Recommendation Transaction Price Range Target Time horizon 1-yr stock price movement (NSE) 300 Buy Rs.98- Rs.110 Rs.136 6 months Business: Shree Ganesh Jewellery House Ltd. ( Shree Ganesh Jewellery House or The Company ), is one of the largest manufacturers and exporters of handcrafted gold jewellery in India. Company s products include handcrafted and hallmarked gold jewellery, gold enameled jewellery and gold jewellery studded with precious stones such as diamonds, rubies, emeralds, sapphires, pearls, etc. and semiprecious stones such as garnet, cubic zirconium, etc. Its portfolio includes rings, earrings, pendants, bracelets, necklaces, bangles and medallions. 200 100 0 Snapshot CMP 104.65 Date 23-Jul-12 Beta 0.90 52-week High (Rs.) 259.15 52-week Low (Rs.) 65.60 Industry FYE Diamond & Jewellary March Adj. EPS (Rs.) 48.38 P/EPS ratio (x) 2.16 Cash EPS (Rs.) 52.1 P/ Cash EPS (x) 2.01 P/ BV ratio (x) 0.48 BV/ Share (Rs.) 218.36 M. Cap/ Sales (x) 0.10 Market Cap (Rs. Cr) 635.04 Dividend yield (%) 7.1 FV/ share (Rs.) 10 F&O Presence NO Avg. Daily Trades (Rs. Cr.) 2.82 Bloomberg Ticker NSE Ticker SGJ IN SGJHL BSE Ticker 533180 Return Comparison vis-à-vis Nifty Particulars (%) 1m 3m 1yr Shree Ganesh Jewellary house Ltd. 7.9% 31.2% -39.4% Nifty 1.2% 0.2% -8.3% Particulars (Rs. Cr.) FY12 FY12 Q4 9m 12m Net Sales 1,266.7 4,205.1 6593.5 Net Profit 160.3 224.4 293.6 Cash Profit 166.5 242.7 316.0 Profit (%) 12.7% 5.3% 4.5% Adj. EPS (Rs.) 26.4 37.0 28.8 Share Holding Pattern No. of shares: 60,682,485 Promoter holding (%): 70.66 Institutions (%): 9.31 Non-Institutions (%): 20.03 Free Float (%): 29.34 Company s products are primarily exported to countries such as the U.A.E, Singapore and Hong Kong. Shree Ganesh Jewellery has manufacturing units located in Mondalpara, Manikanchan Special Economic zone ( SEZ ) which is presently the only jewellery SEZ in West Bengal and Domjur and U.A.E. The Company tapped the capital market in March 2010 with an IPO of Rs.315 crore priced at Rs.260 per share for expansion. Investment Rationale: The Indian gems and jewellery market of USD 45 billion as on 2010 is expected to grow to USD 100 billion by 2015. The gold jewellery segment, which accounts for a mere 20 percent of the total gems and jewellery market in India, is expected to grow to 30 percent on a larger industry size through to 2020, riding a growth in aspirations and disposable incomes. During Q4 FY11 Shree Ganesh Jewellery House commenced production of fusion jewellery which will enable company to cater to a diverse customer base in-turn adding substantially to volumes. The technological synergies from the Joint Venture with Societa Aretina Lavorazione Preziosi ( SALP SPA ) are expected to yield results in the coming years. With increasing proportion of high margin studded jewellery to the total revenues, margins are expected to improve going forward. As Shree Ganesh Jewellery House strengthens its retail presence in the domestic market by adding stores under the GAJA brand, retail contribution to total revenues in expected to improve in FY13 (FY2012-13 or FY13 ). Shree Ganesh Jewellery House is also scouting for diamond and gold mines in Africa venturing into new territories like Europe, China and Africa and exploring retail opportunities in the overseas markets are expected to yield returns. Shree Ganesh Jewellery reported revenue of Rs.6593.46 crore in FY12 as against Rs.5242.94 