P N Gadgil Jewellers Ltd

[Varsh]

Here’s a basic information set about P. N. Gadgil Jewellers (PNG Jewellers):

Company Overview
P. N. Gadgil Jewellers Limited, also known as Purshottam Narayan Gadgil Jewellers, founded in 1832, is one of India’s oldest and most recognised jewelry brands. The company specialises in a variety of gold, silver, platinum, and diamond jewelry. Its reputation for quality and tradition has helped it establish a loyal customer base
Company provides new jewellery trends in Maharashtra and have introduced Temple Motifs, Contemporary Jewellery designs, Light Weight, Daily Wear and Designer Collections, etc.

Product Categories:
a) Collections:
Azva, Color Mangalsutra, Delicate Designs, Divine Collections, Diwali Festive Collection, etc.
b) Diamonds:
Festival Diamond, First Love First Diamond, Love Again and Again, Rose Gold Collection, Ruby Gold, etc.
c) Gold:
Zaroka Jewellery Collection, Accessories, Bracelet – Gents, Bracelet – Ladies, Chain For Ladies
d) Silver:
Corporate Gift Items, Kids, Pooja Sahitya, Silver Jewellery
e) Women’s Jewellery:
Mangalsutra, Bangles, Necklace, Pendant, Tops, Finger Rings, Chains
f) Men’s Jewellery:
Chain, Chain Pendant, Ring, Bracelet
30% of the sales is made to order, 2-10 days for made to order
current stud ratio>10%.

Some of their sub-brands

Closure of Overseas Subsidiaries:

In FY22, company did wrote-off Rs 52 crore following closure of loss-making subsidiaries in Dubai (PN Gadgil Jewellers DMCC and PNG Jewellers LLC). Prior to that, the group has sold off or discontinued operations in loss-making entities. Company sold Style Quotient Jewellery Pvt Ltd in FY18 and its joint venture, Anant Mauli Jewellers, in FY19. It also discontinued operations of GDPL in FY18. In FY23, it discontinued its operations in the Middle East. The US subsidiary is profitable.
•Operating margin declined to 2.8% in fiscal 2023 from 4.4% in fiscal 2022, on account of one-time write-off of Rs 52 crore following closure of loss-making subsidiaries in Dubai (PN Gadgil Jewellers DMCC and PNG Jewellers LLC).

Store count

•Pre IPO Co has 39 stores ,which includes 38 stores across 21 cities in Maharashtra and Goa and one store in the U.S. with an aggregate retail area of approximately 108,282 sqft.
•FOCO model -28 own, 11 franchise.
•large formet store :- 22 :- 2500 sqft.
•Medium format store:- 13 :- 1000 -2500 sqf
• Small format store :- 4 :- < 1000 sqft
Pune accounts for 60% of sales.

Recent Developments

• IPO: Launched in September 2024, raising ₹1,100 crore for expansion and debt repayment.
• Expansion Plans: Opening 12 new stores across Maharashtra to strengthen market presence.

Guidance

• sales to be 10,000 cr in 2 years . CAGR of 20 %
• total 57 stores in 2 years
• 2 years stores opening will be in Maharashtra
• Going forward it will be in MP,UP, Bihar , Jharkhand
• > 15 studded PF

Peers

• Competitors: Kalyan Jewellers, Senco Gold, Thangamayil Jewellery
• Strengths: Established brand heritage, strong customer loyalty, effective marketing strategies.
Key Ratios: PNG’s Return on Net Worth (RoNW) is at 25.09%, outperforming several competitors, which indicates effective utilization of equity capital.
Expansion plan of organise jewellers

Some key ratios vs peers (source x.com)

Geographic Focus

• Primary Market: Concentrated in Maharashtra, with plans for gradual expansion into other regions.

Sales breakup of whole gold market of india

Financial Performance

• Revenue Growth:

In Q1 FY2024-25, PNG reported revenues of ₹1,668 crore, reflecting a 32.7% increase year-on-year .This growth is indicative of strong demand for its products and effective marketing strategies.
• Profitability:

The company achieved a net profit of ₹35.32 crore, up 59.45% from the previous year, highlighting improved operational efficiency and cost management .

