MANAGEMENT DISCUSSION AND ANALYSIS

GLOBAL ECONOMY

The global economy continued to expand in 2014 at a moderate and uneven pace, as countries remained saddled with unfinished post-crisis adjustments. Global recovery was hampered by some new challenges, including a number of unexpected shocks, such as heightened geopolitical conflicts in various areas. Growth of WGP (World Gross Product) was estimated at 2.6% in 2014, marginally better than the growth of 2.5% in 2013, but lower than the projected 2.9%. A salient feature for major developed countries during 2014 was an erratic movement in their quarterly growth rates. Conversely, the economic situation in Europe was brcarious, particularly in the Euro area, with some countries close to recession again. (Source: United Nations)

Prospects: In the baseline outlook, further improvement is expected for developed countries, with growth projected to be 2.1% and 2.3% for 2015 and 2016, respectively while the global economy is expected to grow by 3.1% and 3.3% during the same time.

Challenges: Unemployment remain high in many countries in the region and headline inflation was at alarmingly low levels. Growth rates in developing countries and economies in transition became more divergent during 2014. A number of these economies encountered various country-specific challenges, including structural imbalances, infrastructural bottlenecks, increased financial risks and ineffective macroeconomic management, as well as geopolitical and political tensions. Downside risks remained significant, especially in the Euro area and Japan, which reported renewed weakness in 2014.

INDIAN ECONOMY

The Indian gross domestic product (GDP) grew at 7.3% in 2014-15 and is poised to grow by 8% in 2015-16 according to forecasts by OECD, compared to China, which is pegged to grow at 7% during these years. With labour costs spiking in China, India is expected to emerge as the fastest-growing major economy in 2015-16.

India's per capita net national income during 2014-15 is estimated at Rs.88,538 (US$1,434), a rise of 10.1% compared with Rs.80,388 (US$1,302) during 2013- 14 with a growth rate of 12.3%. Gross fixed capital formation increased from 3% in 2013-14 to 4.1% in 2014-15. Average retail inflation moderated to 6.3% in 2014-15 as against 8.9% in 2013-14.

India's current account deficit shrank to some 1.3% of GDP and could well narrow further to 1% of GDP next fiscal. Foreign direct investment hit a high of $34.9 billion in 2015, a massive 61.6% from $21.6 billion in the brvious fiscal, accounting for 1.7% of the GDP, up from 1.1% in the brvious year.

Outlook: According to IMF estimates, India's growth is likely to improve from 7.3% in 2014 to 7.5% in 2015 and 2016, whereas the Central government looks even more ambitious and has budgeted an 8.1-8.5% GDP growth — sprouting from recent policy reforms, consequent pickups in investment and lower oil prices. For a country like India that imports almost 70% of its oil requirements, the fall in prices of global crude oil could have benefits through disinflation, interest rate cuts and increased consumer demand.

INDIAN GEMS AND JEWELLERY INDUSTRY

India is the world's largest cutting and polishing centre for diamonds with the cutting and polishing industry being well supported by government policies.

India exports almost 95% of the world's diamonds, as per statistics from the Gems and Jewellery Export Promotion Council ('GJEPC"). The industry is projected to generate up to US$35 billion of revenue from exports by the end of FY2015.

The gems and jewelry sector in India plays a significant role in the Indian economy, contributing around 6-7% of the country's GDP. One of the fastest growing sectors, it is export-oriented and labour-intensive. The government declared the sector as a focus

REGULATORY UPDATES FOR

Reserve Bank of India ("RBI") reactivated the Gold on Lease Scheme in June 2014 which was suspended in August 2013, thus providing a huge relief to jewellers like PC Jeweller. The Lease Scheme allows the jewellers to protect their gold inventory from commodity price movements as well as withdrawal of 20:80 Scheme by the RBI in November 2014 has reopened the supply channels of gold in the country and increased the availability of the metal. This has helped in removing the high brmiums on domestic gold prices.

JEWELLERY INDUSTRY:

Including the Gems &  Jewellery industry in the Make in India Programme. This has been done in view of the huge employment potential of this sector.

Introduction of Gold Monetisation and Sovereign Gold Bond Schemes: The exact modalities of these Schemes are still being finalized but once operational will give a big boost to the domestic supply of gold, reduce the dependence on imported gold as well remove the potential impact of gold imports on the balance of payments position. area for export promotion, based on its potential for growth and value-addition.

