CMP 87.00
Target Price 100.00
ISIN: INE343B01030
DECEMBER 19th
2013
RAJESH EXPORTS LTD
Result Update: Q2 FY14
HOLDHOLDHOLDHOLD
Index Details
Stock Data
Sector Gems & Jewellery
BSE Code 531500
Face Value 1.00
52wk. High / Low (Rs.) 150.35/84.80
Volume (2wk. Avg. Q.) 9422
Market Cap (Rs. in mn.) 25687.62
Annual Estimated Results (A*: Actual / E*: Estimated)
YEARS FY13A FY14E FY15E
Net Sales 318796.18 358645.70 390923.82
EBITDA 7870.51 9076.18 10049.26
Net Profit 4531.16 4820.69 5074.39
EPS 15.35 16.33 17.19
P/E 5.67 5.33 5.06
Shareholding Pattern (%)
1 Year Comparative Graph
RAJESH EXPORTS LIMITED BSE SENSEX
SYNOPSIS
Rajesh Exports Limited (REL) was established in
the year 1990 as a gold jewellery manufacturing
company.
Under the brand name of SHUBH Jewellers, REL
has emerged as the largest retail jeweller in the
south Indian State of Karnataka, and the only fully
integrated gold jewellery company in the world.
During the quarter ended Q2 FY14, the
company’s net sales are at Rs.64405.73 million
from Rs.67454.79 million over the corresponding
quarter last year.
EBITDA has increased by 17.29% at Rs. 2288.71
million from Rs. 1951.28 million in the
corresponding quarter of previous year.
The company has launched a total of 83 retail
showrooms in the state of Karnataka, under the
brand name of SHUBH Jewellers.
The company has plans to open 33 more SHUBH
Jewellers Showrooms in the state of Karnataka,
within the next two quarters.
REL would be launching SHUBH Jewellers in
other south Indian states of Andhara Pradesh,
Tamil Nadu and Kerala.
The order book position as on 30.9.2013 of the
company was Rs. 54629 million.
Net Sales and PAT of the company are expected to
grow at a CAGR of 15% and 8% over 2012 to
2015E respectively.
PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
Rajesh Exports Ltd 87.00 25687.62 15.35 5.67 1.05 100.00
Titan Industries Ltd 233.15 206277.10 8.54 27.21 10.50 210.00
PC Jeweller Ltd 83.45 14981.20 19.10 4.38 1.08 10.00
Gitanjali Gems Ltd 50.40 4653.90 13.01 3.89 0.17 30.00
Recommendation & Analysis - ‘BUY’
Rajesh Exports Limited was established in the year 1990 as a gold jewellery manufacturing company. The
company has setup the world’s largest gold jewellery manufacturing facility at White Field, Bangalore, with a
capacity to process 250 tons of gold into world’s finest jewellery. With its retail initiative, under the brand name
of SHUBH Jewellers, REL has emerged as the largest retail jeweller in the south Indian State of Karnataka, and the
only fully integrated gold jewellery company in the world.
During the quarter ended Q2 FY14, EBITDA has increased by 17.29% at Rs. 2288.71 million from Rs. 1951.28
million in the corresponding quarter of previous year. Net revenue of the company was at Rs. 64405.73 million in
Q2 FY14 and net profit was at Rs. 1004.63 million. The results for the quarter ended September 30, 2013; the
quarter was a highly challenging quarter, in the light of the various restrictions brought in by the government on
gold and gold jewellery business to contain the Current account deficit of country. Inspite of the challenging
atmosphere, Rajesh Exports has performed well and registered healthy revenues and profits for the quarter, due
to its inherit strengths in the business.
The Company will be aggressively expanding its retail presence across the country. The company has plans to
open 33 more SHUBH Jewellers Showrooms in the state of Karnataka, within the next two quarters, which would
complete its retail expansion plans in the state of Karnataka. The company would be further expanding its retail
presence to the other three Southern States, and further to a Pan Indian presence. The company has plans to
open 500 SHUBH Jewellery showrooms by the year 2017. Currently the company has 83 SHUBH Jewellers, retail
showrooms.