Past 5 year’s data

The growth drivers for P. N. Gadgil Jewellers (PNG Jewellers) can be categorized into several key areas:

1. Strong Brand Heritage: With over 190 years of experience, PNG Jewellers has built a reputable brand known for quality and tradition. This long-standing presence helps attract customers who value craftsmanship and trust in established brands.
2. Expansion Plans: The recent IPO raised ₹1,100 crore, which is earmarked for opening 12 new stores in Maharashtra and repaying certain debts. This strategic expansion is expected to increase market penetration and drive sales growth.
3. Market Demand: There is a growing demand for gold and diamond jewelry in India, driven by rising disposable incomes, changing consumer preferences, and cultural factors that favor gold as an investment. PNG’s product offerings cater to this demand.
4. Diversification of Product Range: PNG Jewellers is likely to diversify its product offerings beyond traditional jewelry to include modern designs and customized pieces, attracting a wider customer base, including younger consumers.
5. E-commerce Growth: The increasing penetration of e-commerce in India provides an additional channel for sales. PNG Jewellers can leverage online platforms to reach customers outside of their traditional geographic areas.
6. Operational Efficiency: PNG’s focus on cost management and operational efficiency helps improve margins and profitability. This includes optimizing supply chain management and enhancing customer service.
7. Shift from unorganised to organised jewellers because of BIS Hallmark , Standardized Pricing, Itemized Billing ,
   (Organized retailers provide detailed itemized bills, which outline the costs associated with the purchase, including the price of raw materials, making charges, and any additional taxes) Digital Payment Solutions, Compliance with Tax Regulations, Loyalty Programs and Discounts .

Overall, PNG Jewellers combination of strong brand equity, strategic expansion, and adaptability to market trends positions it well for continued growth in the competitive jewelry market.

Geographic Concentration

The company primarily operates in Maharashtra, which accounts for a significant portion of its revenue. While this concentration allows PNG to leverage local market dynamics effectively, it also poses risks associated with regional economic fluctuations. Diversifying into other states could mitigate this risk.

Thesis

P. N. Gadgil Jewellers (PNG Jewellers) is positioned for robust growth and sustainability in the competitive Indian jewelry market.
•The company has shown impressive financial performance, with a 32.7% increase in revenue and a 59.45% rise in net profit in Q1 FY2024-25
•Its successful IPO, which raised ₹1,100 crore, demonstrates strong investor confidence and provides capital for expansion .
•PNG’s focus on enhancing customer experience through improved billing structures, compliance with regulations, and the introduction of loyalty programs helps build trust and customer loyalty .
•The company’s strong brand heritage and commitment to quality further strengthen its competitive position against unorganized players in the market.
•Reduction in import duty of gold from 15% to 6%.
•Monthly investment plans has been introduced by most of organised players one can customise monthly instalments.
•One of the best Debt/Eq ratio among the listed peers.
•PNG has Lowest inventory of 63 days.

Challenges

•PNG’s reliance on a single region, primarily Maharashtra, exposes it to economic fluctuations specific to that area, potentially limiting its growth.
• fluctuations in gold prices and changing consumer preferences can impact margins and demand, adding to the uncertainty in the jewelry sector .
•Market Competition: PNG faces challenges from well-established competitors, which necessitates continuous innovation and marketing efforts to maintain market share.
•Seasonality
•As of July 2024, of its 39 stores, PNG has 36 stores in Maharashtra, which contributed to over 95% of its revenue in fiscal 2024. Moreover, five stores contributed to ~35% of revenue in fiscal 2024

Regulatory and Economic Factors

The jewellery industry is susceptible to changes in gold prices and regulatory policies, which could impact margins and consumer demand .

In summary, PNG Jewellers displays strong financial performance and strategic growth plans, particularly in Maharashtra, while facing the inherent challenges of a competitive market and geographic concentration.

Looking forward to comments/inputs from the fellow valuepickrs.

Disc- holding from ipo allotment not buy/sell recommendation

[pranshukh]

Hey, thanks for initiating the thread.
Do you have any insights on why PNGs margins are the worst compared to listed peers?

