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PC Jeweller: Satisfactory performance - Views on News from Equitymaster

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PC Jeweller: Satisfactory performance
May 21, 2013

PC Jeweller Limited (PCJ) declared the results for the financial year 2013. The company reported 32.1% YoY growth in sales, while net profit grew by 25.7% YoY for the year. Here is our analysis of the results.

Performance summary
  • Net sales increased by 32.1% YoY during the financial year 2013.
  • Segment wise, domestic turnover grew by 46.5% YoY; while Exports grew by just 2.8% YoY.
  • Under operating expenditure, other expenses as a percentage of sales declined from 5.5% to 3.5%. This resulted in operating expenditure growing by 30.5% YoY; lesser than the sales growth. Consequently, operating profits (EBITDA) rose by 45.5% YoY and operating profit margin expanded by 1.1% during the full year.
  • Other income grew by 15.0 % YoY during FY13; interest rose by whopping 65.1% YoY during the year.
  • Net profit grew by 25.7% YoY during FY13. Due to high interest cost and lower tax base of last year; net margin declined by about 0.4%.
  • PCJ has proposed a dividend of Rs 1 per share (dividend yield of 0.9%).

Consolidated performance snapshot
(Rs m) FY12 FY13 Change
Net sales 30,419 40,184 32.1%
Expenditure 27,107 35,366 30.5%
Operating profit (EBDITA) 3,312 4,818 45.5%
EBDITA margin (%) 10.9% 12.0%  
Other income 176 202 15.0%
Interest 772 1,275 65.1%
Depreciation & amortisation 66 100 51.6%
Profit before tax 2,650 3,645 37.6%
Tax 337 739 119.2%
Profit after tax 2,313 2,907 25.7%
Net profit margin (%) 7.6% 7.2%  
No. of shares (m)   179.1  
Diluted earnings per share (Rs)*   16.2  
P/E (x)   7.3  
*trailing 12 months earnings

What has driven performance in FY13?
  • Net sales grew by 32.1% YoY. Sales were driven by strong Domestic segment performance which grew by 46.5% YoY. The performance was attributed to increase in volumes as well as increased demand for gold due to fall in prices. The growth was also aided by uptick in demand for diamond jewellery. Exports, however, posted low growth of 2.8% YoY.

  • Operating profit margin increased by 1.1% YoY. The growth in margin was attributed to increased share of diamond jewellery in total sales as it commands better margin as compared to gold. The share of diamond in total sales was 31%; while gold contributed 69% in FY13.

  • EBIT margin of Exports segment improved significantly from 10% in FY12 to 14% in FY13. Exports segment witnessed foreign exchange gains accruing due to depreciation in rupee on a YoY basis. On the other hand, margin in domestic segment declined from 12.6% to 11.8% YoY.

  • Other income increased by 15% YoY. The company's interest cost increased sharply by 65.1% YoY. PCJ sources gold on lease based model and therefore has to pay interest on the same. Out of the total interest, 75% of the interest is w.r.t lease.

  • The company's debt, however, has declined from Rs 5.8 bn to Rs 2.3 bn YoY. Therefore, going forward the company expects its interest expenses to decline.

  • Net profit for the company increased by 25.7% YoY during FY13.
    Segment wise performance
      FY12 FY13 Change
    Exports
    Revenue (Rs m) 10,024 10,308 2.8%
    % of total revenues 33.0% 25.7%  
    EBIT margin 10.0% 14.0%  
    Domestic
    Revenue (Rs m) 20,395 29,876 46.5%
    % of total revenues 67.0% 74.3%  
    EBIT margin 12.6% 11.8%  

What to expect?

PCJ is on target with its expansion plans and has opened 6 new showrooms in the month of April and May. It plans to open 14 more stores to have a pan India presence by end of FY14. Also, the company will largely focus on the domestic market as there is huge untapped potential in the Indian gold retail segment.

The recent RBI notification has restricted the import of gold on consignment basis. The company, however, clarified that the move by RBI to curb the speculative or transitory gold demand by traders and speculators. Therefore, genuine end users and jewellery makers like PCJ will not be impacted by this measure.

At the current prices of Rs 118, the stock is trading at a competitive multiple of 7.3 times its trailing twelve month earnings. Considering the above factors, we thus maintain our Buy view on the stock. However, we would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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