The company continued to consolidate its position with its retail initiative under the brand name of “SHUBH
Jewellers”. With a total of 83 retail stores, SHUBH Jewellers has emerged as the most trusted jewellery brand in
the state of Karnataka and also as the largest retail jeweller in the state of Karnataka. Along with its export
business, the retail business has emerged as a key driver of profitability in the company. We expect the company
to post a CAGR of 15% and 8% in its top-line and bottom-line respectively. Hence, we recommend ‘HOLD’ for
‘RAJESH EXPORTS LIMITED’ with a target price of Rs. 100.00 on the stock.
QUARTERLY HIGHLIGHTS (STANDALONE)
Results updates- Q2 FY14,
Rajesh Exports Limited is one of the largest retailers
of gold jewellery with 83 retail showrooms under
the brand name of “SHUBH Jewellers” in the state of
Karnataka, Along with its export business; the retail
business has emerged as a key driver of profitability
in the company, reported its financial results for the
quarter ended 30 SEPTEMBER, 2013.
The company has achieved a turnover of Rs. 64405.73 million for the 2nd quarter of the current year 2013-14 as
against Rs. 67454.79 millions in the corresponding quarter of the previous year. The company has reported an
EBITDA of Rs. 2288.71 millions an increased by 17.29% and a net profit of Rs. 1004.63 million against Rs.
1124.53 million reported respectively in the corresponding quarter of the previous year. The company has
reported an EPS of Rs. 3.40 for the 2nd quarter as against an EPS of Rs. 3.81 in the corresponding quarter of the
previous year.
Break up of Expenditure:
Months SEP-13 SEP-12 % Change
Net Sales 64405.73 67454.79 (4.52)
PAT 1004.63 1124.53 (10.66)
EPS 3.40 3.81 (10.66)
EBITDA 2288.71 1951.28 17.29
Break up of Expenditure (Value in Rs. million)
Q2 FY14 Q2 FY13
Cost of Material Consumed 62408.16 68837.76
Employee Benefit Expenses 39.67 31.73
Depreciation & Amortization Expense 5.42 5.08
Other Expenses 4.89 3.29
Latest Updates
• The company has launched a total of 83 retail showrooms in the state of Karnataka, under the brand name of
SHUBH Jewellers.
• The company has plans to open 33 more SHUBH Jewellers Showrooms in the state of Karnataka, within the
next two quarters and has plans to open 500 SHUBH Jewellery showrooms by the year 2017.
• The order book position as on 30.9.2013 of the company was Rs 54629 Million.
COMPANY PROFILE
Rajesh Exports Limited was established in the year 1990 as a gold jewellery manufacturing company, with its
undivided focus and expertise, the company has grown to be the largest gold jewellery manufacturing company
in the world. The company has setup the world’s largest gold jewellery manufacturing facility at White Field,
Bangalore, with a capacity to process 250 tons of gold into world’s finest jewellery. REL is also the lowest cost
gold Jewellery manufacturing company in the world.
With its retail initiative, under the brand name of SHUBH Jewellers, REL has emerged as the largest retail
jeweller in the south Indian State of Karnataka, and the only fully integrated gold jewellery company in the
world. REL imports rawgold from the mines, refines this gold at it’s own refinery, processes this refined gold and
manufactures jewellery at it’s own world’s largest gold jewellery manufacturing facility, exports the jewellery,
wholesales the jewellery and also retails the jewellery directly to the end consumer at it’s own retail stores under
the brand name of SHUBH Jewellers.
Products
Gold and Diamond Jewellery
• Earrings
• Rings
• Pendants
• Pendant Sets
• Chains
• Necklace
• Necklace Sets
• Bangles
• Bracelets
• Mangalsutra
• Misc
Retail Brand
SHUBH Jewellers
With 83 SHUBH Jewellers Showrooms in Karnataka, REL has created one of the strongest brand names in
retailing in Karnataka. SHUBH Jewellers has become a house hold name across the length and breadth of the
state of Karnataka within a period of two and half years of it’s launch. Which has been made possible with it’s
unique offering of the Real Rate Per Gram, wherein the retail customers of gold jewellery are offered an absolute
transparent pricing mechanism, without charging any hidden charges like Making Charges and Wastage, thereby
ensuring a huge saving to the retail customers compared to their purchases from local jewelers.
