Corporate Governance : A case study in the context of Adani
The gold industry is integral to the Indian economy, contributing 1.3% to Indian GDP. The advent of chain stores in the last 10-15 years and their gradual gain of market share at the expense of stand-alone retailers has been notable. And this market share continues to increase up 5% since 2016 and representing a 35% share of the market by 2021. One of the main challenges of this industry is securing bank credit given 20% of the loans were non performing assets.
In this space, back in 2015 PC Jeweller looked a promising upstart. PC jeweller announced a 1500 crore expansion plan for 200 new outlets. Balaram Garg then envisioned going to tier 3 and 4 cities even before e-commerce firms caught up with the idea. This company had an ambitious plan to launch a new brand every 3 months. In 2016, they went on to acquire the brand Azva from World Gold Council. By 2016, PC Jeweller had 58 showrooms in 48 cities covering 18 states. By July 2016, they were getting attention from marquee investors. Fidelity invested 250 odd crores through a preferential allotment. Shares of the company saw a meteoric rise between 2016 and 2018. From ₹ 150 in November 2016, the stock peaked to ₹ 590 by January 2018.
In Feb 2018, PC Jeweller crashed 60% intraday when allegations of suspicious transactions with Vakrangee broke out. It recovered 35% to close 25% lower for that day. The stock eventually hit a low of Rs 95.05 in May 2018. There were allegations that Vakrangee and PC Jeweller had undisclosed business. The promoters came out and said that Vakrangee bought shares in the secondary market and they couldn’t be held responsible for it. The promoters declared all disclosers were made. Even the bulk deal data available with NSE showed that Vakrangee bought 20 lakh shares, amounting to 0.51 per cent stake in the jewellery major. But the market was not willing to go with it.
Then gifting of shares to family in off market transaction further complicated the perception. Apparently, one of its promoters Padam Chand Gupta had gifted some of his shares to his family members through off-market transactions. Tensions rose after PC Jeweller’s MD Balram Garg was arrested, even though he denied all allegations. Shares of PC Jeweller never recovered from the crash and slumped to as low as ₹ 8 by March 2020.
PC Jeweller rose from Rs 110.65 recorded on May 2, 2018 as it denied CBI search rumours on May 3rd to Rs 209 on May 10, a rally of nearly 88 percent in just six trading sessions. In May they had announced a buy back of 420 crores odd worth of shares. At this time Fidelity held around 7% and LIC around 2% in the company. In July, 2018 they decided to withdraw the buy back proposal which sent the stock down 23%.
In December 2019, CRISIL also downgraded the company’s credit rating to default. In December 2019, SEBI imposed a fine of insider trading on promoters. This was challenged in SAT and eventually overturned by Supreme Court of India in April 2022. In the ruling it was argued that there was complete breakdown of personal relationships within the family and Supreme Court wanted further evidence to continue the charges set on the promoters.
Like every accident, its always a confluence of events. This goes on to show that PC Jeweller is still a functioning and listed business. But had all this not happened, perhaps they would have gone on to make good on their plans and ambitions. Hence, this is a case to show that not being able to demonstrate corporate governance standards under intense scrutiny can set a company back by a decade perhaps.
We take corporate governance as a means to select stocks instead of an after thought in our Listed Venture Capital Smallcase.