India Ratings Revises P N Gadgil & Sons

Outlook to Positive; Affirms IND-A 

India Ratings and Research (Ind-Ra) has revised P.N. Gadgil & Sons Limited’s (PNGSL) Outlook to Positive from Stable while affirming Long-Term Issuer Rating at ‘IND A’. The instrument-wise rating action said the Size of Issue of Rs 2,900 mn with Rating Action remark- Affirmed; Outlook revised to Positive from Stable!  

The Positive Outlook reflects PNGSL's strong month on month recovery in sales post the Covid-19 pandemic; a sharp increase in the EBITDA margins in 1HFY21 partially supported by inventory gains; and the likelihood of an improvement in the company’s net leverage to below 1.5x in FY21 basis higher Year-on-Year (YoY) festive season sales in 3QFY21. 

The Positive Outlook also reflects the agency’s expectation that the company’s absolute EBITDA would sustain close to INR1,500 million (excluding one-off high inventory gain accrued in 1HFY21) which would help PNGSL to post strong positive cash flow from operations and reduce its net debt position substantially by FY22.

Strong Festive Recovery to Moderate Impact of Covid-19 in FY21: In 1HFY21, PNGSL's revenue fell 44% YoY to INR 5,077 million, due to the Covid-19 led lockdown. After almost nil monthly sales in April 2020 and only 10% YoY sales in May 2020, the company has already achieved 100% of its YoY revenue July 2020 onwards. 

Furthermore, besides more than 30% YoY rise in realisations, PNGSL has achieved growth in volume sales over October-November 2020 YoY, attributed to the festive season. PNGSL has already achieved revenue of INR12,000 million for the eight months ended November 2020 and Ind-Ra estimates that the company could witness less than 15% YoY revenue decline in FY21, followed by a sharp recovery in FY22. 

Over the medium term, PNGSL’s revenue growth is likely to be steady, as the company is not planning to open new showrooms in FY21. Premium Brand Position and High Gold Prices to Support Margins: The company’s EBITDA margin improved sharply to 16.6% in 1HFY21 (1HFY20: 6.5%) on account of inventory gains, a sharp rise in gold prices leading to improved realisations and the various cost cutting measures implemented. 

The margin improvement for PNGSL during 1HFY21 is better than industry, indicating stability of its existing profitability despite Covid-19 impact. Furthermore, the company is likely to have maintained its profitability above 13% over April-November 2020. 

PNGSL’s EBITDA margin in FY21 is likely to improve with support from various cost-cutting initiatives, continued premium brand positioning in the regional market in addition to improved realisations and inventory gains. The company’s management expects PNGSL to generate an EBITDA greater than INR1,500 million in FY21 which will remain a key monitorable. 

PNGSL is engaged in the retail sale of gold and silver studded jewellery. The company is promoted by Govind Gadgil, a sixth-generation entrepreneur, and Renu Gadgil. The company’s management team is led by CEO and Director Amit Modak.