P N Gadgil Jewellers IPO Analysis: P N Gadgil Jewellers is set to launch its IPO with a fresh issue of ₹850 crores and an offer for sale of ₹250 crores, totaling ₹1,100 crores. The IPO will open on September 10, 2024, and close on September 12, 2024, with listings expected on September 17, 2024. In this article, we’ll review the P N Gadgil Jewellers IPO, examining its strengths and weaknesses. Read on to discover more about the company.

About P N Gadgil Jewellers

Incorporated in 2013, PNG Jewellers is a leading jewelry brand in Maharashtra, India, with a notable presence in 18 cities, including Goa and one store in the U.S. The company operates 33 retail outlets with a total area of approximately 95,885 sq. ft. PNG offers a diverse range of gold, silver, platinum, and diamond jewelry through its flagship brand ‘PNG’ and various sub-brands, catering to both traditional and contemporary styles for weddings, festivals, and daily wear.

PNG Jewellers employs a multi-channel strategy, blending physical stores with a strong online presence via its website and mobile app. The company is supported by over 75 skilled artisans and adheres to rigorous quality control standards, including BIS hallmarking for gold and certifications for diamonds, which reinforce its commitment to quality and customer trust.

The company leverages diverse marketing tactics, such as location-based promotions, event-driven campaigns, and celebrity endorsements, to enhance brand visibility. Between Fiscal 2021 and 2023, PNG Jewellers achieved the highest increase in ROE and improved revenue per store among major organized jewelry players in India. Additionally, it stands out with the highest revenue per square foot in the industry.

Their portfolio features brands such as Saptam, Swarajya, Rings of Love, The Golden Katha of Craftsmanship, Flip, Litestyle, Eiina, PNG Solitaire, Men of Platinum, Evergreen Love, Pratha, and Yoddha.

Industry Overview

The Indian jewellery retail sector achieved a valuation of USD 70 billion in FY 2023, with organized retail contributing 37% of this total. The market is forecasted to expand significantly to USD 145 billion by FY 2028, fueled by economic growth, rising incomes, and a surge in gold demand. Factors influencing gold prices include both supply and demand dynamics, such as mining trends and central bank reserves.

In FY 2023, jewellery accounted for 66% of India’s gold consumption, while bars and coins represented 34%. The jewellery segment is anticipated to grow at a rate of 17% over the next five years, potentially reaching a 62% market share by FY 2028. Conversely, the bars and coins segment is expected to grow at a faster pace of 21% CAGR, targeting a 38% market share.

Within the jewellery market, bangles and chains lead sales, making up 60-70% of total sales. Necklaces, which are especially popular during festivals and weddings, contribute 15-20%. Rings and earrings account for the remaining 5-15%. Regional consumption patterns reveal that southern states dominate, contributing 40% of the market, with western states following at 25%.

Financial Highlights

In FY23, P N Gadgil Jewellers achieved a revenue from operations of ₹4,507.51 crores, up from ₹2,555.63 crores in FY22. Net profits for FY23 reached ₹93.70 crores, a notable increase from ₹69.51 crores in FY22, reflecting a 34.79% year-over-year growth. This profit jump marked a significant recovery from a loss of approximately ₹6.71 crores in FY21.

A substantial portion of the company’s expenses, about 91.96% of revenue, is allocated to acquiring materials. Other expenses, making up 3.64% of revenue, include discounts, advertising, and shop repairs. Additionally, there was a write-off related to doubtful advances and assets linked to subsidiaries that were liquidated.

Ratio Analysis

In FY23, the company’s PAT margins decreased to 2.08% from 2.72% in FY22. However, EPS improved to ₹16.97 per share from ₹12.59 in FY22, marking a recovery from the loss of ₹1.22 per share in FY21. This increase in EPS reflects growth in revenue.

The debt-to-equity ratio improved to 0.78 in FY23 from 1.05 in FY22. Additionally, the company’s Return on Equity (RoE) rose to 28.93% in FY23, up from 28.03% in FY22, driven by higher profits compared to the increase in reserves. The year-on-year revenue growth also contributed to this rise in RoE.

Return on Capital Employed (RoCE) increased to 23.57% in FY23 from 20.83% in FY22, supported by better revenue and profit figures. The Inventory Turnover ratio also improved significantly, rising to 6.93 in FY23 from 3.81 in FY22.

Segment

P N Gadgil Jewellers generates its revenue primarily from its jewellery business. In FY23, approximately 97.38% of their revenue came from India, 0.88% from the UAE, and 1.73% from the USA. However, as of H1FY24, the UAE segment no longer contributes to the revenue due to the closure of their store in that region.

