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Half a decade ago, PC Jeweller enjoyed a stellar reputation among stock market investors. Between 2014 and 2018, its shares surged from a modest ₹50 to an impressive ₹500, yielding a remarkable 1000% return. The Gupta brothers, Padam Chand and Balram Garg, who had initiated this journey with a single store in Delhi in 2005, had successfully transformed the company into a prominent player with over 84 stores. Brokerages showered it with praise, publishing reports titled “Shining Bright” and “Wedding Glory.”
However, in January 2018, the company’s fortunes took a sharp downturn due to a seemingly innocuous piece of news. A software firm named Vakrangee acquired a 0.51% stake in PC Jeweller, a common practice for companies to invest excess funds. Vakrangee claimed they were business partners, which appeared reasonable at first.
Nonetheless, Vakrangee was under scrutiny by market regulator SEBI for share manipulation, which rattled investors and raised suspicions about its ties to PC Jeweller. Concerned shareholders rushed to sell their PC Jeweller shares, causing a significant drop in their value.
Another blow followed when it was revealed that Padam Chand Gupta, the founder, had quietly gifted some shares to relatives through an off-market transaction. This raised concerns about corporate governance at the company, deepening investor worries.
PC Jeweller initially defended itself, insisting it had done nothing wrong and was transparent in its disclosures. They also announced a share buyback to restore confidence, promising a premium to shareholders. However, just two months later, they withdrew the buyback plan, citing bank concerns and the need to focus on reducing their mounting debt.
Simultaneously, SEBI launched an investigation into potential insider trading by the Gupta family, adding to the company’s credibility crisis.
For a jewelry business, trust is paramount, and PC Jeweller’s tarnished image began affecting its reputation. Customers hesitated to visit their stores, fearing the jewelry’s authenticity. Furthermore, in a climate where the notorious diamond merchant Nirav Modi had perpetrated a massive scam, banks became cautious, demanding higher interest rates and reducing loan approvals.
PC Jeweller found itself trapped in a dire situation, worsened by its growing debt. Running a jewelry business demands substantial capital, involving gold imports and maintaining extensive inventory. The company borrowed extensively to support its operations, particularly with rapid store expansion, which increased its debt and interest burden.
While this debt strategy could work with rising sales, PC Jeweller faced a sales decline due to the allegations. From nearly ₹10,000 crores in FY18, sales plummeted to a mere ₹3,000 crores in FY21. Inventory turnover slowed significantly, with Days Sales of Inventory (DSI) soaring from an average of 200 days in FY18 to over 900 days in FY20, causing cash flow issues.
The export side of the business also encountered difficulties, with lengthy credit cycles. Business-to-Business (B2B) transactions took an average of nine months to settle dues, resulting in substantial write-offs.
These challenges ultimately led to PC Jeweller’s financial downfall. In 2022, the company defaulted on its ₹3,400 crore bank loan, prompting SBI to pursue legal action in bankruptcy court to recover its funds.
