1

SYNOPSIS

Gitanjali Gems is one of the largest

integrated diamond and jewellery

manufacturers and retailers in

India.

During the quarter ended, the

robust growth of Net Profit is

increased by 65.25% Rs. 1322.46

million.

Gitanjali Gems Ltd has acquired

100% stake of 'Crown Aim Limited'

('Crown Aim').

The value of four leading diamond

jewellary brands of Gitanjali Gems-

Gili, Nakshatra, Asmi and D’Damas

rose 84 per cent i.e. Rs. 2769 crore

in the last two years.

Net Sales and PAT of the company

are expected to grow at a CAGR of

30% and 46% over 2010 to 2013E

respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 94564.02 6303.02 3548.10 41.81 7.42

FY 12E 121987.59 8315.70 5058.88 59.61 5.20

FY 13E 143945.35 9848.55 6197.85 73.03 4.25

Stock Data:

Sector: Gems & Jewellery

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 387.40/156.35

Volume (2 wk. Avg.) 527000

BSE Code 532715

Market Cap (Rs in mn) 26310.32

Share Holding Pattern

1 Year Comparative Graph

Gitanjali Gems BSE SENSEX

C.M.P: Rs. 310.00 Target Price: Rs. 347.00 Date: Dec. 28th 2011 BUY

Gitanjali Gems Ltd. Result Update: Q2 FY 12

2

Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Gitanjali Gems 310.00 26310.32 41.81 7.42 1.05 30.00

Rajesh Exports 134.40 3968.29 11.14 12.06 2.49 60.00

Asian Star Co. Ltd. 1051.00 1121.54 26.18 40.15 3.05 20.00

Shrenuj & Co. Ltd. 58.05 441.58 4.57 12.70 0.91 30.00

Investment Highlights

Q2 FY12 Results Update

Gitanjali Gems Ltd has posted net profit of Rs 1322.46 million for the quarter

ended on September 30, 2011 as against Rs 800.29 million in the same quarter

last year, an increase of 65.25%. It has reported net sales of Rs 31676.41

million for the quarter ended on September 30, 2011 as against Rs 25097.10

million in the same quarter last year, a rise of 26.22%. Total income grew by

26.23% to Rs.31701.31 million from Rs.25112.96 million in the same quarter

last year. During the quarter, it reported earnings of Rs 15.32 a share.

Quarterly Results - Consolidated (Rs in mn)

As At Sep-11 Sep-10 %change

Net sales 31676.41 25097.10 26.22%

PAT 1322.46 800.29 65.25%

Basic EPS 15.32 9.50 61.32%

3

� Net Sales & PAT growth

During the quarter, Net sales rose by 26.22% to Rs. 31676.41 million from

Rs.25097.10 in the same the quarter last year and the Total Profit for quarter ended

September 2011 was Rs.1322.46 million grew by 65.25% from Rs.800.29 million

compared to same quarter last year.

� EPS

Due to increase in equity capital the basic EPS of the company stood at Rs.15.32 for

the quarter ended Sep. 2011 from Rs.9.50 for the quarter ended Sep. 2010.

4

Break up of Expenditure

Segment Revenue

Particulars Q2 FY12 (Rs. in mn)

Diamond 17194.49

Jewellery 16206.02

Others 110.46

Total 33510.97

5

� Acquisition of 100% stake of 'Crown Aim Limited’

Gitanjali Gems Ltd has acquired 100% stake of 'Crown Aim Limited' ('Crown Aim').

Thus Crown Aim has become step down subsidiary of the Company. Crown Aim is

a Hong Kong based Company engaged in the business of distribution of Jewellery

to China, Japan, USA, Middle East and Europe. In Addition, Crown Aim has a

Jewellery manufacturing unit in China and plans to setup retailing of Jewellery in

China. Crown Aim also has a 100% subsidiary with the name Alfred Terry Holding

Limited and a step down subsidiary named Alfred Terry Limited in London, for

distribution of Jewellery in UK.

� Incorporation of wholly Owned Subsidiary 'Leading Italian Jewels S.r.l., Italy'

Gitanjali Gems Ltd has incorporated a Wholly Owned Subsidiary in the name of

Leading Italian Jewels S.r.l in Italy with a view to expand its business in Italy and

adjoining region. The main activity of the newly incorporated wholly owned

subsidiary is trading in precious stones, diamonds jewellery, pearls, etc.

