Rajesh Exports – a Golden Acquisition

  • CMP: Rs. 720
  • Date: 18th Feb 2016
  • Industry – Gold & Jewellery
  • Large Cap – 21,300 cr mkt cap
  • Advice:  Buy Rajesh Exports with a 2 year perspective 

Summary

  • Overview: Rajesh Exports is an integrated gold firm into refining, jewellery manufacture and retail.
  • It had revenues of Rs 50,462 crore and net profits of Rs 655 cr. in FY15.
  • The Revenues, EBITDA and Profits are up by 26.5%, 31.8% and 39.9% CAGR over 6 years.
  • Key strengths are: large scale operations in gold refining (in India & Switzerland) and jewellery design and mfg. (India). The management appears experienced, capable and shareholder friendly.
  1. Why Buy Now: A recent acquisition of Swiss gold refiner Valcambi will allow the firm to scale up to a globally significant size.
  2. The possible synergies with Valcambi include lowering of costs, Europe market access and cooperation on technology and R&D.
  3. Growth plans include retail expansion (will improve margins) and Australia mining investments (will tie up ore requirements).
  4. Even though the share price has appreciated well this year, there is still a good upside visible.

Here is a note on Rajesh Exports Ltd. (REX).

Rajesh Exports – Description and Profile

  • REX is a Bangalore based integrated gold and jewellery firm. Started in 1989, it has a presence across the value chain of gold from mining to retail.
  • REX had revenues of Rs 50,462 crore and net profits of Rs 655 cr. in FY15. About 90% of revenues are in foreign exchange. It has 358 permanent employees (FY15).
  • REX became the largest refiner of gold globally with the acquisition of Swiss firm Valcambi in July 2015. It now processes 35% of global gold, and with the Uttarakhand refinery can refine 2400 tons p.a. of metals.
  • REX has gold jewellery mfg. facilities at Bangalore, Cochin and Dubai with a capacity of 350 tons.
  • It has R&D facilities in Switzerland & India for innovative jewellery design and a large jewellery database with 29,000 designs. REX exports gold jewellery mainly to USA, UK, Singapore and UAE.
  • REX has set up 83 retail showrooms under the brand SHUBH Jewelers since 2010. This jewellery brand is known for quality, designs and value for money. It contributes about 9% of profits with a margin of 7-8%.
  • The Leadership-Promoter team is Rajesh Mehta (Chairman), Prashant Mehta (MD) and Vijendra Rao (CFO).
  • Shareholding % is: Promoter 53.9, DII 2.5, FII 16.8, Individual 2.6, Corporate 1.0 and Other 23.2

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Valcambi Acquisition and Synergies

  • REX through its Singapore subsidiary acquired Valcambi in an all cash deal for $400 m (then Rs 2,560 cr) in July 2015. Valcambi is debt-free with cash surplus of $150 m.
  • Reports so far indicate a smooth transition and integration of Valcambi and REX. The Valcambi management is committed to stay back after acquisition for 5 years.
  • Valcambi has the capacity to refine 1,600 tons gold and 400 tons of other precious metals like silver.
  • Back end strengths of Valcambi combined with front end strengths of REX provide good synergies.
    • REX can adopt technologies from Valcambi to upgrade and accredit the refining facility in India.
    • REX plans to market designer jewellery in Europe and North America with Valcambi, which has an extensive marketing network in Europe and America.
    • Valcambi was already one of the larger suppliers of gold to REX pre-merger. Other potential gains include sharing gold sourcing synergies, optimizing labour and shared support services.

Value Chain of Gold

The range of REX business activities are explained in Fig 1.

Business Mix and Gold Value Chain, JainMatrix Investments

Fig 1 – Business Mix and Gold Value Chain, Source, Company documents

  • The REX group with this acquisition now straddles across the Gold value chain. The strengths are Refining, Jewellery Manufacturing and Wholesale. The weaker spots needing investment are Mining and Retail.
  • REX group installed capacities and current usage:

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READ AND DOWNLOAD THE ENTIRE REPORT

Here is the entire investment report on Rajesh Exports.

JainMatrix Investments_Rajesh Exports_Feb2016

Feel free to click the PDF document and read /download the document.

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DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no known financial interests in Rajesh Exports Ltd or any related firm. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Punit Jain has applied for certification under SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com .