And what are the margin improvement drivers for the future, if there are any

[Varsh]

Reasons for PNG Jewellers’ Lower Margins Compared to Listed Peers:

1. Geographic Concentration: PNG Jewellers’ primary market is concentrated in Maharashtra. While this region is lucrative, it limits their ability to benefit from economies of scale compared to peers like Kalyan Jewellers, which has a broader geographic footprint. As a result, PNG may face higher relative fixed costs, reducing margins .
2. Smaller Operational Scale: Compared to larger players like Kalyan Jewellers, PNG Jewellers has fewer stores and a smaller operational scale. Lower scale typically means higher per-unit costs for procurement, marketing, and operational overhead, negatively impacting margins .
3. Higher Making Charges: PNG Jewellers is known for its handcrafted jewelry, which often comes with higher making charges. These higher costs, while appealing to a specific customer base, can limit margin flexibility compared to more mass-market products .
4. IPO Costs and Expansion: Recent IPO expenses and ongoing expansion efforts, such as the opening of 12 new stores, could be contributing to lower margins in the short term as the company focuses on growth rather than immediate profitability .
5. Lower studded PF .

Future Margin Improvement Drivers for PNG Jewellers:

1. Economies of Scale Through Expansion: With the capital raised from the IPO, PNG Jewellers plans to open 12 new stores. As the company increases its store count and expands beyond Maharashtra, it can achieve better economies of scale, reducing per-unit costs for procurement and marketing, thereby improving margins .
2. Optimized Supply Chain: PNG has the opportunity to streamline its supply chain to reduce costs and improve operational efficiency. As the company scales, it can negotiate better terms with suppliers and reduce costs in raw materials procurement .
3. Digital Transformation: The company’s push toward e-commerce can drive higher-margin sales. E-commerce generally has lower overhead costs compared to physical stores, and by improving its digital presence, PNG can reach a wider audience with less investment in physical infrastructure .
4. Product Diversification: Moving beyond traditional gold and handcrafted jewelry to more modern, lower-cost designs could help PNG cater to a broader audience and drive higher margins through product diversification. Offering more diamond and platinum jewelry can also increase margins .
5. Focus on Higher Value-Added Services: PNG could focus more on value-added services such as customization, exclusive collections, and loyalty programs, which can allow for higher pricing power and margin improvement .
6. As they are guiding for >15% studded PF, margin will improve with it.

[Prajwal_Srivastava]

Do you find the valuation to be comfortable?
Personally, I think it is bit on a higher side given it’s operating margins.

[Kandukuri_S]

Hi . Have you studied the hedging policy of the company. It can effect the return ratio and PAT both in good and bad ways depending on gold price movement.
It’s one of the risk for this company.

[Varsh]

Hedging is a common practice among organized jewelers, especially in India, where gold price volatility significantly impacts profit margins. Most large, organized players like PNG Jewellers, Kalyan Jewellers, and Tanishq use hedging strategies to manage gold price risks and protect their margins. Here’s why it’s widespread in the organized jewelry sector:

Why Hedging is Common:

1. Gold Price Volatility: Gold is the primary raw material for jewellery production, and its price is influenced by global economic conditions, inflation, currency fluctuations, and demand-supply dynamics. To avoid margin erosion, jewelers hedge against price volatility using forward contracts, options, and other derivatives .
2. Inventory Management: Organized jewelers often hold large inventories of gold, so any major fluctuation in prices can affect the value of that inventory. Hedging helps lock in the cost of gold at pre-determined prices, protecting against unfavourable price movements .
3. Stable Profit Margins: For businesses like PNG Jewellers that operate on relatively thin margins, stable input costs are crucial. Hedging helps stabilise costs, ensuring that the company can maintain consistent pricing for its products and avoid passing on sudden price increases to customers .
4. Competitive Advantage: Hedging gives organized jewelers a competitive edge over unorganized players, who may not have the financial sophistication to adopt such strategies. This allows organized players to offer more consistent pricing and better manage their costs .

Common Hedging Instruments:

• Gold Forward Contracts: Jewelers often enter into forward contracts to purchase gold at a fixed price for future delivery, thus locking in costs.
• Futures and Options: These are more sophisticated instruments that allow jewelers to hedge against adverse price movements, offering flexibility in managing gold procurement.

Risks of Hedging:

While hedging is crucial for risk management, it does carry potential downsides. Over-hedging or poor timing in the use of derivative instruments can lead to financial losses, especially in scenarios where gold prices fall. This can hurt profitability and lead to mark-to-market losses, impacting profit after tax (PAT) and return ratios.

