P.N. Gadgil Jewellers: Full DCF Valuation and Buy Recommendation

Karan chose P.N. Gadgil Jewellers as his research subject at Motilal Oswal, selecting the company independently based on his read of the Indian jewellery sector. His thesis was straightforward: in a country with festivals driving jewellery demand year-round, the sector had structural tailwinds that made a well-run retailer worth examining closely.

He started with the financials. P.N. Gadgil had reported roughly Rs. 7,700 crore in revenue, growing at 26-28% year on year, but with a net margin under 3%, which is typical for gold retail given how heavily the metal dominates cost of goods sold. Karan projected revenue growth stepping down from the low 20s toward a steady 8% as store expansion normalised, and held EBITDA margins in the 5-6% range, adjusting for the company's shift toward cheaper gold metal loan financing.

For the discount rate, he used a WACC of 11-12%, building the cost of equity through CAPM with a retail sector beta of 1.1-1.2 and blending it with the post-tax cost of debt. He set the terminal growth rate at 5%, in line with long-run nominal GDP.

He stress-tested the model with a sensitivity table, identifying the two variables that drove most of the output: gold price assumptions feeding into margin, and the pace at which same-store sales growth normalises as the store base scales. The DCF output pointed to the stock being undervalued at its then-current price.

The valuation was reviewed by his seniors and became the basis for a buy recommendation to clients, with a target price of Rs. 1,100-1,200 over a one-to-two year horizon, positioned as a long-term investment.