All I am trying to say here is that PCJ is a lot superior play in terms of size and growth at a PE of 7 as compared to say thangamayil at a PE of 6.5 or a TBZ at 18 times.
Excel Monkey,
The story seems to be interesting. I looked in to it briefly and could see the following:
Positives
The Sales growth more than 70%CAGR and PAT 95% over the past 3 years.
Diamond jewellery share increased from 18% to 33% in the past 3 years.
Reasonable brand pull.
High ROE/ROCE.
Mgmt focus on increasing retail with higher margins going forward. Reduce the share in exports.
Grown from 5 stores in 2009 to 30 stores. All except one on lease model.Lease cost on bs is 0.9% as per the CEO.
Working on Gold lease model thus reduces the risk associated with volatility.
Negatives
Purchase of diamond on fixed price. Volatility risk high (since the co concentration is more on diamonds jewellery than gold.)
High remuneration for the Top management. balram garg annual remuneration of 6 crs. Top 3 management salary very high.
Negative cash flow for FY12 and high working capital cost.
Debt equity ratio high.
The real trigger will come when the market gets convinced that the focus is on retail with expanding margin and cutting down the debt with the high profits. Given its high ROCE/ROE it should be able to do so.
Promoters seems to have the scaling capability.
Any idea about the promoters integrity? For TBZ/Titan/Thangamayil the management integrity has high scores.
Excel,
I think it depends on the consumption of the particular town/city. For example a small town in Andhra Pradesh called_Proddatur has second highest sale of gold in india after Mumbai._
Gold is to South Indian family what car is to Delhi/Chandigadh youth. Pure passion.( Just an loose comparison, no to offend anyone).
You have to see the amount of gold a malyalee bride wears to believe it.
Gold is an investment instrument for most of the South Indian family. No doubt muthoot, and manapurram origin out of Kerala.
The buying power of NCR may be high but gold as such is less in demand than say in vizag or Cochin or vijayawada or Mysore.
Ideally if a company is opening a store it would obviously want to maximise its returns by opening its stores at places where it is expected to succeed the most. An added advantage would be lower real estate prices.
Hi Krishna, I think the stock would stabilize at ±5% from current levels in the near term. Thereafter the market would demand evidence in quarterly earnings. I think they would publish their q3 numbers by end of January. My guess is they are going to be good. Additional legup could also come when Kotak starts its initiation on the name which is very likely as they were the managers for the IPO.
The major mistake that people are doing is comparing PC with Geetanjali. If anything PC is mor closer to TVZ or even better Titan.
Krishna, thanks for pointing out the remuneration part, it is awfully high for a company of this size. In general one of the hallmarks of a good management is higher share in the equity and lower remunerations. This shows the conviction/ confidence of the management.
Soumya, I think PC is 30% gitanjali and 70% TBZ
Excel,
where do you think the stock would be if all goes well in the next 4 quarters ,i.e reduce the debt, increase the retail margin, reduce the export share considerably? Do you feel they will announce dividend in anytime from now to 2 years.
I know predicting price is difficult? Atleast any guess on fair PE?
Krishna, this one could easily command a PE of 10 to 12 times in the medium term. Beyond a PE of 12 it will have to deliver on qualitative terms as well. Like improvement in receivables, sales mix etc. One also need to keep in mind the fresh supply of Jewellery stocks as many Jewellery companies are looking at raising money from the markets.
excel bhai how do gold prices correction will affect it ?
I think the sector has run up a lot before this ipo and is due for a correction . Overall looks good stock .
Thanks for the listing gains I made on this .
What are your views on claris after the deal ?
Sashi, in my view gold price correction would hurt the consumer sentiment and hence everyone related to gold. Yes, the next upmove should happen only after market has digested the recent gains. I have exited claris post the deal announcement without making any profit. The fall can attributed to the discount the cash rich companies quote post the sellout of business. The management will have to first prove that they would share the selloff gains with the shareholders. I think the next trigger for claris could be the announcement of a special divided (if any) and wining hospital tenders in USA. which could be a few months away. The punters who bought on the transaction news are getting out leading to weak stock performance.
DVI mauritius buys 53 lac shares that is like 70 crore worth of stock or around 10% of the IPOed shares.
Lot of conviction?
