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PC Jeweller Ltd
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Ladies and gentlemen, good day, and welcome to the PC Jeweller Limited Q1 FY '19 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjeev Bhatia, CFO of PC Jeweller Limited. Thank you, and over to you, Mr. Bhatia.
Good evening, ladies and gentlemen. A very warm welcome to the earning call of PC Jeweller for Q1 FY '19. My name is Sanjeev Bhatia, and I'm CFO of the company. And I have with me on this call Mr. Balram Garg, who is the MD; Mr. R.K. Sharma, ED and COO; as well as Mr. Ashneer and Mr. Nikhilesh, who are the President, in charge of different business verticals of the company. The quarter 1 results are in front of you. Company has achieved a top line growth of almost 17% in its Domestic segment on a quarter-to-quarter basis. The growth in the Export segment top line is almost 10%. Company has also grown its EBITDA by 9%. These results are in spite of the industry's scenario remaining tough during this quarter. There was a decline of almost 40% in the import of gold in the country, and as per our knowledge, there may have been a degrowth of almost 20% in this sector. We also advise that the liquidity conditions in the gems and jewelry sector continue to remain very tough, as on date, as banks are trying to reduce their exposure in this sector. Keeping in view the scenario, the focus of the company during this quarter was on customer acquisition and market share and not on margins exactly. In the current scenario, the need of the date seems to be conservatism and consolidation. The company during the current year will therefore focus on stronger branding, customer acquisition and same-store sales growth. The store rationalization and optimization also remains. At the same time, company will try to expand its franchisee network. The company, however, continues to work on upgrading its offering and product range. It has opened the first retail showroom of its high-end brand AZVA at Taj Santacruz, Mumbai, and is working on expanding its designs and product range. AZVA, which used to manufacture only gold jewelry, is also expanding its product range to diamond jewelry. We have recently launched India's first real-time augmented reality jewelry buying experience at 11 of our stores at Delhi NCR, and we'll be expanding the same progressively to our other showrooms as well. We have recently launched our Lal Quila Collection of jewelry, in April. It employs the Japanese manufacturing technique called Mokume-Gane and has been used to manufacture 22 karat gold jewelry for the first time. This technique provides a totally different look to the conventional gold jewelry and has been very well accepted by the customers. Going forward also, the company will be bringing out new innovations and designs in the jewelry market. I now leave the question open for -- session open for questions and answer please.
[Operator Instructions] The first question is from the line of [ Aayush Chandan ] from AZB.
Yes. My question is as regards to buyback that was proposed and then subsequently canceled. Can you specify what transpired the cancellation of the buyback and why did we leave it to the last -- the very last day when this was canceled?
Actually we were -- when -- there's a process, when we raise capital or any buyback or whatever, any capital success in the -- as you need certain NOC require, so last NOC pending with the bank. So we were discussing with bank a number of times and finally when they refused to give NOC, because of the -- they don't want that -- because they want that cash should be used for either the reduction of debt or growth of the company. So finally, when they refused, immediately, we called a board meeting and immediately -- we -- board meeting -- and board decided that if bank are not giving the NOC then no point to go for the buyback.
Did the refusal come on the very last day?
Actually refusal came at 1 week when we did our board meeting, but again, we applied, then the day we received the -- again, the refusal, then immediately the -- next day we called the board meeting.
[Operator Instructions] The next question is from the line of [ Mangesh Bharti ] from BLS India.
This is Mangesh. And my question is about the profitability of the company. So as I understood, in a tough environment, we are performing on the pace, 40% growth quarter-on-quarter basis. So my question is that, going forward with the same pace of growth, shall we expect the profitability to be higher than current profitability?
Definitely. Actually, if you look at the past trend, our -- we were growing by top line also and we were growing by the bottom line also, the same pace. And we have increased our margin last year by 1.5%. So this year actually, you see that the environment is not good and you look at industry environment right now that -- if you -- we're hearing from everywhere that industry growth is down by 20% and import down by 40%. So in that scenario, we don't want to lose our customers. And this quarter, we run some schemes and -- 2 times -- out of 3 months, 2 months was for the completed scheme, one is for the exchange jewelry scheme, one is a discount scheme. So this time, company decided we don't want to lose our customer, we want to acquire more customer and we compromise little bit on the margin side. So it is not that every quarter it is going to happen, but definitely, like in July, the July month was not good, but in August, the sales are very good. So right now, it depends on quarter-to-quarter, that company -- what company decides, whether we want to increase the margin in that quarter or we want to compromise the margin.