crore in FY11 up by 25 percent due to strong demand and rising gold prices. The company s share is quoting at a Price/ Book value (P/BV) of about 0.50 times and Market Cap/ Sales of 0.10 times; these valuations seem quite attractive considering Shree Ganesh Jewellery House an Integrated business model. Thus, aided by robust capacity expansions and healthy domestic & global consumption demand going forward, we strongly recommend a BUY for the company s stock. Business Outlook Strength: o Strategic location of manufacturing units o Strong in-house designing capabilities o Superior quality of products o A well-spread marketing network o Availability of cheap labour and presence of well skilled people Risks: o Any slowdown in the global economic market could impact jewellery off take o Increase in cost of Raw material o The business of jewellery retail involves high costs and risk, requiring competencies different from that of manufacture. o Regulatory changes by government *Annualized Investment rating scale: Buy (>15% returns); Add (5% <15% returns); Sell (<-5% returns) 1
Legal History & Structure: Shree Ganesh Jewellery House Ltd. Incorporated in 2002 is one of the largest manufacturers and exporters of handcrafted jewellery in India and has received a Four Star Export House certificate from the Government of India. Subsidiaries: Gokul Jewellery House Private Limited, Easy Fit Jewellery Private Limited, Sumit Jewels Private Limited, Shree Ganesh Jewellery House FZE, Gaja Finance Private Limited and Shree Ganesh Jewellery House (Singapore) Pte Ltd. Joint Ventures: o Strategic alliance with Bharti-Walmart for shop-in-shop arrangements in its retail stores run by the name of Easy Day Management s Growth Path: Expansion Plans: o Shree Ganesh Jewellery House is venturing into new territories like Europe, Australia and Africa and exploring retail opportunities in the overseas markets are expected to yield returns in the near future. o In a bid to improve cost efficiencies and enhance margins, Shree Ganesh Jewellery House is in the process of installing a gold refinery at Domjur in West Bengal. o Shree Ganesh Jewellery House plans to open 250 outlets mostly in tier-ii and III cities such as Lucknow, Jodhpur and Kochi to reach out to the rural rich who now shop like high-street consumers. o Shree Ganesh Jewellery House is venturing into new territories like Europe, Australia and Africa and exploring retail opportunities in the overseas markets are expected to yield returns in the near future. o During Q4FY11, Shree Ganesh Jewellery House commenced commercial production of Italian fusion jewellery. Expansion of its product portfolio to include Italian fusion jewellery will not only enable it to cater to a diverse customer base but will also add substantially to volumes going forward. Additionally, in a bid to improve cost efficiencies and enhance margins, Shree Ganesh Jewellery House is in the process of installing a gold refinery at Domjur in West Bengal. o The construction for the Rs.100 crore 50:50 JV at Shree Ganesh Jewellery House integrated jewellery manufacturing complex in Domjur, West Bengal under the name of Oroitalia Chains Pvt. Ltd for a manufacturing unit for machine made light weight gold jewellery with Societa Aretina Lavorazione Preziosi S.P.A. (SALP SPA), is progressing well and is expected to be operational by Q1FY13. This facility will have an Initial capacity