P N Gadgil Jewellers IPO: Is the Animated Glitter Worth the Gold?

P N Gadgil Jewellers Introduction

P N Gadgil Jewellers, also known as Purshottam Narayan Gadgil Jewellers, is a renowned Indian jewelry company with a rich heritage dating back to 18321. Founded by Ganesh Gadgil in Sangli, Maharashtra, the company has grown significantly over the years, becoming one of the oldest and most respected names in the Indian jewelry industry

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Brief about P N Gadgil Jewellers

Summary of the business of P N Gadgil Jewellers

As of January 2024, P N Gadgil Jewellers is the second largest among the prominent organised jewellery players in Maharashtra based on number of stores located in Maharashtra, which is the largest market for BIS-registered outlets in India. P N Gadgil Jewellers also the fastest growing jewellery brand amongst the key organised jewellery players in India, based on the revenue growth between Fiscal 2021 and Fiscal 2023. achieved an EBITDA growth of 56.50% between Fiscal 2021 and Fiscal 2023, which is among the highest in key organised jewellery players in India. We also had the highest increase in ROE from Fiscal 2021 and Fiscal 2023 and the highest revenue per square feet in Fiscal 2023 among the key organised jewellery players in India.

P N Gadgil Jewellers History

Company was originally incorporated as “P N Gadgil Jewellers Private Limited”, a private limited company, under the provisions of the Companies Act, 1956, pursuant to a certificate of incorporation dated October 28, 2013, issued by the RoC. The name of Company was subsequently changed to “P N Gadgil Jewellers Limited”, upon conversion of Company from a private limited to a public limited company, pursuant to a board resolution dated February 16, 2023, and a shareholders’ resolution dated March 10, 2023, and a fresh certificate of incorporation was issued on April 5, 2023, by the RoC.

P N Gadgil Jewellers Promoters & Board of Directors

• Promoters are Saurabh Vidyadhar Gadgil, Radhika Saurabh Gadgil and SVG Business Trust.

P N Gadgil Jewellers Board of directors

P N Gadgil Jewellers Share Holding pattern

P N Gadgil Jewellers Strength

• Well established and trusted legacy brand in Maharashtra
• Second largest organised retail jewellery player and one of the fastest growing brand in Maharashtra
• Diversified product portfolio across categories and price points
• Experienced Promoter and management team with proven execution capabilities
• Strong historical financial results.

P N Gadgil Jewellers Strategies

• Expand our retail network in western India by leveraging our brand
• Continue to invest in our marketing and brand building initiatives
• Focus on increasing footfalls in our existing stores and increasing the average transaction value
• Increase our digital presence to increase customer base and sales

Industry Outlook

Indian jewellery market size

The Indian jewellery retail sector’s size in FY 2023 was close to USD 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 USD 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.

Breakup of jewellery by occasion

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 FY 23. 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.

Breakup of Jewellery by Product Category

In jewellery consumption in India, bangles and chains are the primary contributors, accounting for approximately 60-70% of total sales. Following closely, necklaces contribute around 15-20% to the sales volume, with their significance heightened during special occasions such as festivals and weddings. Bangles and chains, on the other hand, are preferred for everyday wear by women. The residual 5-15% of sales are attributed to rings and earrings.

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Demand and price growth in domestic gold market

Following an increase in FY 2020, domestic gold prices saw a subsequent rise of approximately 30% in FY 2021, aligning with the upward trajectory of international prices and the impact of rupee depreciation. This price surge, however, had repercussions on demand of gold. The onset of the pandemic triggered a notable reduction in demand, driven by lower discretionary spending. The closure of stores for a significant portion and intermittent lockdowns in select states during that period further exacerbated the decline. The festive season acted as a catalyst, contributing to a recovery in demand. This positive trend persisted due to increased wedding-related purchases, and an improvement in overall consumer sentiment. Despite these improvements, the overall demand for gold witnessed a substantial decline of 19% in volume terms during FY 2021. In FY 2022, there was a notable increase in volume demand for gold to 767 tonnes from 510 tonnes in FY 2021, propelled by heightened discretionary spending, and the gradual easing of the pandemic’s impact. The deferral of weddings due to the pandemic meant that pent-up demand materialized during FY 2022, contributing to a substantial 50% rise in overall demand.
However, FY 2023 witnessed a marginal decline in domestic gold demand, attributed to the escalation of import duty from 7.5% to 12.5% starting June 30. The initial quarter of FY 2023 experienced growth in gold demand, driven by a low baseline and heightened purchases related to festivities and weddings. Nevertheless, the augmented import duty led retailers to pass on the increased costs to customers, impacting discretionary purchases.