Okay. Okay, okay. So it's based around the -- this quarter. And my last question to you is that, you're expanding your business model with the franchisee route, and I'm seeing that last quarter you are opening the 3 franchises, Pune and all. So I have visited franchisee. What I found is that your franchisee size is smaller than local or your direct competitors. Does it affect your business? Because people in their minds sometimes thought that PCJ is the brand and when they enter into the showroom, they find it is like below -- they don't like the way PCJ is having the showrooms, but franchisee showrooms are not that much big as competitor-owned stores. So does it affect your growth? Because, I visited in the Pune, Pune store, there I found that the store is not the way it -- I expect that the PCJ store should be. So my question is that like when customer enters or -- does it affect your growth? You're adding one -- at one end you are adding the stores, expansions, with the franchisee route, but does it give the -- that level of the growth as your own store are giving?
You're right. So now -- yes, this is a very good question. Actually, if you look at -- you're talking about Pune, this is our the first -- this is our the second store of PCJ, which we opened in the mall, because we don't open the store in the malls. So we were -- that was the experiment or if you look at the other franchisee stores, they are very big stores, like every franchise according to the market, they are big stores. Only -- yes, you are right, the Pune store in the mall only. So this is our second store in the mall, first we opened owned store in the mall in the NCR, and this is our second store and this was a trial, that whether we can run the store in the mall. So this is a trial base and 2, 3 months back, we open this store. And if you look at other store like -- even we have opened a store in Hyderabad and other places, franchise stores, these stores are big stores and according to the market we are opening. Like in Tier 2, Tier 3 cities, our owned store sizes are same and the franchise store sizes are same. So we are not compromising on the location, on the size of the store, on inventory, so -- in the franchise model also.
Okay, got it. That was my...
So obviously the Pune -- you are -- Pune store is just exceptional, because that is in the mall. So this is our second store, one, we have opened owned store in the mall and this is the first franchise store in the mall.
Yes. And as a customer, sir -- as an investor or whatever it is, PCJ is carrying some brand value in terms of the eyes of the customers, and that should be retained because surely -- you're now franchising stores, location and everything. So my only...
Yes, your point is right. And I tell you that even the company is doing so many things like they are changing the location, like we have converted some small-format stores to the large format and in some places, 1 or 2 places, where the potential is not good and company have already opened large format, we have converted to the small format also. So according to the market, we are doing. Some stores we have converted to the large format also, like Ghaziabad, we have converted to the large-format store and some other stores also. So company is doing all the things. This -- that was the first experiment; if it is not suitable, then we'll close the stores.
The next question is from the line of Jiten Doshi from ENAM Asset Management.
Yes. Mr. Bhatia, my question relates to what is the gross debt and the gross cash that we are holding?
So we have given a detailed presentation -- our presentation, the total net -- there's 2 components, one is the gold lease and one is the debt. So altogether, the net we have around INR 3,000 crores. We have given a detailed thing in our presentation...
No, your net debt -- you net debt is INR 3,000 crores?
Net debt is -- it -- including the gold lease.
Including the gold lease.
The -- like creditors, it's a...
So when you exclude the gold lease, what is the -- because we have not received a presentation so far, it's not there on the website. So can you just...
It is less than INR 1,000 crores.
That is your net debt?
If you exclude this lease gold, so it is -- total liability like that plus this gold lease liability is around more than INR 4,000 crores, but we have cash on the balance sheet. So net is around INR 3,000 crores.
In fact if you -- we have uploaded the presentation on the BSE and NSE websites. If you look at the presentation, this time, we have given a detailed breakup on how the gold loan works. How much debt we have both on gold loan and what we have drawn down as debt and the cash position thereof. So it's in great detail given this time. If there's still any doubt, we are happy to sort of help.
No problem. Balram [Foreign Language] what is our idea of keeping the cash? Why don't we go and reduce our borrowings rather than holding so much of cash?
