Let’s look at jewellery as a business and look at it from the perspective of various stakeholders during demonetisation. Money is suddenly flowing in overnight and some small fry are interested in buying jewellery with whatever cash they have hoarded that they don’t want to take to the bank and be asked questions. This is where sales (topline) is impacted positively and things are still above book for the jewellery business.
Then there are people who have hoarded too much and don’t really care much about jewellery but have got to do something about the money. The jeweller can either take the money and promise to provide its equivalent in jewellery over time or may provide the products but not invoice them right away - This way it doesn’t raise the suspicion of IT dept. Sales will be booked in the future but money has come in for that sales already. This might explain the increase in trade payables. This is still somewhat above book - Like some companies that capitalise expenses, here jewellers are capitalising sales! Capitalising expenses can happen via converting some of the expenses as CWIP so that it doesn’t go into P/L and makes P/L look rosy. Sometimes you can also do this via ESOPs. Capitalising sales is letting the money go into payables for Sales which has perhaps happened but not yet recognised. This could happen potentially without the involvement of the very top level management, maybe with the involvement of certain middle-level managers who could benefit from booking Sales.
Then I think there is the scenario where there is a lot of money to be washed, something that doesn’t even involve jewellery but the stakeholder with the cash is only interested in the unique position the jewellery business has in accepting demonetised cash. Now this chap, if he is pally with the very top-level management in a listed business, could buy some stake in the listed business by paying the promoter some cash. He could sell this stake after a year and avail LTCG benefits as well, as a bonus. He cannot do this in any other business with demonetised cash. Now in PC Jeweller, promoter stake has come down by about 4% since demonetisation. It is hard to say how much of such stake could have been sold but not yet transferred (remember, the stakeholder could be pally with the promoter). Then there is a business like Vakrangee which may have been doing this washing with a more straight-forward non-existent franchise business model. What if they had more cash than that could be handled with adding more franchises without raising eyebrows and decided to participate in the PC Jeweller business model by buying stake in PCJ? Maybe they had already paid the money to PCJ and what was left was just buying the stake and then selling it in the open market to get back that 100 odd Crores.
All this is just a lot of speculation but to figure out crooked things, one has to think like a crook. I am sure there are loopholes in my theory and I am no expert but I have been smelling a rat in this whole Jewellery business is benefitting from demonetisation and CNBC TV18 and ET’s narrative of business moving from unorganised to organised players and all that hogwash. I could still be proved wrong if jewellery businesses do as well as they did in FY17 in the next 2-3 years but I have my reservations.