2 February 2015
PC Jeweller
spotlight
The Idea Junction
Stock Info
Bloomberg
PCJL IN
CMP (INR)
276
Equity Shares (m)
179.1
M.Cap. (INR b)/(USD b)
49.4/0.8
52-Week Range (INR)
283/72
1,6,12 Rel. Perf. (%)
24/101/233
Evolving from a regional to a national player
Strong positioning in North India; rising studded jewelry mix
Financials & Valuation (INR b)
Y/E March
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
15.3
9.9
9.1
1.0
12.5
8.5
7.6
1.2
9.9
7.2
6.2
1.5
2015E 2016E 2017E
54.2
6.2
3.2
18.1
-9.1
28.0
16.6
22.1
63.9
7.6
4.0
22.1
22.3
32.6
17.4
26.0
76.8
9.4
5.0
28.0
26.5
38.6
18.6
28.0
Well established jewelry brand in North India
PC Jeweller (PCJL) is one of the leading organized jewelry retailers, with a strong
brand presence in North and Central India. PCJL operations include design,
manufacturing, retailing and export of jewelry. It has 49 showrooms in 39 cities
and 16 states, with an operational space of ~292,800sqft as of Dec'14. We expect
the penetration of organized and branded jewelry to increase going forward,
driven by rising disposable incomes, increasing awareness of quality/hallmarking
and favorable demographics. The government has recently designated PCJL as a
nominated agency for direct import of precious metals to be used for domestic
business.
Steadily expands retail footprint pan India
PCJL has expanded its retail footprint steadily with an operational space of
~292,800sqft (~4.5x over FY10-Dec'14) as of December 2014. It plans to add 20
showrooms annually over the next three years in the ratio of 20:40:40 in metros,
tier I and tier II cities. We expect PCJL to widen its presence geographically and
capitalize on the growing salience of branded jewelry in India.
Shareholding pattern (%)
As on
Sep-14
Promoter 70.6
FII
13.4
DII
2.4
Others
13.7
Jun-14 Mar-14
70.6
70.6
11.2
13.0
2.9
3.0
15.4
13.4
Increasing salience of domestic business
PCJL exports gold jewelry on a wholesale basis to international distributors.
However, given the low margins and higher working capital requirement, it is
prioritizing resources and management bandwidth towards the domestic retail
segment. Salience of exports business has fallen from 34.4% in FY11 to 25% in
FY14. We expect the revenue mix to further tilt towards domestic business as it
opens 12,14 and 14 new stores over FY15, FY16 and FY17 respectively.
Notes: FII includes depository receipts
Stock performance (1 year)
Focus on studded jewelry to drive margin expansion
PCJL is driving studded jewelry sales through aggressive marketing, launch of
new design concepts (like flexia) and customer activation initiatives. Contribution
of diamond jewelry in overall domestic revenue has risen from 17.9% in FY10 to
26.4% in FY14. Diamond jewelry enjoys gross margin of 35%, compared to the
Spotlight
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is a wide representation of investment opportunities in India, there are many emerging names in the
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in time. Motilal Oswal Research may or may not follow up on stocks under Spotlight.
Manish Poddar
(Manish.Poddar@MotilalOswal.com); +91 22 3027 8029
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
RED: Caution
AMBER: In transition
GREEN: Interesting
1
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Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
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spotlight
| PC Jeweller
11-12% enjoyed by gold jewelry. Over the next three years, PCJL intends to increase the salience
of diamond jewelry to 35% from 27% in FY14. We expect PCJL's operating margin to expand 80bp
over FY15E-17E to 12.2%. Improving discretionary consumption trends backed by macro recovery
could drive the premiumization in jewelry industry, in our view.
Play on rising branded Jewellery penetration: 24% FY15-17 EPS CAGR, 9.9x FY17 P/E
PCJL has posted robust 39%, 44% and 35% in sales, EBITDA and PAT CAGR respectively over FY11-
14. However, FY15 performance is impacted by a slowdown in discretionary consumption.
Company's expansion plans coupled with a focus on studded jewelry and improvement in
consumer sentiments should drive the next leg of growth, in our view. We expect PCJL to deliver
19%, 23% and 24% in sales, EBITDA and PAT CAGR respectively over FY15E-17E, aided by a low
base of FY15. The stock trades at 12.5x/9.9x FY16E/FY17E EPS. A sharp correction in gold prices and
adverse regulations can pose as key downside risks.
Not Rated.
2 February 2015
2

Spotlight |PC Jeweller
Well established brand in North India
Enviable niche in wedding segment
PC Jeweller (PCJL), incorporated in 2005, is one of the leading organized
jewellery retailers with a strong brand presence in North and Central India. Its
operations include design, manufacturing, retailing and export of jewellery.
Company has 49 showrooms present in 39 cities and 16 states, with an
operational space of ~292,800sqft as of Dec’14.
PCJL retails a wide range of gold, diamond and other jewellery, including silver
articles, under the brand "PC Jeweller". Gold jewellery contributes ~74% of its
domestic revenue, while diamond contributes the rest.
Large format showrooms with wider design collection and focus on wedding
jewellery remain its areas of strength. Of the 49 showrooms (as on December
2014) it operates, 22 are large format stores, with a carpet area of more than
5,000sqft. Over the last five years, company has expanded its presence from 10
showrooms in FY10 to 49 showrooms as on Dec’14.
Apart from retailing jewellery in India, PCJL also exports jewellery to the Middle
East and South East Asia. Domestic jewellery retail business contributed ~75% of
the revenues in FY14, while exports contributed the rest.
Company has a strong in-house design team (over 50 designers) and four
jewellery manufacturing units to support its retail footprint.
Exhibit 2: ...while total space addition has been 4.5x
Total Carpet Area (mn sf)
49
41
238
138
101
65
165
293
Exhibit 1: 4.9x store count over FY10-Dec’14…
No of Retail Outlets
24
17
10
30
FY10
FY11
FY12
FY13
FY14
Dec 14
FY10
FY11
FY12
FY13
FY14
Dec 14
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: Key metrics performance over FY10-14
FY10
Cumulative store count
Revenues per store (domestic)
Revenue per sqft
Total revenue (INR m)
Growth (%)
Domestic Revenue (INR m)
Growth (%)
Export revenue (INR m)
Growth (%)
10
655
100,670
9,848
58%
6,549
0.9
3,299
0.2
FY11
17
763
128,258
19,771
101%
12,978
1.0
6,792
1.1
FY12
24
850
147,496
30,419
54%
20,395
0.6
10,024
0.5
FY13
30
996
181,540
40,184
32%
29,876
0.5
10,308
0.0
FY14
41
976
168,155
53,248
33%
40,021
0.3
13,227
0.3
Source: Company, MOSL
2 February 2015
3