Challenges to demand

• Market Sensitivity to Economic Factors:- The demand for gems and jewellery, particularly in the context of jewellery exports, is closely tied to the growth rates and income levels in target markets. Economic slowdowns, increasing inflation, and slow income growth within our domestic markets may reduce consumers’ disposable incomes and affect their willingness to spend on non-essential items such as jewellery.
• Commodity Price Volatility:- The inherent volatility in the prices of precious commodities, notably gold and diamonds, presents a substantial impediment to the steady demand for gems and jewellery. The unpredictable oscillations in price introduce an element of uncertainty, exerting an influence on consumer confidence and exerting an impact on purchasing decisions.

Gold and diamond import in India

Open General License (OGL) scheme introduced by government in 1997 allowed banks to import gold in India. The RBI authorizes banks for importing gold. The foreign trade policy (FTP) regulates agencies which are licensed by the DGFT for gold import. Banks import gold on a consignment basis, whereas nominated agencies such as STHs (Star Trading Houses) and PTHs (Premier Trading Houses) are only allowed to import gold on a direct payment basis. Gold is imported in India through 11 airports that are close to key jewellery manufacturing and trading hubs namely:

• North: New Delhi
• West: Mumbai, Ahmedabad, Jaipur
• South: Bengaluru, Chennai, Cochin, Coimbatore, Hyderabad, Trivandrum
• East: Kolkata

India imported 767 tonnes in CY 2023 as compared to 767 tonnes of gold in CY 2022. India’s average monthly gold imports during April 2022-February 2023 stood at 58.33 tonnes, which is lower than the average gold imports of 76.57 tonnes in April 2021-February 2012, 80.86 tonnes in April 2018-February 2019 and 62.88 tonnes in April 2019-February 2020.

Procurement of gold and precious stones by jewellery retailers

Jewellery retailers procure their gold from certified banks and agencies & recycled gold. Under the gold-on-lease scheme, jewellers lease gold for 180 days with a lease interest rate between 3% and 8% p.a. The scheme acts as a natural hedge against the price volatility of gold and enhances the return on capital of jewellers, reducing their interest on capital employed (i.e., 10% per annum). Jewellers can also procure gold from nominated agencies using bank guarantees/ demand draft /banker’s cheque etc). Jewellers also use recycled gold to meet their demand. The sources of recycled gold are recycled jewellery, manufacturing scrap and industrial scrap. In FY 2018, 11% of Indian gold demand was met by recycled gold, which reached 15.6% in FY 2023 due to an increase in gold recycling in India, owing to higher commodity prices and a decrease in consumption.

Hedging strategies

Companies use a mix of metal on loan facilities and financial instruments (forwards, futures etc.) to hedge their gold inventory from price fluctuations.
Gold-on-lease facility: Earlier jewellers imported gold through upfront payment without any credit. This put a strain on their working capital. The fluctuation of gold prices and the dollar-INR exchange rate further worsened their woes. Purchased gold is reflected as inventory in their balance sheet. Under the gold-on-lease scheme, jewellers lease gold for typically 180 days with a lease interest rate between 3% and 8%.
However, the effective interest rate sometimes moves up to 10% because of price fluctuations and differences in local and international prices of gold. The benefits of gold Gold-on-lease are as follows:

• Natural hedging mechanism
• No inventory risks
• Relatively lower interest expense
• Improved efficiency

Financial Instruments: Organized players use financial instruments like futures, forwards, options etc. to protect their margins from price fluctuations of precious metals. A regulatory framework such as income tax exemption for hedging also encourages hedging by organized players.

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Gold jewellery procurement

The majority of gold jewellery manufacturing is unorganized. Only 5-10% of jewellery units operate as organized large-scale manufacturers. Due to low capital requirements for small workshops, this sector has remained unorganized. These workshops do not own the gold and precious gems on which they work.

