Renaissance Jewellery

Stock Opportunities
1

Business

Renaissance Jewellery is 2 decades old company involved in designing, manufacture & sales of jewellery of silver, gold, platinum. Jewellery studded with diamonds and other precious & semi precious stones.

Jewellery products include rings, pendants, earrings, bracelets, necklaces & bangles. Design of these products is centralized in Mumbai and manufactured in three facilities - Mumbai, Bhavnagar & Bangladesh with total area of 1,90,000 sq ft engaging 4300 manpower. According to the AR locations are well equipped to manage rising designing and manufacturing requirements without incurring substantial capital expenditure.

Company sells jewellery to large retailers, specialty jewellery chains and online portal.

Company is also into readymade furniture - “Housefull Store” across 38 stores and through its online presence delivering to 36 cities across India.

Markets

  1. USA is main market for the company contributing 67% of FY15 sales.
  2. HongKong, UK & UAE contributed 21%, 5% and 2% respectively.

US Subsidiary
Renaissance Jewelry New York, Inc. (wholly owned subsidiary of Renaissance Jewellery Limited), does business as Verigold Jewelry, Inc. The company has 11,735 sf ft office at 3 East 54th Street, NY according to the webpage here.

The US subsidiary Renaissance Jewelry (dba Verigold Jewelry) has signed a licensing agreement to debut Cover Girl-branded Jewelry, retailers can carry this exclusive collection in their stores. Read full article here.

Also a lot of people working for Verigold Jewelry can be found on this link on LinkedIn.

Here we could find the list of trademarks registered by Renaissance Jewelry. Out of many one trademark is Jewelili.
Jewelili products could be found on amazon.com here. Also see images downloaded from Amazon

Industry Outlook

  1. According to Research & Markets the sector in India is expected to grow at CAGR of 16% over 2014-1019.

  2. Domestic gems & jewellery industry has a market size of $40b in 2013, has a potential to grow to $80b by 2018

Financials (All numbers are Consolidated)

Q2FY16

Long Term Debt = 0
Short Term Debt = 344cr
Non-current Investment = 0
Cash = 34cr
Current Investment = 29cr

Current Assets = 989 cr
Current Liability = 672 cr

Screenshot from 2015-12-06 21:23:33.png973×618 54.3 KB

Key Concerns

  1. Summation of Cash Flow from operation from 2006-2015 is 53 cr whereas net profit is 271cr.
  2. Growth in sales for FY15 is 4.4% which is well below the projected industry growth rate of 16%.
  3. Volatility in INR-USD and other currencies can effect the profitability of company negatively or positively.
  4. Trade Receivable as percentage of Revenue for the company is 23% whereas for Rajesh Exports it is 3%

Positives

  1. The company provides good margin of safety at current market price, P/E = 4.9 and long term debt being zero.
  2. Industry is projected to grow at 16%

Prospects

  1. Company has started operations in Middle East Market.

Disclosure
Invested with tracking positions

2 Likes
2

long term debt of most jewellery stocks is zero s most of the debt is gold-loanfrom various international banks.
so this case consider short term debt as actual debt.

3

Long term debt of Rajesh Exports is 604cr. The inventories of Renaissance Jewellery are 589cr which are more than Short term debt of 344cr. Since inventory of Jewellery companies is mostly precious metals/ stones which are as good as cash therefore I will argue that company is mostly debt free.

4

Inventory of diamonds can’t be relied upon. Ask ABN Amro (Now RBS)…how it burnt its fingers with diamond companies (Hint - Inventory ;-)) Industry with wafer thin margins, huge receivable days and very much vulnerable to currency swings should be avoided.

5

Agree with Nirav. The debtors are usually sister concerns, who then sell to
more sister concerns, who then maybe sell to few end customers. In between
they keep taking funding.

regards,

1 Like
6

@constantseeker_ The debt mentioned is on consolidated basis therefore include debts of all the subsidiaries. If you could elaborate more on your point, I could dip dipper and try to present fact as to the particular case of this company.