We have started reducing -- actually the main problem was earlier -- because we were -- earlier 2 years that we were not generating cash. Now because we have started franchise and cash surplus is there, so we have -- we were generating the cash from last 2.5 years. So there -- if you talk about the banks, banks sanction a limit, either the lease gold, either the other limit. So they have sanctioned more than INR 4,500 crore limit to us, and we were keeping INR 1,500 crore cash -- INR 1,200, INR 1,300 crore cash, because whatever cash we are generating, we are putting it into the FDs. Why? Because once you return the cash to the bank, so -- typically they cancel the limit. And earlier, because we were opening our own store, so we don't want to cancel the limit. Now we have converted our model to the franchise model, and for further growth, we don't require any debt. And that's why we have reduced debt and -- in first quarter also and the second quarter, definitely, we will be the -- we will reduce further in the second quarter by the FDs and cash surplus. So -- and for the future growth, we don't require any debt, that's why we are reducing debt.
Okay. Excellent. And my second question, Balram [Foreign Language] would be that we were proposing to do a buyback, but unfortunately, our bankers took objection to the buyback. Any -- I mean, the buyback would be done when you find very deep value in your stock, so the stock is going very, very cheap. Any -- could you give us any kind of an idea if the promoters would be interested in doing a creeping acquisition?
So right now, we cannot comment on this, but we are totally focusing on the business side. And right now, I am -- I cannot give answer of this. But -- because -- I cannot commit anything, I cannot say anything right now. But definitely, company is doing good and we keep opening stores. Day after tomorrow, we are opening stores and this month end, we are opening other 2 stores. So company is doing their business and we are -- definitely in this quarter also, we are reducing the debt.
Okay. Okay. So your -- for the year, as a whole, what sort of guidance would you like to give us?
Actually, right now, I don't want to give guidance. Why? because like this year, we -- like first quarter was down by 40% in the total industry, but we grown by 15%, 16% by giving some schemes or some -- launching some new collections. This quarter, like July month was dull, but this August month is very, very good. Excellent growth. So we want to wait for this quarter also. So right now, we definitely -- what our company was doing earlier, company is doing the same thing, keep opening stores, franchise stores, keep opening -- keep launching new collections, either the diamond jewelry collections, gold jewelry collections and then very innovative ideas, which can be shared, which we are acquiring more customers, so...
So in terms of the year, going forward, what our focus is to acquire new customers within our network access. So we have -- already have 93 stores out there. So while we will keep expanding on the franchisee route, on our owned stores, we want to drive more and more customers into the store. Now how are we doing that? So if you look at -- we have -- if you look at online, now across platforms, we have maintained PCJ as the brand. So earlier, we were doing also and we did -- we [ were P Chand ] for some time, but now, we've maintained PCJ as the brand. So people are discovering our designs online, not only on our website, which is pcjeweller.com, but on Flipkart, Amazon, Myntra, Jabong. So there is a sort of a multichannel approach, where people can discover the brand at multiple places and come and shop in our shop or online, wherever they feel like. Similarly, we've launched for the first time, gift cards, which are again being sold on Amazon. This drives new customers to our stores. We've launched augmented and virtual reality. So even if you go to our stores, not only can you see the inventory which is available physically, you can also look at the inventory which is available in the adjoining stores. So that we can arrange it for you if you like some other design. So the focus of the company for the next 1 year is completely on driving density to our existing store.
And one more thing is, we are doing that -- some stores like 2 stores we had closed, because -- really 1 or 2 stores we're more closing, and we are shifting some stores to the good location. So we have analyzed everything. And we're opening new stores also. So company is the -- totally -- and we are upgrading the stores also, like we have done some different interior and in some stores we are upgrading also. So company is doing marketing, branding, acquisition of new customers with new ways. So this is a focus of the company for the whole year. And definitely, growth will come.
Okay. And you are very focused now on franchisees. So mostly, all the new openings would be franchisee stores.
Yes, mostly in the franchisee, but we will open some owned store also, but mostly franchisee.
And what was your same-store sales growth for this quarter?
Actually same-store sale growth is around 5% this quarter and the balance is by the some of new stores.
[Operator Instructions] The next question is from the line of Akash Singh from Alpha Alternative.
