Stock research on global mid-cap companies

Evaluate Research

Evaluate Research provides institutional quality stock research on small-cap and  mid-cap companies on a global basis, thus helping connect investors with the company.

At Evaluate Research, we provide free of cost to all investors a 20-25 page Initiation Report which evaluates in great detail all aspects of the company:  growth opportunities, catalysts, business description, competitive positioning, SWOT analysis, risks, etc.  In addition, we determine specific price targets for the company based on detailed 5-year complete forecasts of financial statements including IS, BS, CF, ratios, etc.  Finally, whereas many sell-side brokers offer sketchy and irregular ongoing maintenance research of companies, if not outright dropped or termination of coverage, at Evaluate Research we systematically monitor and regularly publish Update Notes covering quarterly earnings, major corporate events, etc.

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Stock research on global mid-cap companies, Evaluate Research

Equity Bottom-Up

Rajesh Exports [RJEX_IN; Rs.167 billion/US$2.38 billion market cap; US$2.62 million total average daily value traded] reported robust growth in revenue and net profit, much ahead of our expectations, on a sequential QoQ and YoY basis, despite a global economic slowdown and a higher gold price, indicating business performance is surely recovering. Net profit for the fiscal fourth quarter [ended March] came in at Rs.2,931 mn, up 29% and 8% on a sequential QoQ and YoY basis respectively.&nbsp;High double-digit growth in revenues to the tune of 42% on a sequential QoQ basis, along with stable gross margins were the primary reasons for an increase in the net profit in the fourth quarter due to sustenance in the Switzerland-based gold refining business. The stability in the price of gold in the international market continues to make the gold refining business more lucrative, thus leading to the strong increase in net profit. The company continues to focus on the strategy of sale of high margin products to accelerate revenue and profitability growth in the longer term. The growth in order book also indicates that the company will continue to show gradual recovery in profitability in the FY03/2022 and beyond [more details below]. For the fourth quarter, revenue increased by 36% to Rs.645 bn vs. Rs.475 bn in Q4 FY2020. As international air freight and shipping services continued operations recovering back to normal levels, Rajesh Exports’ export business from India is also beginning to rebound.&nbsp;The growth is expected to be strong both on a sequential quarter on quarter and year on year basis, considering the low base of the previous quarters given that demand is expected to be strong going forward.
Our conversations with the senior management and CEO Rajesh Mehta suggest that the business will post sustained growth YoY in revenue with a minimal impact on EPS as the global situation normalizes coupled with higher contribution from the gold refining business. The CEO also mentioned that the company’s net income witnessed a robust growth in the fourth quarter of FY03/2021 as prices of gold have continued to remain strong making refining even more lucrative for its Switzerland-based subsidiary Valcambi, which is the largest refiner of gold in the world. 
The fourth quarter of FY03/2021 was expected to be subdued in terms of revenue and profitability on account of the lockdown in most of the countries due to the global pandemic. However, Rajesh Exports has delivered a double-digit growth in revenues as well as net profit for the fourth quarter on a sequential QoQ and YoY basis showing absolute resilience amidst a severe crisis situation. Since the bulk of the business of the company comes from refining of gold, we expect revenue and profitability to show significant growth due to the base effect going forward, as supply seems to be back on track running at full scale as the situation continues to stabilize globally. The demand for luxury goods, such as cars [both mass market as well as high-end], apartments and real estate, and gold/jewelry will however remain muted in the current financial year. The jewelry business of the company, which has higher margins but relatively lower volumes in comparison to the gold refining business, has shown a significant recovery in the fourth quarter.
Our FY03/2022 earnings forecast of Rs. 72.17 per share implies a growth of 152% over the FY03/2021 earnings. The USA end market continues to remain robust with strong consumer spending expected as employment has started to recover sharply.
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Maintain Estimates and Price Target Rs. 900; 59% Upside
We maintain our FY03/2022 earnings estimates at Rs.72.17 per share on account of an expected rise in profitability once the global pandemic situation returns to normalcy in FY03/2022.&nbsp; We maintain our price target at Rs.900 on the stock and expect business conditions to come back to pre-pandemic levels at the end of FY2022 to achieve a robust growth in FY2023.&nbsp; Our price target represents an upside of approximately 59% from the current levels.&nbsp; Our 12-month price target on the stock is based on DCF methodology and backed by traditional P/E multiples as well. Please see detailed earnings and valuation model attached.
&nbsp;Rajesh Exports is the world’s largest refiner of gold and largest exporter of gold jewelry with a 40% market share in India. With over 30 years of operating history, the company is a low-cost manufacturer due to economies of scale, and it derives 90% of its revenues from exports. The company is rapidly expanding its retail stores in India as well, with 83 stores presently. The company is a prime beneficiary of secular growth in Indian and Asian gold and jewelry demand.&nbsp; Over the last five years, the company has recorded a CAGR of 29% in EPS and 44% in revenues.&nbsp;
Our Rs.900 price target implies a P/E multiple of 12.3x on our FY03/2022 EPS estimate of Rs.72.17, and a P/E of 7.5x on our forward FY03/2023 estimate of Rs.119.&nbsp; We continue to remain positive on the margin growth story based on the company’s strong execution history.&nbsp; While the company operates at a low-level absolute of operating margins, a relatively small increase in margins can be highly accretive to the EPS.&nbsp; 
&nbsp;Currently, the stock is trading at a P/E multiple of 19.7x on FY03/2021 EPS, and a P/E of 7.8x on our forward FY03/2022 estimate, which is at a&nbsp; discount to its 5-year average P/E of 20x, as well as the overall Indian stock market where the benchmark NIFTY Index is trading at approximately a trailing 41x and a forward 28x estimated P/E levels. 
Also, the stock is trading at a Price/Sales ratio of just 0.06x on FY03/2021 revenue and a P/S of 0.05x on our forward FY03/2023 estimate, which is at a significant discount to the trailing P/S ratio of 2.0x for the NIFTY Index.
Order Book Grows Significantly to Rs.453 bn
At the end of the fourth quarter ended March, the order book was reported at Rs.453 bn. A growth of 40% in the order book to the tune of Rs.128 bn (Rs.325 bn at the end of previous quarter) indicates growth in revenues will sustain in the coming quarters as the global pandemic situation gradually returns to normalcy. The company had introduced new designs in the international markets which constitute a new range of jewelry. The company has already bagged a first major prestigious order after the first coronavirus wave in India, worth Rs.7.45 bn of designer range of gold jewelry from Germany expected to be completed in July 2021.&nbsp;
The company will be executing orders from its own manufacturing facility, which is the world's largest jewelry manufacturing facility. This facility has a processing capacity of 250 tons of jewelry and gold products per annum. The company is confident of executing its orders well within the time frame on the back of its expertise, skilled craftsmen, artisans &amp; its exceptionally strong backward integrated infrastructure but only after the global pandemic situation comes back to normal.
For further details please see our attached Earnings Update Report.

