TITAN INDUSTRIES LTD : WILL GLITTER AGAIN !!!

Scrip Code: 500114 / TITAN

CMP:  Rs. 232.05; Buy at Rs. 230 & Accumulate at every dips.
Short term Target: Rs. 250, 6 month Target – Rs. 285; STOP LOSS – Rs. 207.00; Market Cap: Rs. 20,867.41 Cr; 52 Week High/Low: Rs. 313.35 / Rs. 201.00.

Total Shares: 88,77,86,160 shares; Promoters : 47,10,07,920 shares –53.05 %; Total Public holding : 41,67,78,240 shares – 46.94 %; Book Value: Rs. 24.50; Face Value: Rs. 1.00; EPS: Rs. 8.17; Dividend: 175.00 % ; P/E: 28.40 times; Ind. P/E: 27.46; EV/EBITDA: 17.28

Total Debt: Rs. 5.89 Cr; Enterprise Value: Rs. 19,628.55 Cr.

TITAN INDUSTRIES LTD:  The Company was founded in 1984 and is based in Bengaluru, India. Titan is a joint venture between Tata Group and the Tamil Nadu Industrial Development Corporation (TIDCO). Titan Industries Limited manufactures and retail sale of watches, jewelry, clocks, and eye wear primarily in India and internationally. The company provides its watches under Titan Edge, Titan Raga, Nebula, Sonata, Xylys, Fastrack brands. It also markets international brands, such as Versace, Seiko, Tommy Hilfiger, Hugo Boss, Esprit, Raymond Weil, DKNY, Baume & Mercier and Victorinox under a licensed agreement. It also offers jewelry under the Tanishq and Goldplus brand names, as well as operates a chain of luxury jewelry boutiques under the Zoya brand. In addition, the company provides sunglasses under its Fastrack brand; and prescription eye-wear  such as lenses and contact lenses. It sells frames, sunglasses, and accessories of proprietary brands and other premium brands, as well as provides optometry services. Further, the company provides precision engineering components and sub-assemblies, machine building and automation solutions, tooling solutions, and electronic sub-assemblies for use various industries, in aerospace, automotive, oil and gas, engineering, hydraulics, solar, and medical instruments. It operates approximately 1,026 retail stores across a carpet area of over 1.3 million sq. ft. spanning over 204 towns. The company has over 364 World of Titan showrooms; over 140 Fastrack stores; 928 after-sales-service centers; It also has approximately 145 Tanishq boutiques and 2 Zoya stores; over 31 Gold Plus stores; and approximately 220 Titan Eye+ stores. The company has two exclusive design studios for watches and Jewellery, 10 manufacturing units. The company also sells its product through departmental stores such as Shoppers stop, Central, Westside, Pantaloons & Reliance retail. Titan Industries Ltd is locally compared with Gitanjali Gems Ltd, Surana Corporation Limited, Shrenuj & company, Rajesh Exports, Shree Ganesh Jewellary House I Ltd, PC Jewellers and globally compared with Citizen Holdings Co Ltd of Japan, Casio Computer Co Ltd of Japan, F&A Aqua Holdings INC of Japan, Guess? INC of USA, Rolex of Switzerland, Omega of Switzerland, Oakley of USA, Timex of USA, Seiko of Japan, TAG Heuer of Switzerland, Patek Philippe of Switzerland, Swatch Group of Europe .  

Investment Rationale:

