PNG Jewellers is planning to raise Rs 1,100 cr from our IPO: Saurabh Vidyadhar Gadgil

In conversation with Adgully, Saurabh Vidyadhar Gadgil, Managing Director, PN Gadgil Jewellers, speaks at length about the company’s Initial Public Offering (IPO), which was launched yesterday. With a goal to raise Rs 1,100 crore, this IPO is a significant milestone for the company, comprising Rs 250 crore through an Offer for Sale (OFS) and Rs 850 crore as fresh capital. Gadgil elaborates on how the funds from the IPO will be strategically utilized for expanding the company’s store network, repaying existing bank facilities, and supporting general corporate purposes.

He also provides deep insights into the company’s journey, its impressive financial performance, and the strategic rationale behind going public at this pivotal time. Gadgil also shares his views on the current jewellery industry trends, the expected impact of the IPO on the company’s brand positioning, and the strategies in place to ensure sustained growth and profitability, and more.

Could you take us through your journey at the helm of PNG Jewellers?

During the festive season, particularly around Diwali, business was thriving. It was a fun time, seeing customers looking at jewellery, counting cash, it was a lively atmosphere. That experience naturally deepened my knowledge and likening for the industry. After my school and college days, during my MBA, I did an internship with the RBI in Mumbai, where I studied the futures market of gold, which at that time was non-existent in India. This study led me to interact with many bankers, policymakers, and government officials, further broadening my understanding of the industry.

In 2000, I joined the family business. At that time, we had a single store on Lakshmi Road, with revenue of Rs 20 crore, which was entirely family-run. The journey began from there. One of the first things we did was conduct a SWOT analysis of the business. What stood out as a significant threat was that Pune city had changed – women were working, and they were decision-makers themselves. We realized that if we didn’t expand, we would be left behind.

This marked the beginning of our transformation from an owner-driven organization to a professionally managed one. Over the past 20 years, we’ve made this shift, and today we are fully professionalized, with experts managing various functions in the best possible way. It has been a rewarding journey, growing from a single store to 39 stores, from Rs 20 crore in revenue to Rs 6,000 crore. Along the way, we’ve had the privilege of adorning millions of customers and building a team of people who share the same passion for PNG as I do.

Today, as a team, we are proud to see the realization of a dream we envisioned a decade ago of becoming a major player in Maharashtra and being listed. It’s a proud and emotional moment for all of us.

How much are you expecting to raise from the market with PNG’s IPO? What would the funds raised be primarily spent on?

We are planning to raise Rs 1,100 crore from the capital market, out of which Rs 250 crore will be through an Offer for Sale (OFS), and Rs 850 crore will be fresh capital. Out of the Rs 850 crore, we plan to utilize Rs 393 crore for the expansion of 12 stores, nine of which will open this year, and three by March of next year. Additionally, Rs 300 crore will be used for the repayment of existing bank facilities, with the remaining amount allocated for general corporate purposes (GCP).

Could you provide a brief overview of PN Gadgil Jewellers’ journey and what led to the decision to launch the IPO at this time?

Post-COVID, we realized the need to rethink the way we do business. We revamped our entire model by scaling down inventory and focusing heavily on customer-based orders. This shift led to greater efficiency and improved stock turnover. Over the next three years, we experienced a growth of almost 50% CAGR on our top line. This rapid growth, along with the strength of our dedicated team, many of whom have over 20 to 30 years of experience in their respective fields, made us recognize that we are poised for the next leap forward.

At the same time, the entire industry was undergoing significant changes. Hallmarking became mandatory, and the shift from unorganized to organized sectors was happening at a rapid pace. This made us realize that it was the right time to expand further. Jewellery is a capital-intensive business, with each store requiring significant investment, so we decided that the best way to fund our expansion journey was to access the capital market.

All of our stores are currently profitable, and we are known for operating with higher margins and higher footfall. Our revenue per square foot is Rs 6 lakh, so we have our parameters set right. With two decades of market understanding and a loyal consumer base that trusts us, we set the goal to become the largest player in Maharashtra. This is where we’re headed, and we believe that going public will help us achieve this goal and continue growing into neighboring states.

