RENAISSANCE JEWELLERY
Renaissance Jewellery is entering the capital market on 19th November, 2007 with a public issue of 53.24 lakh equity shares of Rs.10 each in the band of Rs.125 to Rs.150 per share. Every two equity shares will be issued one detachable warrant, which would entitle, to subscribe one equity share at 25% premium over its issue price, within 16 months to 18 months, from the date of allotment.
Due to strengthening rupee, I.T., Textile and Gems and Jewellery Industry is passing through a very bad phase and margins are under severe pressure. Presently, the company is into manufacturing and sale of studded gold platinum and silver jewellery and over 95% of its revenue is dependent on U.S. market. The company intends to focus more on U.S. markets and intends to supply to mid range retailers of U.S.
For FY 07, on consolidated basis, topline of the company was at Rs.440 crores with PAT of Rs.25.41 crores resulting in an EPS of Rs.19.55 on equity of Rs.13.04 crores. During the first three months of FY 08, topline was at Rs.123.46 crores with PAT of Rs.7.23 crores. EBITDA margin, on consolidated basis for FY 06 was at 7.32%, FY 07 was at 7.40% while for first quarter of FY 08 at 7.71%.
The major objective of the company is to mobilize working capital for its overseas subsidiary Renaissance Jewellery New York, of Rs.35 crores. This subsidiary has been recently incorporated and has yet to commence its business.
There are concerns on the workings of Gem and Jewellery companies, where they are especially having overseas revenue, without having its own retail presence. This company, broadly falls in this category. This is the main reason that even listed peers are very poorly discounted on the bourses.
Su-Raj Diamonds having a book value of Rs.140 with an annual sales of over Rs.1,600 crores, EPS of Rs.12 plus is now ruling at Rs.70. Shrenuj & Company having annual turnover of Rs.1,100 crores with an EPS of close to Rs.6 is ruling at Rs.50. This is inspite of their long presence in the market. Gitanjali Gems, a recently listed stock is fancied by the market due to strong inorganic expansion by the company, in the US market, in retail segment.
This company is likely to remain a mediocre player with annual turnover of close to Rs.600 crores. Even, infusion of Rs.35 crores as working capital in overseas subsidiary, may not be able to give a turnover of more than Rs.200 crores on an annualized basis. Hence, the whole object of Rs.80 crore investment and requirement of the fund, is not encouraging, attractive and justified.
Paid-up equity of the company would rise from Rs.13.04 crores to Rs.18.36 crores. Though terms of the warrants are not attractive at all, if they are converted into equity, it would rise to Rs.21 crores. On such an expanded equity, EPS is not likely to exceed Rs.20 and hence, at the upper band, PE ratio works out close to 8. Since, better plays are available in the secondary market, with much higher level of activity, the issue definitely appears to be unattractive and expensive. Hence, investment is not recommended.