Rajesh Exports Achieves Strong Results

Mumbai: Rajesh Exports reported strong fourth quarter [ended March] and full year FY2016 financial results where both revenues and earnings easily outpaced our estimates, according to a communication issued by ‘Evaluate Research’.

On a quarterly basis, revenue and EPS surpassed our estimates by 2% and 24%, respectively. Moreover, the company’s annual figure also exceeded our revenue and EPS projection by 1% and 4.7% respectively, states the research agency.

In our call following the results with Rajesh Mehta, Chairman & MD of Rajesh Exports, he said “Valcambi’s integration went better than expected as both the management and the employees were very supportive. Management remains optimistic about growing the business in the next few years”.

For the fourth quarter, the company posted Rs 559.2 billion in revenues, up 192% YoY. Net profit for the quarter increased 20% to approximately Rs 2.5 billion against the same quarter last year. EPS for the reported quarter stood at Rs 8.37 as compared with Rs 6.96 in the comparable quarter last year.

Likewise, for fiscal 2016, the company witnessed 227% yearly growth in revenue mainly buoyed by the consolidation of Valcambi, which is 4 times the size of Rajesh Exports. Net profit for the period stood at Rs 10.7 billion, up 63% YoY. EPS for 2016 came at Rs 36.13 against Rs 22.18 in 2015. For FY2017, we expect revenue growth of 25% to Rs. 2,065 billion and EPS growth of 12% to Rs. 40.44.

On the standalone basis, revenues for fourth quarter 2016 declined 16.2% to Rs 104 billion. We believe that the declining gold price coupled with sluggish jewelry demand and the 43 days strike due to the Indian government’s decision to levy 1% excise duty on non-silver jewelry manufacturing, may have impacted revenue growth. Net profit for the same period stood at Rs 766 million against Rs 29 million in the prior year quarter. EPS came at Rs 2.59 versus Rs 0.10 in the same quarter last year.

For FY2016, revenues edged up 1.8% as compared to last year while net profit for the reported period came at Rs 4.7 billion, up 81% as compared with 2015.

The order book position as on March 31, 2016 stood at Rs 345 billion; these orders are to be completed by Jul 2016.

One-Year Price Target of Rs 900:

Our one-year price target on Rajesh Exports is Rs 900, driven by strong fundamentals and increased visibility of earnings. This indicates 60% upside potential from current levels. We expect Rs 16.5 billion in operating income in FY03/2017 and Rs 18 billion in FY03/2018. 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 reported robust results in 2016 and we expect the momentum to continue going forward driven by strong tailwinds which are likely to unfold in the coming period. Our 12-month price target on the stock is based on P/E and backed by DCF methodology. Our DCF based price is Rs 1,084 which assumes 12.4% WACC and 2% terminal growth rate. We apply a 22x on our FY17 EPS estimate of Rs 40.44 which comes to Rs 900.