About P N Gadgil Jewellers Limited

P N Gadgil Jewellers is the second largest among the prominent organised jewellery players in Maharashtra, in terms of the number of stores as on January, 2024, which is the largest market for BIS-registered outlets in India. They are also the fastest growing jewellery brand amongst the key organised jewellery players in India, based on the revenue growth between Fiscal 2022 and Fiscal 2024.

The ‘PNG’ brand derives its legacy from the ‘P N Gadgil’ brand, which has a rich heritage dating back to 1832 and a legacy of over a century. Leveraging the legacy and heritage of the ‘PNG’ brand, they have created a strong brand recall and presence in Maharashtra offering a wide range of precious metal / jewellery products including gold, silver, platinum and diamond jewellery, across various price points and designs which cover the need of their customers and include collections that are specifically designed for special occasions, such as weddings, engagements, anniversaries and festivals, as well as everyday wear jewellery. Their products are primarily sold under their flagship brand, ‘PNG’, and various sub – brands, through multiple channels, including their 39 retail stores (as on July 31, 2024) and various online marketplaces, including their website.

As on July 31, 2024, they had expanded to 39 stores, which includes 38 stores across 21 cities in Maharashtra and Goa and one store in the U.S. All their stores are operated and managed by them with 28 being owned stores and 11 franchisee stores, on a franchisee owned and company operated (“FOCO”) model. Owing to their multi-channel approach, they complement their in – store experience with their digital presence through their own website and other major online marketplaces. Additionally, they have launched their mobile application “PNG Jewellers”, in March 2022. Their digital presence allows them to keep their customers updated on new designs and collections and familiarise them with their product portfolio, which enhances their customers’ in-store experience.

As on July 31, 2024, they have eight sub-brands which cater to gold jewellery collections for different occasions, two subbrands which cater to the diamond jewellery collections and two sub- brands which cater to platinum jewellery collections.

OVERVIEW OF THE JEWELLERY MARKET IN INDIA
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.

The fine jewellery segment in India constitutes ~90% of the overall jewellery market. It is further categorized into Gold and Non-Gold categories, with Non-Gold encompassing Diamond, Platinum, Silver, Platinum, and other materials. Projections indicate that the Non-Gold market is poised to expand at a CAGR of 18.8% from FY 2023 to FY 2028, reaching a market valuation of USD 19 billion.

India has traditionally been a market predominantly inclined towards gold jewellery, witnessing a gradual rise in the popularity of studded jewellery. Regional preferences play a pivotal role in the acceptance of studded jewellery, influenced by cultural, religious, and trust factors. These varied considerations contribute to the enduring prominence of gold jewellery in the Indian market

1. Gold jewellery as a prominent savings asset class: The purchase of jewellery transcends mere fashion and holds a prominent savings connotation, particularly in rural areas, where limited access, lower literacy rates, and a preference for traditional savings methods further solidify gold jewellery's role as a valuable asset. 

2. Price discovery of gold is more transparent than studded jewellery: Gold prices, with their easy availability and universal acceptance, facilitate transparent price discovery. This transparency enhances liquidity and assures a more predictable return, a characteristic not necessarily shared by studded jewellery, where price discovery is less transparent and resale values are comparatively restricted. 

3. Limited exposure and understanding of diamonds: Jewellery being a big-ticket item for majority and limited understanding of diamonds including size, cut and illumination leads to lesser trust value and higher perceived risk.

The total gold consumption in India 66% was attributed to jewellery and remaining 34% to bars & coins in FY 2023. Despite the projected decline in share, the jewellery segment is anticipated to register a growth rate of 17% over the next five-year period to reach a market share of 62%. This is mainly due to deep cultural and social significance that gold have in India, playing a pivotal role in festivals, weddings, and gifting traditions. 

On the other hand, bars & coins, a perceived safe haven asset is projected to grow at CAGR of 21% to reach a market share of 38% in FY 2028. Investors looking to diversify their portfolios may find gold bars & coins appealing, contributing to the growth of this segment.

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.

OVERVIEW OF JEWELLERY MARKET IN MAHARASHTRA
The jewellery sector in Maharashtra, with its rich heritage and strategic location, plays a pivotal role in shaping the industry landscape in West India. Encompassing Maharashtra, Gujarat, Madhya Pradesh, and Goa, this region accounts for a quarter of India's jewellery market, a USD 17.5 billion industry. The region’s jewellery industry benefits from a robust infrastructure and specialized expertise, contributing significantly to the region's dominance. From Surat, renowned as the Diamond City where the majority of the world's rough diamonds are processed, to Mumbai, the financial and branding capital, enhancing its status with marketing expertise and luxury retail infrastructure, and Jaipur, a gem within the region, contributing its legacy of intricate gold jewellery and precious gemstones, the West India jewellery market offers a diverse landscape catering to every taste and budget. Consumers in the western regions of India are more receptive to studded jewellery and impulse-led lighter-weight jewellery purchases (14k, 18k jewellery).

