Goenka Diamonds and Jewels - Review + Analysts View

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We have read the prospectus and don't recommend Investors to subscribe to the IPO of Goenka Diamonds and Jewels. However, here are Analyst views at other brokerages.

Unicon WealthResearch has a SUBSCRIBE recommendation with the following note,

At the upper price band of INR 270, the stock is discounted at 10.15x its FY10 annualized earnings which is cheaper as compared to its peers. Considering the company’s foray into the domestic, international retail, new markets with diversified product range we recommend SUBSCRIBE to the issue.

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IndiaBulls Equity Research has the following recommendation,

We value the stock at Rs. 159, by using the DCF method (WACC: 14.8% and Terminal Growth 5%), which offers an upside of 18% over the lower end of the price band and 10% over the upper end. Moreover, the issue appears attractive with an annualized FY10 P/E of 6.9x compared to an average of 15.7x for its peers (Shrenuj, Asian Star, Renaissance, Rajesh Exports and Gitanjali). Additionally, Goenka enjoys better EBITDA margins and net margin of ~10% and ~8.2%, respectively compared to 5.7% and 2.3% of its close peers (Shrenuj, Asian Star and Renaissance). Besides, it has enjoyed a superior ROE (FY09) of over 46% compared to a peers’ average of 10%-18%. Thus, we recommend investors to Subscribe to the issue.

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HDFC Sec has the following view on the IPO,

The diamond industry is very fragmented, with low value addition and is characterized by high competition players typically have low margins and the working capital intensity is high arising from the long conversion cycle involved as well as delays in realization of export proceeds, especially in the current scenario of demand slowdown. However GDJL benefits by virtue of its presence in larger size diamond, where competition is relatively lower and its long presence in this business and established relationship with both customers as well as suppliers of rough diamonds. The offer is priced at ~10 times its FY10 (E) EPS on fully diluted equity basis. This is not cheap as compared to existing listed players.

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Motilal Oswal Analyst Anoop Tulsyan has a AVOID Recommendation with the following note,

Between FY08 & FY09 GDJL's revenues have more than doubled. In FY10, the company expects revenues to grow at ~25%, which gives a FY08-FY10 revenue CAGR of ~65%. The EBITDA is in the range of 9% and has not improved despite huge growth in revenues. The PAT margin remains at ~8%, due to tax exemption under section 10AA of the I. T Act. At the upper price band of Rs. 145, the stock will trade at 10.6x FY10 E EPS. Gitanjali gems, with market cap of close to Rs. 9.9 bn, currently trades at 7.7 x FY10 E EPS. In view of the expensive valuations and lack of future clarity we recommend AVOID subscribing to this issue.