Buy Gitanjali Gems; target of Rs 347: Firstcall Research

“Gitanjali Group is world’s largest branded jewellery retailer. The company’s headquarter is in Mumbai. Gitanjali Gems, incorporated in 1986, is one of leading players in jewellery segment. Founded in 1966, it was the first group company to engage in cutting and polishing of diamonds in Surat, Gujarat. Today this $900 million multinational group is one of largest manufacturer, retailers and exporters of diamonds. The company is the first to produce the world’s smallest heart shaped diamond (0.03 carat) and developing some 25 patented facet patterns.”

“Gitanjali Group's operates from sourcing of rough diamond, cutting, polishing and distributing, to jewellery manufacturing, which includes designing, mould making, wading, casting, spruce grinding, filing, polishing and setting. The company uses latest CAD and CAM processes and equipment for creating designs for jewellery. The company was first to offer diamond studded jewellery at reasonable prices. The company has won over 50 awards from the Ministry of Commerce, India for outstanding exports of diamond and jewellery, is today over $1000 million multinational group, and a publicly listed entity.”

“Gitanjali Gems Ltd has posted net profit of Rs 1322.46 million for the quarter ended on September 30, 2011 as against Rs 800.29 million in the same quarter last year, an increase of 65.25%. It has reported net sales of Rs 31676.41 million for the quarter ended on September 30, 2011 as against Rs 25097.10 million in the same quarter last year, a rise of 26.22%. Total income grew by 26.23% to Rs.31701.31 million from Rs.25112.96 million in the same quarter last year. During the quarter, it reported earnings of Rs 15.32 a share.”

“Gitanjali Gems Ltd has acquired 100% stake of 'Crown Aim Limited' ('Crown Aim'). Thus Crown Aim has become step down subsidiary of the Company. Crown Aim is a Hong Kong based Company engaged in the business of distribution of Jewellery to China, Japan, USA, Middle East and Europe. In Addition, Crown Aim has a Jewellery manufacturing unit in China and plans to setup retailing of Jewellery in China. Crown Aim also has a 100% subsidiary with the name Alfred Terry Holding Limited and a step down subsidiary named Alfred Terry Limited in London, for distribution of Jewellery in UK.”

“At the current market price of Rs.310.00, the stock is trading at 5.20 x FY12E and 4.25 x FY13E respectively. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.59.61 and Rs.73.03 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 30% and 46% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at 3.16 x for FY12E and 2.67 x for FY13E. Price to Book Value of the stock is expected to be at 0.87 x and 0.72 x respectively for FY12E and FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs 347 for medium to long term investment,” says Firstcall Research report.

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