Recommendation From Other Apparels & Accessories Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
 

The Indian Meteorological Department (IMD) had earlier predicted an above average monsoon this year which we believe is going to further drive rural incomes, thereby creating strong demand for gold jewellery over the coming quarters. The recent decline in global gold prices is likely to trigger demand for jewellery sales in India. All India Gems and Jewellery Trade Federation (GJF) has demanded to cut import duty to 5 per cent from 10 per cent. High import duty is affecting industry’s top line and economy as a whole.

Indian jewellery market is estimated to grow at a CAGR of 15.95 per cent in 2014- 2019. The acquisition of Valcambi coupled with strong order pipelines will continue to act as strong catalysts for Rajesh Exports (REL) going forward. REL is currently the single largest constituent of gold business in the world. The company has been included in the Global Fortune 500 companies list. It is the only company which has presence across the value chain of gold from mining till having its own retail brand. REL has set up 80 retail jewellery showrooms under the brand name of SHUBH Jewellers.

On financial front, REL’s revenue boosted by more than three times to Rs.58917 crore in Q1FY17 as compared to the same period in the previous financial year. The company’s EBITDA declined by 3.76 per cent to Rs.381 crore in Q1FY17 on yearly basis. Its EBITDA margin contracted by 197 basis points to 0.65 per cent in Q1FY17 as compared to same period in previous financial year. REL’s net profit also rose by 13.81 per cent to Rs.270 crore in Q1FY17 as compared to the same period in the previous financial year.

On a yearly front, REL’s revenue in­creased by 227.39 per cent to Rs.165211 crore in FY16. The company’s EBITDA too rose by 39.65 per cent to Rs.1769 crore in FY16 as compared to the same period in the previous financial year. Its net profit also boosted by 62.88 per cent to Rs.1067 crore in FY16 on yearly basis. REL has cash of Rs.11865 crore as of FY16. The company has a healthy debt to equity ratio of 0.96 as of FY16. It has given ROE and ROCE of 31.85 per cent and 43.79 per cent as of FY16.

During July 2016, REL has won an export order worth Rs.786 crore of a designer range of gold and diamond studded jewellery and medallions from the UAE. The order is to be completed by October 15, 2016. Its order book stood at Rs.36844 crore as of June 2016. On valuation front, REL’s share price is trading at trailing twelve months (TTM) PE multiple of 12.23x times as compared to industry PE multiple of 21.31x times. Company has lower PE multiple as compared to peers such PC Jeweller and Titan has PE multiple of 19.23x times and 51.58x times. The lower PE is quite attractive and has traction to grow in the coming quarters.