PC Jewellers

Stock Opportunities
61

PCJ claims that they lease all of their gold inventory. Also around 30% of the inventory is diamond jewellery which is also studded in gold this part of gold inventory I guess is not hedged

62

Indians are crazy I am sure central bankers would be pissed.

Also donā€™t think that the fall in gold would benefit Indiaā€™s CAD as many are predicting. People buy more gold when it is cheap

63

As i understand, yes, stock of jewellery is held by Titan and PCJ in their stores. but that is not paid for upfront. the gold is taken on lease and the companies pay lease rent charges / interest from the time they take delivery of the gold till the time they make jewellery and sell it. the rate applied is the one that is prevalent on the day they book the sale. thus they are not subject to price fluctuation benefit/losses as they actually do not carry the inventory on their books at prepaid prices. the price fluctuation risk is borne by the bullion supplier. While Titan and PCJ are completely on gold lease model, TBZ is in the process of shifting to it and hence bears part of the price risk ie since they carry gold inventory on their books at prior period rates, they benefit/sufffer from MTM gains/losses. Same for Thangamanil i think. Thus PCJ and Titan make their money on jewellery making charges. This is separate from and unrelated to their offers of paying for 12th EMI and the like. This is only for gold. There is no lease model for diamonds and all jewellers carry inventory on their books. Not sure how they account for MTM on this. Hope atleast some part is clear.

64

My broad understanding - yes, stock of jewellery is held by Titan and PCJ in their stores. but that is not paid for upfront. the gold is taken on lease and these companies pay lease rent charges / interest for the period they take delivery of the gold till the time they make jewellery and sell it. The gold is paid for at the rate applicable on the day they sell the jewellery. thus they are not subject to price fluctuation benefit/losses as they actually do not carry the inventory on their books at prepaid prices. the price fluctuation risk is borne by the bullion supplier. Thus PCJ and Titan make their money on jewellery making charges. While Titan and PCJ are completely on gold lease model, TBZ is in the process of shifting to it and hence bears part of the price risk ie since they carry gold inventory on their books at prior period rates, they benefit/sufffer from MTM gains/losses. Same for Thangamayil i think. This is separate from and unrelated to their offers of paying for 12th EMI and the like, which I am not sure how it exactly works. This is only for gold. There is no lease model for diamonds and all jewellers carry inventory on their books and they account for MTM on this.

Can someone pleaseexplain

65

My parents from bombay called me and told me they want to buy gold which will be useful for my daughter who is only 6. This is the mindset. I am in Dubai and even here jewellery shops are crazy full with Indians thronging them.

66

It would be interesting to see how people would react to maybe another 15-20% in gold prices. Once a commodity or stock corrects after a prolonged period of outperformance, the guys who were left behind immediately rush in ā€œnot to miss the bus this timeā€.

But once the stock or commodity falls further due to any reason these will be the first guys to bail out.

This is not to say that gold prices will or will not further but it would certainly make for some interesting observation if gold were to correct further and economy were still to remain on a downhill path.

1 Like
67

I remember when gold was in bear phase pre 1999-2000 people were still crazy about the commodity.

Also I have never seem any of my relative or family member selling gold when prices are higher they just keep on buying as per their purchasing capacity rather than based on weight.

68

I definitely agree with you. This quarter could be a good quarter for Titan.

http://www.thehindu.com/business/Industry/gold-imports-to-rise-in-q1/article4630852.ece Link: http://www.thehindu.com/business/Industry/gold-imports-to-rise-in-q1/article4630852.ece

http://www.business-standard.com/article/markets/as-gold-prices-crash-consumers-make-a-beeline-for-jewellers-113041700572_1.html Link: http://www.business-standard.com/article/markets/as-gold-prices-crash-consumers-make-a-beeline-for-jewellers-113041700572_1.html

http://www.thestatesman.net/index.php?option=com_content&view=article&id=452847&catid=35 Link: http://www.thestatesman.net/index.php?option=com_content&view=article&id=452847&catid=35

when a franchisee of Tanishq in Durgapur is witnessing 80% growth, how can the other stores be left behind? The lower making charges will be compensated with studded gold jewellery and volume growth in gold jewellery.

69

http://articles.timesofindia.indiatimes.com/2013-04-17/madurai/38614744_1_gold-price-jewellery-shops-gold-jewels

Now auto wallahs enjoying the ride in gold price slide!!!

70

Thanks Vinay.