Spotlight |PC Jeweller
Expansion plans to widen geographic presence
Increase footprint pan India, 85 stores by FY17
PCJL has opened 25 stores since its IPO, with six stores added in FY13 and 11
being added in FY14. It has added 8 stores YTD FY15.
Since inception PCJL has focused on large format showrooms to establish a
strong presence in the wedding segment, which contributes >50% of Indian
jewellery demand annually. Focus on large format showrooms has proven to be
a successful strategy for PCJL, and even Titan, the leader in branded jewellery
space has concentrated on opening large format showrooms since FY12.
PCJL follows a cluster approach, wherein one-third stores are present in metros,
another one-third in tier I cities and the balance in tier II cities. This approach
has aided the company to consolidate its position in the NCR region and reap
the benefits of increasing brand awareness and better operating efficiency.
From a store level perspective, for a new PCJL store opened in an existing city of
company’s presence, it takes about four to five months to achieve cash
breakeven, while for a store opened in a new city in an existing state, the cash
breakeven is between six and seven months. However, for a store opened in a
new city in a new state, the cash breakeven period is around a year. This
variance in achievement is mainly as the presence in a city generates awareness
and aids to facilitate footfalls for a new store in the same city, thus aiding cash
breakeven.
Exhibit 4: PCJL has expanded its geographical footprint pan India
Source: Company, MOSL
2 February 2015
4

Spotlight |PC Jeweller
Exhibit 5: PCJL is aggressively expanding its presence (added ~128,000sqft over the last 24 months)
Count
Opening date Location
Region
North India
1
Apr, 2005
Karol Bagh, New Delhi
2
Oct, 2007
Noida, Uttar Pradesh
3
Dec, 2007
Panchkula, Haryana
4
Oct, 2008
Faridabad, Haryana
5
Oct, 2008
Dehradun, Uttarakhand
6
Apr, 2009
Pitampura, New Delhi
7
Sep, 2009
Chandigarh
8
Mar, 2010
Gurgaon, Haryana
9
Mar, 2010
Preet Vihar, New Delhi
10
Mar, 2010
Ghaziabad, Uttar Pradesh
11
Jul, 2010
Lucknow, Uttar Pradesh
12
Oct, 2010
Jodhpur, Rajasthan
13
Dec, 2010
Bhilwara, Rajasthan
14
Mar, 2011
Ludhiana, Punjab
15
Jul, 2011
Haridwar, Uttarakhand
16
Aug, 2011
Pali, Rajasthan
17
Oct, 2011
South Extension, New Delhi
18
Oct, 2011
Amritsar, Punjab
19
Oct, 2011
Beawar, Rajasthan
20
Oct, 2011
Ajmer, Rajasthan
21
May, 2012 Kanpur, Uttar Pradesh
22
May, 2012 Rohtak, Haryana
23
May, 2012 Rajouri Garden, New Delhi
24
Jun, 2012
Greater Kailash, New Delhi
25
Aug, 2012
Ghaziabad, Uttar Pradesh
26
Aug, 2012
Kingsway Camp, New Delhi
27
Apr, 2013
Sri Ganganagar, Rajasthan
28
May, 2013 Hisar, Haryana
29
May, 2013 Paschim Vihar, New Delhi
30
Jun, 2014
Jammu, J&K
31
Oct, 2014
Mathura, Uttar Pradesh
32
Nov, 2014
Bareilly, Uttar Pradesh
33
Dec, 2014
Varanasi, Uttar Pradesh
Total North India
Area (sqft)
13,016
2,660
11,600
3,950
3,450
6,290
2,208
13,400
5,130
3,350
3,874
5,655
3,500
3,798
4,393
3,600
11,500
5,756
3,500
4,500
4,552
4,600
4,455
4,500
2,528
6,000
5,300
3,400
3,900
3,250
3,200
4,000
13,000
177,815
Count
Region
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Opening date
Rest of India
Aug, 2010
Sep, 2010
Oct, 2010
Jul, 2011
Apr, 2013
Apr, 2013
Apr, 2013
Oct, 2013
Nov, 2013
Nov, 2013
Dec, 2013
Jan, 2014
May, 2014
Jun, 2014
Jul, 2014
Sep, 2014
Location
Indore, Madhya Pradesh
Bhopal, Madhya Pradesh
Raipur, Chattisgarh
Bilaspur, Chattisgarh
Ahmedabad, Gujarat
Vadodra, Gujarat
Jabalpur, Madhya Pradesh
Rajkot, Gujarat
Hyderabad, Andhra Pradesh
Mangalore, Karnataka
Bengaluru, Karnataka
Satellite Ahmedabad, Gujarat
Ranchi, Jharkhand
Guwahati, Assam
Patna, Bihar
Kolkata, West Bengal
Area (sqft)
8,917
5,800
4,590
3,500
7,800
7,800
5,000
4,200
17,065
7,070
12,281
8,710
3,300
4,350
6,378
8,198
Total Rest of India
114,959
Source: Company, MOSL
In our recent interaction, management reiterated its plan to add 20 stores
annually over FY14-17 (100 stores by FY17) in the ratio of 20:40:40 in metros,
tier I and II cities. PCJL has added 8 stores during 9MFY15. We are modeling for
12, 14 and 14 new stores for FY15, FY16 and FY17, respectively.
PCJL continues to expand its reach in tier II and III cities, which are largely
dominated by unorganized/small players and where the quality of offerings
remains doubtful. Going forward, PCJL has also lined up aggressive expansion
plans to diversify its geographic presence and capitalize on the growing
consumerism trend in the branded jewellery space.
2 February 2015
5

