Rajesh Exports: Time to examine this story seriously?

Hi Guys,

Back from a 2month Sabbatical! Working at fund-raising for underprivileged rural children was truly fulfilling! Hope to have enough good fortune to repeat this every year:)

Meanwhile there are many more opportunities to explore before ValuePickr members. The first one worth presenting to you for serious study is Rajesh Exports.


1). Largest manufacturer of Gold Jewellery @125 T annually. Company claims installed capacity is 250 Tpa and the largest gold manufacturing capacity in the world.

2). The only player importing Gold for refining (attracts half the duty than Gold Bars) as DORE bars at its Uttaranchal Refinery. Reportedly this is the largest Gold Refinery ~400 Tpa. Gold being a restricted commodity only about 12 players in the country are allowed to import Gold

3). Completely automated the process of Indian Gold Jewellery manufacturing (proprietary indegenous hybrid tech) ensuring standardisation, consistency, design, colours and durability. We visited the factory, and this is something to be seen to be believed - how complex handcrafted designs - can be automated - truly amazing!

4). Reportedly the lowest cost manufacturer of Gold Jewellery. The lowest wastage norms at 0.3% vs Industry norms of ~3%

5). Largest Exporter of Gold from India - Exports to 20 countries. Bulk Exports to Middle East, Europe and US.

6). Distributes gold jewellery to more than 6000 retail outlets across India

Interesting Stats there, and they have built up this business from scratch from the 1980s, a lot of credit that the business does ~20000 Cr in Annual Revenues (FY11). But at less than 2-3% margins, it probably doesn’t excite you much - looks more like a Gold Processor - at first glance

However, what gets me interested in Rajesh Exports is the unfolding retail story

1). It has established 75 retail outlets in Karnataka by Sep 2011- branded SHUBH. It offers Gold Jewellery at 9-13% less than market rates. The only gold jewellery retailer NOT charging any manufacturing overheads. Pick any item, weigh, and multiply by prevailing Gold Rates. All BIS hallmarked.

2). No wonder, the company did 40 crs of business last year on a single day - on Akshaya Tritiya day - an auspicious day in South for buying Gold - from 25 stores - on launch of SHUBH outlets in Bangalore in May 2011.

3). Company plans to establish 125 stores by Mar 2012, cover the 4southernstates of TN, Karnataka, AP, Kerala whichconstitutes~45% of Gold buyers in India, and then go onto cover rest of the country…500 stores by 2014

4). The store expansion is based on a unique franchise model - Local GoldJewelersare roped in to invest about 12-15 lakhs in upgrading the stores as per SHUBH brand outlet designs and manage running costs. The inventory and carrying costs are on Rajesh Exports.Rajesh Exports doesnat keep gold positions open and hedges it fully, earning the forward premium on gold -2% which takes care of Inventory carrying cost. It funds inventory through ECB against gold.

5). The company claims it has 1200 applications pending from localjewelersall over Karnataka, and are progressing as per plans.


1). Perceptions about the Industry are mostly negative. if you ask old-hands in the market, they will advise you to stay away saying thisindustry is prominent for money laundering and black moneytransactions. You can never trust the books. Case studies of companies like Shree Ganesh Jewellery also doesn’t help.

2). The Retail Excitement is NOT NEW. The company has made several noises about the retail expansion before in 2005-2006. They first tried a hand at retail expansion in an organised way in 2008 by acquiring Oyzterbay (started by some ex-Tanishq guys)a retail Gold Jewellery chain selling jewellery across the country in 35 locations. That attempt was a failure and the retail foray went nowhere.

3). Earlier models enunciated by the company for the retail foray was getting about 4500 Cr of Suppliers credit (with 1300 Cr cash from company) has not fructified.

4). Though the company now claims no SPECULATION on Gold.Gold Bought = Gold Jewellery Sold. We do not trade in Gold as a commodity and 100% of our Gold buying and selling of jewellery is hedged. The company has reportedly incurred 40 Cr loss trading MCX Gold Derivatives!

5). Earlier models enunciated by the company for the retail foray of getting about 4500 Cr of Suppliers credit (with 1300 Cr cash from company) has not fructified.

6). The company has been fined Rs 3,00,00 by SEBI for engaging in circular trading of its shares in 2002-3.

The last point above is pretty damaging, and most participants would be well-advised to stay away.

