IPO ANALYSIS: GOENKA DIAMOND AND JEWELS LIMITED – MAY NOT GLITTER – AVOID.

Goenka Diamond and Jewels, which is in the business of diamond manufacturing and retailing of diamond jewellery, plans to raise Rs 145cr from the market through IPO. The issue will open on 23-03-10 and closes on 26-03-10.  The company is offering 1, 00, 000, 00 equity shares of Rs 10 each, in the price band of Rs 135-145. CARE has awarded grade -2 for the IPO.  SBI Capital Markets Limited is the sole BRLM.

BUSINESS

The company is  one of the  leading  manufacturer  and  trader  of  cut  and  polished  diamonds  (CPDs)  in  the  country.  The company is also engaged in manufacturing and marketing of studded jewellery through its retail stores - G Wild and CERES. Goenka has state of the art facilities at Surat (Gujarat) and Goregaon (Mumbai).

Goenka Diamond initially was in the business of export of coloured stones and has since then expanded into diamond trade in 1994 and manufacturing of diamond studded jewellery in 2003. The manufacturing activity got boost in 2006, when the company established its own diamond-processing unit at an SEZ in Surat for processing of rough diamonds.  In 2007, the company also set up a facility for processing of rough diamonds in Mumbai to cater to the local market and for in-house jewellery making operations. Goenka  scaled  up the  diamond  jewellery  making operations  by  establishing  a  dedicated manufacturing  facility  in Mumbai  and  launched  the  first  jewellery retail store in July 2008.

OBJECTS OF THE ISSUE

The company intends to utilize the proceeds from the issue, among others, for retail expansion, for working capital requirements and establishing a jewellery manufacturing facility.

        FINANCIALS                   (RS IN CRORES)

	07	08	09
TOTAL INCOME	73.61	200.62	451.29
NET PROFIT	2.70	12.41	27.38
EPS (RS)	1.93	9.56	20.60
RONW (%)	7.55	27.34	37.14

           COMPARISON WITH THE PEERS

	TURN OVER (FY 09)	NET PROFIT	EPS	P/E	BV
CLASSIC DIAMOND	677.20	3.50	16.60	7.5	57
GEETANJALI	2693.90	126.90	14.60	7.20	226
SU-RAJ	2417.80	33.40	5.40	6.5	123
SHRENUJ	911.40	13.40	1.90	14.80	29
GOENKA	451.29	27.38	20.60	**	55

  

RISKS FACTORS

1.The company  faces  execution  risks  in scaling up  the  retail business, where  its    track  record  is limited.

2. The diamond processing facility is geographically located in one area.  Any localized unrest, political disturbances in the area could adversely affect results of operations. 

3. The requirement of high working capital will put pressure on the margins.

4. Family owned, controlled business enterprise.

VALUATION AND RECOMMENDATIONS

Other than Rajesh Exports Limited (Leading gold jewellery exporter), the stocks in this sector are not fancied by investors. Su-Raj Diamonds and Geetanjali Gems, whose turnover, net profit and BV is much more than the Goenka Diamonds are available at less than 7.5 P/E. At Rs 135-145, the valuation looks expensive compared to the established players in the industry.  Investors may stay away from the issue.