Titan Industries Ltd is the world’s fifth largest integrated watch manufacturer with a market share of around 65% in the domestic organised watch market and also enjoys market share of around 40% in the organised jewellery retailing market where the company offers gold and diamond jewellery through its popular brands like Tanishq, Gold Plus and Zoya. Recently, RBI tightened the gold import norm and has gradually doubled the import duty on gold from 4% to 6% to the present 8% this year. From now on, all imports of gold for domestic consumption either through banks or nominated agencies or directly is to be made only with 100% cash margin. Credit of any kind from suppliers or bullion banks for import of gold for domestic use is prohibited. This means that jewelers who traditionally used to borrow gold from domestic banks on 180-day credit will no longer be able to do so. Earlier, Titan never used to buy gold with its own money. They used to lease (borrow) gold from domestic banks for 180 days with the risk of gold prices being borne by the bank. This was a fairly effective and profitable method of procuring gold and led to multiple benefits for the company like the cost of leasing gold was a minuscule 3%, almost one-third of what would have been the financing cost of gold procurement. The balance sheets of jewelers like Titan always remained debt-free, as the company only booked payable's which were due to the bank in current liabilities. This also meant that return ratios also looked quite healthy. But, with RBI’s new norms the entire business model of the jewellery business in India will need to undergo a structural change. Profit growth would be impacted as interest income will come down and interest outgo will shoot up, now company will have to use its own funds and consequently its average cost of gold purchase will shoot up from the current 3% to estimated 10%, the debt on the books will rise significantly, need for working capital will increase significantly. However there is a hope of policy reversal once the current account deficit situation eases. Also, the company can use its license to import gold directly, which will lead to savings of around 1% (paid in the form of VAT). Also, in the longer term, smaller players may find it difficult to sustain. Hence, Titan could gain in the form of increased market share and passing on the additional cost to the consumers by hiking prices of around 3% inform of making charges. The company will use MCX gold futures to hedge its exposure. Company will re-evaluate its current expansion plans and may shelve some of them in order to concentrate on changing business scenario. A growing economy, improving lifestyle, Titan continues to get benefited from the shift from unbranded to branded Jewellery. Titan continues to charge an average 22 % of Gold price as its making charge can easily pass on the hiked prices to consumers.

Outlook and Valuation: 

Titan Industries recently stated that it is seeing strong jewellery sales despite government measures to discourage consumption of gold in country. The company gets around 83% of its total net sales from jewellery, which they expect to grow by over 15% on year in April June and over 25% in 2013-14. Titan is most likely to gain market share from other organised & unorganised players as it has the easier access to credit due to years of strong operating performance, healthy balance sheet and most prominently the Tata brand. Although, its RoCE will take a hit, but company’s has the capability to reinvent its business model. Assuming the ban is for a long duration; as gold imported on lease forms only 8% of total gold imported, the company will surely make its way out. Titan does have a licence to import gold directly to the tune of 10 tonnes. This is a one-time licence and not an annual limit. The company’s annual requirement of gold is around 20 tonnes this will not cover the entire need, but still provides an opportunity for it to partly use the facility, at least in FY14. 

It is notably to say here that, since November  2012, the Rupee has fallen 11.92 % as against dollar where as, internationally the gold prices have fallen nearly 28.13 % over the same period. With strident RBI rules the gold demand is expected to take a dip of around 200 tonnes, which can lower further regulatory action from RBI. At the current market price of Rs.232.05, the stock is trading at a PE of 21.17 x FY15E which compares with the sector average of around 27.5 x and mid cap sector at 24-25 x. While the regulation and demand environment will some what impact the stock and will tend it to trade at lower multiples. But still Titan can post Earnings per share (EPS) of Rs. 10.96 for FY15E. It still remains a solid long term play on the growth of the Indian Jewellery sector with proven management track record. It is expected that soon the demand environment will improve and expect the company to keep its growth story in the coming quarters also. One can ‘BUY’ Titan Industries with a short term target price of Rs. 250.00 and for Medium to Long term investment it could be a good buy for the target price of Rs. 285.

KEY FINANCIALS	FY13	FY14E	FY15E	FY16E
SALES (₹ Crs)	10,113.00	11,933.00	14,200.20	16,898.30
NET PROFIT (₹ Cr)	725.00	804.00	973.00	1,163.30
EPS (₹)	8.20	9.06	10.96	13.10
PE (x)	25.00	22.60	18.70	15.60
P/BV (x)	9.30	7.00	5.40	3.90
EV/EBITDA (x)	16.90	15.60	13.00	10.80
ROE (%)	37.10	35.30	32.70	29.20
ROCE (%)	48.60	20.40	19.30	18.80

I would buy TITAN INDUSTRIES LTD with a short term price target of ₹ 250.00 and for Medium to Long term target it will be Rs. 285. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 207.00 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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RETURN ON CAPITAL

PVR LTD : EXHIBITING ITS STRONG FOOT HOLD !!!