Speaking for myself, I would like to take the investigation further and understand the real market opportunity vis-a-vis the strengths of the company. I would also like to comb through the books of accounts with help from everyone ( I am not an accountant) to establish anything that does not add-up.

We had the benefit of afactory visit at their sprawling 12 acre campus in Whitefield, Bangalore. The operations are for real, their manufacturing strengths cannot be matched (I am convinced of that), Their retail model works (a visit to any SHUBH outlet in Bangalore will convince you). We also interacted at length with Management - but without any prior homework - didn’t manage to ask any of the difficult questions:(

So let’s get cracking in picking HOLES in this story. What do we want to understand more? what does not add-up? Where are the tough questions?

I must re-iterate that this is a High-Risk, High Gain kind of opportunity, certainly not for everyone. Please do your own homework.

Disc: Not invested. Only when we know enough of the unknowns, can odds be laid out, and any calls taken


A brief on the factory visit earlier in the month:

We visited Rajesh Exports and spentsome 8 hoursvisiting factory, and discussing with the MD (looks after Production), Next gen son (looks after Retail inititative), and Chairman (Looks after Creative and Visioning).

I must say as the day went on, I progressively became less and less of a sceptic of the company and more of a believer by the EoD 7.30 pm when we wound up - willing to examine this exciting story threadbare.

I was blown away by the factory - the level of automation achieved is unbelievable, we spent 2.5 hours just moving from room to room - process to process. 500,000 sqft spread over 12 acres. including housing for some 800 workers. Unbelievably the whole intricate and complex process of jewellery design has been broken down to simple processes. Each process is done by a set of unskilled workers who dont do any other process just their part. and there are a small set of master craftsmen -who design/fabricate the most intricate part of any jewelelery - the necklace locket/pendant - they create that Master. Incredibly even that Master pendant with minutest intricate design is then casted, moulded and exact replicas produced through a few simple processes - wax moulds, plaster of paris casing, wax melting off and the pop cast taking the shape, into which molten gold is poured and the design replicated. What used to take 15 days by 1 person can now be replicated in hours, and in multiple pieces!! Everything else beads, chains, small 0.1 milligram balls, other shapes is a machined process output including colouring, shining, buffing,dimaond cutting, polishing!

I wasn’t prepared with any homework to quiz the Management hard on the BS/CFlows. We now have access to every level in the company and get you any answer that you may want -from the books.

So help us take this forward!

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January 29, 2003
PR No. 36/2003


Chairman SEBI has passed an order dated 27/01/03, against S/Shri P Shivshankar, Director; Prashanth Mehta, Managing Director; Rajesh Mehta, Chairman and Y. S. Reddy, Director in the case of Rajesh Exports Ltd. Vide the aforesaid Order, Chairman has in exercise of the powers conferred on him under Section 4(3) read with Section 11 and 11B of SEBI Act and Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 ordered S/Shri P Shivshankar; Prashanth Mehta; Rajesh Mehta and Y. S. Reddy to dissociate themselves from the capital market for a period of 3 years and also prohibited them from dealing in securities for a period of three years with immediate effect. Chairman, SEBI had also passed an order against M/s Rajesh Exports Ltd. prohibiting the company from accessing the capital market and from dealings in securities for a period of 3 years.

Donald, why does Titan (& others in the jewelry businesses) not have the same operating income problem that REL has? Not sure I understood that…do you know?

i.e, Titan also imports gold (assumption on my part), make jewelry and then sell it at retail stores. Rajesh is doing the same. In addition, Rajesh is exporting it as well. So, why doesn’t Titan have a operating loss like Rajesh (75% of Titan’s revenue comes from jewelry)?

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As per REL, they are amongst the only 12 Indian companies having a direct import license to import raw gold .Others include Government agencies like MMTC, STCI, HHEC, PTH and Star Trading Houses like Reliance, Adani etc.

Titan perhaps will be buying Gold from MMTC and other Govt. Agencies. Also Titan does not manufacture directly - it outsources manufacturing (incurring some 8% overhead if I remember figures correctly.

A good question - we can add this to the proposed Management Q&A!

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For the courageous ones who want to dig deeper, there are 2 very exhaustive presentations, that can help us ask more pertinent questions (related to operations, procedures, business models, sales process, hedging process, etc.)

1). Investor Presentation - Dec 2011

2). Investor presentation - Feb 2011

Those wanting copies of the same can email Editor at ValuePickr.com

Hello donald,

Read one article from on blog. Hope may be of your use to take this further…Quoting from the blog.