Overall, hedging is an essential risk management tool for organized jewelers, providing them with the ability to manage input cost volatility while offering price stability to their customers. So volatility in gold price will effect majority of organised players in same manner depending upon how much of their portfolio is hedged

[Kandukuri_S]

Thank you for explaining why hedging is needed and what can go wrong with hedging. (Thanks to GPT or Gemini, whoever gave the description)

However my point of asking is regarding the % of gold hedging by PN Gargil as compared to other players, e.g Titan hedges 100%, Senso Gold hedges about 95% etc. I believe the hedging portion of PNG is lower than others, which can impact both upside and downside. I’m asking because last quarter Senco shared hedging impact on profitability.
A minor risk to be noted while understanding a business.

[Varsh]

Went through their DRHP

They talked about it many times but i am not able to find exact percentage,
Sorry for that as i am a Novice investor
link to DRHP is below

1711629761734.pdf (4.2 MB)
Below are screenshots from Icra

Care rating

Link to crisil rating

https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/PNGadgilJewellersPrivateLimited_August%2030,%202022_RR_300937.html

Not able to find exact percentage of hedged portfolio
Will be extremely thankful to fellow members if someone can share it. looking forward to concall for further details

Over here P N Gadgil Jewellers Ltd - #5 by Kandukuri_S
you asked about hedging policy of the company. How It can effect the return ratio and PAT both in good and bad ways depending on gold price movement.
There was no mention about hedging as percentage of their portfolio.
I was not ble to find exact percentage so in last line i have written
“So volatility in gold price will effect majority of organised players in same manner depending upon how much of their portfolio is hedged”

And its hedging policy is also available on DRHP you can read over their and thank them too along with gemini and gpt.
No matter from where information comes if it helps.

[Kandukuri_S]

Getting the right data is always the case, whether it’s Chat GPT or Gemini or your own words. I do use those tools, anyhow all the best for your investment journey.

[Varsh]

There are huge tailwinds in the industry for organised players due to several factors.
Most of the players guiding for double digit growth.
But at current valuation it does appear that PNG’s valuation might be slightly stretched, especially in light of its margin profile. While the company’s growth prospects are positive, its profitability and margins need to improve for the current valuation to be fully justified. Therefore, a cautious approach seems reasonable unless there’s a clear path to margin improvement or significant growth in non-Maharashtra markets.
Senco looks more reasonably priced even after recent run up in stock price than Png because of geographical diversification, improving studded ratio qoq , batter margins.
Other players titan and kalyan are already trading at much higer valuations.
But if PNG able to improve margins then bottom line will improve significantly and things will look interesting. And they need to geographically diversify themself.

[GYANESH]

[murali603]

@GYANESH

No meaning of adding any more stores in Pune, they already have many stores in Pune

[Abhay_Srivastava]

Actually I find the strategy of expansion quite great.

One can expand in two ways -

1. Go to 5-6 States together and try to gain market share.
2. Be the market leader in one state and then go to next.

The 1st strategy is expensive. In jewellery business, trust is the biggest intangible. They would need to do a lot of work to generate India wide trust, while capital at hand allows for only 2-3 stores in each state to capitalize on that. You might feel that brand building and distribution presence won’t go hand in hand.

The 2nd strategy is what they are following. Tanishq has 60 stores in Maharashtra. PNG is clearly not a market leader in Maharashtra even. Consolidating and becoming market leader in one state brings operational efficiency. Less inventory movement expenses, your market know how is better. This is why, their return ratios are quite good.

[murali603]

I am looking for any chances to improve margins in the coming few quarters as new stores mature , if management say yes then still there is some value left in the script.

[Varsh]

Here’s summary of PNG Jewellers’ Q2 FY25 financial highlights in crores (INR):
Total Revenue:
• Q2 FY25: 2001.31 crores, up from 1371.51 crores in Q2 FY24, showing a 46% YoY growth.
• H1 FY25 (half-year): Revenue grew by 40% YoY.
EBITDA:
• Q2 FY25: 65.88 crores, up from 47.46 crores in Q2 FY24, marking a 39% YoY increase.
• Retail EBITDA: 68.17 crores, a 55% growth from 43.87 crores in Q2 FY24.
Profit After Tax (PAT):
• Q2 FY25: 34.92 crores, marking a 59% YoY increase from Q2 FY24.
Retail Revenue:
• Q2 FY25: 1219.50 crores, a 37% increase from 888.03 crores in Q2 FY24.
• Retail PAT: 37.23 crores, up 91% from 19.53 crores in Q2 FY24.
E-commerce Revenue:
• H1 FY25: 96.58 crores, a 95% increase from 49.62 crores in H1 199.06 crores in the previous year.
Revenue per Store:
• H1 FY25: 94.1 crores, an 18% increase from 79.6 crores in H1 FY24.
Branch-wise Profitability:
• H1 FY25: 1.80 crores, a 35% increase from 1.34 crores in H1 FY24.
Average Transaction Value (ATV):
• Increased by 22% to 0.939 crores from 0.768 crores.