Scrip Code: 532689 / PVR

CMP:  Rs. 286.75; Accumulate at every  levels.
Short term Target – Rs. 300; STOP LOSS – Rs. 263.80; Market Cap: Rs. 1,136.01 Cr; 52 Week High/Low: Rs. 340.90 / Rs. 141.00

Total Shares: 3,96,16,995 shares; Promoters : 2,23,09,467 shares –56.31 %; Total Public holding : 1,73,07,528 shares – 43.68 %; Book Value: Rs. 70.35; Face Value: Rs. 10.00; EPS: Rs. 5.45; Div: 60 % ; P/E: 52.61 times; Ind P/E: 30.79; EV/EBITDA: 6.80.

Total Debt: Rs. 225 Cr; Enterprise Value: Rs. 1,599.01 Cr.

PVR LIMITED: PVR Limited was incorporated in 1995 and is based in Gurgaon, India. PVR LTD was incorporated in April 1995 pursuant to a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow Limited, one of the largest exhibition companies in the world. PVR Limited is an India-based company that operates movie houses in India. The Company also generates revenue from in-cinema advertisements/product displays and in-cinema sale of food and beverages. It also produces and co-produces movies; and distributes movies, as well as operates 24 lane bowling centers. The company operates 213 screens in 46 cinemas in 27 cities. Company’s subsidiaries include CR Retail Malls (India) Limited (CRR), PVR Leisure Ltd, PVR Pictures Limited (PVR Pictures), Cine Hospitality Private Ltd and PVR bluO Entertainment Limited (PVR bluO). The Company has diverse cinema circuit in India consisting of 35 Cinemas with 154 screens spread over 20 different cities: Delhi, Faridabad, Gurgaon, Ludhiana, Ghaziabad, Mumbai, Bangalore, Hyderabad, Chennai, Lucknow, Indore, Aurangabad, Baroda, Allahabad, Ahmedabad, Udaipur, Chandigarh, Surat, Latur and Raipur. PVR Ltd announced the opening of a multiplex on August 15, 2012, at Empress Mall, in Nagpur in the state of Maharashtra. The multiplex consists of five screens. On January 8, 2013, PVR through its wholly owned subsidiary Cine Hospitality Private Ltd purchased a controlling stake of over 69% followed by the open offer for another 26% in the Cinemax India Limited for Rs. 395 Cr or Rs. 203.65 per share from the Rashesh Kanakia and family. PVR Ltd is locally compared with Fame India Limited, Cinemax Properties Ltd, Era E Zone (India) Ltd, Pyramid Saimira Theatre Limited and Inox Leisure Ltd and globally it is compared with Orange Sky Golden Har. Ente. Holdings Ltd of Hong Kong, Kinepolis Group NV of Belgium, Cinemax X AG of Germany, Digital Cinema Destination Corp of United States and Reading International Inc of United states.

Investment Rationale:

PVR pioneered the multiplex revolution in the country by establishing the first multiplex cinema in 1997 at Saket, New Delhi. The opening of the first multiplex heralded (started a good beginning)  a new era in the Indian cinema viewing experience and which also changed the industry forever. From then-on PVR initiated many path breaking innovations in the industry from launching its largest 11 screen multiplex in the country in 2004 in Bangalore and introducing Gold Class Cinema. PVR Ltd came with an IPO on 8^th December 2005 with an issue price of Rs. 225/share and raised about Rs. 173.25 Cr with an objective to utilize the proceeds to finance the then new cinema projects in various cities across the country, to expand the film distribution business, technological up gradation and renovation of cinemas. PVR entered into a JV with Major Cineplex Group in 2008, a leading Film exhibition and retail entertainment company based out of Thailand, to bring lifestyle entertainment concepts to Indian consumers. The JV enjoined setting up of bowling alleys, karaoke centers, ice skating rings and gaming zones across the country to enhance the out of home entertainment experience for Indian consumers. PVR Cinemas today contributes about 20%-25% of domestic box office collections of any leading Hollywood movie and 12%-13% of any leading Bollywood movie, highest across the Indian Film Exhibition space. On January 8, 2013, PVR through its wholly owned subsidiary Cine Hospitality Private Ltd purchased a controlling stake of over 69% in the Cinemax India Limited for Rs. 395 Cr or Rs. 203.65 per share from the Rashesh Kanakia and family followed by the open offer for another 26% of Rs. 148 Cr, with the success of open offer which ended on 23^rd February 2013, PVR will now look at de-listing of Cinemax which will comply with the norms of SEBI to maintain minimum public shareholding of 25%. With the successful open offer of Cinemax, PVR, which has already added 47 screens this year will have 351 screens in 85 properties across 36 cities in India with 87,493 seats on combined basis, this translates into entertaining a staggering 5.3 Cr customers every year. PVR expects to add 55 more screens by the end of FY14.