@Nirav8 I agree, ABN Amro had a bad experience with the sector. But every sector has some Satyam Computers, Enron etc. That does not imply all companies in the sector are bad. Renaissance has a TTM margin of 5.8%. Receivable days are 86.

7

This sector has far too many satyams/Enrons…Gitanjali, C Mahendra, Winsome Diamonds (earlier known as Su-Raj Diamonds) (& many more)…check any diamond companies, numbers will never be consistent (compare sales growth, Operating profit, Cash Flows, Receivables, etc)…More than that numbers aren’t trust worthy. Market has far better sectors and companies to focus on.

1 Like
8

Hi Gaurav,

What you need to get is the debtor list of the company. Then you need to
find which of these are related party/sister concerns/companies run by
friends/family of promoters. that information is almost impossible to get
most of the times. that is one of the reason for opaqueness of the industry
and why it is so closed.

Once you have the information u then need to know other details like
payment terms, who are end customers of these companies etc to really
understand what is the actual sales.

The second risk is you will rely on inventory valuation given by company.
Auditors don’t audit the value of diamonds used :).

Having said that this is still one of the better companies in the industry.
I know this since i had approached them multiple times to avail banking
facilities from my erstwhile org :).

PS- they had a loss making retail venture. not sure whats happened of that.
but u can check.

Overall, my comment: Too many variables where we dont get information or
wont have information. Hence its a miss for me.

9

Hi Saurabh,

Your and @Nirav8 doubts are very reasonable but since we are in business of separating the wheat from the Chaff, we need to give company a chance.

Debt- Equity ratio of company for last 10 years

Screenshot from 2015-12-08 17:59:04.png969×31 3.57 KB

Screenshot from 2015-12-08 17:58:30.png968×25 5.72 KB

Related-parties according to AR 2014-15 are

Screenshot from 2015-12-08 18:10:01.png983×615 101 KB

The company has also details of related-party transaction in Annual report. Note 26 of note to financial statement. @constantseeker_ Can we use this information to cross-check revenue figures?

The US subsidiary Renaissance Jewelry (dba Verigold Jewelry) has signed a licensing agreement to debut Cover Girl-branded Jewelry, retailers can carry this exclusive collection in their stores. Read full article here.

Also a lot of people working for Verigold Jewelry can be found on this link on LinkedIn.

10

I completely agree to give company a chance, but its something like the
beer game example. The structure of industry determines how they behave.

the list of associates disclosed here is the easy one and u would never
know from a working capital perspective how much debtors are owned by them.
Remember BS is just a snapshot of point in time.

the actual debtors could be much longer in form of companies managed by
friends in Hongkong and Dubai :slight_smile:

Also how do u determine the end sales? if it happens to associates what
happens after that.

Regarding debt to equity, the whole industry would seldom have large long
term debt. they always have WC debt which is much easier to showcase.

if u can try speaking to few bankers who fund these guys…

Regards,

1 Like
11

I full appreciate your point. US and UK subsidiary of company account for 72% of Renaissance sales. I have earlier mentioned about companies products being listed on amazon.com. Also both the subsidiary are subjected to local US and UK laws. Financial details about UK Subsidiary is available on privco.com/ (some need to pay for access :smile:)

Can you point me to some bankers, who would be ready to talk about the company?

12

Trade receivables are 237.19 Crs. Looks to be very high considering kind of business.
Does anybody have idea/details on it?

Regards

13

I have compiled the following for the industry, table is self explanatory.

Renaissance Jewellery trade receivable as percentage of revenue is below the industry average but Inventory and trade receivable as percentage of revenue slightly higher.

14

Gaurav, great work. But you are comparing apples and oranges.

Example, gitanjali, Renaissance, Goldiam etc are manufactures and traders
of diamonds/jewellery.