My question is regarding to the franchise and also the model of the company. So basically, in terms of sales, is it the outright sale that we do with the franchisees?
Yes. Actually, we have only 1 franchisee model, like whatever inventory we give to the franchisee, we sell. And we take the money from the franchisee. So there -- so inventory on the franchisee books. So this is outright sale.
Okay. And what is a profit sharing ratio between you and franchisee?
Actually, profit sharing ratio is -- there are 2, 3 models, like if the -- according to sales, diamond jewelry sales, gold jewelry sales, but we share the almost 50% with the...
Okay. And this sharing is at operating margin -- operating profit level or...
For us and more for -- this is for us -- this is like PVT margin.
Okay, okay. And what's the guidance for FY '19 in terms of number of stores that you're planning to go ahead with?
So actually, number of stores, like April, we have opened 2, now this month, we've already opened 2, this month end, we're opening 2. So we're not giving any guidance, but we still keep opening the stores and like if we've opened in 4, 5 months 6 -- 2 -- 4 stores and now we're opening this month 2 stores, definitely, we're opening -- we keep opening the stores. But we -- at the right time, we're not giving any guidance.
Like currently, you have a total of 92 stores in -- pan India, right?
Yes. We have the 95 stores, but 2 stores we have closed and right now 93. So this -- right now 93 and day after tomorrow we're opening another one, then this month end, we're opening another 2. So definitely, soon, we will cross 100 stores.
And of this 93, what is this -- like franchisee and owned stores ratio?
Around 15 stores?
Around 15 is franchisee. We have started our franchisee model 1.5 years ago.
The next question is from the line of Rohit Harlikar from HDFC Securities.
So I cannot find the trade receivable numbers in your presentations. Can you please share the numbers outstanding at the [indiscernible]
Actually, we have given the numbers related to debt and inventory. So right now, we don't have the numbers but in September, we will share the complete balance sheet.
Okay, okay. And sir, what was the standard ratio for the quarter?
Just to give you some clue on the way the movement has happened on trade receivables, if you look at the segmental balance sheet, which is given with our results, you will see that the export segment, it has come down from INR 2,300 crores roughly to INR 1,930 crores. So that's a bit of a reduction of almost INR 400 crores on asset side on the export. So that is...
But exact number we don't have, but definitely that was -- that number also reduced.
Okay. So my second question was regarding credit shares. What was that for the quarter?
This year -- this quarter you're on 25%. Actually, there are 2, 3 adjusts of margins because last year what happened -- our regional margin in the -- were every quarter in around 16% to 17% gross margins. But last year, the first quarter the margin was more than 19% because first time was versus 37%, more than 35%, because we have loans from different brands in 2, 3 collections of diamond jewelry this quarter. This quarter, our -- we launched our gold jewelry collection only. So that's why our steady jewelry sales have come down, but in this quarter and the next quarter we are launching some diamond jewelry collection. So we will definitely keep that around 30% sale in the diamond jewelries.
Okay. And out of inventory of INR 1,400 crores, how much of that is outside the diamonds?
That number we don't have that right now. So definitely, these are numbers we don't have right now.
If you can give estimate, I mean the proportion...
I don't want to give any estimate because we don't have it. Definitely in the September, we will share.
The next question is from the line of Devang Patel from Crest Wealth.
I have seen your exporting domestic margins separately also for the first time. And your early PBT margins in the export business are about 4%. You also mentioned there are mark-to-market gains of 4%. So does that mean it's at PBT level breakeven this quarter excluding mark-to-market?
No, no, no. What -- #1 point is that we've giving separate vertical wise figures always, it's not the first time. But what we've given in our presentation also this 4% figure. Our gross margins are higher by 4%. And similarly at the PBT level also. So if that mark-to-market...
Mark-to-market is always there, so mark-to-market is always there. So it because -- every time when we grew at a quarter end, every time we export the mark-to-market is there. So back level, the margins are same in the export every time. But only because this quarter, because of dollar fluctuations so margins have increased in the export -- sorry, in export. And you can see the other income in the export side and that is the mark-to-market.
So the EBITDA has gone up from 5.7% to 10.6%? But at the PBT level, it's 2.7% to 3.7% only.
Because, because, because whatever extra you see is whatever our gross margins have increased...