Outlook and Valuation:

PVR's IMAX Auditorium in Bengaluru

PVR buyout deal for Cinemax India will cost PVR a total of Rs. 543 Cr, which will be funded through the approval to rise about Rs. 260 Cr through preferential issue of 1,06,25,205 shares of PVR at Rs. 245 per share to PVR promoters viz. Ajay Bijli and Sanjeev Kumar who in total will infuse Rs. 25 Cr which will then will hold 32% in PVR after the fund raising, Multiples Alternate Asset Management Private Equity Fund Ltd will infuse about Rs. 153 Cr which will then own 15.80% in PVR, L Capital Eco Ltd will infuse about Rs. 82.3 Cr into PVR’s preferential issue which will then hold 15.80% in PVR. Thus a an equity dilution of about 36.7 % is slightly negative for the stock but the best side for the stock is that firstly, post deal PVR will become India’s largest Multiplex operator ahead from Inox + Fame who has 256 screens, Big Cinemas who has 254 screens, secondly, it will gain access to eight new markets and northern region, also PVR will be benefited from the stronger foot-hold of Cinemax in western region. PVR will be benefited in spite of the increase of service charge from Rs. 6 to Rs. 14 by the government as multiplex operators will now can retain the increment of Rs. 8 in ticket prices. On consolidated basis the Debt of PVR is around Rs. 600 Cr on the net worth of Rs. 650 Cr, and the debt equity Ratio of PVR is not expected to come down in next 12 -16 months due to its expansion plans. PVR has stated that it will continue to focus on distribution of Hollywood movies. PVR’s profitable subsidiary PVR Leisure has cash of around Rs. 45 Cr and in my view PVR can use this cash for making changes in Cinemax's screens, its food & beverage segment which could be expected to get turnaround in next 12 months period. With a healthy EBITDA of 34% with consolidated revenue of Rs.202.44 Cr, in my view PVR Ltd could report FY13E EPS of Rs. 7.50/sh and for FY 14E of Rs. 14.50/sh. The stock could be bought for the short target price of Rs. 300.00 and recommend Accumulate on the stock. 

Name of the Companies	Number of Screens
PVR Cinemax	351 Screens
INOX + Fame	256 Screens
BIG Cinemas	254 Screens
FUN Cinemas	73 Screens
Cinepolis	49 Screens
Sathyam Cinemas	27 Screens
TOTAL	1,010 Screens

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	513.10	825.70	1,322.50	1,465.80
NET PROFIT (Rs. Crs)	25.40	30.20	58.20	74.80
EPS (Rs.)	9.80	7.50	14.50	18.60
PE (x)	26.90	35.10	18.20	14.20
P/BV (x)	2.40	1.70	1.50	1.40
EV/EBITDA (x)	15.30	8.80	5.10	4.20
ROE (%)	9.10	4.70	8.40	9.70
ROCE (%)	9.00	4.80	8.90	9.60

I would buy PVR LTD with a price target of Rs. 300.00 for the short term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 263.80 on your purchase. (Why Strict stop loss of 8 % ?) - Click Here

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RETURN ON CAPITAL

FINANCIAL TECHNOLOGY:UNLOCKING VALUES !!!

Scrip Code: 526881 / FINANTECH

CMP:  Rs. 929.95; Buy at every dips.
Medium to Long term Target: Rs. 1130.40; STOP LOSS – Rs. 855.55; Market Cap: Rs. 4,285.07 Cr; 52 Week High/Low: Rs. 1221.90 / Rs. 551.55

Total Shares: 4,60,78,537 shares; Promoters : 2,10,42,582 shares –45.67 %; Total Public holding : 2,50,35,955 shares – 54.33 %; Book Value: Rs. 532.75; Face Value: Rs. 2.00; EPS: Rs. 112.37; Div: 400 % ; P/E: 8.27 times; Ind. P/E: 21.00; EV/EBITDA: 5.75.

Total Debt: 562.72 Cr; Enterprise Value: Rs. 4,191.79 Cr.