Testing HTML tables please ignore
| Profitability/Ratios (%) | PCJ | TBZ | Thangamayil | Gitanjali | Titan |
|---|---|---|---|---|---|
| EBIT margin (3-yr avg.) | 10.1 | 6.7 | 8.6 | 9.0 | 8.7 |
| PAT margin (3-yr avg.) | 7.7 | 3.0 | 4.3 | 5.0 | 6.1 |
| RoE (3-yr avg.) | 54.4 | 38.1 | 42.5 | 35.0 | 39.0 |
| RoCE (3-yr avg.) | 43.1 | 25.5 | 32.6 | 32.0 | 57.0 |
hi excel,
thanks for analysis on pcj and jewellery companies in general.just had some doubts,if you could help out if you had done an analysis.
1). What happens if the price of gold remains same or falls by 10%,how much do you think it will affect the eps,in that case is it only the making charges that they chrge the customer the source of income.In the past before hallmark im sure the jewellers made a killing by dishing out suspect gold.im sure that is not possible now.
2.if somebody is taking debt at 12-13% for inventory,would he be able to generate that returns greater than that if there were no inventory gains,
3.How do they charge for the diamond jewellery.
Atleast on the buying patterns,there seems to be a regional bias.A person in kerala would buy from alukkas,josco or the numerous other ones.So it is not easy for a regional player to set up a pan-india presence easily.I think they will have to grow in their regional turfs.
Hi Biju, there are two possible effects of the gold price fall 1.devaluation of inventory — now this is not applicable to PCJ as they lease the gold instead of owning it. 2. Lower gold price could effect the consumer sentiment hurting the sales — I am not sure how this would work.on your second question ---- as they borrow the gold the cost of which is 5-6% and not 12-13%. Also if you have inventory turnover of 4x then you hold an item for an average of 3 months therefore in that case your inventory cost falls to 1 to 1.5%. I don’t know how the diamond Jewellery is sold what I know is that it is high margin 30% business. I think it is very hard to judge the value of diamond and that is Where jewellers make a killing.
Life of Balram Garg - the promoter of PC Jeweller.
http://www.indianjeweller.in/contentview.aspx?page=2&item=6139
Link: http://www.indianjeweller.in/contentview.aspx?page=2&item=6139 http://www.indianjeweller.in/contentview.aspx?page=2&item=6139 Link: http://www.indianjeweller.in/contentview.aspx?page=2&item=6139
Thanks
Link: http://www.indianjeweller.in/contentview.aspx?page=2&item=6139 http://www.indianjeweller.in/contentview.aspx?page=2&item=6139 Link: http://www.indianjeweller.in/contentview.aspx?page=2&item=6139
Thanks
One more comparative table from the report
| Playersâ profile | Unit | PCJ | TBZ | Thangamayil | Gitanjali | Titan (tanishq) |
| Sales (FY12) | mn | 30,419 | 13,854 | 11,136 | 77,554 | 70,450 |
| Sales 3-yr CAGR | % | 69% | 27% | 66% | 42% | 32% |
| No. of stores (POS) in FY12 | 24 | 15 | 15 | 4000 | 163 | |
| Current sq ft (FY12) | sq ft | 137,937 | 52,000 | 34,000 | 1,700,000 | 461,000 |
| Average store size (FY12) | sq ft | 5,747 | 3,467 | 2,267 | ||
| Diamond-studded jewellery sales (FY12) | % | ~32 | ~25 | ~5 | ~55 | ~75 |
| Retail model | Own stores | Own stores | Own stores | Franchisees, SIS, own | Franchisees | |
| stores and distributors |
excel,
went through the crisil report,it says gold is on loan from bullion companies and the rate paid to them is the rate at which the gold is ultimately sold to the customer within the credit period ,looks like lot of record keeping to do,it protect the company if there is a sudden drop in prices.However inventory gains like in the case of Thangamayil are also not there.
So if there is a inventory turnover of 3 months and the credit period is 3 months would there be interest and how did you calculate the 5-6% interest,where can i find the annual reports/financials.
I also found in the crisil report their plans to expand to south/west which seems odd,when they have the full north to them.
Hi Biju,
That means that a part of thangamayils profit comes from speculating in gold. That is by holding gold inventory. This has been working fine till now but what happens when gold prices are in downward spiral? Could halve the profit?
I got this number of 5-6% annual rate from someone in the industry.
I think it makes sense for them to open stores in large southern city where there is North Indian diaspora but agree that they should not foray in smaller towns.
TBZs stores are doing brisk business in south and east with the help of Marwari and Mumbai diaspora in those cities.
Just imagine if you are a North Indian staying in Bangalore would you prefer PCJ, Titan or a joy allukkas?