Rajesh Exports: Analysis of the Company in Brief

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.