Competitors

The listed peers of P N Gadgil Jewellers include Joyalukkas India Limited, Malabar Gold Limited, Kalyan Jewellers India Limited, Senco Gold Limited, Thangamayil Jewellery Limited, and Titan Company Limited. These companies represent some of the largest players in the Indian jewellery market, providing a basis for comparing P N Gadgil’s performance.

When comparing PAT (Profit After Tax) margins, P N Gadgil Jewellers reported 2.08%, which places the company at the lower end of the spectrum. Its peers recorded margins ranging from 2.08% to 6.20%, indicating that P N Gadgil has underperformed in this area.

In terms of EBITDA margin, which measures operational efficiency, P N Gadgil again finds itself on the lower end with a margin of 3.87%. The range for its peers is between 3.87% and 10.54%. Though data for Titan Company is not available, P N Gadgil’s performance is still below many of its competitors in operational efficiency.

However, P N Gadgil Jewellers shines when it comes to Return on Equity (RoE). At 25.09%, the company’s RoE is among the highest in its peer group, indicating strong profitability and better returns for shareholders. This is driven by higher profits and revenue growth, which also boosted its RoCE (Return on Capital Employed).

P N Gadgil’s operational revenue per store stands at Rs. 132.57 crore, placing it near the upper range of its peers, where the range spans from Rs. 30 crore to Rs. 165 crore. Moreover, its revenue per square foot of Rs. 4,73,953.27 is higher than most of its competitors, indicating efficient space utilization and strong sales per unit area.

In summary, P N Gadgil Jewellers demonstrates a mixed performance, excelling in areas like RoE and revenue per square foot, while lagging behind its peers in PAT and EBITDA margins.

Strengths

• Brand Legacy: PNG Jewellers, established in 1832, combines traditional and modern jewelry designs, reinforcing a strong heritage, customer trust, and loyalty.
• Market Position: PNG is the second-largest organized jewelry retailer in Maharashtra by store count, showing rapid growth with high revenue per square foot and return on equity from 2021 to 2023.
• Diverse Product Portfolio: PNG offers 38,000 SKUs across gold, silver, platinum, and diamond jewelry, with 12 sub-brands catering to various occasions and price points for all customer segments.
• Quality Measures: PNG enforces strict quality control, using BIS hallmarking for gold since 2007 and ensuring diamond product certifications, boosting customer confidence through regular checks.
• Financial Performance: The company’s revenue from operations grew at a CAGR of 52.82% from 2021 to 2023, achieving the highest revenue per square foot among key jewelry players in India in 2023.

Weaknesses

• Brand Issues: The company relies heavily on its brand reputation, and any damage could harm its financial health and operations. There are concerns regarding brand ownership, as it’s used by family members under different names.
• Geographic Concentration: Their business is primarily focused in Maharashtra, making them vulnerable to local economic and political changes. Any significant disruption in the region could impact overall business performance.
• Store Dependency: A large portion of the company’s revenue comes from its top five stores. Underperformance at these key locations could negatively affect financial results, highlighting the need to diversify revenue sources.
• Working Capital Stress: The company requires significant working capital to purchase raw materials and fund expansion. Difficulty in securing financing on favorable terms could limit growth and increase borrowing costs, affecting profitability.
• Expansion Challenges: The company faces difficulties in opening and managing new stores. Between FY2021 and FY2023, only four new stores were launched, averaging two per year. Slow expansion and potential store closures could hinder growth plans.

GMP

As of September 9, 2024, P N Gadgil Jewellers Ltd’s shares were trading at a 47.92% premium in the grey market. The shares were priced at ₹710, reflecting a ₹230 premium over the cap price of ₹480.

Key IPO Information

Particulars	Details
IPO Size	Rs. 1,100 Cr
Fresh Issue	Rs. 850 Cr
Offer for Sale (OFS)	Rs. 250 Cr
Opening date	10 September 2024
Closing date	12 September 2024
Face value	Rs. 10
Price band	Rs. 456 – Rs. 480
Lot size	31 Shares
Minimum Lot Size	1 Lot (31 Shares)
Maximum Lot Size	13 Lots (403 Shares)
Listing date	17 September 2024

Promoters: Saurabh Vidyadhar Gadgil, Radhika Saurabh Gadgil, and SVG Business Trust.

Book Running Lead Manager: Motilal Oswal Investment Advisors Limited, Nuvama Wealth Management Limited and BOB Capital Markets Limited.

Registrar to the Offer: Bigshare Services Private Limited.

Conclusion P N Gadgil Jewellers is a leading jewellery retailer, particularly strong in Maharashtra. The company has leveraged its brand to improve its financial performance, with notable improvements in its debt-to-equity ratio and profitability. PNG is focusing on growth by opening new stores and reducing debt, which could support future expansion. However, the slow pace of store openings and closures in key markets present significant challenges in execution.