Although Gold and Diamond are shining at their pricier best currently, Jewellery companies listed on bourses are not at best of their price range. In this article, we look at business model of Jewellery companies, and how some firms are mitigating these issues. Also are some companies available at truly wonderful value prices now? How can value investors benefit from this mayhem, let’s have a look and decide.
Business Model of most Jewellery companies is export oriented and west, with all its economic issues and fiscal cliffs currently, is thinking of buying bread first and jewellery is probably one of the last things on their mind. Business model of most Jewellery companies is to import Gold bars, take it through various processes of design and development, and then export the final product which is high quality Gold and Diamond ornament.
Partly because of high prices of Gold, of which India is an huge importer, this model faces its risks. Also Indian Currency INR is not at its best and is among the most volatile and weak currencies in the world during the past one year. This model is also high working capital dependent because Gold needs to be paid for and it takes 1-2 months for ornament to be in its final shape and size and it takes further 2-3 months for the ornament to be sold.
Several companies have come out with innovative models of loaning the Gold at an open price, and deciding the purchase price of Gold only when the final ornament is sold in next 6 months or so. Also, some firms are mitigating the export strategy with opening more retail stores in India and focusing on domestic consumption, and Gold lover Indian public is lapping their stocks with open hands.
However, with all the issues in this sector, several companies in this sector are severely undervalued and there is good opportunity for patient investor to seek good companies and stay invested for 6-12 months for a multi-bagger returns.
Shree Ganesh Jewellery House Ltd. is one such company in this sector, which is already a whooping 10,000 Cr. turnover company and is a Govt. of India recognized '4 Star Export House'. The company is one of the leading manufacturers and exporters of handcrafted gold jewellery from India. The product mix of this company includes handcrafted Gold Jewellery, Gold enamled and Studded Jewellery, Diamond Studded Jewellery, Ruby-Emerald Jewellery, and Light Weight Italian Gold Jewellery.
Leading fashion designer Sabyasachi Mukherjee is an empanelled designer with the company and has launched the Gaja Sabyasachi collection which is targeted at the high end clientele and domestic shoppers. Gaja exclusive showrooms have been launched in various parts of the country at good locations in various cities such as Mumbai, Kolkata, Ahmedabad, Rajkot, Ghaziabad, Gurgaon, Amritsar, Chandigarh, and Ludhiana. The company already has four large integrated jewellery manufacturing units and is opening a new 1,00,000 sq. ft. Greenfield Factory at Domjur in West Bengal state.
Shree Ganesh’s stock is currently trading at Rs 120, which is at 45% discount to its Book Value of Rs 218. Standalone quarterly results have improved over the last few quarters and standalone basis turnover in Sep, 12 quarter is 49% higher than same quarter last year. EPS has improved from Rs 7 per share in Sep, 11 to Rs 13.6 in Sep,12, thus almost 90% growth in EPS on a quarterly comparison basis.
The firm has maintained good inventory turnover ratio of 12 in year ending 2012, which is a very good factor in favor of reducing working capital requirements for the firm.
Promoters in this firm have a good shareholding of 55.69% and along with foreign promoters hold about 70% of the firm with them. General public only has about 9.73% of shareholding which is a good news and often low public shareholding creates a good base for share price to skyrocket when market sentiment improves.
Firm has been regular dividend paying since its listing, and has paid 60% dividend in 2012 itself, which is a good 5% return on its current market price. Hence one can hold the stock just for its savings account beating return itself.
Overall, fundamentals are in good shape and firm is available at market cap of Rs 727 crores, whereas yearly consolidated profits are about 461 crores in year ending 2012. Hence firm is available at deep value prices for patient investors to make a killing.
Technically speaking, support levels are close to current market price of Rs 120, with nearest support at 100, then at 84 and last support at 68. Next resistance levels are at 160 and at 188 respectively. Over the next 6-12 months, the patient investor holding this scrip could see at least 100% gain from the current market price of Rs 120.