CMP 87.00

Target Price 100.00

ISIN: INE343B01030

DECEMBER 19th

2013

RAJESH EXPORTS LTD

Result Update: Q2 FY14

HOLDHOLDHOLDHOLD

Index Details

Stock Data

Sector Gems & Jewellery

BSE Code 531500

Face Value 1.00

52wk. High / Low (Rs.) 150.35/84.80

Volume (2wk. Avg. Q.) 9422

Market Cap (Rs. in mn.) 25687.62

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 318796.18 358645.70 390923.82

EBITDA 7870.51 9076.18 10049.26

Net Profit 4531.16 4820.69 5074.39

EPS 15.35 16.33 17.19

P/E 5.67 5.33 5.06

Shareholding Pattern (%)

1 Year Comparative Graph

RAJESH EXPORTS LIMITED BSE SENSEX

SYNOPSIS

Rajesh Exports Limited (REL) was established in

the year 1990 as a gold jewellery manufacturing

company.

Under the brand name of SHUBH Jewellers, REL

has emerged as the largest retail jeweller in the

south Indian State of Karnataka, and the only fully

integrated gold jewellery company in the world.

During the quarter ended Q2 FY14, the

company’s net sales are at Rs.64405.73 million

from Rs.67454.79 million over the corresponding

quarter last year.

EBITDA has increased by 17.29% at Rs. 2288.71

million from Rs. 1951.28 million in the

corresponding quarter of previous year.

The company has launched a total of 83 retail

showrooms in the state of Karnataka, under the

brand name of SHUBH Jewellers.

The company has plans to open 33 more SHUBH

Jewellers Showrooms in the state of Karnataka,

within the next two quarters.

REL would be launching SHUBH Jewellers in

other south Indian states of Andhara Pradesh,

Tamil Nadu and Kerala.

The order book position as on 30.9.2013 of the

company was Rs. 54629 million.

Net Sales and PAT of the company are expected to

grow at a CAGR of 15% and 8% over 2012 to

2015E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Rajesh Exports Ltd 87.00 25687.62 15.35 5.67 1.05 100.00

Titan Industries Ltd 233.15 206277.10 8.54 27.21 10.50 210.00

PC Jeweller Ltd 83.45 14981.20 19.10 4.38 1.08 10.00

Gitanjali Gems Ltd 50.40 4653.90 13.01 3.89 0.17 30.00

Recommendation & Analysis - ‘BUY’

Rajesh Exports Limited was established in the year 1990 as a gold jewellery manufacturing company. The

company has setup the world’s largest gold jewellery manufacturing facility at White Field, Bangalore, with a

capacity to process 250 tons of gold into world’s finest jewellery. With its retail initiative, under the brand name

of SHUBH Jewellers, REL has emerged as the largest retail jeweller in the south Indian State of Karnataka, and the

only fully integrated gold jewellery company in the world.

During the quarter ended Q2 FY14, EBITDA has increased by 17.29% at Rs. 2288.71 million from Rs. 1951.28

million in the corresponding quarter of previous year. Net revenue of the company was at Rs. 64405.73 million in

Q2 FY14 and net profit was at Rs. 1004.63 million. The results for the quarter ended September 30, 2013; the

quarter was a highly challenging quarter, in the light of the various restrictions brought in by the government on

gold and gold jewellery business to contain the Current account deficit of country. Inspite of the challenging

atmosphere, Rajesh Exports has performed well and registered healthy revenues and profits for the quarter, due

to its inherit strengths in the business.

The Company will be aggressively expanding its retail presence across the country. The company has plans to

open 33 more SHUBH Jewellers Showrooms in the state of Karnataka, within the next two quarters, which would

complete its retail expansion plans in the state of Karnataka. The company would be further expanding its retail

presence to the other three Southern States, and further to a Pan Indian presence. The company has plans to

open 500 SHUBH Jewellery showrooms by the year 2017. Currently the company has 83 SHUBH Jewellers, retail

showrooms.

