Renaissance Jewellery is a Mumbai-based manufacturer and exporter of studded gold, platinum and silver jewellery. It has three manufacturing facilities dedicated to studded jewellery. Two of the three facilities are located at SEEPZ-SEZ in Mumbai and the third one is a 100% EOU at Bhavnagar in Gujarat. Renaissance also has two manufacturing units that are held by its wholly-owned subsidiaries. One of them, Renaissance Retail Venture (RRVPL), has eight retail outlets in the country and markets jewellery under the brandname Lucera. RRVPL exclusively caters to the domestic market.
So far the jewellery industry is concerned, India?s export of gold jewellery has grown at CAGR of 25% over the last eight years. Exports of gold jewellery have gone up in recent years because of a healthy surge in demand in key markets like the US, from where Renaissance Jewellery gets most of its revenues abroad.
The company intends to mop up Rs 80 crore (considering the upper band price). It proposes to invest Rs 35 crore in its foreign subsidiary, Renaissance Jewellery New York. However, the foreign unit is yet to start generating sales. Majority of this amount would be used for working capital requirements. Around Rs 15 crore has been proposed to be put into the expansion and modernisation of Bhavnagar and Mumbai units. Remaining funds will be for the working capital requirements of Renaissance Jewellery as the company needs continuous funds to run its business smoothly. The need of working capital is seen from the current ratio, which is at 17.83 in the latest June quarter results.
Financials
A significant portion of the company?s revenues come from a few customers: the top five contributed 95.98% of its total revenues. The financial performance has improved at a consistent rate in the last three years. In FY2006-07, total sales was Rs 388.33 crore and net profit stood at Rs 20.42 crore. Profit margin has also improved from 3.04% in FY2002-03 to 5.26% in FY2006-07. However, there was dip of 1.20% in profit margin and lower realisation in the June quarter 2007 due to dollar depreciation.
Concerns
It must be noted that tax benefits availed by the company is valid till FY2008-09. This will impact the profitability and put pressure on margins after the validity period expires. Also, the company is getting the benefit under generalised system of preferences, which has been withdrawn from July 1 2007. India is one of the countries selected under this program where imports of select goods are duty free. This will increase the cost of gold jewellery to the US, which could hamper the company?s bottomline.
Valuation
The company?s fully-diluted earning per share in the FY07 stood at Rs 9.71. Considering the higher and lower price band, the P/E is 15.43(x) and 12.86(x). The pricing of the issue is at par in comparison with listed peers like Vaibhav Gems (P/E of 19.19) and Classic Diamonds (P/E of 14.53) and bigger players Rajesh Exports commands a P/E of 31.51(x).
It is to be noted that in this offer, the company is also giving one warrant on every two shares allotted at 25% premium.
The warrants can be converted after the 16th month and before the 18th month from the date of listing. Investors must consider the above factors before investing.