In all the showrooms of SHUBH Jewellers, every piece of gold jewellery is BIS hallmarked for 22cts, thereby
ensuring unquestionable guarantee of the purity of gold to the retail customers, this apart from the exclusive
designs offered which are manufactured at it’s world’s largest jewellery manufacturing facility at Bangalore.
Within a short period of 30 months SHUBH Jewellers has emerged as the largest retailer of gold jewellery in
South India.
REL has finalized plans to open another 42 SHUBH Jewellers showrooms in the state of Karnataka, thereby
making a total of 125 showrooms in Karnataka, after which REL would be launching SHUBH Jewellers in other
south Indian states of Andhara Pradesh, Tamilnadu and Kerala.
FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)
Balance Sheet as at March31, 2013 -2015E FY13A FY14E FY15E
EQUITY AND LIABILITIES:
A) Shareholders’ Funds:
a) Share Capital 295.25 295.26 295.26
b) Reserves and Surplus 24150.81 28971.50 34045.89
Sub-Total Net worth 24446.06 29266.76 34341.15
B) Non-Current Liabilities 0.00 0.00 0.00
C) Current Liabilities:
a) Short-term borrowings 25021.40 22018.83 19816.95
b) Trade Payables 80590.06 93484.47 105637.45
c) Other Current Liabilities 602.39 722.87 860.21
Sub-Total Current Liabilities 106213.85 116226.17 126314.61
TOTAL EQUITY AND LIABILITIES (A + B + C) 130659.91 145492.93 160655.76
ASSETS:
D) Non-Current Assets:
a) Fixed Assets:
i. Tangible Assets 721.48 764.77 803.01
Sub-Total Non-Current Assets 721.48 764.77 803.01
E) Current Assets:
a) Current Investments 34.48 41.76 50.11
b) Inventories 7749.13 9298.96 11065.76
c) Trade Receivables 17069.26 19458.96 21988.62
d) Cash and Bank Balances 93376.36 102714.00 111958.26
e) Short Term Loans and Advances 7900.00 8453.00 8885.75
f) Other Current Assets 3809.20 4761.50 5904.26
Sub-Total Current Assets 129938.43 144728.16 159852.75
TOTAL ASSETS ( D + E) 130659.91 145492.93 160655.76
Annual Profit & Loss Statement for the period of 2012 to 2015E
Value(Rs.in.mn) FY12A FY13A FY14E FY15E
Description 12m 12m 12m 12m
Net Sales 257240.70 318796.18 358645.70 390923.82
Other Income 16.06 1.63 2.45 2.52
Total Income 257256.76 318797.81 358648.15 390926.33
Expenditure -250470.33 -310927.30 -349571.97 -380877.07
Operating Profit 6786.43 7870.51 9076.18 10049.26
Interest -2446.95 -2967.79 -3858.13 -4552.59
Gross profit 4339.48 4902.72 5218.05 5496.67
Depreciation -20.70 -20.61 -21.85 -22.28
Profit Before Tax 4318.78 4882.11 5196.21 5474.39
Tax -247.27 -350.95 -375.52 -400.00
Net Profit 4071.51 4531.16 4820.69 5074.39
Equity capital 295.26 295.26 295.26 295.26
Reserves 19538.10 24150.81 28971.50 34045.89
Face value 1.00 1.00 1.00 1.00
EPS 13.79 15.35 16.33 17.19
Quarterly Profit & Loss Statement for the period of 31 MARCH, 2013 to 31 DEC, 2013E
Value(Rs.in.mn) 31-Mar-13 30-June-13 30-Sep-13 31-Dec-13E
Description 3m 3m 3m 3m
Net sales 123438.23 55031.68 64405.73 72778.47
Other income 0.54 0.03 0.69 1.10
Total Income 123438.77 55031.71 64406.42 72779.58
Expenditure -120905.49 -53431.73 -62117.71 -70522.34
Operating profit 2533.28 1599.98 2288.71 2257.24
Interest -1067.74 -513.32 -1278.63 -1125.19
Gross profit 1465.54 1086.66 1010.08 1132.04
Depreciation -5.30 -5.42 -5.45 -5.78
Profit Before Tax 1460.24 1081.24 1004.63 1126.27
Tax -350.95 0.00 0.00 0.00
Net Profit 1109.29 1081.24 1004.63 1126.27
Equity capital 295.26 295.26 295.26 295.26
Face value 1.00 1.00 1.00 1.00
EPS 3.76 3.66 3.40 3.81
Ratio Analysis
Particulars FY12A FY13A FY14E FY15E
EPS (Rs.) 13.79 15.35 16.33 17.19
EBITDA Margin (%) 2.64% 2.47% 2.53% 2.57%
PBT Margin (%) 1.68% 1.53% 1.45% 1.40%
PAT Margin (%) 1.58% 1.42% 1.34% 1.30%
P/E Ratio (x) 6.31 5.67 5.33 5.06
ROE (%) 20.53% 18.54% 16.47% 14.78%
ROCE (%) 13.00% 15.95% 16.38% 16.26%
Debt Equity Ratio 1.64 1.02 0.90 0.80
EV/EBITDA (x) -2.99 -5.42 -5.59 -5.84
Book Value (Rs.) 67.17 82.80 99.12 116.31
P/BV 1.30 1.05 0.88 0.75
Charts
OUTLOOK AND CONCLUSION
� At the current market price of Rs. 87.00, the stock P/E ratio is at 5.33 x FY14E and 5.06 x FY15E respectively.
� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.16.33 and
Rs.17.19 respectively.
� Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 8% over 2012 to 2015E
respectively.
� Price to Book Value of the stock is expected to be at 0.88 x and 0.75 x respectively for FY14E and FY15E.
� We expect that the company surplus scenario is likely to continue for the next three years, will keep its
growth story in the coming quarters also. We recommend ‘HOLD’ in this particular scrip with a target price
of Rs.100.00 for Medium to Long term investment.
INDUSTRY OVERVIEW
India’s gems and jewellery industry is likely to double in the next five years, according to a study titled 'All that
glitters is gold: India Jewellery Review 2013' by the global consultancy firm AT Kearney. The study forecasts the
sector to reach Rs 500,000–530,000 crore (US$ 81.63 billion-US$ 86.52 billion)by 2018 from Rs 251,000 crore
(US$ 40.96 billion) in 2013. In FY 2012–13, industry exports touched Rs 227,000 crore (US$ 37.04 billion),
topping textiles and apparels by a substantial 25 per cent.
The investment demand in the form of coins and bars has the capacity to reach Rs 180,000–190,000 crore (US$
29.38 billion-US$ 31 billion) by 2018, from Rs 85,000 crore (US$ 13.86 billion) in FY 2011–12. The gems and
jewellery sector contributes significantly to the Indian economy through employment generation, exports and
value additions. A positive business environment to go with the several incentives offered by the government has
further enhanced the country's status as one of the primary global destinations for gems and jewellery.
Industry Dynamics
India is a connoisseur of precious stones and beautiful ornaments. Historically, the country’s culture has always
lent itself towards this art. Trade secrets have been passed down many generations, ensuring that the traditional
craft was sustained. Today, India has the world's largest diamond cutting and polishing industry, blending
modern techniques with the traditional to cater to the world market.
India has a reputation of being a low-cost, high-quality manufacturer of diamonds. The country possesses skilled
workforce of over a million people, who are adept at fashioning beautiful jewellery. This has attracted several
international jewellery giants to set up base in the country. Crystal major Swarovski had 67 outlets across India,
as of June 2013. Swiss luxury and jewellery watch brand de Grisogono also entered the Indian market in
December 2008. Apart from being the biggest diamond manufacturing hub and the number one consumer of
gold, India also leads in tanzanite and emerald production.
Gold
India is the world’s largest consumer of gold, accounting for about 20 per cent of the total world gold
consumption. Gold jewellery constitutes about 80 per cent of the Indian jewellery market. The following are
some of the developments in the country regarding the yellow metal this year.
• National Development Mineral Corporation (NMDC) Ltd, India’s largest iron ore miner, is establishing a
pilot plant in Tanzania. The investment is expected to be around Rs 50 crore (US$ 8.15 billion). The plant
would have the capacity to process 100 tonnes per hour of gold-bearing ores, according to an official.
NMDC has worked in Tanzania previously. In the period 2000–2003, it carried out gold exploration in the
north-west of the country at an expenditure of about Rs 7 crore (US$ 1.14 million).
