Saturday, February 24, 2018

P C Jeweller Ltd: Buy
CMP of Spot: Rs.332.35
Lot Size of Futures: 1500
CMP of March Futures : Rs.334.50
Premium: Rs.2.15
Change in OI: 3.91%
Short term Targets for Future: Rs.360/377
For Future-->S1, S2 and S3: Rs.327/Rs.321/Rs.315
For Future-->R1, R2 and R3: Rs.341/Rs.347/Rs.354
For Spot-->T1, T2 and T3: Rs.374/Rs.424/Rs.496
Triggers:
#PC Jeweller Limited started operations in April 2005 with one showroom at Karol Bagh, New Delhi and is today one of the fastest growing jewellery retail chain with 85 showrooms across 68 cities and 20 states. According to my sources, the company is planning to open 15 more retail counters across India.
Not only that: after lurking inflation fears in the US and meltdown of the real estate sector in India, followed by introduction of LTGT by the FM in this budget, people are shifting to gold. This is likely to keep the demand for Gold buoyant  in the coming months.

#Chief Financial Officer (CFO) of the company in an interview said that the company will stick to its strong fundamentals and their expansion plans are on track. He also clarified about having no business agreement with Vakrangee Ltd and that none of the company's promoters have sold any stake in the firm.
Vakrangee Ltd, a banking and financial services provider, on January 25, 2018 purchased 20 lakh shares of PC Jeweller Ltd for ~Rs.112 crore through an open market transaction.
The shares were acquired at an average price of Rs.561.71, which amounted to ~0.51% stake in the company. This price somewhat gives us the idea as to where the share price of P C Jewller Ltd can shoot in the short term. 

#The impact of Nirav Modi and Mehul Choksi scam though had been seen in stock price of many
Photo: Zee Business
jewelry firms on 16 February, '18, but PC Jeweller reversed the trend on that day and emerged as the top gainers in this sector. The share price of this company jumped by nearly 7% during the day.

#PC Jewellers Ltd also recently clarified that the company does not use the instruments of LUT/LOC etc in its business transactions. Moreover, it does not have any international transactions in diamond. It procures all its diamond from local markets on cash basis only.

#Though post Nirav Modi scam, bankers will become more alerted in terms of credit transfer, and considering the process of investigation, however for the companies like P C Jewelers Ltd fundamentals will speak and it will have minimal impact on getting loan from banks/financial institutions.
There is another silver lining too: according to Kotak Institutional Equities, exposure of 18 banks’ overall book (12 public sector banks and six private sector ones) to the gems and jewellery sector is only about 1% --- for now, the problem appears limited to PNB. Hence, there is no reason to get too much anxious on the credit delivery front by the banks to the Jewelry sector.

#It is pertinent to mention here that the stock of P C Jewelers Ltd fell from around Rs.580 - plus which is made in late January, 2018 and hence the change of appreciation from the CMP is very bright. It is also likely to benefit from dilution of Nirav Modi brand, due to elimination one of its major competitors in the gems and jewelry segment.

#The company stressed that it’s expansion plans are on track as planned. “We are moving ahead as per our laid down business plans of opening new stores and working on launching new collections. The company continues to witness very good footfalls and sales in this quarter as well,” it said in a clarification to the stock exchanges, early this month. PC Jeweller further said none of the company’s promoters has sold any stake in the firm (mentioned earlier) or pledged its shares as collateral with any institution. 

#With 60% of gold demand coming from rural India, the Union Budget’s focus on boosting rural and farm incomes could benefit big brands such as Titan Co Ltd and PC Jeweller Ltd. 

#There is a belief in the market that the implementation of the Goods and Services Tax (GST) has enhanced bullion purchases from organised vendors. The GST, touted as the country's biggest indirect-tax reform since Independence, introduced a 3% levy on gold from July 1, 2017 nudging customers to shift purchases to organised high-street bullion businesses from street-corner jewellers. In other words the retail jewellery segment is now witnessing a major shift of customers toward the organised players, and PCJ is a major beneficiary of the same.  The New Delhi-based Jeweler is therefore, expecting good growth in SSG (same stores sales growth) as well as in new stores segments. 

#Jewelry demand generally picks up a month before Dhanteras and continues till April-May every year due Festive and Wedding seasons; which keeps the demand for the yellow metal buoyant. Hence, going forward we could see robust performance of the company.

#The company is showing enviable performance during the last two quarters, viz.Q2FY18 and Q3FY18. PC Jeweller Ltd last month reported a 52% increase in its net profit at Rs.162.71 crore for quarter ended December on higher sales. The company, which has 84 retail jewellery stores across the country, had posted a net profit of Rs.106.97 crore in the year-ago period, the company. It is to be remembered that PC Jewellers Ltd posted a 40.83% jump in standalone net profit at Rs.150.59 crore for the quarter ended September on strong sales. Net profit was Rs.106.93 crore in the same period of the previous year.
The company said that the rollout of the goods and services tax (GST) as a very major structural change, has resulted in a major "disruption" for unorganised players in all the sectors of the economy. "Demonetisation and implementation of GST are helping us increase market share as the industry is getting organised," the company said in last November. Therefore, similar performance is likely to be exhibited in Q4FY18 too according to my sources, who refused to be named.

#Lastly, the story of investment in Gold is not Rich Vs Poor, as is commonly perceived but as a means or avenue to store wealth by a section of Indian population, especially the housewives -- and this has been going on since centuries. Hence, its demand as a hedge against inflation in the short term, in countries like UK, USA and India is expected to continue. 
2ndly, the branded jewelry stores are a play on India's ever growing retail sector, where I find immense potential after the government of India gave their consent for FDI in multi-brand retailing. 
Who knows, whether in future the International jewelry brands like Harry Winston, Cartier, Buccellati, Tiffany & Co, etc will partner with reputed Indian brands like P C Jeweller or not. If this happens then the stock of P C Jewelers Ltd might cross Rs.1000 (one thousand), as well. Also, it is worth mentioning here that Tiffany jewels are not only famous in America but now in Asia as well.

Bibliography:
i) The Economic Times
ii) Zee Business
iii) The Times of India
iv) The Hindu BusinessLine
v) Live Mint
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