Subscribed 1.65 times at the end of first day from Non institutional investors.
The initial public offer (IPO) of Goenka Diamond and Jewels received a good response from QIB’s , HNI’s and retail investors and was subscribed 1.65 times at the end of first day. The Rs 145-crore IPO received bids for 1.65 crore shares against one crore equities on offer, thus getting subscribed 1.65 times, as per the data available with the National Stock Exchange (NSE).
The company is offering 10 million shares of face value of Rs. 10 each in the price band of Rs.135 – Rs.145 per share. The offer which closes on March 26, 2010, will constitute about 30.93 % of the fully diluted post issue paid up capital of the company.
On its opening day, the IPO was subscribed 7.36 times in the portion reserved for non-institutional investors, the NSE data shows. The proceeds from the issue would be utilized in setting up jewellery manufacturing and diamond processing facilities in Mumbai and in expanding its retail outlets pan-India. "We are tapping the IPO market to scale up our retail growth operations," said MD, Nitin Goenka.
Goenka Diamond & Jewels, which currently has six retail stores across India, planning to expand by adding 19 new stores by 2012.
The company also owns diamond processing units in a SEZ at Surat and Mumbai having respectively 60,000 and 30,000 carat per year capacity. Exports account for nearly 75 % of its revenues in major market of the world.. Goenka Diamond and Jewels with its two brands G WILD & CERES has made a foray into retailing of jewelries.
CERES is the only diamond jewellery brand in the country that is present in the Rs. 1 Cr + range. In this space, GDJL competes with international brands like Graff, Harry Winston, Cartier, and Bulgari. In fact, GDJL is among the few players in the whole world who stock such jewellery
EXPANSION PLANS
The no. of GWILD & CERES stores will be respectively increased to 22 and 3 by FY12 & FY 11 by making use of a share of the proceeds. In Mumbai another jewellery making and diamond processing unit will be set up by using about 6 % of its proceeds.
The company is planning to raise approximately Rs. 145 crore. With the proceeds of the issue, company plans to set up 19 more stores - 2 CERES stores in Delhi and Calcutta, and 17 stores across Tier 1 and Tier 2 cities of the country.
FINANCIALS
The last three fiscal years have seen a growth in standalone revenue and net profit at (CAGR) of 146 % and 218 % respectively. Even during the recessionary period of FY 2008-09, GDJL managed to stay in the black, when most other players went into the red in this industry. It is understood that the focus on large diamonds helped the company to stay afloat during this difficult period, since international prices for large diamonds have been increasing for the past 2 decades, except for one quarter during the recessionary period. During the period April-December 2009, GDJL’s per carat realization has been nearly Rs. 1 lakh per carat, as compared to the industry average of around Rs. 15000 per carat.
Nearly 30% of their revenues come from sale of jewellery and almost 50% of their EBITDA comes from their jewellery segment as seen in the first nine months of FY 2010.
Highlights : Lowest Debt/Equity Ratio .56 times, Return on Networth 45.01% period April-December 2009, Return on Capital employed over 22 % last three years. Topline Growth of greater than 101% last 5 years and EBIDTA Margins Jewellery 18.37 % 9m FY10.
INDIABULLS VALUATION AND RECOMMENDATION
We value the stock at Rs. 159, by using the DCF method (WACC: 14.8% and Terminal Growth 5%), which offers an upside of 18% over the lower end of the price band and 10% over the upper end. Moreover, the issue appears attractive with an annualized FY10 P/E of 6.9x compared to an average of 15.7x for its peers (Shrenuj, Asian Star, Renaissance, Rajesh Exports and Gitanjali). Additionally, Goenka enjoys better EBITDA margins and net margin of ~10% and ~8.2%, respectively compared to 5.7% and 2.3% of its close peers (Shrenuj, Asian Star and Renaissance). Besides, it has enjoyed a superior ROE (FY09) of over 46% compared to a peers’ average of 10%-18%. Thus, we recommend investors to Subscribe to the issue.
