Su-Raj Diamonds & Jewellery to issue shares to FIIs
Vidrum / 06 Jan 2012
Su-Raj Diamonds & Jewellery was the first in the industry to offer its shares to the public in the year 1986. The company has set up a project at the Santacruz Electronics Export Processing Zone (SEEPZ) to manufacture diamonds and jewellery.
The company was recently in the news as it has proposed to issue upto 3.63 cr equity shares (FV of Rs 10 each) on a preferential basis to Foreign Institutional Investors (FII). The price at which the shares will be allotted has not yet been fixed. An extraordinary general meeting of the shareholders will be convened on Jan 18, 2011 to obtain the shareholders' consent. We believe that the company's shares may rise if the proposal is accepted in the shareholders' meeting.
The following table shows the list of FIIs that are going to invest in Su-Raj Diamonds & Jewellery, and also the expected number of shares to be allotted.
| Sr. No. | Foreign Institutional Investors (FII) | No. of shares to be allotted (In crores) |
| 1 | Passage to India Master Fund | 1.01 |
| 2 | Sparrow Asia Diversified Opportunities Fund | 0.98 |
| 3 | Davos International Fund | 0.85 |
| 4 | Leman Diversified Fund |
0.78 |
| Total | 3.62 |
One should note that Sparrow Asia Diversified Fund, which is slated to invest in 0.98 cr equity shares of the company, had also come up in the SEBI's investigation report regarding the Tijaria Polypipes IPO. One should stay cautious on this note, as there could be speculation on the share price once Sparrow Asia Diversified Fund subscribes to the equity shares.
On the financial front, Su-Raj Diamonds & Jewellery has been performing decently over the last few years. However, the scrip has not caught investors' fancy. The company has good topline growth, but an extremely low net profit margin, which is a major problem. Any rise in cost or expenditure can easily wipe off its profits.
For HI FY12, the company's sales grew by 35% to Rs 2316 cr, while its net profits grew by 12% to Rs 53 cr on a YoY basis. The net profit margin is very low, at just 2.31% of the sales, and this is risky. The interest expense in HI FY12 rose sharply to Rs 11.02 cr in HI FY12 from Rs 5.47 cr in the corresponding period last year. Any further increase in interest expenditure could affect the firm's profitability.
On the valuations front, the company is available at a Price to Book value of 0.27x and a Price to Earnings multiple of 2.31x. Post Issue, its EPS (trailing) would decrease from Rs 17.57 to Rs 11.38 and it will be available at a Price to Earnings multiple of 3.38x. However, investors should not be attracted to the scrip on account of its favourable valuations. Its industry peers are also available at good valuations, and have better net profit margin than Su-Raj.
Peer Group Key Ratio
| Company | P/E | P/BV | NPM |
| Shree Ganesh Jewellers | 2.08 | 0.51 | 5.03 |
| Gitanjali Gems | 12.38 | 1.24 | 4.38 |
| Suraj Diamonds | 3.38* | 0.40* | 2.61 |
| C Mahendra Exports | 14.16 | 1.52 | 3.1 |
| *Post Issue |
The price at which the shares will be issued is likely to be at or above Rs 55 per share. However, one should wait for the company to disclose the exact price. We believe that investors should wait for the Q3 FY12 results, which will give more clarity on the company and its plans, before investing in the company.
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