PN Gadgil Jewellers' 46 per cent SSSG and margin gains support expansion-led growth

Investment View and Key Drivers

Motilal Oswal Financial Services Limited (MOFSL) reiterated its Buy rating on PN Gadgil Jewellers with a target price of Rs 825, compared with the report CMP of Rs 679. The broker's constructive view is supported by strong same-store sales growth, margin expansion, planned store additions, increasing old-gold sourcing and improved gold-price hedging.

Strong Q1 FY27 Operating Performance

PN Gadgil Jewellers reported consolidated revenue growth of 41 per cent year on year to Rs 24.1 billion in Q1 FY27, in line with MOFSL's estimate. Retail revenue represented 78 per cent of sales and grew 56 per cent year on year to Rs 18.9 billion. Same-store sales growth was 46 per cent, while customer footfalls increased 26 per cent and conversion was 92 per cent.

Revenue during Akshay Tritiya increased 80 per cent year on year to Rs 2,514 million. Gold value growth was 54 per cent, although volume was broadly stable. Silver value grew 131 per cent while volume declined 7 per cent. Diamond value and volume increased 29 per cent and 26 per cent, respectively. The report notes that wedding demand moved into Q2 and Q3 because of adhik mass.

Margin Expansion and Earnings Beat

Profitability exceeded MOFSL's operating expectations. Adjusted for a Rs 97 million inventory gain on unhedged gold, gross margin expanded 30 basis points year on year to 12.8 per cent, above the 12.5 per cent estimate. The studded jewellery mix improved to 10.9 per cent from 10.0 per cent in Q1 FY26. New stores in Uttar Pradesh and Central India recorded a 15-18 per cent studded mix.

Employee expenses increased 50 per cent year on year, while other expenses rose only about 5 per cent due to cost control. EBITDA increased 73 per cent year on year to Rs 1.7 billion, above the Rs 1.6 billion estimate. EBITDA margin expanded 130 basis points to 7.2 per cent, compared with the 6.5 per cent estimate. Reported adjusted PAT increased 61 per cent year on year to Rs 956 million, versus MOFSL's Rs 941 million estimate, with a 4 per cent PAT margin compared with the 3.9 per cent estimate.

Store Expansion and Management Outlook

PN Gadgil Jewellers ended Q1 FY27 with 78 stores across 36 cities, comprising 48 company-owned company-operated stores, 17 franchise-owned company-operated stores and 13 LiteStyle stores. No stores were added during the quarter.

The company retained its FY27 plan to add around 25 stores, with most additions expected in Q3 and Q4 FY27 and a greater franchise contribution. Its medium-term targets are 140 stores by FY28 and 177 stores by FY29. Strong consumer response in Uttar Pradesh has prompted plans for 8-10 franchise stores in the state during FY27.

Management expects operating expenses to normalise as expansion accelerates in the second half, while remaining around 3 per cent of sales. It also expects the one-off marketing expenditure incurred in FY26 not to recur in FY27, which should support profitability.

Estimates and Growth Outlook

MOFSL raised its FY27 and FY28 EPS estimates by 8 per cent and 10 per cent, respectively, on the back of better operating performance. It reduced its sales estimates by 3 per cent for FY27 and 5 per cent for FY28.

Strategic Initiatives, Hedging and Debt

PN Gadgil Jewellers aims to increase the contribution of old-gold sourcing to about 50 per cent from about 40 per cent through its Suvarna Swarajya initiative. The company also plans to raise hedge coverage from about 70 per cent currently to above 80 per cent in the near term and eventually to about 100 per cent.

Management reported total borrowings of Rs 15 billion, including Rs 3-4 billion of gold metal loans. It targets debt reduction of Rs 5-6 billion by FY29.