Organized players outsource most of their gold jewellery manufacturing to vendors at pre-determined prices for predefined designs. Brands have their design team for identifying the latest designs. These teams also buy designs from independent design houses. They have dedicated procurement teams that manage the subsequent sourcing process. They outsource manufacturing to multiple vendors and provide raw materials to these vendors. The following factors influence this outsourcing approach:

• Sales projection of the products
• Type of products
• Relationship with the vendor
• Vendor capacity for specific type of Jewellery
• Volume of products being sourced to vendor
• Payment terms with the vendor

Economic Boom

• Global Leader: India’s skilled artisans have positioned the country as the world’s largest diamond processor, cutting and polishing a staggering 80% in carats and 90% in pieces of the global diamond market. This dominance translates into significant export earnings and foreign exchange reserves.
• Top Exporter: India is the top exporter of cut and polished diamonds globally, exporting to major markets like the US, Belgium, Hong Kong, and the UAE. This sustained leadership position indicates international trust and demand for Indian-made jewellery.
• Value Growth: While India dominates in volume, it’s worth noting that the value share of its diamond exports is around 58%. This shows a growing focus on high-quality, intricate designs and artistry, fetching premium prices in the international market.
• Cost-Effectiveness: India’s craftsmen combine expertise with meticulousness, offering high-quality work at competitive prices. This cost efficiency makes Indian gems and jewellery highly attractive in the global market, further boosting exports and creating a competitive edge.
• Job Creation: The gems and jewellery sector offers millions of skilled and unskilled jobs across the country, from mining and polishing to design and retail. This job creation alleviates poverty, empowers communities, and drives economic growth.

Cultural Impact

• Preserving Heritage: The skills employed by Indian artisans are the legacy of generations, meticulously passed down through families and workshops. This preservation of traditional cutting and polishing techniques keeps India’s rich cultural heritage alive and well.
• Boosting Tourism: India’s vibrant gems and jewellery sector attracts tourists eager to witness the magic firsthand. Visiting bustling cutting centers like Surat, the world’s largest diamond hub, becomes a unique cultural experience, generating revenue and creating jobs in the tourism sector.
• Global Recognition: India’s craftsmanship in gems and jewellery transcends borders, earning international acclaim for its quality, artistry, and innovation. This recognition brings immense pride to the nation and strengthens its soft power on the global stage. Luxury brands like Cartier and Bulgari collaborate with Indian jewellers, emphasizing the global appeal of Indian design aesthetics. Leading publications like Vogue and Harper’s Bazaar regularly feature Indian jewellery designers, underscoring their increasing influence on the global fashion stage

India’s gold supply is dominated by imports

• The gold market experienced notable fluctuations in imports from FY 2018 to FY 2020, reaching 980 tonnes in FY 2019 before declining to 720 tonnes in FY 2020. This volatility was propelled by various factors, including declines in global gold prices, buoyant economic conditions leading to heightened disposable incomes, and substantial demand for gold driven by traditional celebrations and weddings. However, in FY 20, a significant drop occurred, attributable to escalating import duties and the initial stages of an economic slowdown. Recovery signs emerged in FY 2022, marked by an import increase to 879 tonnes. Factors contributing to this rebound included gold’s appeal as an inflation hedge and the release of pent-up demand following the easing of pandemic restrictions. However, in FY 2023, imports experienced a slight reduction to 678 tonnes, possibly influenced by government measures aimed at managing the current account deficit and promoting domestic gold recycling.

Imports Consumption

• Import Dependence: Over 95% of gold demand in India is fulfilled through imports, primarily from Switzerland, UAE, and South Africa. Consequently, international gold price fluctuations directly translate into domestic price movements. A rise in the London Bullion Market Association (LBMA) gold price, the global benchmark, translates to a corresponding upward adjustment in Indian markets.
• Dollar-denominated pricing: International gold pricing is denominated in US dollars. While domestic prices are quoted in rupees, a depreciating rupee acts as a cost multiplier, amplifying the impact of global price changes on Indian consumers.
• Market transparency and global influence: The Indian gold market is relatively transparent and well-connected to global markets. This means that changes in international price trends are quickly reflected in domestic prices. Additionally, global factors like economic uncertainty and geopolitical tensions can simultaneously impact both international and Indian gold prices.
• Federal Reserve’s Baton: The US Federal Reserve’s interest rate decisions act as a conductor, influencing the global economic tempo. When rates rise, the opportunity cost of holding non-yielding assets like gold increases, potentially dampening demand and driving prices down. Conversely, rate cuts can act as a spotlight, illuminating gold’s safe- haven appeal and pushing prices up.
• Geopolitical Turmoil: When the world stage grapples with geopolitical tensions and conflicts, investors often seek refuge in gold’s perceived stability. This surge in demand, particularly during events like the recent Russia-Ukraine war, can send gold prices soaring, impacting both international and Indian markets.
• Economic Downturns: During periods of global economic slowdown, gold tends to exhibit heightened appeal. In the face of looming recessionary concerns, investors frequently turn to gold as a safeguard against inflation and market volatility, thereby causing an upswing in prices. This phenomenon, notably observed during the 2008 financial crisis, intensifies the correlation between international and Indian gold prices, as both markets respond to the broader global deceleration.
• Import duty and taxes: Government policies like import duty changes and taxes can add additional costs to imported gold, further impacting domestic prices. For example, the import duty hike in 2022 contributed to a rise in domestic prices despite a decline in international prices.

