Shree Ganesh(Update)

LOHIA SECURITIES LTD.

Shree Ganesh Jewellery House
Limited

Prakash Narayan Sharma
prakash.sharma@lohiasecurities.com

Shree Ganesh Jewellery House Ltd.(Update) LOHIA SECURITIES LTD.

Company Background
 Shree Ganesh Jewellery House Ltd. is one of 12th September 2011
the largest manufacturer and exporter of
handcrafted gold Jewellery in India, exporting MARKET DATA
primarily to countries such as U.A.E.,
Bloomberg Code SGJ:IN
Singapore, and Hong Kong
 The product portfolio includes handcrafted Reuters Code SHRG.BO
and hallmarked gold jewellery, gold Price (`) 149.05
enameled jewellery, gold jewellery studded Target Price (`) 260
with precious stones and Italian fusion Time (in Months) 12
jewellery Dividend Yield (%) 4.03%
 The Company has manufacturing units
52 Week High/ Low(`) 286/117
located in Mondalpara, Manikanchan SEZ at
West Bengal, which is presently the only Equity Capital(` Mn) 606.83
jewellery SEZ in West Bengal and at Domjur Face Value (`) 10
(upcoming) Market Cap (` Mn) 9,044
Avg. Vol.NSE(3M) 1,64,717
Investment Rationale Beta 0.91
 Q1FY12 results in line with expectation.
Strong order book provides visibility of
INDEX
future earning capacity.
 Enhanced product portfolio to assist in Index Weightage (%)
increasing the customer base and BSE Small Cap 0.277%
maintaining topline in the present
scenario of rising gold prices.
 Company’s plan to add additional retail SHARE-HOLDING PATTERN (%)
stores in India to improve topline and Promoters 70.66
bottomline. DIIs 4.15
 Company’s backward integration plans to FIIs/NRIs/OCBs 11.83
improve margins in the long run. Corporate Bodies 8.95
General Public 4.41
Risks & Concerns
As on 30/06/2011
 Deterioration of macro conditions can
adversely affect exports and discretionary
RELATIVE PERFORMANCE (%)
spending.
 High concentration risk as revenues are Stock over
Nifty Stock
dependent on few major clients. Nifty
 Volatility in gold prices can impact 1 Month -2.5% 2.5% 5%
volumes. 3 Month -10% -44% -34%
 Seasonal nature of the business. 12 Month -12% -13% -1%

Financial Highlights FY11 FY12E FY13E
Revenue (`Mn) 52,407 75,000 85,000
Revenue growth (%) 78% 43% 13%
EBDITA (`Mn) 3,393 5,981 6,841
EBIT (`Mn) 3,333 5,785 6,606
Net Profit (`Mn) 2,638 3,957 4,536
EPS (`) 43.48 65.21 74.75
EPS growth (%) 59% 50% 15%
P/E (x)* 3.43 2.29 1.99
P/BV (x)* 0.84 0.62 0.48
ROE (%) 24.57% 27.33% 24.12%
* P/E, P/BV computed taking CMP of `149.05 as on 12/09/2011.
2 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters 033-4002 6600/6700


Investment Rationale
Growth visibility: SGHL’s quarterly results were in line with our estimates. The company has added
about `5,000 Mn of orders during the quarter and has an outstanding order book of `35,000 Mn, which
offers visibility for the company’s future revenue generating capacity. If the company continues posting
good results in the ensuing quarters, it would help in attracting investors and thereby helping the share
prices to recover. As per our estimates, the company would clock revenue and PAT of Rs. 75,000 Mn
and Rs. 3,957 Mn respectively in FY12.

Good demand for Italian fusion jewellery: The Company had traditionally been into the
manufacturing of plain jewellery products. Now the company has expanded its product portfolio to
include machine made light weight, Italian fusion jewellery which is more affordable. Commercial
production of Italian jewellery commenced in Q4FY11. The main brand in this segment is Gaja Lite. The
weight range for Gaja Lite jewellery varies between 1 to 20 gms with 18 to 22 Karat gold. With soaring
gold prices, the Gaja Lite brand would help the company in attracting the low budget customers. The
Italian fusion jewellery has been well received by both domestic as well as overseas customers and has
helped the company in diversifying the customer base. This augurs well for the company.

