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PC Jeweller: Expansion boosts growth - Views on News from Equitymaster
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PC Jeweller: Expansion boosts growth
May 28, 2014

PC Jeweller Limited (PCJ) declared its results for fourth quarter as well as for the 12 month period ending 31st March, 2014. The company reported 34.3% YoY growth in sales, while net profit grew by 1.4% YoY in the fourth quarter.

Performance summary
  • Net sales increased by 34.3% YoY during 4QFY14.
  • Domestic revenues increased by 24.7% YoY.
  • Revenues from exports witnessed a jump of 66.8% YoY in the quarter.
  • The company's operating margin declined by 1.2% to 10.4% in 4QFY14. The decline in operating profit was on account of increase in raw material cost. Operating profit on absolute basis grew by 20.8% YoY.
  • The other income dropped by 20.5% YoY in 4QFY14.
  • Interest costs too witnessed a sharp increase of 29.3% YoY in 4QFY14. This coupled with a sharp jump in taxes by 56.2% restricted the YoY net profit growth to just 1.4%.

(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Net sales 11,442 15,361 34.3% 40,184 53,248 32.5%
Expenditure 10,119 13,764 36.0% 35,366 47,385 34.0%
Operating profit (EBIDTA) 1,322 1,598 20.8% 4,818 5,863 21.7%
Operating profit margin (%) 11.6% 10.4%   12.0% 11.0%  
Other income 126 100 -20.5% 202 472 133.8%
Depreciation 27 34 28.7% 100 123 23.3%
Interest costs 391 505 29.3% 1,275 1,519 19.2%
Profit before tax 1,031 1,158 12.3% 3,645 4,694 28.8%
Tax 207 323 56.2% 739 1,131 53.0%
Profit after tax/(loss) 825 836 1.4% 2,907 3,563 22.6%
Net profit margin (%) 7.2% 5.4%   7.2% 6.7%  
No. of shares (m)         179.1  
Diluted earnings per share (Rs)*         19.9  
P/E ratio (x)*         5.9  
On a trailing 12 months basis

What has driven performance in 4QFY14 and FY14?
  • PC Jeweller's topline performance was impressive in 4QFY14. The domestic revenues growth came from new store sales while the same store sales growth was muted. Exports too contributed significantly to sales growth and were helped by YoY depreciation in rupee.

  • The company's operating profit margin contracted by 1.2% YoY to come in at 10.4% in 4QFY14. The margin was impacted by the company's high margin diamond business which contributed 24% to total sales as compared to 32.4% in the corresponding quarter of last year.

  • A subdued performance at the operating level affected the bottom line performance too. Consequently net profit grew by just 1.4% YoY.

  • For FY14, the sales growth was robust at 32.5% primarily led by sales from new showrooms. Operating profit grew by 21.7% while operating margin shrank by 1% to 11% in FY14. Net profit grew by 22.6% YoY on the back of increase in other income. Adjusting for mark to market gains, net profits have increased by 16.9% YoY.

    Segment wise performance
    (Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
    Exports
    Revenue (Rs m) 2,594 4,326 66.8% 10,308 13,227 28.3%
    % of Total Revenues 22.7% 28.2%   25.7% 24.8%  
    EBIT Margin 11.3% 11.4%   14.0% 15.1%  
    Domestic
    Revenue (Rs m) 8,848 11,035 24.7% 29,876 40,021 34.0%
    % of Total Revenues 77.3% 71.8%   74.3% 75.2%  
    EBIT Margin 12.9% 11.1%   11.8% 10.9%  
    Total Revenues 11,442 15,361 34.3% 40,184 53,248 32.5%
What to expect?
At the current price of Rs 119.6, the stock is trading at 6.0 times its trailing twelve months (TTM) earnings per share (EPS).

PC Jeweller had robust sales growth in FY14 albeit driven by additional sales from new showrooms as the same store sales were muted. Going ahead, the company feels that the improvement in overall economy will lift consumer sentiments.

As far as gold procurement is concerned, the company has received approval to hedge 5 tonnes of gold through banks. This shall help the company curb volatility in gold prices to an extent. The management said that they are expecting relaxation in the 80:20 scheme; which shall further improve gold supply. The recent ruling by RBI to allow select traders in addition to banks to procure gold is also likely to increase gold supply. The company is going ahead with its expansion and plans to open 15 new showrooms in FY15.

Our estimates for PC Jewellers warrant significant revisions. We are in the process of reviewing the target price for the stock. We recommend investors to Hold on to the stock. Please do remember that no stock should be more than 4%-5% of one's total portfolio.

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