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PC Jeweller: Mixed performance - Views on News from Equitymaster

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PC Jeweller: Mixed performance
Aug 7, 2013

PC Jeweller Limited (PCJ) declared its results for the first quarter of financial year 2013-2014 (1QFY14). The company was listed in December 2012 and therefore has not reported corresponding quarter numbers for 1QFY13. Hence, we present quarter on quarter analysis. The company reported 20.5% QoQ growth in sales, while net profit grew by 9.1% QoQ for the quarter.

Performance summary
  • Net sales increased by 20.5% QoQ during 1QFY14.
  • PCJ's domestic turnover grew by 33.1% QoQ. This was primarily on account of decline in gold prices, which led to increase in volumes.
  • Exports, for the company, however, dropped by 22.5% QoQ.
  • Its material cost as a percentage of sales declined substantially from 84.4% to 81.8% QoQ. However, there was a sharp increase in other expenses (138% QoQ) sequentially. Thus, operating profit increased by 17.3% QoQ, with margin coming in at 11.3% vs 11.6% last quarter.
  • Other income grew by 14.7 % QoQ; finance cost rose by 31.4% QoQ during the quarter.
  • High interest cost and tax rate restricted the net profit growth to 9.1% QoQ. Net margin declined by about 0.7% to 6.5% in 1QFY14.

(Rs m) 4QFY13 1QFY14 Change
Net sales 11,442 13,790 20.5%
Expenditure 10,119 12,239 20.9%
Operating profit (EBDITA) 1,322 1,551 17.3%
EBDITA margin (%) 11.6% 11.3%  
Other income 126 144 14.7%
Interest 391 513 31.4%
Depreciation & amortisation 27 29 8.3%
Profit before tax 1,031 1,154 11.9%
Tax 207 254 23.0%
Profit after tax 825 900 9.1%
Net profit margin (%) 7.2% 6.5%  
No. of shares (m)   179.1  
Reported earnings per share (Rs)   5.0  
P/E (x)*   NA  
*On trailing twelve months basis
What has driven performance in 1QFY14?
  • Sales growth of the company was driven by increase in domestic sales.

  • Domestic growth of 33.1% YoY was driven by decline in gold prices which boosted volume growth. Also, opening of 6 new stores in 4QFY13 aided sales growth this quarter. Same store volume growth was 28% and value growth was 25% sequentially. Whereas overall, domestic volume growth was 36% QoQ.

  • Exports sales de-grew by 22.5% QoQ. This quarter contribution of diamond jewellery in exports was negligible. Also, generally 4Q is always better than 1Q in exports market; so strict comparison cannot be made. The company plans to cover the shortfall in its annual export target of 20-22% in the next few quarters.

  • Its material cost as a percentage of sales declined substantially from 84.4% to 81.8% QoQ. However, there was a sharp increase in other expenses (138% QoQ) sequentially on account of forex loss. It reflects mark to market difference in exchange rate between the dates of procurement of gold and balance sheet.

  • Operating profit for the company increased by 17.3% QoQ, with margin coming in at 11.3% vs 11.6% last quarter. The decline of 0.3% in margin was largely on account of reduction in high margin diamond jewellery sales. Diamond jewellery contribution to sales came down from 32% to 26% sequentially.

  • Interest cost rose by 31.4% QoQ during the quarter. Net profit grew by modest 9.1% QoQ due to high interest cost and a slight increase in tax rate.

    Segment wise performance
    (Rs m) 4QFY13 1QFY14 Change
    Exports
    Revenue (Rs m) 2,594 2,010 -22.5%
    % of total revenues 22.7% 14.6%  
    EBIT margin 11.3% 15.5%  
    Domestic
    Revenue (Rs m) 8,848 11,780 33.1%
    % of total revenues 77.3% 85.4%  
    EBIT margin 12.9% 11.8%  
    Total Revenues 11,442 13,790  

What to expect?

PCJ has reported mixed results with decent sales and profit growth. The company is on an expansion spree and has opened 6 new stores this quarter, taking the total number of showrooms to 42. The company plans to open 14 new stores in 2HFY14 to have a pan India presence by the end of this year. The recent changes in gold import policy is not likely to impact company's business and the management is pretty confident of sound demand situation in the domestic market.

At the current price of Rs 88, the stock is trading at 5.5 times our estimated FY16 earnings. We maintain hold view on the stock. However, we do not recommend any mid cap stock to be more than 4%-5% of one's total portfolio.

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