Expansion of retail presence in India: SGJHL plans to expand its retail footprint in India. The
company has added 3 retail stores during the quarter taking its total to 23 stores across India.
Management is confident of meeting its target of adding 30 retail stores during the current financial
year through combination of owned stores, franchisee stores and shop-in-shop arrangements through
its strategic alliance with Bharti-Walmart. This would help the company in improving its topline as well
as bottomline.

Backward Integration to assist in margin improvement: SGJHL is in the process of setting up a gold
refinery plant with an annual installed capacity of 35,000 kg at Domjur in West Bengal. It is expected to
commence trial production at the beginning of Q3FY12. The facility would refine pre-used gold, which
would then be used as raw material for jewellery manufacture. Refining old gold in-house would
eliminate cost factors such as commissions, import costs and duties and other incidental expenses and
reduce the basic raw material input cost. The company intends to source old/ used gold from
government agencies, the domestic and international markets as well as through its proposed retail
network. Currently, the company procures refined gold from suppliers such as Al-Marhaba Trading
FZC, Bank of Nova Scotia, Standard Chartered Bank and the State Trading Corp of India. The Gold
refining plant would help in improving the operating margins by 1-1.5%.

Recent Development
Shree Ganesh Jewellery House to foray into gold loan business: SGJHL, which is planning to foray
into the gold loan business, has recently acquired a Kolkata-based non-banking financial services
company (NBFC), at an undisclosed price. It is looking for the Reserve Bank of India's approval for
setting up NBFC outfit. It had applied for an NBFC license to the RBI in February. The company has
taken the acquisition route to fast forward its entry in this segment. The acquired company has an
existing portfolio of gold loans. The NBFC would function as a subsidiary of SGJHL and would be
operational in the next three-to-four months. By this year-end the jewellery major plans to roll out 50
finance outlets across the country through its NBFC arm. Loan against gold would be the primary
business of the company.



Results update (Standalone)…

Particulars (` Million) Q1FY12 Q1FY11 YoY(%) Q4FY11 QoQ(%)
Net Sales 23,867 12,284 94% 11,173 114%
Other Operating Income 197 97 102% -98 302%
Total Operational Income 24,063 12,382 94% 11,075 117%
Total Expenditure 23,088 11,610 99% 10,308 124%
EBITDA 975 772 26% 768 27%
EBITDA Margin (%) 4.09% 6.28% 6.87%
Depreciation 41 7 497% 32 28%
EBIT 935 765 22% 736 27%
EBIT Margin (%) 3.92% 6.23% 6.59%
Other Income 2 12 -86% 7 -75%
Interest & Financial Charges 248 127 95% 263 -6%
PBT 688 650 6% 480 43%
PBT Margin (%) 2.88% 5.29% 4.29%
Provision for Taxation -4 13 -127% 4 -197%
Profit After Tax (PAT) 692 637 9% 476 45%
Net Profit Margin (%) 2.90% 5.19% 4.26%

Although there were some concerns among the investors about SGJHL’s quarterly results and future
prospects, especially after some rumors about default by a major Dubai based client came in public, the
results posted by the company were in line with our estimates. It shows that the business operations
are running as usual at SGJHL and the concerns raised by investors were unwarranted. The major
highlights of the result were:

 Strong revenue growth of around 94% in Q1FY12 as compared to Q1FY11 is primarily an
outcome of firm demand across product categories and markets and rising gold prices. The
company is seeing strong demand for its newly launched light weight Italian fusion jewellery
because of its relatively low cost and affordability.
 EBITDA increased by 26% YoY to `975Mn mainly because of topline growth; EBITDA Margin
declined to 4.09% from 6.28% in Q1FY11 as gold prices moved up during the quarter.
 Depreciation and interest costs at `41 Mn and `248 Mn were up significantly by 497% YoY and
95% YoY.
 Profit before Tax was up by 6% YoY at `688 Mn and Net profit at ` 692Mn was up by 9% YoY.
 Retail contribution, during the quarter, stood at around 14.6% of the total domestic revenues as
compared to 10.81% in Q1 FY2011 .
 In Q1 FY2012, contribution of studded jewellery to the Company’s revenue mix increased to 25-
30% as compared to 15-20% in Q1 FY2011 .



