PNGS Gargi Fashion (MCAP Rs 135cr) - Costume/Imitation Jewelry Brand
Brand launched by PN Gadgil & Sons, renowned jeweler of Maharashtra region
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PNGS Gargi is owned by promoters of renowned jeweler PN Gadgil & Sons, which is a Rs 10k crore turnover retail jewelry company, a strong brand in Maharashtra (unlisted entity). The listed business is separate one, focusing on the fast-growing costume/imitation jewelry market. At present, company is offering sterling silver & brass coated jewelry, idols, etc. Average item price is Rs 500-1000, while Average Billing Value per customer is Rs 1500-2000. However, they have plans to launch Rs 50k order value items like 14k Gold, studded diamond, etc. also.
India’s Imitation costume/imitation jewelry stands at 1-1.5bn$ market today (~Rs10k crore), largely unorganized. However, it is growing at a fast pace, driven by factors like – (1) Increasing working women population, (2) Preference to change the neckpiece, earrings, etc. according to the dress outfit, (3) Much less fear of theft or loss, etc. A large part of the market remains unorganized (~98%), through branded players are emerging in the space like Voylla, Zaveri Pearls, Pipa Bella, Yellow Chimes, Youbella, etc.
PNGS Gargi has started the business in end 2021 itself and has been able to scale to ~Rs 30 crore revenue run rate in FY23 (first full year of operations). They posted an EBIDTA margin of 23% and PAT margins of ~15-16% for the year, PAT of Rs 4.7 crore. Currently, most of the business is largely through COCO model (Company Owned Company Operated Stores), supported by store-in-store in existing PN Gadgil & Sons shops (~30 in number).
Going ahead, company expects to grow with FOCO model (Franchise Operated, Company Owned) model. This will help company expand beyond Maharashtra, thus enabling a better scale. They will start with Karnataka, Gujarat & Maharashtra, they have inquiries from MP, Noida & Delhi. Company wants to have control over its inventory & customer trend, hence does not want to go through distributor route. Margins for FOCO are 5-7%, factoring in the additional franchise fees.
Two common questions –
Why is promoter’s main business PN Gadgil & Sons unlisted? Company came up with its DRHP in early 2018 (the period coincided with Nirav Modi scam). As a result, the investors were reluctant. While IPO didn’t happen, but company has done extremely well, scaling 5x since then.
Why list PNGS Gargi at such small scale? Objective is to build a credibility for the name, which will help them scale up franchise model and build a greater awareness of the brand outside core Maharashtra region.
For all practical purposes, stock will be a bet on execution by Mr. Amit Modak (who is the current a professional CEO of PN Gadgil & Sons), the venture is a brainchild of him. Mr. Amit Modak has had an excellent track record in scaling business as CEO of PN Gadgil & Sons, which has grown 5x in 5 years (from ~2k crore in FY18 to ~Rs 10k crore in FY23). While there is a separate team of ~32 people in PNGS Gargil, Mr. Amit Modak (supported by his son Mr. Aditya Modak) will be key for strategy, execution & scale-up.
PNGS Gargi recently got listed in SME platform. The company brought the issue at Rs 30/share (which was a very reasonable price at 1x Sales. But it is up 3x+ now. Currently, Stock is trading at Rs 140/share currently, at a market cap of Rs 135 crore (30x FY23 PE). Definitely not cheap, but the key to what should be the fair value lies in how well company executes on growth.
Growth levers – (1) Organic growth from COCO stores of PN G & Sons, where company is already present, (2) Growth from adding new FOCO stores.
BULL case scenario - They double their COCO business (60 cr revenue) and add 30 crore from FOCO stores, business can scale up to Rs 100 crore over 2-3 years (by FY26). Blended PAT margins will be lower than 15% currently as FOCO stores have lower margins. Assuming 10% margins, they can do Rs 10cr PAT by FY26. In such a scenario, stock could still give a meaningful 150-200% upside in 2-3 years (30x PE).
BEAR case scenario – If the company falters on growth expectations, valuation multiples will de-rate. Assuming a 20% CAGR over FY23-26, FY26 revenue of Rs 50 crore, PAT margins of 10% yield Rs 5 crore PAT. At 20x PE (Rs 100 cr MCAP), it will imply a downside of 30% from current levels.