One more question-

So this gold belongs to bullion supplierā€¦ Who are the suppliers for Titan , PCJ etc??

Can someone pleaseexplain this to meā€¦

A jeweller will have gold in its showroom to attract customers. Whose gold is it?

Isnā€™t inventory risk born by the jeweller in this case?

71

Hi,

Titan clearly completely hedgs gold, and hence there is no impact in its profitability if gold price rise or fall.

We need to check results of PCJ for last 6-7 qtrsā€¦if OPM has been increasing then they are not hedging completely.

This is evident in case of Thangamayill and TBZ where there has been a sequential increase in OPM ā€¦indicating lesser hedging. They will suffer in coming qtrs I think.

Regards,

72

Not aware of the names of bullion suppliers. Guess it would be some chanelising agencies like MMTC or banks who import gold. Titan has received approval for directly importing gold from overseas suppliers. TBZā€™s application is pending. Not aware whether PCJ has made any such application. I think importing directly would have the benefit of cutting out the middle men and improving margins, though I had read somewhere that Titan has not yet started importing directly. The EBIDTA margins for PCJ from FY10-12 are 9.95%, 10.07% and 10.91% and for 6m, 9m and Q3 FY13 are 12.72%, 12.18% and 11.1%. Not sure what to make of this in the backdrop of Saurabh Shankarā€™s rationale. Page 17 Risk factor no. 5 of the DRHP of PCJ states that they take on lease ā€œmostā€ of their gold and have to import by paying spot rates only if gold is in short supply, as it happened in Q4-FY09 and Q1-FY10 because overseas suppliers were not extending credit to local canalising agencies. Further confirmation can be obtained from slide 17 of companyā€™s presentation at this link http://www.pcjeweller.com/investors/corporate_presentation_february_2013.pdf

73

My simple point is this - yes, Titan is in a class of its own and is the prime pick in this sector. It is a very good stock to hold on for the long term. I have no such opinion on PCJ yet, because as Excel rightly highlights, they will need consistency of delivery till market believes them. What I am trying to say is that Titan is as 30+ PE, TBZ is at 20+ and PCJ at 7. PCJ has 70% business domestically, with focus on increasing retail domestic sales, has 30% coming from higher margin diamond jewellery whose share is increasing YOY and QOQ, has opened 4 stores since IPO and more will come, is a good brand, has good margins and return ratios. If one believes that falling gold prices are good for jewellery retailers, as it would appear to be, then even if market temporarily takes up PCJ PE to 10x, that is a price of 150 per share, we have good gains on our hands.

74

That we will come to know only in their Q2 numbers. Till that time companies can keep on lying and market can keep guessing

75

I donā€™t know if any one on valuepickr is from jabalpur, Sri ganganagar or Ahmedabad?

They just opened new stores in the above 3 cities

A feedback as to how the stores are doing would be very helpful

Thanks

76

I am from Ahmedabad. Although, I havent visited the stores but there are lot of hoardings all over Ahmedabad of companyā€™s new store.

77

Hi Ankit it would be great if you can get the response of Ahmedavadis to this brand.

I remember Hitesh bhai indicated a very positive response for TBZs new store at Baroda just before it started its 250% rally

I donā€™t know if any one on valuepickr is from jabalpur, Sri ganganagar or Ahmedabad?

They just opened new stores in the above 3 cities

A feedback as to how the stores are doing would be very helpful

Thanks

78

Hi,

I will visit the store over the weekend and update the feedbackā€¦

Regards,

Ankit

Thanks

I am from Ahmedabad. Although, I havent visited the stores but there are lot of hoardings all over Ahmedabad of companyā€™s new store.

79

Hi,

I had visited the store yesterday (Sunday) along with my wife. I am not sure whether Sunday was the right day to visit the store but I had no other option as I am busy on other days (will try to visit it once again on weekdays if possible). The store is located at CG Road, one of the posh areas of Ahmedabad. The store is two-storeyed with the ground floor selling diamond jewellery while the first floor had gold jewellery. The store wasnt jam-packed andoccupancy was around 70% with more rush at the gold jewellery section. There was a small queue near the bill section. On my way back, I also passed by Kalyan Jewellers. They clam that theirs is the biggest jewellery show room in Gujarat. I couldnt visit it from inside but at least on the ground floor there seemed to be a lot of rush.

Regards,

Ankit

80

Hi Ankit,

thanks for the update.

is kalyan a native of Mumbai or Gujarat?

How long they have been in Ahmedabad?

Regards,

andoccupancy