Net Sales (Rs. Mn) PAT (Rs. Mn)
842
23,867
683 692
17,921 637
476
12,284 11,029 11,173

Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12

EPS (Rs./Share) Operating & Net Margins
10%
13.88 8%
11.25 11.4 6%
10.5
4%
7.85 2%
0%

Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 OPM NPM

Financial Highlights
Income Statement (Standalone)
Particulars (` Mn) FY10 FY11 FY12E FY13E
Net sales 29,499 52,407 75,000 85,000
Other Operating Income 52 136 163 202
Total Operational Income 29,551 52,543 75,163 85,202
Raw Material Consumed 26,999 48,671 68,498 77,605
Employee Cost 163 247 384 417
Other Expenditure 347 232 300 340
EBITDA 2,042 3,393 5,981 6,841
Depreciation 23 60 196 234
EBIT 2,019 3,333 5,785 6,606
Other Income 4 37 31 47
Interest & Financial Charges 313 709 990 1,122
Profit Before Tax 1,710 2,661 4,826 5,532
Provision for Taxation 51 22 869 996
Profit after Tax 1,659 2,638 3,957 4,536
EPS (`) 27.34 43.48 65.21 74.75
*Lohia research estimates



Balance Sheet (Standalone)
Particulars (` Mn) FY10 FY11 FY12E FY13E
Assets
Net Fixed Asset 174 1,194 2,440 3,317
Investments 54 1,380 118 130
Current Assets 14,922 21,760 27,564 33,775
Total Assets 15,151 24,335 30,122 37,223
Liabilities
Equity Share Capital 485 607 607 607
Reserves & Surplus 4,881 10,131 13,875 18,198
Secured Loans 2,890 4,635 4,860 5,692
Unsecured Loans 600 1,100 1,080 1,308
Current Liabilities & Provisions 6,370 7,944 9,782 11,500
Deferred Tax Liabilities (76) (82) (82) (82)
Total Liabilities 15,151 24,335 30,122 37,223

Financial Ratios
FY10 FY11 FY12E FY13E
Profitability Ratios
Return on Assets (ROA) 10.95% 10.84% 13.14% 12.19%
Return on Equity (ROE) 30.91% 24.57% 27.33% 24.12%
Return on Capital Employed (ROCE) 22.80% 20.24% 28.33% 25.60%

DuPont Analysis - ROE Decomposition (x)
PAT/PBT (Tax Efficiency) 0.97 0.99 0.82 0.82
PBT/EBIT (Interest Burden) 0.85 0.80 0.83 0.84
EBIT/Sales (Operating Profit Margin) 0.07 0.06 0.08 0.08
Sales/Total Assets (Asset Turnover) 1.95 2.15 2.49 2.28
TA/NW (Financial Leverage) 2.82 2.27 2.08 1.98
Return on Equity (ROE) (%) 30.91 24.57 27.33 24.12

Liquidity Ratios
Current Ratio 2.34 2.74 2.82 2.94
Acid Test Ratio 2.04 2.31 2.32 2.45
Debt-Equity Ratio 0.65 0.53 0.41 0.37

Margin Ratios
EBITDA Margin 6.92% 6.47% 7.97% 8.05%
EBIT Margin 6.84% 6.36% 7.71% 7.77%
PBT Margin 5.80% 5.08% 6.43% 6.51%
Net Profit Margin 5.62% 5.03% 5.28% 5.34%



Cash Flow Statement

Particulars (` Mn) FY11 FY12E FY13E
Cash Flow from Operating Activities
PAT 2,638 3,957 4,536
Add: Depreciation 60 196 234
Operating Profit before WC changes 2,698 4,154 4,770
Changes in Current Assets (excluding cash) (6,993) (5,672) (3,039)
Changes in Current Liabilities 1,568 1,838 1,718
Changes in WC (5,424) (3,834) (1,321)
Net Cash flow from Operations (2,726) 320 3,449

