PC Jewellers

So can we presume that, by and large, all appears to be well with the balance sheet?

Looking at the breakdown of exports and domestic segments, export sales were Rs 3093 Crore and Domestic Sales were Rs 6521 Crore. So effectively, 41% of export sales (most of which goes to the Middle East I believe) are receivables. Has the management given any explanation for the same?

Also, given the company is going for the franchisee model into the future, the cash conversion cycle should improve. Is this a valid inference?

Balance sheet looks ok, also all fraud issues reported for PCJ from Jan 18, auditors came into scrutiny from April 18, despite all this Walker chandoik released final audits of PCJ. We can safely believe on finals audits due to strong tightening by government.

Coming to movement to Frenchies model, this will be a great step as it will gradually reduce working capital requirement/to turnover ratio and improve margins.

A no of companies bought gold under 80:20 scheme and then reportedly exported to meet the scheme requirement to their own shell companies and got the money back thru round tripping.

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So have been hanging on this board since the time the gifting of shares were announced. Invested at about 110. Firstly there is more gyaan on how one should handle stocks than actual discussion on the stock. So again listing down my observations on it. There are few more. Will add them as I get time.

  1. Gifting of shares is not new. Have been going on since last Feb when the stock was at 200 and the market was not interested or cared about it then. So very unlikely this time around it got spooked because of that.

  2. Talk about its cash can be till now be seen in a positive light dues to:
    a.) No pledging of shares. Lots of comparison to Treehouse, but those guys were 100% pledged even before anything was out. If these are real crooks and business is fake, then when their value was 16000cr, they should have taken a personal loan pledging the shares at 90%haircut. Still would have got 1600cr cash in hand. Siphon it off to Bermuda. Who cares after that. 1cr loan - your headache. 1600cr loan - banks headache.
    b.) They have repaid 200cr of CP.

  3. Six months are down the line and nothing tangible has come out. If they are frauds, very unlikely in todays environment when banks have become so careful, the 1000cr loan fraud will not be exposed till now.

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The question is who is selling and why:) If you look at the delivery volumes they are like always <15%. So is a small group of _operators _playing with the price. I saw this response of the PCJ Management on a twitter feed. They seem very concerned that ESOPs are losing value! As per them the current fall is “due to short selling in intraday rather than actual selling”

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Roll out of real time Augmented Reality Jewellery Buying Experience.

At the end of letter contact details image

Last three people from ForunaPR- a firm engaged in PR and Corporate communication. Did PCJ hire the FortunaPR for corporate communication ?

This is a fantastic development particularly when implemented outside the stores - malls, multiplex, and hopefully air port lounges etc. - basically all the places where customers with expendable income are needed to kill time. This will generate fresh business and definitely connect more people/ prospective customers to the brand.
Once inside stores, I doubt if customers will be able to overcome the urge for instant gratification. Will they wait for some particular design which will take say a week or so to arrive at that store? This idea is a step in between a show room and a virtual/ online store.
Most important take away for me in this development is that the promoters are interested in running this business and are living in 21st century. That’s a great relief. Hope they don’t have ideas to de-list this business now.

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https://www.moneycontrol.com/company-facts/pcjeweller/board-meetings/PJ#PJ

Q1 results date:
The next board meeting of PC Jeweller is to be held on August 10, 2018 for Quarterly Results

Intimation of opening of new showroom at Rewa (Madhya Pradesh).

I think it looks like Business as usual for PC jewellers only investors are worried??

The spelling of “InveRstors” though…

Apparently this turned out to be true. Company has scheduled a conference call at 5PM to explain the results. Lets see how much the stock shoots.

Q1 results not bad
5% PAT increase YoY
20% PAT increase QoQ
OPM down

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Management presentation on results:

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Results update:

I will not spend time on profitability as that is not the concern about PCJ. Besides at Rs. 15 annualised EPS the company is trading at 6x PE at which growth is irrelevant when it comes to deciding whether to invest or not. The only thing important is if the company is real or fake. So coming back to cash and debt.

1. There are lapses in disclosure this quarter and I think it is mostly because B/S has become weaker.

a.) As of 31/3/18 - cash in hand was 1492Cr and they mentioned 417Cr as TR realised post 31/3/18. With a cash profit of 147cr + inventory decline of 319cr, end of quarter cash balances should have been 2375Cr before repaying payables.

b.) However cash in hand is shown as 1162Cr after repaying 426cr to banks and increase of 105Cr of Operational Creditors, so actual end of quarter cash balances was 1693Cr or a shortfall of 682Cr from what is should have been.

c.) Most likely TR realised was used back in the export business leaving 265Cr of unaccounted cash spent. With franchisees been set-up, this must be TR in domestic business. Or maybe loans to franchisee (red-flag)

2. Does not look gross bank debt has not been reduced and the reason is because they do not have the capacity.

a.) In the call they mentioned 3000Cr of Gold loan and 1000Cr of gross debt. Given that 1100Cr was gross debt as of 31/3/18 means that of the 426Cr repayment only 100Cr was for gross debt.

b.) My sense is with everything going on, banks are asking for more collateral against their gold loan and hence FDs created in the banks for the gold loan, leaving only few hundred crores to actually repay debt. Not sure how they will reduce further debt by 1000Cr if most the cash is going as collateral.

c.) This also ties with banks not giving NOC for buyback as there was no capacity in the first place.

Overall, business looks genuine but any further improvement in B/S should not be expected. Should trade at 12-13x atleast.

Disc: Holding at 110 levels.

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The Curious Case of PC Jewellers’ Trade Receivables (Thread)

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Amit Mantri is a top market guru, so he maybe having insider track on this. But in today’s environment where bankers are getting arrested and fired, very difficult to believe that banks have extended a line of 1000Cr and gold loan of 3000Cr to a company faking sales and ramping receivables. Do not think there is another 4000Cr scam out there. That said “India hai, kuch bhi ho sakta hai”, but chances are very low.

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Another reason for increase in receivables in my opinion is because of accounting of sales. The sale is recognized when goods are sold to the franchise and not at actual sale to customer. As the company is now expanding through franchisee model, it is not surprising to see the no. go up. But the sales no’s should be taken with a pinch of salt.

Regards
SJ

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The annual report for the company is available.
Here is the link.

http://kcpl.karvy.com/images/2018/PCJL_7530/PC%20Jeweller%20Annual%20Report%202017-18.pdf

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