to manufacture 10 tonnes of lightweight gold jewellery annually. o Around 2/3rd of the new outlets that the 63 gold jewellery retailers, which are covered by Crisil, plan to open will be in such small towns in the medium term. The report says these jewellers are expected to get more than half their revenues from small towns by FY2012-13 up from around 40 percent in FY2009-10. The 63 jewellery retailers covered in the report collectively accounted for 20 percent by revenue of the gold jewellery retailed in India in FY2010-11. Markets: o The products, designed by a team of highly creative designers, have presence across different price points to cater to all customers across high-end, midmarket and value market segments allowing Shree Ganesh Jewellery to build a large and diverse portfolio of designs. o Shree Ganesh Jewellery House derives more than 85-88 percent of its sales from overseas market and primarily exports to the United Arab Emirates ( UAE ) Singapore and Hong Kong. Gross Sales Quarter ended Year Ended Mar-12 Dec-11 Mar-11 Mar-12 Rs. Lakh % of Sales Rs. Lakh % of Sales Rs. Lakh % of Sales Rs. Lakh % of Sales Domestic 944 75% 1,118 77% 935 84% 5,257 80% Export 323 25% 339 23% 183 16% 1,336 20% Total 1,267 100% 1,457 100% 1,118 100% 6,594 100% o o Shree Ganesh Jewellery Brand Gaja has launched a consumer specific collections including high end couture jewellery collection in association with Celebrity fashion designer Sabyasachi Mukherjee. The company will continue to invest in brand building and the company has launched collection specific brands. These collections are targeted at specific consumer groups and cater to different price points and interests. The brands have an organic growth strategy and will expand through franchisee and distributorship network. The company regularly participates in Trade Fairs and Exhibitions to promote and market its brands and products. 2
Shree Ganesh Jewellery House Business Model: Handcrafted Jewellery Fusion jewellery Retail stores Brand acquisition Refining NBFC Bullion trading Volume Value Outlay Risk High, derived from growing demand from large international wholesalers High, derived from a growing demand for Affordable jewellery. Medium, as the retail stores are driven by individual buyers High, as the Company intends to invest in prominent brands High, as there are large number of sellers of old jewellery and few creators of new ones Medium, as there are number of individuals looking for loans against gold. High, as there is a large number of investors in gold Reasonable returns High margins as the Company substitutes imports through inhouse manufacture. High, as the Company markets products manufactured in house, enhancing margins. High, as branding will attract margins High, as the Company procures old gold at a low cost, refines it and consumes it to make jewellery Low, as the Company will charge reasonable rates of interest Low, as the Company will earn delivery charges on gold transactions. High on account of investments in working capital and capital assets Low, as the Company tied up with an Italian company to provide free equipment High, as setting up retail stores involves capital investments High, as the acquisition of reputed brands will involve huge capital costs Medium, as a refining unit requires a large capital investment Medium, as offices entail a reasonable capital cost. Medium, as the Company