P N Gadgil is the second-largest jewellery player in Maharashtra in terms of the number of stores as of January 2024. A wide range of precious metal and jewelry products include gold, silver, platinum, and diamond jewelry across various price ranges and designs.

The products are primarily sold under the flagship brand, PNG, as well as various sub-brands, through multiple channels, including retail stores, various online marketplaces, and own website. A mobile application, PNG Jewellers, was launched in March 2022 to keep customers updated on new designs and collections.

There were eight sub-brands catering to gold jewelry collections for different occasions, two sub-brands for diamond jewelry collections, and two sub- brands for platinum jewelry collections as of end of July 2024. Besides branded jewelry products, make-to-order jewelry options are offered to customers. The brand is leveraged to curate a broad portfolio of designs across various ranges and price points, specifically tailored to meet the aesthetic and functional preferences of consumers. For example, the wedding jewelry collection under the Swarajya sub-brand combines traditional Maharashtrian designs with modern styles to cater specifically to customers in Maharashtra. Over 75 experienced and skilled artisans in and outside Maharashtra (Karigars) handle the manufacturing of jewelry.

There were 39 stores, comprising 38 stores in 21 cities across Maharashtra and Goa, and one store in the US as of end of July 2024 These stores collectively cover an area of about 108,282 square feet. Of these stores, 22 are large format stores, 13 medium format stores, and four small format stores.

All stores are self-managed and operated. Of these, 28 are company-owned and company operated (Coco), while 11 are operated by franchisees under the franchisee owned and company operated (Foco) model. Revenue per store was around Rs 170 crore in FY 2024. Coco stores contributed 92.55% and Foco stores 7.45% to sales. Physical stores contributed 98% to total sales and online marketplaces 2% in FY 2024.

The focus is on increasing footfalls in the existing stores and improving the average transaction value.

As much as 92.2% of revenue was derived from gold products, with silver contributing 3.43%, diamonds 3.69%, and platinum and other products 0.68% in FY 2024.

To enhance brand awareness and strengthen brand recall, a diverse array of promotional and marketing strategies is deployed. These include location-based marketing, event-focused campaigns, engaging brand ambassadors, and digital marketing. Advertising and sales promotion expense represented 0.69% %, 0.66% and 0.36 % of the total revenue, respectively, in FY 2024.

There are plans to expand the stores network by opening 12 new stores in Maharashtra by FY2026. The aim is to increase its total store count to 100 stores within the next five years by opening new stores particularly in central and northern India, where there is no presence.

As part of the strategy, underserved markets in Maharashtra, particularly Tier II and Tier III cities, will be addressed to meet the demand-supply gap in these areas. About 17.76% of the revenue was generated from sales outside Tier I cities in FY 2024.

Offer and its objects

The IPO comprises a fresh issue of equity shares worth up to Rs 850 crore and an offer for sale (OFS) aggregating up to Rs 250 crore by the existing shareholder SVG Business Trust.

The price band of the IPO is Rs 456 to Rs 480 per equity share of face value Rs 10 each.

The objectives for the fresh issue include Rs 392.5 crore for expanding the retail network by opening 12 new stores in Maharashtra, Rs 300 crore for repayment or pre-payment of certain borrowings, and for general corporate purposes.

The promoters are Saurabh Vidyadhar Gadgil, Radhika Saurabh Gadgil and SVG Business Trust. The promoters and promoter group hold an aggregate of 11,80,00,000 equity shares, aggregating to 100% of the pre-offer issued and paid-up equity share capital. Their post IPO shareholding is expected to be around 83.11%.

The issue, through the book-building process, will open on 10 September 2024 and close on 12 September 2024.

Strengths

The fastest-growing jewelry brand among key organized players in India, with revenue rising from Rs 2,555.63 crore in FY2022 to Rs 6,110.95 crore in FY2024. Moreover, revenue per square feet was Rs 6.02 lakh in FY 2024, the highest among the major jewellery players in India.

The second-largest player in Maharashtra, a leading region for retail spending in India, representing around 15% of the country's total retail expenditure on jewellery.

The lowering of customs duties on gold, silver, and platinum in the Union Budget 2024-25 is anticipated to increase demand. An established reputation and strong brand place allow the capturing of the trend.

Manages both Coco and Foco stores. Coco stores provide control over branding, customer experience, and quality. Foco stores assist in expanding the footprint.

A diversified product portfolio across categories and price points. The product portfolio comprised over 10,000 SKUs in gold, over 1,200 SKUs in silver, over 2,700 SKUs in platinum and over 24,000 SKUs in diamond jewelry designs end March 2024.

Opening new stores to access untapped markets and reach a larger customer base will increase overall sales and brand visibility.

Extensive experience of promoters and senior management personnel.

Weaknesses

The business is primarily concentrated in Maharashtra, especially Pune, and relies heavily on top five Maharashtra stores for revenue. Adverse developments in this region or these stores could affect the business. Pune contributed approximately 68% to total revenue in FY 2024.

Jewellery purchases are discretionary and often considered luxury items.

The trademark of the flagship 'PNG' brand is registered under the name of a member of the promoter group. The arrangement could lead to complications in the event of disputes or changes in management, potentially impacting the protection and control of intellectual property.

Non-availability or volatility in prices of gold, silver and diamonds and other raw materials may adversely affect the business.

Involved in various legal and regulatory proceedings, including criminal cases, along with the promoters, directors, subsidiaries, and group companies.

Requires significant working capital to expand the retail network.

Valuation

Net sales increased 36% to Rs 6110.95 crore in FY 2024 as compared with FY2023. The OPM improved 169 bps to 4.41%, leading to 119% increase in OP to Rs 272.12 crore. OI fell 84% to Rs 8.16 crore. Interest cost rose 31% to Rs 45.87 crore. Depreciation cost went up 8% to Rs 23.19 crore. PBT surged 76% to Rs 208.36 crore. Tax expenses were Rs 54.02 crore as compared with Rs 24.38 crore. Minority interest was nil as compared with Rs 19.42 crore. Net profit soared 108% to Rs 154.34 crore.

The FY2024 EPS on post-issue equity works out to Rs 11.37. At the upper price band of Rs 480, P/E is 42.

Total outstanding borrowings amounted to Rs 348.96 crore as on July 31, 2024. As much as 86% of the debt will be repaid from the issue proceeds, bringing down interest costs substantially and boosting profit. The FY2024 EPS works out to Rs 14.28 if 86% of its interest cost is removed, keeping all other items, including tax rate, same. The re-worked P/E at the upper price band moderates to 34.

Listed peers such as Kalyan Jewellers India traded at TTM P/E of 106, Senco Gold trades at TTM P/E of 45, and Thangamayil Jewellery at TTM P/E of 48 as on 06 September 2024. The OPM and ROE stood at 4.41% and 28.88% respectively, in FY 2024. These were 7.08% and 13.29% for Kalyan Jewellers, 7.16% and 13.70% for Senco Gold, and 5.68% and 24.98% for Thangamayil Jewellery, respectively.

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