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Monday, December 22, 2008

Multi Bagger - Gitanjali Gems

Gitanjali Gems is an integrated diamond and jewellery manufacturer having strong presence in Indian and overseas markets which has been made possible with growing retail presence, strong brands bouquet, focus on jewellery business and global acquisitions.

The company has strong brands like Nakshatra, Gili, D’ DMas and Asmi and has 50% of its revenue coming from domestic market. Gitanjali Gems has been increasing its focus on jewellery business which has an EBIT margin of about 15% against its traditional diamond business, which has an EBIT margin of about 3%. The company also has its domestic jewellery business equal to that of Tanishq, a brand owned by Titan Industries. In quarter ending September 08, both the companies had a turnover of close to Rs 750 crores each from jewellery business, with almost same EBIT margin.

For FY08 on standalone basis, the total income of the company was at Rs 2,655 crores with net profit of Rs 138 crores yielding an EPS of 16.25 on equity of Rs 85 crores.

For first six months of FY09, on consolidated basis, the total income of the company was placed at Rs 2,510 crores with profit after tax of Rs 90 crores, which has resulted in an EPS of Rs 10.70 for first half.

Present equity of the company is at Rs 85 crores with face value fo Rs10 per share. As at 30.9.08, promoters stake in the company is at 48% while FIIs and Depository Receipt Holders are holding 31% with 9% held by the banks and mutual funds and 12% by the public. Best part about FII holding is that it is held by three sound ones like Goldman Sachs holding 6.5%, HSBC 6.5% and Deutsche Bank about 8%. Promoters of the company have been raising their stake and have seen buying close to 2% stake in the last 3-4 months.

Though there are negative perception for the growth of the company’s business, due to global economic slowdown, but still, FY09 should have a topline of Rs 4,500 crores with net profit of Rs 170 crores, resulting in an EPS of close to Rs 20. Due to fear of slowdown, share which had its 52 week high of Rs 473 had corrected to low of Rs 57 in November 08 and is now ruling at Rs 75 levels. This is at a PE multiple of about 4 times, based on FY09 workings. Titan Industries, a similar company even today is ruling at a PE of close to 14.

The company has been aggressively increasing its footprint in the domestic and global markets by acquisitions of retail chains and brands which will enable to expand at a regular interval. The company has recently entered into a JV with MMTC to open jewellery showrooms in India.

The company in the past has entered into realty development mainly with a view to start jewellery SEZ and to have premises for its showrooms.Though the same may not yield an immediate return, in the medium to long term, it will help the company to expand as also to earn extra profit from this business.

Share is having a book value of Rs 210 as on date and is ruling at 76.65 which makes it a safe and good buy. Share has potential to breach three digit mark by March '09 with minimal downside risk. A safe bet at Rs 76.65.

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