P N Gadgil Jewellers coming with IPO to raise Rs 1157.89 crore

P N Gadgil Jewellers 

• P N Gadgil Jewellers is coming out with a 100% book building; initial public offering (IPO) of 2,41,22,806 shares of Rs 10 each in a price band Rs 456-480 per equity share. 
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on September 10, 2024 and will close on September 12, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 45.60 times of its face value on the lower side and 48.00 times on the higher side.
• Book running lead managers to the issue are Motilal Oswal Investment Advisors, Nuwama Wealth Management and BOB Capital Markets. 
• Compliance Officer for the issue is Hiranyamai Kulkarni. 

Profile of the company

The company is the second largest among the prominent organised jewellery players in Maharashtra, in terms of the number of stores as on January, 2024, which is the largest market for BIS-registered outlets in India. It is also the fastest growing jewellery brand amongst the key organised jewellery players in India, based on the revenue growth between Fiscal 2022 and Fiscal 2024. The ‘PNG’ brand derives its legacy from the ‘P N Gadgil’ brand, which has a rich heritage dating back to 1832 and a legacy of over a century. Leveraging the legacy and heritage of the ‘PNG’ brand, the company has created a strong brand recall and presence in Maharashtra offering a wide range of precious metal / jewellery products including gold, silver, platinum and diamond jewellery, across various price points and designs which cover the need of its customers and include collections that are specifically designed for special occasions, such as weddings, engagements, anniversaries and festivals, as well as everyday wear jewellery. Its products are primarily sold under its flagship brand, ‘PNG’, and various sub – brands, through multiple channels, including its 39 retail stores (as on July 31, 2024) and various online marketplaces, including its website. 

Owing to the company’s multi-channel approach, it complements its in - store experience with its digital presence through its own website and other major online marketplaces. Additionally, it has launched its mobile application ‘PNG Jewellers’, in March 2022. Its digital presence allows it to keep its customers updated on new designs and collections and familiarise them with its product portfolio, which enhances its customers’ in-store experience. It regularly interacts with a team of designers deployed at the Karigars’ facilities for introducing new and innovative design for its jewelleries. Its design team also helps customize jewellery catering to individual requirements in terms of design, size, polish and weight. The manufacturing of all its jewellery is carried out by more than 75 experienced and skilled artisans in and outside Maharashtra (Karigars). Its brand presence and stores in Maharashtra has helped it gaining access to, and maintaining a long-standing relationship with, the Karigars, who have been working with the company for several years.

Proceed is being used for:

• Funding expenditure towards setting-up of 12 new stores in Maharashtra.
• Repayment or pre-payment, in full or part, of certain borrowings availed by the company.
• General corporate purposes.  

Industry overview

The Indian jewellery retail sector’s size in FY 2023 was close to $70 billion. Within this landscape, organized retail accounted for about 37%, encompassing both national and regional players. The remainder of the jewellery retail sector continued to be dominated by the unorganized segment, comprising over 500,000 local goldsmiths and jewellers. Projections indicate that the jewellery retail market is poised for growth, expected to reach approximately $145 billion by FY 2028. This optimistic outlook is attributed to the expanding economy, increased disposable income, a surge in consumer demand for gold, the upward trajectory of gold prices, and a rising interest in other categories such as diamonds, other precious stones, and costume jewellery. The fine jewellery segment in India constitutes around 90% of the overall jewellery market. It is further categorized into Gold and Non-Gold categories, with Non-Gold encompassing Diamond, Platinum, Silver, Platinum, and other materials. Projections indicate that the Non-Gold market is poised to expand at a CAGR of 18.8% from FY 2023 to FY 2028, reaching a market valuation of $19 billion.

