Shree Ganesh Jewellery House is entering the capital market on 19^th March, 10 with a public issue of 1.43 crore equity shares, of Rs.10 each, in the price band of Rs.260 – Rs.270 per share. Of this, fresh issue is of 1.21 crore shares, while offer for sale is of 21.33 lakh shares.

All that glitters is not gold but currently, on the bourses, investments with glitter, ie: issues with “jewellery” in their name, seem to have the gold touch. Investors have expressed a special panache for such IPOs, as was evident from Thangamayil issue.

Shree Ganesh presently has four manufacturing units, located in a SEZ in W. Bengal, with capacity to make 30,500 kgs. of gold jewellery with 15 in-house designers. The company having achieved success in export of gold jewellery, has started marketing its branded jewellery under brand “Gaja”, for which, it has a tie up with Sabyasachi Mukherjee with Mandira Bedi as its brand ambassador. The company presently has 13 retail outlets and intends to open 46 new retail outlets over next three years. These 46 retail outlets will be, 14 owned outlets, 3 rental outlets, 18 shop-in-shop outlets and 11 on franchisee model.

The financial performance of the company has been quite encouraging. For FY09, on consolidated basis, the total income of the company was placed at Rs. 2,943 crores with PAT at Rs. 134 crores, resulting in an EPS of Rs. 27.50, on present and expanded equity base of Rs. 48.55 crores. For 6 months ending Sept 09, total income was placed at Rs. 1,447 crores with PAT at Rs. 81 crores, resulting in an annualised EPS of over Rs.33. During this period, EBITDA margin of the company had improved from 7.20% in FY09 to 8.54% in H1 of FY10.

If we compare the financials of this company, with listed peers, there are 3 companies available, which are Titan Industries, Gitanjali Gems and Rajesh Exports. Infact, Rajesh Exports is having very poor NPM of 0.75% but still ruling at a PE multiple of over 20 times, mainly due to healthy topline. Gitanjali Gems is having a NPM of 4.15% for first 9 months of FY10 and is ruling at a PE multiple of about 8 times. Titan Industries, having significant presence in jewellery space, which contributes about 75% of its topline , has a NPM of less than 6%, is ruling at a PE multiple of 30 times. A recently listed jewellery company, Thangamayil Jewellery having presence in retail in southern , had a NPM of 3% in FY09 and 3.8% in HI of FY10. Even EBITDA margin of this company was just at 4.90% in FY09 and 7.10% in HI of FY10. However, this company, having NPM of 5.60% is expected to have an EPS of Rs.35 for FY10 and share at the upper band of Rs. 270, is being issued at a PE of close to 8 times.

The company has book debts of close to 37 days and inventory of less than 15 days, which indicates better working capital management. Infact, it has strong bank balances of Rs.629 crores, as at 30 September 09, largely in form of bank fixed deposits, which are used by the company, as margin money, to avail non-fund based facilities from the bank. Fund based working capital facilities having availed by the company, of about Rs.375 crores, as at , largely offset the interest burden of the company on net basis. For 6 months ending Sept 09, the company had an interest and finance charges of Rs.40 crores, which was largely offset by interest income of Rs.27 crores, earned in this period. Due to fund and non-fund based limits being availed by the company from over 10 banks, indicates good quality of current assets as also poses confidence in the company.

The company is now going in for an expansion of about Rs.330 crores, for setting up new manufacturing facilities, expansion of existing manufacturing facilities and setting up retail outlets. This is largely financed by proposed fresh issue of about Rs.325 crores calculated at the upper price band. As all the expansion are likely to get completed in calendar year 2010, part benefits of this will be reflected in the financials of FY11, in which an EPS of over Rs.45 can be expected. As stated, present cash balance of Rs.625 crores will be able to meet the enhanced working capital requirements.

Considering this, share at 270 is issued at a PE of about 8 times on historic earnings and about 6 times on FY11 earnings. This makes the issue attractive and investment is recommended in the issue at the upper price band.