We recently met the management of PC Jeweller (PCJL) and the key takeaways are as follows. Given its strong brand recall in North and Central India, PCJL should benefit from the increased penetration of organised and branded jewellery in India.
The management has reiterated its plan to add 100ksf space annually over the next three years, with focus on tier-II and tier-III cities. With increasing store count in the domestic business, we expect the salience of the exports business to reduce further.
PCJL is targetting to improve its margin profile by driving diamond studded jewellery sales, given the 3.5x gross margin differential between plain gold and studded jewelry (gross margin in diamond jewelry is 35% compared with 11-12% in gold jewellery). The contribution of diamond jewellery in overall domestic revenues has risen from 17.9% in FY10 to 31.5% in FY15 (26.4% in FY14). With increasing consumer discretionary spends, PCJL believes it could increase the salience of diamond jewelry to 40% in the medium term, which could drive operating margin expansion.
PCJL has witnessed healthy sales CAGR of 45%, Ebitda CAGR of 49%, and PAT CAGR of 42% over FY10-15. Having established good brand recall in North and Central India, we now expect PCJL to establish a pan-India presence. It would be a key beneficiary of the rapid growth that India’s branded jewelry segment offers.