3rd buyback in 5 years.Price should be around 200. Hold with patience.
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Last buyback DEC 2021
Issue Size (Shares)380,000.00
Issue Size (Amount)|âš45.60 Crores
Buyback Priceâš1200 per share
It was tender route@1200/-
Lets hope tender route this time tooâŚ
Goldiam announces share buyback @150/share on tender route. 32cr allotted to buyback 2% equity, @ORION @shadd
8f271bcf-8be1-47d3-b21b-55947851922e.pdf (252.2 KB)
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Globally, the market stood at $1 billion in 2020, the lab-grown diamond jewellery market is expected to rapidly rise to $ 5 billion by 2025 and exceed $ 15 billion by 2035.
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In investor presentation,slide 16, the estimated market value of LGDs by 2025 is $29.2 billion. Quite a big variation in market estimation.
Q4 FY 23 con-call notes
Business overview
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Business impacted owing to the record high inflation in US market coupled with high interest rates leading to a squeeze in discretionary spending
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Order book stands at 100 cr â to be delivered in next 3 to 4 months . Running at full capacity utilization currently
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LGD category seems to have bottomed out and margin should improve in the next quarters from what we have seen recently
As per this article (dated Feb 2023) from an industry professional, predicted sales of Lab Grown Diamonds is likely to reach $10 billion mark this year.
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Avg ticket size in LGD for FY 23 is around 1100 $ whereas for natural diamonds its around 530 $ . LGD has a much higher ticket size owing to preference for LGD (natural diamond pricing for same style is 10 times that of LGD.) even if they are spending twice on LGD â they are getting same style & look as Natural diamond. Also owing to Goldiamâs strategy to showcase higher end bridal jewelery, within the LGD space.
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Online vs offline â Offline stores account for 74% contribution while online accounts for 26%. Focusing to grow online sales further in coming year
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Point on capacities coming in Gujarat, Rajasthan region with new players entering. For Goldiam, distribution is the key lever that would be key differentiator vs other LGD players â end to end integration and selling to large US retailers within the desired timeline. That has helped in gaining prominence among US retailers as being a preferred supplier of LGD.
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Focus has always been on distribution, rather than adding capacities without sales/ order book being locked in.
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Most diamonds are manufactured by CVD process. Same process followed by them too and no considerable difference in yield per machine. No advantage as such enjoyed by other LGD players
Future outlook
- As part of plans to mitigate the risk posed by muted demand in US (owing to inflationary headwinds), evaluating markets like India
- Currently at Market evaluation stage. Looking at end of FY 23 â to give concrete information
- Will be using Solitaire in presentation to Indian consumers â this would enhance margins owing to the backward integration.
- Price points likely to be anywhere between 25,000 to 4 lakh Rs
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No single large organized retailer in India is selling LGD currently. Only natural diamond jewelry.
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Evaluating other markets like UAE and Australia as well . UAE as a market is still inclined towards natural diamonds; while Australia market has shown some interest for LGD
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US though remains the largest market. They are the largest consumers of diamonds in the world and remains one of the most lucrative markets in the world. Has a structured customer base. Per unit profitability will be higher. Reason why the main priority and focus will remain on US market .
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Point on adding new retailers in US â Prefer to work with top 5-6 retailers (Signet, etc) and look to increase wallet share and ticket size with these retailers ; rather than adding new retailers â which is likely to create more competition in our designs among them and would be unviable for us
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Sourcing of diamond seeds â Sourcing from suppliers in Japan, Germany and Turkey, etc. Pricing has been stable and have seen 15% drop in pricing in last 3 months
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Jewel fleet â will be serving more as a sales tool to sell more Goldiam products to smaller format retailers in US
My takeaway â after an year of explosive growth in last year, the current FY 23 was more of a consolidation phase. We may see one or two more quarters of bit of subdued demand. Once inflation in US eases, discretionary spending should rise from H2 onwards.
I think they are referring to LGD jewellery market here, which is a part of LGD market as a whole.
Disc: Invested
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IMHO lab grown diamonds will have few takers in India. Indians prefer original diamonds. But I guess company will do good once consumer spending revives in US markets.
It is very difficult to trust the promoters in the jewellery industry. Below is the case of black money confirmed by the Honâble Income Tax Tribunal against the Promoter. The important part of the judgment is that the tribunal passed remarks stating that the assessee made false statements in the course of investigation.
