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CRISIL: ‘Good’ Fundamentals for Gitanjali

Feb 24, 2012 4:33 AM   By Dilipp S Nag
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RAPAPORT... CRISIL Research has assigned a fundamental grade of ''3/5'' to  Gitanjali Gems Ltd. The grade indicates that the company’s fundamentals are ''good'' relative to other listed equity securities in India, it explained.

The researchers noted that the assigned fundamental grade takes into account Gitanjali’s established position in an intensely competitive and fragmented diamond  industry. With manufacturing capacity of 400,000 stones per month and 1.3 million square feet of retail space across 300 cities, the company is well placed to capture the growing jewelry market, they said.

CRISIL stated that the company has moved forward from diamond processing, the lower end of the chain, to the most value-based end in retailing, and emerged as an integrated domestic diamond player as well as one of the largest exporters of polished diamonds. CRISIL added that the grade factors Gitanjali’s brand strength as well. “A strong brand portfolio including Asmi, Nakshatra and D’Damas aimed at different customer profiles, various markets and price segments support the grade,” CRISIL said.

However, the grade is constrained by the low-margin and high working capital-intensive nature of the diamond processing business, which strains cash flow and elongates the working capital cycle, CRISIL noted. Also, Gitanjali’s retail business has unceasingly been on an expansion mode, necessitating additional working capital, it added. The grade is further restrained by competition in the jewelry retailing market, which is intensifying with planned expansions by regional and traditional players.

CRISIL projected Gitanjali’s revenues to grow at a three-year compound annual growth rate of 20 percent to $3.35 billion (INR 165 billion) in fiscal year 2014 largely driven by the jewelry business, both at home and abroad. It estimated the company’s adjusted profit, after tax, will increase to $136 million (INR 6.7 billion) in fiscal 2014 driven by revenue growth and stable margins of 4 percent.

CRISIL also assigned a valuation grade of ''5/5,'' indicating that Gitanjali’s stock price has strong upsides from  current levels and stated that the one-year fair value of the stock is INR 555. The stock closed at INR 405.45 per share on the Bombay Stock Exchange on Friday.

Gitanjali operates three diamond manufacturing factories and six jewelry manufacturing units in India. It has more than 4,000 points of sale and operations in the U.S., U.K., Belgium, Italy, the Middle East, Thailand, China and Japan.
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Tags: Asmi, Crisil, D’Damas, diamond, Dilipp S Nag, Gitanjali, Gitanjali Gems, India, jewellery, Jewelry, Nakshatra, Rapaport
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