Rajesh Exports [RJEX_IN; Rs.167 billion/US$2.38 billion market cap; US$2.62 million total average daily value traded] reported robust growth in revenue and net profit, much ahead of our expectations, on a sequential QoQ and YoY basis, despite a global economic slowdown and a higher gold price, indicating business performance is surely recovering. Net profit for the fiscal fourth quarter [ended March] came in at Rs.2,931 mn, up 29% and 8% on a sequential QoQ and YoY basis respectively.&nbsp;High double-digit growth in revenues to the tune of 42% on a sequential QoQ basis, along with stable gross margins were the primary reasons for an increase in the net profit in the fourth quarter due to sustenance in the Switzerland-based gold refining business. The stability in the price of gold in the international market continues to make the gold refining business more lucrative, thus leading to the strong increase in net profit. The company continues to focus on the strategy of sale of high margin products to accelerate revenue and profitability growth in the longer term. The growth in order book also indicates that the company will continue to show gradual recovery in profitability in the FY03/2022 and beyond [more details below]. For the fourth quarter, revenue increased by 36% to Rs.645 bn vs. Rs.475 bn in Q4 FY2020. As international air freight and shipping services continued operations recovering back to normal levels, Rajesh Exports’ export business from India is also beginning to rebound.&nbsp;The growth is expected to be strong both on a sequential quarter on quarter and year on year basis, considering the low base of the previous quarters given that demand is expected to be strong going forward.
Our conversations with the senior management and CEO Rajesh Mehta suggest that the business will post sustained growth YoY in revenue with a minimal impact on EPS as the global situation normalizes coupled with higher contribution from the gold refining business. The CEO also mentioned that the company’s net income witnessed a robust growth in the fourth quarter of FY03/2021 as prices of gold have continued to remain strong making refining even more lucrative for its Switzerland-based subsidiary Valcambi, which is the largest refiner of gold in the world. 
The fourth quarter of FY03/2021 was expected to be subdued in terms of revenue and profitability on account of the lockdown in most of the countries due to the global pandemic. However, Rajesh Exports has delivered a double-digit growth in revenues as well as net profit for the fourth quarter on a sequential QoQ and YoY basis showing absolute resilience amidst a severe crisis situation. Since the bulk of the business of the company comes from refining of gold, we expect revenue and profitability to show significant growth due to the base effect going forward, as supply seems to be back on track running at full scale as the situation continues to stabilize globally. The demand for luxury goods, such as cars [both mass market as well as high-end], apartments and real estate, and gold/jewelry will however remain muted in the current financial year. The jewelry business of the company, which has higher margins but relatively lower volumes in comparison to the gold refining business, has shown a significant recovery in the fourth quarter.
Our FY03/2022 earnings forecast of Rs. 72.17 per share implies a growth of 152% over the FY03/2021 earnings. The USA end market continues to remain robust with strong consumer spending expected as employment has started to recover sharply.