Spotlight |PC Jeweller
Exhibit 6: Typical store level economics for a mature store (size of 4,500sqft)
Gold: Diamond jewellery mix
Blended Gross Margin
Gold
Diamond
Store costs
Rentals
Ad spends
Employee costs
Other Expenses
Average Store EBITDA Margin
Finance costs
PBT
1.0%
1.0%
1.0%
0.8%
12.2%
3.0%
9.2%
70:30
16.0%
10.0%
30.0%
Capital employed
Metros
Tier 1
Tier 2
Inventory
Metros
Tier 1
Tier 2
Furniture/fixture
Metros
Tier 1
Tier 2
40
20
20
Source: Company, MOSL
400
250
180
INR m
440
270
200
Exhibit 7: Recent store additions in Jharkhand and J&K
Source: Company, MOSL
Exhibit 8: Large size store formats opened in Bihar and Assam
Source: Company, MOSL
2 February 2015
6

Spotlight |PC Jeweller
Studded jewellery to drive margin expansion
Increased brand investment to drive mix improvement
PCJL is targeting to improve its margin profile by driving diamond studded
jewellery sales, given the 3.5x gross margin differential between plain gold and
studded jewellery (diamond jewellery enjoys gross margin of 35%, compared to
the 11-12% enjoyed by gold jewellery).
The contribution of diamond studded jewellery in overall domestic revenue has
risen from 17.9% in FY10 to 26.4% in FY14. We note that the company has
improved its retail mix in favor of diamond jewellery at a faster pace compared
to peers like Titan and TBZ.
PCJL’s plan to boost diamond jewellery sales include: (1) investments in
advertising for diamond studded jewellery, (2) promotion schemes for diamond
jewellery, (3) display of diamond jewellery on the ground floor of its multi-
storey showrooms, (4) new launches with penetrative price points to entice
entry-level buyers, (5) cross-selling of diamond jewellery to gold jewellery
customers and (6) launch of new design concepts in diamond jewelelry (like
Flexia – interchangeable diamond jewellery).
Over the next three years, company intends to increase the salience of diamond
jewellery from 27% in FY14 to 35% in FY17E. We expect its operating margin to
expand 80bp over FY15E-17E to 12.2%. If the same store sales growth is higher
than our estimates of -8%, 10% and 15% in FY15E, FY16E and FY17E respectively,
there exists upside risks to our margin estimates.
Exhibit 9: Salience of diamond jewellery has increased by 850bp over the last five years
Gold (%)
0.9
17.9
0.7
22.9
Diamond (%)
0.7
26.7
Others (%)
0.7
30.8
0.7
26.4
81.2
76.4
72.6
68.5
72.9
FY10
FY11
FY12
FY13
FY14
Source: Company, MOSL
PCJL implements several customer initiatives to strengthen its brand and drive
footfalls in the showrooms. Some of the branding/marketing strategies that it
implements to increase its visibility include:
National, regional and local store-level advertising campaigns.
It runs special promotions during festivals and showroom openings. It also hosts
events such as the PCJ Gold Bangle Festival, PCJ Diamond Festival and PCJ
Kundan Festival to drive footfalls in showrooms.
Focus on jewellery fairs, trade shows and other industry forums to introduce
and market products and new designs. It is one of the associate sponsors of the
grand finale of India International Jewellery Week and Filmfare Awards.
2 February 2015
7

Spotlight |PC Jeweller
Salience of high margin domestic segment to increase
further
Priortize resources towards domestic retail segment
PCJL exports gold jewellery on a wholesale basis to international distributors in
Dubai and Hong Kong. These are primarily hand-made gold jewellery for
wholesalers.
PCJL has two jewellery manufacturing facilities at Noida SEZ, Uttar Pradesh,
which cater to exports business.
Exports business offer low margins, higher working capital requirement and
consequent low return ratios. Hence PCJ is de-focusing on the exports business
and has guided for mid single digit growth in exports revenues.
We expect the revenue mix to further shift towards domestic jewellery business
as it executes expansion plans. We expect exports business to contribute 20.5%
of revenues in FY17 from 24.8% in FY14.
Exhibit 10: Salience of domestic business to increase further
Domestic (%)
33.5%
34.4%
33.0%
25.7%
Export (%)
24.8%
25.4%
23.0%
20.5%
66.5%
65.6%
67.0%
74.3%
75.2%
74.6%
77.0%
79.5%
FY10
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
Source: Company, MOSL
Exhibit 11: PCJL operates four jewellery manufacturing units to support its footprint
Location
Noida SEZ, Uttar Pradesh
Noida SEZ, Uttar Pradesh
Noida, Uttar Pradesh
Commissioning date
20-Nov-07
3-Mar-11
17-Nov-11
Purpose
Jewellery for exports
Jewellery for exports
Jewellery for domestic market
Jewellery for domestic
Area in sq ft
36,570
3,938
8,611
34,000
Selaqui, Dehradun, Uttarakhand 30-Mar-10
Source: Company, MOSL
2 February 2015
8