FINANCIAL TECHNOLOGIES (INDIA) LIMITED: Financial Technologies was incorporated in 1988 and is based in Mumbai, India. The company was earlier known as e-Xchange on the Net, in Aug 2001 the company changed its name to Financial Technologies India Ltd. Financial Technologies (India) Limited provides technology solution, intellectual property and domain expertise for digital transaction and financial markets across all asset classes including equities, commodities, currencies and bonds. It has set up 8 exchange ventures and 6 ecosystems venture – MCX, MCX-SX, IEX, DGCX (DUBAI), GBOT Mauritius, IBS FOREX, NSEL and SNX are all exchange ventures, while NBHC, Ticker Plant, Infovending, Atom technologies, Riskrat Consulting, FT Knowledge Management Company (FTME) are ecosystem ventures. It provides exchange, brokerage, messaging, consulting, and connectivity solutions. The company’s exchange and trading technology platform creates electronic, organized, and regulated financial markets for the asset classes and investor classes. The company offers comprehensive end-to-end solutions for the securities industry vertical encompassing the entire trade lifecycle of pre-trade, trade and post trade processing. In Brokerage Solutions its main product is ODIN. During March 2012, the company’s exchange technology (ET) division deployed energy solution Power Automated Risk & Matching System (PowerARMS) to enable trading risk management and clearing & settlement for Day Ahead Market at the Indian Energy Exchange. Financial Technology India Ltd is compared with Bursa Malaysia Berhad of Malaysia & Daiichi Commodities Company Limited of Japan.  

Investment Rationale:

Financial Technologies (India) Limited (FINANTECH) is the flagship company of the Financial Technologies Group co-promoted by Jignesh Shah an electronic & telecommunications engineer from Kandivali a small suburb of Mumbai who was the man behind the creation of Dubai Gold and Commodities Exchange and Singapore Mercantile Exchange, he started his career with BSE in its Rs. 100 Cr ambitious project to built BOLT. FINANTECH set out by introducing India's first derivatives trading platform, with the launch of ODIN in 1995, which enjoys 80% market share. It powers the Group's exchanges with its technology, and has demonstrated ample expertise in creating robust solutions for exchanges across asset classes and geographies. FINANTECH is one of the leading software and technology providers to institutional investors and their related counterparts. Its technology vertical is sub-divided into four solution suites: (1) Exchange Solutions, (2) Brokerage Solutions, (3) Messaging Solutions, and (4) Consulting Solutions. FINANTECH has graduated from technology to Exchanges to Ecosystem, it ventured into a Regulated business and obtained license by multiple regulators and has become a Market leader across ventures. FINANTECH further integrated by setting up its own exchange - Multi Commodity Exchange (MCX) a state-of-the-art electronic commodity futures exchange, offering futures trading in 47 commodities. FINANTECH further promoted MCX-SX India's third full-fledged Equity stock exchange which was recently launched by the present finance minister Mr.P. Chidambaram on 9^th Feb 2013. Like BSE and NSE, it has now from 11^th February 2013 started offering trading in equities, equity derivatives and other asset classes. Currently, MCX-SX index is named SX-40 comprising 40 diversified stocks & offers trading in equity cash & futures contracts & in bonds etc. MCX -SX has 1,116 companies listed on it as compared to 1,662 on the NSE & 5,195 on BSE, with around 700 member out of which 405 members have received approvals from SEBI rest to follow soon. Its international exchange ventures - Singapore Mercantile Exchange (SMX), Global Board of Trade (GBOT) and Bahrain Financial Exchange (BFX) - are relatively new and still in investment mode, growing on a low base in their respective regions. Its newest exchange venture, Bourse Africa, is all set to commence operations. It will be Africa's first commodities spot and multi-asset derivatives exchange, equipped with a central counter party (CCP) clearing house and depository platform. FINANTECH four ecosystem ventures, which together addresses upstream and downstream opportunities in the financial market which are - National Bulk Handling Corporation (NBHC); Atom; TickerPlant; Financial Technologies Knowledge Management Company (FTKMC) a leading provider of solutions and services in the realm of financial sector knowledge. It offers numerous products and services in the areas of executive education, financial literacy, financial certification, research, consultancy and advisory.