According to the study by the global consultancy firm AT Kearney, India's gems and jewellery industry is expected to double in the next five years and is expected to reach Rs.500,000— Rs.530,000 crore (US$ 81.63 billion-US$ 86.52 billion) by 2018 from Rs.251,000 crore (US$ 40.96 billion) in 2013. In FY14, India's gems and jewellery sector contributed US$ 34,746.90 million to the country's Foreign Exchange Earnings (FEEs).

The two major sectors of the industry in India comprised gold jewellery and diamonds. The country is the largest consumer of gold, accounting for more than 20% of the total world gold consumption. Gold jewellery forms around 80% of the Indian jewellery market, with the balance comprising fabricated studded jewellery that includes diamond and gemstone studded jewellery. A brdominant portion of the gold jewellery manufactured in India is consumed in the domestic market.

India's gems and jewellery industry is highly unorganized and fragmented with 96% of the total players being family-owned businesses. The gold processing industry has around 15,000 players, with only 80 enjoying revenues over USD 5 million. India is also home to around 450,000 goldsmiths, 100,000 gold jewellers along with 6,000 diamond processing players and 8,000 diamond jewellers.

Did you knowRs.

The industry is dominated by family jewellers, who constitute nearly 96% of the market.

MARKET SIZE

The jewellery market in India is expected to grow at a compounded annual growth rate (CAGR) of 15.95% over the period 2014-2019.

The gold jewelry exports from India were US$ 554.45 million in December 2014, while silver jewellery exports were US$ 148.49

million, as per the data released by the GJEPC.

The cumulative foreign direct investment (FDI) inflows in diamond and gold ornaments during April 2000-December 2014 were US$ 476 million, according to Department of Industrial Policy and Promotion (DIPP).

The fiscal year 2014-15 saw an increase of 12.65% in the export of cut and polished diamonds with the segment reaching US$ 19,635 million. The industry also witnessed a rise of 11.98% in imports of rough diamonds with figures of US$ 16,716 million.

Also, platinum jewellery could breach the Rs.2,500 crore (US$ 402.95 million) mark in FY15, according to research by IKON Marketing Consultants.

Did you knowRs.

India was the first country to introduce diamonds to the world, the first to mine,cut and polish them as well as trade them.

GOVERNMENT INITIATIVES

RBI liberalised gold import norms. With this, star and brmier export houses can import the commodity, while banks and nominated agencies can offer gold for domestic use as loans to bullion traders and jewelers. Also, India has signed a Memorandum of Understanding (MoU) with Russia to source data on diamond trade between the two countries. India is the top global processor of diamonds, while Russia is the largest rough diamond producer. The Government of India is planning to establish a special zone with tax benefits for diamond import and trading in Mumbai, in an effort to develop the city as a rival to Antwerp and Dubai, which are currently the top diamond trading hubs.

In another significant development, the Gems and Jewellery Skill Council of India is planning to train over four million persons till 2022 as the sector is facing a critical shortage of skilled manpower.

The council will tie-up with the existing training institutes including Gemological Institute of America (GIA) and Indian Gemological Institute (IGI), alongwith setting up of new institutes in major diamond cutting and processing centres, GJEPC said in a statement.

PRODUCT WISE PERFORMANCE

The Company is primarily engaged in the business of jewellery manufacture and retail. The Indian jewellery industry is broadly divided into three segments comprising gold, diamond and other brcious stones of which gold jewellery continues to be the dominant component. The Company is not only involved in the gold jewellery segment but have also increasingly extended its brsence in diamond jewellery over the last few years. This has not only enabled the Company to drive higher margin growth but has also allowed the Company to remain a contemporary brand catering to modern consumer choices.

During the year under review, the Company was able to increase the share of diamond jewellery in its overall domestic sales from 26.45% in FY14 to 31.52% in FY15.

The Company continues to focus on diamond jewellery by bringing out new varieties to suit a larger cache of customers at regular intervals and has also added an e-commerce vertical (www. wearyourshine.com) with a strong emphasis on diamond jewellery with competitive pricing to attract younger consumers and engage with them on platforms that they are most comfortable with.

