PC Jeweller Initiating Coverage Research Report By Motilal Oswal

Shining bright

Play on value migration

– We see an enormous opportunity unfolding in Indian Jewelry as a result of value migration towards organized players. Among all Consumer categories, Jewelry has the largest share of the unorganized segment, both in absolute terms (at INR1.4t) and percentage terms (at 70%).

– PC Jeweller (PCJL), India’s second-largest Jewelry Retailer with a strong presence in the North and Wedding Jewelry, is expanding aggressively to leverage the ongoing value migration.

– We initiate coverage on PCJL with a BUY rating. Our target price of INR490 implies 36% upside.

Massive value migration from unorganized to organized

A spate of regulatory changes in the last few years has driven a tectonic shift in the Jewelry sector in India. The industry was already witnessing a gradual shift towards the organized segment, which now constitutes about 30% of the INR2t domestic Jewelry market. The government’s initiatives, aimed at protecting customers and clamping down on black money, have added momentum to this shift. Actions such as (1) the levy of 1% excise duty on gold jewelry, (2) requirement of PAN for jewelry purchases of over INR200k, (3) demonetization, and (4) implementation of 3% GST have permanently dented the advantages that unorganized, unbranded and local players had.

Large nation-wide chains have been taking steps to leverage this shift

Large nation-wide players like Tanishq and PCJL have been taking steps to leverage the enormous opportunity unfolding in Indian Jewelry. Among the initiatives they have taken over the last few years are increased focus on store addition, increasing use of franchisees (particularly true for PCJL), greater focus on studded jewelry (currently ~30% of sales), developing jewelry attuned to regional tastes, higher investments in brand building, and increasing launches of new collections.

PCJL’s growth has been remarkable thus far…

PCJL has grown from a small player in 2006 to the second-largest Jewelry Retailer in India. Significant store expansion, opening of large-format destination stores, superior gold hedging policies compared to unorganized players, dedicated focus on Wedding Jewelry and Diamond Jewelry, banking on the trust factor built through best practices and brand investments, wide range to cater to diverse customers have all played a major role in driving rapid sales growth of 22.8% CAGR over FY12-17.