Shares of PN Gadgil Jewellers surged nearly 8% on December 9, 2024, hitting an intraday high of Rs 829.90 per share following the initiation of coverage by Motilal Oswal. The brokerage has set a ‘Buy’ rating with a target price of Rs 950, reflecting a potential 24% upside from the current market price.
Key Drivers for Stock Growth
Motilal Oswal analysts pointed out several key factors that could drive PN Gadgil’s stock price re-rating:
- Successful execution of store rollouts.
- Implementation of a gold hedging policy.
- Improvement in operating margins.
Company Overview
Founded in 1832 in Pune, PN Gadgil Jewellers is the second-largest jewellery retail chain in Maharashtra, with a presence in 48 stores across 21 cities. In FY24, the company reported Rs 6,100 crore in revenue from its network of 36 stores, which includes locations in Goa and the United States.
Expansion Plans and Future Growth
- Network Expansion: PN Gadgil is aggressively expanding its store count and plans to open 44 new stores over the next three years. This will bring the total to 80 stores by FY27, up from 36 in FY24.
- New Market Focus: The company plans to enter new markets, such as Madhya Pradesh, Chhattisgarh, and Bihar.
- Product Mix Refinement: PN Gadgil is working on improving its product offerings, specifically by increasing the share of studded jewellery. The share of studded jewellery has already increased by 250 basis points (bps) to 7% in the past three years, with the goal of reaching double digits in the next year.
Financial Outlook
- Growth Projections: Analysts project strong growth for PN Gadgil over the next few years, with CAGR estimates as follows:
- Revenue CAGR: 23% (FY24–FY27)
- EBITDA CAGR: 31% (FY24–FY27)
- PAT CAGR: 36% (FY24–FY27)
These projections are driven by:
- A 30% CAGR in the number of stores.
- A strong presence in the formalising Maharashtra market.
- A higher focus on studded jewellery.
- Improved product mix and sourcing strategies.
Profit Margin Improvement
Motilal Oswal expects PN Gadgil’s profit before tax (PBT) margin to increase to 4.6% by FY27, up from 3.4% in FY24. This increase will be supported by better operating efficiencies and higher sales from studded jewellery.
Risks and Challenges
Despite the growth potential, there are some risks associated with investing in PN Gadgil:
- Gold price volatility: PN Gadgil has not fully hedged its exposure to fluctuating gold prices, which could impact its margins.
- Performance of new stores: The success of new stores, especially in non-core markets, remains a key uncertainty.
- Increasing competition: As the jewellery retail sector becomes more competitive, PN Gadgil could face margin pressures from established players.
Conclusion
With strong expansion plans, a focus on product innovation, and a promising financial outlook, PN Gadgil Jewellers is poised for growth. The 24% upside projected by Motilal Oswal reflects confidence in the company’s ability to successfully execute its business strategy and expand its market presence.
Gold Market Overview: Investment Fuels Record Highs
Gold experienced an extraordinary year in 2023, marked by a surge in investment demand from both institutional and retail investors. The yellow metal reached several record highs, maintaining an upward trajectory that has characterized recent years. In the face of economic uncertainties, rising interest rates, and geopolitical tensions, investors turned to gold as a safe haven.
Physically-backed gold ETFs saw substantial inflows, with $2.1 billion added in August alone, marking their fourth consecutive month of growth. This influx contributed to a 3.6% increase in gold prices and a 4.5% rise in global assets under management (AUM) in gold ETFs, which reached a record $257 billion. Western funds were the primary contributors, with collective holdings increasing by 29 tonnes to total 3,182 tonnes by the end of the month. For the year, gold ETFs rebounded significantly, reducing year-to-date losses to $1 billion and curtailing the decline in holdings to 44 tonnes.
India and China played pivotal roles in the gold market, though their trends diverged. India experienced robust ETF inflows, while China faced an economic slowdown that negatively impacted its gold market, particularly in the jewelry sector. Notably, India surpassed China in gold ETF demand, showcasing how both countries influenced global demand in different ways.
Looking ahead to 2024, gold’s momentum may temper as investment demand is expected to slow. However, central bank purchases and macroeconomic factors such as potential interest rate cuts could sustain market buoyancy. Jewelry demand is anticipated to see modest growth, especially in key markets like India and the Middle East.
Platinum: Strong Demand Amid Supply Challenges
Platinum had a mixed but ultimately strong year in 2023, particularly driven by industrial and automotive demand. The market faced a record deficit of 851,000 ounces (26.4 tonnes), stemming from a 2% decline in supply alongside a 26% increase in demand compared to 2022. Despite solid supply-demand fundamentals, platinum prices experienced volatility influenced by institutional investment activities and significant inventory releases.
Platinum prices began the year at $1,086 per ounce but fell to $912 by mid-February. A surge in investment demand during the second quarter led to a recovery, pushing prices above $1,000 per ounce. However, prices remained subdued in the latter half of the year due to ongoing inventory releases.
On the supply side, mine production increased by 1% year-on-year to 5.6 million ounces, primarily driven by operations in South Africa and Zimbabwe. Nonetheless, mine supply remained below historical levels due to challenges such as electricity shortages, strikes, and safety stoppages. Additionally, the recycling supply faced pressure, with a 14% decline in auto catalyst recycling.
Conclusion
The performance of precious metals in 2023 highlights the complexities of the market, shaped by investment trends, industrial demands, and regional variations. As we move into 2024, the interplay of these factors will continue to influence gold, platinum, and silver, offering opportunities and challenges for stakeholders in the industry.
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