This Small Cap Jewellery Stock Gave 805.99% In 5 yrs, Top Brokerage Sees 32% Upside, Suggests Buy

Goldiam International Limited has been assigned a "Buy" rating by leading brokerage firm Monarch Networth Capital, with a target price of Rs 185 per share. According to the estimated target price, investors purchasing the company's shares at the current market price could see a 32% gain in 12 months. Goldiam International is a Gems & Jewellery sector small-cap company having a market cap of Rs 1,518.02 crore.

Goldiam International is a leading supplier of exquisitely designed and luxurious diamond jewellery. The company has become the manufacturer of choice for many leading global branded retailers, departmental stores and wholesalers across America.

Goldiam's fortune changed when it became one of the first movers to grow and distribute lab-grown diamonds (LGD), which today contributes close to 20% of its overall topline. LGD has immense potential as we move towards an alternative to natural diamonds.

Stock Outlook, Returns

The current market price (CMP) of Goldiam International is Rs 140.70 per share on NSE, trading 1.37% down as compared to its previous close of Rs 142.65 per share. Today it opened at Rs 142.75 per share. Its 52 week high level is Rs 1,084.20 as on 8 November 2021 and its 52-week low is Rs 117,05 as on 20 June 2022, respectively.

 

The shares of the company in the past 1 week surged by 9.11%. It has given 13.38% positive returns in 1 month and 8.46% negative returns in3 months, respectively. Over the past 1 year, it has given 21.76% negative returns. In the past 3 years, it gives 402.56% multibagger returns, and in 5 years it has given a whooping 805.99% multibagger returns, respectively.

Moving away from traditional channels to affluent channels

Goldiam International has always been ahead of the competition on innovation and overall strategy. What started as pure commodity play of cutting and polishing diamonds progressed to manufacturing diamond studded and gold jewellery. In short, it went from a wafer-thin margin business to a margin-accretive business. What changed the company's fortune was when it moved from traditional wholesale to retail channels. The traditional channel has a long credit cycle and lower margins, while a retail strategy is capital efficient and ensures quick turnaround and a better margin profile.

 

Lab-based diamonds - shining bright

The company was one the first movers to lab-based diamonds and is one of few fully backwards-integrated companies. It currently contributes close to 20% of the overall revenue of the company (Natural Diamond margins-20% and LGD~35%). Lab-based diamonds enjoy higher margins and are currently the fastest-growing trend in the jewellery market. Due to their features, lab-based diamonds are similar to natural diamonds (certified as real diamonds) but cost significantly less, making them the preferred choice for many first-time and aspirational buyers.

 

Stands out in an industry with a besmirched reputation

The jewellery industry has had its fair share of instances of value destruction (Gitanjali Gems, Winsome Diamonds, Nirav Modi etc.), the common thread being unmanageable debt and abysmal inventory management. In contrast, Goldiam is debt-free, has a strong dividend payout policy (50% of standalone PAT), done frequent buybacks and has a strong, independent board. It focuses more on the e-commerce channel with low credit and inventory risk.

Valuation & Risks

Goldiam has a presence both in natural and lab-based diamonds, catering to the US, the most prominent jewellery market in the world. The company's innovative strategy to focus on direct retail and e-commerce platforms has paid rich dividends with robust growth in its margin profile. Its decision to move towards lab-based diamonds early has made it one of the most preferred vendors to US retailers.

"We expect the company to post revenue growth of 12% CAGR over FY22-25E to Rs.9,775mn, with lab-based diamonds to grow at 42% and natural diamonds at 2% over the same period. EBITDA over the same period is expected to grow at 25% CAGR to Rs.2,525mn, while OPM is expected to improve by 690bps to 25.8%. PAT is expected to grow at 25% CAGR to Rs. 2,065mn. We currently value the stock at 11x Sept 24 EPS of Rs.16 to arrive at our fair value target of Rs.185, a potential upside of 48% from current levels," the brokerage has said.

 

Disclaimer

The stock has been picked from the brokerage report of Monarch Networth Capital. 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 making any investment decision.