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Further, few open points/ red flags based on my research are as under:
⢠Whether a diamond jewellers books can be trusted considering that it is one of the most unorganised sector. Also the fact that the auditors of the company are a small CA firm not having a website of its own. One positive aspect that have been very transparent in their disclosures in the annual report, wherein the financials at a detailed line item level are disclosed
⢠What could be the MOAT for the early movers? As per the below statement by Anmol Bhansali, the only MOAT is as under:
âThere are two processes of manufacturing lab-grown diamonds. Most large diamonds, which⌠when I say large, I mean one carat and larger; most diamonds of that size are grown via the CVD process, which is the same process that we use at Goldiam. Within that, there is no way to differentiate diamonds in terms of the formula for growing any such thing. Some manufacturers may be producing poorer quality and not have great consistency with their production. So we have reached a stage where we are going to very well commercialized US quality diamonds and weâre very happy with our production at Goldiam regarding commercialised, pleased diamond growth.
From our angle, weâve always maintained that distribution will be the key differentiator between us and our competition. Today and even for, I believe, the foreseeable future, Goldiam is the only jewellery entity which is fully backwards integrated into lab-grown diamonds. So, whenever you look at us, you have to analyze us from the angle and viewpoint of a jewellery company first rather than a loose diamond company doing a little bit of jewellery here. So as a jewellery company, we are the only ones with our captive growing capacities in lab-grown diamonds.
We are using that as a jewellery entity and another jewellery distributor. In two ways, number one, it allows us to offer more products to our retailers, which earlier we could not do. And number two, selling those products will enable us to enjoy higher margins because we also enjoy the margin of growing the lab-grown diamond. So, from our angle, we are focused on not distributing our diamonds loose in a large or extended way to the general market and general diamond trading hubs. We are focused on integrating it within jewellery and selling the jewellery onward to our retailers or direct-to-consumer, whichever way is preferable. So, from that angle, we believe, and weâve always maintained, distribution is the key.
In that sense, how we defend ourselves with increasing competition is already happening. If it happens in the future, more competition will come, and markets will open up. However, we believe that we have to, as a prudent distributor, work with our retailers to put in good SKUs, well-designed SKUs of finished jewellery, integrated with our lab-grown centres and use our Lab to empower that supply chain. Thatâs the way forward.â
⢠Is the manufacturing process be easily replicated? Looks like yes, however the co. can have an early mover advantage.
⢠Since they are not merely into diamonds but in the diamond jewellery, the gold price is also going to impact the sales. The fluctuation in the price of gold would have an impact on the companies revenues/ earnings?
⢠Directorâs remuneration is very high to the tune of aggregate remuneration of Rs. 16 Crores.
⢠Why the GSTR 1 return for the month of March 23 was delayed, was that to jack up the turnover â Itâs a very big red flag.
⢠Can it be said that one of the reasons for such high dividend distribution is because they are also an investment company having big amounts parked in mutual funds and it looks that promoters look to build capital using the dividend cash flow. Does it mean that they are not really having a strong positive outlook on their own business?
⢠The quantum of fixed assets is at Rs. 50 Cr which is very less considering the size, growth, research and technology needed to scale in this new domain. Further, the number of employees is only 40 and the rest are contract labours which seems to be very less in comparison to the peers.
⢠The VP (Sales & BD) appointed in NY, left the job in 5 months.
⢠Increase in the turnover base of lab grown diamonds would have a significantly positive impact on the ROE base, although once the competition creeps in such high margins would not sustain for a longer time. In FY, 2022-23, already, the industry is in the phase of Price war and price reduction on the lab grown diamonds, which has also impacted their top line this year.
⢠Since they are working with the retailers and also are further looking to work only with the retailers, I donât think they would ever be able to command pricing with the customers.
⢠There is no senior sales executive stationed outside India for the market development.
⢠There is no clarity on the resale value of the lab grown diamonds, although it is being said that the retailers would offer buyback, however natural diamonds are bought back by anyone, whereas lab grown diamonds may be only bought by the seller making it negative from the customers perspective as many people still consider jewellery as an investment.
⢠The US ban on dollar payments to Russia would have a negative impact even going forward until this geo-political issue comes down.
⢠Company is looking to increase our wallet size with each retailer, right, as well as the ticket size with each retailer instead of adding new retailers.
⢠The co. doesnât seem really focused/ aggressively looking to venture into other regions outside of US.
⢠They do not really seem to have a great in house research & development team, therefore how they are going to stay ahead of the competition by innovating new things is not clear. They are not an innovation based company.
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Update 1: Company received 30cr order from non US retailers. This is about 5.6% of FY23 revenue (533cr) which is impressive. There are able to onboard non US customers as well which will help to diversify revenue across geography reduce risk of slow down in US.
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Update 2: Company will buyback about 2% share at price of 150/- (21 July will be record date).
Wanted to know why the companies in India buyback share at premium to market price in order to reward shareholders. Isnât wise to buy at current market price so that they will be able to buyback more shares which will ultimately benefit all shareholders ( stock price appreciation or reduction in valuation).