The company continued to consolidate its position with its retail initiative under the brand name of “SHUBH

Jewellers”. With a total of 83 retail stores, SHUBH Jewellers has emerged as the most trusted jewellery brand in

the state of Karnataka and also as the largest retail jeweller in the state of Karnataka. Along with its export

business, the retail business has emerged as a key driver of profitability in the company. We expect the company

to post a CAGR of 15% and 8% in its top-line and bottom-line respectively. Hence, we recommend ‘HOLD’ for

‘RAJESH EXPORTS LIMITED’ with a target price of Rs. 100.00 on the stock.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q2 FY14,

Rajesh Exports Limited is one of the largest retailers

of gold jewellery with 83 retail showrooms under

the brand name of “SHUBH Jewellers” in the state of

Karnataka, Along with its export business; the retail

business has emerged as a key driver of profitability

in the company, reported its financial results for the

quarter ended 30 SEPTEMBER, 2013.

The company has achieved a turnover of Rs. 64405.73 million for the 2nd quarter of the current year 2013-14 as

against Rs. 67454.79 millions in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 2288.71 millions an increased by 17.29% and a net profit of Rs. 1004.63 million against Rs.

1124.53 million reported respectively in the corresponding quarter of the previous year. The company has

reported an EPS of Rs. 3.40 for the 2nd quarter as against an EPS of Rs. 3.81 in the corresponding quarter of the

previous year.

Break up of Expenditure:

Months SEP-13 SEP-12 % Change

Net Sales 64405.73 67454.79 (4.52)

PAT 1004.63 1124.53 (10.66)

EPS 3.40 3.81 (10.66)

EBITDA 2288.71 1951.28 17.29

Break up of Expenditure (Value in Rs. million)

Q2 FY14 Q2 FY13

Cost of Material Consumed 62408.16 68837.76

Employee Benefit Expenses 39.67 31.73

Depreciation & Amortization Expense 5.42 5.08

Other Expenses 4.89 3.29

Latest Updates

• The company has launched a total of 83 retail showrooms in the state of Karnataka, under the brand name of

SHUBH Jewellers.

• The company has plans to open 33 more SHUBH Jewellers Showrooms in the state of Karnataka, within the

next two quarters and has plans to open 500 SHUBH Jewellery showrooms by the year 2017.

• The order book position as on 30.9.2013 of the company was Rs 54629 Million.

COMPANY PROFILE

Rajesh Exports Limited was established in the year 1990 as a gold jewellery manufacturing company, with its

undivided focus and expertise, the company has grown to be the largest gold jewellery manufacturing company

in the world. The company has setup the world’s largest gold jewellery manufacturing facility at White Field,

Bangalore, with a capacity to process 250 tons of gold into world’s finest jewellery. REL is also the lowest cost

gold Jewellery manufacturing company in the world.

With its retail initiative, under the brand name of SHUBH Jewellers, REL has emerged as the largest retail

jeweller in the south Indian State of Karnataka, and the only fully integrated gold jewellery company in the

world. REL imports rawgold from the mines, refines this gold at it’s own refinery, processes this refined gold and

manufactures jewellery at it’s own world’s largest gold jewellery manufacturing facility, exports the jewellery,

wholesales the jewellery and also retails the jewellery directly to the end consumer at it’s own retail stores under

the brand name of SHUBH Jewellers.

Products

Gold and Diamond Jewellery

• Earrings

• Rings

• Pendants

• Pendant Sets

• Chains

• Necklace

• Necklace Sets

• Bangles

• Bracelets

• Mangalsutra

• Misc

Retail Brand

SHUBH Jewellers

With 83 SHUBH Jewellers Showrooms in Karnataka, REL has created one of the strongest brand names in

retailing in Karnataka. SHUBH Jewellers has become a house hold name across the length and breadth of the

state of Karnataka within a period of two and half years of it’s launch. Which has been made possible with it’s

unique offering of the Real Rate Per Gram, wherein the retail customers of gold jewellery are offered an absolute

transparent pricing mechanism, without charging any hidden charges like Making Charges and Wastage, thereby

ensuring a huge saving to the retail customers compared to their purchases from local jewelers.