Additionally, PNG Jewellers launched over 2000 new Mangalsutra designs across various categories for the Maha Mangalsutra Mahotsav.

https://www.bseindia.com/xml-data/corpfiling/AttachLive/56674d17-e96c-4d03-a8d3-f61459577682.pdf
OPM are at 3% for this quarter stable yoy but decreased qoq
While other players are having double the margins as compared to PNG
KALYAN yet to declare results but their margins are constant at 7% for many quarters
Titan at 8%
Senco yet to declare results
Disc:invested

[murali603]

Its again a failure quarter.
Surprise is that its listed on 17.09.24 and started opening new stores around 03.10.2024, In less than a month they consumed 280 Cr towards store opening. Its very funny. I feel that company is eagerly waiting for the public money.

9 stores opening won’t happen in 15-20 days, they already spend their own money in opening stores and managed that with the IPO proceeds.

[subhadeep_kundu]

All places were fixed , only needed capital for inventory and renovation ,
as per my view . I may be wrong .
Margins are worrisome in respect to peers

[murali603]

@subhadeep_kundu

All places were fixed , only needed capital for inventory and renovation ,
as per my view . I may be wrong .

Management replied same answer for my question in call.
They are some what confident to improve margins in Q3 & Q4 by increasing the hedging % and by changing the gold procurement procedure.
This quarter custom duty hit is there for all jewelry companies.

[Varsh]

PN Gadgil jewellers results and con-call Analysis

PNG Jewellers reported a strong Q2 FY25, with revenue rising 46% year-over-year to Rs. 2,001 crore, EBITDA increasing by 39% to Rs. 66 crore, and PAT growing by 59% to Rs. 35 crore. A one-time impact of Rs. 18.5 crore from the customs duty cut affected the entire sector, but PNG Jewellers managed to leverage operating efficiencies due to its debt reduction.

The company aims for Rs. 8,000 crore in revenue for FY25 (33% CAGR) and Rs. 9,500 crore for FY26 (26% CAGR), alongside plans to add 15 stores in FY25 and 10 in FY26. With the current 55% hedging ratio, the target is to reach 70% by March 2025. Gross margins are expected to increase to 10-12% in the coming quarters.

The current store count as of September 30, 2024, is 39, with nine new branches added in October, totaling 48. An additional 5-6 stores are planned for H2 FY25 and 10 more in Maharashtra for FY26, aligning with the goal to become a regional leader with 55-60 stores.

Festive demand during Ganesh Utsav, Janmashtami, and Raksha Bandhan contributed to a strong quarter. Events like Maha Mangalsutra Mahotsav also boosted sales, which grew 35-40% in value compared to last Diwali. Following its IPO, PNG Jewellers repaid all long-term debt and is restructuring remaining debt with GML, lowering the interest rate from 9% to 5.5%, which should improve profit margins.

Revenue per store increased by 18% to Rs. 94 crore, with the average transaction value up by 22%. Revenue per square foot exceeded Rs. 6 lakh, and the company achieved a revenue CAGR of 40% over the past three years. The footfall-to-conversion ratio was over 93%, with made-to-order sales making up 30% of revenue. Sales during the flagship Maha Mangalsutra Mahotsav increased by 40% on average.

The management remains optimistic, expecting benefits from debt restructuring, increased store presence, and high festive season demand. They anticipate no further impact from the duty cut in Q3 FY25. The studded jewelry ratio was 11% in Q2, with a plan to increase this to 15% by FY27.

Disc:- invested

[subhadeep_kundu]

sustainable margins at par with peers along with time is the key monitor able thing.
store expansion seems to on path .
demand to stay intact .

disclosure - Invested