Friday, August 6, 2010

Sector Watch – Gems & Jewellery

Gems and Jewellery sector has been outperforming the market in the last one month and I think this is one of the sectors that has bright prospects in the next decade or two. India is the world’s biggest gold buying nation and the value of gems and jewellery sector in India is currently estimated to be $ 45 Billion (202,500 Crore Rupees) out of which $25 billion (112,500 Crore Rupees) is exports. The domestic demand is expected to grow at the rate of 13% to reach $ 40 Billion by 2015 while the export is estimated to grow at a CAGR of 15% which will eventually reach $58 Billion by 2015. Also Indian retail sector is expected to grow at a faster clip and Diamond & Gold retailing is still in nascent stages with lot of fragmented players in the industry.

Why the sector will grow?

The reasons are obvious. India’s middle income population is raising so do the disposable income and people are expected to spend on luxury items more than ever before. Gold is also considered as an investment option both by rich and poor. Though Gold as an investment option has been in existence since the days of Adam, it has really picked up steam in recent years. Even specialized finance company like Mannapuram General Finance and Leasing has spread her wings solely thriving on gold loans because it offers the flexibility to assist all the sections of the population irrespective of the status while giving the company much needed security cover. So, I strongly believe that publicly traded companies in this sector might reward investors decently going forward.

Risk

Though there can be several risks to this sector, the major one that I can think of is Government policy and regulations. For example, Our Finance Minister Pranab Mukherjee announced in the budget that customs duty would increase for gold and silver which was a bad news for the sector. Policy decisions such as the above mentioned one might provide short term pains whenever the decision is made.

Companies in this Sector

Though there are many companies in this sector, I will list out some of the major ones below.

1. Rajesh Exports
2. Gitanjali Gems
3. Shree Ganesh Jewellers
4. Thangamayil Jewellery
5. Renaissance Jewellers
6. Asian Star
7. Su-Raj Diamonds


My Picks and Reasons

I have listed 7 stocks in this sector and if I were to pick the best 3 out of this list, I would go with Gitanjali Gems, Shree Ganesh Jewellers and Thangamayil Jewellery. Let’s see the important figures for these companies.

Gitanjali Gems

Gitanjali operates in Diamond, Gold and Luxury watch segment and they are also developing Gems and Jewellery SEZ’s across many regions. Among the companies in this sector, Gitanjali is the only company with strong retail presence (Excluding Titan). They also have retail stores in USA and China and this company is poised for good growth in coming years both in Jewellery and Real estate business.



Total Sales (2009-2010): 3354 Crores
Net Profit: 142 Crores (Net Profit margin of 4.2%)
Standalone Earnings Per Share (EPS): Rs.14.53 (Diluted)
Consolidated EPS: Rs.23
Debt / Equity Ratio: 0.22
Dividend: 20% (2 Rupees per share)

This stock has given 100% return in the last two months and one of the reasons is that the promoter has increased his stake by buying the shares in the open market. No wonder he is confident in the future of his company. I have already mentioned about this stock several times in my blog and I reiterate again.


Shree Ganesh Jewellery

Shree Ganesh was recently listed and its IPO price was Rs.260. But the stock price has plummeted to Rs.110 after the listing for unknown reasons and it has steadily increased since then to Rs.164. Among the pure play jewellery stocks, this is my best bet since I believe this stock is undervalued. They have also recently tied with National Spot Exchange Limited (NSEL) for e-selling of gold bars and this business is expected to add Rs.200 crore to the top line. Net profit margin of this company is the highest among the companies in this sector and they have projected Rs.4500 crore sales for the 2010-2011 financial year.


Total Sales (2009-2010): 2955 Crore’s
Net Profit: 168 Crores (Net Profit margin of 5.6%)
Earnings Per Share (EPS): Rs.36.39 (Pre IPO)
Debt / Equity Ratio: 0.87
Dividend: 20% (2 Rupees per share)

I do not have any idea why this particular stock has comedown this much immediately after the IPO, but I believe that’s where our opportunity lies and we need to grab it and in fact we should have grabbed it already when it was Rs.110.

Thangamayil Jewellery

Thangamayil Jewellery is involved in Manufacturing, trading and retailing of jewellery in Tamilnadu. They have opened 5 retail stores already and they have plans to open another 7 stores and they have already identified places for this expansion. This is also a recent IPO and it has good potential to grow in the coming years. Since it is a small cap with main concentration in retailing, it carries higher risk.


Total Sales (2009-2010): 451 Crore’s
Net Profit: 16 Crores (Net Profit margin of 3.6%)
Earnings Per Share (EPS): Rs.16
Debt / Equity Ratio: 1
Dividend: 40% (4 Rupees per share)

These are the three stocks that I am betting on in this sector and I am more positive on Shree Ganesh Jewellery in particular though it was recently listed.


Kumaran Seenivasan
www.stockanalysisonline.com

8 comments:

nelogal August 7, 2010 at 9:09 AM  

Good analysis sir,I am also betting on GANESH JEWELLERY to do well in medium to long term.I am bit concerned regarding growth in sales if gold prices look towards the sky . People may be discouraged to buy at higher prices. Do you think people will still buy?.

Regards.
Shiva N.

Kumaran August 7, 2010 at 9:28 PM  

Shiva,

Shree Ganesh generates 90% of the income from exports that too from countries like UAE,Dubai,Iran,Kuwait and Singapore. I do not think prices would influence people not to buy gold in these countries. Even in our country, people buy gold even in difficult times.

-Kumaran.

Nannu,  August 8, 2010 at 11:04 AM  

Kumaran,

Very Nice article. The amount of effort you put in your articles is really great. I have been following your blog now since more than a year and I must say thanks for your effort of writing such great articles. Keep up your great work.

Regards,
Nannu

Shabu's August 8, 2010 at 1:51 PM  

Dear Kumaran,

Nice and Its a Golden Post again...

nkt,  August 9, 2010 at 7:13 PM  

Thank you for yet another excellent post. The points you mentioned for each stock in the sector are so realistic and clear. Your earlier recommendation M&M Fin is also going very well. Keep it up!!

NKT,  August 9, 2010 at 7:14 PM  

Thank you for yet another excellent post. The points you have mentioned for each stock in the sector are so realistic and clear. Your earlier recommendation M&M Fin is also going very well. Keep it up!!

Venkat August 10, 2010 at 11:05 AM  

Very nice article..you have a very crystal clear knowledge on what you post and ability explain that in very simple words...Great Work Kumaran..Thank you - Venkat

kakarla sai August 19, 2010 at 7:26 PM  

Again great article from you sir.
Thankyou.

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