The total gold consumption in India 66% was attributed to jewellery and remaining 34% to bars & coins in FY 2023. Despite the projected decline in share, the jewellery segment is anticipated to register a growth rate of 17% over the next five-year period to reach a market share of 62%. This is mainly due to deep cultural and social significance that gold have in India, playing a pivotal role in festivals, weddings, and gifting traditions. On the other hand, bars & coins, a perceived safe haven asset is projected to grow at CAGR of 21% to reach a market share of 38% in FY 2028. Investors looking to diversify their portfolios may find gold bars & coins appealing, contributing to the growth of this segment. The intricate interplay of cultural significance, evolving market dynamics, and changing consumer preferences shapes the landscape of the Indian jewellery market, with distinct focus areas on bridal jewellery, daily wear pieces, and the fashion jewellery segment. In FY 23 bridal wear accounted for a majority 55% market with weddings and festivals emerging as primary drivers for gold purchases. Daily wear jewellery accounted for 35% of the Indian jewellery market. Manufacturers are strategically focusing on producing lightweight pieces to cater to the preferences of younger consumers, particularly those desiring daily wear gold jewellery that complements western-style attire. Fashion jewellery on the other hand contributed nearly 10% to the Indian jewellery market in FY23. Expectations indicate continued growth especially among the youth seeking diverse, affordable products. Fashion jewellery, available across various value segments, materials, craftsmanship, and designs, caters to different preferences and purposes.

Pros and strengths

Well established and trusted legacy brand in Maharashtra: The legacy of the ‘PNG’ brand has allowed the company to be well positioned in Maharashtra. By leveraging the heritage of the ‘PNG’ brand, it has created a contemporary brand which offers a wide spectrum of designs and products for different occasions and purpose. As on July 31, 2024, it has expanded to 39 stores, which includes 38 stores across 21 cities in Maharashtra and Goa and one store in the U.S. Its product offerings cover the unique aesthetics and designs of traditional jewellery for special occasions such as weddings, engagements and festivities and modern and functional jewellery designs for everyday wear purpose, in gold, diamond, silver and platinum. As of July 31, 2024, it had eight sub-brands which cater to gold jewellery collections for different occasions, two sub-brands which cater to the diamond jewellery collections and two subbrands which cater to platinum jewellery collection. These include, ‘Saptam’, ‘Swarajya’, ‘Rings of Love’, ‘The Golden Katha of Craftmanship’, ‘Flip’, ‘Litestyle’, ‘Eiina’, ‘PNG Solitaire’, ‘Pratha’, ‘Evergreen love’, ‘Men of Platinum’, and ‘Yoddha’. Due to its legacy and experience in jewellery industry, it also understands the changing customer preferences and trends which allows it to have collections that cater to all price points for different occasions. The company sells only hallmarked gold jewellery and has voluntarily adopted and implemented BIS hallmark standards for its gold products since 2007, although BIS hallmarking of gold jewellery was made mandatory only in 2021. Further, it validates the purity of metal by melting a piece of jewellery from each vendor on a monthly basis. 

Second largest organised retail jewellery player and one of the fastest growing brand in Maharashtra: The company is the second largest among the prominent organised jewellery players in Maharashtra, in terms of the number of stores as on January, 2024, which is the largest market for BIS-registered outlets in India. It is also the fastest growing jewellery brand amongst the key organised jewellery players in India, based on the revenue growth between Fiscal 2022 and Fiscal 2024. Its CAGR for revenue from operations for the period between Fiscal 2022 and Fiscal 2024 was 54.63%. It achieved an EBITDA growth of 39.78% between Fiscal 2022 and Fiscal 2024, which is the second highest in key organised jewellery players in India. It also had the highest revenue per square feet in Fiscal 2024 among the key organised jewellery players in India. Maharashtra leads the retail spending in India and accounted for approximately 15% of the overall retail spend on jewellery in India in Fiscal 2023. Its 39 stores are spread across 21 cities in Maharashtra and Goa and one store in the U.S. having an aggregate retail area of approximately 108,282 sq. ft. All of its stores are operated and managed by it with 28 being owned stores and 11 franchisee stores, on a FOCO model. 

