Brahmal Vasudevan of Creador/ Idria has a short investing history in India. However, even in that short period, he has shown his mettle by picking winning stocks like Cholamandalam, Somany Ceramics, Repco Home Finance (now exited) and Ashiana Housing.
The latest to join the elite list of stocks in the portfolio is PC Jeweller.
Yesterday, 24th February, Creador/Idria scooped up 44.79 lakh shares of PC Jeweller at Rs 244 each, laying down an investment of about Rs. 110 crore.
A slight scratch on the surface reveals why Brahmal Vasudevan is enticed by PC Jeweller. The following are its salient features:
(i) The size of the domestic gems and jewelry business is a mammoth Rs. 3000Bn. The market is growing at a CAGR of 16%. The organized players have a 27% market share. PC Jeweller is the second largest national player and enjoys a 7% market share amongst the organized players;
(ii) The Company is on a strong growth trajectory. It has 49 showrooms across 41 cities and 17 States. The five year (2010 to 2014) CAGR in revenue is an impressive 52.5%. The CAGR in PAT is 46% while the average ROE is 34.7%. However, FY15 performance is impacted by a slowdown in discretionary consumption;
(iii) The Company has an aggressive expansion plan in Metros, Tier I and Tier II towns and intends to open 20 new showrooms every year over the next 5 years;
(iv) The Company has low debt and intends to finance the expansion with internal accruals;
(v) It is also tying up with Flipkart and Snapdeal for online jewellery sales. It claims that even if only 2% of the overall Indian Jewellery market gets online, it would create a potential market of Rs. 110Bn for online sales;
(vi) One of the biggest risks in the business is that of fluctuation in the gold prices. However, PCJ claims that its business is de-risked from gold price fluctuations owing to the gold-on-lease model followed by it;
(vii) In FY 14, PC Jeweller had an EPS of Rs. 19.38. On that basis, the stock is quoting at a P/E of 13.41x. This is not expensive if you bear in mind the growth trajectory that the Company has chartered out.
|PC Jeweller Ltd – Financial Overview|
|Figures in Rs crore||2014||2013||2012|
|Profit After Tax||356.31||290.66||231.29|
|Earning Per Share (Rs)||19.38||16.06||17.26|
|PC Jeweller Ltd – Ratios|
|Figures in Rs crore||2014||2013||2012|
|Operating Margin (%)||11.90||12.49||11.47|
|Net Profit Margin (%)||6.69||7.23||7.60|
|Return on Capital Employed (%)||28.82||35.68||42.77|
|Return on Net Worth (%)||23.20||29.89||52.48|
Balram Garg, MD of PC Jeweller, gave more details of the proposed expansion plans in an interview to PTI. He explained that the Company intends to invest Rs 1,500 crore and launch 200 new outlets by 2019. Out of the 200 new outlets, 100 will be company-owned and others based on the franchise model. He also clarified that the expansion would be done through internal accruals. He added that PC Jeweller intended to launch a new sub brand (like ‘Flexia’, ‘Spectrum’ and ‘Le Reve’) every 3-4 months. Garg emphasized that the company is targeting over 20 per cent increase in its turnover next fiscal.
Understandably, Anand Narayan, Sr. MD at Creador, is all praise for PC Jeweller. He gushed that “PC Jeweller, under the leadership of Balram Garg, is an exceptional company experiencing a phenomenal growth rate. As the organised share in jewellery retail increases, PC Jeweller is bound to benefit from this trend and we are delighted to have this opportunity to partner with Balram and his team in shaping its next phase of growth.”
Anand Narayan added that the shift from unorganised to organised retail in the jewellery market would benefit PC Jeweller. He also pointed out that as income levels are rising, affluent class will continue to spend more on wedding jewellery and PC Jeweller targets this market in a focused manner.
So, having read all the data, one has to admit that PC Jeweller will add sparkle to Creador’s portfolio and yet another feather to Brahmal Vasudevan’s cap.