Maintain Estimates and Price Target Rs. 900; 59% Upside
We maintain our FY03/2022 earnings estimates at Rs.72.17 per share on account of an expected rise in profitability once the global pandemic situation returns to normalcy in FY03/2022.&nbsp; We maintain our price target at Rs.900 on the stock and expect business conditions to come back to pre-pandemic levels at the end of FY2022 to achieve a robust growth in FY2023.&nbsp; Our price target represents an upside of approximately 59% from the current levels.&nbsp; Our 12-month price target on the stock is based on DCF methodology and backed by traditional P/E multiples as well. Please see detailed earnings and valuation model attached.
&nbsp;Rajesh Exports is the world’s largest refiner of gold and largest exporter of gold jewelry with a 40% market share in India. With over 30 years of operating history, the company is a low-cost manufacturer due to economies of scale, and it derives 90% of its revenues from exports. The company is rapidly expanding its retail stores in India as well, with 83 stores presently. The company is a prime beneficiary of secular growth in Indian and Asian gold and jewelry demand.&nbsp; Over the last five years, the company has recorded a CAGR of 29% in EPS and 44% in revenues.&nbsp;
Our Rs.900 price target implies a P/E multiple of 12.3x on our FY03/2022 EPS estimate of Rs.72.17, and a P/E of 7.5x on our forward FY03/2023 estimate of Rs.119.&nbsp; We continue to remain positive on the margin growth story based on the company’s strong execution history.&nbsp; While the company operates at a low-level absolute of operating margins, a relatively small increase in margins can be highly accretive to the EPS.&nbsp; 
&nbsp;Currently, the stock is trading at a P/E multiple of 19.7x on FY03/2021 EPS, and a P/E of 7.8x on our forward FY03/2022 estimate, which is at a&nbsp; discount to its 5-year average P/E of 20x, as well as the overall Indian stock market where the benchmark NIFTY Index is trading at approximately a trailing 41x and a forward 28x estimated P/E levels. 
Also, the stock is trading at a Price/Sales ratio of just 0.06x on FY03/2021 revenue and a P/S of 0.05x on our forward FY03/2023 estimate, which is at a significant discount to the trailing P/S ratio of 2.0x for the NIFTY Index.
Order Book Grows Significantly to Rs.453 bn
At the end of the fourth quarter ended March, the order book was reported at Rs.453 bn. A growth of 40% in the order book to the tune of Rs.128 bn (Rs.325 bn at the end of previous quarter) indicates growth in revenues will sustain in the coming quarters as the global pandemic situation gradually returns to normalcy. The company had introduced new designs in the international markets which constitute a new range of jewelry. The company has already bagged a first major prestigious order after the first coronavirus wave in India, worth Rs.7.45 bn of designer range of gold jewelry from Germany expected to be completed in July 2021.&nbsp;
The company will be executing orders from its own manufacturing facility, which is the world's largest jewelry manufacturing facility. This facility has a processing capacity of 250 tons of jewelry and gold products per annum. The company is confident of executing its orders well within the time frame on the back of its expertise, skilled craftsmen, artisans &amp; its exceptionally strong backward integrated infrastructure but only after the global pandemic situation comes back to normal.
For further details please see our attached Earnings Update Report.

Rajesh Exports: +42% Revenue Growth, 19x P/E, 0.06x P/Sales - Earnings Update