Outlook and Valuation:

FINANTECH is a unique play on end-to-end presence in the ecosystem of stock exchanges and provides technology solutions for the financial markets. With the start of MCX –SX the 132 years of legacy of BSE - Asia's oldest stock exchange with 1,405 brokers & the out performance of NSE which was started in 1992 is being challenged. NSE being a relatively new entity by then was more receptive to innovation. NSE quickly realized the importance of IT and innovative products to meet the growing sophistication of the financial markets. NSE raced ahead to rule market share charts. Due to technology expertise of FINANTECH which gives the company a strong economic moat. An Economic Moat protects a company's profits from being attacked by a combination of multiple business forces. Exchanges globally have been enjoying the status of winner takes all businesses, with minimal competition. Financial Technologies forward integration ranges from trading platform to exchanges to complementary ecosystem ventures facilitate a distinctive value proposition to its customers, these cannot be easily replicated in the market and hence FINANTECH enjoys a healthy competitive advantage and sustainable profitability and which provides it Economic Moat to the company. Technology is the key requirement for an exchange hence FINANTECH is the technology supplier for all its exchanges, except Dubai Gold Commodity Exchange. Exchanges are largely a network business. The network effect lends sustainability to the business model and acts as an entry barrier. The first mover clearly holds the edge in such a scenario. The SOTP valuation of FINANTECH's comes at Rs. 1,413.12 per share and applying a holding company discount of 20% to the entities wherein FINANTECH is holding a majority stake and /or will go ahead and unlock value through sale of stake in the future comes the target price for FINANTECH at Rs.1,130.40, which implies 21.55% upside to the valuation. There are some potential triggers in the near term that could drive the valuations of the stock higher which are the Passage of FCRA bill - which allows trading of new products like options, indices on MCX, driving volumes and valuation for MCX, and consequently, FINANTECH, the Stake sale in IEX (from 33% to 26%) - which would help value unlocking in the same and the Volumes performance at MCX-SX post launch on February 9th, the valuation of which will get embedded in FINANTECH's price. At the Cmp of Rs. 929.95 the stock trades at 20.26 x P/E on estimated EPS of Rs. 45.90 for FY13E and 19.74 x the P/E on estimated EPS of Rs. 47.10 for FY14E. One can buy FINANTECH with at target price of Rs. 1130 for medium to long term .

SOTP Valuation :-

Business Subsidiary FY13E	Value Per Share (in Rs.)
FINANTECH Standalone	543.00
MCX	341.12
MCX-SX	245.00
IEX	91.00
NSEL	106.00
SMX	61.00
OTHER INVESTMENTS	26.00
TOTAL	1413.12
Disc. to Holding co.(ex. FTECH stand.%)	20.00 %
TOTAL	1130.40

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	425.50	390.90	482.50	533.40
NET PROFIT (Rs. Crs)	490.90	211.50	216.80	250.30
EPS (Rs.)	106.50	45.90	47.10	54.30
PE (x)	10.10	23.50	22.90	19.80
P/BV (x)	2.00	1.90	1.80	1.70
EV/EBITDA (x)	20.20	22.30	15.50	13.40
ROE (%)	21.70	8.30	8.00	8.60
ROCE (%)	6.00	5.30	5.40	7.30

I would buy FINANCIAL TECHNOLOGIES LTD with a price target of Rs. 1130.40 for Medium to Long term. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 855.55 on every purchase. 

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RETURN ON CAPITAL

GITANJALI GEMS : JEWEL FOR EVER !!!

Scrip Code: 532715 / GITANJALI

CMP:  Rs. 453.00; Accumulate at every levels. 

Medium to Long term Target – Rs. 510; STOP LOSS – Rs. 415.00; Market Cap: Rs. 4,170.56 Cr; 52 Week High/Low: Rs. 455.65 / Rs. 250.95

Total Shares: 9,20,65,491 shares; Promoters : 5,43,16,116 shares –59.00 %; Total Public holding : 3,77,49,375 shares – 41.00 %; Book Value: Rs. 275.10; Face Value: Rs. 10.00; EPS: Rs. 28.05; Div: 30.00 % ; P/E: 16.11 times; Ind. P/E: 11.10; EV/EBITDA: 10.53.

Total Debt: 2,056.00 Cr; Enterprise Value: Rs. 6,542.72 Cr.