In FY 2023, international gold prices experienced a marginal decline of approximately 1%. However, the depreciation of the rupee and an augmentation in the import duty on gold contributed to an elevation in domestic gold prices. The government, aiming to address India’s current account deficit, implemented a 5% increase in import duty, raising it to 12.5%. This policy move supported the upward trajectory of domestic gold prices. Anticipations for FY 2024 indicate a further ascent in domestic gold prices, propelled by both higher international prices and an expected 1-3% rupee depreciation. Moreover, the import duty on gold, raised on July 1, 2022, is projected to contribute to year-on-year growth in prices during FY 2024.

India’s export trend

The gems and jewellery industry is a key contributor to India’s total exports. These exports include several product segments, such as cut and polished diamonds, gold jewellery and medallions, rough diamonds, gemstones, pearls, synthetic stones and fashion jewellery. Of these, cut and polished diamonds accounted for 58% in FY 2023, while gold jewellery (plain and studded) accounted for 25% of the total exports.
Contractionary Phase: In FY 2021, the initial year of the pandemic witnessed a 29% decline in overall gem and jewellery exports. This downturn was primarily attributed to the recessionary environment in key consumer markets, leading to suppressed global demand and disruptions in international trade. Despite a low base, the latter half of the fiscal year offered some respite with a modest 2% growth in exports, fueled by renewed demand from major destinations like the US and Hong Kong.

Rebound and Recovery: FY 2022 marked a significant 51% surge in export volume, driven by a confluence of factors. Primarily, the low base established in the previous year contributed to this robust performance. Additionally, the gradual easing of pandemic restrictions and improving global economic sentiment boosted demand for luxury goods, including gems and jewellery. Furthermore, the shift towards increased domestic expenditure on celebratory gifting and personal adornment during the pandemic period, instead of travel and hospitality expenses, further bolstered Indian exports.

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Moderated Growth with Segmental Divergence: In FY 23, the overall export landscape witnessed a decline of ~5%. This downturn is primarily attributed to the significant challenges faced by the cut & polished diamond segment, which constitutes up to 58% of total gem and jewellery exports. Recessionary pressures and elevated inflation in key consumer markets like the US resulted in dampening demand for high-end diamond products, leading to a 10% decline in the segment’s export value. However, the gold jewellery segment exhibited a moderate growth of 3% in FY 2023. This positive outlook is fuelled by sustained demand from the Middle East region, supported by the recently implemented Free Trade Agreement (FTA) between India and the United Arab Emirates. The elimination of the 5% import duty on gold jewellery within the UAE market is expected to significantly enhance Indian export competitiveness in this segment.

JEWELLERY RETAILING MARKET IN INDIA

Evolution of jewellery retail in India

Unique advantages of gold retailing

Gold has special place in Indian culture. It is used for traditional purposes like marriage, religious rituals, and gifting. In India gold jewellery has an aspirational value. It serves a dual purpose of ornamentation and investment.

• Selling gold in form of jewellery, bar and coin does not require a push like other lifestyle retail categories such as footwear and apparel.
• There is no inventory obsolescence risk in jewellery retailing as products can be recycled to make new ones.
• Jewellery being a high-ticket item, means the relative cost as the percentage of revenue on rent, employees, and promotions with respect to footwear and apparel is low. Much of the cost of setting up jewellery store goes into inventory.

P N Gadgil Jewellers Business Data

P N Gadgil Jewellers Verticals

• Gold products
• Diamond Products
• Silver Products
• Platinum & Other Products

P N Gadgil Jewellers Market Share

• The second largest among the prominent organised jewellery players in Maharashtra based on number of stores located in Maharashtra, which is the largest market for BIS-registered outlets in India.

