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PC Jeweller: A sluggish quarter - Views on News from Equitymaster

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PC Jeweller: A sluggish quarter
Aug 19, 2014

PC Jeweller Limited (PCJ) declared its results for the first quarter of financial year 2014-2015 (1QFY15). The company reported 4% YoY fall in sales, while net profit fell by 23% YoY for the quarter. Here is our analysis of the results.

Performance summary
  • Net sales fell by 4% YoY during 1QFY15.
  • PCJ's domestic turnover fell by 34% YoY. Exports, for the company, however, grew by 169% YoY.
  • Operating profit increased by 10% YoY, with margin coming in at 11.2% vs 9.8% last quarter.
  • Net profit fell by 23% YoY. Net margin declined by about 1.3% to 5.3% in 1QFY15.

Financial performance snapshot
(Rs m) 1QFY14 1QFY15 Change
Net sales 13,790 13,230 -4.1%
Expenditure 12,445 11,754 -5.6%
Operating profit (EBDITA) 1,345 1,476 9.8%
EBDITA margin (%) 9.8% 11.2%  
Other income 144 81 -43.9%
Interest 307 514 67.3%
Depreciation & amortisation 29 52 82.0%
Profit before tax 1,154 991 -14.1%
Tax 254 296 16.2%
Profit after tax 900 696 -22.6%
Net profit margin (%) 6.5% 5.3%  
No. of shares (m)   179.1  
Reported earnings per share (Rs)*   18.8  
P/E (x)*   6.9  
* On trailing twelve months basis

What has driven performance in 1QFY15?
  • The fall in sales for the company was driven by a fall in domestic sales. This quarter was slow as the sentiment amongst buyers was low during the period. Also, a lot of checks of high value cargo due to the ongoing elections hampered the company's efforts to replenish inventory in stores promptly, leading to postponement of buying decisions by customers. Customer sentiment was also low as customers were expecting a fall in prices due to an expected fall in custom duty on gold (which did not actually happen). Further, the same quarter of previous year was an exceptionally good quarter due to fall in gold prices and resultant pickup in buying activity at the time. Thus sales this quarter came in lower compared to this high base.

  • Despite a rise in operating profits during the quarter, high growth in interest cost and depreciation charges led to a fall of 23% YoY in the bottom line.

    Segment wise performance
    (Rs m) 1QFY14 1QFY15 Change
    Exports
    Revenue (Rs m) 2,010 5,407 169.0%
    % of total revenues 14.6% 40.9%  
    EBIT margin 15.5% 5.1%  
    Domestic
    Revenue (Rs m) 11,780 7,823 -33.6%
    % of total revenues 85.4% 59.1%  
    EBIT margin 10.1% 16.1%  
    Total Revenues 13,790 13,230  
What to expect?
The company is of the view that though overall growth is currently slow in industry, demand however is increasingly moving from unorganized to organized players in the industry. At the same time, there are no big players in even bigger non-metro cities, which is boosting the company's new store sales in such locations. Thus the management sees big scope of growth from opening new stores in such locations. The company plans to open 20 showrooms during FY15 (80% of this would be in non-metros) with a capex of Rs 450 m.

The company is now observing improved sentiments as well as increasing footfalls in its stores, and is consequently confident of a substantial uptick in domestic sales in the next quarter.

At the current price of Rs 140, the stock is trading at 6.2 times our estimated FY17 earnings. We had recommended investors to buy the stock in July 2014. At the current price, however, we recommend investors who have the stock in their portfolio to hold on to it. However, we do not recommend any mid cap stock to be more than 4%-5% of one's total portfolio.

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