In all the showrooms of SHUBH Jewellers, every piece of gold jewellery is BIS hallmarked for 22cts, thereby

ensuring unquestionable guarantee of the purity of gold to the retail customers, this apart from the exclusive

designs offered which are manufactured at it’s world’s largest jewellery manufacturing facility at Bangalore.

Within a short period of 30 months SHUBH Jewellers has emerged as the largest retailer of gold jewellery in

South India.

REL has finalized plans to open another 42 SHUBH Jewellers showrooms in the state of Karnataka, thereby

making a total of 125 showrooms in Karnataka, after which REL would be launching SHUBH Jewellers in other

south Indian states of Andhara Pradesh, Tamilnadu and Kerala.

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2013 -2015E FY13A FY14E FY15E

EQUITY AND LIABILITIES:

A) Shareholders’ Funds:

a) Share Capital 295.25 295.26 295.26

b) Reserves and Surplus 24150.81 28971.50 34045.89

Sub-Total Net worth 24446.06 29266.76 34341.15

B) Non-Current Liabilities 0.00 0.00 0.00

C) Current Liabilities:

a) Short-term borrowings 25021.40 22018.83 19816.95

b) Trade Payables 80590.06 93484.47 105637.45

c) Other Current Liabilities 602.39 722.87 860.21

Sub-Total Current Liabilities 106213.85 116226.17 126314.61

TOTAL EQUITY AND LIABILITIES (A + B + C) 130659.91 145492.93 160655.76

ASSETS:

D) Non-Current Assets:

a) Fixed Assets:

i. Tangible Assets 721.48 764.77 803.01

Sub-Total Non-Current Assets 721.48 764.77 803.01

E) Current Assets:

a) Current Investments 34.48 41.76 50.11

b) Inventories 7749.13 9298.96 11065.76

c) Trade Receivables 17069.26 19458.96 21988.62

d) Cash and Bank Balances 93376.36 102714.00 111958.26

e) Short Term Loans and Advances 7900.00 8453.00 8885.75

f) Other Current Assets 3809.20 4761.50 5904.26

Sub-Total Current Assets 129938.43 144728.16 159852.75

TOTAL ASSETS ( D + E) 130659.91 145492.93 160655.76

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 257240.70 318796.18 358645.70 390923.82

Other Income 16.06 1.63 2.45 2.52

Total Income 257256.76 318797.81 358648.15 390926.33

Expenditure -250470.33 -310927.30 -349571.97 -380877.07

Operating Profit 6786.43 7870.51 9076.18 10049.26

Interest -2446.95 -2967.79 -3858.13 -4552.59

Gross profit 4339.48 4902.72 5218.05 5496.67

Depreciation -20.70 -20.61 -21.85 -22.28

Profit Before Tax 4318.78 4882.11 5196.21 5474.39

Tax -247.27 -350.95 -375.52 -400.00

Net Profit 4071.51 4531.16 4820.69 5074.39

Equity capital 295.26 295.26 295.26 295.26

Reserves 19538.10 24150.81 28971.50 34045.89

Face value 1.00 1.00 1.00 1.00

EPS 13.79 15.35 16.33 17.19

Quarterly Profit & Loss Statement for the period of 31 MARCH, 2013 to 31 DEC, 2013E

