This stock rose six times in five years, do you own it?
Aseem Thapliyal August 16, 2018
A six-fold growth in revenue; three-fold increase in profits and nearly six-fold growth in share price in three years is what defines the rise of India's biggest gold refining and jewellery firm Rajesh Exports. This has made the Rajesh Exports stock an outperformer among its peers in the last five years.
The gems and jewellery firm's share price rose 264 pc from 148.35 level on January 1, 2015 to 540.85 on July 27, 2015 and merely 19% from July 27, 2015 to Rs 643 level on August 16, 2018. The Sensex though has only doubled during the same period.
The stock has grown 561 per cent from Rs 98.30 on August 16, 2013 to Rs 640 on August 16, 2018. The Sensex has doubled during the same period. Meanwhile, its listed peers PC Jewellers and Titan Company rose 127% and 283.44%, respectively, during the last five years.
The company's growth was driven by the acquisition of Valcambi, the world's largest gold refiner in Switzerland, in July, 2015 in an all-cash deal totalling Rs 2,560 crore. The acquisition was part-financed by Credit Suisse, to the tune of 30-35 per cent through a long-term debt to Rajesh Exports. The rest was funded through internal accruals of Rajesh Exports, its chairman Rajesh Mehta said at the time of the deal. Valcambi was fully owned by Credit Suisse which divested part of its stake to US-based Newmont in December 2003.
Since the acquisition of Valcambi on July 27, 2015, the stock has risen over 18% till date. But a majority of the gain (264 pc) was recorded in the run-up to the Valcambi acquisition between January 1, 2015 and July 27, 2015. Thanks to the acquisition, net sales rose to Rs 1,87,747 crore for fiscal ended March 2018 from 29,197 crore for the fiscal ended March 2014, implying an increase of 543%. But sales fell 22.5 per cent year-on-year for fiscal ended March 2018 compared to Rs 2,42,132 crore in 2016-17 due to demonetisation, GST implementation in India and the imposition of 5 per cent VAT in Saudi Arabia and UAE in January 2018.
In a report, the World Gold Council said demand for gold jewellery in India fell 25 per cent year-on-year to 114.9 tonne in the third quarter of 2017 led by introduction of GST and bringing gems and jewellery industry under the umbrella of Prevention of Money Laundering Act (PMLA) in August. This contributed to a fall in sales for fiscal ended March 2018. On the global front too, demand for gold fell. It slipped 9% year-on-year and came to an eight-year low to 915 tonne.
After Rajesh exports acquired Valcambi in July 2015, sales rose more than three times from Rs 50,462 crore for fiscal ending March 2015 to Rs 1,65,211 crore for the fiscal ending March 2016. For the quarter ended September 2015, sales rose 304% to Rs 44,319 crore year-on-year, primarily due to consolidation of Valcambi's revenue and partly due to an increase in the revenue contribution from the retail business. In the previous quarter ending June 2015, Rajesh Exports sales stood at Rs 15,144 crore.
With the acquisition of Valcambi, Rajesh Exports capacity to produce precious metals rose to 2,450 tonne compared with 450 tonne earlier. At the time of acquisition, Valcambi had an installed refining capacity of 1,600 tonne of gold and another 400 tonne of other precious metals, including silver and platinum.
Rajesh Exports owns the world's largest gold jewellery manufacturing facility at White Field, Bangalore, with a capacity to process 250 tonne of gold. The firm also has a gold refinery with a capacity to refine 200 tonne gold per annum in Uttarakhand.
The quantum of operations for Rajesh Exports' new purchase was huge. Over the past three years, Valcambi on an average refined and sold 945 tonne gold and 325 tonne silver per year which was more than the annual consumption of gold in India. It accounted for 10-15 per cent of the Indian market. For the last three years, Valcambi generated revenues in excess of $38 billion (Rs 2,36,500 crore) and EBITDA of $33 mn (Rs 205 crore) by refining and selling 945 tonne of gold and 325 tonne of silver per year. At that time of the deal, Valcambi was a zero-debt company with considerable cash surplus on its balance sheet.
"Q2 FY16 for the company has been a record breaking quarter compared to any other quarter for the company since inception. The company achieved a major milestone during this quarter with the completion of acquisition of Valcambi. The acquisition would yield further better results in the coming quarters as the synergies of both the companies would start integrating and set a new world order in gold business," a report by Firstcall Research at the time of acquisition said.
Meanwhile, earnings per share of Rajesh Exports rose from 12.18 for fiscal ending March 2014 to 42.87 for fiscal ending March 2018. After the Valcambi deal, the EPS rose significantly from 22.18 in fiscal 2015 to 36.27 for fiscal ending 2016. Since the acquisition was funded by debt, Rajesh Exports' debt has ballooned and is almost three times the debt before acquisition. Total debt stood at Rs 8,961 crore for the fiscal ending March 2018 compared to Rs 3,117 crore for fiscal ending March 2014.
Rajesh Exports reported profit after tax of Rs 1,265 crore for the fiscal ending March 2018, highest among its peers. It reported lowest growth of net sales in the industry for the same period. Rajesh Exports clocked 54.94% rise in sales growth over the last five years higher than 7.42% sales growth for Titan Company and 15.53% for PC Jewellers in the same period. Rajesh Exports earnings before interest and tax growth in five years stood at 14.68% compared to 15.03% for PC Jeweller and 11.44% for Titan Company. For fiscal ending 2014, the firm reported Rs 360 crore in net profit which gradually rose to Rs 1,265 crore in 2018, implying an increase of 251%.
Rajesh Exports is the only company in the world which caters to all the services across the entire gold chain from refining to retailing. The firm which is the country's largest gold exporter regulates around 35 per cent of the gold business in the world. Rajesh Exports made its debut in Fortune 500 firms at 423rd position in 2016. Next year, the firm jumped 128 ranks to 295th position with revenue of over $36 billion. In 2018, the firm's rank in the Fortune 500 list stood at 405. In 2018, its rank stood at 405. Rajesh Exports was the seventh Indian firm on the list with revenue of $29.1 billion.
Rajesh Exports has a chain of Shubh Jewellers showrooms in the country.
Edited by Mukesh Adhikary