Nov 27, 2012, 04.37 PM | Source:

Gitanjali Gems has target of Rs 507: SMC Global

SMC Global has come out with its report on Gitanjali Gems. The research firm has set a target price of Rs 507 on the stock.

SMC Global has come out with its report on Gitanjali Gems . The research firm has set a target price of Rs 507 on the stock.

Shift in consumer preferences: The Indian consumer has demonstrated a definite preference for the purchase of branded jewellery from modern retail formats such as kiosks in department stores, boutiques and souks. This is in sharp contrast to purchases of jewellery from traditional jewellers which was the earlier norm. The Indian consumer's growing brand awareness and aspirations have led to a shift towards branded jewellery. India has traditionally been a market dominated by gold jewellery. There is an observable break from tradition in terms of an increasing share of diamond jewellery within the Indian jewellery space. Again, jewellery purchases that used to be with an investment bent of mind have now been replaced by a fashion/consumption mindset driving jewellery purchases. These shifts have worked to Gitanjali's advantage. Gitanjali has a formidable bouquet of brands and its branded jewellery products sold through modern and innovative retail formats, are gaining in acceptance constantly

Compounding growth on account of jewellery sector growth and increasing share of organized players: The Indian jewellery market is a growing one. It is characterized as being largely fragmented and dominated by the unorganized segment. The share of organized players has however, been increasing significantly in recent years. Gitanjali which has a nation-wide presence and a bouquet of well-known and established brands is wellpositioned to capitalize on the growing share of organized players within a segment that is growing overall.

Improving Margin outlook: The margins for Gitanjali are expected to continue to improve on account of a constant, deliberate strategic shift downstream along the supply chain from diamonds to jewellery. This is in effect a move from the low-margin end of the business to the lucrative jewellery end. 600 cities and towns in India have demonstrated a strong appetite for diamond jewellery. Gitanjali is currently present in 300 cities and towns in India and its future expansion plans emphasize aggressive growth in tier 2 and tier 3 towns through the asset-light franchisee model which augurs well for the company in terms of allowing it to penetrate the Indian market rapidly and reducing its work capital requirements.

Valuation: On the back of strong brand recognition and footprint in both domestic and international jewellery markets the company has delivered excellent performance over the last few years. Its ambitious plans to increase its own outlets and franchise and aggressive global expansion plans indicate tremendous revenue growth visibility for the company going forward. At a current price of `429, the stock is trading at a P/Ex of 7.42 of its TTM earnings and we expect the stock to see a price target of `507 on its FY14 (E) EPS of 72.54 at a target P/Ex of 7.

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