Renaissance Jewellery’s IPO is fairly priced,with detachable share warrant being an additional sweetener.Investors with a 12-month horizon can subscribe to it
COMPANY: RENAISSANCE JEWELLERY
ISSUE SIZE: Rs 66.6-79.9 CRORE
PRICE BAND: Rs 125-150
DATE: NOVEMBER 19-21, ’07
MUMBAI-BASED Renaissance Jewellery is coming out with an IPO of 5.3 million equity shares of Rs 10 each. The company will also issue one detachable share warrant for every two equity shares allotted, convertible into equity shares after 16 months of the allotment at 125% of the issue price. Postissue, the promoters’ shareholding will come down to 71%, which will further fall to 62%, assuming full exercise of warrants. The company intends to raise around Rs 80 crore (at the upper price band) to fund its expansion plans. It plans to expand its manufacturing units in Mumbai and Bhavnagar and set up a subsidiary in the US to expand its marketing activities. Investors with a 12-month horizon can consider subscribing to the issue.
BUSINESS:
Renaissance Jewellery is a decade-old company promoted by Niranjan Shah. It manufactures studded gold, platinum and silver jewellery primarily for the US market.
The company has three manufacturing units — two in Santacruz Electronic Export Promotion Zone (SEEPZ) in Mumbai and a 100% export-oriented unit (EOU) in Bhavnagar — to cater to the exports market. Besides, its two wholly owned subsidiaries — Verigold Fine Jewellery and Renaissance Retail Ventures — have manufacturing facilities at SEEPZ and Andheri, respectively. The units in SEEPZ and the EOU enjoy income tax exemption till FY09.
The company boasts of a 40-member team of skilled designers, who are able to develop a large number of designs in line with the current fashion trends. In the domestic market, the company has set up around eight retail outlets through its subsidiary and sells jewellery products under the brand ‘Lucera’, which is being positioned as an affordable fashion accessory.
The company has three manufacturing units — two in Santacruz Electronic Export Promotion Zone (SEEPZ) in Mumbai and a 100% export-oriented unit (EOU) in Bhavnagar — to cater to the exports market. Besides, its two wholly owned subsidiaries — Verigold Fine Jewellery and Renaissance Retail Ventures — have manufacturing facilities at SEEPZ and Andheri, respectively. The units in SEEPZ and the EOU enjoy income tax exemption till FY09.
The company boasts of a 40-member team of skilled designers, who are able to develop a large number of designs in line with the current fashion trends. In the domestic market, the company has set up around eight retail outlets through its subsidiary and sells jewellery products under the brand ‘Lucera’, which is being positioned as an affordable fashion accessory.
GROWTH STRATEGY:
The company has recently forayed into new product categories such as bridal and solitaire jewellery, which are high-margin categories compared to fashion jewellery. It has decided to increase its market reach by targeting medium and small-sized retailers and is setting up a subsidiary in the US. A portion of the IPO funds will be utilised to expand its manufacturing capacities. The company also plans to expand its presence in other overseas markets such as the Middle East and Far East. It even intends to expand its domestic retail business through its subsidiary.
FINANCIALS:
The company’s sales have witnessed a compounded annual growth rate (CAGR) of 37.6% from FY03 to reach Rs 438.5 crore in FY07, while PAT saw a 61.7% CAGR to stand at Rs 25.4 crore in FY07. During the quarter ended June ’07, the company posted a net profit of Rs 7.2 crore on total income of Rs 122.8 crore. Its PAT margins have risen consistently during this period to reach 6.1% in the June ’07 quarter. During the latest quarter, the company derived nearly 96.7% of its revenues from the US. Sales from the domestic market contributed a mere 0.4% to its revenue, while exports to rest of the world stood at 2.9%.
VALUATIONS:
At the lower price band of Rs 125 per share, the P/E multiple works out to 7.9, considering annualised EPS of Rs 15.7 for the quarter ended June ’07 on post-IPO equity. P/E at the higher price band of Rs 150 is 9.5. The group of comparable listed companies is currently trading at an average P/E of 18.3. Comparatively, the IPO appears fairly priced, with the warrants being an additional sweetener. RISK FACTORS: Renaissance Jewellery is highly dependent on a small group of large customers in the US for its sales. The company wants to diversify its risk by reaching out to smaller players, but it has not conducted any market survey for its feasibility. Recently, global gold prices have shot up above $800/troy ounce.
Jewellery imports into the US used to enjoy preferential treatment earlier, but since July ’07, an import duty of 5% has been imposed on them. These factors are likely to affect demand for the company’s products negatively over a period of time. Moreover, depreciation in the US dollar may affect the company’s operating margins, going forward.
Jewellery imports into the US used to enjoy preferential treatment earlier, but since July ’07, an import duty of 5% has been imposed on them. These factors are likely to affect demand for the company’s products negatively over a period of time. Moreover, depreciation in the US dollar may affect the company’s operating margins, going forward.
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