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Rajesh Exports ( #Rajeshexpo) – a good long term investment

, April 28, 2016, 0 Comments

rajeshexpo-marketexpress-inRajesh Exports (RAJESHEXPO) is an integrated gold firm into refining, jewellery manufacture and retail. Started in 1989, it has a presence across the value chain of gold from mining to retail.  It had revenues of Rs 50,462 crore and net profits of Rs 655cr. in FY15. About 90% of revenues are in foreign exchange. It has 358 permanent employees (FY15). Rajesh Exports became the largest refiner of gold globally with the acquisition of Swiss firm Valcambi in July 2015. It now processes 35% of global gold, and with the Uttarakhand refinery can refine 2400 tons p.a. of metals. It has gold jewellery  manufacturing facilities in Bangalore, Cochin and Dubai with a capacity of 350 tons.

Its R&D facilities in Switzerland & India helps them to create innovative jewellery designs and also has a large jewellery design database with 29,000 designs. It mainly  exports gold jewellery to USA, UK, Singapore and UAE.

RajeshExpo has set up 83 retail showrooms under the brand SHUBH Jewelers since 2010. This jewellery brand is known for quality, designs and value for money. It contributes about 9% of the profits with a margin of 7-8%. The Leadership-Promoter team is Rajesh Mehta (Chairman), Prashant Mehta (MD) and Vijendra Rao (CFO). Shareholding % is: Promoters 53.9, DII 2.5, FII 16.8, Individuals 2.6, Corporates 1.0 and Others 23.2%.

It had revenues of Rs 50,462 crore and net profits of Rs 655 cr. in FY15.

The Revenues, EBITDA and Profits are up by 26.5%, 31.8% and 39.9% CAGR over 6 years.

Key strengths are: Large scale operations in gold refining (in India & Switzerland) and jewellery design and mfg. (India). The management appears to be experienced, capable and shareholder friendly.

Rajesh Exports Acquisition – Valcambi SA, leader in precious metals refining.

RajeshExpo through its Singapore subsidiary acquired Valcambi in an all cash deal for $400 m (then Rs 2,560cr) in July 2015.Valcambi is debt-free with a cash surplus of $150 m. Undergone a smooth transition and integration has been good between  Valcambi and RajeshExpo, a positive fallout is that the Valcambi management is committed to stay back after acquisition for 5 years.

About Valcambi SA
It has the capacity to refine 1,600 tons gold and 400 tons of other precious metals like silver.

Back end strengths of Valcambi combined with front end strengths of RajeshExpo provide good synergies. It can adopt technologies from Valcambi to upgrade and accredit the refining facility in India. Extensive marketing network in Europe and America of Valcambi can be tapped by RajeshExpo to market its designer jewellery in those markets.  Other potential gains include sharing gold sourcing synergies, optimizing labour and shared support services.

rajeshexports-business-activites-marketexpress-inThe RajeshExpo group with this acquisition now straddles across the Gold value chain. The strengths are Refining, Jewellery Manufacturing and Wholesale. The weak spots that needs investment are Mining and Retail.

RajeshExpo group installed capacities and current usage:

Strategies, Initiatives & Recent Events

RajeshExpo has been eyeing Australian markets in a bid to secure supply of gold ore. It has made a list of interesting assets there and plans to invest up to USD $700 million in the mining and retail sectors.
In 2013, the RBI had mandated that 20% of all gold imported have to be exported as the government attempted to narrow the CAD in the country. This restricted business for RajeshExpo. This rule has now being eased up.

RajeshExpo’s main focus going forward would be to grow revenues, for which they will give a major push, both in retail and eCommerce space. The retail plan is to expand Shubh to 500 stores over 3-4 years globally.An eCommerce project for selling gold barsandjewellery globally is another high potential initiative.RajeshExpo has won several big orders recently from UAE, Singapore and the European market via Valcambi.It has a strategic alliance with an Australian government owned gold mining and refining company.