Diversified product portfolio across categories and price points:  As of March 31, 2024, the company’s product portfolio comprises 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 jewellery designs, including a wide range of gold, diamond, silver and platinum products across different price points. As of July 31, 2024, it had eight sub – brands which cater to gold jewellery collections for different occasions, two sub –brands which cater to the diamond and two sub – brands which cater to the platinum jewellery collections. Its sub-brands Saptam, Swarajya, Rings of Love, The Golden Katha of Craftsmanship, Flip, Lifestyle, Eiina, PNG Solitaire, Men of platinum, Evergreen love, Pratha and Yoddha are designed to cater to specific customer niches across a spectrum of traditional wedding and everyday wear jewellery and contemporary platinum and diamond jewellery. Its products cater to different occasions including special occasions, such as weddings engagements, festivals and daily-wear jewellery for women and men. Its products are available in multiple jewellery options, including rings, earrings, pendants, bracelets, necklaces, chains, waist bands and bangles. Its diverse range of products across different designs and categories (including all types of precious metals, diamonds and precious stones) and availability across different price points, enables it to serve as a ‘one-stop-shop’, with consumers across all income levels and age groups purchasing its products.

Experienced Promoter and management team with proven execution capabilities: The company’s Promoter and Managing Director, Saurabh Vidyadhar Gadgil, has over 25 years of experience in the jewellery business and is instrumental in creating the vision and overall direction to its business based on his long experience of understanding customer preferences and demands in the industry in which it operate. It has an experienced and dedicated senior management team that comprises Parag Yashwant Gadgil, Executive Director and Kiran Prakash Firodiya, Executive Director and Chief Financial Officer. Its senior management team are responsible for the overall strategic planning and business development of the company and have helped it in the expansion of its store network and creating its sales and marketing strategy. 

Risks and concerns

Depends on third party artisans: The company engages third-party artisans and job workers (Karigars) for the production and manufacturing of all of its products, including the jewellery under its various sub-brands. The concentration of Karigars in Maharashtra exposes it to a risk of shortage of skilled manpower if there is any significant social, political or economic disturbances or infectious disease outbreaks in the state of Maharashtra. While such disruptions have not taken place in the past, it cannot guarantee that any disruption of operations will not take place in the future. The occurrence of any of these events could have a material adverse effect on its business, financial condition and results of operations. It is also exposed to the risk of its job-workers failing to adhere to the standards set for them by it and statutory bodies in respect of quality, safety and distribution which in turn could adversely affect its sales and revenues. While there have been no such instances in the past, there can be no assurance that there will not be such instances in the future. Any delay or failure on the part of its job-workers to deliver the products in a timely manner or to meet its quality standards, or any litigation involving these job-workers may have a material adverse effect on its business, profitability, and reputation. Since it typically enters into product-specific purchase orders for manufacture, it may also be unable to replace these job-workers at short notice, or at all, and may face delays in production and added costs as a result of the time required to identify new job-workers may adversely affect its results of operations and financial condition. 

Income and sales subject to seasonal fluctuations: The company’s sales have historically exhibited certain seasonal fluctuations, reflecting higher sales volumes and profit margins during festival periods and other occasions such as Akshaya Tritiya, Navratri, Gudi Padwa, Gurupushyamrut and Dhanteras. Further, its marketing schemes vary as per occasion, season and the needs of its customers and are tailored to befit occasions such as weddings, anniversaries and birthdays when people customarily buy jewellery in Maharashtra. Akshaya Tritiya, Navratri, Gudi Padwa, Gurupushyamrut and Dhanteras are amongst the biggest jewellery buying festivals for the company, during which season it generally record higher sales. Apart from higher sales seen during festival season, it also promotes sales on new year to increase its sales. While it stock certain inventory to account for this seasonality, its fixed costs such as lease rentals, employee salaries, store operating costs and logistics-related expenses, which form a significant portion of its operating costs, are relatively constant throughout the year. Consequently, lower than expected sales during certain quarters of the fiscal year or more pronounced seasonal variations in sales in the future could have a disproportionate impact on its operating results for the fiscal year or could strain its resources and significantly impair its cash flows. Further, as a result of the above, its quarter-on-quarter financial results may not be comparable or a meaningful indicator of its futuristic performance. 