I explained it like that in the gross margins, steady phases of our gross margin is around 5%, 5.5%. But it has grown by 2%. So 2% margin increase because this time in export, the hedging costs have increased a lot. And that cost we have passed -- we have agreement with the buyers, we've -- we're passing that extra cost to buyer. So this gross margins increase there and that extra cost is including the final cost. So final cost. So that's why the gross margin is also higher, and that extra cost is in the final cost.
Okay, got it. When you see August sales have picked up, are there any activations that you've done? Or this is just normal tick up in sales you're seeing in August?
Yes, we're doing some estimations also but without activation. Also the sales are very good in August.
Okay. On the loan side, you say across the sectors there's pressure to reduce -- from the banks to reduce exposure to the sectors. So are you also facing such pressure to reduce borrowings?
Actually, yes, there's a problem in the sector wise but because we have -- we're have a very comfortable position. So whatever cash we have, so only banks have -- they don't keep the cash, just reduce that amount. So apart from that, we don't have any problem, and whatever cash we have, we have already reduced in this quarter. Balanced cash, we are reducing. So in 3,000 level, including everything, like gold lease and -- so we are very much comfortable position, and every -- and banks are also in a very comfortable position.
Okay. You -- I think you used about INR 900 crores of margin for gold loans. So if you reduce this cash, what happens to the -- your limits are getting gold low stock?
So we have given a very detailed thing like you have asked, everything like what is the lien amount, what is the free cash, everything. So after giving everything, so what we are doing in this quarter. So it is almost less than 3,000.
My question is that, it is used on --
Used on the leased gold.
So it is used as margin against borrowing...
So margins against borrowing, FDR is there, so that we have explained in the -- so no need -- that is not INR 900 crores. That is around INR 200 crores.
Okay. So from -- if you reduce the cash and repay -- you'll be repaying the non-gold loan -- gold against gold lease loan?
No, no. We are reducing the liabilities. Yes, we are repaying and because -- and we don't require because we have now moved to the franchise model. For the further growth, we don't require any extra inventory. So if you look at it, we have reduced inventory also, and we are opening stores -- if we open own store, then at time, we require more. So right now, we don't require more cash for the growth.
Right. Finally, what kind of operating cash flow has been generated in the first quarter?
So cash flow is different in the...
What we have done is, we have given the debt position and the cash position. So from that, what -- it's pretty clear that we have repaid for INR 426 crores back to the banks. And after that, INR 426 crores repayment also, we have INR 182 crores free cash on the books. So that's -- we -- that's where our cash position stands. And beyond that, we have INR 980 crores of FDs, which are either given for gold loan or as a lien to the bank.
It's implying your cash flows are healthy. My second part of the question was that for the full year, as you generate more cash, other than reducing your FDRs, is there any further debt reduction you're planning from your cash position?
No, no, no. No, no. There is no planning to further. We'll -- whatever cash we are generating, we'll keep, and there is no need to further deduct. And if required, definitely, we -- whatever cash -- free cash is there. So there is no need from the bank side, but it is up to the -- it will decide whether free cash -- from where we want to use it, free cash.
Could you give a broader sense of how much debt you're looking to reduce this year?
Not now.
In September, we are giving the guidance. As I said, September, if you compare to the March, INR 4,500 crores, September is INR 3,000 crores.
[Operator Instructions] Next question is from the line of [ Manoj Khori ] from [ Eaglecrest ] Securities.
So first of all, if I'm not wrong, you just highlighted, like, on your franchisee, there was 50% sharing on PBT level.
No, no, no. Gross level.
At gross level.
Suppose our margins in the business are like 17%, right? So 8.5% we are giving to them, 8.5% we are keeping. And out of the 8.5%, almost 1% we are spending on the marketing side. So that's the only thing which we are currently spending. So our PBT margin is around 7.5%. So as of today also, if you look at our own model, the PBT margin is around 8%.
Right, sir. So secondly, in the fourth quarter con call, you highlighted like how you are going to utilize the INR 1,400 crores, INR 1,500 crores of cash on your books. So like, it was approximately INR 400 crores to INR 450 crores would have been utilized for a cash -- for a buyback, and rest of them would have been largely utilized to repay the debt.
Yes.