Western India enjoys a strategic edge in gold imports owing to multiple factors. With 3 out of the 11 entry ports situated in this region, its well-established ports and logistics infrastructure efficiently manage high volumes. Mumbai, a prominent financial hub, facilitates gold trading and financing activities. Moreover, the region's sizable and affluent consumer base further strengthens the demand for imported gold. While the future consumption is increasing in these states with Maharashtra and Gujrat growing at a CAGR of ~16% and 16.4% respectively. Together, these elements underscore the pivotal role of western India as the primary gateway for gold inflows into the nation. Brands like P.N. Gadgil, firmly established in Maharashtra, have the potential to utilize their brand recognition to expand their market reach into Tier II and Tier III cities throughout western India. These regions demonstrate a comparatively limited presence of organized retail, offering considerable opportunities for growth and expansion.

Maharashtra hosts a significant number of jewellery stores, contributing to a vibrant and diverse market for both traditional and contemporary jewellery within the state. As of January 2024, P. N. Gadgil Jewellers ranks as the second largest among the prominent organized jewellery players in Maharashtra, based on the number of stores located in Maharashtra, P.N. Gadgil has 94% of its stores (29 stores) located in Maharashtra.

Maharashtra is a key economic powerhouse in India, boasting a diverse economy with agriculture, industry, and services sectors. With a nominal Gross State Domestic Product (GSDP) of around USD 435 billion in FY23, Maharashtra stands as the largest economy in India, contributing significantly to the nation's overall economic growth. The state represents 12.92% of India's GDP and enjoys a higher per capita income compared to the national average, driven by a robust industrial foundation, skilled labour force, and favorable business climate.

Maharashtra hosts a variety of industries like automobiles, textiles, chemicals, and pharmaceuticals that play a vital role in propelling its economic progress. Mumbai, the state capital, serves as India's financial hub and houses the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), ranking among the world's largest stock exchanges. Agriculture remains a crucial sector in Maharashtra, with the state being a major producer of pulses, fruits, vegetables, cotton, and sugarcane. Leveraging modern agricultural practices such as drip irrigation, hybrid seeds, and organic farming has boosted productivity, leading to self-sufficiency in food production. 

As of February 2024, India boasts of over 400,000 jewellery outlets, with over 150,000 of these are registered for selling hallmarked gold jewellery. Maharashtra, accounting for ~17% of this total, hosts over 25,000 registered stores, establishing itself as the largest market for BIS-registered outlets nationwide. Moreover, Maharashtra leads in the number of BIShallmarking centres, with ~239 facilities operating in the state. Maharashtra leads the retail spending accounting approx.15% of the total retail spends in India which was USD 951 Bn in FY 2023. 

GST collections serve as a pivotal metric of economic vitality, being a consumption-based tax. Maharashtra consistently maintains its position as the foremost contributor to SGST revenues, constituting 21% of the total SGST collection in the FY 2022-23, growing at a CAGR of 26.7% during the period FY 2021-23.

GSDP of Maharashtra has seen a gradual and steady increase from 2011-12 to 2022-23. This indicates how the state has developed healthy growth in their economies. The GSDP at current prices for the state are moving in an upward trajectory. Despite the pandemic taking place in 2021 the state has maintained a forward-moving economy. The year-on-year growth rate for the GSDP (current prices) for Maharashtra has shown a bit of staggered movement and has plummeted in FY 2021 due to the pandemic.

P N GADGIL JEWELLERS LIMITED COMPETITIVE STRENGTHS
1. Well established and trusted legacy brand in Maharashtra
2. Second largest organised retail jewellery player and one of the fastest growing brand in Maharashtra
3. Diversified product portfolio across categories and price points
4. Experienced Promoter and management team with proven execution capabilities
5. Strong historical financial results

P N GADGIL JEWELLERS LIMITED STRATEGIES
1. Expand their retail network in western India by leveraging their brand
2. Continue to invest in their marketing and brand building initiatives
3. Focus on increasing footfalls in their existing stores and increasing the average transaction value
4. Increase their digital presence to increase customer base and sales

P N GADGIL JEWELLERS LIMITED RISK FACTORS & CONCERNS
1. The strength of the brands we use are crucial to their success.
2. Their business is primarily concentrated in Maharashtra, especially Pune and they are significantly dependent on top five of their stores located in Maharashtra for revenue generation.
3. While they commenced their e-commerce operations in Fiscal 2014, they focus primarily on a brick-and-mortar model to establish their physical presence in India.
4. Their manufacturing work is done by skilled craftsmen who do not work exclusively for them which exposes them to any risks/adverse developments affecting the skilled craftsmen.
5. Jewellery purchases are discretionary and often perceived as luxury purchases.
6. Their revenues have been significantly dependent on sale of gold jewellery.
7. The implementation of the schemes such as the ‘Dajikaka Future Plan’ and ‘Future Purchase Plan’ introduces risks and challenges to their business operations and financial performance.