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Robust revenue growth; focus on store expansion

* PN Gadgil Jewellers (PNG) delivered consolidated revenue growth of 24% YoY to INR24.4b (est. INR23.4b) in 3QFY25, led by strong festive demand during Navratri and Diwali. Retail revenue surged ~42% YoY, while Ecommerce and Franchisee revenues grew by 97% and 87% YoY, respectively. The Average Transaction Value (ATV) increased by a strong 22% to INR86,000. Lower bullion sales impacted reported revenue.

* PNG expanded its network footprint with nine new store openings in 3Q, bringing the total to 48 (37 COCO, 11 FOCO) across 25 cities. The company targets to reach a count of 53 stores by the end of 4QFY25 (two already opened in Jan’25, three planned for Mar’25). Additionally, it plans to add 25 more stores in FY26, with eight COCO stores, seven FOCO stores, and 10 stores under the ‘LifeStyle by PNG’ brand (small-size stores with a focus on youth/modern design).

* Gross margin expanded by 130bp YoY to 9.8% (est. 10.3%), supported by a 39% YoY growth in studded jewelry, which led to an 80bp improvement in the stud mix to 7.4%. There was no inventory loss impact from customs duty in 3Q, as the ~INR185m loss was fully absorbed in 2Q. EBITDA margin expanded 40bp YoY to 5% (est. 5.1%). The company is focusing on increasing the studded jewelry ratio to 12-13% over the next three years, as well as expanding LiteStyle stores, which offer gross margins of 15-16%. We model an EBITDA margin of ~5% for FY26 and FY27.

* We model a CAGR of 23% in sales, 31% in EBITDA, and 29% in APAT over FY25E-27E. With the successful execution of store rollouts, an effective gold hedging policy, and margin expansions, we reiterate our BUY rating on the stock with a TP of INR950 at 35x Dec’26 EPS.

In-line operating performance; store expansion on track

* Robust sales growth: PNG’s consolidated sales rose 24% YoY to INR24.4b (est. INR23.3b) in 3QFY25, led by strong demand during Navratri and Diwali. Retail revenue increased by 42% YoY to INR18.8b, the E?commerce segment grew by 97% YoY to INR666m, and Franchise revenue grew by 87% YoY to INR2264m. On account of lower bullion sales, reported numbers appear lower than the underlying performance. The company has added nine stores during the quarter, bringing the total count to 48 stores in 25 cities, and plans to reach 53 stores by the end of 4QFY25.

* Expansion in margins: Gross margin expanded by 130bp YoY to 9.8% (est. 10.3%). Employee expenses were up 46% YoY and other expenses were up 56% YoY. Other expenses increased due to higher marketing spending, hedging costs, and discounting schemes launched during Diwali and Navratri. EBITDA margin was up 40bp YoY to 5% (est. 5.1%). Stud ratio improved 80bp YoY to 7.4% in 3QFY25 vs 6.6% in 3QFY24.

* Strong >30% EBITDA growth: EBITDA grew by 33% YoY to INR1.2b (est. INR1.2b). Other income increased to INR70m in 3QFY25 vs INR24m in 3QFY24, due to an insurance cover of INR50m received from the US store theft. PAT grew by 49% YoY to INR860m (est. INR860m). PAT margin stood at 3.5% vs 2.9% in 3QFY25.

* In 9MFY25, net sales, EBITDA, and APAT grew by 33%, 42% and 71%. SSSG grew by 25.7% in 9MFY25.

Key takeaways from the management commentary

* Despite price increases, footfall remained stable in 4Q. Rising gold prices have led to an increase in old gold exchanges.

* The company has seen no demand for LGD as it primarily sells 11-12 cent diamonds, whereas LGD demand is in the 30-40 cent range, thus facing no competition in this segment.

* In FY26, the company plans to add 25 stores, including a mix of COCO, FOCO, and Lifestyle by PNG formats. The expansion plan includes eight COCO stores, seven FOCO stores, and 10 ‘LifeStyle by PNG’ stores (split equally between COCO and FOCO), along with two stores in the US.

* The Lifestyle by PNG format requires a lower capex of INR50-70m per store, with a size of 1,000-1,100sp ft. These stores target younger customers seeking stylish jewelry.

Valuation and view

* There is no material change in our FY25 and FY26 EPS estimates.

* With a more favorable product mix, operating leverage (as the initial expansion is focused on core markets, eliminating the need for additional corporate overhead), and improved sourcing, the company is well-positioned to expand its operating margin. We model an EBITDA margin of ~5% for FY27 and FY27.

* The company has strengthened its balance sheet by reducing debt, having repaid INR3b from IPO proceeds. It has also implemented a robust hedging strategy through Gold Metal Loans (GML), with 84% hedged by Dec’24 and now fully covered. This will lower interest costs and further boost profitability.

* We model a CAGR of 23% in sales, 31% in EBITDA, and 29% in APAT over FY24- 27. With the successful execution of store rollouts, an effective gold hedging policy, and margin expansions, we reiterate our BUY rating on the stock with a TP of INR950 at 35x Dec’26 EPS.

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