PNG JEWELLERS: DR SAURABH GADGIL ON GROWTH & FUTURE PROSPECTS FOLLOWING IPO ANNOUNCEMENT

PNG Jewellers is launching a ₹1,100 crore IPO, consisting of a fresh issue of ₹850 crore (1.77 crore shares) and an offer for sale of ₹250 crore (0.52 crore shares). The IPO will be open for subscription from September 10 to September 12, 2024, with the allotment expected on September 13, 2024. The shares are set to list on the BSE and NSE on September 17, 2024.

Growth Strategy and the Reason for Launching an IPO

PNG Jewellers is the second largest organized jewellery player in Maharashtra in terms of the number of stores. How do you see your growth, and what has prompted you to bring an IPO at this time?

PNG Jewellers is the second largest retail jewellery chain among the organized players in Maharashtra.

One objective is that we have been in Maharashtra for almost 200 years. We are in the jewellery business, and we provide services to customers worth lakhs of rupees.

This is a good time for the company to grow its store network, aiming to become the number one player in Maharashtra. The plan is that after the IPO, and following the store additions, PNG will be the number one player in Maharashtra. After that, the journey will continue into the neighbouring states.

The goodwill, brand connect, and relationships with customers are our strengths. This is why the brand envisions becoming number one, not just in terms of the number of stores but in every parameter—revenue, profitability, and customer satisfaction. The company’s vision after the IPO is for PNG to become the number one player in Maharashtra.

Debt Repayment and Interest Cost Savings

With the IPO, there will be significant expansion, and you will also repay your debt. How much will you save in terms of interest costs after this?

Out of the ₹850 crore IPO issue, ₹300 crore will go towards debt repayment. Currently, we have a debt of ₹250 crore, with a working capital debt and a term loan of ₹70 crore. The plan is to pay off the debt and convert this facility into non-fund-based facilities, allowing us to take advantage of gold metal loans.

Gold metal loans carry an annual interest cost of 5 to 5.5%. As a result, the company expects to save around 4% in interest, which will be significant. This will allow for two benefits: first, the margin will increase due to interest savings, and second, the company can improve its hedging policy through gold metal loans.

After the IPO, if all companies move towards hedging, PNG will also begin its journey in that direction. Thus, repaying the bank loans will bring a double benefit.

Managing Expenses and Improving Margins

We’ve noticed that the company’s expenses have increased, and there is pressure on margins. How do you plan to control expenses and improve margins in the future?

Expenses are currently a bit higher due to the expansion the company has undertaken. However, if we look at the jewellery from our store operations, the margin is still at 13% gross. EBITDA is at 7%, and PAT is at 4%.

I believe these figures are almost on par with industry standards. The company is taking a few initiatives: the ratio of diamond jewellery is around 10-11%, and the company is working to increase that ratio. This will positively impact margins by increasing the studded jewellery ratio. Secondly, after the expansion, we will achieve economies of scale in purchasing.

Since we are expanding only in Maharashtra, the cost savings will be substantial, which will positively impact margins. The company is confident that its current ratios are aligned with the market, but we expect a positive outcome post-IPO.

Impact of the Government’s Duty Cut on Jewellery Sales

The government recently provided a major relief with the 6% import duty cut. How do you see this benefiting jewellery companies? Have footfalls increased, and how has this impacted your sales?

The duty cut was completely unexpected for the industry and consumers, especially such a significant 9% reduction. Following this, the industry experienced a festive atmosphere.

In August, we saw very strong sales across gold coins, jewellery, and silver. The trend continues, and I believe the upcoming quarter, which includes Dussehra and Diwali, will also be strong. This year is shaping up to be a positive one for the jewellery industry, especially for PNG.

Consumers remain highly interested in purchasing jewellery, partly driven by concerns that prices might increase further. People are seizing the opportunity and entering the market at every level. The atmosphere is very positive.

India’s story remains intact, with stability and strong consumption trends. I am confident that Diwali and the rest of the season will be very favourable for the industry. We are also looking forward to a strong wedding season in January and February, so as a company and an industry, we are optimistic that this year will end on a positive note, with strong demand in both value and volume.

The Interview of Dr Saurabh Gadgil, CMD, PNG Jewellers with CNBC TV18 can be seen at https://www.youtube.com/watch?v=8aL_3yZ3Jvghttps://youtu.be/lDI132cR-C4