RajeshExpo will form a new division for foraying into the gold finance-business while using its existing network of 81 showrooms for this. This is a high margin business dominated by Muthoot Finance, Manappuram Finance and various banks which lend against gold as a security.

Indian Gems and Jewellery Industry

Annually about 2,900 tons of gold is mined globally and about 4,000 tons of gold consumed annually. The difference is accounted for by recycled gold. The demand drivers are as indicated in the chart

The jewellery market in India is expected to grow at a 16% CAGR over the period 2014-19.

The two major sectors of the industry in India comprised gold jewellery and diamonds. India is the largest consumer of gold with 20% of world consumption. Gold jewellery forms 80% of the jewellery market, and balance is studded jewellery with diamond and gemstones.

The Gems and Jewellery (G&J) sector plays a significant role in the Indian economy, contributing 6-7% of GDP. It is a fast growing sector, domestic and export-oriented and labor-intensive. The govt. declared the sector as a focus area for export promotion, based on its potential for growth and value-addition.

India’s G&J industry is expected to grow and reach Rs. 5-5.3 lakh cr (USD 73-78 billion) by 2018.

Stock evaluation, Performance and Returns


The price and dividend history is detailed in the above chart. Investors in RajeshExpo over the 5 years have seen a return on 42% CAGR on the share price. In the last 1 year, the share has appreciated by 3.5X.

The recent high of Rs 740 is just 2.7% above today’s closing price.

The Revenues, EBITDA and Profits of RajeshExpo are up by 26.5%, 31.8% and 39.9% CAGR over 6 years.

RajeshExpo has EBITDA and net profit margins of 2.51% and 1.30%, respectively, which are low. The current business of refining and job based jewellery manufacturing is a low margin, high volume businesses.

Current P/E is 20.7 times, trailing twelve months earnings, while the Price/ Book is 6.3 times.

Debt equity ratio is 1.14 (FY15) which is moderate. Also the dividend yield is 0.14%, which is low. But management is using cash to invest in high growth business opportunities.

RajeshExpo’s quarterly revenue and margins indicate robust revenue growth. The March quarters are the biggest by revenue. It has maintained margins even with revenue growth.

The Valcambi acquisition with a big revenue jump kicks in from Q2FY15. Consolidated margins have fallen immediately as they are very thin for Valcambi.

The cash flows give a financial snapshot. In FY14 RajeshExpo has invested into its subsidiaries in order to grow international business. RajeshExpo had good free cash flows in FY15, and this is likely to continue for FY16.

There has been a big rally in share price in the last 10 months.

The 7 year historical average of PE is 13.75 times, and the PE range is 5.0 – 22.5 times. We can see that RajeshExpo is now in the expensive quadrant. However, we feel that the RajeshExpo share is due for a re-rating.

Beta of the stock is 0.51 (Reuters) indicating moderate volatility. Thus, it’s a stable stock.

Financial metrics

The debt equity ratio of RajeshExpo is moderate and has remained flattish in the last 3 years post consolidation of its business.

For the  last 3 years inventory turnover ratio has improved, Interest coverage ratio has dropped in the last 3 years, and it is at low levels.

As well as the Operating profit margins and net profit margins have decreased.


In benchmarking, we compared RajeshExpo with firms like PC Jewellers, Gitanjali Gems and Titan

