PN Gadgil Jewellers Is A 'Buy' For Motilal Oswal As It Initiates Coverage With 24% Upside

Motilal Oswal Report

We initiate coverage on P N Gadgil Jewellers Ltd. with a Buy rating and a target price of Rs 950 (based on 35 times Dec’26E P/E). The successful execution of store rollouts, gold hedging policy, and an improvement in operating margin will be the key catalysts for re-rating of the stock.

PNG is among the few jewelry companies that are rapidly expanding their store presence. We model 30% store growth over FY24-27E. With a conservative growth assumption for bullion, the overall revenue CAGR assumption in our model stands at 23% (ex-bullion revenue CAGR at 30%).

PNG is also enhancing its studded mix (up 250 bp in the last three years) and is actively seeking to further improve this mix in the coming years. Maharashtra is already a favorable market for studded products (~20% studded mix market); therefore, there is significant potential for further improvement in this mix.

With a more favorable product mix, operating leverage (as initial expansion is in its core markets, PNG will not need more corporate overhead costs, etc.), and better sourcing, the company is likely to improve its operating margin. We model an Ebitda margin expansion of 100 bp over the next three years to 5.4% in FY27.

With the IPO proceeding, the company also plans to reduce its debt repayment by more than Rs 2 billion. PNG is looking to add gold metal loans, which are likely to enhance its gold hedging strategy. We model more thaN rS 3-4 bILLION loan in FY26-FY27. Gold metal loans typically carry low interest rates (~3-4%), implying that the interest costs will not experience a spike, remaining lower than the anticipated revenue growth. This strategy is likely to contribute to an expansion of the Profit before tax margin to 4.6% by FY27, compared to 3.4% in FY24.

Key downside risks:

1. volatility in gold prices, as the company has not fully hedged;

2. the operating performance.

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