• FIC Hansraj

All that glitters is not gold

It was 2005, the housing market in America was booming and Michael Burry had begun his analysis of the mortgage lending practices in the USA. While this was happening in America, in India, it was the time of birth of one of the largest jewellery chains in India, PC Jeweller


PC Jeweller was an idea conceived by siblings, Pramod Chand Gupta and Balram Garg. What started as a stand-alone jewellery shop in the busy markets of Karol Bagh in Delhi, soon raised an empire of its own. Gradually yet steadily it added more stores and set up production establishments for exports, wholesale and retail purposes.


PC Jeweller could ride the winds of success owing to the changing preferences of the Indian shoppers who started taking an interest in the organised jewellery market. Noticing the favourable business environment, PC Jeweller launched an IPO in 2012 and was able to raise Rs. 600 crores and at that time, it had only 20 stores.


However, all that glitters is not gold. Ever since Jan 19, 2018 PC Jeweller hasn’t been able to shine as it did before. While in 2018, the company’s shares were being traded at around Rs. 600 a piece, it took just 2 years for it to fall from grace, with the shares being traded at a mere price of Rs 8 back in March 2020.


PCJ Jewelers downfall | stock crash

The crisis

PC Jeweller tasted the dust of defeat owing to the greed and manipulative nature of its promoters. It got mixed in with some bad apples and lost its appeal in the court of public opinion.


A web of lies

The lies began when Vakrangee, a Mumbai-based financial and technological company bought 20 lakh shares worth Rs. 112 crores on 25 January 2018. One would expect that such a block deal would be reported to the securities market, however, no such declaration was made in any of the exchange filings regarding the seller of the shares. Although PC Jeweller clarified that no promoter had to offload their shares in the market, it only bred ground for more speculation.


Vakrangee told Bloomberg Quint that its investment in the jewellery company was a treasury investment which was made based on the future potential of the jewellery company. At that time Vakrange was under heavy scrutiny by the SEBI which alleged the company of price manipulation of its own shares.


Later, on January 30, Vakrangee issued new treasury guidelines prohibiting the company from owning a direct equity stake in any company. In coherence with the new guideline, the company had to offload a significant amount of stake in the PCJ, which subsequently led to panic selling causing the share to tank as much as 60% in intra-day trade.


The incredible Jeweller

The lies continued as investors started to get concerned over the “quality and timeliness” of the disclosures by the company. There were concerns that promoters of the company were “gifting” their stake in the company to their relatives via off-market transactions. Even though the firm reassured its investors that it would make requisite disclosures for the same from time to time, it did nothing to assuage the public’s loss of confidence in the company.


Another blow was struck to the company in May 2018, when the market regulator, SEBI found four individuals guilty of insider trading (an act of trading on the basis of unpublished price-sensitive information). The individuals concerned were Balram Garg (Promoter), Amit Garg (Balram’s nephew), Sachin Gupta, and Shivani Gupta (son and daughter-in-law of the company’s chairman, late PC Gupta). As a result of these charges, SEBI imposed an aggregate fine of Rs. 1 crore on the guilty and barred them from trading in the shares of the jewellery company for 1 year.


It became difficult for the public to believe the announcements made by the company. Thus, it was again disappointing when the company withdrew the buyback announcement to purchase shares worth Rs. 4245 crores from investors. The buyback announcement was repealed because the company failed to obtain the NOC (No Objection Certificate) from its bankers, which only further led to the decline in the stock price.


The future

The company’s future is not as shiny as the gold it uses to manufacture its products. With the fine imposed by SEBI on Balram Garg and his family on account of insider trading, the company has lost all credibility in the market. Furthermore, due to the multiple instances of banking fraud committed by the country’s top jewellers, Nirav Modi and Mehul Choksi, the jewellery sector in India is expected to remain dull for some time at least.


Currently, the stock trades at around Rs. 98 per share. While the stock is fundamentally stock, it is the shadow of the top level management of the company that has been preventing the stock from reaching its full potential. Now that the company has made significant progress in resolving its differences with the regulating authorities, right now is the perfect time for the company to make a turnaround.


Author: Neeraj Agarwal

Illustrator: Tanmay Choudhary