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.
Don't you think the debt to equity ratio is very high. 3.28
ReplyDeleteHi Dude,
ReplyDeleteThis company has also entered into a very new sector , which can be the trump card for a complete re rating of the company --- Solar power , aquired two co for 100 cr. Do check , n how can i reach you via phone - My no is -- 09845011001
Hi Naveen,
ReplyDeleteThanks, you can reach my via email stockfundoo@rediffmail.com.