So in this case, yes, so as you highlighted like banks denied, and there was no issue of NOC. But if we look at the debt repayments within the tune of INR 430 crores. So in this case, why can't we actually repay the debt in a, like, in the 3 months? Like, so suppose INR 1,000 crores of debt repayment you are planning. So what made you actually stop? Like you repaid only INR 430 crores.
Yes. And actually, you are right. And because funding is in the form of FDR, and FDR is maturing, and that amount we are returning to the bank. So this September, everything will be returned.
Okay. So you won't be having any debt growth? So everything post September would be gold metal loans?
No, it is a mix of both. Some might -- some funds will be the funds -- it is working capital, and some -- majorly the gold on lease. Major portion will be the gold lease.
See, just to give you a sense. We get overall working capital limits from the banks. Now depending on the need of the business at that point of time, we use that working capital limit either as a drawdown, right, which might be used for buying diamonds or for expenses and expansion, or we could use it as a gold loan limit, right? So we want to always maintain that fungibility of that limit at the discretion of the management, depending on how we want -- where we see the market is going, right? So what we -- and this time also around, we have given you the complete details of it, and we are at INR 4,000 crores of total bank exposure today. And what we are pointing out is that, that INR 4,000 crores of bank exposure by end of September will come down to INR 3,000.
The next question is from the line of Ankit Shah from [indiscernible].
Just have -- there were 2 recent store openings, one is in Deoria and one is Rewa. Could you please tell us if this is through franchises, or these are company-owned stores?
They both are the franchisees. Both are franchisees.
Okay, okay. So -- and just one more thing, thanks for a detailed explanation on the debt piece in the presentation. There's, however, just one missing link here. If not, sir, can you split the INR 4064 crores of bank exposure between the gold loan and the regular debt?
Sure, sure. So as I -- the reason we have not, sort of, given a split is because as we told you, that fungibility we always want to maintain. But just to give you more sense, roughly, it is INR 3,000 crores and INR 1,000 crores. So INR 3,000 crores of gold loan and INR 1,000 crores of drawn down debt.
You've seen everything. So we think that this is all the other INR 1,000, this is a liability.
It is a liability.
Sure, sure. Sir, just one more on this is, sir, in the last quarter's conference call, management had guided that in -- within next 3 months, we should be able to reduce debt substantially. And most of the cash could be utilized to reduce debt, and that is kind of only partly happening. Again, last time, there was a collective disclosure on about INR 400 crores of receivables being realized. And again, in this quarter, you are not disclosing the receivables on debt. Sir, I appreciate your effort in trying to sort out issues that are coming up. But sir, it will be really helpful if we have a consistency in disclosure norms. That will be really useful to build credibility amongst the shareholders. Just one piece of mind, if you could keep this going forward. And sir, are you kind of certain that you would want to reduce the bank liabilities to less than INR 3,000 crores by September-end?
So I'll take the first question, the first part of it. So absolutely, we want -- so one of the things we've learned over the last, sort of, 6 months is, the market, obviously, wants a lot more disclosure from us, right? And we are very happy bringing that disclosure as long it's not competitive information that we are giving out. Now as a part of that process, you have to understand, it's a process, right? It's not me taking a call one day and saying, "Today, I'm going to disclose everything," right? So as a process, we have -- we are trying to educate the market on how the business is run. We are -- which are the key areas where the market needs immediate address -- some things need to be addressed immediately, which is the date of the acquisition. Now going forward, we will also evolve these this disclosures more so that you get more segmented information to get more the type of that -- of the P&L balance sheet and cash flow, right? So that is all in the works. Please bear with us, over the next 6 to 9 months, you will see a lot more change in terms of the disclosures that we make.
And the second part question is, yes, we have already part -- because as I explained earlier also, in the earlier calls, an earlier participant asked me, that we're keeping the cash on the FDR, and the FDR date is matured, we're prepaying that to the bank. So yes, we are 100% sure that by September, this is going to happen.
[Operator Instructions] Next question is from the line of Pradesh from Alpha Capital.
So my question is around this franchisee model, which the company's suddenly adopted, looks like that is the whole key to debt reduction and answering all the questions the investors had. Can you provide some more information around the interest you're receiving from franchisees, what is the process you adopt to onboard franchisees, what are the geographies where you're focus is going to be on in this particular model?
