I am pleased to place before you the 12th Annual Report of PC Jeweller Limited withreflections on the year gone by and my thoughts on the journey ahead.
It is an old saying that change is the only constant. Last few years have seen manyregulatory changes like:
Introduction and reversal of 80:20 ruling on gold imports
Introduction and reversal of abolition of gold on lease scheme
Increase in customs duty to 10%
Jewellery purchase schemes falling under the ambit of Deposits
PAN Card requirement for any sales above Rs. 2 lakh
Imposition of excise duty for the first time on the jewellery industry
Announcement of demonetization in the third quarter of the financial year
Imposition of import duty by UAE on its jewellery imports
The Company has remained on its toes throughout to comply with the new regulations andchanging business environment. At the same time we welcome the new regulations as theywill go a long way in making the jewellery industry more transparent and increase themarket share of the organized players. Increasing regulatory environment increases thecompliance costs for the unorganized players and thus creates a huge growth potential forthe organized players.
The share of the organized players had been increasing in any case as the consumers arepreferring to buy jewellery from a branded showroom due to assurance of quality purityand availability of a wider design range. The imposition of Goods and Service Tax regimefrom 1 July 2017 further shifts the balance in favour of the organized sector and we feelthat the pace of this shift will only increase now.st Thus I see huge potential forgrowth not only for PC Jeweller but for other branded players as well. The Indianjewellery market is huge and I feel that there is enough scope for another 10 to 15branded companies. However it is very important to have a first mover advantage toacquire the maximum market share and PC Jeweller's expansion policy is to achieve thesame.
Though online channels are gaining traction in our country especially in the youngergeneration but for jewellery purchase touch and feel of the actual product still remainsa very important factor. We are now getting a lot of customers who have browsed ourproducts online liked them but come to our showrooms for purchasing the same. Hencehaving a physical presence on ground is a must for growth and customer acquisition. TheCompany would therefore continue to open showrooms for gaining access to the maximumnumber of consumers.
Accordingly we have grown from 60 showrooms as on 31 March 2016 to 75 showrooms as on31 March 2017. I still recall that we st st closed the F.Y. 2012-13 with a showroom countof 24. Hence we have increased our retail presence by more than 3 times in the past fouryears and thus getting closer to our target consumers. The Company which was initiallytargeting only middle and upper middle class customers has now expanded its reach to theentire spectrum of customers from HNIs at one end to middle and lower middle class atother.
Similarly the Company has expanded its geographical presence from Metros to Tier I IIand now Tier III locations as well. The Company has till date expanded by opening its ownshowrooms mainly at the high streets of big cities. It has now more or less covered themajority of these locations and is now expanding its presence in the local markets of bigcities as well as Tier II & III locations. These locations have the advantage of lesscapital requirement and lower running costs which result in quicker break even and higherreturns.
The Company ventured into a new vertical when it opened its first franchisee showroomin October 2015. It followed it up by opening four more during the F.Y. 2016-17. Thefranchisee model is a good margin accretion model as it permits the Company to expandwithout investing its own capital. Going forward the Company would continue to concentrateon this model in addition to opening its own showrooms.
Some of the other ROE accretion steps being carried out by the Company include:
(1) Reduction in the quantum of inventory by digitising the same and making itavailable across all showrooms rather than physical inventory. This would be especiallyuseful for reducing the number of high value jewellery items which have a longerturnaround period.
(2) Leveraging technology to create virtual showrooms and thus minimize investment inphysical showrooms.
(3) Strengthening our online vertical enables us to target consumers across wide areaand achieve sales with a minimal capital investment. This also helps us to leverage on theonline offline synergies between the two verticals.
(4) Leverage in house designing and manufacturing strengths to create higher marginjewellery of the likes of Flexia etc.
(5) Helping margins by identifying inefficiencies and rationalizing costs across allthe operations and processes.
(6) Currently our exports consist of only plain gold jewellery which have limitedmargins. We are working hard to include more high value jewellery items under our ownbrand name in our export portfolio.
We would continue to invest on strengthening our manufacturing and designingcapabilities. I sincerely believe that as our sector becomes more and more organized theonly differentiating factor between the two organized/branded players will be theavailability of maximum number of designs at all price points. Hence I am very passionateabout this point. Having strong manufacturing capabilities permits us to reduce productioncosts retain skilled workers shorten product development and develop capability tointroduce newer collections rapidly. This will enable the Company to gain a sustainablecompetitive advantage over its competitors.
Acquisition of premium gold jewellery brand Azva by the Company's whollyowned subsidiary Luxury Products Trendsetter Private Limited has given us a presence inthe high premium gold jewellery segment not only within the country but also overseas. TheCompany is confident that it will play a significant role in its growth in the comingyears.
The exports will continue to have a role in the Company's operations. The internationaljewellery market is huge with immense growth possibilities. The Company's existing exportbusiness is a B2B without any significant capital requirements. However we have plans togradually create more value addition in this business by expanding our export range aswell as exporting under our own brand name.
Creating investor value remains our top priority and I am confident that the abovementioned ROE accretion steps would go a long way in achieving the same. The Company hasalso completed issue and allotment of bonus equity shares in the ratio of 1 : 1 whichshould also create additional value for our investors.
I take this opportunity to convey my thanks to all the stakeholders vendors bankersand customers for all their support and encouragement throughout the year. I am alsothankful to all our employees who have continued to contribute to the Company's growthwith their exemplary performance and commitment.