needs to commission an online trading terminal to facilitate gold trading. Low owing to a high product acceptance. Low, as the reasonably priced products find Better acceptance Medium, as some retail stores may struggle to break even. Franchising is an option Medium, as the Company may take longer to break even. Low, as the Company is getting associated with London Bullion Metal Association for certifying purity of its refined gold Low, as the gold will provide more than 100% collateral security Low, as the trading terminal will be delivery based, enabling the Company to earn delivery charges on every transaction Segmental Performance: Segmental Revenue Quarter ended Year ended (Rs. crore) Mar'12 Dec'11 Mar'11 Mar'12 Mar'11 Jewellery 2,100.59 1,278.56 2,853.66 10,115.64 5,840.16 Power 5.01 - - 5.01 - Others 0.32 - - 0.32 - Add Unallocable Income 34.95 8.73 30.15 167.61 71.95 Total 2,140.87 1,287.29 2,883.81 10,288.58 5,912.11 Jewellery 171.02 86.62 125.18 532.53 384.09 Power 3.7 - - 3.7 - Others 0.13 - - 0.13 - Less Unallocable Expense Finance Cost 53.46 25.09 30.22 135.83 70.85 Others -75.14 3.88 1.73-64.10 15.18 PBT 196.53 57.65 93.23 464.63 298.06 3
Contribution to Top line FY12: Geographical Distribution FY12: Exports 80% Other 0.2% Power 0.8% Jewellery 99% Domestic 20% Manufacturing Capacities: Location Manikanchan SEZ (Kolkata) Mondalpara (West Bengal) Domjur (West Bengal) Gold jewellery manufacturing capacity 37,000 Kgs of handcrafted jewellery 2,550 Kgs of Italian fusion jewellery and handcrafted jewellery equipped with all modern equipment from Italy 4,250 Kgs of handcrafted jewellery and 1.5 lakh carat diamond studded jewellery Gold jewellery refining capacity No of Gold Craftsmen - 489-56 1000 Kg 380 4
Financial Performance (Standalone Basis): Income Statement (Rs. Cr.) Growth Mar'12 Dec '11 Sep '11 June '11 Mar '11 08 - '11 3 months 3 months 3 months 3 months 3 months Net Sales 6593.46 5242.94 2952.25 2149.99 75.36% 1266.74 1455.88 1482.48 2386.69 1118.20 Growth 25.76% 77.59% 37.31% 160.77% -12.99% -1.79% -37.89% 113.44% 1.39% Total Income 6674.14 5307.31 3002.44 2218.20 76.50% 1278.27 1466.86 1522.49 2406.51 1108.20 Growth 25.75% 76.77% 35.35% 168.14% -12.86% -3.65% -36.73% 117.15% -1.07% Expenses 6227.95 4914.98 2750.89 2016.68 76.38% 1059.88 1413.56 1445.69 2308.82 1033.36 Growth 26.71% 78.67% 36.41% 163.75% -25.02% -2.22% -37.38% 123.43% 0.02% EBITDA 446.19 392.33 251.55 201.52 79.08% 218.39 53.30 76.80 97.69 74.84 Growth 13.73% 55.96% 24.83% 221.80% 309.74% -30.60% -21.38% 30.53% -13.98% Int. & Fin. Charges 126.50 120.30 78.21 66.24 181.21% 49.03 28.12 24.53 24.82 23.68 Growth 5.16% 53.80% 18.08% 647.79% 74.36% 14.64% -1.17% 4.81% 39.95% Depreciation 22.39 5.98 2.32 1.84 123.86% 6.27 5.95 6.12 4.06 3.18 Growth 274.65% 157.59% 26.24% 36.94% 5.38% -2.78% 50.74% 27.67% 132.12% PBT 297.30 266.06 171.02 133.44 62.51% 163.09 19.23 46.15 68.81 47.98 Growth 11.74% 55.58% 28.16% 154.55% 748.10% -58.33% -32.93% 43.41% -30.17% PAT 293.58 263.85 165.88 132.45 64.02% 160.26 21.51 42.62 69.16 47.63 Growth 11.27% 59.06% 25.24% 160.52% 645.05% -49.53% -38.37% 45.20% -30.25% Cash Profit 315.97 269.82 168.20 134.29 65.03% 166.53 27.46 48.74 73.22 50.81 Growth 17.10% 60.42% 25.25% 157.34% 506.45% -43.66% -33.43% 44.11% -27.06% Common-Size Statement (% of Net Sales) Cash Flow Statement FY 11 FY 10 FY 09 FY 08 (Rs. Cr.) Expenses 94.5% 93.7% 93.2% 93.8% PBT 266.06 171.02 