IGI Logo

Demand momentum intact; cost control drives margin beat

* PN Gadgil Jewellers (PNG) reported consolidated revenue growth of 22% YoY to INR26.7b (in line) in 2QFY27. Retail revenue grew 31% YoY with 25.5% SSSG, while franchisee revenue increased 35%. Retail studded mix improved to 11.9% (vs. 9.0% in 2QFY26). The reported growth was partly impacted by the shift of Navratri sales to 3QFY27, which might have deferred ~INR2b of revenue, as per management estimates.

* PNG added two stores in 2Q, taking its network to 80 stores in 37 cities. It plans to add 23 stores in FY27 to reach 103 stores, with 8-10 openings in 3Q and the balance in 4Q, largely through the franchise route. From FY28, management plans 30-35 annual additions, with a 50:50 COCO/FOCO mix across legacy and light jewelry formats. Early traction in Uttar Pradesh is encouraging. PNG targets 30-35% revenue contribution from new geographies by FY30, from ~9% currently.

* Gross margin expanded 100bp YoY to 12.6% (vs. est. 12.2%), despite a higher franchise revenue mix (17% mix vs. 12% in 2QFY26). Adjusted for INR50m in inventory gains on unhedged gold, gross profit was broadly in line. EBITDA doubled YoY to INR2b (beat), with margin expanding 300bp YoY to 7.6% (beat), aided by a 21% YoY decline in other expenses. Management expects advertising and promotional spends to moderate in 2HFY27. FY27 revenue guidance of INR130b and PAT margin guidance of 4- 4.2% remain unchanged.

* PNG targets 30-35% of sales from new markets by FY30. While traction in Uttar Pradesh and an improving studded mix are encouraging, the ability of new markets to scale up sustainably remains a key monitorable. Consistent growth in new markets and sustainable profitability will be critical to validating the growth opportunity. We model revenue, EBITDA and APAT CAGRs of 19%, 24% and 17%, respectively, over FY26-29E. While positive on the long-term opportunity, we remain cautious on execution and the earnings trajectory. We reiterate BUY with a TP of INR700, based on 17x Sep’28E earnings.

Key takeaways from the management commentary

* Reported growth was understated because Navratri moved to 3Q this year from 2Q last year. Management estimates the 10-day season adds ~INR2b of revenue, which will now show up in 3Q.

* Management said Navratri demand was good, and soft gold prices are drawing buyers in. Diwali, especially the first half of November, and the wedding season look strong, based on bookings. Lower prices should support volume-led SSSG.

* Hedge coverage rose to ~80% from ~70% in 1Q, which reduces earnings sensitivity to gold price swings.

* The company ended 2Q with 80 stores and plans to open around 23 more stores during FY27, taking the network to ~103 stores by year-end. Most store openings are planned during 3Q and 4Q.

* From FY28, the company plans to add 30-35 stores a year with a 50:50 company-owned/franchise mix. About 17-18 of these would be legacy and the balance LiteStyle, each split equally between company-owned and franchise.

Valuation and view

* We increase our EPS estimates by ~4% for FY27, considering a better operating performance, and largely maintain our FY28 earnings.

* PNG targets 30-35% of sales from new markets by FY30. While encouraging traction in Uttar Pradesh and an improving studded mix provide some confidence in the expansion opportunity, the ability of new markets to scale up sustainably remains to be established.

* Further, the strong EBITDA margin expansion in 2Q was aided by sharp cost cuts, thus the sustainability of cost efficiencies remains a key monitorable. We believe consistent execution across new markets and stable profitability will be critical to validating the growth opportunity.

* We model revenue, EBITDA and APAT CAGRs of 19%, 24% and 17%, respectively, over FY26-29E. While we remain positive on the long-term opportunity, we retain some caution on the execution and earnings trajectory. We reiterate our BUY rating with a TP of INR700, based on 17x Sep’28E earnings.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412