Actually, mainly, we're opening franchisee stores in the Tier 1, Tier 2, Tier 3 cities. And we have a different incentive team than we had. So they just complete first -- because we have selected the cities where we want to open the stores. So when any franchisee applies from there, we do complete due diligence and after that, we give franchise to the person, we select the location and everything. So -- and we set the criteria, how much inventory we needed for that market. If that franchisee can invest that much of inventory, and we give incentives to the person. And we share the 50% profit with them and we don't give any credit to the franchise.
So far the 50-odd stores that you opened, you're pleased with your learnings and the rate has evolved, and you see this sort of getting ramped up in the near future?
Yes, that's why we are opening more franchises. Yes, we're opening some owned stores also in the future, but mainly our growth will come from the franchise market.
Just a question -- one of your large competitors, obviously adding to troubles and, I think, the whole business has shrunk. Are you seeing some migration from those franchises and people who are maybe learning stores from that large competitor?
So actually, yes, there is a lot of franchises that are applying and some are from the competitor site also, some are other persons also. So we -- our process is the same. Whether the person is franchise for other competitor or he is not from the other competitor. So our process is we follow the same process.
The second question, which is kind of related to my first one as well. Obviously, your last 6 months have not been that great, I mean, 6, 9 months. Has this impacted your sort of inquiries from the franchisee perspective and, a related point, you had obviously signaled the buyback as an intent to the market that you are undervalued and you want to buy your own stock, but that has been refused by your bankers, is there going to be more discussion around that, to the extent you're also asked for more information. So now as a significant mechanism, do you propose to do something else? Or are you just going to be focused on just improving the business and then market discovered the right valuation for the company?
It's a good question. See, what we want to also sort of reemphasize is that, when we announced the buyback, right, what was our intention? Our intention obviously is that we see everyone on the liability side of the balance sheet as a real liability right, whether it's a debt or an equity holder, right. And we felt the market would want more comfort if we -- or get more comfort if there was some sort of cash, which went back to the equity shareholders similar to the way we're reducing the debt in parallel. And that was a very true intention, which we went about it. The learning for us was that, obviously, the banks want themselves ahead in the waterfall of any reduction in liability and that is a lesson that we have sort of clearly learned. So we're not worried about whether our stock is overvalued, undervalued, that is for smart folks like you to make the market and make the market clear at the right price. Our focus and our learning from the last 6 months is that we need to be focused a, on our business. B, we need to run the business with the simplest principle of corporate finance, which is saying, the first liability to be dealt with is the bank's liability, because it is coming at a lower cost and, therefore, it has priority. The subsequent liability is the equity liability. So that's our sort of simple learning from the last 6 months. Secondly, you understand that the business market and the capital markets have very different perceptions of a business, right. So you might think that a buyback was announced and it did not eventually take place or what's happening. But if you look at the larger market, it gives a very strong signal where a business is saying, I'm happy to return money back to you, if you need it for any purpose as a liability, right. So the franchisee inquiries are actually not affected by what the capital markets think about the stock at a given point of time. They're slightly more sort of a linear behavior there, as against a very sort of volatile behavior that one observes in capital markets.
Fair enough. So I'll just ask kind of a leading question. So in terms of in your learnings and your market will declare its own price and various things. But obviously, as the holders and as the key management staff feel this whole collapse in the stock price is certainly not something desirable. Are you guys thinking as a team around maybe communicating differently to investors, obviously your management position is involved, anything more proactive around larger retail investors because you're -- the number of retail persons have increased many fold over last few months. Any thoughts around the whole corporate communication and investor communication given the -- what will happen 6 to 9 months?
Absolutely. If we -- every business, businesses have to evolve, right. And there are -- every business will go through certain phases where things are not happening as they are intended for no fault of yours either, right. So just because one of the players in our sectors got maligned, the banks in the sector have become very risk-averse all of a sudden, which is fair. Like if I were a banker, I would have a similar view sitting on the side of the table. But what we have sort of learned and what is the clear learning for us is: a, we have to be more interactive with the market, right. And as a first step to that, hopefully this presentation that we have sent out today leaves you slightly more educated about that business than before; b, corporate governance is the key, right. So everything that we do, we have to have a very strong lens of corporate governance on all our actions going forward. So those are the 2 things, greater disclosures, better corporate governance and sort of better interaction with the market at large, right. Sometimes what we have been foggy of is that we sometimes think they are doing very good business, we are delivering the growth, we are delivering the margins, and therefore, the market should by itself understand what we are doing. Clearly, that has not happened and that's a learning that we need to be slightly more dialogue-based with the market, going forward.
