Blog

PC Jeweller Demerges its Export Division
Comments2

What’s the deal?

PC Jewelers recently announced that it would demerge its Export Division and merge with its wholly owned subsidiary - PCJ Gems & Jewellery Limited. Company currently has 2 core business verticals viz. Domestic Division and Export Division. The swap ratio is 1:1 and the company plans to list the newly amalgamated company on BSE and NSE.

Name of the Division

Turnover (Rs. in Crores )

Percentage (%)

Export Division- Demerged Undertaking

2,690.37

28.35

Domestic Division- Demerged Company

6,798.60

71.65

** As of 31 March, 2018


Rationale for this action:

As per PCJ management opinion, the commercial activities of the two verticals are distinct and diverse from each other and have grown to their maximum potential. The management would need to provide focused attention to ensure growth, profitability & market share, and unlock shareholder’s value through this demerger.

Do the financials support the deal?

Financial Overview

Q1 FY 2018

Q2 FY 2018

Q3 FY 3018

Q4 FY 2018

Q1 FY 2019

Q2 FY 2019

Q3 FY 3019

Domestic

Sales (in cr)

1383

1851

1765

1800

1616

1550

1819

PAT Margins

8.8%

6.7%

8.0%

6.2%

7.1%

5.6%

7.3%

 

 

Exports

Sales (in cr)

736

771

880

303

807

85

300

PAT Margins

1.9%

3.4%

2.5%

3.9%

3.3%

8.9%

1.7%

 

In the above table, it is clearly visible that there is no linear growth in PAT margins in the domestic or exports business on quarterly basis. The reason being that in the exports segment, there was an absolute increase in the quantum of finance costs which include the lease charges as well as hedging costs, impacting their PAT margins.

 It is fascinating to note what company mentioned in their Q2FY19 management presentation.

“The export business is a credit-based business and the company wants to rationalize their exports business as the credit availability is getting squeezed. Exports contributed only 5% of overall sales. The Company was able to bring down exports by 89% in Q2FY19. The company is therefore targeting to limit the export sales to Rs. 2000 cr in FY19 (as against Rs. 2690 cr in FY18) and a decline in the Q2 export sales is a result of the same.”

If company really wants to restructure their business and expand their export business by creating a new company, then why limit the sales of exports. In contrary, company could have opted to either sell its exports business or keep running the same business model. In its defense, the Board has stated that the proposed segregation will enhance value for shareholders as there would be absolute clarity to the investors on the business profile of PCJL and the resulting company. This raises a big red flag.

What is more interesting is to look at past four quarters export’s segment assets and liabilities: -

Exports Segment

Q4 FY 2018

Q1 FY 2019

Q2 FY 2019

Q3 FY 2019

Assets (Rs.in cr)

2337

1930

1476

756

Liabilities (Rs.in cr)

2037

1711

1329

559

 

One more red flag, company is reducing assets to pay of its liabilities.

Looking at the consolidated balance sheet of PC Jeweler, company’s debt is booming backed with increasing financing cost.

 

Mar-16

Mar-17

Mar-18

Non-Current

62.57

63.93

36.07

Current

3279

3980

5067

Total Liabilities (Rs in crores)

3341.57

4043.93

5103.07

Interest Cost (Rs in crores)

244.95

278.56

303.89

 

Comparing it with company’s EBIT and calculate Interest Coverage ratio, it depicts company efficiency to pay back its liabilities.

 

Mar-16

Mar-17

Mar-18

Interest Cost

244.95

278.56

303.89

EBIT (Rs in crores)

779

833

1,040

Interest Coverage

3.18

2.99

3.42

 

The margin of safety for company’s creditor is very poor and raises more questions on consistent reliability on debt for expansion.

This also validates why every major credit rating agency downgraded PC Jeweler -

24th July,2018- Care downgraded its rating on company’s medium-term instruments to CARE BBB- from CARE A-.

25th July,2018- India Ratings and Research (Ind-Ra) downgraded PCJ to ‘IND A1' and withdrawn the rating on company’s commercial paper (CP).

1st August, 2018- CRISIL downgraded its ratings on the bank facilities to 'CRISIL BBB+/Negative/CRISIL A2' from 'CRISIL A/Negative/CRISIL A1'.

Disclaimer 

user

mukul sharma

Posted on 5/22/2019 4:39:19 PM

So what do we see for its future basically want to know is time to buy pcj on 23 may 19 or not

Reply

user

Delta

Posted on 5/22/2019 6:13:19 PM

you should have considered the latest 30th Sept 2018 balance sheet, where the current liabilities are reduced from 5K to 4K, thats a debt reduction progress.

Reply

Author Image

Comment

Recent Post

  • PC Jeweller Demerges its Expo..

    What’s the deal? PC Jewelers recently announced that it would demerge its Export Division and merge with its wholly owned subsidiary - PCJ Gems & Jewellery Limited. Company c..

  • Insurance- Introduction

    Risk and uncertainty are associated with life in some of the other ways. These risks and uncertainties are increasing daily because of the increment in the speed of life. For example, i..

  • Rail Vikas Nigam Ltd. IPO

      Offer Details Price band Rs 17-19 Per Equity Share Offer Open Date Mar 29, 2019 Offer Close Date Apr 03, 2019 Lot Size..

  • Tech Mahindra Buyback

    The Board of Directors of Tech Mahindra Ltd. approved a share buyback for its investors on Feb 21, 2019. The details of the buyback include: Ex-Date: March 5th, 2019 Record Date: Marc..

  • BHEL Buyback

    The Board of Directors of BHEL approved a share buyback for its investors on Oct 25, 2018. The details of the buyback include:  Record Date: November 6th, 2018 Buyback price: Rs...