(By Evaluate Research) Bengaluru: Rajesh Exports reported overall weak results for Q4 (ended March) as well as the full fiscal year. While revenues for Q4 substantially exceeded our published estimate, EPS was weaker than we expected. For Q4, revenues came in at Rs. 916 million, which was down 21% YoY, but up 40% QoQ – such has been the uncharacteristic variability in quarterly results for RJEX during the past year. The YoY revenue decline led to negative operating leverage, producing negative profits. We believe some year-end accounting adjustments and accruals, along with tax-related expenses, impacted the Q4 bottom line. With record demand for gold from Central Banks, RJEX’s Swiss-based Valcambi gold refining subsidiary continues to do well. Still, volatility in gold prices, global macro uncertainty, and timing of orders and shipments have led to variability of near-term earnings, in our opinion. More details on the quarter in our report.
While RJEX has now reported three consecutive quarters of weak results, we maintain our view that this is a temporary phenomenon and an aberration, given the firm’s solid and consistent track record of growth for the past several decades. In fact, RJEX’s 10-year [FY 03/2013 to FY 03/2023] revenue growth has been +23.6% CAGR, while EPS growth has been +16.9%, and this remarkable growth has occurred despite the Covid-19 global recession. In our view, a 10-year track record clearly trumps a 3-quarter slump, and hence we strongly view the recent stock price decline as a buying opportunity in a market leading secular growth story.
Despite the challenges of last year, our conversations with the senior management and CEO Rajesh Mehta suggest that the revenue and net profit growth should recover shortly with the start of this new fiscal year in April. While we continue to expect a resumption of growth going forward and a recovery in sales and earnings this current year, we are nonetheless lowering our fiscal year 03/2025 EPS estimate to Rs. 29, down from our earlier Rs. 57 forecast. More importantly, for forward-looking FY 03/2026, our estimate now stands at Rs. 43. Our estimate assumes a healthy snap-back from the admittedly below-trend line results for last fiscal year. It should be noted that RJEX is now going up against easy comps from the prior year.
Buy Rating with Rs. 600 Target & Significant Upside:
We are reducing our price target to Rs. 600 (down from prior Rs. 700), which reflects lower earnings estimates. We do expect a recovery in the EPS in FY 3/2025, which is very much consistent with RJEX’s long-term trendline growth trajectory, both in terms of revenues and earnings. In that sense, we don’t think the resumption of growth for RJEX from an admittedly poor current year is a huge “leap of faith”, given the firm has proven itself for several decades now. Following recent stock price underperformance, after hitting an all-time high of over Rs. 1,000 just over one year ago in February 2023, the stock is quite undervalued, and a huge discount to its own history, not to mention the broader stock market. Currently, the stock is trading at 9.8x current year 3/2025, and 6.7x our forward forecast for 3/2026.
As we have reiterated, these current valuation P/E multiples are a huge discount to RJEX’s own history. As witnessed in the following Bloomberg chart, which tracks [the green line] the stock’s P/E multiple over the past 7 years. Note: this period includes the Covid-19 global recession, which also impacted RJEX’s fundamentals. During this period [and not including the most recent 6 months], RJEX’s P/E multiple bottomed out at around 12x, and peaked at around 30x. The average P/E multiple during the entire period was around 16x. So, however one analyses at the data, RJEX’s stock looks significantly undervalued presently, in our view.
Gold Prices Rise on Flight to Quality:
Global gold prices have shot up to a record high, due to several factors including high interest rates, huge fiscal deficits in several major economies, USD reserve currency status concerns, etc. This sudden spike in US$ gold prices of around 15% YTD is leading to a pause in consumer jewelry purchases, which is also impacting RJEX’s near-term export business. Gold price has also recovered from the low levels seen in October 2023, and the outlook remains strong based on the expectations that the central banks continue to add it over time to their assets as a safe haven.