P N Gadgil Jewellers Product wise break-up

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P N Gadgil Jewellers Revenue contribution from Geography presence

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Major revenue contributed stores

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Competition

P N Gadgil Jewellers operate in a highly competitive and fragmented market, and face competition from both organised and unorganised companies in the Indian jewellery industry. Success of our operations depends on our ability to effectively compete with large organized national players, namely, Titan Company Limited (Tanishq), Kalyan Jewellers India Limited, Senco Gold Limited, Malabar Gold Private Limited, Thangamayil Jewellery Limited and Joyalukkas India Limited, benefiting from brand recognition, diverse designs, hallmarking, robust marketing, and enhanced in-store experiences. In addition, we may also face competition from multiple competitors at a regional and local level in the markets in which we operate. Such competition, at both national and local level, may also influence our revenue we generate across stores.

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P N Gadgil Jewellers Peer companies comparison

(₹ million, otherwise stated)

P N Gadgil Jewellers Subsidiary companies

P N Gadgil Jewellers Group companies

• Gadgil Holdings Private Limited
• Gadgil Developers Private Limited
• Think Pure Social Welfare Foundation

P N Gadgil Jewellers SWOT ANALYSIS

• Strengths
  • Strong Brand Legacy: Established in 1832, P N Gadgil Jewellers has a long-standing reputation and trust in the market.
  • Extensive Retail Network: The company operates 39 stores, primarily in Maharashtra, and has a significant market share in the region.
  • Diverse Product Range: Offers a wide variety of jewelry including gold, silver, platinum, and diamonds, catering to different customer preferences.
  • High Revenue Growth: The company has shown impressive revenue growth, with a 36% increase in FY24.
  • Efficient Inventory Turnover: Operates at a superior inventory turnover ratio of ~6x, which is higher than many competitors.
• Weaknesses
  • Geographic Concentration: A significant portion of the company’s revenue comes from Maharashtra, particularly Pune, which poses a risk if any adverse events occur in the region.
  • Low Net Margin: Despite high inventory turnover, the net margin is relatively low at 2.5%, compared to competitors.
  • Intense Competition: Faces stiff competition from both organized and unorganized players in the Indian jewelry market.
• Opportunities
  • Expansion Plans: The company plans to open 12 new stores, which could drive future growth.
  • Growing Demand for Jewelry: Increasing demand for gold and other precious metals in India presents a significant growth opportunity.
  • IPO Proceeds: The upcoming IPO will provide funds for expansion and debt repayment, strengthening the company’s financial position.
• Threats
  • Market Competition: The entry of large players like Birla Group and Reliance into the jewelry market could intensify competition.
  • Economic Fluctuations: Economic downturns or changes in consumer spending habits could impact sales.
  • Regulatory Changes: Changes in government policies, such as customs duty on gold, can affect profitability.

P N Gadgil Jewellers Business risk factors

• P N Gadgil Jewellers business is primarily concentrated in Maharashtra and we are significantly dependent on top five of our stores located in Maharashtra for revenue generation. Any adverse development affecting such region or stores may have an adverse effect on our business, prospects, financial condition and results of operations.
• Competition in the Indian retail jewellery industry is significant. We operate in highly competitive and fragmented markets, and competition in these markets is based primarily on market trends, pricing and customer preferences. The players in the retail jewellery sector in India often offer their products at highly competitive prices and many of them are well established in their local markets.
• P N Gadgil Jewellers is dependent on third party artisans for the production and manufacturing of all of our products. Any disruptions at such third-party production or manufacturing facilities, or failure of such third parties to adhere to the relevant quality standards may have a negative effect on our reputation, business and financial condition
• P N Gadgil Jewellers business depends on the performance of franchisees. Any non-performance by these franchisees may adversely affect our business operations, profitability and cash flows.

P N Gadgil Jewellers Financials

P N Gadgil Jewellers Key Financial Ratios

P N Gadgil Jewellers Key Performance Indicators

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P N Gadgil Jewellers Assets & Liabilities

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P N Gadgil Jewellers Profit & Loss

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P N Gadgil Jewellers Cash Flow

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P N Gadgil Jewellers Capital structure

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IPO Details

P N Gadgil Jewellers IPO Details

Object of the issue

Litigation involved P N Gadgil Jewellers

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