Renaissance Jewellery to tap capital mkt to raise Rs 80 cr

[praveen]

Exporter of studded gold and platinum jewellery Renaissance Jewellery on Monday said it will tap the capital market to raise about Rs 80 crore to fund its expansion plans and other business purposes.

The initial public offering (IPO) of the company, which opened for subscription today, comprises 53,24,240 equity shares of Rs 10 each.

The company has set a price band of Rs 125-150 per share for its IPO. The issue price would be decided through a 100 per cent book-building process.

Based on the lower end of the price band, the company would raise around Rs 67 crore while on the upper end, it hopes to mop up around Rs 80 crore.

"The company has earmarked 35 crore for its US subsidiary Renaissance Jewellery New York Inc, 15 crore will be spent in capacity expansion in its Bhavnagar and Mumbai facilities and rest will be invested in long-term capital expansion," Renaissance Jewellery Managing Director Sumit Shah told reporters here.

The issue would constitute 29 per cent of the fully diluted post-issue paid-up equity share capital of the company.

Presently, the company has 26 outlets in India and is planning to take the number to 250 in the next three years. This expansion will be done through internal accruals, Shah added.

[jain_600910]

what is the target of this IPO ?

[praveen]

Keynote Capitals has recommended subscribing to Renaissance Jewellery’s Rs 80-crore initial public offering with a long-term view. The issue opened for subscription on Monday and closes on Wednesday.

The issue is for 5.32 million equity shares of Rs 10 each, in the price band Rs 125-150 per share, aggregating to Rs 80 crore. The company is offering one detachable warrant with every 2 equity shares aggregating to Rs 40 crore.

Renaissance Jewellery manufactures and sells studded gold, platinum and silver jewellery and it focuses on international markets with 96 per cent of revenues accruing from the US.

The company markets the products through retail stores operated by subsidiary Renaissance Retail Venture. It currently has eight retail outlets and 16 shop-in-shops. The retail products are sold under the brand name Lucera.

The company plans to shift focus from the US to the domestic market by opening over 250 retail outlet in the next five years.

Foray into new product categories such as bridal jewellery and gemstone jewellery led to a marginal increase in EBITDA margin from 6.9 per cent in 2005-06 to 7.4 per cent in 2006-07. By virtue of its unit being located in a tax exempted area, it enjoys certain tax benefits, Keynote says.

On consolidated basis, sales and net profit increased 38.6 per cent and 72.1 per cent in 2006-07, on account of increase in the installed capacity from 1,950 kg in 2005-06 to 2,250 kg in 2006-07.

However, quality of earnings took a hit with exchange fluctuations (Rs 5.13 crore) contributing substantially to profit before tax of Rs 6.91 crore in April-June 2007-08.

With further increase in the installed capacity to 4,000 kg by 2009-10, the brokerage expects sales and net profit to grow at compounded annual growth of 20.8 per cent and 25.2 per cent during FY07-09E.

Client concentration is a concern, Keynote Capitals says. Top customer accounted for 40.9 per cent and 42.3 per cent of consolidated revenues in 2005-06 and 2006-07 respectively. Also, exchange rate fluctuations can have a major impact on profitability, as it derives over 96 per cent of revenues from US. However, it has a natural hedge on account of imports and working capital funding being dollar denominated.

The valuation of the IPO stands at 8.0 times 2007-08 and 6.9 times 2008-09 vis-a-vis its peers Gitanjali Gems at 15.0 times 2008-09 estimated and Vaibhav Gems at 9.0 times 2008-09 estimated.

However, the discount to the industry leader like Gitanjali Gems seems justified in view of the strong brands and retail presence of the former. International players like Tiffany and Signet Group trade at 18.0 times and 10.7 times 2009 earnings