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Nov 19, 2012, 01.57 PM IST | Source: Moneycontrol.com

CARE sees considerable upside potential in Gitanjali Gems

CARE Research has come out with its report on Gitanjali Gems (GGL). The research firm assigns a valuation grade of 5/5 to GGL, indicating the shares have 'Considerable Upside Potential'.

CARE Research has come out with its report on Gitanjali Gems (GGL). The research firm assigns a valuation grade of 5/5 to GGL, indicating the shares have 'Considerable Upside Potential'.

CARE Equity Research assigns a fundamental grade of 3/5 to GGL. This indicates ‘Good Fundamentals’. GGL is an integrated gems and jewellery (G&J) company with operations spanning across the entire G&J value chain. The company’s business model encompasses activities like rough diamond sourcing, cutting, polishing and distribution, jewellery manufacturing, jewellery branding and retailing. GGL is a pioneer of branded jewellery retailing in India and introduced the same in India with the launch of Gili. Equipped with a robust marketing and distribution network, the company has a presence in key strategic G&J markets.

The company’s presence in jewellery retailing (the maximum value addition stage across the G&J value chain), sees it covering around 1.7 million sq.ft. of retail space encompassing 4,000 points of sale in India, 110 retail stores in the USA and 4 stores in the Middle East. CARE Equity Research believes key catalysts for GGL’s growth would be the volume and realizations growth of the company’s jewellery which would also aid an improvement in its margins. Further, revenues from the company’s diamond segment are expected to grow at a CAGR of 12.5% during FY12-FY14 with improvement in realizations being the key growth driver. Carat volumes growth is expected to remain flat to negative as a result of increased captive consumption of polished diamonds.

CARE Equity Research values GGL at Rs. 532 per share. The valuation is arrived at by using the Sum of the Parts (SOTP) valuation methodology. GGL is present across the gems and jewellery value chain. We have divided GGL’s business into three key segments i.e. 1) diamond processing, 2) domestic jewellery and 3) international jewellery. Since the dynamics of these segments are not exactly similar, we have valued these business segments individually by using the EV/EBITDA multiples methodology. At the Current Market Price (CMP) of Rs. 423 per share; we assign a valuation grade of 5/5 to GGL, indicating the shares of GGL have ‘Considerable Upside Potential’.

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To read the full report click here

READ MORE ON  CARE Research, Gitanjali Gems
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