Friday, March 16, 2012

Is Rajesh Exports a multi-bagger (or) multi-beggar stock?

_Rajesh Exports - Devil in the Details

What’s rosy about Rajesh Exports?

Rajesh Exports (REL) was one of the poster boys of the previous bull run with its share prices rising from 32 Rs to over 540 Rs within the span of 2004-07. It was rated by Business Today as the most investor friendly company on the bourses. It was the story of a visionary first time entrepreneur who dared to think big and established himself as the largest player in the Gold Manufacturing space. Rajesh exports has grown its revenues from 250 Cr Rs in 2002 to over 20000 Cr Rs in FY-11. This rapid growth has established Rajesh exports with a dominant 40% Market share in Gold Jewellery exports from India with an installed capacity of 250 Tons/ Annum. Nearly 95% of its revenue comes from the exports market where it has built a strong customer presence and the company is one of the most efficient players with a production loss of 0.25% compared with Industry average of 3%. Rajesh Exports is a very interesting company with a negative working capital where it gets 240 days credit from suppliers while its gets paid on time. This results in the company always having a cash of close to 1 Billion $'s.

Rajesh Exports - Is it a next Titan Industries in the making?

Rajesh Exports is a fully integrated player with a strong presence in the entire jewellery cycle beginning from refining to gold retailing. REL has a large design facility and over 45,000 designs which gives it a huge advantage in the retail space. REL currently has around 70 stores under the brand “SHUBH” and is focusing most of its energies in growing this to over 500 stores in the next few years. It works on a very asset light franchisee model where it ties up with unorganized retailers and gives them the advantages of a branded player. With a strong backend, REL is having a huge moat against its competitors through economies of scale which translates into 15-20% cost advantages. Management is planning to invest around 6,500 Cr in expanding retail operations which will enable it to emerge as one of the largest organized retailers competing with the likes of Tanishq from Titan.

REL wants to grow its profits 9X in the next 5 years. Oh, what a great company! Should I buy the stock?

Wait, Rajesh Exports has a serious Dark Side:

REL has just 1-2% net profit margins. How can a company which claims to be the largest and best in the industry have such low profit margins. Company’s balance sheet shows a Net block of just around 70 Cr. What kind of value addition can take place in a business where the company is earning revenues of 20,000 Cr from such low asset base. There are some other serious charges,

1.) REL is raising 2500 Cr of debt through ECB route to fund its plans. Why does a company with a franchisee/ associate model require such huge sums of money ? Where is the balance sheet strength to raise such kind of leverage ?

2.) Management has never kept its promises. Management of Rajesh Exports gave out statements in 2007 saying that the company would start improving its margins from 1.8% to 10% in the next few years. It has been 5 years since the announcement and margins are still at 1-2%.

3.) Mr. Mehta has been repeatedly promising development on the real estate front and retail from 2006, but there has been no significant progress. The management seems to be building castles on thin air and promising the moon for investors.

4.) They were initially suggesting that the company had 1300 Cr of cash and they would get 4500 Cr of credit from gold suppliers for their plans. All these plans have gone haywire. More importantly, company only recently converted nearly 150 Mn $'s worth of FCCB’s.

5.) Rajesh Exports has very bad accounting practices and we really doubt the kind of figures that have been audited. A little dig through the accounts will show that, the company suffered 40 Cr of loss by trading on MCX derivatives. Our suspicion increases with the smooth numbers of earnings and expenses during the entire downturn when there was severe volatility in Gold prices, Rupee and Demand.

6.) You would read only good news about the company as Bennett & Coleman has stake in the company. Also company has been charged by SEBI for manipulation as early as 2002.

REL’s claimed business operations and their boast about their achievements doesn’t show up in their numbers. We feel, the company has several issues and hence minority investors should be avoiding this stock. The stock price is near its all-time high and can even go up, but that does not cover for the charges written above. How can anyone value the company, if he/she is not sure about the reported numbers. In stock markets, avoiding bad stocks are as important as finding good ones.

Moral : If the company’s management is not trustworthy, rosy financials or cheapness of the stock hardly matters. Stay away from such companies even if they run up strongly. (Karturi Global, Pyramid Saimira, Tanla Solutions, Pentamedia etc are some examples.)

To save yourself from such manipulated stocks and build a robust portfolio of high growth stocks _

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Thanks Kishore,

Most of the objections veer around Management not being able to walk the talk. and that should be taken very seriously.

