 | 489.10 | 1684.32 | 530.58 |
| Prior Period items | 0.00 | 4.24 | 0.00 | 6.81 |
| Total Expenditure | 10278.91 | 20465.05 | 34092.11 | 18868.85 |
| Profit Before Tax | 765.62 | 1631.18 | 2649.96 | 1773.55 |
| Total Tax Expenses | 101.05 | 182.53 | 337.05 | 360.51 |
| Net Profit after Tax as restated | 664.57 | 1448.65 | 2312.91 | 1413.04 |
| Net impact of adjustments on profit | 119.40 | 28.19 | 12.45 | -6.81 |
| Net Profit as restated | 783.97 | 1420.46 | 2300.46 | 1419.85 |
| Net Margins | 7.10 | 6.43 | 6.26 | 6.88 |
| EPS on pre-IPO capital | 5.85 | 10.60 | 17.17 | 10.60 |
| Fully diluted and annualised EPS | 21.19 | |||
| PE AT LOWER | 5.89 | |||
| PE AT UPPER | 6.36 | |||
The net margins have been healthy but are under pressure. They were at 7.10% in FY10 which fell to 6.43% in FY11 and further to 6.26% in FY12. They have improved in the half year ended September 2012 to 6.88%. A possible reason for the drop in margins is the expansion being done by the company. Second is the huge growth in revenues which have more than trebled from FY10 to FY12. The revenues have moved up from Rs 1,104 crs to Rs 3,674 crs while net profits in the same period have almost quadrupled from Rs 78.4 crs to Rs 230 crs. If one were to try and extrapolate the first half numbers ended September 2012 the estimated sales for 2012-13 would be in the region of Rs 4,100 crs to 4,300 crs while the net profit would be in the region of Rs 295-305crs.
Track Record of Merchant Bankers
PCJ has a total of three merchant bankers. The track record of each of these is given in brief.
- SBI Capital Markets Limited. This merchant banker has handled 9 issues in the last three years of which as many as 7 issues were trading at a discount to the issue price 30 days after listing while a mere 2 issues were trading at a premium.
- Kotak Mahindra Capital Company Limited. Of the total 14 issues handled by them, 4 are trading at a discount after 30 days while 10 are trading at a premium.
- IDBI Capital Market Services Limited. Of the total 11 issues handled by them, 5 are trading at a discount after 30 days while 6 are trading at a premium.
Comparisons
PCJ has chosen to compare itself with Titan Industries, Gitanjali Gems and TBZ. In terms of revenues based on current turnover, Titan and Gitanjali are significantly higher while TBZ is substantially lower. Gitanjali reported consolidated revenues of Rs 12,498 crs and net profit of Rs 487.25 crs which results into an EPS of Rs 55.40 and based on Friday the 7th December 2012 price of Rs 520.75 is trading at a PE of 9.4 times. Similar numbers for Titan is revenues of Rs 8839.28 crs, Net Profit of Rs 600.15 crs, EPS of Rs 6.76, market price of Rs 307.25 and a PE of 44.86. TBZ had revenues of Rs 1385.47 crs, Net profit of Rs 57.19 crs, EPS of Rs 11.44, market price of Rs 286.70 and a PE of 25.06.
Just last week we had shares of Tara Jewels listing in the market. The company had raised Rs 179.5 crs from a fresh offer and an offer for sale in a price band of Rs 225-230. The issue was oversubscribed 1.97 times. It has not done well on listing at a premium at Rs 242 on Thursday. The share closed at Rs 218.70 on Friday. Though there could be some fallout of this poor performance on the subscription to PCJ, it would not be enough to affect the subscription at an overall level.
Valuations
The company PCJ is offering shares in a price band of Rs 125-135 with a discount of Rs 5 at the upper end of the price band. The EPS based on pre-IPO equity for the year ended March 2012 was Rs 17.17. The EPS for the six months ended September 2012 on old capital has increased to Rs 10.19 which if annualised becomes 21.19. The pre-IPO equity was 13.39 cr shares which have increased to 17.91 cr shares. Based on these numbers the PE on the old capital is between 7.28-7.86 on March 2012 numbers. The same based on September 2012 numbers annualised changes to 5.89-6.37 times.
On a fully diluted basis based on March 2012 numbers the EPS reduces to RS 12.84 and the PE between 9.73-10.51 times. The same based on September 2012 results on an annualised basis is Rs 15.85 and the PE 7.88-8.51. The issue looks reasonably priced.
Concerns
There are two concerns about PCJ. The first is the growth achieved by PCJ in the last few years. The company began as PCJ in 2005 but the promoter has been in this business for a very long time. The second concern is about the higher margins enjoyed by the company compared to other listed entities. The reason for higher margins is on two counts namely the higher percentage of diamond jewellery and secondly the fact that the company does not deal in low value gold articles like gold coins and low value add items like plain chains etc.
Growth Drivers
The growth for the company will come from expanding the retail network further and 20 showrooms are planned as part of object of issue over the next 15 months. The company would continue to focus on diamond jewellery and every showroom has a separate floor for diamond jewellery and gold jewellery. PCJ plans to introduce going forward its own line of branded jewellery and this would help in creating higher brand awareness and better margins. The company would introduce further schemes like the jewels for less to help in customer attraction and retention.
Conclusion
The issue from PCJ looks attractively poised and offers scope for appreciation. Looking at some of the listed players it is well positioned and would be a fast growing and better margins company. The key drivers would be the rapid growth and the national presence that the company enjoys.
SEBI Disclaimer : – I intend to subscribe to the above issue.
