Jewellery set to dazzle

Written by Rahul Jain | Updated: Sep 30 2007, 08:12am hrs
Rajesh exports is the largest Indian exporter of gold jewellery. It is has the largest jewellery manufacturing facility in the world. And now it wants to shift its business mix towards three higher-margin businesses of diamond jewellery, private label jewellery and retailing.

It has launched two types of retail jewellery shops in the name of 'Shubh' and 'Laabh'. The company launched 30 mid-size Laabh retail outlets in 23 cities across India in December 2006. It has developed a portfolio of jewellery designs for its retail outlets. Shubh retail outlets will be launched in collaboration with south India-based NBFC, Muthoot Pappachan (MP) group.

The company recently raised Rs 640 crore through FCCB issuance to fund its retail expansion plans. This initiative, backed by the largest market in the world, will further boost the earnings over the long term.

Investment rationale

India is the largest consumer of gold in the world. However, demand for jewellery goes up in festive and marriage seasons and this starts from September onwards and remains till April. The unique selling proposition in gold jewellery is the ability to create a variety of designs.

Also, the consumers want a mix of gold, gems and diamonds. Rajesh Exports has got the strength as they have entered into diamond-studded jewellery making also. The company has taken various strategic initiatives to increase the presence in the international and domestic market. South India is the largest market for gold in India.

To increase the presence, Rajesh Exports has tied up with MP group. Under this tie up the company will manufacture various gold coins in different shapes and sizes. The initiative is to spread across the five states of south India including Maharashtra. The MP group has 450 outlets in five states. The marketing capability, vast distribution network of the MP group and backward integration strength of Rajesh Exports will enable to provide coins at lower rate as compared to bank rate.

Also, this synergy could increase the overall market share at a comparatively fast pace because the southern market itself is huge.

One more initiative the company has taken is joint venture with US-based Fossil Inc, one of the largest watch brands in the US. This will enable Rajesh Exports to market its private label and diamond jewellery through Fossil global outlets. In May 2006, Rajesh Exports acquired all the retail outlets of Oyzterbay, a nationwide jewellery retailer and whose management has brand building experience.

To cash in on the real estate boom, Rajesh Exports is going to develop five out of its 32 land bank properties. All the properties are located in and around Bangalore city and in various cities of Kerala.

Financials

The company has a higher debt-equity ratio, which increases the burden of interest cost. No doubt the performance over a three-year period is good, interest cost burden was also on a higher side. The impact of this burden on the margin will minimise as the funding of further expansion in retailing was done through FCCB. Over a three-year period its net sales, operating profit and net profit has grown at a CAGR of 31.23%, 77.11% and 54.78% respectively. Net Sales, operating profit and net profit in the FY2006-07 were Rs 6893.36 crore, Rs 214.26 crore and Rs 101.28 crore respectively.

The recent spurt in the prices of scrips has led to limited upside in the short-term. However, over the long term the benefits accruing from new initiatives with strong domestic market could see a healthy upside.