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Tribhovandas Bhimji Zaveri

  • Date: May 5th, 2013
  • Mid Cap –Mkt Cap 1452 crores 
  • CMP: Rs 219

Tribhovandas Bhimji Zaveri is a strong niche brand that is spreading out with a national rollout. It has a focus on luxury, high quality jewellery, and excellent design. Revenues, EBITDA and Profits have grown by 35%, 44% and 50% respectively CAGR over the last 5 years.

It had a fairly succesful IPO in 2012. And has appreciated 79% since.

Is this sustainable? Can it withstand the intense competition within the sector?

Read the report where JainMatrix Investments analyses this firm. To read this valuable report, you need to subscribe to JainMatrix Investments. On this link, check the details and Subscribe to this website to receive such valuable reports directly delivered to your Inbox.

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These reports and documents are prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com Also see: https://jainmatrix.wordpress.com/disclaimer/

Tara Jewels IPO: Rated Medium

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Post IPO news dated 23-Nov-2012

  • The news is that Tara Jewels IPO got subscribed 1.9 times.
  • The Retail and Qualified Institutional Investor portions got fully subscribed, while the HNI quota went over 3 times
  • Happy to note that my prediction yesterday turned out right :-)

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Investment Report dated 22-Nov-2012. 

Offering:  IPO is of Price Range Rs 225-230, open from Nov 21-23. 

Tara Jewels is a small cap Gems and Jewellery firm with a blended export plus domestic business plan. Tara has average financials, but is in a good industry. Offer is Fairly priced. Invest for a listing pop or for longer term of 3+ years. 

Tara Jewels – Description and Profile

  • Tara Jewels is a Mumbai based jewellery manufacturer with domestic and exports revenues.
  • Revenues in FY12 were Rs 1399 crores with PAT 56 cr. Operating and profit margins are 9.6% and 4%.
  • And growth figures of Revenues, EBITDA and PAT are 23%, 34% and 27% resp. CAGR for 5 years.
  • They employ 1738 staff. Manufacturing units are at Seepz Mumbai (3) and Panyu, China (1), while in India Tara has 30 retail outlets in West, North & Central regions.
  • Products include gold, platinum, and silver jewellery with studded precious (diamond) and semi-precious stones.
  • Exports are to well known retailers like Walmart, Zale, Sterling, Matsumoto, Signet, JKB, Dicia, JC Penny, etc. where products are sometimes co-branded; distribution is to 12,000 stores globally.
  • Tara promoter is Rajeev Sheth, a 31 year veteran of gems and jewellery.
Tara Jewels - Exports, JainMatrix Investments

Tara Jewels – Exports, JainMatrix Investments

Why Is Tara going for an IPO?

  • Repay expensive debt of Rs 50 cr. With the repayment, D/E will fall from current 2.14 to 1.3 times
  • Invest 67 cr. to extend domestic showroom strength from 30 to 50. The focus is on domestic market.
  • Exit route for an early investor Fabrikant H.K., which will net them Rs 70 cr.
  • Tara will also meet the listing norms where promoters can hold a maximum of 75% of shares.
Tara Jewels - Financials, JainMatrix Investments

Tara Jewels – Financials, JainMatrix Investments, Click to enlarge graphic

Industry

  • The overall size of domestic Gems and Jewellery sector is pegged at $30 billion (Rs 1,50,000 cr). The unorganised sector accounts for 90% of retail market in India, according to (CRISIL Research).
  • According to a FICCI-Technopak study this market is expected to grow up to Rs 183,200 crore by 2014-15, a CAGR of 10-12%.
  • Quick calculations give Tara a Market share of 1.2% of the organized Indian jewellery market.
  • Organized sector competition to Tara is from Titan, TBZ, Shree Ganesh, Joy Alukkas, Thangamayil and Kirtilal Kalidas, Reliance Jewels and Big Bazaar.

Key Strengths of Tara and IPO offer

  • Tara exports to a well known and prestigious group of Retailers.
  • Good industry experience from the first generation entrepreneur promoter.
  • The price volatility in this sector due to commodity inputs like gold and diamonds appears to be well managed by Tara in terms of their procurement systems.
  • IT systems appear to be strong, with a SAP implementation in place.
  • Integrated business model extending from manufacturing to exports to retailing.