INDUSTRY GROWTH DRIVERS (OPPORTUNITIES)

In the past few years, the Indian gems and jewellery sector has been on a growth trajectory and its growth has been driven by several interplaying factors. Some of these demand drivers are as under:

Low cost of labour: The low cost of labour for cutting and polishing of diamonds has made India an attractive destination for diamond processing. Further, the diamond jewellery that is produced at a cost of US$ 60 to US$ 90 fetches around US$ 180 in the international markets, which leaves a huge margin for the retailer.

Rising disposable income: The rising disposable income has been a major demand driver for the sector over the years, both domestically as well as internationally. Jewellery, particularly diamond jewellery, is considered as a lifestyle product, and the demand for lifestyle products has also gone up with the increase in disposable incomes; as a result, the gems and jewellery sector has recorded tremendous  growth in the past few years. Gold demand has been rising in India in the last few years because of increased purchasing parity of the middle class and the increasing income levels.

Rise in number of working women: Over the last few years, there has been a spurt in the number of working women. This trend has not only empowered women financially but also has changed their general attitude; as a result, there has been a growth in purchase of gems and jewellery by this segment, mostly for jewellery that can be worn at work and for social occasions. The increase in purchasing power of working women and their changing fashion needs has pushed up growth in the gems and jewellery sector.

Nurturing new talent: The government has set up various training institutes to attract quality personnel, to cater to the international market and focus on constant innovation of globally-acceptable designs. These institutes were set up to provide the gems and jewellery sector with a well-trained professional workforce proficient in all aspects of jewellery design, refining, model making, jewellery manufacturing, CAD / CAM, gemmology and diamond grading.

Adoption of Kimberly Process certification system: India is a member of the Kimberley Process Certification Scheme (KPCS) that promotes conflict-free diamonds and thrives to brvent smuggling and non-standard trade in diamonds. Under the KPCS, import or export of all rough diamonds in India is permitted only if the shipment is accompanied by the Kimberley Process Certificate, which has not only increased the credibility of diamonds processed in India in the global market but also has boosted exports.

Increased awareness and changing brferences: There is a rise in awareness about diamonds in the Indian market. Various initiatives are being undertaken by major diamond producers, retailers and industry bodies about portraying diamonds as exotic as well as affordable. Increased promotion by retailers has made consumers aware of the diamond jewellery and have created demand from various segments, which include people from all age groups. The trend of buying jewellery only during special occasions such as weddings and festivals has gradually changed.

Development of Special Economic Zones (SEZs): The government set up various SEZs to provide special incentives to the highly export-oriented sector. The SEZs have units catering to designing, cutting and polishing of jewellery. The development of SEZs for gems and jewellery facilitated growth and enhanced the trade potential for the sector.

THREATS

Changing consumer brferences: Global marketing requires keeping pace with changing fashion, styles and trends. Though rich in handmade jewellery, India lacks the requisite machine-made design infrastructure to cater to the needs of foreign buyers. Manufacturers craft specific types of gems and jewellery products according to the market demand. However with fashion changing quickly, the ability of a player to liquidate inventory gets severely limited.

OUTLOOK

In the years to come, the growth of the industry will depend on the development of the retail/ brand side of the industry. Established brands are expected to guide the organised market and open up opportunities for growth especially with the growing brference for branded products. Increasing penetration of organised players provides a variety in terms of products and designs. Also, the relaxation of restrictions of gold import is likely to provide a fillip to the industry. The improvement in availability along with the reintroduction of low cost gold metal loans and likely stabilisation of gold prices at lower levels is expected to drive volume growth for jewellers over the short to medium term.

RISK AND CONCERNS

Like any other business, the gems and jewellery business also has its own set of challenges and risks, emanating from internal and external sources. The Company has in place a combrhensive risk management policy that helps anticipate and identify risks wide finding ways to mitigate them.

Economy risk: Jewellery purchases are discretionary and may be affected by adverse economic trends.

How will PC Jeweller be protectedRs.

In India, jewellery purchases are perennial, marked by marriage, festivals, birthdays and anniversaries, among others. PC Jeweller has positioned itself as a wedding jeweller. In India, jewellery forms a major component of any wedding budget. Today India has a very large component of its population is less than 25 years old. Thus the number of weddings is continuously increasing in the country which in turn is fuelling demand for wedding jewellery.

