Excellent Results for Rajesh Exports in Q3

Mumbai: Rajesh Exports reported an excellent set of results for the quarter ended December 2015 which are in-line with our estimates, says an Update Report provided to G2J by ‘Evaluate Research’.

Management has decreased its revenue growth guidance for FY03/2017 due to a negative impact from currency volatility and a slowing global economy.  Rajesh Exports has projected revenue growth in the range of 200% for 2016 as compared to 77%, its record for the year 2015.

The robust growth in the top-line for 2016 was basically due to the consolidation of Valcambi, which is 4 times the size of Rajesh Exports.  Hence, for analytical purposes we need to compare the performance of the company on a quarter-over-quarter basis rather than on year-over-year.

The company has posted a 77% rise in its net profits at Rs 3,027 mn for the third quarter as compared to Rs 1,712 mn in the same quarter last fiscal and an 8% increase versus the prior quarter.  The net profit margin has slipped marginally to 0.6% as compared to the prior quarter. Out of the total net profits, Rs 1,397 mn [46%] belongs to Rajesh Exports [standalone entity] and the rest [54%] belongs to Valcambi.

The revenues for the quarter stood at Rs 498,191 mn registering a 300% year-over-year growth and an 12% increase quarter-on-quarter.  Out of the total consolidated revenue, Rs 90,499 [18%] is contributed by the standalone entity and the rest is by the merged entity.  However, on the standalone basis, revenues contracted by 6% to Rs 90,499 mn basically due to the impact of lower gold prices.  EPS was at Rs 10.25 registering a 77% year–over-year growth. The order book position as on December 31, 2015 stood at Rs 288,290 mn; these orders are to be completed by April 2016.

Increasing Price Target to Rs 915:

Homegrown diversified group Rajesh Exports and its newly-acquired Swiss based gold refiner, Valcambi, are pitching for orders across various jewelry segments.  After the acquisition in August last year, the company is looking to leverage each other’s strengths to offer a complete set of jewelry products to its customers.  The Company is increasing its price target on Rajesh Exports to Rs 915 from Rs 850, driven by strong fundamentals and increased visibility of earnings. This implies 25% upside potential from current levels.  It expects Rs 14,261 mn in operating income in FY03/2016 and Rs 16,473 mn in FY03/2017.

Rajesh Exports is the leading refiner and manufacturer of gold and gold ornaments, servicing around 40% of the world’s gold refining demand.  The company has posted a solid set of results in the preceding year and we expect the momentum to continue going forward driven by numerous catalysts which are likely to unfold in the coming period. Due to the lack of clarity regarding financial aspects of the recently acquired Valcambi, the Company remains conservative on its price target. Its 12 month price target on the stock is based on P/E and backed by DCF methodology.  Its DCF based price is Rs 1,084 which assumes 12.4% WACC and 2% terminal growth rate.  It applies a 23x on its FY17 EPS estimate of Rs 40 which comes to Rs 920.