Edgy sellers seek exit as Gitanjali Gems' Nakshatra fades

Moneycontrol Bureau

Shares of jewellery retailer Gitanjali Gems continued their downward spiral on Monday, with unexecuted sell orders for over 1 crore shares on both exchanges put together. Trading in the stock was frozen at Rs 224.70, down 5 percent over the previous close, as exchanges reduced the band for the intra-day circuit filter from 10 percent earlier.

The stock has now shed nearly 60 percent in the last couple of weeks, but there are no buyers in sight. Brokers say financiers who had loaned money to market operators against Gitanjali shares as collateral, are desperate to offload the stock. There are reports that the NSE has frozen the pay out of a few brokers who have been dealing in the stock, since these brokers had put up the shares are collateral with the exchange.

The steep plunge in the stock price spells trouble also for the company’s promoter Mehul Choksi, who has pledged around 1.5 crore shares. Even assuming a sizeable chunk of the shares were pledged at a much lower price, lenders would be breathing down Choksi’s neck since the stock price is now at its lowest level in 27 months and practically illiquid.

The weakness in the stock price was triggered by the Reserve Bank of India's curbs on gold imports, which hurt jewellery firms in general. But the slide was accelerated by the unwinding of positions created by margin funding. 

The dramatic fall in the share price of Gitanjali is similar to the one seen in many erstwhile high flying midcaps like Core Projects, Educomp Solutions, Glodyne, Opto Circuits, and Everonn which never recovered from the blows of margin-related selling.

Earlier this year, Gitanjali shares were on a roll, even as most midcaps were getting pummeled. The company was looking to raise around USD 250 million through Foreign Currency Convertible Bonds. Bears targeted the stock between January and April, convinced that the company’s fundamentals did not justify the high stock price, but had to cover their short position at huge losses.

The company's proposed FCCB issue, with a conversion price of Rs 570 did not find takers, and had to be shelved. But the stock kept climbing and hit a 52-week high of Rs 649 in April.

Based on FY13 earnings per share, the stock is now available for a trailing price to earning multiple of just below 10. The company had reported a net profit of Rs 265 crore on sales of Rs 10,380 crore. The company's jewellery brands like Nakshatra, Gili, Asmi, Maya and D'Damas are endorsed by Bollywood stars like Shah Rukh Khan, Salman Khan, Kareena Kapoor, Katrina Kaif and Priyanka Chopra

But buyers' reluctance to touch the stock despite the 60 percent drop in share price,could indicate that they are not convinced about the company's numbers.

And bears appear to be having the last laugh.

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