CARE Ratings has maintained fundamental and valuation grade of 4/5 to PC Jeweller (PCJ), in its report dated March 31, 2015.
During Q3FY15, the company's consolidated total income increased by 38.1% to Rs.1833.2 crore in Q3FY15 on y-o-y basis, EBITDA and PAT margins stood at similar level (11.7% and 6.0% respectively) as against Q3FY14.
The total revenue has increased mainly buoyed by the festive/marriage season in India & abroad, along with store-wise expansion of the company and higher contribution from export sales. Further, contribution from diamonds continues to be a major strength for the company, with diamond jewellery contributing 35% of total revenue in Q3FY15.
On q-o-q basis, the total income of the company registered a 53.7% growth from Rs.1193 crore in Q2FY15 to Rs.1833 crore in Q3FY15. The profitability margins moderated during the quarter mainly due to decline in the profitability margins from export and also discounts/offers offered by the company typical to the festive season of the year.
CARE believes key catalysts for PCJ would be the volume and realizations growth across newer markets and new format selling (online retailing and e-format selling targeting student & working women). Further, revenue from the diamond jewellery is expected to grow from 25% of the total revenue in FY14 to around ~30-35% in FY15E-FY17E, which will positively impact company's margins. The contribution from wedding jewellery (currently constituting ~80% of total revenues), the niche segment for PCJ, is expected to stay flat.
Valuation
We have valued the equity shares of PCJ at Rs.354 per share. The valuation has been arrived at by using the EV/ EBITDA valuation methodology. The CIV of Rs.354 per share is around 11.41% above the Current Market Price (CMP) of Rs.318 per share; hence we assign a valuation grade of 4/5 to the equity shares of PCJ, indicating that equity shares have 'Moderate Upside Potential.
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