With the jewellery industry facing fluctuating consumer trends, how is PN Gadgil Jewellers planning to stay competitive and relevant in the market?

Retail is all about the details. Things change every day, and one must stay informed about what’s happening in the market and with the competition. That’s exactly what we do. Challenges related to design and pricing are part and parcel of the retail trade. As a team, we constantly brainstorm, analyze trends, and strive to stay one step ahead.

These operational challenges are inevitable, but as a team, we are quick to adapt and keep moving forward. Our primary focus remains the same: ensuring that our customers receive the best products and the best service from us.

How do you see the IPO impacting your brand’s positioning in India and internationally?

I think an IPO is like moving from playing in the Ranji Trophy to representing the international team, it is definitely a larger platform. We expect it to have a significant impact on both the brand and our reach. However, the real reason behind this move is our desire to keep growing and to connect with more consumers, making them happy through our products and services.

Yes, it’s certainly a bigger playing field and a larger stage, and we are excited to be part of it. We look forward to reaching a wider audience and welcoming more people into the PNG family.

Could you share more details about the financial performance of PN Gadgil Jewellers over the past few years and the rationale behind the Rs 1,100 crore IPO size?

Over the last two to three years, we have experienced revenue growth at a CAGR of 53%. Additionally, we have delivered strong returns with RoC and RoE at 23% and 27%, respectively. Our PAT and EBITDA margins have also improved significantly post-COVID. During the pandemic, when everyone was facing challenges, we took the opportunity to strategically plan for the next two to three years, and we’ve executed that plan effectively.

As a result, today, we have achieved revenue of Rs 6,100 crore with an EBITDA margin of 7%, a gross margin of 13%, and a PAT margin of around 4%. Our current PAT stands at approximately Rs 150 crore.

Could you elaborate on the company’s strategy for balancing growth with profitability post-IPO?

Post-IPO, the proceeds will definitely help boost our sales, and we are also planning to increase the number of stores. This will, in turn, improve both our bottom line and margins. However, there’s another strategic angle that we’re considering: enhancing our product mix. Currently, our studded jewellery accounts for 11-12% of our offerings, but as a management team, we are aiming to surpass 15%. By doing so, our profitability and margins are expected to improve significantly compared to our peers. The IPO proceeds will certainly play a vital role in building a strong long-term capital base for the company.

How has H1 of 2024 been for the entire jewellery industry? What are the key and notable trends and changes that you have observed?

H1 has been good for the overall industry, largely due to the import duty cut, which has led to a surge in sales across the sector. We’ve observed similar trends at PNG. August, the month of Shravan, was particularly strong and even set some records in various ways. The outlook remains positive, with people’s confidence in jewellery and gold as an investment staying strong and committed. The industry as a whole is in a bullish mode. With the upcoming festive season, including Dussehra, Diwali, and the wedding season, Q3 and Q4 are expected to be strong for the industry, and we are optimistic about our performance as well.

What are the notable shifts in consumer behaviour that you observe for the H2?

One major shift that we have observed is the rapid movement of consumers from the unorganized to the organized sector, and this trend continues to grow as we speak. Another significant development is the renewed faith in gold, whether it’s gold bars, coins, or jewellery. Despite prices rebounding after the import duty cuts, people’s interest and inclination toward gold remain strong. This is a positive trend for us, and it also reflects the strength of the Indian economy and the resilience of consumer spending. People today recognize that they are on a growth trajectory, both personally and nationally. Consumption is driving this boom, and I believe we are at the beginning of a broader consumption surge. The best is yet to come.

In terms of growth in ad spends, what are your expectations from H2?

I believe growth should be strong, driven both by existing stores and the new stores we’re adding. In terms of advertising spend, we plan to continue allocating about 1% of the top line. Since we’re focusing on growth within Maharashtra, we won’t be investing heavily in brand building or marketing here, but rather maintaining our current efforts. This approach will positively impact our margins, as we’ll see growth in the top line without a corresponding increase in expenditure. This strategy is expected to play out well for us, as we have a deep understanding of the market and a strong consumer base. Word of mouth will continue to be a major driving force as we move forward.

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