maverick
11-12-2007, 07:01 PM
Diamonds-Shining Bright
A huge but unjustified valuation gap exists between Classic Diamonds, Suraj Diamonds, Suashish Diamonds and Flawless Diamonds on one side of the spectrum and Gitanjali, Rajesh Exports and Titan on the other. While bit watch maker and bit jewellery manufacturer Titan fetches a PE of 50 on FY09 estimated earnings, those like Suraj, Classic and Suashish fetch a PE of 10 on FY08 estimated earnings.
Unrealised by most investors Classic with its "Classic Jewels", Suashish with "Ishi" and Flawless and Suraj with their owned retail outlets and through franchisee outlets in mutliple retail establishments like Westside and Shoppers Stop, are pushing higher contribution from jewellery sales than pure diamond cutting and polishing. This has ensured that not only are their profits at their highest levels in the last four years but they have successfully met the negative fallout of a appreciation in the value of Rupeee against the Dollar.
These concerns are not only in the unique position of being "Sight Holders" for De Beers, but have bought Diamond mines in Australia and Botswana making supply lines of Rough Diamonds more reliable, secure and economical.
Foremost and most importantly, all the above mentioned concerns are in a non-recessionary non-cyclical business as they cater to jewellery demand which arises from all over-family celebrations, weddings, religious festivals and the buy on whim fancy.
Strong financial performance from the listed jewellery companies
Corporate earnings in the jewellery sector suggest that earnings as well as profitability are at their highest point in the last four years. This is on the back of 11% appreciation of rupee vis-ŕ-vis dollar in last year and removal of GSP benefits in the US.
Data compiled on a quarterly basis for 10 jewellery companies in India for the last four years shows that despite the adverse operating conditions, sales growth as well as earnings growth is very commendable. Overall profitability of the companies has increased by 330 bps at EBIDTA level and by 190bps at PAT level.
Corporate sales growth still strong and earnings showing higher growth as a result of higher profitability.
Profitability is at its highest in last 4 years
The data is compiled from ten listed jewellery companies in India. This is the result of conscious efforts by Indian corporates of acquiring maximum jewellery value chain. Most diamond cutting and polishing companies in India have shifted their focus to jewellery manufacturing.
Few bigger companies have captured almost the entire value chain by being present in the retail sector. We believe there is further scope for improving
margins because still a majority of jewellery companies’ revenues are coming from low margin diamonds or wholesale jewellery exports business.
Profitability will improve as more and more revenue comes from the high value-added segments.
Exports growth still strong despite currency appreciation
The correlation of India’s jewellery exports against currency depreciation is low. Historically exports have not gone down on appreciation of rupee against dollar. Until October 2007, India’s jewellery exports increased by 25% in dollar terms and 13% in rupee terms. During the same period the currency appreciated by close to 11%. From F2003 to F2005 the currency appreciated by close to 6% and still exports rose significantly.
This was because many companies shifted focus to jewellery from diamonds during that period.
The US is India’s key export destination and exports of jewellery from India to US have increased substantially in the last five years. Over a period of time more outsourcing will shift to low cost countries such as India and China.
India has greater jewellery design capabilities to cater to different consumer tastes and preferences as well as expertise in small diamond polishing, which helps them garner the cost advantage.
A huge but unjustified valuation gap exists between Classic Diamonds, Suraj Diamonds, Suashish Diamonds and Flawless Diamonds on one side of the spectrum and Gitanjali, Rajesh Exports and Titan on the other. While bit watch maker and bit jewellery manufacturer Titan fetches a PE of 50 on FY09 estimated earnings, those like Suraj, Classic and Suashish fetch a PE of 10 on FY08 estimated earnings.
Unrealised by most investors Classic with its "Classic Jewels", Suashish with "Ishi" and Flawless and Suraj with their owned retail outlets and through franchisee outlets in mutliple retail establishments like Westside and Shoppers Stop, are pushing higher contribution from jewellery sales than pure diamond cutting and polishing. This has ensured that not only are their profits at their highest levels in the last four years but they have successfully met the negative fallout of a appreciation in the value of Rupeee against the Dollar.
These concerns are not only in the unique position of being "Sight Holders" for De Beers, but have bought Diamond mines in Australia and Botswana making supply lines of Rough Diamonds more reliable, secure and economical.
Foremost and most importantly, all the above mentioned concerns are in a non-recessionary non-cyclical business as they cater to jewellery demand which arises from all over-family celebrations, weddings, religious festivals and the buy on whim fancy.
Strong financial performance from the listed jewellery companies
Corporate earnings in the jewellery sector suggest that earnings as well as profitability are at their highest point in the last four years. This is on the back of 11% appreciation of rupee vis-ŕ-vis dollar in last year and removal of GSP benefits in the US.
Data compiled on a quarterly basis for 10 jewellery companies in India for the last four years shows that despite the adverse operating conditions, sales growth as well as earnings growth is very commendable. Overall profitability of the companies has increased by 330 bps at EBIDTA level and by 190bps at PAT level.
Corporate sales growth still strong and earnings showing higher growth as a result of higher profitability.
Profitability is at its highest in last 4 years
The data is compiled from ten listed jewellery companies in India. This is the result of conscious efforts by Indian corporates of acquiring maximum jewellery value chain. Most diamond cutting and polishing companies in India have shifted their focus to jewellery manufacturing.
Few bigger companies have captured almost the entire value chain by being present in the retail sector. We believe there is further scope for improving
margins because still a majority of jewellery companies’ revenues are coming from low margin diamonds or wholesale jewellery exports business.
Profitability will improve as more and more revenue comes from the high value-added segments.
Exports growth still strong despite currency appreciation
The correlation of India’s jewellery exports against currency depreciation is low. Historically exports have not gone down on appreciation of rupee against dollar. Until October 2007, India’s jewellery exports increased by 25% in dollar terms and 13% in rupee terms. During the same period the currency appreciated by close to 11%. From F2003 to F2005 the currency appreciated by close to 6% and still exports rose significantly.
This was because many companies shifted focus to jewellery from diamonds during that period.
The US is India’s key export destination and exports of jewellery from India to US have increased substantially in the last five years. Over a period of time more outsourcing will shift to low cost countries such as India and China.
India has greater jewellery design capabilities to cater to different consumer tastes and preferences as well as expertise in small diamond polishing, which helps them garner the cost advantage.