GITANJALI GEMS LTD:  Gitanjali Gems Ltd was incorporated in 1986 and is based in Mumbai, India. The company was started as a partnership in the year 1966, it was the first group company to engage in cutting & polishing of diamonds in Surat, Gujarat. It came with an IPO in the year 2006 with 1.70 cr shares at the price band of Rs. 170 – Rs. 195. Gitanjali Gems has got two-diamond manufacturing facilities located at Borivali in Mumbai and at the Special Economic Zone in Surat. It has also got a 100 % export oriented unit in SEEPZ Mumbai, which produces gold and platinum studded jewellery. There are also jewellery-manufacturing facilities at MIDC, Andheri, which produces branded jewellery for the retail operations in India. The company has a workforce of over 2300 employees. Company sells its jewellery under the brand - Asmi - Premium work wear collection & has 104 outlets, 2 exclusive stores; Sangini - Entire product range including bridal jewelry; Nakshatra - Entire product range including bridal jewelry available with 374 retailers and 1 franchisee. More franchisees are being added; Gilli - Diamond jewelry at reasonable prices having 256 outlets of which 3 are exclusive stores; Vivvaha - Wedding jewelry; Maya - Gold jewelry for wedding and other similar events; D’Damas - International quality designs combined with Indian values sells through 380 retailers, 2 exclusive outlets, 3 shop-in-malls and 21 franchisees; Hoop - Fashion Silver Jewelry. The Gitanjali Group has acquired Lucera for Rs 25 crores in 2008. In October 2009, the UK-based Brand Finance, valued the four leading brands of the company at Rs.514 crores (Nakshatra), Rs.468 crores (Gili), Rs.309 cr. (D'Damas) and Rs.210 cr. (Asmi), respectively. GGL is not only gearing towards improving sales but is also looking at multiplying the value of these brands by 1.5 to 2 times by 2011-2012. With a manufacturing presence in India, its operations span the globe from the U.S., the U.K., Belgium, Italy, the Middle East, Thailand, South East Asia, and Japan. The company’s retail and distribution network comprised approximately 2,000 outlets, including 200 distributors, 94 exclusive stores, and 63 franchised stores. In December 2010, it acquired 90 % interest in Glantti Italia S.R.L. On March 17, 2011, it acquired 100% stake in N & J Finstocks Private Limited. In July 2011, it incorporated a wholly owned subsidiary Italian Jewels S.r. In August 2011, it incorporated a subsidiary Aston Luxury Group Limited. On December 2, 2011, its subsidiary Aston Luxury Group Ltd., acquired Crown Aim Limited. Gitanjali Gems Ltd is globally compared to Lao Feng Xiang Company Limited, Bulgari Societa per Azioni and Surana Corporation Limited in India.

Investment Rationale:

Gitanjali Gems is $900 million multinational group & one of the largest integrated diamond and jewellery manufacturer and retailer and diamond exporters in India. The demand for diamond and jewellery products are largely depends on higher employment and economic levels, which leave higher disposable income in the hands of the consumers. In downturn consumers can quite easily scale down their consumption of jewellery and diamonds. Gitanjali Gems Ltd has informed that Aston Luxury Group Ltd has acquired 15.3 % stake in Verite Co. Ltd in Japan. This acquisition will provide supply chain synergies to the grou. Verite Co. Ltd is a listed entity on Tokyo Stock Exchange & operates a network of 101 jewellery retail stores in Japan. This stake will also increase the presence of the Gitanjali group in one of the leading diamond jewellery markets of the world. The company launched India’s First unique and innovative Gold & Diamond ATM machines, which is a one stop shop for buying medallions, coins, jewellery etc. Gitanjali opened its first flagship store Stefan Hafner in China. The bouquet of Italian brands is now available in other markets like Russia, Saudi Arabia, the Far East & India. Gitanjali has taken strategic stake of 30 % in the GEMS TV to supply all of its diamond jewellery requirements in Japan. GEMS TV in Japan offers online shopping platform for TV channels in Japan. The Company is also engaged in retailing its diamonds and jewellery. Currently the company markets over 40 brands that are owned and franchised under its retail chain Gitanjali Lifestyle. Gitanjali Gems Ltd allotted 943,396 equity shares of Rs. 10/- each to Bennett Coleman and Company Limited (BCCL), pursuant to conversion of 943,396 warrants held by BCCL in the ratio of 1:1 as agreed upon. Consequent to the aforesaid allotment, the paid up capital of the Company has increased from 91,122,095 equity shares of Rs. 10/- each to 92,065,491 equity shares of Rs. 10/- each.

