Gitanjali Gems Ltd (Rs 117)
(BSE Code- 532715 NSE Code- GITANJALI)
(P/E- 6, Market Cap- 994 cr., FY09 Sales- 5,088 cr.)
Gitanjali Gems (GGL) is an integrated diamond and jewellery manufacturer and its operations include sourcing, cutting and polishing roughs into diamonds and the crafting of diamond and other jewellery. The company derives nearly 85% of its revenue from sale of cut and polished diamonds, which are mainly exported. The remaining 15% of the revenue comes from the sale of branded jewellery in the domestic market and export of jewellery in the international markets. Exports account for around 70% of total sales. The company sells jewellery in India under four major brands: Gili, Nakshatra, Asmi and D'Damas. These brands are well established in the market and feature in top 10 best-known jewellery brands in India. Gili and Nakshatra are acknowledged as super brands. For branded jewellery, GGL has established a large retail setup, which includes 26 exclusive distributors across India, around 620 outlets including those in host stores, five standalone stores and 17 franchisee stores in 30 cities and towns in India. Currently, Gitanjali has 150 large (exclusive) stores and is planning to increase it to 450 shops in about 12-18 months with an investment of over Rs 300 cr. The group has established a strong presence in the US where it operates 143 retail stores through its acquisitions of Samuels Jewelers and Roger Jewellers. Besides, it has built its footprints in China where it has business tie-ups with 35 local stores
Gitanjali is a top player in the branded jewellery market; the only other player with a significant national footprint being Titan Industries', Tanishq. Gitanjali, however, leans towards the premium end, with an emphasis on diamond jewellery. Brands include the high-end Nakshatra and D'damas, daily wear Gili and Asmi, bridal collections Vivaha and Maya, pure-gold Collection G, and couples collection Sangini. Most command good brand equity, and the infancy of India's branded jewellery market will allow it to make the most of the opportunities thrown up as the market develops. Distribution is through `shop-in-shops' housed in malls, independent jewelers, besides exclusive stores. The domestic branded jewellery business appears very promising for the company at this juncture; a focus on premium jewellery leaves it less susceptible to cutbacks on spending by the mid-lower income groups.
GGL has a unique business model that places it in a distinct position in the gem & jewellery and retail businesses in India. The retail sector in India is currently estimated to be US$ 200 billion, out of which only 3% is made up by organized retail. However, this segment is growing swiftly and over the next few years a very large shift from unorganized retail to organized retail is expected. GGL is also diversifying and has already started building its presence in lucrative businesses like infrastructure and lifestyle. GGL had set up a wholly owned subsidiary Gitanjali Lifestyles Ltd (GLL) on May 04, 2007. It is being positioned to facilitate and to promote the growing luxury malls across the growing luxury retails markets. For Gitanjali, a rising proportion of domestic retail sales (as opposed to exports), a shift in product mix towards jewellery (from low-margin polished diamonds) and diversification moves suggests reasonable growth prospects over the long term. The company's presence across the value chain allows sourcing from both the Diamond Trading Corporation and other mines (helping better cost control), while forward integration in the jewellery business (from processing of rough diamonds into jewellery, branding and retail) lowers business risk and allows better margins than pure diamond exporters.
For the Q1 ended June 2009, GGL's net sales stood at Rs 1,352.16 cr.(up 11%) and net profit stood at Rs 45.44 cr. (up 9%) on consolidated basis. GGL's FY09 consolidated net sales were at Rs 5,088.87 cr. versus Rs 4828.05 cr.. Its FY09 consolidated net profit was at Rs 150.58 cr. versus Rs 160.69 cr... On a equity of 85 cr.(Promoters' stake-50.99%), the EPS stood at Rs 17.7 and the dividend declared is 18%. The current price of Rs 117 discounts its consolidated FY09 EPS of Rs 17.7, by a PE multiple of 6.6 and its FY10E EPS of Rs 19.5, by a PE multiple of 6 . Over FY02-FY07, GGL has established world class scale in diamond and jewelry manufacturing, clocking 28% revenue CAGR and 36% PAT CAGR. Gitanjali's broad product range, strong brand equity and significant retail presence along with sight holder status and strong network have enabled it a strong hold in domestic and international markets. With a wider product range and potential to tap the premium end of the market through tie-ups with international retailers, Gitanjali is likely to make larger strides in the domestic retail space. The stock holds good potential for appreciation in the next six months. Accumulate.
Source: Internet (Valuenotes by Sanjay Chhabria)
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