Value(Rs.in.mn) 31-Mar-13 30-June-13 30-Sep-13 31-Dec-13E

Description 3m 3m 3m 3m

Net sales 123438.23 55031.68 64405.73 72778.47

Other income 0.54 0.03 0.69 1.10

Total Income 123438.77 55031.71 64406.42 72779.58

Expenditure -120905.49 -53431.73 -62117.71 -70522.34

Operating profit 2533.28 1599.98 2288.71 2257.24

Interest -1067.74 -513.32 -1278.63 -1125.19

Gross profit 1465.54 1086.66 1010.08 1132.04

Depreciation -5.30 -5.42 -5.45 -5.78

Profit Before Tax 1460.24 1081.24 1004.63 1126.27

Tax -350.95 0.00 0.00 0.00

Net Profit 1109.29 1081.24 1004.63 1126.27

Equity capital 295.26 295.26 295.26 295.26

Face value 1.00 1.00 1.00 1.00

EPS 3.76 3.66 3.40 3.81

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 13.79 15.35 16.33 17.19

EBITDA Margin (%) 2.64% 2.47% 2.53% 2.57%

PBT Margin (%) 1.68% 1.53% 1.45% 1.40%

PAT Margin (%) 1.58% 1.42% 1.34% 1.30%

P/E Ratio (x) 6.31 5.67 5.33 5.06

ROE (%) 20.53% 18.54% 16.47% 14.78%

ROCE (%) 13.00% 15.95% 16.38% 16.26%

Debt Equity Ratio 1.64 1.02 0.90 0.80

EV/EBITDA (x) -2.99 -5.42 -5.59 -5.84

Book Value (Rs.) 67.17 82.80 99.12 116.31

P/BV 1.30 1.05 0.88 0.75

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 87.00, the stock P/E ratio is at 5.33 x FY14E and 5.06 x FY15E respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.16.33 and

Rs.17.19 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 15% and 8% over 2012 to 2015E

respectively.

� Price to Book Value of the stock is expected to be at 0.88 x and 0.75 x respectively for FY14E and FY15E.

� We expect that the company surplus scenario is likely to continue for the next three years, will keep its

growth story in the coming quarters also. We recommend ‘HOLD’ in this particular scrip with a target price

of Rs.100.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

India’s gems and jewellery industry is likely to double in the next five years, according to a study titled 'All that

glitters is gold: India Jewellery Review 2013' by the global consultancy firm AT Kearney. The study forecasts the

sector to reach Rs 500,000–530,000 crore (US$ 81.63 billion-US$ 86.52 billion)by 2018 from Rs 251,000 crore

(US$ 40.96 billion) in 2013. In FY 2012–13, industry exports touched Rs 227,000 crore (US$ 37.04 billion),

topping textiles and apparels by a substantial 25 per cent.

The investment demand in the form of coins and bars has the capacity to reach Rs 180,000–190,000 crore (US$

29.38 billion-US$ 31 billion) by 2018, from Rs 85,000 crore (US$ 13.86 billion) in FY 2011–12. The gems and

jewellery sector contributes significantly to the Indian economy through employment generation, exports and

value additions. A positive business environment to go with the several incentives offered by the government has

further enhanced the country's status as one of the primary global destinations for gems and jewellery.

Industry Dynamics

India is a connoisseur of precious stones and beautiful ornaments. Historically, the country’s culture has always

lent itself towards this art. Trade secrets have been passed down many generations, ensuring that the traditional

craft was sustained. Today, India has the world's largest diamond cutting and polishing industry, blending

modern techniques with the traditional to cater to the world market.

India has a reputation of being a low-cost, high-quality manufacturer of diamonds. The country possesses skilled

workforce of over a million people, who are adept at fashioning beautiful jewellery. This has attracted several

international jewellery giants to set up base in the country. Crystal major Swarovski had 67 outlets across India,

as of June 2013. Swiss luxury and jewellery watch brand de Grisogono also entered the Indian market in

December 2008. Apart from being the biggest diamond manufacturing hub and the number one consumer of

gold, India also leads in tanzanite and emerald production.

Gold

India is the world’s largest consumer of gold, accounting for about 20 per cent of the total world gold

consumption. Gold jewellery constitutes about 80 per cent of the Indian jewellery market. The following are

some of the developments in the country regarding the yellow metal this year.

• National Development Mineral Corporation (NMDC) Ltd, India’s largest iron ore miner, is establishing a

pilot plant in Tanzania. The investment is expected to be around Rs 50 crore (US$ 8.15 billion). The plant

would have the capacity to process 100 tonnes per hour of gold-bearing ores, according to an official.

NMDC has worked in Tanzania previously. In the period 2000–2003, it carried out gold exploration in the

north-west of the country at an expenditure of about Rs 7 crore (US$ 1.14 million).

