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CRISIL Assigns ‘Average’ Grade to PC Jeweller’s IPO
Nov 9, 2012 3:43 AM
By Dilipp S Nag
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RAPAPORT... CRISIL assigned a “three on five” grade to the proposed initial public offering (IPO) of PC Jeweller Ltd. (PCJ), indicating that its fundamentals are ''average'' relative to the other listed equity securities in India.
The ratings agency stated that the grade reflects PCJ’s relatively new market presence of seven years and the ensuing strong reputation in an industry. Strong brand recall, successful branch expansion and stellar increase in gold prices have added shine to PCJ’s revenue, which has grown at a three-year compound annual growth rate (CAGR) of 69 percent. Compared with other gold jewelry players, PCJ’s revenue mix leans toward higher-margin diamond jewelry, which is rewarding in the wake of increasing acceptance of diamond jewelry in India, CRISIL noted.
CRISIL stated that the expected increase in organized retail penetration in jewelry versus the single-store format will benefit established players such as PCJ, which has expanded its showroom from one to 30 in the past seven years.
The researchers noted, however, that competition in the jewelry retailing market is likely to intensify following planned expansions by regional and traditional players and poses a significant risk for PCJ, whose stores are concentrated in north India. The company’s primary competitors in domestic retail business include Tanishq, Tribhovandas Bhimji Zaveri (TBZ), Gitanjali Gems and Joyalukkas.
The jewelry retailer’s plan to add 20 showrooms by fiscal 2014 across India should mitigate the risk of regional concentration, CRISIL said. But the opening of new stores in a competitive market is likely to put pressure on profitability due to higher marketing expenses and working capital requirement, it added.
PCJ was established by brothers Padam Chand Gupta and Balram Garg in 2005. The company reported revenue of $559.1 million (INR 30.4 billion) in fiscal 2012, largely driven by new store branches and the steady increase in gold prices. The gold jewelry accounted for 66 percent of the company’s revenue, while diamond-studded jewelry contributed 32 percent. Net profit rose sevenfold over the past three years to $42.5 million (INR 2.31 billion) in fiscal 2012.
The company, which operates under the “PC Jeweller” brand, plans to use the IPO proceeds to set up new showrooms and to finance the incremental working capital requirement. PCJ’s manufacturing units for gold and diamond-studded jewelry are located in north India.
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Tags:
Crisil, diamond, Dilipp S Nag, gold, India, ipo, Jewelry, PC Jeweller, PCJ, retail
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