Spotlight |PC Jeweller
Regulatory headwinds behind
Indian Jewellery sector was impacted by several regulatory measures in FY13, FY14
and 1HFY15. In order to curb gold consumption and in-turn balance current
account deficit, government had imposed several restrictions on Jewellery sector.
Key restrictions included:
Import restrictions via 80:20 rule:
Out of total quantum of imported gold, 20%
had to be compulsorily exported. The nominated agency could import next
tranche of gold only after exporting the 20% of the lot earlier imported. This
resulted in shortage of gold supply and consequently higher gold premiums in
the market.
Ban on gold-on-lease scheme:
RBI also banned gold on lease scheme. Gold on
lease is a low cost effective hedging tool employed by branded jewelers like
Titan, TBZ, and PCJL etc. Thus, jewelers’ had to purchase gold by upfront
payment without any credit, resulting in higher interest costs, working capital
and debt.
Import duty hike:
Government increased the import duty on gold from 2% to
10% in 18 months (the last hike being from 8% to 10% in Aug’13).
PCJL did not bear the brunt of 80:20 scheme due to its export operations.
However, it was impacted by ban on gold-on-lease scheme. We note that interest
cost nearly doubled over FY12-14 from INR 772m to INR1.5b.
In May’14 RBI lifted the ban on gold-on-lease. Subsequently, after representations
from industry, government has withdrawn the 80:20 scheme in November’14.
Thus, key regulatory headwinds impacting the Jewellery industry are behind. We
believe these steps augur well for expansion of retail network of all jewelers as it
facilitates expansion without proportionate increase in leverage.
2 February 2015
9

Spotlight |PC Jeweller
Creating a future ready organization
E-commerce and Franchisee foray incremental growth drivers
PC Jewellery has taken several initiatives to build a future ready Jewellery set up.
Some of the initiatives include:
Foray into online jewellery through tie-ups with Snapdeal, Flipkart and Amazon
(separate line of jewellery for every retailer). It is targeting working women in
the age bracket of 22-32 years by offering a range of products, with pricing from
INR3,000 to INR50,000.
It has also launched its online platform ‘wearyourshine.com’ which it plans to
integrate with its offline stores thus delivering an omnichannel experience.
PCJL is investing behind advanced CRM systems which will aid its marketing,
communication and targeting strategies (target specific customers based on
their buying patterns).
E-commerce foray is also intended to build familiarity and relevance with a
youth buyer who may migrate from current low ticket purchase to a high ticket
wedding purchase.
Exhibit 12: PCJL’s foray into online platform
Source: Company, MOSL
PCJL is also test marketing the franchisee model and is planning to launch two
stores near the NCR region. If the feasibility of the model is established, PCJL will
expand its operations in tier III locations (population below 500,000) to further
expand the footprint.
It has started custom jewellery manufacturing for high-end customers and
regular buyers (bespoke services). It is also planning to sell premium watches
(INR10,000-50,000 range) at certain select outlets.
We are not building in any revenue upside from these initiatives but believe that
these are catalyst for future growth in an ever evolving branded jewellery space.
2 February 2015
10

Spotlight |PC Jeweller
Valuation and View
24% EPS CAGR; 80bps margin expansion over FY15-17E
PCJL has posted 39%, 44% and 35% in sales, EBITDA and PAT CAGR over FY10-
14, respectively. However slowdown in discretionary consumption owing to
weak macros and several regulatory headwinds impacted the Jewellery sector in
FY14 and FY15. Regulatory constraints have eased now. RBI has withdrawn the
80:20 gold import scheme and also lifted the ban on low cost gold-on-lease
scheme.
We build in 12/14/14 store additions for FY15/FY16/FY17 as against the
management guidance of 20 annual store additions. In 9MFY15 it has added 8
stores.
Exhibit 13: Domestic segment has posted 57% revenue CAGR
over FY10-14
Exhibit 14: PCJL to add 38 stores over FY14-17E, in our view
Revenues - Domestic (INR b)
49.2
40.0
29.9
20.4
6.5
FY10
13.0
5
FY11
FY12
FY13
FY14
FY15E FY16E FY17E
Source: Company, MOSL
FY09
10
FY10
17
24
30
40.4
41
53
61.0
Cumulative store count
69
85
FY11
FY12
FY13
FY14 FY15E FY16E FY17E
Source: Company, MOSL
Exhibit 15: PCJL to post 19% sales CAGR over FY15-17E
Sales (INR b)
Sales growth (%)
76.8
53.9
32.1
32.5
54.2
63.9
Exhibit 16: EBITDA margin to expand 80bp over FY15-17E
Gross Margin (%)
17.2
16.3
15.9
EBITDA Margin (%)
16.4
16.7
17.0
10.9
30.4
FY12
40.2
FY13
53.2
FY14
1.7
FY15E
18.0
FY16E
20.1
FY17E
FY12
12.0
11.2
11.4
12.0
12.2
FY13
FY14
FY15E
FY16E
FY17E
Source: Company, MOSL
Source: Company, MOSL
We are modeling for modest improvement in same store sales over next two
years. This will be driven by improving macros, consumer sentiments and
consequent pick up in discretionary consumption, in our view. For FY16 and
FY17 we assume same store growth of 10% and 15%, respectively.
PC Jeweller procures gold mostly via gold-on-lease mechanism which allows it to
keep its interest cost under control. It has recently received gold import license
from government. The government has designated the company as nominated
agency for direct import of precious metals to be used for domestic business.
This should help in reducing the cost of gold procurement, in our view.
11
2 February 2015

