>Shree Ganesh Jewellery House (SUNIDHI)

Company Description: SGJHL was incorporated in August 2002 in Kolkata with the name Shree Ganesh Jewellery House Pvt Ltd. In the year 2004, it set up its first unit at Manikanchan SEZ with a capacity of 500 kg of gold jewellery per year. SGJHL is the largest manufacturer and exporter of hallmarked and handcrafted gold jewellery in India. Their products are primarily exported to countries such as the UAE, Singapore and Hong Kong.

Its four manufacturing units are located at Manikanchan SEZ in West Bengal, which is presently the only jewellery SEZ in West Bengal. It also manufactures products on behalf of various third parties at its plants at Manikanchan SEZ. The company has 14 subsidiary companies, all of which are into manufacturing and exports of gold products including one overseas subsidiary, Shree Ganesh Jewellery House at Singapore. Apart from Gokul Jewellery House, the company is set to amalgamate its 11 other subsidiaries with one of its subsidiary, Easy Fit Jewellery.

Investment Rationale:
SGJHL tapped the capital market in March 2010 with an IPO of Rs 315 crore priced at Rs 260 per share for expansion. About Rs 145 crore of the IPO will fund the ramping up of manufacturing capacity by setting up plants in three locations. All the projects are expected to be completed by November 2010. The strength showcased by revenues for FY09, which were up 77 per cent over FY08, a difficult period for gems and jewellery players is a confidence building factor. Customers include Wondercut Pte, Denzong Hong Kong, Ibrahim Al Sayegh Jewellery.

The product range include handcrafted and hallmarked gold jewellery, gold enameled jewellery and gold jewellery studded with precious stones such as diamonds, rubies, emeralds, sapphires, pearls, etc and semi-precious stones such as garnet, cubic zirconium, etc. The portfolio includes rings, earrings, pendants, bracelets, necklaces, bangles and medallions. The company markets its jewellery products under brand name ‘Gaja’, ‘Sitaare’, ‘GM’, ‘Marigiold’, ‘G elements’, ‘Gold
Bridals’, ‘Dianique’, ‘You’ and ‘Distar’.

The total capacity of the company as of year ended March 2010 was 30,500 kg of gold products, which is being enhanced to 43,000 kg of gold products per annum by FY 2012. Apart from setting up the manufacturing units, the company plans to expand its reach by opening 49 retail outlets in different formats by FY2013. The breakup of the different format outlets are: 14 owned outlets, 3 outlets on rent, 11 franchise model outlets and 11 shop-in-shop outlets. It has entered into an agreement with Vishal Retail for shop-in-shop arrangements in existing outlets. The Capex for expanding the retail outlets is estimated at Rs 68 crore.

Strategic location of the company in West Bengal makes it easy for availability of karigars (skilled workmen) for handcrafted jewellery at low costs. The market share of the company in the domestic gold jewellery exports has jumped from 1.8% in FY 2007 to 6.1% in FY2009. The company follows a strategy of expanding its presence into various geographies and product portfolios and is foraying into manufacture of machine made jewellery so as to consolidate its presence in the world market.

The company has more than three decades of business relationship with the Middle East customers and its major revenues generate from the jewellery wholesalers of Middle East countries. Risks in this space stem from its small store count and stiff competition from brands such as Tanishq and those of Gitanjali Gems which have a wider reach.

During FY10, Indian gems and jewellery exports advanced by 16% to $28.4 billion from $24.4 billion in FY09. Recognised as the diamond polishing capital of the world, the India is gaining prominence as an international sourcing destination for high quality designer jewellery with global retail majors such as Wal-Mart and JC Penney procuring jewellery from India. The domestic jewellery market pegged at US$ 16 billion, which includes gold, diamond, platinum and others is expected to grow to US$ 25.2 billion in two-to-three years.

SGJHL is likely to post an EPS of Rs 32 in FY11 and Rs 36 in FY12. At the CMP of Rs 113, the share is trading at a P/E of 3.5x on FY11E and 3.2x on FY12E. We recommend BUY with a target of Rs 150 in the medium term.

To read the full report: SHREE GANESH JEWELLERY HOUSE