Also, India's economy grew 7.3% in 2014-15; per capita net national income grew from Rs.80,388 in 2013-14 to Rs.88,538 in 2014­15 demonstrating a rise of 10.1%, strengthening discretionary spending.

Competition risk: The Company's market share may be affected by an increase in the number of branded jewellers.

How will PC Jeweller be protectedRs.

The Company developed in house designing and manufacturing capabilities and is able to offer very wide range of gold and diamond jewellery to its customers at attractive price points. The company has also expanded its brsence in a number of Tier I & Tier II locations which do not have any other branded jewellery player.

The company has established a reputation for trust and purity amongst its customers by selling only 100% hallmarked gold jewllery. All its diamond jewellery is also certified by Government Approved Labs.

The Company is one of the few players in the Indian gems and jewellery space, who not only possesses a wide retail brsence but also has a growing online brsence.

Brand risk: The use of "PC Jeweller" or similar trade names by third parties may result in loss of business to such third parties, and any potential negative publicity relating to such third parties may adversely affect our reputation, the goodwill of our brand and business prospects.

How will PC Jeweller be protectedRs.

The Company has already registered 'PC Jewellers' as the Company's trademark and has built a logo with the name PC Jeweller on it after getting approval from Trademarks Registry office and uses the same as trademark for the products of the Company

The Company has applied and received approval for several other trademarks in connection with its business in India.

Geography risk: The Company's growth can be affected if it restricts its brsence to North India.

How will PC Jeweller be protectedRs.

The Company, as on March 31st 2015, has 50 showrooms across 17 states in the country , Though its largest proportion of sales comes from its showrooms in Delhi & NCR, this is expected to reduce in the coming years as the company continues to expand its brsence.

The company not only focuses on the Indian market but has also established B2B exports, which contributes nearly 25% to the total revenue.

Price volatility risk: Volatility in the market price of gold and diamonds has a bearing on the value of our inventory and could affect our income, profitability and scale of operations.

How will PC Jeweller be protectedRs.

The Company procures all its gold on lease which protects it from gold price movements and hence and inventory gain or losses. Also it does not sell loose diamonds but only diamond jewellery in which there is a high value addition and hence negligible price risk.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Internal control systems play a crucial role in the health of a company in every industry. An effective system of internal control is a backbone, necessary for building, maintaining and improving shareholders confidence and value as well as helps to enhance the overall quality of the business and enterprise.

Your Company has an adequate system of internal control relating to the purchase of raw materials as well as other goods. The Company also has internal control system for speedy compilation of accounts and management information reports and to comply with applicable laws and regulations.

The Company has an effective Budgetary Control System. The Management reviews the actual performance with reference to budgets periodically.

The Company has an Audit Committee which has met six times during the year. The Audit Committee reviews the adequacy and effectiveness of the internal control, monitors implementation of internal audit recommendations and overseeing quarterly/annual financial results.

FINANCIAL PERFORMANCE

The financial statements are brpared under historical cost convention on an accrual basis, in accordance with the generally accepted accounting principles in India and including the Accounting Standards specified under section 133 of the Companies Act, 2013 (the 'Act') read with Rule 7 of the Companies (Accounts) Rules, 2014 (as amended). The financial statements have been brpared on a going concern basis and the accounting policies have been consistently applied by the Company.

HUMAN RESOURCES & INDUSTRIAL RELATIONS

The Company's human resources philosophy is to establish and build a strong performance and competency-driven culture with greater sense of accountability and responsibility. The Company acknowledges that its principal asset is its employees. The expertise of the management team, the professional training provided to the staff, their personal commitment and their spirit of teamwork together enhance the Company's net worth.

The Company has taken various steps for strengthening organizational competency through the involvement and development of employees as well as installing effective systems for improving their productivity and accountability at functional levels. The Company has engaged Aon Hewitt to advise on further strengthening its HR systems and processes.

Ongoing in-house and external training is provided to employees at all levels to update their knowledge and upgrade their skills and abilities. The effort to rationalize and streamline the workforce is a continuous process. As on March 31, 2015, the Company had 2,444 full-time employees. The industrial relations scenario remained harmonious throughout the year.

FORWARD LOOKING STATEMENTS

Forward looking statements are based on certain assumptions and expectations of future events. The company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company's actual results, performance or achievements could thus differ materially from those projected in any such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events.