Spotlight |PC Jeweller
Thus, we expect PCJL to deliver 19%, 23% and 24% sales, EBITDA and PAT CAGR
over FY15-17E, respectively. This will be led by expansion plans and an
improvement in sales mix as diamond jewellery salience moves up from 27% in
FY14 to ~32% in FY17E, in our view. Lower base of FY15 (1HFY15 PAT down 23%)
should aid the overall performance, in our view.
We estimate EBITDA margins to expand from 11.4% for FY15E to 12% and 12.2%
for FY16E and FY17E, respectively, led by improving same store growth and
higher contribution of studded jewellery.
Exhibit 17: PAT to post 24% CAGR over FY15-17E
PAT (INR b)
PAT growth (%)
5.0
59.4
2.3
2.9
3.6
4.0
3.2
22.3
26.5
26.0
22.4
-9.1
FY12
FY13
FY14
FY15E
FY16E
FY17E
Source: Company, MOSL
As exports salience declines further, we expect an improvement in working
capital and capital efficiency ratios. We model for working capital to sales to
reduce from 52.8% in FY15 to 43.9% in FY17.
PCJ has a debt to equity of 0.6x as on 1HFY15. Continued expansion will prevent
any material reduction in leverage, in our view.
Exhibit 18: Net leverage set to half over FY15-17E
1.0
Net Debt/Equity
0.6
0.6
0.4
0.3
0.2
FY12
FY13
FY14
FY15E
FY16E
FY17E
Source: Company, MOSL
Play on rising branded Jewellery penetration
We expect the penetration of organized and branded jewellery to increase going
forward driven by rising disposable incomes, increasing awareness of
quality/hallmarking and favorable demographics (rising youth population,
increasing urbanization and number of working women).
Having established a good brand recall in North and Central India, we now
expect PCJL to shift gears and partake in the rapidly growing Indian branded
jewellery retail segment through geographic expansion.
2 February 2015
12

Spotlight |PC Jeweller
We like PCJL’s focus on large format stores, which drive wedding jewellery
demand.
We expect PCJL to post an attractive 24% EPS CAGR over FY15-17E. The stock
trades P/E at 12.5x/9.9x FY16E/17E.
Not Rated.
Risks
Sharp correction in gold prices:
Gold demand can be adversely affected by high
volatility in gold prices. Also, in the event of a major correction in gold prices, it
can impact revenue, if not sufficiently compensated by higher volumes.
Regulation risk:
Any adverse change in the regulations that govern gold
procurement could impact industry’s profitability.
Execution risk:
Though we have assumed only 14 new store addition vs.
guidance of 20 per annum, any slowdown in demand may force company to
change its expansion plans.
Exhibit 19: PCJL is well placed relative to its peers
Titan
FY14
Sales (INR b)
Sales growth (%)
EBITDA (INR b)
EBITDA growth (%)
EBITDA Margin (%)
PAT (INR b)
PAT growth (%)
RoE
P/E
P/BV
EV/EBITDA
109.2
7.9
10.5
3.6
9.6
7.4
2.1
29.4
44.3
13.0
31.2
FY15E
124.6
14.1
11.7
11.7
9.4
8.7
16.7
28.0
41.1
11.5
30.5
FY16E
148.1
18.8
14.7
25.4
9.9
10.9
25.7
28.2
32.7
9.2
24.0
FY17E
178.9
20.8
18.4
25.4
10.3
13.7
25.8
28.5
26.0
7.4
18.8
FY14
53.3
32.5
6.0
23.9
11.2
3.6
22.4
21.9
13.9
11.4
9.1
PC Jewellers
FY15E
54.2
1.7
6.2
3.8
11.4
3.2
-11.9
16.6
15.3
9.9
9.1
FY16E
63.9
18.0
7.6
23.2
11.9
4.0
22.3
17.4
12.5
8.4
7.6
FY17E
76.8
20.1
9.4
22.7
12.2
5.0
26.5
18.6
9.9
7.1
6.2
FY14
18.2
10.2
1.3
-9.5
7.3
0.55
-35.2
12.8
19.7
2.4
15.4
TBZ
FY15E
20.0
10.1
1.4
4.7
7.0
0.64
15.7
13.0
17.9
4.0
11.4
FY16E
24.8
23.2
1.9
34.6
7.6
0.87
36.4
15.4
12.6
3.5
8.4
FY17E
28.6
16.0
2.3
20.2
7.9
1.1
21.8
16.5
8.6
1.8
7.6
Source: Company, MOSL, Bloomberg
2 February 2015
13

Spotlight |PC Jeweller
Annexure I: Company overview
PC Jeweller is one of the leading jewellery companies in India, with business
involving design, manufacturing, retailing and export of jewellery. It began
operations in 2005 with the first showroom in Karol Bagh, New Delhi and presently
has 49 showrooms across 39 cities and 16 states.
Exhibit 20: PCJL: SWOT analysis
Strength
i. Established brand - successful expansion in other parts of India.
ii. Experienced management team.
iii. Backward integration with strong manufacturing set-up.
Opportunity
i. Increasing trend towards branded jewellery.
ii. Domestic segment growth remains buoyant with
favorable demographics.
Threat
i. Intense competition due to highly fragmented nature of industry.
ii. Adverse government policy.
Source: Company, MOSL
Weakness
i. Presence in exports segment which has high working capital
requirements.
Exhibit 21: Details of Board of Directors
Name
Mr. Padam Chand Gupta
Mr. Balram Garg
Mr. Manohar Lal Singla
Mr. Krishan Kumar Khurana
Mr. Miyar Ramanath Nayak
Mr. Ramesh Kumar Sharma
Designation
Chairman
Managing Director
Independent Director
Independent Director
Independent Director
ED & COO
Description
Over 20 years of experience in the jewellery industry and is part of the company
since incorporation.
Involved in the company since incorporation and has over 20 years of experience in
the jewellery industry.
Over 25 years of experience in academics and is currently a professor of
management at Faculty of Management Studies, New Delhi.
Over 25 years of experience in the legal services industry and is a practicing
advocate of the Supreme Court of India and the High Court of New Delhi.
He was associated with the banking industry for over 40 years and has experience
in the field of gold banking, treasury and forex operations, credit risk management
and branch banking.
Over 29 years of experience in foreign exchange, credit and administration services
Source: Company, MOSL
Exhibit 22: Shareholding pattern (%)
Dec-12
Promoter
Public
DII
FII
Non Institutions
3.9
11.3
14.8
3.6
13.4
13.0
3.0
13.0
13.4
2.4
13.7
15.4
70.0
Mar-13
70.0
Mar-14
70.6
Sep-14
70.6
Source: Company, MOSL
2 February 2015
14

