P N Gadgil IPO review (Apply)

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Review By Dilip Davda on September 7, 2024

•    PNGJL is the second largest organized jewellery market player in Maharashtra.
•    It enjoys popularity as a house hold brand in fashion jewellery among customers.
•    The company has posted steady growth in its top and bottom lines for the reported periods.
•    Based on FY24 earnings, the issue relatively appears fully priced. 
•    The company is adding 12 new stores with IPO funding.
•    Investors may park funds for medium to long term. 

ABOUT COMPANY:
P N Gadgil Jewellers Ltd. (PNGJL) is the second largest among the prominent organized 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 (Source: Technopak Report). It is also the fastest growing jewellery brand amongst the key organized 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%. The company achieved an EBITDA growth of 39.78% between Fiscal 2022 and Fiscal 2024, which is the second highest in key organized jewellery players in India. 

It also had the highest revenue per square feet in Fiscal 2024 among the key organized 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. (Source: Technopak Report). 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 (Source: Technopak Report). 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 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 flagship brand, 'PNG', and various sub - brands, through multiple channels, including 39 retail stores (as on July 31, 2024) and various online marketplaces, including own website. As on July 31, 2024, it had expanded to 39 stores, which includes 38 stores across 21 cities in Maharashtra and Goa and one store in the U.S. with an aggregate retail area of approximately 108,282 sq. ft. All stores are operated and managed by it with 28 being owned stores and 11 franchised stores, on a franchisee owned and company operated ("FOCO") model. Of these stores, 22 stores are large format stores (with an area of 2,500 sq. ft. or more), 13 stores are medium format stores (with an area between 1,000 sq. ft. to 2,500 sq. ft.) and 4 stores are small format stores (with an area of less than 1,000 sq. ft.). The company plans to further expand stores network by opening 12 new stores in Maharashtra by Fiscal 2026, the establishment of all of which is proposed to be financed through the Net Proceeds. 

As on 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 sub- brands which cater to platinum jewellery collections. In addition to the sale of its branded jewellery products, it also provides 'make to order' jewellery options to customers. To enhance brand awareness and strengthen the brand recall for brands and sub-brands, it utilizes a diverse array of promotional and marketing strategies, including location based marketing, event focused campaigns, engaging brand ambassadors and digital marketing. As a part of its location based marketing strategy, the company ensures that all stores participate in its 'Parampara Exhibitions' campaign held on a periodic basis, which are designed to spread brand awareness in areas which are in proximity of its stores, in order to increase store footfalls and for strengthening brand recall. Its event based strategy focusses on leveraging important festivities, such as Akshaya Tritiya, Navratri, Gudi Padwa, Guru Purnima, Dhanteras, Diwali, Gurupushyamrut, Ganapati festival and Dussehra. Given its long lineage and predominant market presence in Maharashtra, the company also focuses on leveraging celebratory events (mahotsavs) such as Mangalsutra Mahotsav, and Painjan Mahotsav, when it is typical for people in Maharashtra to buy jewellery. As of July 31, 2024, it had 1418 employees on its payroll and additional 149 contract workers in various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden/combo IPO of fresh equity shares issue worth Rs. 850 cr. (approx. 17708334 shares at the upper cap), and an Offer for Sale (OFS) of worth Rs. 250 cr. (approx. 5208333 shares at the upper cap). The company has announced a price band of Rs. 456 - Rs. 480 per equity shares of Rs. 10 each. The overall size of the issue will be approx. 22916667 shares worth Rs. 1100 cr. The issue opens for subscription on September 10, 2024, and will close on September 12, 2024. The minimum application to be made is for 31 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 16.89% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 392.57 cr. for setting up of 12 new stores in Maharashtra (including inventories), Rs. 300.00 cr. for repayment/prepayment of certain borrowings., and the rest for general corporate purposes. 

The joint Book Running Lead Managers (BRLMs) to this issue are Motilal Oswal Investment Advisors Ltd., Nuvama Wealth Management Ltd., and BoB Capital Markets Ltd., while Bigshare Services Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued/converted further equity shares as per term, between December 2015 and January 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 13.44, and Rs. 23.22 per share. 

Post-IPO, its current paid-up equity capital of Rs. 118.00 cr. will stand enhanced to Rs. 135.71 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 6514.00 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 258.63 cr. / Rs. 69.52 cr. (FY22), Rs. 455.93 cr. / Rs. 93.70 cr. (FY23), and Rs. 611.91 cr. / Rs. 154.34 cr. (FY24). 

For the last three fiscals, the company has posted an average EPS of Rs. 10.17 (fully diluted basis) and an average RoNW of 26.55%. The issue is priced at a P/BV of 10.60 based on its NAV of Rs. 45.29 as of March 31, 2024, and at a P/BV of 4.71 based on its post-IPO NAV of Rs. 102.01 per share (at the upper cap). 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 42.22. The issue relatively appears fully priced.

The company reported PAT margins of 2.72% (FY22), 2.08% (FY23), 2.53% (FY24), and RoCE margins of 19.89%, 23.29%, 27.31% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in August 2023, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Kalyan Jewellers, Senco Gold and Thangamayil Jewellery as their listed peers. They are trading at a P/E of 106.0, 43.3, and 47.8 (As of September 06, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 40 pubic issues in the past three fiscals, out of which 13 issues closed below the offer price on the listing date. 

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