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Gitanjali Gems is an integrated diamond and jewellery manufacturer having strong presence in Indian and overseas markets which has been made possible with growing retail presence, strong brands bouquet, focus on jewellery business and global acquisitions.

The company has strong brands like Nakshatra, Gili, D’ DMas and Asmi and has 50% of its revenue coming from domestic market. Gitanjali Gems has been increasing its focus on jewellery business which has an EBIT margin of about 15% against its traditional diamond business, which has an EBIT margin of about 3%. The company also has its domestic jewellery business equal to that of Tanishq, a brand owned by Titan Industries. In quarter ending September 08, both the companies had a turnover of close to Rs 750 crores each from jewellery business, with almost same EBIT margin.

For FY08 on standalone basis, the total income of the company was at Rs 2,655 crores with net profit of Rs 138 crores yielding an EPS of 16.25 on equity of Rs 85 crores.

For first six months of FY09, on consolidated basis, the total income of the company was placed at Rs 2,510 crores with profit after tax of Rs 90 crores, which has resulted in an EPS of Rs 10.70 for first half.

Present equity of the company is at Rs 85 crores with face value fo Rs10 per share. As at 30.9.08, promoters stake in the company is at 48% while FIIs and Depository Receipt Holders are holding 31% with 9% held by the banks and mutual funds and 12% by the public. Best part about FII holding is that it is held by three sound ones like Goldman Sachs holding 6.5%, HSBC 6.5% and Deutsche Bank about 8%. Promoters of the company have been raising their stake and have seen buying close to 2% stake in the last 3-4 months.

Though there are negative perception for the growth of the company’s business, due to global economic slowdown, but still, FY09 should have a topline of Rs 4,500 crores with net profit of Rs 170 crores, resulting in an EPS of close to Rs 20. Due to fear of slowdown, share which had its 52 week high of Rs 473 had corrected to low of Rs 57 in November 08 and is now ruling at Rs 75 levels. This is at a PE multiple of about 4 times, based on FY09 workings. Titan Industries, a similar company even today is ruling at a PE of close to 14.

The company has been aggressively increasing its footprint in the domestic and global markets by acquisitions of retail chains and brands which will enable to expand at a regular interval. The company has recently entered into a JV with MMTC to open jewellery showrooms in India.

The company in the past has entered into realty development mainly with a view to start jewellery SEZ and to have premises for its showrooms.Though the same may not yield an immediate return, in the medium to long term, it will help the company to expand as also to earn extra profit from this business.

Share is having a book value of Rs 210 as on date and is ruling at 76.65 which makes it a safe and good buy. Share has potential to breach three digit mark by March '09 with minimal downside risk. A safe bet at Rs 76.65.

A BEARISH market occasionally provides an opportunity to unearth some value stocks, which have been battered below their intrinsic worth. Jhunjhunwala Vanaspati (JVL) is one such stock.
This stocks also appeared in the lead story titled ‘Cheaper By The Dozen’ in Economic Time's Invesor's Guide edition dated December 1, ’08. Click Here to checkout this article.

This stock is now lower than cash and other liquid investments net of long-term debt on its books. Considering the company’s strong fundamentals and growth prospects, the stock is a good value pick for investors interested in the small-cap space.

Beta: 0.27
Institutional Holding: 0.1%
Dividend Yield: 2.8%
P/E: 1.5
M-Cap: Rs 54.1 cr
CMP: Rs 72.10

BUSINESS:
Varanasi-based JVL is principally engaged in the manufacture of vanaspati and refined edible oil. Vanaspati accounts for more than 58% of the company’s revenue, while the remainder comes from other oils like soya, palm and mustard oil. The company is in the high-turnover, low-margin business of solvent extraction. It markets its products under the ‘Jhoola’ brand, which is the market leader in Uttar Pradesh and Bihar, enjoying 35-40% share each. The brand commands 5-10% premium over its competitors and is predominant in rural markets. On one hand, the company imports crude edible oil, while on the other hand, it exports de-oiled cakes to markets in South-East Asia.

JVL has also entered into deals to import crude palm oil and soya bean oil directly from plantation owners in Malaysia, Indonesia, Argentina and Brazil. The company has recently acquired a sick fertiliser company in Bihar, thus foraying into the fertiliser segment. It has also acquired 260 acres of land bank as part of the deal. The company has proposed real estate development of 333 acres in Varanasi, and plans to develop this into a multi-services SEZ.

GROWTH OPPORTUNITIES:
India imports nearly 50% of its edible oil requirements. So, there are significant growth prospects for solvent extraction units. To take advantage of this, the company has expanded capacities at its existing facilities and planned new units in Bihar and West Bengal. JVL aims to expand its total installed capacity from 2,67,000 tonnes per annum (tpa) in ’08 to 9,56,000 tpa by ’10. It plans to invest more than Rs 200-250 crore in capex via accruals and debt over the next three fiscal years.

The company is decreasing its dependence on vanaspati by increasing manufacturing capacities of other refined oils. Given the decreasing consumption of vanaspati, JVL intends to rationalise the proportion of vanaspati in its revenue to around 30% over the next two years. The company is looking at leveraging the strength of its brand to increase its market share in Bihar and penetrate new markets like Jharkhand, West Bengal, Orissa, MP and the North East.

FINANCIALS:
JVL’s net sales have seen a CAGR of 20.4% over the past five years to Rs 1,154.8 crore in FY08. Its net profit has posted a CAGR of 35% during the same period to Rs 23.6 crore in FY08. The company has seen rapid growth in the past three fiscal years, coinciding with the bull run in the edible oil market. JVL has been paying dividends since the past four fiscal years at an average payout ratio of 9% of its profit. It expects to hike its dividends in line with its growth.

Despite volatility in raw material prices, the company’s operating and net profit margins have improved over the past one year. A cut in import duty on oil and the rupee’s appreciation also made it possible for the company to control input costs, which account for over 80-85% of its total manufacturing cost. JVL commissioned a 3-mw agrobased captive turbine in FY07, which has helped it to reduce power costs. This has also enabled it to apply for sale of carbon credits.

VALUATIONS:
At its current valuations, JVL is one of the most attractive stocks among listed players in the solvent extraction business. Considering its growth prospects in the edible oil business, along with its foray into fertilisers and real estate, the company is an attractive investment bet in its segment.