Rajesh Exports: Robust Q2, Strengthening Top-Line

Mumbai: Rajesh Exports reported a strong set of results for the quarter ended September, 2015 which was a record quarter for the company.  The company completed the acquisition of Valcambi, the world’s largest gold refiner, at the end of July, 2015 and hence the revenues and profits for this quarter included the performance of Valcambi for the months of August and September.

Revenues were up by 304% to Rs 443,196 mn YoY, primarily due to consolidation of Valcambi’s revenue and partly due to an increase in the revenue contribution from the retail business.  Net income increased by 75% to Rs 2,798 mn, while the net income margin dropped by 85bps to 0.6%.  The company reported an EPS of Rs 9.48 vs Rs 5.41 for the last comparable quarter.  The order book position as on September, 2015 was Rs 242,150 mn and these are to be completed by January, 2016.  Net cash [i.e. cash minus all debt] stood at Rs 69,963 mn [34% of the current market capitalization].

We spoke with the company’s CMD, Mr. Rajesh Mehta, who noted that the strong outperformance was basically due to the acquisition of Valcambi and also partly due to an increased contribution from the retail business.  Management believes that the acquisition is likely to result in even better earnings performance in the coming quarters as the integration synergies of both the companies would start to appear.  The company is working towards strengthening its retail presence and has drawn up specific plans to ensure the migration of its volumes from bulk to retail which would ensure higher profitability for the company in the coming quarters.

Strong BS Despite Acquisition

Rajesh Exports acquired 100% stake in Valcambi in an all cash deal with a total investment of US$400 million.  The acquisition was partly funded by way of cash [around $265 million] and the remaining by way of a loan taken from Credit Suisse.  Interestingly, Rajesh Exports was able to use part of the cash on Valcambi’s own BS to help fund the acquisition.  Despite the acquisition, the company has a net cash of Rs 69,963 [Rs 105,870 Cash – Rs 6,035 long term borrowings – Rs 29,872 short term borrowings] on its balance sheet.  The acquisition thus appears to be hugely earnings accretive and the consolidated BS remains very strong even after the purchase price funding.

Price Target:  Increased to Rs. 850 [from 800]

Following the robust set of results and incorporating Valcambi into our estimates, our FY03/2016 revenue estimates have gone up by 315% to Rs 2,094,206 mn [Rs 615,646 (Rajesh Exports) + Rs 1,478,560 (Valcambi)] and EPS estimate by 16% to Rs 31.14 per share.   Similarly, our FY03/2017 revenue estimate increases by 38% to Rs 2,893,820 and EPS estimate by 16% to Rs 35.87 per share.  Please note that the FY03/2016 revenue estimate includes only 8 months of revenue contribution from Valcambi.  We are increasing our price target to Rs 850 on the stock, which represent 27% upside from current levels.  Please see more details in the Update Report attached.