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How Mehul Choksi's Gitanjali Gems has see-sawed since Jan 2010

Sameer Bhardwaj     February 23, 2018

The Gitanjali Gems stock has lost over 58 per cent since 12th February 2018 (closing price) after its Chairman and MD Mehul Choksi was named as an accused in the Rs 11,400 crore PNB fraud case. Investor wealth fell by over Rs 435 crore as the stock's market capitalisation declined from Rs 745 crore to Rs 309.59 crore between 12 February 2018 and 22 February 2018. Mehul Choksi who held 22.81 per cent stake in the company in Q3, lost nearly Rs 100 crore in just 8 trading sessions.

During the last 8 years, Gitanjali Gems stock price has witnessed several fluctuations. From 1 January 2010 to 22 April 2013, the stock gained 63.5 per cent on an annualised basis (CAGR) and outperformed the Sensex by 23.5 times. Sensex gained just 2.7 per cent annualised returns (CAGR) during the same period.

The company was helped by higher margins in diamond business with its sales rising after receiving backing from management gurus and bollywood celebrities. Moreover, the aggressive expansion plans helped it to expand its presence in India and abroad. The surge in network of own stores and franchisee outlets helped the company to improve its profit margins. The investors wealth grew by over Rs 4700 crores from January 2010 and April 2013.

The fall of the company begins after April 2013. On 22 April 2013, the stock was trading at Rs 631 and it went down to Rs 62.7 in August 2013 after a sudden and consistent fall in share price. This led to erosion of investor wealth by over Rs 5200 crore. The reasons for the stock price crash include mounting debt, falling domestic demand, tightening of government policies on gold imports and weak working capital management.

The stock price could never recover to April 2013 levels. However, the stock clocked a small recovery between December 2013 and May 2014 on hopes of a corporate debt restructuring plan that was expected to cut costs.

The stock gained over 200 per cent during this period.  However, the restructuring plan failed to boost investors confidence and stock continued to fall between May 2014 and March 2016. The stock lost nearly 70 per cent between 22 May 2014 and 1 March 2016 and substantially underperformed the general market.

BSE Sensex lost -2.4 per cent during the same period. The company's expenditure continues to grow at a higher rate compared to its revenue between FY14 and FY16 (on a consolidated basis). The revenue grew at an annualised rate of 6 per cent compared to expenditure that grew at an annualised rate of 6.83 per cent.

Between March 2016 and January 2018, Gitanjali Gems stock clocked 85 per cent annualised returns helped by substantial improvement in bottom line growth between FY16 and FY17. BSE Sensex gained 37 per cent (CAGR) during the same period. The company's consolidated net profit growth improved from 17.8 per cent in FY16 to 57.9 per cent in FY17.

Now as Mehul Choksi has been named as an accused in the fraud that could shake up the banking industry, it is difficult to predict the chances of recovery of Gitanjali Gems stock price in the near future.

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