Thangamayill, Titan, TBZ, etc are retail chains of jewellery.

So please evaluate accordingly.

Regards,

15

Agreed @constantseeker_

Gitanjali & Tara seems to be mixed player - manufacturing & retailing both. I have appended the edited table

16

Great Work, Gaurav.

what about the growth prospectus?

as you already mentioned about brands it is having. Also you mentioned about new launches. But current QOQ(sep15) revenue increase is 10% compared to 15% of Rajesh export that too at the sales of 10000 crs.

what are your expectation of future growth based on information you digged?

Thanks

17

The outlook for the industry is positive

  1. According to a report by Research & Markets, the sector in India is expected to grow at a CAGR of 16% over 2014-19. (Source: Annual Report 14-15 Renaissance Jewellery)

  2. Provisional gross export of gold jewellery for the period April 14 – March 15 at US$ 9852.18 million shows growth of 17.77 per cent (over the comparative figure of US$ 8365.68 million for April 13 – March 14. Provisional gross export of Silver Jewellery for the period April 14 – March 15 at US$ 2054.52 million shows growth of 39.29 per cent over the comparative figure of US$ 1475.02 million for April 13 – March 14. (Source: Annual Report 14-15 Goldiam)

Outlook seems to be positive. Moreover management has stated they can ramp-up the production without significant capital expenditure. The company is already present in Bangladesh ( The value add for the company is manufacturing jewellery out of raw Gold, Silver and manpower being cheapest in Bangladesh give a clear competitive advantage to the company)

All said please be warned that some borders have expressed the concern that the whole industry is not transparent.

18

The company came out with results

Revenue up 3% to 1319cr compared to 1276cr last year.

Net Profit up 17.5% to 47cr compared to 40cr last year.

The management has given the following outlook for financial year 2017

Outlook for FY 2017
Taking into account the general conditions of the markets in which the Company sells its products as also the current order book position, the management believes that the sales ill grow by about 3% to 5% in the coming year. However, with focus on creating better and higher value products coupled with efficient working capital management, we believe we will achieve a PAT growth of about 13% to 17% in FY17.

19

Surprised to see this thread being dead for a long time. The company came out with spectacular Q2 results to say the least. Notwithstanding the 88% YoY growth in PAT, what is really encouraging is the 35% CAGR growth in Sales over the last 2 quarters. This is direct fallout of GST and the trade moving from unorganized to organised sector. Also, with increasing scrutiny around companies dealing with ‘black economy’, you will gradually see companies reporting the true margins going forward. This is an important theme I am working with to identify stocks going forward. Let me clarify that I am not casting any allegations on this particular company. Going forward, if the company is able to maintain its pace of sales growth going forward, the valuations looks paltry to me. The company should easily do 50-60 Cr profit in FY18 if I just extrapolate H1. Obviously H2 is usually better due to a bunch of festivals. Forget about FY19, even on FY18 PAT it is trading at just about 10x, which is a huge discount to other companies in the same sector.

While evaluating a jewellery company, the most important ratio is the inventory turnover ratio. While Thangamayil Jewellery leads the pack here at around 4.4x, Renaissance Jewellery is well placed at 2.7x which is better than PC Jeweller and Titan. Just to put things in perspective, Renaissance is trading at 1/4th of the vaulation of Thangamayil Jewellery. I will come back with a post on the business aspects of the firm and its key business strengths, but just wanted to quickly share my thoughts with the members here that this looks extremely cheap and can quickly re-rate from here.

Disclosure: Initiated positions at Rs.310 here. Extremely late to the party. :frowning:

20

Do you have any basis to think like this? Is this the feel you are getting from the “nosies/chatter” around?

You are saying that the company was underreporting. Can you substantiate?

The company in its recent press release has said the increase in rev/np is due to merging of Dubai unit. Why do you think the results better due to any other reason rather than what company has mentioned herself.