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Analysts Review PC Jeweller’s Upcoming IPO
Dec 7, 2012 7:54 AM
By Dilipp S Nag
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RAPAPORT... The initial public offering (IPO) of PC Jeweller (PCJ) will open on Monday. The company plans to raise up to $111 million (INR 6.09 billion) during the offering of 45.1 million equity shares, the proceeds of which would fund its retail expansion across India. The IPO's price band has been fixed at INR 125 to INR 135, or approximately $2.30 to $2.48 per share.
ICICI Securities said that the current IPO price band values the stock at 7.9 times to 8.6 times its annualized first-half earnings in fiscal 2013, post issue. “We believe that this pricing provides a cushion for an up move in prices. Investors can look at subscribing to the issue considering the healthy operating margins and return ratios of the company,” ICICI analysts Bharat Chhoda and Dhvani Modi wrote in a report.
They added that PCJ plans to add 20 showrooms by fiscal 2014 and is also considering setting up international retail operations, which will pump up its revenue and increase brand visibility as well as its geographical presence.
The New Delhi-based jeweler currently operates 30 stores -- mostly large-format stores -- in north and central India under the PC Jeweller brand. The company is looking to open showrooms in southern and western parts of India where it does not have a presence yet. Its primary competitors include Tanishq, Tribhovandas Bhimji Zaveri, Gitanjali Gems and Joyalukkas.
Brokerage firm SMC said that although PCJ has a strong brand value in areas around Delhi, it is yet to establish similar brand awareness in other parts of India. “With many regional and national jewelry retailers as well as jewelry manufacturers and exporters lining up aggressive expansion plans, competition is expected to intensify,” SMC opined. “Hence, it is recommended that any investor with long time horizon can go for this issue.”
SBICAP Securities stated that PCJ appears to be fairly valued on most of the valuation parameters compared with its closest peers. “In view of factors like good demand for gold jewelry among Indians, higher scope for organized players in the jewelry space, improved sales and profitability over the years coupled with higher margins as compared to its peer group, makes the issue worth investing [in],” it added.
CRISIL has assigned a “three on five” grade to PCJ’s public issue, indicating that its fundamentals are ‘’average’’ relative to the other listed equity securities in India.
Anand Rathi Retail Research said that compared to its peers, PCJ looks fairly placed in terms of size, brand recognition and showroom counts. The company has been showing good traction in its performance and looking at its expansion track record and future plans, it has good potential, the brokerage noted.
“At higher price bands, the stock trades at 7.8 times its fiscal 2012 earnings and with good return ratios over a period of time investors can subscribe to the issue,” Anand Rathi recommended.
During fiscal 2012, PCJ posted a net profit of $42 million (INR 2.30 billion) on revenue of $555.5 million (INR 30.42 billion), according to its prospectus. Exports contributed 33 percent of its revenue during the year.
PCJ has five jewelry manufacturing facilities and its product consists of gold, diamond and other jewelry, including silver articles, with a focus on bridal lines. It also sells gold and diamond jewelry on a wholesale basis both locally and to international distributors in Dubai, Hong Kong and Singapore.
The company, which plans to divest a 25.20 percent stake through IPO, is offering a discount of INR 5 per share on the issue price to retail investors and to its employees. The issue will close on December 12, 2012.
The book-running lead managers are SBI Capital Markets and Kotak Mahindra Capital Company and the co-book-running lead manager is IDBI Capital Market Services. The company has proposed to list its equity shares on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
*Note: All data was published in rupee. Any references to U.S. dollar amounts were made according to exchange-rate conversions by Rapaport News.
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Tags:
Crisil, diamonds, Dilipp S Nag, gold, ICICI Securities, India, ipo, jewellery, Jewelry, PC Jeweller, PCJ, retail, SBICAP Securities, SMC
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