133.44 92.09 Int. & Fin. Charges 1.92% 2.29% 2.65% 3.08% Adjustments -446.05-55.35-21.58-40.76 Depreciation 0.34% 0.11% 0.08% 0.09% Operating Cash Flow -179.99 115.67 111.86 51.33 Cash Profit 4.79% 5.15% 5.70% 6.25% Financing Cash Flow 394.99 11.45 177.12 177.08 EBITDA 6.77% 7.48% 8.52% 9.37% Investing Cash Flow -230.45-11.34-2.09-10.89 Capital Employed 28.54% 31.42% 30.00% 34.81% Free Cash Flow 703.61 261.65 160.49 129.43 Enterprise Value 7.00% 16.65% -10.49% -5.24% Net Cash Flow -15.44 115.78 286.89 217.52 Market Capitalization 10.10% 17.98% 0.00% 0.00% Closing Balance 643.14 658.59 542.81 255.92 Key Ratios Mar'12 Dec '11 Sep '11 June '11 Balance Sheet 3 months 3 months 3 months 3 months (Rs. Cr.) Interest Coverage (x) 4.45 1.90 3.13 3.94 Equity Capital 60.68 60.68 48.55 101.44 PBT Margin (%) 12.87% 1.31% 3.03% 2.86% Reserves 1264.33 1013.06 488.11 296.24 PAT Margin (%) 12.65% 1.47% 2.80% 2.87% Net worth 1325.01 1073.75 536.66 397.68 ROE (%) 22.67% 30.43% 60.30% 97.85% Market Capitalization 666.29 942.70 0.00 0.00 ROCE (%) 38.11% 8.26% 20.25% 26.70% Debt 556.58 573.50 349.03 350.67 EPS (Rs.) 26.41 3.54 7.02 11.40 Payable within 1 yr. N/A 363.50 289.03 345.01 Capital Employed 1881.59 1647.24 885.69 748.35 Highlights Gross Block N/A 109.50 23.97 16.87 Interest Coverage (x) 3.35 3.21 3.19 3.01 Less: Depreciation N/A 13.11 7.14 4.82 PBT Margin (%) 4.51% 3.26% 3.26% 4.52% Net Block N/A 96.39 16.83 12.05 PAT Margin (%) 4.40% 4.97% 5.52% 5.97% Capital WIP 2380.00 23.03 0.58 1.86 ROE (%) 48.37% 24.57% 30.91% 33.31% ROCE (%) 22.50% 30.50% 35.09% 35.09% Investments 13.46 138.03 5.44 5.56 EPS (Rs.) 48.38 43.48 34.17 20.33 Debtors 2114.68 1833.00 589.80 175.36 Price/ EPS (x) 2.27 3.57 0.00 0.00 Cash & Bank balance 822.24 643.10 658.59 543.24 CEPS 52.10 44.46 34.65 31.32 Loans & Advances 86.35 54.13 60.14 74.16 Price/ CEPS (x) 2.11 3.49 0.00 0.00 Other Current Assets 15.34 19.52 3.96 1.43 BV/ Share 218.36 176.94 110.55 148.17 Total Current Assets 3567.72 2184.85 1503.14 868.08 Price/ BV (x) 0.50 0.88 0.00 0.00 Total Current Liabilities 2483.70 803.22 647.95 140.85 M. Cap/ Sales (x) 0.10 0.18 0.00 0.00 Net Current Assets 1084.02 1381.63 855.19 727.24 Debt/ Equity (x) 0.51 0.53 0.65 0.88 Dividend Yield (%) 7.10% 3.86% 0.00% 0.00% Contingent Liabilities N/A 1036.25 921.67 603.16 5
Financial Performance (Consolidated Basis): Income Statement Cash Flow Statement FY 11 FY 10 FY 09 FY 08 (Consolidated; Rs. Cr.) (Rs. Cr.) Net Sales 10120.64 5839.91 3475.52 2860.09 PBT 298.05 173.47 135.24 93.71 Total Income 10120.64 5912.11 3528.39 2942.53 Adjustments 103.12 57.13 18.44 7.63 EBITDA 539.73 424.65 258.11 209.79 Operating Cash Flow 401.17 230.60 153.68 101.34 Int. & Fin. Charges 135.83 126.59 84.64 74.55 Financing Cash Flow 387.14 21.01 175.73 177.92 Depreciation 29.06 6.54 2.84 1.99 Investing Cash Flow -212.05-3.87-3.28-8.38 PBT 464.63 298.05 173.47 135.24 Free Cash Flow 779.85 288.62 162.09 121.80 PAT 461.01 294.65 167.37 133.52 Net Cash Flow -15.00 117.64 290.76 230.57 Cash Profit 490.07 301.18 170.21 135.51 Closing Balance 700.64 715.64 598.00 307.24 Highlights Balance Sheet (Rs. Cr.) Interest Coverage (x) 3.39 3.35 3.05 2.81 Equity Capital 60.68 60.68 48.55 101.44 PBT Margin (%) 4.59% 5.04% 4.92% 4.60% Reserves 1508.56 1077.49 522.62 328.48 PAT Margin (%) 4.56% 4.98% 4.74% 4.54% Net worth 1569.24 1138.18 571.17 429.92 ROE (%) 29.38% 25.89% 29.30% 31.06% Market Capitalization 666.29 