Buy Gitanjali Gems; target of Rs 300: Sunidhi Securities
Sunidhi Securities is bullish on Gitanjali Gems and has recommended buy rating on the stock with a target of Rs 300 in its March 28, 2011 research report.
Established in 1966, Gitanjali Gems is one of the largest integrated diamond and jewellery manufacturing companies in India. Its operations include cutting and polishing diamonds and manufacture and sale of diamond jewellery in India and international markets. Export processing unit is located at Andheri, Mumbai. Apart from, three state of the art manufacturing facilitates for diamond cutting and polishing located at Dahisar (Mumbai) and Surat (Gujarat) and Hyderabad (Andhra Pradesh), it has other nine modern facilities for manufacturing of jewellery. These facilities are capable of processing around 5300 pieces of finished jewellery per day. Its IPO was in February 2006 priced at `195 per share.
Gitanjali Gems is strategically present in the global leading jewellery markets of the world, viz. USA, Japan, China, Mid-East and India, through direct retailing or via exports. Its retail sales and distribution network consists of 370 distributors having access to around 2500 retailers across the country and 185 own stores, 215 franchise stores and 470 shop-in-shops in India. GGL has a pan India retail presence spread over 300 cities and 3400 points of sale. The company has also forayed into SEZ operations and has established its first gems & jewellery SEZ at Hyderabad. There is currently 1, 00,000 sq ft of operations utilized captive by the group while 4, 00,000 will be leased out in next two years.
Gitanjali Gems has acquired 100% stake in Alliance Jewelleries through Brightest Circle Jewellery, a wholly-owned subsidiary of the company. Alliance Jewelleries is engaged in the business of manufacturing of gold and diamond studded jewellery etc. GGLs wholly owned subsidiary, Gitanjali USA Inc, has acquired 51% stake in Diamlink Inc (Diamlink)- a New York-based company engaged in the business of diamond and diamond studded jewellery. Very recently, GGL acquired 90% stake in Italy-based Giantti Italia S.R.L. from its Dubai-based wholly owned subsidiary Gitanjali Ventures DMCC. The acquisition is aimed at growth of the branded jewellery business overseas. The acquisition is also aimed at gaining the designing and branding expertise from Italy.
With an aim of further integration within the jewellery value chain and to diversify its business model leveraging the key strengths GGL is right on track to realize its goals. Jewellery retail is the key thrust area for Gitanjali for which it has committed huge investments to scale up its retail operations specifically in the domestic market. India is witnessing healthy demand trends for jewellery exports with Gitanjalis exports growing at a healthy pace of over 20 per cent during FY03-09 and the company continuing to focus on capturing a higher share of export growth. Lifestyle and attitudinal changes, consumerism, and rising income levels will continue to provide growth momentum to the high-end brand retailing in the country. With an growing demand of branded jewellery, a wide design database of GGL, strong marketing team in key markets like the US, Europe and Southeast Asia and a rising client base, it is expected that the growth momentum for GGLs business will continue, going forward.
Gitanjali is also de-risking its long-term earnings dependence by exploiting selective opportunities in lifestyle/luxury goods and special economic zones considering a similar clientele base, GGLs recent foray into luxury goods should add to long-term growth rates.
At the CMP of Rs 245, the share is trading at a P/E of 5.2x on FY11E and 4.3x on FY12E. We recommended Buy with a target price of Rs 300 in the medium term, says Sunidhi Securities research report.
