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Sustain growth drivers; optimistic margin commentary

* PN Gadgil Jewellers (PNG) reported consolidated revenue growth of 3% YoY to INR17.1b (est. INR17.4b) in 1QFY26. The discontinuation of refinery sales from 3QFY25 onwards impacted the reported revenue. Ex-bullion sales, revenue rose 30%, driven by 19% growth in retail revenue, 126% increase in e-commerce, and 109% growth in franchisee revenue. SSSG stood at 8%, impacted by the earlier occurrence of Gudi Padwa in 4QFY25 vs. last year in 1Q. Gudi Padwa sales amounted to ~INR1,235m this year (7- 8% of the quarter’s revenue). Transaction volume increased 23% YoY, and Average Transaction Value (ATV) stood at INR93,000.

* PNG expanded its network footprint with the addition of two PNG LiteStyle store openings in 1Q, bringing the total to 55 (42 COCO, 13 FOCO) across 27 cities. The company plans to add 25 stores in FY26, with 7-8 COCO stores, 7-8 FOCO stores, and 10-12 stores under the ‘LiteStyle by PNG’ brand (small-size stores with a focus on youth/modern design).

* Gross margin expanded 490bp YoY to 13.2% in 1QFY26 (est. 10%). The margin expansion was supported by a 42% YoY growth in studded jewelry, which led to a 270bp increase in the studded mix to 10% in 1QFY26. The company continues to focus on enhancing its studded jewelry contribution and expanding its LiteStyle format stores, which deliver higher gross margins. We model an EBITDA margin of ~5.5% for FY26 and FY27.

* We model a CAGR of 20% in sales, 28% in EBITDA, and 25% in APAT over FY25-28E. 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 INR825 at 30x Jun’27E EPS.

Overall beat on profitability

* In-line sales growth: PNGJ’s consolidated sales rose 3% YoY to INR17.1b (est. INR17.4b) in 1QFY26. Reported numbers appear lower than the underlying performance due to lower bullion sales. Ex-bullion sales, revenue grew 30%. Retail revenue grew 19% YoY to INR12.1b. Franchisee operations witnessed a 109% YoY growth to INR2.7b. Franchisee revenue grew 37% YoY to INR1.9b. E-commerce revenue grew 126% YoY to INR661m. Footfalls increased 25%, supported by a strong conversion rate of 92%. Growth was impacted by the absence of the Gudi Padwa festival during the quarter. In FY25, Gudi Padwa fell in 1Q, supporting performance. In FY26, the festival occurred earlier in 4QFY25, impacting LFL growth.

* Beat on margins: Gross margin expanded 490bp YoY to 13.2% (est. 10%). EBITDA margin expanded 260bp YoY to 6.4% (est. 4.4%). Employee expenses rose 58% YoY and other expenses rose 55% YoY.

* Strong growth in profitability: EBITDA grew 71% YoY to INR1,100m. PAT grew 96% YoY to INR693m. PAT margin came in at 4.0% vs 2.1% in 1QFY25.

Key takeaways from the management commentary

* For FY26, the company intends to open 20-25 new stores across multiple formats, including 7-8 COCO (company-owned, company-operated), 7-8 FOCO (franchise-owned, company-operated), and 10-11 PNG LifeStyle stores (split evenly between COCO and FOCO).

* The company plans to bring the total store count to 64 by 2QFY26 and 80 by FY26.

* The company’s net debt stood at INR3,240m, with a total finance cost of 4.9%. Its total debt stood at INR8540, while fixed deposits stood at INR5300m.

* The planned store expansion in FY26 will be funded through internal reserves and surplus, along with an INR1400m term loan sanctioned by two banks, demonstrating a balanced approach to funding growth.

* The company has sought the Board’s approval for a QIP but has no immediate plans to proceed, as it currently has sufficient funds to support its expansion plans.

Valuation and view

* With a beat on margin, we increase our estimates by 7% for FY26 and maintain EPS for FY27.

* The company’s favorable product mix, operating leverage, and improved sourcing position it well to expand its operating margin. We model an EBITDA margin of ~5.5%% for FY26 and FY27. There is an upside risk to our estimates, given the 1Q beat in margin. We will closely monitor operating cost increases resulting from new store roll-outs.

* 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), achieving 100% hedging. This will lower interest costs and further boost profitability.

* We model a CAGR of 20% in sales and 25% APAT over FY25-28E. 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 INR825 at 30x Jun’27E EPS.

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