Introduction about the business:
Rajesh Exports introduces itself as a gold and diamond jewellery manufacturer. They procure the raw gold from natural sources (mines), they refine that gold, they twist and turn it into jewellery at their Bangalore plant. And they also have a new and growing presence in the retail distribution, apart from selling the refined jewellery to the established retailers and other consumers. This is the broad picture of what they're doing.
Financials:
Their growth in the topline hasn't resulted to an equivalent growth in the bottomline. Their topline has a direct impact from world gold prices. As a refiner, you tend to benefit when raw material prices are in an uptrend, but since they don't grow perennially, they're bound to be ups and downs, and with gold, the downs seem to be less. The company hasn't been able to capitalize on the increase in gold prices, and the last quarter's margins were a poor 0.8%. However, given the country India, the gold and jewellery business is a sustainable one in and of itself.
The company has a reserve base of Rs. 1567 cr as of the annual figures posted for FY11. From 2006-07 to 2010-11, yearly profits have ranged from 80-250 crores on a topline ranging from 6,000cr to 21,000cr! There has been negligible depreciation, which makes me think if the entire business model is based on trading of gold and jewellery, which seems to be more likely. With rising interest expenditure (and slightly stable to rising gold prices in the past quarter), I would be interested to find out their performance for the June quarter.
The Board has recommended a dividend of Rs. 0.6 for the last year, as against Re. 1 for the "year des previous".
At Rs. 110 a share, the stock prices values the enterprise to 3,255cr. Now if we move in to the balance sheet (as at filing of '10 numbers), the company had total debt of around 2,086cr. It is operating and churning out meagre profits, the growth hasn't come (in terms of the bottom line) over the years. Assuming an upward of 250cr profit for the next two years, it still is an expensive proposition at 3,255 cr.
Verdict:
I would not understand why someone would buy this stock. Speculations aside, the business has historically not been heavy on the margins. The only significant thing about this entity is the enormous amount of business (only in terms of the turnover in currency). However, the value addition that entails the retail segment which they are pursuing opens up opportunities in a country like India. A steady business over the years, and goodwill will be of sure help. The risk factor would be the premium the stock has priced in at the current price. It may be a play for traders, but for a long term investor, it doesn't make sense for me to enter the stock at this price. Better put money in Gold ETFs directly if you're so fond of the metal. Either way, I would stay away. It's not the price to enter.
XL Energy: Fundamentals
XL Energy was earlier known as XL Telecom & Energy Ltd.
The company used to supply telecom equipment and cables to service providers such as BSNL in its hey days. It has also been present in the field of solar energy.
The company saw its business fall down- in the telecoms space. The business that had grown with BSNL saw the decline as there was no more of it later. Since then the stock has taken a heavy beating, falling from levels as high as 500 to 19.
When people are considering buying into this stock, they should know the following at the least:
1) The company's business has been reoriented to energy. It claims to be supplying solar energy equipment. The clients are unknown, and the business is very less transparent.
2) It claims to have a subsidiary in Spain that has started building solar power plants and aims to expand rapidly in solar space in Italy and Spain. As of now, only one of these plants has been operational and the others may take a large gestation period.
3) The balance sheet has taken a huge hit, and the company has undergone debt restructuring.
4) The announcements of the company look vague, though they try to give a promising outlook.
5) Goldman Sachs has picked up a large stake (about 8%) as a result of FCCB conversion, and has recently offloaded some stake, booking a loss.
Although turnover had totally vanished, it is returning slowly. It has a market cap if 45 cr at current market price; has large debt on the books, has large operational expenditure and is clearly net cash negative. That the stock price is still at a premium to the nominal value is a surprise if you go look at the financial performance of the last few quarters.
The contrarian would still bet on it- if the sales are a result of sales of solar panels to real clients, and if they pick up once again in the coming quarters, the stock may show some improvement- although the really large debt on the books may never allow the sales to beat the expenditure, and we can see losses for consecutive quarters- if not years, by this simple fact. And mounting negative cash flows can defeat the business sense altogether- the company may raise more debt or expand equity.
A risk averse investor would avoid this stock, but if you really feel like betting your bucks on a really large turnaround, and booming sales of solar panels to european markets where clients are unidentifiable and the company's management unclear, and this may all turn out to be good, you can go ahead, and make a killing. The risk is there, the stock is battered. Goldman Sachs is still holding a large stake, waiting for a turnaround.
The company used to supply telecom equipment and cables to service providers such as BSNL in its hey days. It has also been present in the field of solar energy.
The company saw its business fall down- in the telecoms space. The business that had grown with BSNL saw the decline as there was no more of it later. Since then the stock has taken a heavy beating, falling from levels as high as 500 to 19.
When people are considering buying into this stock, they should know the following at the least:
1) The company's business has been reoriented to energy. It claims to be supplying solar energy equipment. The clients are unknown, and the business is very less transparent.
2) It claims to have a subsidiary in Spain that has started building solar power plants and aims to expand rapidly in solar space in Italy and Spain. As of now, only one of these plants has been operational and the others may take a large gestation period.
3) The balance sheet has taken a huge hit, and the company has undergone debt restructuring.
4) The announcements of the company look vague, though they try to give a promising outlook.
5) Goldman Sachs has picked up a large stake (about 8%) as a result of FCCB conversion, and has recently offloaded some stake, booking a loss.
Although turnover had totally vanished, it is returning slowly. It has a market cap if 45 cr at current market price; has large debt on the books, has large operational expenditure and is clearly net cash negative. That the stock price is still at a premium to the nominal value is a surprise if you go look at the financial performance of the last few quarters.
The contrarian would still bet on it- if the sales are a result of sales of solar panels to real clients, and if they pick up once again in the coming quarters, the stock may show some improvement- although the really large debt on the books may never allow the sales to beat the expenditure, and we can see losses for consecutive quarters- if not years, by this simple fact. And mounting negative cash flows can defeat the business sense altogether- the company may raise more debt or expand equity.
A risk averse investor would avoid this stock, but if you really feel like betting your bucks on a really large turnaround, and booming sales of solar panels to european markets where clients are unidentifiable and the company's management unclear, and this may all turn out to be good, you can go ahead, and make a killing. The risk is there, the stock is battered. Goldman Sachs is still holding a large stake, waiting for a turnaround.
... and we're back!
We've been inactive for almost a year now.
For those who've subscribed and have forgotten, you used to read this email/blog for economic insight and the fundamental stock views on BSE/NSE listed stocks.
A lot has changed in the past one year, and some of us have made money, while some, were not fortunate as much.
This email/blog is just to say a hi! and a happy new year to all readers/patrons. And of course, remind you that this web page you once frequented for checking out fundamentals analysis and economic news and views is still un-dead.
:-)
Wait for my first post! (Again)
For those who've subscribed and have forgotten, you used to read this email/blog for economic insight and the fundamental stock views on BSE/NSE listed stocks.
A lot has changed in the past one year, and some of us have made money, while some, were not fortunate as much.
This email/blog is just to say a hi! and a happy new year to all readers/patrons. And of course, remind you that this web page you once frequented for checking out fundamentals analysis and economic news and views is still un-dead.
:-)
Wait for my first post! (Again)
Subscribe to:
Posts (Atom)