942.70 0.00 0.00 ROCE (%) 21.90% 31.58% 29.49% 33.77% Debt 1148.74 602.95 370.56 372.19 EPS (Rs.) 75.97 48.50 34.46 31.10 Payable within 1 yr. N/A 363.50 289.03 0.00 Price/ EPS (x) 1.44 3.20 0.00 0.00 Capital Employed 2717.98 1741.13 941.73 802.11 CEPS (Rs.) 75.97 49.63 35.06 31.60 Price/ CEPS (x) 1.44 3.13 0.00 0.00 Gross Block N/A 114.50 26.83 18.99 BV/ Share (Rs.) 218.36 187.56 117.66 163.21 Less: Depreciation N/A 14.40 7.87 5.03 Price/ BV (x) 0.50 0.83 0.00 0.00 Net Block N/A 100.10 18.96 13.96 M. Cap/ Sales (x) 0.10 0.16 0.00 0.00 Capital WIP N/A 23.03 0.58 1.86 Debt/ Equity (x) 0.41 0.53 0.65 0.87 Net Current Assets 1233.06 1487.10 917.62 787.59 Dividend Yield (%) 7.10% 3.86% 0.00% 0.00% Contingent Liabilities N/A 1203.30 978.31 693.50 Where a Rupee is Spend FY12: Depriciation & Amortisation Expenses 0.4% Employee Cost 0.8% Other Expenditure 0.8% Raw Materials 98% Financial Notes: o Out of the fund raised from Initial Public offer (IPO) amounting to Rs.315.54 crore, apart from meeting the IPO expenses of Rs.23.32 crore, the Company has utilized the proceeds of the issue amounting to Rs.278.77 crore for setting up and expansion of manufacturing units, setting up of retail outlets, meeting working capital requirements and for general corporate purposes up to the year ended 31 March 2012. The unutilized fund of the issue amounting to Rs.13.46 crore has been temporarily invested in interest bearing liquid instruments including deposit with banks and investment in mutual funds. 6
Investment rating scale: Buy (>15% returns); Add (5% <15% returns); Sell (<-5% returns) Source: Sumpoorna Research, Company website and other publicly available data Document prepared by: Ishu Mann Nitesh Aggarwala For further information, please contact Sumpoorna Global Markets & Economics Research Phone: +91 120 4505200 Email: knowledgecentre@sumpoorna.com url: www.sumpoornaonline.com Note: The information and opinions in this report have been prepared by Sumpoorna and are subject to change without any notice. Please contact Sumpoorna for more information on investment decisions. Sumpoorna, its affiliates and clients may have investment positions in the investment vehicles recommended in this report. Disclosure Sumpoorna Portfolio Limited and its affiliates (collectively referred to as Sumpoorna ) are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are underwriter of securities and participate in virtually all securities trading markets in India. Our research professionals provide important input into our investment banking and other business selection processes. Sumpoorna generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Disclaimer This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the security/ instrument referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Sumpoorna and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Sumpoorna Portfolio Limited, its affiliates, directors, its proprietary trading and investment businesses (collectively referred to as Sumpoorna ) may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Sumpoorna or any of its affiliates/ group companies 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. Sumpoorna has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Sumpoorna endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. Neither Sumpoorna, its directors, employees nor its affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. 7