Almost all companies in US buyback at market price.
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Great observation - and correct for nearly all buybacks in the recent past and at an overwhelming premium. Quite the opposite of what a buy-back stands for. ( Current Buyback Offers (Tender and Open Market) 2022 )
The answer is that buy-backs in India today are done today not for buying shares cheap for the remaining shares / shareholders; but to take profits out of the company in the most tax efficient manner among all options available. Typically profits are distributed as dividends for shareholders (the original concept of buying ownership into a company to get a slice of its profits). Over time these dividends have been taxed at increasing rates. Today they are taxed at the marginal rate. This led companies to look at more efficient ways to distributing profits, and buy-back came in handy. So companies were increasingly resorting to buybacks in-lieu of dividends. That needed to be plugged.
The plugging was done by resorting to a buyback tax. This tax is to be paid whenever company buys back its shares from a shareholder. Oddly, the tax does not have to be paid by the selling shareholder who is gaining from the buyback. He sells his shares and need not pay any tax on the money he gets.The tax is paid by the company buying back the shares! That tax at about 20% (this is a simplification but broadly yes).
So, even as buyback was being taxed to stem the more tax efficient outflow to shareholders, it still remained a better option compared to dividends. However the tax, even while lower, was being paid by the company - which means the remaining shareholders!!!
So we have a Dilbertian like situation where the tax on the sale of shares by selling shareholders was paid by the remaining (or purchasing) shareholders.
This makes a buyback attractive for exactly the opposite reason the buyback stood for; it is now attractive to the selling shareholders who have an option to sell it tax free at the highest possible price!! Now who decides the price? It is often the Promoter who is also the controlling shareholder. Even if the Promoter is not, it is by someone running it who is beholden to the Promoter. A classic example is Infosys.
Who sells all the shares from his selling quota?No surprises, it is the Promoter!
So, voila, you now have a situation that is exactly as you observed - buybacks are done at a higher price, so that more tax free profits may be distributed.
That tax burden is now borne by the remaining shareholders; this, in addition to buying shares in excess of fair value. A BIG double whammy.
Itâs comic if you are an observer and tragic if you are a participant!!
P.S: No investments
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Can you please share the patents held by Goldiam?
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Unfortunately, in India, promoters use buy backs to transfer money from company coffers to theirs. If they sell in open market than they will have to pay LTCG tax and can sell only at market price. So they sell to company at a very absurd premium (say 50%). Existing shareholders can also participate, but their percentage will be miniscule (no of shares that can be tendered is proportional to individual shareholding). This is double whammy for shareholders who donât participate. In USA buybacks are done at market price to extinguish shares and increase value for shareholders.
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IEX was buying from open market is what I remember in recent time a few months back. This shows quality of the management and governance. (Disc: no holding in IEX).
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Does this in any way reflect poorly on the corporate governance and shareholder friendly (or lack of it) of the management. Tracking this company so would be good to get a perspective from existing shareholders here. One thing which I like is that the management has clearly called out their commitment towards dividend and buybacks. Thanks in advance
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Corporate governance has always been issue with Diamond related company, the investments in balance sheet are in PMS and mutual fund, the only positive vibe about stock is lab grown diamonds which are in heavy demand, have studies about this industry, if everything goes well we can see this stock 5X (my conviction)
From here.
** invested 2 percent of portfolio
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In the specific case of Goldiam, NO. We held the stock for a long period before the changes in buyback rules were in effect; and when the father of Rashesh Bhansali was around and running the firm. My experience was they were a very minority shareholder friendly family, extremely transparent in responding to my queries and with substantial disclosures in their reporting. They had done buybacks even earlier, and would commit to dividends too.
I donât think that would have changed.
P.S: No investments
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Holding this stock since last five yearsâŚfrankly, invested after seeing Ramesh Damani invested into it and also Nipa Seth, wife of Utpal Seth of RARE is independent director of the co.
My impression of the promoter is honestâŚshareholder friendly and rewarding handsomely .Cash flow is goodâŚcash on the balance sheet and also rewarding shareholders regularly is what we wantsâŚmost smallcap do not instill confidence about balncesheetâŚfudging sales n whatâŚbut tracking this coâŚUS me inflaton hai to haiâŚdemand soft hai to haiâŚresults reflecting thatâŚwhat we want is honest jockeyâŚmarket dynamics changesâŚwe need to be patientâŚonce demand from US merket picks upâŚit will reflect into stock priceâŚanyways they are expanding geographically and received good order of 30Cr from UAEâŚthey are also talking about domestic and Australian market in near futureâŚIâm definitely betting of this Jocky⌠
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