• The third quarter of 2013 witnessed a 44.5 per cent increase in recycled gold on the corresponding
period of 2012, reaching 61.3 tonne from 34 tonne, according to data from the World Gold Council
(WGC). It is believed that this rise is primarily due to the increase in the price of gold which touched Rs
33,000 (US$ 538) per 10 gm during the third quarter of the current year.
• WGC has formed a separate private company in India to undertake activities on a larger scale in the
Indian market. This includes entering into a commercial setup with banks and gold industry players in
future. The corporate structure will help WGC remove the handicaps of operating as a liaison office. As of
now, the Reserve Bank of India (RBI) does not allow liaison offices to partake in any commercial activity
in the country.
Diamonds
India's share in the world's polished diamond market is 60 per cent, 85 per cent and 92 per cent in terms of
value, volume and pieces, respectively. Out of every 12 cut and polished diamond set in jewellery globally, 11 are
processed in India. The following are some of the activities in the diamond market in India this year.
• Surat has been chosen to host India's first Gems and Jewellery Machinery Expo (IGJME). The Expo will
offer an insight into the latest machinery and equipment used in diamond cutting, polishing and jewellery
making. The three-day event will be held between December 13–December 15, 2013. Surat's diamond
industry processes around 85 per cent of the US$11 billion worth of rough diamonds imported by the
country annually.
• The Botswana government is seeking the assistance of Surat-based Indian Diamond Institute (IDI) for
establishing a state-of-the-art diamond institute. A high-level Botswanian delegation led by minister of
minerals, energy and water resources, Mr Onkokame Kitso Mokaila, visited the country on November 13,
2013. The world's biggest diamond mining company, De Beers, has also shifted its rough diamond sales
operations from London to Botswana, and the need for an institute in the Southern African nation is
greater than ever before.
• Nearly 76 per cent of jewellers are shifting their focus from gold and silver jewellery to platinum-based
diamond jewellery, in an effort to tap into the changing tastes of the domestic consumer, according to an
industry official. Platinum-based diamond jewellery is gathering momentum in the country, with the
metros witnessing greater demand for them than diamond-studded gold jewellery.
Exports
• Gems and jewellery exports touched US$ 39,033 million in FY 2012–13, constituting around 13 per cent
of India’s total merchandise exports.
• The gems and jewellery industry of India witnessed a growth of 11.9 per cent in a four-year period, with
exports of US$ 39,033 million in FY 2012–13 as against US$ 24,894 million in FY 2008–09.
Government Initiatives
• The Indian government has decided to float tenders to revive closed or unfeasible gold mines in the
country. A tender has already been floated for selling the assets of Bharat Gold Mines Ltd. Mining giants,
Indian as well as international, are queuing up for this opportunity. Vedanta group, headquartered in
London, and a mining company from Australia are two of the frontrunners. India’s gold reserves are
projected to be around 14,000 tonnes.
• In an effort to bring in more investments into the sector, gems and jewellery Special Economic Zones
(SEZs) have been established. The names of operational SEZs in the sector are Santacruz Electronics
Export Processing Zone (SEEPZ), Mumbai; Jaipur SEZ; Manikanchan SEZ, West Bengal; and Hyderabad
Gems SEZ Ltd. Also, 13 SEZs in the sector have already received formal approval.
Road Ahead
The costume jewellery industry in India has grown at 20–30 per cent in FY 2013–14, with more and more
women preferring this type of jewellery over gold, for attending wedding functions and parties. The costume
jewellery market is expected to touch Rs 15,000 crore (US$ 2.44 billion) by December, 2015, a noticeable
increase from the Rs 8,000 crore (US$ 1.30 billion) in December, 2012, according to a study.
The Indian gems and jewellery industry is all set to witness its first ever coloured gemstones and studded
jewellery buyer–seller meet, organized by the Gems and Jewellery Export Promotion Council (GJEPC) with
Russia. The objective of the maiden event, which runs from December 8–11, 2013, is to create business
opportunities for Indian manufacturers and Russian traders and to explore possibilities of trade between the two
countries in the gemstone category.
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale
of any financial instrument or as an official confirmation of any transaction. The information contained herein is
from publicly available data or other sources believed to be reliable but do not represent that it is accurate or
complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. This document is provide for assistance only and is not intended to be and must
not alone be taken as the basis for an investment decision.
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