 Key Weaknesses/ Issues/ Challenges of Tara and IPO offer

  • Domestic retail area is of approx 29,900 sqft, indicating sales of Rs 0.6 lakh per sqft per year. This compares unfavourably with Tribhovandas Bhimji Zaveri (Rs 2.35L), Tanishq (1.67L) and Gold Plus (1.05L). These chains are of a different scale nationally, but this is a negative for Tara.
  • Cash Flow negative due to investments in Retail operations and manufacturing. High debt that is going to reduce due to IPO, then increase again over next 2 years per business plans
  • Intense competition from both current organized and unorganized sector.
  • In exports, margins may be capped due to business to business nature of sales.
  • Capital intensive manufacturing and retail operations.
  • Government recently raised the duties on Gold imports, this raises cost of gold Jewellery. Another new rule is on the requirement of PAN number of buyer for purchases of more than Rs 5 lakh.

Strategic Thoughts around this IPO

  • The Tara IPO offer straddles a key trend – the transition of Indian Gems and Jewellery retail from unorganized to organized sector in India. This is expected to accelerate over the years.
  • This sector is part of the India consumption story. As India becomes both more populous and affluent, Gems and Jewellery sales are bound to multiply.
  • Exports have massive potential but margins may be restricted due to BtoB nature of sales. Volumes can be increased, but market conditions (except China) look poor.

IPO Offering Outline and Valuations:

  • Offer is of 180 lakh shares in price range Rs 225-230 available from Nov 21-23rd.
  • This 32% dilution will collect Rs 184 crores, and value the firm at 575 crores market cap.
Valuations\ Firm Tara (Post IPO) Titan TBZ Gitanjali Gems Rajesh Exports
P/E multiple 7.5 45.6 29.6 7.7 8.6
  • Tara valuation (PE) will be at 7.5 times trailing twelve months (TTM). It’s obvious that the domestic focused firms are awarded a steep valuation by the market, while the export focused are not that fortunate!!
  • CARE graded the IPO 3/5
  • The D/E ratio of the company will fall post IPO.
  • Ahead of the IPO, the company has allotted shares worth over Rs 26 cr. to two anchor investors at a reported Rs 225 per share.

Opinion, Outlook and Recommendation

  • The business model is export focused and here the prospects are good only in the long term. Domestic business is fair now, and requires investments and time to mature.
  • This is a Medium investment opportunity. There may be pop on listing due to a paucity of IPO offerings, Retail interest and a brave promoter.
  • Investors for the longer term 3+ years, will be rewarded once the domestic plans fructify and the exports markets emerge from recession.
  • A 16% subscription by EoD 22nd does not mean this IPO will not do well. There is very often a last day surge. I expect oversubscription.

 JainMatrix Knowledge Base:

  • TBZ: A Glittering IPO Offer – Invest  – LINK
  • MCX – 800 pound Gorilla of Commodities; Invest – LINK
  • Titan Industries – The Jewel in the Crown

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Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/

TBZ: A Glittering IPO Offer – Invest

  • Date: April 25, 2012
  • Offering: IPO is of Price Range Rs 120 – 126, available from April 24 – 26
  • Description: TBZ is a small cap sized domestic Gems and Jewellery firm with big growth plans
  • Opinion: Strong Brand and fast expansion likely. Fairly priced. Invest.

TBZ – Description and Profile

  • Tribhovandas Bhimji Zaveri Ltd (TBZ) is an established Mumbai based Jewellery retailer.
  • Incorporated in 1949, TBZ has 14 showrooms in 10 cities, and 1,192 full-time employees. It’s a primarily domestic business. Only two of the showrooms are owned; the rest are leased.
  • Jewellery Product lines include Gold Jewellery (72.5%), diamond studded (22%), Platinum and Jadau (5.5%). Manufacturing of Diamond studded Jewellery is at a 17k sq ft factory at Kandivili, Mumbai.
  • Promoters are Shrikant Zaveri (2nd gen. entrepreneur) and daughters Binaisha and Raashi Zaveri
  • FY11 revenues were 1149 cr, PAT 404 cr, and recent Operating margins were 9.3%
  • In five years, sales growth of gold jewellery is 8%  (CAGR) and diamond 38%
  • Showroom area is of approx 48,818 sqft, indicating sales of Rs 2.35 L/sq ft per year. This compares favorably with Tanishq (1.67L) and Gold Plus (1.05L). These chains are of a different scale nationally, but this is till positive for TBZ.
  • TBZ offers the Kalpavruksha Plan, a retail Installment based purchase plan. This helps ease the payment pressures for large buys.