• The third quarter of 2013 witnessed a 44.5 per cent increase in recycled gold on the corresponding

period of 2012, reaching 61.3 tonne from 34 tonne, according to data from the World Gold Council

(WGC). It is believed that this rise is primarily due to the increase in the price of gold which touched Rs

33,000 (US$ 538) per 10 gm during the third quarter of the current year.

• WGC has formed a separate private company in India to undertake activities on a larger scale in the

Indian market. This includes entering into a commercial setup with banks and gold industry players in

future. The corporate structure will help WGC remove the handicaps of operating as a liaison office. As of

now, the Reserve Bank of India (RBI) does not allow liaison offices to partake in any commercial activity

in the country.

Diamonds

India's share in the world's polished diamond market is 60 per cent, 85 per cent and 92 per cent in terms of

value, volume and pieces, respectively. Out of every 12 cut and polished diamond set in jewellery globally, 11 are

processed in India. The following are some of the activities in the diamond market in India this year.

• Surat has been chosen to host India's first Gems and Jewellery Machinery Expo (IGJME). The Expo will

offer an insight into the latest machinery and equipment used in diamond cutting, polishing and jewellery

making. The three-day event will be held between December 13–December 15, 2013. Surat's diamond

industry processes around 85 per cent of the US$11 billion worth of rough diamonds imported by the

country annually.

• The Botswana government is seeking the assistance of Surat-based Indian Diamond Institute (IDI) for

establishing a state-of-the-art diamond institute. A high-level Botswanian delegation led by minister of

minerals, energy and water resources, Mr Onkokame Kitso Mokaila, visited the country on November 13,

2013. The world's biggest diamond mining company, De Beers, has also shifted its rough diamond sales

operations from London to Botswana, and the need for an institute in the Southern African nation is

greater than ever before.

• Nearly 76 per cent of jewellers are shifting their focus from gold and silver jewellery to platinum-based

diamond jewellery, in an effort to tap into the changing tastes of the domestic consumer, according to an

industry official. Platinum-based diamond jewellery is gathering momentum in the country, with the

metros witnessing greater demand for them than diamond-studded gold jewellery.

Exports

• Gems and jewellery exports touched US$ 39,033 million in FY 2012–13, constituting around 13 per cent

of India’s total merchandise exports.

• The gems and jewellery industry of India witnessed a growth of 11.9 per cent in a four-year period, with

exports of US$ 39,033 million in FY 2012–13 as against US$ 24,894 million in FY 2008–09.

Government Initiatives

• The Indian government has decided to float tenders to revive closed or unfeasible gold mines in the

country. A tender has already been floated for selling the assets of Bharat Gold Mines Ltd. Mining giants,

Indian as well as international, are queuing up for this opportunity. Vedanta group, headquartered in

London, and a mining company from Australia are two of the frontrunners. India’s gold reserves are

projected to be around 14,000 tonnes.

• In an effort to bring in more investments into the sector, gems and jewellery Special Economic Zones

(SEZs) have been established. The names of operational SEZs in the sector are Santacruz Electronics

Export Processing Zone (SEEPZ), Mumbai; Jaipur SEZ; Manikanchan SEZ, West Bengal; and Hyderabad

Gems SEZ Ltd. Also, 13 SEZs in the sector have already received formal approval.

Road Ahead

The costume jewellery industry in India has grown at 20–30 per cent in FY 2013–14, with more and more

women preferring this type of jewellery over gold, for attending wedding functions and parties. The costume

jewellery market is expected to touch Rs 15,000 crore (US$ 2.44 billion) by December, 2015, a noticeable

increase from the Rs 8,000 crore (US$ 1.30 billion) in December, 2012, according to a study.

The Indian gems and jewellery industry is all set to witness its first ever coloured gemstones and studded

jewellery buyer–seller meet, organized by the Gems and Jewellery Export Promotion Council (GJEPC) with

Russia. The objective of the maiden event, which runs from December 8–11, 2013, is to create business

opportunities for Indian manufacturers and Russian traders and to explore possibilities of trade between the two

countries in the gemstone category.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

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