PC Jewellers

Does the market know something, which we are not aware. The stock continues to get punished. It makes one anxious to add positions, despite a mouth-watering price.
Disc: Invested

Regards
SJ

It has cracked due to the latest PNB fraud transactions by several jewelers. Though there’s no allegations on PCJ, it cracked due to the anxiety in the sector.

Checked few other news portals no mentions of PCJ. It’s the Gitanjali and Nakshatra in the scanner.

I’ve added at 310, thanks for the weak hands !

BSE has sought clarification from PCJ and they’ve responded:

image

https://www.bseindia.com/xml-data/corpfiling/AttachLive/C2753F54_06FD_4355_BD71_0B1A29B6B6F5_130330.pdf

Promoters coming on media immediately after prices goes down on stock exchanges !. That’s good.
However, after demonetization most of gold shops (jewelers) done too many transactions, which IT is still verifying. Gold and Real Estate is driven by black money …however % now reduced

Is it possible that some of these jewellery companies did a lot of sales during demonetisation and probably even later with the old notes but never reported all the sales in Q3 FY17 and are apportioning those revenues/profits across last few quarters so as not to raise suspicion and to protect their customers? Or has jewellery demand really gone up with these organised players all of a sudden? Next couple of years’ numbers I think would tell the real story. Interestingly the cash flow is stellar - almost disproportionate to the sales done in FY17 going by past numbers which again makes me wonder.

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Very much possible. I could not see crowd at organised player shop but business of non organised player shop is as usual after GST also

Modus operandi of the $1.8 billion PNB-Nirav Modi scam

Three diamond firms belonging to the Nirav Modi Group and some other firms owned by Gitanjali Gems held current accounts at a domestic branch of Punjab National Bank (PNB).

These firms purchased raw gems from overseas firms, and had to make payments to the sellers in foreign currency.

The sellers of the raw gems held accounts at foreign branches of Indian banks.

A junior official at PNB fraudulently issued ‘letters of undertaking’ (LoUs), allowing Niravi Modi group companies to get short term loans (buyers’ credit) from overseas bank branches to pay the sellers. Under the terms of the LoU, PNB was the guarantor of these loans.

Courtesy: Moneycontrol

So as per the clarification from PCJ, they are out of this LoU mess.

2 Likes

For FY 2017, I don’t understand how Free Cash Flow / Net Income for Gitanjali Gems is 4 times, which is twice of Titan and PCJ.
Its receivables days are almost 1 year! What could be the accounting explanation?

Though, what you have mentioned may well be possible. But my sense is that it is unfair to claim that they the growth in the business has suddenly picked up post demonetization as PCJ has delivered a 40%+ CAGR growth in PAT and Revenues over the past 10 yrs. Secondly, you are correct in pointing out the huge difference between CFO and EBITDA in FY17, but i observe the similar trend in all jewellery companies including Titan. Though the current situation requires enhanced due diligence, but are we getting too pessimistic. Just a thought.
Disc: Invested

Regards
SJ

1 Like

If we assume PCJ is not involved in any kind of scam/fraud. Than what could be the possible effects on the jewelry business due to these ongoing issues in PNB. Will it be hard for them now to raise debt or cost of debt will increase. Can we expect a increase in finance cost in future ?

In this business , working capital requirement is quiet high. Will it be affecting day to day business operations and profitability of the company ? If yes , the impacts would be short term or longer term.

Views Invited. Thanks in Advance.

Disc : Invested since IPO.

Titan will be most benefited in this storm. It is like separating wheat from chaff moment in jewelery industry

Though I am no expert but I am kind of thinking that PC jeweller is the second largest company after Titan and with few competitors out (gitanjali, nakshatra etc) and few others impacted due to this crisis is bound to benefit in the long run.
The only catch here is that they have to come out clean after the crisis. In short term this will impact all diamond jwellers may be but in long run things should be more regularised and benefit the big and honest players. Titan is clearly the winner here but it already in the price. But people still have doubts on PC Jweller that’s why it is available at a discount.

The company has been performing well and growing fast. If the management comes out clean without any scam or fraud then the stock could be rerated.

4 Likes

Your iind para is important and therefore the point is how do retail investors know that them is clean? Till then comparing it with Titan is only a wishful thinking

Good to see Titan and PCJ not in the list. PCJ has debt to equity ratio of .2 and interest coverage ratio > 3. Which seems comfortable at this point. Stock down 40-45 % down from highs , if they are not involved in any scam/corp governance issue, it can be a good bargain.

Disc : Invested

Nice read of crisil rating rational

https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/PC_Jeweller_Limited_August_10_2017_RR.html

This is a very old report and does not take into account the current percieved risks.

1 Like

I was going through rating agencies report on gitanjali gems by care which was assigned A rating and we know now what gitanjali is.My point is that these rating agencies world over mainly take into account the company performance, stock movement and do not go into other risks indicators.There are many such examples where the ratings were good but companies went bust subsequently

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You are right. Risk is the permanent loss of capital. But how will you estimate permanent loss? A person can continue to hold the stock and claim it is underpriced.

A more objective measure will be given by your exit point on the downside. Now you may choose not to fix it beforehand, and exit based on how fundamentals change in future. But in this case, risk becomes completely subjective assessment.

I prefer to fix my exit points, based on where I believe market cannot go, if my understanding of fundamentals is right. This allows me to objectively measure risk, as a function of stop loss and position size. In this paradigm, stock price volatility becomes important. I do not want to exit with loss due to random market fluctuations. This means, greater volatility will imply deeper stop loss, and greater risk if my position size is fixed.

I heard there is some concall and investors meet in PCJ . Please share if anyone have any info regarding this.

Not sure about conference call but Citi and Kotak are meeting PCJ today and tomorrow. Here are more details https://www.bseindia.com/xml-data/corpfiling/AttachLive/9f7426f3-10d1-4d96-9102-53ca0ebf28d8.pdf

Cheers,
Krishna

1 Like