Personal Notes: A visit to a TBZ is a treat by itself. The ambience is plush, the salespersons are courteous, knowledgeable and helpful. The jewellery is beautiful and expensive. As I leave, I say to myself – ‘I’ll come back here when it’s a big occasion, and I’m ready to spend a lot’ :-)

Why Is TBZ going for an IPO?

  • The Business plan is to open an additional 43 showrooms (25 large format high street showrooms and 18 small format high street showrooms) by end FY15, which would give a total of 57 showrooms (with a total carpet area of approx. 150,000 sq. ft.) in 43 cities.
  • From a strong regional player, TBZ is embarking on an aggressive phase of growth to take the business national.
  • TBZ will also meet the new listing norms where promoters can hold a maximum of 75% of shares.
Tribhovandas Bhimji Zaveri, IPO, JainMatrix Investments

TBZ Financials

Industry

  • The overall size of domestic Gems and Jewellery sector is pegged at Rs 87,000 crore as of 2008-09, according to a FICCI-Technopak study and is expected to grow up to Rs 183,200 crore by 2014-15, a CAGR of 10-12%. Estimates are that only 10% of this industry is the organized sector.
  • Quick calculations give TBZ a rough Market share of 8.5% of the organized Indian jewellery market.
  • Organized sector competition to TBZ is from Titan, Shree Ganesh, Joy Alukkas, Thangamayil and Kirtilal Kalidas, Reliance Jewels and Big Bazaar. However, TBZ’s business model is closest to Titan.
  • Government recently raised the duties on Gold imports, this raises cost of gold Jewellery. Another new rule is on the requirement of PAN number for purchases of more than Rs 5 lakh.

Key Strengths of TBZ and IPO offer

  • TBZ is a local trusted high quality brand, and can be leveraged by the firm.
  • Strong industry experience from the 2nd generation entrepreneur promoter.
  • The price volatility in this sector due to commodity inputs like gold and diamonds appears to be well managed by TBZ in terms of their procurement systems.
  • IT systems appear to be strong
  • Current operations are Cash Flow positive.

Key Weaknesses/ Issues/ Challenges

  • An unknown is the ability to scale up the Retail presence to 4 times the current size in 3 years.
  • Intense competition from both current organized and unorganized sector
  • Will this firm transition from a Family business to a professionally managed one? This is not necessary immediately, but definitely if TBZ grows from small cap to mid cap, it may be required.

Strategic Thoughts around this IPO

  • The TBZ IPO offer straddles a key trend – the transition of Indian Gems and Jewellery retail from unorganized to organized sector in India. This is expected to accelerate over the years.
  • Consumption trends. This business is part of the India consumption story. As India becomes both more populous and affluent, Gems and Jewellery sales are bound to multiply.
  • Looking beyond Gems/Jewellery, the consumption theme has been rewarded in FMCG, Food, consumer goods, and auto categories where PEs are high.

IPO Offering Outline and Valuations

  • Offer is of 1.66 crore shares in price range Rs 120 to Rs 126/- available from April 24-26th.
  • This 25% dilution will collect Rs 210 crores at upper end, and value the firm at 840 crores market cap
  • TBZ valuation (PE) will be at 12.46 times at the upper end of price band. This compares favorably with Titan (39X) but is higher than Gitanjali Gems (11X), Thangamayil (4X) and Shree Ganesh (2.68X). However, TBZ business model is closest to Titan.
  • Crisil graded the IPO 3/5, citing reasons related more to the industry competition than the company
  • The IPO proceeds will be used for opening new showrooms and working capital requirements and debt reduction.
  • The D/E ratio of the company was 1.5 as on Dec 31 ‘11, will come down to 1.1 post IPO.

Opinion, Outlook and Recommendation

  • This is a good investment opportunity. I expect this IPO to be a success and get oversubscribed. Also there should be an appreciation of the share on listing.
  • TBZ is an IPO for the medium risk oriented investor with a 2-3 year perspective
  • Interested investors should watch the subscription numbers till 25 April and take their decision.

JainMatrix Knowledge Base

Disclosure: It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it.

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Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/