Spotlight |PC Jeweller
Annexure II: India - Unique Gold Market
The domestic jewellery industry is estimated to be USD45.3b and gold sales
represent 80% of domestic jewellery market. Currently, the market is fragmented
across value chain with ~450,000 unorganized players operating on small margins,
while the organized market forms ~20% of the market and national players
represent 5% of the category.
Exhibit 23: Segmentation of Indian jewellery market
Diamond Studded
Jewellery
15%
Others
5%
Gold Jewellery
80%
Source: Industry, Company, MOSL
India is a unique gold market in many aspects and gold carries emotional,
sentimental, religious as well as financial quotient for Indians. Country is the largest
consumer of gold in the world with roughly 700 tonnes (1/3
rd
of gold mined in the
world is consumed in India), making India the largest importer of gold. We discuss
below certain reasons for gold’s continuing preference among Indian customers:
Buying for weddings – 50% of demand constituted by wedding related
purchases:
Indian weddings are the single largest catalyst for the country’s
obsession with gold and constitute nearly 50% of overall jewellery consumption
in India. Annually, 10m weddings ensure that the demand for gold does not
suffer/wane drastically. In India, it is a common practice for parents of a girl
child to collect gold jewellery for marriage from the time the child is born. In rich
and middle class marriages, gold jewellery is gifted to close relatives of the bride
and groom.
Buying for auspicious occasions – cultural and sentimental drivers:
Buying gold
on certain auspicious days is a ritual Indians follow religiously. The Indian Hindu
calendar has auspicious days for gold buying such as Akshay Tritiya, Dhanteras
and Dassera. Gold is also bought on festivals like Onam, Pongal and Durga Puja.
Banks and jewelers promote gold aggressively on such occasions.
Only available investment option for many in rural India – liquid and safe:
Due
to the lack of last mile banking infrastructure in rural India, gold remains the
only source of savings/investments for rural population. High liquidity also
drives the preference for gold as it can easily be liquidated in times of need,
unlike fixed deposits and other financial saving instruments. Low literacy levels
in rural India ensured other asset classes do not gain prominence versus gold.
Status symbol – more the merrier:
Gold is a status symbol in the Indian culture
and people take pride in displaying gold during occasions. Typically in the past,
15
2 February 2015

Spotlight |PC Jeweller
an individual’s social standing depended on how much gold they had and it has
continued even now.
The big fat Indian wedding demand: band, baja and gold
The wedding demand alone contributes to ~50% of the gold consumption annually.
Below we show our workings of annual gold demand from weddings. Roughly 10m
weddings take place annually in India, and we estimate ~400-450 tonnes of gold
demand from the wedding season alone in India.
Exhibit 24: Wedding season amounts to ~435tonnes of annual gold demand
Income
strata
Ultra rich
Rich
Upper middle
Middle
Lower middle
Poor
Extremely poor
Total
% of
Population
1%
3%
6%
15%
25%
25%
25%
No. of
marriages
100,000
300,000
600,000
1,500,000
2,500,000
2,500,000
2,500,000
10,000,000
Avg. Gold Total Gold consumption
consumption/marriage
(in 16ones)
1,000.0
100.0
300.0
90.0
150.0
90.0
50.0
75.0
25.0
62.5
5.0
12.5
2.0
5.0
435.0
Source: Company, MOSL
Indian wedding industry is estimated to be worth ~USD45b and is growing at
15% per annum. Jewellery constitutes the biggest segment of the spending,
accounting for 35% of total spends, in our view.
With a total population of 1.2b and an average household size of five members,
number of households work out to 240m. Assuming one marriage per family
every 20 years, number of marriages per annum can be 10m. Given India’s
young demographics, with median age of 26 years, number of weddings per
annum should continue at the current run rate in the foreseeable future.
Indian wedding industry is by and large recession proof as spending for wedding
is typically done out of savings done through a lifetime. Amount of money spent
on a wedding also has an impact on social standing and thus wedding is used as
an opportunity to flaunt the financial status.
Wedding jewellery demand does not necessarily mean jewellery is purchased
only for the wedding day. We highlight below the occasions/events which adds
up to wedding jewellery consumption:
a) Engagement:
It all begins with
engagement. Since this is the first official function between the two families,
both try to ensure the ring offered from their side is the best-in-class.
Increasingly the trend is shifting towards diamond ring, especially in upper
middle class and above families.
B) Gifts for the families:
After the engagement
and before the wedding, typically there is a gap of few months. In this gap, there
comes occasions/festivals when both the families offer gifts to each other and
often it includes jewellery.
C) Wedding:
On the D-day, the bride is decked up in
gold (necklace, bangles, ear-rings, nose-ring, bracelet etc), as it becomes an
object of discussion for guests and relatives.
D) Wedding gifts for groom’s
family:
In certain wedding customs, as a part of wedding, bride’s family gifts
jewellery to groom’s family.
E) Dowry/Stree-Dhan:
Stree-dhan (women’s
wealth) is defined as gifts made by family, friends, relatives during the wedding.
Dowry is a payment of cash or gifts from the bride’s family to the bridegroom’s
16
2 February 2015