Particulars RajeshExports PC Jewellers Gitanjali Gems Titan Asian Star Co TBZ
Sales (Rs in Cr.) FY15 50,463 6,361 11,481 11,913 3,221 1,934
Net Profits (Rs in Cr.) 655 369 156 819 77 18
Market Cap Crs 21,328 6,895 353 31,410 1,120 382
PE 20.83 19.72 1.83 40.97 14.79 23.1
Price to Book Value 6.35 3.54 0.08 10.33 1.78 0.83
Dividend Yield (%) 0.14 0.81 0 0.64 0.21 1.73
EBITDA Margin (%) 2.51 12.41 9.65 10.23 4.57 5.34
Net Profit Margin (%) 1.3 5.95 0.83 6.85 2.54 1.26
3 Yr CAGR Sales (%) 13.91 27.88 -2.79 10.42 20.62 11.76
3 Yr CAGR Profit (%) 17.11 16.89 -31.03 10.76 23.05 -31.62
Return on Capital Employed (%) 18.41 28.58 8.83 33.83 8.20 8.21
Return on Equity (%) 21.46 20.61 3.77 29.12 13.91 4.02
Debt to Equity Ratio 1.14 0.46 2.14 0.16 1.62 1.27
Interest Coverage 2.52 3.38 1.16 14 4.41 1.5
Inventory Turnover Ratio 88.62 2.27 2.64 3.02 6.12 1.74

RajeshExpo has high valuations, which rose after the Valcambi acquisition. The low margins are due to gold refining (a commodity business) and mostly wholesale sales of jewellery. The growth numbers have been good so far, and are expected to accelerate in FY16. Valcambi used to be privately held, with low disclosures. No financial projections available w.r.t. to Valcambi acquisition.

Strengths and Opportunities

As a large refiner of gold and gold jewellery, RajeshExpo has the potential to dominate this sector.

The Valcambi integration and synergy can yield cost savings, revenues and margin improvements. Spare refining capacity at Valcambi if utilized can boost performance. Newmont, the exiting owner, is committed to using Valcambi to refine gold from its mines for 5 years.

The focus at RajeshExpo now is on building the jewellery retail business over the next decade. Margins can improve from under 1% to 7-8% and multiply profits. The Shubh retail network can be replicated by RajeshExpo globally.

RajeshExpo has one of the largest and the most advanced R&D facility in gold refining and jewellery making. The center at Bangalore has developed many proprietary jewellery making processes and designs, and has a valuable design portfolio of 29,000 active jewellery designs.

It is the only government recognized five star export house in the jewellery sector in India.

RajeshExpo was ranked the #1 investor friendly firm by a national market survey by Business India.

Weaknesses and Risks

M&As are fraught with many financial, integration and cultural risks. Valcambi was a privately held firm, so not enough is known about it. One should watch for another 2 quarters for any issues and surprises.

Firms like Tanishq, PC Jewellers, Gitanjali Gems, TBZ, Renaissance, Thangamayil,etc, have expanded their retail presence. Competition is rising in domestic G&J retail. RajeshExpo is late to expand nationally with Shubh retail.

The share has appreciated 3.5X in 1 year, this raises the price risk of share purchase at these levels.

Gold is a commodity exposed to price fluctuations determined by demand and supply. The current global fall in commodities has not affected gold, which has actually appreciated. It is seen as a risk-off asset. RajeshExpo, Valcambi acquisition will face integration challenges apart from that it must have sound risk management systems in place to protect it from gold price fluctuations.

Opinion, Outlook and Recommendation

The G&J industry in India will see high growth rates as the organized sector overtakes unorganized outlets.

With the Valcambi acquisition, RajeshExpo has expanded from the largest Indian player to a very large gold refiner and manufacturer globally. As a significant integrated player, it may be at the start of a good growth phase.

RajeshExpo has made several bold and ambitious, yet financially sound, global growth moves to reach this position. The future plans shared also appear both achievable and profitable, in the same vein.

The management appears experienced, capable and shareholder friendly.

While the current PE of 20.7 times looks expensive, the integration with Valcambi and the subsequent likely synergies may allow RajeshExpo to grow rapidly and the share looks due for a re-rating.

RajeshExpo is a moderate risk, but high return kind of an investment at the current share price levels.

Buy RajeshExpo with a 2 year perspective.


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JainMatrix Investments is an independent firm that provides premium Investment Advisory Services for Indian equity. It focusses on Investment Returns for the long term. Founded by Punit Jain, a SEBI certified and registered Research Analyst.
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