That's great. I think one thing which you guys can do is just relaunch your Akshay Kumar campaign, and sure things will get corrected. So all the best.
[Operator Instructions] The next question is from the line of [ Surya ] Gupta from [ Isha ] Financials.
Yes so first of all, I wanted to know who the second person is answering the question? Was it Mr. Balram Garg? What's the name of the second person?
Sure. My name is Ashneer Grover.
Yes, yes. And you're part of management there?
Yes, sir.
Yes. Okay, okay. My second question is related to your modus operandi for exports business. So is it your own entity with whom you export? Or do you export for different people? How does it work? This question is related to getting more feedback on the free trade receivable? And is there, because market is a little nervous about the trade receivables from the export sectors, so we just wanted to -- this question I wanted to ask with relation to whether these trade receivables are secure and what's the mechanism? A little bit of light on that.
So first of all, we have given a complete process of how we do export and how different documents in our presentation. But I will explain that every document goes through the bank and we don't export to our any entity. And we don't -- only the outside party only. So we are not exporting to our own entity. Number one. Number two, all the documents are going through the banks only. And every shipment -- we are doing only gold jewelry. And every shipment is paid by customs and we have given a complete process how we do that. And all the metals secured on export, also on the lead [ report ] through -- from the banks. So this is the exports and these are receivables not LC backed, but this is -- all the documents through banks.
Okay. And this should take place through letter of credit or how does it take place?
These are not the LC banks. I am already saying that, these are not letter of credit. So these are through banks only, but we are not sending any documents directly. All the documents through bank only, bank to bank.
Bank to bank only?
Yes.
Okay. And typically how much is the duration for a particular export in getting receivables, what's the cycle bank? 30 days, 90 days?
Actually the complete export cycle -- because when we take gold on lease and whatever gold is sold on lease, it takes some time to make jewelry, sometimes it takes 1 month, sometimes it takes 2 months, sometimes it's 3 months, so all the process are completed within almost 180 days.
180 days. And when you export the jewelry, you get payment within -- how much time does it take to relay the payments?
Different buyers have different things. So all the process completes almost everything in 180 days.
The next question is from the line of Ajay Thakur from Alder Capital.
I have 2 questions. One was on the hedging policy. So can I just know if we have 100% of our domestic gold purchases being hedged or how is it actually?
We buy actually -- we buy gold from the bank only on the lease model, but when we exchange jewelry from the customers, that portion is not hedged, but whatever inventory we buy from the bank, it is totally hedged.
Okay, so what is your total unhedged gold position?
It keeps on moving. It will not be more than 15%, 20%.
And secondly, there was a mention of around 100 to 130 basis points of margin impact, because on the domestic margins, domestic gross margins, because of ForEx MTM, mark-to-market, can I just know -- can you explain how this is.
Actually, there are 2 components in the gold when we buy gold on the lease. So it -- so there's a lease credit also and a lease credit from the dollar side. So at a particular -- then the dollar fluctuates a lot, right? Like if dollar fluctuated $1 or dollar fluctuated INR 1 or INR 2, INR 1.5, then it will not impact. But if the fluctuation was greater than this, in particular times when the dollar fluctuation is higher, like more than INR 2, so it affects the margins, specifically. So at a particular time, there are the ForEx loss on the greater side. But yes, this is the only non-sale loss. It is not the actual loss.
Ladies and gentlemen, due to time constraint, this was the last question. I now hand over the conference to the management for the closing comments.
I thank all of you for joining us at this date, on a weekend, and I'm really thankful for a very lively question-and-answer session. I hope that we were able to satisfy majority of the queries, and I wish you all a good evening, and a happy weekend. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of PC Jeweller Limited, that concludes this conference call. Thank you for joining us. And you may now disconnect your lines.