But new evidence on the Retail front’s success - suggest to me - that these should not carry that much weight anymore. The company seems to be finally trying to walk the talk, - agreed, after many failed attempts, model tweaks along the way, from 2006 onwards!

Retail revenues has risen more than 3 folds (up 230%) to Rs 492 crore in Q3 FY12. The retail contribution is helping shore up margins overall - the long standing bugbear of Management claims. Branded Jewellery Export segment also doubled to 550 Crs in Q3 helping shore up margins further. Stores are up to 75 and the company is talking of ramping up to 125 stores within 2 quarters - almost in line with earlier projections.

The SEBI strictures reflect very poorly on the company - and are enough to keep most savvy investors away. We will also put this up as a question in Management Q&A and seek Managements response - corporate governance practices, et al.

Hi Donald,

Great to see you back… Was really surprised to see this forum extremely silent in recent past with hardly any interactions…Hope to experience more interactions now on.

With rgds. to Rajesh Exports, I had analysed the company when I was analysing SGJHL and Titan 8-10 months back. The issues surrounding management as also their past ill track-record was really overshadowing any positives and frankly speaking I will stay away from the company irrespective of recent positive developments as in case of any adversities management quality becomes extremely important which itself is at stake in this company. This lesson is very well taought by RSGBL wherein even after interaction with the management they have faltered.


An old but interesting article from Prof. Sanjay Bakshi where Rajesh Exports is mentioned along with other ‘notable’ firms:


Caution advised.

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Hi Mahesh,

Please could you share your analysis of SGJHL?

(Apologies for the off-topic request.)

Hi HG,

Again the same problem here of management quality and credibility…The story of SGJHL looked so compelling to me because of the valuations at which it was trading at and the FII interest it had in the shareholding. However, while going through some concalls I noticed the smaller brother painting too rosy picture and then came the debacle in stock price when there were rumours of co.'s clients going bust, at that time I had tried contacting management as also contacted their IR firm but they didn’t respond promptly as also their call came back but only after few weeks. Hence, the management again here seems less credible which can even be judged by their recent forays into other sectors. Although the branding power of GAja seems appealing and they are even sponsorors of many events like Gitanjali but this company is also a clear stay away for me.


Hey Guys,

Thanks for the many words of CAUTION:). Let me try and bring some more objectivity into the discussion.

I think there are basically 4 types of objections/perceptions in our minds, when we start to think of a stock like Rajesh Exports:

1). Gold Industry -Not for me. Thisis a very opaque industry. too difficult to understand. all kinds of malpractices and hawala transactions abound.

2.**This company does not walk the talk.**The company has made promises several times before. All those tall claims never materialised.

3). Corporate Governance )- Poor record. penalised by SEBI. Debarred from Market for 3 years from 2003-2006

4). Is this business for Real )- Why should a company with 20000 Cr annual sales trade at 4000 Cr marketcap, or half the CASH on books? Is the CASH for Real? Their books must be opaque, and difficult to understand. Nobody is sure

I don’t think there are any others, right? While any one of these may be sufficient reasons for you not to proceed further, I am here to do a job!

And my job is to put FACTS on the table. I just don’t think enough facts have been put on the table for everyone to take a considered, objective view.

Yes, the company, on its part is trying very hard to change these perceptions. Later in the day, I will try to briefly but succinctly bring out why most of these perceptions don’t, or rather shouldn’t hold much water:)

Again that’s my job, and I am not shirking from it!

Hi Donald,

Apart from the glaring Corporate governance issues i also find that the SHUBH stores ain’t doing all that well contrary to what you say. maybe i am biased because my mother just went once & said she would never go there again. I see full page ads in the Local paper a la Arindam Chaudhary, so are the SHubh outlets really doing well? Just offering 10% discount & no making charges won’t help if the designs they sell are not unique enough for people to buy. In jewellery i personally feel, if people like the designs & craftsmanship , they wouldn’t mind paying making charges etc.



Hi Mahesh, Please could you share your analysis of Titan? I am holding from very long. Is it still a good hold for few more couple of years. I mean can it still give reasonable return from hereon ( From CMP) for some more few year. (Apologies for the off-topic request.)

Hi Kishor,

Titan is an excellently managed company with great balance sheet. Over and again the management has proved itself even in difficult times. Its a sort of trend-setter. However, from the current valuations, if you are holding the company as part of your core long term portfolio then its a hold but I don’t think it can now on give exceptional return as it has done in the past. But its a co. to keep in one’s portfolio.


