Buy This Multibagger Small Cap Jewellery Stock For 26% Potential Gains, Suggested By Brokerage

A renowned brokerage firm, Bonanza Research has published a report on Radhika Jeweltech Ltd, a Diamond Cutting & Jewellery & Precious Metals sector company. The brokerage has given a buy rating for a target price of Rs 203 per share. Recently, the stock price of Radhika Jeweltech corrected by ~19% from 52-week high of Rs.201.00 as the company reported lower-than-expected numbers in the last quarter due to omicron wave in the month of January 2022.

Stock Outlook

Radhika Jeweltech Ltd's current market price (CMP) is Rs 161.40 per share on BSE. Today it was opened at Rs 164.80 per share. The stock's 52-week low is Rs 34.40 per share, while the 52-week high is Rs 201 per share. PE ratio is 12.79, and the PB ratio is 2.03. Its EPS-TTM is Rs 12.57. The ROE is 14.38%. 

Considering the brokerage's estimated Target Price of Rs 203 per share and the CMP of Rs 161.40 per share, the stock could witness a potential upside of 26% in 12 months.

The stock has done well in terms of returns on investment over the past five years, given multibagger returns on long-term investment. In the past 5 years, it has given multibagger returns of 556.53%, and 601.74% returns in past 3 years. Over the last one year, it has given 309.4% returns. However, on short-term investments, less than 1 year, its stock has not delivered any positive returns, In past 1 month, it has given a negative return of 17.66%. 

Radhika Jeweltech Financials

During the past 5 years, the revenue of Radhika Jeweltech grew at CAGR of 8.2% while PAT grew at CAGR of 23.9% in the same period. Radhika Jeweltech's EBITDA declined by 38.9% YoY in Q4FY22 to Rs.64mn due to lower revenue in the quarter. As a result, EBITDA margin has also declined by 574bps YoY to 12.0% in Q4FY22. Radhika Jeweltech has reported 56.8% YoY declined in PAT to Rs.44mn in Q4FY22 against Rs.103mn in Q4FY21.

Risk & Concerns

According to the brokerage, "Any Covid-19 like situation which lead to lockdown may negatively impact demand and revenue of Radhika Jeweltech. Any delay in execution of future new showroom may have negative impact on growth of Radhika Jeweltech. Radhika Jeweltech operates in highly competitive market where large number of retailers operate. Any intensification of competition may lead to underperformance by the company."

 

Valuations & Brokerage's comments

Radhika Jeweltech outsources the making of jewelleries from specialist manufacturers while the company focuses exclusively on sales. It has established strong relationships with manufacturers that exclusively design and manufacture jewellery pieces for the company. Radhika Jeweltech incentivized manufacturers for providing them enough orders to enable it to run at full capacity while the exclusivity arrangement ensures that other jewellers do not have access to the designs used by Radhika Jeweltech, which remains unique to the Radhika brand. The manufacturing cost of jewellery ranges between Rs.250-350 per gram depending on the market rate of gold and the intricacy of design.

Radhika Jeweltech has planned a new showroom of 10,000 sq. ft. in Kalawad Road, Rajkot expected to be operational by Q2FY23E. New showroom will be manned by approximately 150 sales representatives and it is expected to drive its revenues to a significantly higher trajectory. By virtue of being located in Rajkot's posh localities, the new showroom is expected to sell a higher percentage of diamond and platinum jewellery products. Radhika Jeweltech has also plans to open showrooms in other major cities such as Bhavnagar, Bhuj, Gandhidham, Morbi and Jamnagar, and subsequently in other areas of and outside Gujarat.

Radhika Jeweltech has policy to immediate replenishes its gold inventory with the quantity of gold sold once a piece of jewellery is sold to a customer. As the selling price is calculated on the basis of the prevailing market price, the immediate replenishment mitigates the risk of cost of inventory going up due to any rising gold prices. Further, the company settles the bill with manufacturers in physical gold terms as opposed to any cash payments.

With a wide range of jewellery designs in gold and diamond-studded for men and women, gems and jewellery market is expected to grow at a CAGR of 8.4%, outsources the making of jewelleries from specialist manufacturers and new showroom of 10,000 sq. ft. in Rajkot, we value Radhika Jeweltech at 13.0x FY24E EPS of Rs.15.50 to arrive at target price of Rs.203.00, an upside of ~25%.

About - Radhika Jeweltech Ltd

Radhika Jeweltech is a retail jeweller dealing in gold and diamond-studded jewellery, operating through a jewellery store in the western Indian city of Rajkot in Gujarat. Radhika Jeweltech exclusively sells BIS Hallmark-certified gold and diamond-studded jewellery such as Gold Jewellery, Bridal collections, Diamond Jewellery, Platinum Jewellery, etc. Radhika Jeweltech's retail outlets sell a wide range of jewellery designs for both men and women. It also provides value-added services for manufacturing custom-made products. It operates a 2,500 sq. ft. showroom in the heart of Rajkot's jewellery market. Radhika Jeweltech generates 85% of its revenue from pure-gold jewellery while the remainder comes from diamond and platinum jewellery items.

Disclaimer

The stock has been picked from the brokerage report of Bonanza Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.