Spotlight |PC Jeweller
family upon marriage. It may include cash, jewellery, electrical appliances and
other household items that help the newly-weds set up their home.
F) Post
wedding gifts:
Gifting of jewellery does not stop at the wedding and even
continue post that.
Changing buying pattern aids diamond jewellery’s growth
In the past, the family patriarch did the buying for wedding jewellery. Thus, bulk
of the wedding jewellery was constituted by gold as there was lack of awareness
about diamond and studded jewellery as indeed the absence of aggressive
marketing efforts of jewelers.
However, our discussions with various jewellery industry participants suggest
changes in the buying pattern of wedding jewellery. Buying for wedding
jewellery is now a family affair. Decision-making authority no longer vests only
with the patriarch. While the budget is specified by the family elders, bride has
more influence in deciding the designs and make of her wedding jewellery.
Given the increased awareness about studded jewellery and evolving lifestyle
changes coupled with aggressive promotion of diamond studded jewellery by
retailers, preference for such jewellery is on the rise, as reflected in the
increasing contribution of diamond studded jewellery in overall pie.
Secondly, the rising proportion of working women is also aiding the growth of
studded jewellery, given the increased affordability of this class.
Exhibit 26: Diamond demand remains concentrated in North
and West
Exhibit 25: South forms 1/3 of gold demand in India
rd
South
36%
North
23%
South
20%
North
37%
East
13%
West
28%
Note: Rural India forms 60% of gold demand Source: Company, MOSL
West
35%
East
8%
Source: Industry, Company, MOSL
What catapulted organized jewellery trade in the last five years
Organized retail jewellery segment has done well in the last five years and has
increased its contribution to total jewellery market in India from 12% to 20%.
Following factors, in our view, have accelerated the acceptance of branded
jewellery:
Hallmarking:
Prevalence of under-caratage is the single largest concern while
buying jewellery from traditional jewelers in India. Introduction of hallmarking
has helped the growth of organized retail as hallmarking lends to confidence to
the customers about the purity of the jewellery they buy (the Bureau of Indian
Standards provides hallmarking wherein gold articles are evaluated and tested
at an official Assaying and Hallmarking Centre and then certified that the metal
used conforms to the standard of fineness and purity).
17
2 February 2015

Spotlight |PC Jeweller
Buyback guarantee:
Various organized jewelers offer buy-back guarantee for
the jewellery they sell. In such cases, jewellery is bought back by the jeweler at a
price prevailing on that day, excluding the making charges paid by the customer.
Even the diamond-studded jewellery now carries a buyback guarantee with 90%
of resale value. To gain customers’ confidence, jewelers are also offering
certificates of purity of precious stones and metals.
Exhibit 27: Revenue CAGR of key players over FY09-14
Sales CAGR (%) - (FY09-14)
53.6%
40.0%
25.8%
22.1%
32.0%
EBITDA CAGR (%) - (FY09-14)
64.6%
Titan
PC Jewellers
TBZ
Source: Company, MOSL
Note: For Titan, we have only taken the Jewellery segment numbers
Shopping experience and variety:
Variety of designs offered by branded
jewellery players is a key differentiator and has helped attract more customers.
Traditional jewelers typically stock limited variety given the constraints with
respect to space and inventory investments. Organized retail offers various
choices of design, cut and polish which drives customer footfalls in such stores.
Typically, customers prefer a wide variety to choose from when it comes to
wedding jewellery purchase and hence while a customer may buy regular
jewellery from traditional jewelers, one may opt for branded jewellery for
wedding purchase. Quality of shopping experience is also a factor that has
driven the growth of organized sector. Branded jewelers typically have various
seasonal/festival collections, which drives demand during those occasions.
Expansion by branded players:
Branded players have expanded their operations
and increased store counts, thus driving increased penetration of organized
jewellery.
Exhibit 28: Changing landscape of Indian jewellery market
Traditional Practice
i.
Gold jewellery consumption emanates from traditional
and investment-related demand.
Demand peaks during weddings and festival seasons.
Consumption of pure gold - preferred 22-carat.
Traditional and Ethnic designs preferred.
Purchase from neighborhood jewelers dominated. Hence
the Industry lacked transparency.
Predominance of gold (yellow)-based jewellery.
iii.
iv.
v.
Emerging Trend
i.
ii.
ii.
iii.
iv.
v.
It is regarded as a fashion accessory by the growing young
population.
They still remain the main demand drivers but its use for
regular wearing and gifting has evened out the demand
throughout the year.
Lower caratage & light-weight jewellery preferred. Trend is
more towards fashionable and contemporary designs.
Growing preference for brands, retail stores & e-retailing.
Introduction of hallmarking & certifications.
Acceptance of white gold, platinum and diamond-studded
jewellery. Even imitation jewellery is gaining acceptance.
Source: Company, MOSL
2 February 2015
18