Significantly dependent on sale of gold jewellery: The availability of gold, being the company’s key raw material, may be adversely affected due to various reasons, which might affect production of its gold jewellery. Any adverse factors affecting the procurement of gold or impacting its ability to sell gold jewellery could have severe consequences on its business. Any factors adversely affecting its sales of gold jewellery may negatively impact its business, financial condition, results of operations and prospects. Any decrease in supply of gold or its inability to effectively procure gold at competitive rates, in time, or at all, may adversely impact its business, financial condition, results of operations and growth prospects. Fluctuations in gold prices, supply chain disruptions, changes in consumer preferences, or economic conditions can directly influence its revenue streams. Further, factors that may adversely impact sale of gold jewellery, such as imposition of increased KYC regulations or changing consumer preferences, may lead to decrease in its revenues. 

Requires significant amounts of working capital: The company’s business requires a substantial amount of working capital, primarily to finance the purchase of raw materials. It meets its working capital requirements through borrowings and internal accruals. It may not be successful in obtaining additional funds in a timely manner and/or on favourable terms including rate of interest, primary security cover, collateral security, terms of repayment, or at all. If it raises additional debt, its interest expense will increase and its debt covenants under its existing loans may be impacted. Moreover, certain of its loan documentation contain provisions that limit its ability to incur future debt. The cost and availability of capital, among other factors, depends on its credit rating. Any fluctuations in interest rates may directly impact the interest costs of such loans and, in particular, any increase in interest rates could adversely affect its results of operations. Further, its indebtedness means that a material portion of its expected cash flow may be required to be apportioned towards payment of interest on its indebtedness, thereby reducing the funds available to it for use in its business operations. If interest rates increase, its interest payments will increase and its ability to obtain additional debt and non-fund-based facilities could be adversely affected with a concurrent adverse effect on its business, financial condition and results of operations. 

Outlook

P N Gadgil Jewellers offers a wide range of precious metal/jewellery products including gold, silver, platinum, and diamond jewellery under its brand name ‘PNG’ in various price ranges and designs. The ‘PNG’ brand derives its legacy from the ‘P N Gadgil’ brand, which has a rich heritage dating back to 1832 and a legacy of over a century. Leveraging the legacy and heritage of the ‘PNG’ brand, it has created a strong brand recall and presence in Maharashtra offering a wide range of precious metal / jewellery products including gold, silver, platinum and diamond jewellery, across various price points and designs which cover the need of its customers and include collections that are specifically designed for special occasions, such as weddings, engagements, anniversaries and festivals, as well as everyday wear jewellery. Being a part of the ‘PNG’ brand lineage enables it to leverage the knowledge and understanding of the preferences and needs of consumers in Maharashtra, which allows it to curate a broad portfolio of designs across different ranges and price points, which is specifically targeted to cater to the aesthetic and functional preferences and requirements of consumers in Maharashtra. On the concern side, majority of the company’s stores are located in Maharashtra and currently, it is not present in other sizeable markets like West Bengal and Kerala due to which it will not be able to capitalise on the growth of such or other sizeable markets where it has no presence. Due to the geographic concentration of the sale of its products in Maharashtra, its operations are susceptible to local and regional factors, such as economic and weather conditions, natural disasters, demographic changes, and other unforeseen events and circumstances.

The company is coming out with a maiden IPO of 2,41,22,806 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 456-480 per equity share. The aggregate size of the offer is around Rs 1100 crore to Rs 1157.89 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 34.21% from Rs 45,593.12 million in Fiscal 2023 to Rs 61,191.04 million in Fiscal 2024. The company’s profit for the year increased by 64.72% from Rs 937.01 million in Fiscal 2023 to Rs 1543.43 million in Fiscal 2024. Meanwhile, the company intends to use the brand strength in Maharashtra and expand its presence outside Maharashtra, where it perceives potential demand for further expansion of its products due to the demand of jewellery in such regions. It also looks at factors such as local population density, rental lease rates, market potential, accessibility and proximity to its competitors. It aims to establish showrooms to tailor to local preferences, with comprehensive offerings from its various product ranges, to target various customer and price segments as well as to provide custom made jewellery. It also intends to optimise its product mix and promote premium and higher value products and designs, while at the same time ensuring that it maintain the same level of trust and transparency to ensure strengthen customers’ confidence in its brand and ensure repeat purchases.