Cash Flow from Investment Activities
Capital Expenditure (CAPEX) (1,080) (1,442) (1,112)
Increase in Investments (1,326) 1,262 (12)
Net Cash flow from Investment Activities (2,406) (180) (1,124)

Cash Flow from Financing Activities
Change in Equity 121 0 0
Change in Debt 2,245 205 1,060
Dividends Paid (426) (213) (213)
Others 3,037 (0) (0)
Net Cashflow from Financing Activities 4,977 (8) 847

Net Increase in Cash & Cash Equivalents (155) 132 3,172
Cash & cash equivalents at the beginning 6,586 6,431 6,563
Cash & cash equivalents at the end 6,431 6,563 9,735



Outlook & Valuation

The scrip is currently trading at ` 149. In the short term there can be some correction in the stock due
to overall negative sentiments in the market. The overall market is expected to remain range bound
from nifty levels of 4800 to 5100. In such a situation, the stock can come down to `130 levels. But we
are very bullish on this scrip from a long term perspective. We expect the scrip to reach `260 within a
period of 1 year due to the following reasons:

 It is among the fastest growing companies in India (Source: Business World Magazine). Even its
Q1FY12 results were in similar lines.
 The Gold refining plant which would be operational by the beginning of Q3FY12 would improve
operating margins by 1-1.5%.
 The company plans to add 30 additional retail stores which would add to topline & bottomline.
 Reserves are expected to reach `13875 Mn by the end of FY12. The company is known to be a
investor friendly company.

At the current market price of `149, the stock is trading at P/E of 3.43 with industry P/E hovering
around 9.60, the stock is underpriced. Based on discounted cash flow method, we have arrived at a fair
price target of `260 for SGJHL. At our target price, the stock offers a potential upside of around 75%
from the current level; we initiate a ‘buy’ rating on the stock with accumulation at every dip.



For Suggestions, clarifications & your valuable feedback write back to us at:

Lohia Securities Ltd, 4 Brabourne Road, 5th Floor Kolkata-700001 Board :( 91-33) 40026600,

E-mail: research@lohiasecurities.com

For Institutional Sales
Lohia Securities Ltd, 1602-B, Lady rattan Tower, 72 Dainik Shivner Marg Gandhinagar, worli,
Mumbai- 400018 Board: (91-22) 2492 4449, E-mail: inst.dealing@lohiasecurities.com

Institutional Team:
Our Fundamental Research Team
Name E-Mail Id Contact No.
Basanti Gourisaria basanti.gourisaria@lohiasecurities.com +91 33 40026822
Gitika Bhansali gitika.bhansali@lohiasecurities.com +91 33 40026821
Krishna K Agarwal krishna.agarwal@lohiasecurities.com +91 33 40026631
Prakash N Sharma prakash.sharma@lohiasecurities.com +91 33 40026732
Pooja Bajaj pooja.bajaj@lohiasecurities.com +9133 40026684
Rajkumar Mondal rajkumar.mondal@lohiasecurities.com +91 33 40026732
Sailesh Sarda sailesh.sarda@lohiasecurities.com +91 33 40026732
Sonu Shah sonu.shah@lohiasecurities.com +91 33 40026732
Vikash Agarwal vikash.agarwal@lohiasecurities.com +91 33 40026822

Our Technical Research Team
Debraj Sarkar debraj.sarkarl@lohiasecurities.com +91 33 22820391
Rajarashi Mukherjee Rajarashi.mukherjee@lohiasecurities.com +91 33 22820392
Our Derivative & Statistical Research Team
Ayush Choudhary Ayush.choudhary@lohiasecurities.com +91 33 40026600
Nisha Jhunjhunwala Nisha.jhunjhunwala@lohiasecurities.com +91 33 40026822
Institutional Sales
Ashok Kamat ashok.kamat@lohiasecurities.Com +91 22 24901310
Deepak Parekh deepak.parekh@lohiasecurities.Com +91 33 40026737

Investment Rating
Buy > 15 % Hold (5%-15%) Sell < 5%

DISCLAIMER: The information and opinions contained herein have been compiled or arrived at, based upon information obtained from
reliable sources. Such information has not been independently verified and no guarantee, representation of warranty, express or implied,
is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. LSL, its
directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the
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