Spotlight |PC Jeweller
Financials and valuations
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Other Income - Recurring
Profit before Taxes
Change (%)
Margin (%)
Tax
Tax Rate (%)
Profit after Taxes
Change (%)
Margin (%)
Extraordinary income
Reported PAT
E: MOSL Estimates
2010
9,848
58.1
8,864
985
99.1
10.0
19
382
182
766
125.9
7.8
101
13.2
665
114.5
6.7
0
665
2011
19,771
100.7
17,777
1,993
102.4
10.1
30
496
168
1,635
113.6
8.3
183
11.2
1,453
118.6
7.3
-4
1,449
FY12
2012
30,419
53.9
27,104
3,315
66.3
10.9
69
772
172
2,646
61.8
8.7
337
12.7
2,309
58.9
7.6
0
2,309
FY13
2013
40,184
32.1
35,359
4,825
45.5
12.0
100
1,275
206
3,656
38.1
9.1
739
20.2
2,917
26.3
7.3
-7
2,910
FY14
2014
53,248
32.5
47,271
5,978
23.9
11.2
123
1,519
472
4,808
31.5
9.0
1,131
23.5
3,677
26.1
6.9
-114
3,563
2015E
54,176
1.7
47,973
6,203
3.8
11.4
173
1,654
352
4,728
-1.7
8.7
1,489
31.5
3,238
-11.9
6.0
0
3,238
2016E
63,909
18.0
56,265
7,643
23.2
12.0
184
1,950
404
5,914
25.1
9.3
1,951
33.0
3,962
22.3
6.2
0
3,962
(INR Million)
2017E
76,781
20.1
67,403
9,379
22.7
12.2
204
2,159
465
7,480
26.5
9.7
2,468
33.0
5,012
26.5
6.5
0
5,012
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Long term provisions
Deferred Tax
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Intangibles
Long term loans and adv.
Curr. Assets, L&A
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. and Prov.
Current Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2010
402
1,119
1,520
835
3
8
2,350
207
207
8
80
6,826
3,782
2,495
420
129
4,772
4,731
40
2,054
2,350
2011
447
2,810
3,257
1,396
3
5
4,650
317
317
8
223
10,236
5,495
4,248
232
260
6,133
6,085
48
4,102
4,650
2012
1,340
4,215
5,554
5,783
6
4
11,339
795
138
657
10
621
19,680
11,724
6,866
830
260
9,630
9,382
248
10,051
11,339
2013
6,973
6,915
13,888
2,331
12
50
16,181
860
232
628
10
800
32,864
17,137
6,748
7,226
1,753
18,121
17,563
557
14,743
16,181
2014
6,973
9,850
16,822
10,042
18
107
26,775
1,176
337
839
11
876
40,492
23,771
6,232
5,242
5,246
15,443
14,469
974
25,049
26,775
2015E
6,973
12,520
19,492
11,018
27
107
30,430
1,416
510
907
11
895
45,141
30,823
7,338
3,906
3,074
16,524
15,440
1,084
28,617
30,430
2016E
6,973
15,786
22,759
9,027
32
107
31,711
1,736
694
1,043
11
922
49,227
37,876
8,068
196
3,088
19,492
18,214
1,278
29,735
31,711
(INR Million)
2017E
6,973
19,919
26,891
9,026
38
107
35,848
2,056
898
1,158
11
951
56,993
44,811
8,938
140
3,105
23,265
21,883
1,382
33,728
35,848
2 February 2015
19

Spotlight |PC Jeweller
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
BV/Share
DPS
Payout %
Valuation (x)
P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
E: MOSL Estimates
2010
5.0
37.9
0.0
0.0
2011
10.8
72.9
0.0
0.0
2012
17.2
41.5
0.0
0.0
2013
16.2
19.9
1.0
6.4
4,800
7,112
8,831
2014
19.9
24.1
3.0
15.0
2015E
18.1
28.0
2.7
15.0
2016E
22.1
32.6
3.3
15.0
2017E
28.0
38.6
4.2
15.0
16.0
1.8
16.4
6.7
0.0
17.0
1.1
9.2
13.9
0.4
13.9
1.0
9.1
11.4
1.1
15.3
1.0
9.1
9.9
1.0
12.5
0.9
7.6
8.5
1.2
9.9
0.8
6.2
7.2
1.5
64.3
60.8
52.4
31.4
30.0
31.7
21.9
24.5
16.6
22.1
17.4
26.0
18.6
28.0
92
4.2
78
4.3
82
2.7
61
2.5
43
2.0
49
1.8
46
2.0
42
2.1
0.5
0.4
1.0
0.2
0.6
0.6
0.4
0.3
Cash Flow Statement
Y/E March
Profit after Tax
Profit/Loss on sale of assets
Depreciation & Amort.
Incr in WC
CF from Operations
Extraordinary Income
Incr in FA
Incr in deposits
CF from Invest.
Issue of Shares
Incr in Debt
Dividend Paid
Others
CF from Fin. Activity
Incr/Decr of Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
2010
665
0
19
-705
1,388
0
119
34
153
180
-1,349
112
-1,057
178
242
420
2011
1,453
0
30
2,236
-753
-4
110
140
254
45
561
213
819
-188
420
232
2012
2,309
0
69
5,351
-2,973
0
478
397
875
893
4,387
-834
4,446
598
232
830
2013
2,917
0
100
-1,704
4,721
-7
63
225
281
5,633
-3,452
-210
-16
1,956
6,396
830
7,226
2014
3,677
9
123
12,289
-8,480
-114
299
133
318
0
7,711
-629
-269
6,814
-1,983
7,226
5,243
2015E
3,238
0
173
4,905
-1,494
0
240
19
259
0
976
-568
9
417
-1,337
5,242
3,906
2016E
3,962
0
184
4,827
-681
0
320
27
347
0
-1,991
-695
5
-2,681
-3,710
3,906
196
(INR Million)
2017E
5,012
0
204
4,050
1,167
0
320
28
348
0
-1
-880
6
-874
-56
196
140
2 February 2015
20

Spotlight |PC Jeweller
NOTES
2 February 2015
21

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PC JEWELLER
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Spotlight |PC Jeweller
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