This week we resume our analysis of the annual (FY’14) and most recent quarterly (Q4’14) performance review of some of the well-known jewellery companies listed on the Indian stock markets. But before we get to the actual analysis, here’s a little follow up on the price action in some of these companies in the last few weeks based on our earlier article dated 4th February, 2014.
In the said article we had highlighted that owing to the harsh government policies and subdued demand from retail buyers, almost all jewellery stock were quoting close to their 52-week lows, and some even below their book value. At the time, these stock were a steal and considering the great value proposition, they were a clear “BUY”. Since then, stocks in this sector have seen a sharp price appreciation, especially in the last one month.
As they say, “numbers tell a story…”
That being said let us now resume our analysis of the reported financial performance of some of the companies mentioned above.
We start off by examining the star of this group, the only blue chip in this segment – Titan! As is the case with every other Tata Group company, Titan too operates on sound business fundamentals. The Company operates in four major segments – watches/accessories, jewelry, precision engineering and eyewear and owns prominent brands like Titan, Sonata, Fastrack, Xylys, Titan Eye and Tanishq. But what is noteworthy that the Company, which started off as a watch manufacturing company, today generates over 80 percent of its revenue from the jewellery business.
Titan’s sales for the quarter were at Rs. 2,786.8 Cr, a modest increase of 5.1 percent over the previous quarter (Q-o-Q, Q3’14) and 7.5 percent over the corresponding quarter last year (Y-o-Y, Q4’13). The Company had seen profits stagnating over the last few quarters on account of high input costs and sluggish demand from the consumers. However, net profits improved in Q4’14 and were at Rs. 219.54 Cr., higher by 32.6 percent and 18.7 percent on a Q-o-Q and Y-o-Y basis respectively. On an annual basis, Titan’s revenue stood at Rs. 10,826.2 Cr., higher by about 8 percent. Profit after tax (PAT) also increased by a modest 3.1 percent (Rs. 747.9 Cr. vs Rs. 728.9 Cr.). Going forward, sales growth is likely to remain steady and its growth will be correlated with higher consumer spending.
Stock advice: Titan has been one of the biggest wealth creators for its investors over several years. With a strong management at the helm, the Company is expected to continue its performance. However, it is because these reasons that the stock is richly valued and highly expensive (P/E over 30x!). Existing investors should definitely hold on, while those looking to invest new money should do so with a lot of patience and for the long term.
Tribhovandas Bhimji Zaveri (TBZ):
Established in 1864, TBZ is one of the most prominent jewellery retailers in the country. The Company has 27 showrooms located across 21 cities under “Tribhovandas Bhimji Zaveri” brand, for gold jewellery and diamond studded jewellery. Apart from that it has two designer boutiques under “Krsala”, where it sells jadau and diamond-studded jewellery.
Like PC Jeweller, TBZ too has been one of the few companies in this sector which have shown steady and profitable growth. However, as is the case with the rest of the companies, TBZ’s performance has suffered. The Company reported Q4’14 sales of Rs. 445.2 Cr., lower by 13.9 percent Q-o-Q and higher by just 0.04 percent Y-o-Y. At the same time, PAT for the quarter was reported at Rs. 11.7 Cr. vs. Rs. 19.1 Cr. in the previous quarter and Rs. 25.2 Cr. in Q4’13. For the full year FY’14, TBZ’s revenue was Rs. 1,817.7 Cr., a growth of 10.2 percent over the previous year. However, PAT declined sharply by 35 percent to Rs. 55 Cr., mainly due to higher interest costs.
Stock advice: TBZ has been an iconic brand among jewellery buyers for several years now, especially in the western part of the country. Since its listing in July 2011, the stock has almost doubled and is still going strong. However, at this point it has run up a lot and is quoting at a P/E multiple of almost 25x, which is very high considering the industry average and TBZ’s not so great quarterly results. For investors who already hold the stock, can maybe book partial or full profits and maybe switch to PC Jeweller, which looks more attractive, both, in terms of operational performance and valuations.
Shrenuj & Company:
Shrenuj & Co. is an integrated gem and jewellery company, with activities ranging from diamond processing, jewellery manufacturing to branding and retailing. Among its well-known brands are Lavanya, Lorenzo, and Diti.
For the quarter ended 31st March 2014, Company’s revenue was Rs. 1,206.4 Cr. vs. Rs. 1,277.2 Cr. for the previous quarter (Q3’13), a decline of 5.6 percent. However, on a Y-o-Y basis the Company’s revenue growth has been a handsome 35.9 percent. Except for the slippage in the last quarter, the Company’s sales have seen a steady growth, albeit with inconsistent profitability. For Q4’14, the Company earned a net profit of Rs. 26.2 Cr. vs. a profit of Rs. 21.62 Cr. in Q3’14 and profit of Rs. 32.32 Cr. in Q4’13. For the full year FY’14 too, the Company has reported a good revenue growth of just over 22 percent (Rs. 4,643.2 Cr. vs Rs. 3,862.2 Cr.), while PAT for the year was Rs. 89.6 Cr. as compared to Rs. 75.1 Cr. over the previous year; a substantial growth of 19.2 percent.
Stock advice: Looking at the performance history of the Company, Shrenuj is definitely one of the more steady players in the industry. Among the listed players, this is among the few good ones have a strong presence in the diamond cutting and polishing business, which complements its jewellery retailing business very well. Existing investors should definitely hold on. But new investors should wait for a correction of about 15-20 percent to buy this stock, as the valuations appear rich and expensive at this stage.
To conclude, there are a lot of promising companies listed in the gems & jewellery space with good business models and managements which are slowly but surely getting more and more professional every year. As this business is highly sensitive to global economic cycles, government policies and domestic seasonality, investors need to consider all these aspects in totality and of course know the company well before committing to a long term investment. As they say, all that shines, is not gold!
Posted by Dhawal Chotai
The author is a Mumbai-based Chartered Accountant and Financial Adviser with an experience of over 8 years in the financial services industry. His experience includes equity research, business valuations, and investment advisory.