The company PC Jewellers has been very frequently mentioned in the news of late. It is believed that understanding fundamentals is very important, else you will definitely enjoy the roller coaster ride. Investors holding their investment in PC Jeweler will understand this thought very well.

This stock has lured many investors since it is the second leading jewelry brand in India after Tanishq (Titan).

It was started in 2005 with one store in Karol Bagh, Delhi. Since, it has spread widely across the country and is very prominent in North India. 

What has led to the huge success of PC Jewelers is to be thought of.

A company that started roughly a decade and a half ago, has phenomenally overtaken other mainstream players like TBZ.

Let us first have a look at the success mantra of PC Jewelers.

pc jewellers logo share

PC Jewellers share price

PCJ stock

PC Jewellers share price: ₹85 (8th Jan 2018)

Why is PC Jewellers stock going down?

In May 2018, there were strong rumors that CBI arrested Mr. Balram Garg on fraud charges. These were proved to be wrong later on.

Also, the news showed that the accounts of PC Jewellers were cooked up due to which wrong information was given to investors.

One important thing to consider here is that PC Jewellers is present in F&O segment as well. The stocks were sold on a higher rate as compared to previous years. Since there are no circuit limits, the sell was on high which led to a rapid decline in the stock price of PC Jeweler.

Investors have lost approximately 83% in past one year.

Considering the tremendous fall in the price of the stock, the owners decided to buy back shares of approximately ₹400 crores.

But later on, this decision was canceled pointing to the rumors that PC Jewellers did not have enough funds to perform the buyback of shares.

This further led to the decline in the PC Jewellers stock price.

Another important thing to be noted here is that PCJ was supposed to deal with Vakrangee. The company Vakrangee, according to reports came under Sebi’s scanner for the alleged price and volume manipulations of its own stock on BSE and NSE.

However, Vakrangee on February 3, 2018, clarified that rumors of involvement of the company in price and volume manipulation were completely baseless and factually incorrect.  

On January 25, 2018, Vakrangee bought 20 lakh shares of PC Jeweler at Rs 561.71 on NSE.

Other factors that led to a decline in the price of PC Jewellers is that PCJ promoter Padam Chand Gupta gifted some his stake to family members via off-market transactions.

Even as the firm has said it would make requisite disclosures in this regard from time to time, there are fears about more such deals taking place in the future.

Long term investment vs value investment: what you should look for

Since the price of PC Jewellers has fallen rapidly, investors are thinking of buying it at a lower price.

But it is very important to understand what the fundamentals of the company are; what the strategy being followed is; and so on.

Recently an announcement was made that PC Jewellers will reduce its financial cost by not considering the buyback of shares and repaying the debts that they have taken.

This indicates a good management strategy for the company.

Like this, there might be many other decisions that the company might have taken or will take in the future. As a prudent investor, a proper analysis needs to be done before buying or selling the stock.

A quick look at the performance of the past 5 years

Parameters 2018 Growth (%) 2017 Growth (%) 2016 Growth(%) 2015 Growth (%)
Sales 17.08% 11.64% 14.3% 19.2%
EBITDA 26.57% 11.22% -0.928% 21.42%
EBT 36.08% 5.13% -0.12% 12.16%
PAT 31.79% 7.39% 5.98% 6.15%

 

Parameters 2018 2017 2016 2015 2014
Equity Dividend(%) 5 10 33.5 32 30
EPS 14.39 24.03 22.38 21.12 19.89
Interest coverage ratio 3.56 3.06 3.51 3.44 4.17

PC Jewellers: Strategy

The first and most important aspect of PCJ is that it focuses on the organized jewelry market.

It sets up large format standalone showrooms at high street locations, where it stocks a wide range of jewelry across all price points. The main focus is on diamond jewelry. It sells only hallmarked and certified diamond jewelry which has helped it gain trust among its customers and build its brand name.

If one looks at its financial statements over past 5-7 years, we can find that it was in the mode of rapid expansion for building the retail chain of stores. This has led to an increase in its overhead costs. At the same time, it has been successful in generating revenues to keep on consistently increasing its top line and bottom line.  

A few parameters that prove this are its sales grew by 17% YoY basis, EBITDA grew by 9% YoY whereas PAT grew by 4% YoY. Export sales were also up by 10% and Gross margins improved to 14.4%.

Just expanding and opening stores in cities does not help one gain tremendous success. The company ties up with local designers in each location in addition to getting jewelry manufactured at its central manufacturing unit in Delhi.

In 2013 PC Chandra Jewellers ventured into south India in Mangalore, Bengaluru, and Hyderabad (50% of the inventory of this market is localized due to the preference of local designs).

necklace pc jewellers

Till 2015 its focus was to expand domestically and export sales mainly focused on NRIs looking for Indian handmade jewelry.

One of the surveys also pointed out that PC Jewellers had lower making charges as compared to other jewelry brands. This was owing to their designers chose. Also, the strategy adopted to locate the manufacturing plant helped reduce 2-3% in making charges.  

Roping in various film stars like Akshay Kumar, Twinkle Khanna, Shilpa Shetty, Bipasha Basu, Vidya Balan, etc. has helped PCJ a lot too. 

These are few of the reasons that stock price was very high of PC Chandra Jewelers till 2017.

All those factors mentioned above have contributed to this consistent rise in fame and led to the success of PC Jewellers.

How has Government helped the stock price of PC Jewellers?

There is a lot of potential in the Indian market since India is deemed to be the hub of the global jewelry market.

India is the largest player in diamond cutting and polishing. 12 out of 14 diamonds sold in the world are either polished or cut in India. A major chunk of gold jewelry manufactured in India is for domestic consumption. However, a major portion of polished diamonds or finished diamond jewelry is exported.

Moreover, India exports 75% of the world’s polished diamonds, as per statistics from the Gems and Jewelry Export Promotion Council (GJEPC).

India’s Gems and Jewelry sector has been contributing in a big way to the country’s foreign exchange earnings (FEEs). UAE, US, Russia, Singapore, Hong Kong, Latin America, and China are the biggest importers of Indian jewelry.

Based on its potential for growth and value addition, the Government of India has declared the Gems and Jewelry sector as a focus area for export promotion. The Government has recently undertaken various measures to promote investments and to upgrade technology and skills to promote ‘Brand India’ in the international market.

The Indian government presently allows 100% Foreign Direct Investment (FDI) in the sector through the automatic route. The cumulative FDI inflows in the diamond and gold jewelry sector are USD 1,111.52 million as of December 2017.

Considering the stock performance in the past 5-7 years, PCJ has performed consistently well and the stock price increased from approximately ₹35 in January 2014 to approximately ₹454 in December 2017.  

So as an investor if you were considering to invest for long term, in 2017 you would have gained approximately 1200%. That is a mind-boggling 12x returns on your investment.

The highest stock price seen was ₹576.80 on 16th Jan 2018.

But after that, the stock price started falling rapidly with the boom period coming to an end.