Gitanjali opens stores at DUBAI - Gitanjali group opened the largest B2B Trade showroom in the Middle East Region at Alms Tower, Dubai-UAE.

GITANJALI JEWELS LLC -
Showroom at Meena Bazaar, Dubai

The store offers extraordinary range of jewellery keeping in with the preferences of international clientele visiting Dubai, the 2,000 sq.ft is poised perfectly to attract Asians with an impressive array of renowned Gitanjali brands. Gitanjali Gems’ net profit jumps to Rs. 151.65 Cr against Rs. 132.24 Cr in the corresponding quarter ending of previous year, an increase of 14.68 %. Revenue for the quarter rose by 24.01 % to Rs. 3928.25 Cr from Rs. 3167.64 Cr, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 16.47 a share during the quarter, registering at 7.52 % increase over previous year period. Profit before interest, depreciation and tax is Rs. 271.25 Cr as against Rs. 221.36 Cr in the corresponding period of the previous year.

Outlook and Valuation:

India possesses world's most competitive gems and jewellery market due to its low cost of production, highly skilled, low-cost and best artisan force for designing and crafting jewellery, along with strong government support in the form of incentives and establishment of Special Economic Zones (SEZs). India is emerging as a huge consumer market for jewellery and other luxury products and thereby appears as a very attractive opportunity for major brands to establish their presence in the Indian market. In fact, the five-day long 29th edition of the Indian International Jewellery Show (IIJS) event organized by GJEPC, witnessed the participation of over 800 companies from India and overseas and received 20,000 pre-registration from national visitors and over 3,000 from international visitors. The event had a congregation of delegations from trade associations across India and from a host of international destinations like Bangladesh, China, Dubai, Hungary, Iran, Japan, Malaysia, Nepal, Poland, Russia, Saudi Arabia, Singapore etc. IIJS displayed the widest range of gems and jewels under the categories of couture, loose diamond, plain gold jewellery, mass produced, allied, machinery and international jewellery and loose diamonds. Gitanjali has increasingly undertaken retail expansion through the organic, inorganic and partnership routes. The retail space is around 1 million sq ft from 65,000 sq ft a year ago. The company has over 3000 Point of sales (POS). Gitanjali occupies nearly 60 % of the India’s entire organized mall space belonging to the jewellery category; it has aggressive retail expansion plans. Gitanjali expects to increase its retail presence to 2 million square feet, primarily in the domestic outlets in the next three years. All this features helps one to get that extra comfort in the stock. The total exports of gem and jewellery from India during April 2012 to September 2012 stood at $1990.24 Cr including that of cut & polished diamonds at $782.47 Cr, gold at $1071.77 Cr & coloured gemstones at $16.71 Cr. The domestic jewellery market is pegged at $1600 Cr - $1800 Cr. The gems & jewellery industry in India registered a growth in its volume of exports from $2,540 Cr in 2009 to $4,636 cr in 2011 an net growth of 82.5 %. In my view Net Sales and PAT of the company are expected to grow at a CAGR of 26 % and 32 % over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 2.98 x for FY13E and 2.42 x for FY14E. The second quarter witnesses a healthy increase in overall sales as well as profitability on account of powerful combination of exciting products, an enhanced store network and robust infrastructural Support system. At the current market price of Rs. 453.00, the stock is trading at a PE of 6.47 x FY13E and 5.10 x FY14E respectively. The company can post Earning per share (EPS) of Rs. 69.98 for FY13E and Rs. 88.68 for FY14E. It is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. One can ‘BUY’ in Gitanjali Gems with a Medium to Long term investment for a price of about Rs. 510.00.

KEY FINANCIALS	FY11	FY12	FY13E	FY14E
SALES (Rs. Crs)	9,456.40	12,498.27	15,997.80	19,037.37
NET PROFIT (Rs. Crs)	354.81	487.25	637.66	808.03
EPS (Rs.)	41.81	53.47	69.98	88.68
PE (x)	9.66	7.56	5.77	4.56
P/BV (x)	1.36	1.19	0.99	0.81
EV/EBITDA (x)	5.44	3.85	2.98	2.42
ROE (%)	14.16	15.79	17.22	17.95
ROCE (%)	12.34	13.95	16.08	17.49

I would buy GITANJALI GEMS with a price target of Rs. 510 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 415.00 on your every purchase.

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