Hi Siddharth,

Thanks for bringing the discussion down to some specifics (for the first time). There are 2 different points raised by you.

1. Whether Shubh Stores are doing that well?

I was actually compiling a Qtrly progress chart (Sales & No of Stores) to verify exactly that. I have figures for Q1 and Q3FY12. It would have been good to have Q2 figures too, that would have told the story till now. But here goes











Sales (Cr)












Avg Sales/Store




If some of you can dig and get me Q2 retail figures, that will be a good basis for discussing/dissecting whether Shubh Stores are doing well

2. What about product acceptability?

Thanks Siddharth for sharing the feedback from your mother. This is exactly what we need more folks (from Karnataka, at the moment) to get back to us on. Here is a feedback from my wife Sonali, who is a longstanding Tanishq regular incl their Gold Savings scheme (1o months you pay, 1 month Tanishq pays)

a) She said there was enough variety in designs. Infact the variety was huge. But the designs were mostly catering to Southern tastes - and they had some beautiful pieces there

b) Most designs were on the heavy side. While there were enough intricate and complex craftwork, everything seemed a little heavier. She said in Kolkata you could find similar intricate designs but at half the grammage, perhaps

c) She could not/did not find designs catering to North Indian tastes

I then popped the crucial question for me, if you had a Rs. 20000+ budget and wanted to buy for yourself/gift someone in the family a small gold item, would you now visit Shubh for a purchase or would you go to TanishQ

She said "Personally/Family purposes I would go to Shubh because I know I am getting something of value, but 10-15% cheaper. And I am perfectly happy with the choice and wide variety of designs - I love some of these South designs. But if I have to gift something in a lower range say Rs. 5000-10000, Kolkata is a far better place. There is a huge variety of lighter attractive designs! The same thing here will be double the weight!!

3. What about return rates/unsold Inventory

REL had said their return rates are about 25-30%, which should be similar to Industry. They added but we have an advantage in reprocessing these back into newer designs. Since we manufacture ourselves, there is no overhead added; other jewellers will have to pay a ~8% making charge to their outsourced partners for every recycle!

Any TanishQ veteran here. What are TanishQ return rates form Stores?

Siddharth/Others - Can you get an office colleague/... someone in 20-30s to visit a Shubh outlet and get us more feedback:) I will also ask everyone I know.

Share this feedback too with your mother too. And encourage her to elaborate more on anything she agrees/disagrees here. Her main objections, etc.

Hi Kiran,

Thanks. I have seen this before…and is often cited;)

With due respects to Prof Bakshi,I read the article again carefully. Rajesh Exports is just the output of a screen such as CASH - Debt -CL >2Mktcap. There is no real scrutiny of BS or Cash Flows to indicate anything irregular, except that FCCB part proceeds were parked abroad. These have been redeemed.

I think we should take up this question again, when we come to assessing the BS and Cash Flows vis-a-vis REL Business model/Industry practices, etc.

Some more homework needed, before we can really comment!

http://www.sanjaybakshi.net/Sanjay_Bakshi/Articles_&Talks_files/Show_me_the_money.pdf Link: http://www.sanjaybakshi.net/Sanjay_Bakshi/Articles&_Talks_files/Show_me_the_money.pdf

Caution advised.

There seem to be two questions bugging me regarding rajesh exports:

1). I still cant get the clear picture on how they manage to get the 2% forward premium on gold contracts. Can anything go horribly wrong there?

2). Can some stupid government directive citing some kind of policy initiative create problems for the company?

Dear Hitesh,

Thanks again for spot-on questions. You are a Gem!

1). Why 2% forward premium

Gold hedging is standard practice. The economics of Gold hedging are also relatively simple.Well thought out gold hedging/lending makes sense for all parties involved - Producer, Gold or Bullion Bank, Central Bank

A detailed look at Gold Hedging Link: http://www.barrick.com/Theme/Barrick/files/docs_presentations/DetailedLookAtHedging.pdf .I came across this very simple but excellent articulation of the practice, reasons and the risks involved. We can discuss more once you have gone through with this.

2). Government Interference

Think this is an extremely important question for us to ask experts I am trying to meet up with. Anyone with contacts in South-based Jewellery firms - Chemmannur, C Krishniah Chetty, Malabar Gold, TanishQ - please help in connecting up!