Can anybody reading this notice calculate roughly what could be the acceptance ratio for buy back for retail investors.
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Read through most of the discussion. I am quite interested because of the price…
Below are the cross checks i did which are faring well in comparison with other Jewellers:
Other Jewellers means(Titan, TBZ, Thangamayil Jewellery)
Inventory per Store at 50-60 Crore average every year…which is derived from Inventory. So inventory increases with no of Stores so will trade payables because of the nature of business.
Verified all 94 Stores(of course on WEB).
Higher Designer count high.(this explains the better designs!!!)
Total Designers/Store count comparable to others. Designers means(CAD/CAM and all you can search the word designers)
The Company also has a strong 75-member design team that works on CAD/CAM to develop jewellery that is aligned with contemporary trends; this also helps retain product freshness and sustain marketplace excitement.
Inventory Turnover ratio is good (2.0… in actual because the number of stores is growing per store inventory turnover should lie somewhere between 1.7 and 1.85) compared to 1.3 and 1.5 of other jewellers. All ratios should be good if this is good.
Median employee salary is comparable to Thangamayil Jewellery
PC Jeweller 1.84 lkhs Median Remuneration
Thangamayil Jewellery 1.07 lkhs median remuneration
TBZ 2.73 lakhs Median Remuneration
Titan 5.78 lakhs Median Remuneration
Auditors are considered ok… however they clearly wrote they cannot do cost Audit because there is no clear section written …in their own words below
The Central Government has not specified maintenance of cost records under sub-section (1) of Section 148 of the Act, in respect of Company’s products. Accordingly, the provisions of clause 3(vi) of the Order are not applicable.
Page 125 AR2017:
Based on the audit procedures performed and taking into consideration the information and explanations given to us and on consideration of the reports of SJA on separate financial statements, in our opinion, the total receipts, total payments and total amount deposited in banks are in accordance with the books of account maintained by the respective companies.
Next lines talk about demonetization
- They are not very much into diamonds like Gitanjali or Nirav Modi… so below is evidence.
Page 11 AR17: You can take the below point with a pinch of salt
First ranking in the category of Precious Metal Jewellery Plain – Large for the year 2015-16 by the Gem & Jewellery Export Promotion Council.
High Finance cost due to the gold leasing and interest on gold leased is reflected in finance cost.
Their total Sales movements per quarter are tying out with others.
Their Profit and CF from Ops are widely different because profit is again moving into inventory.
Receivables are proportionately growing with Sales.
Management talks really rudimentary… listen to Q3 Conf Call. They cannot talk on how will they manage the brand dilution if they open franchise stores.
ESOP 2011-- ESOPS issued can only fully be converted to shares after 4 years from issue… and they are issued at Rs.318
There is no formal mention of the profile of any of the board of directors what did they do and they just appointed the directors just like that… refer corp Announcements in 2014.
Two Profiles are quite not good as per me.
MUNEESH CHAWLA : Associated with the below companies… and in turn those companies are associated with things that are questionable…
His Date of Cessation is 20 Jan 2018
IVY LEAGUE VENTURES
This director is also in defaulters list you can check his name in this pdf in watchoutinvestors website… you can also check his CIN its the same.
Loose Ends i didn't cover:
To grow at the current pace which they are growing(i mean stores,sales…etc) … you need more capital to stock gold… which means you need more collateral with banks … to get more gold… how is this collateral available to them… some things i can find are from AR2017.
investments by dvi fund Mauritius and Fidelity Investments which are for this year and last year.
What about other years prior?
Through Internal accruals and their best cases they cannot grow more than 15% how did they manage
a 10 year 40% and 5 year 20%…
How is their operating margin high even if they are not selling so much diamond jewellery? i mean TBZ is quoting -ve and Thangamayil is 5% nearly… ofcourse for TITan this matches?
Let me know what i am missing.
Disl: No holding in PC Jewellers when written.
Great research @vamsi21! We need to look at the revenues of PCJ with a pinch of salt as for the franchisee model, sales is booked when goods are transferred to the store and not necessarily sold. So the built-up in receivables is more critical than built-up in inventory. Given that they are planning to expand primarily on franchisee going forward, makes it even more critical. This was exactly the case with Gitanjai Gems. They were showing high sales and good PAT but no cash with receivables and debt swelling. Further the opening of new stores should also be looked at differently. Opening new stores can also be an incentive for increasing sales, as new store will definitely require more jewellery, while the older stores may be sitting with unsold inventory. In short, we need to critically examine the balance sheet items like receivables, payables, cash, debt and inventory in far more detail than the P&L, going forward.
Disc: Small tracking position
Having spoken to a jeweller, he said old jeweller can be re-processed to make new jewellery so risk of inventory write off is negligible or small. Maybe another jeweller can confirm this point?
