Gitanjali Gems

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Gitanjali Gems Ltd.
BUY CMP: Rs.118.00 Date: March 02, 2010 Key Ratios: Particulars OPM(%) NPM(%) ROE(%) ROCE(%) P/BV(x) P/E(x) EV/EBDITA(x) Debt-Equity(x) Key Data: Sector Face Value 52 wk. High/Low Volume (2 wk. Avg.) BSE Code Target Price: Rs.136.00 Market Cap.: Rs.9943.86mn.

FY09 5.70 3.05 7.58 7.71 0.49 6.67 3.46 0.62

FY10E 6.07 2.73 8.43 10.65 0.44 5.31 2.37 0.63

FY11E 6.08 2.78 8.99 11.15 0.40 4.53 2.07 0.63

SYNOPSIS
Gitanjali Gems is one of the largest integrated diamond and jewellery manufacturers and retailers in India. The company became first to produce the world’s smallest heart shaped diamond (0.03 carat) and developing some 25 patented facet patterns. Gitanjali Group, the jewellery maker and exporter, is planning to invest Rs 400 crore in next 18 months for expanding its retail business in India and overseas markets. Gitanjali Gems’ wholly owned subsidiary, Gitanjali Lifestyle has decided to set up a joint venture company in India in collaboration with Damas LLC, Dubai. The company, which currently has 150 stores across India, is planning to increase it by three fold and double the 140 outlets it owns in US, China and Middle-East. The company’s Net Sales & PAT are expected to grow at a CAGR of 18% & 8% over FY08 to FY11E.

Gems & Jewellery Rs.10.00 Rs.149.00/Rs.32.50 117000 532715

V.S.R. Sastry Vice President Equity Research Desk 91-22-25276077 vsrsastry@firstcallindiaequity.com

Share Holding Pattern:

Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer drsastry@firstcallindia.com

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Table of Content
Content 1. Investment Highlights 2. Company Profile 3. Peer Group Comparison 4. Key Concerns 5. Financials 6. Charts & Graph 7. Outlook and Conclusion 8. Industry Overview Page No. 03 08 10 10 11 13 15 16

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Investment Highlights
• Q3 FY10 Results Update Gitanjali Gems reported a rise of 39.41% in consolidated net profit for the quarter ended Dec 2009. During the quarter, the profit of the company went up to Rs 406.42 million from Rs 291.52 million in the same quarter previous year. Net sales increased by 63% to Rs 18,121.94 million, while total income for the quarter climbed by 63.12% to Rs 18,135.71 million compared with the prior year period. The Company posted earnings of Rs 4.82 a share during the quarter, registering 40.73% growth over previous year period. Interest cost increased 48.55% to Rs 440.65 million while depreciation cost decreased 7.75% to Rs 84.48 million over previous year period. Quarterly Results - Consolidated (Rs in mn) As at Net Sales Net Profit Basic EPS Dec - 09 18,121.94 406.42 4.82 Dec - 08 11,117.94 291.52 3.43 %Change 63.00 39.41 40.73

Net Sales & Net Profit Growth

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EPS Growth

Segment-wise Performance Particulars (Rs.mn.) Diamond Jewellery Total Q3 FY09 5366.17 6919.49 12285.66 Q3 FY10 7884.40 10941.07 18825.47

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• Extension of interest subvention to boost growth in gems and jewellery sector The overall thrust of the budget is positive and it will provide a boost to domestic consumption and growth. The revised tax rates will certainly mean greater disposable income for domestic consumption. Specific to the gems and jewellery sector, the extension of the interest subvention for another year is welcome. This will provide an important stimulus to the export sector and boost growth and revival after the slowdown of last year. Regarding the hike in customs duty on precious metals, the increase in the duties on gold and platinum (from Rs 200 per 10 gms to Rs 300) is on par with the rise of prices of these metals. However the hike in duty rates on Silver from Rs 1000 per kg to Rs 1,500 per kg is excessive. Also we welcome the reduction from 10% to 2% on the import of rhodium which is a raw material used in manufacturing and the reduction in the duties on raw gold to Rs 280 per 10 gms. • Acquires balance 50% stake in Morellato India In a move aimed at rationalizing the business plan, Gitanjali Gems has strategically acquired the balance...
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