There is no inventory write off in jewelry, only making charges may be written off to have design as per latest fashion and trends
The latest balance sheet shows about Rs.1400/- crore as cash, trade receivables of 1760 crore , trade payables 3560 crore and other debt to be repaid currently 1024 crore.
In concall Mr. Garg said that they will use about 424 crore of available cash for buyback and remaining for retiring the debt. If that is executed, it will leave a huge gap in trade receivables and payables. How will they repay the creditors? Will not it become a financial mess?
One more thing- the amount held as fixed deposits in bank is being used as collateral for borrowings. How will the company borrow after the entire amount is used?
They claim to have realized 400 odd crores after the results. If you look at the mgmt presentation, this is what it says:
Cash and Bank Balance as on 31.03.2018 = 1491.47
Add : Subsequent realisation of export receivables= 416.91
Less: reserves for Buy back =424.00
Less : Amount required for margin money for leased gold= 300.00
Balance amount to be utilized for reducing liabilities and debt= 1187.38
They also have inventory of Rs. 5161cr against which are the trade payables (gold loan?, as I understand)
Something is twrribly wrong somewhere… they have given clarifications. The auditor is good and has not resigned…at least not yet The buy back process has commenced and the auditor has certified the creditworthiness of the company to undertake buy back. The promoters have said they will not participate in the buy back. The buy back price is like 275% of the current market price but the stock keeps falling. My guess is that with the reservation for retail investors (<2 Lac) the acceptance ration should come to around 15% for them. So if you were to buy 1000 shares today at the market price of 138 you will make money till 95. Ideally it should not go below that. But the way the thing is falling every day looks like it would reach two digit number in a matter of weeks. May the market is convinced that the Buy back thing is a ruse and will not be done and the numbers are just wrong and these guys will go out of business soon and promoters will run away. God knows…big mystery…this one!
may be a naive question but would like to know what is Balram Garg mean when he said " the gold on lease is around Rs.3,384 crores…" in the conf call?
Does it mean they have a debt of 3384 Cr along with regular bank loan of around 1000 cr?
Could anyone clarify please ? “Gold on lease”
Yes- this is also a loan albeit with a lower interest rate (approximately half) as compared to a standard corporate loan. Through Gold on Lease the jeweler need not hold the inventory. This provides a natural hedge and of course the funding costs come down. You can find more here https://www.business-standard.com/article/markets/revival-of-gold-on-lease-to-benefit-titan-pc-jewellers-more-115021900888_1.html
It must be reflected as inventories on the asset side. Else how do you balance. What are the 5161cr of inventories?
Not holding inventory here means that the Jeweler does not need to have the “physical inventory” as in the actual gold metal. And hence is not exposed to the vagaries of fluctuating gold price with the associated currency risk and the corresponding gain or loss on inventory valuation .They get access to gold (for their needs) but they do not need to own it- Own Vs Lease. As per them they need to provide like 10% as margin money as collateral for this access- so about 300 Cr for this 3384 Cr of “Gold on Lease” plus the interest at lease rates
Updating my earlier sheet. Nothing much to note except export growth has fallen substantially which as per management is because of tax in UAE and business will degrow further. Receivables have shot up to 60% of export sales but management has noted that 417crs have been received. So adjusted for that % is ~47%.
If you go through the presentation which is quite exhaustive and the call which sounded genuine to me, the stock is at more than mouth watering levels. Just need to see the buyback executed and debt repaid. There is double to be safely taken home here.
I was thinking as the end date (July 13) for BuyBack offer acceptance by shareholders is approaching the stock would start moving up- the record date should hopefully be soon thereafter.
But the stock price is only going down and now CRISIL has downgraded the long term rating to ‘CRISIL A/Negative’ https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/PC_Jeweller_Limited_June_29_2018_RR.html
May be this is going to touch double digit soon
Disc: Invested and buying in SIP mode
Could you pls clarify how did you arrive this date ? I’m not finding any related sources w.r.t buyback date.
From the Postal Ballot Notice seeking approval of Members for the Buyback of Equity Shares. https://www.bseindia.com/xml-data/corpfiling/AttachHis/a0e5bc08-a04a-4c59-be4e-5e4a620f0f65.pdf
"Based on the Scrutinizer’s report, the result of Postal Ballot will be
announced by the Chairman or in his absence by the Company Secretary
on or before 5:00 P.M. (IST), on July 14, 2018 at the Registered Office of
the Company. The resolution, if passed by the requisite majority, shall be
deemed to have been passed on the last date for receipt of duly completed
Postal Ballot Forms or e-voting i.e. July 13, 2018"
Sorry! that’s not the buyback date. That is the date for announcing the result of ballot, seeking approval for buyback. Once the majority of shareholders votes for buyback, then the company will announce the date for buyback.