� Incorporation of Wholly Owned Subsidiary GGL Diamond LLC in USA

Gitanjali Gems Ltd has incorporated GGL Diamond, LLC in United States of

America, through its wholly owned subsidiary Gitanjali USA, Inc. The main object

of GGL Diamond LLC is to source and distribute diamond and jewellery.

� Incorporation of Wholly Owned Subsidiary 'Aston Luxury Group Ltd' in Hong

Kong

Gitanjali Gems Ltd has incorporated a Wholly Owned Subsidiary in the name of

'Aston Luxury Group Limited' in Hong Kong with a view to explore and expand the

International business of the Company in Asia Pacific.

6

Company Profile

Gitanjali Group is world’s largest branded jewellery retailer. The company’s

headquarter is in Mumbai. Gitanjali Gems, incorporated in 1986, is one of leading

players in jewellery segment. Founded in 1966, it was the first group company to

engage in cutting and polishing of diamonds in Surat, Gujarat. Today this $900

million multinational group is one of largest manufacturer, retailers and exporters of

diamonds.

The company is the first to produce the world’s smallest heart shaped diamond (0.03

carat) and developing some 25 patented facet patterns.

Gitanjali Group's operates from sourcing of rough diamond, cutting, polishing and

distributing, to jewellery manufacturing, which includes designing, mould making,

wading, casting, spruce grinding, filing, polishing and setting. The company uses

latest CAD and CAM processes and equipment for creating designs for jewellery. The

company was first to offer diamond studded jewellery at reasonable prices.

The company has won over 50 awards from the Ministry of Commerce, India for

outstanding exports of diamond and jewellery, is today over $1000 million

multinational group, and a publicly listed entity.

Global presence

Gitanjali Gems Ltd. has its operations throughout the globe, all the way from USA,

UK, Belgium, Italy and the Middle East to Thailand, South East Asia China, & Japan.

Business Divisions

� Diamonds-The Company is engaged in every part of diamond sourcing &

processing. Diamonds are processed at the Group’s units at Surat and Borivli in

India, Bangkok in Thailand, and Qingdao in China. Recently its unit at Hyderabad

SEZ it has gone also on stream. For its diamond export the company has received

various awards from international organization as well as from Government of

India.

7

� Jewellery- The Company offers a diverse range of jewellery under gold, diamond

and platinum segment. Company’s designs include Indian traditional, ethnic,

classic, contemporary and casual. The company uses the latest CAD/CAM

processes and EDP for optimal efficiency in production and deliveries to its diverse

markets.

� Retailing- The Company is also engaged in retailing its diamonds and jewellery.

Currently the company markets over 40 brands that are owned and franchised

under its retail chain Gitanjali Lifestyle.

� Infrastructure- Gitanjali plans to develop seven SEZs to be operationalised in 7-8

years and the company has already bought land in Panvel, outside Mumbai, and

has approvals for five more SEZs.

Company Brands

Currently, it has brands that includes loose diamonds, diamond and other stone-

studded jewellery (natural and synthetic), in gold, silver, steel and combinations, high-

end watches, jewellery-watches, luxury artifacts and accessories. The company

markets its products through store chain namely Bezel, Giantti, World of Solitaire and

Gitanjali Lifestyle. Under jewellery, the company has a portfolio of brands namely

Nakshatra, Lucera, D’Damas, Calgaro, Sangini, Rivaaz, Desire, Kashvi, Asmi, Maya,

Diya, Ezee Diamonds and Stephan Hafner.Under watches, it retails brands like Philip,

Sector, Marvin, Umbro, Miss Sixty, Roberto Cavalli, Iris, Morelaato and Just Cavalli.

Under Home accessories, the company retails brand - Greggio Argento. Gitanjali Gems

has a distribution network of 112 distributors and 1250 outlets in India.

8

Financial Results

12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs. in mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 65276.34 94564.02 121987.59 143945.35

Other Income 25.83 159.94 179.13 204.21

Total Income 65302.17 94723.96 122166.72 144149.56

Expenditure -60885.06 -88420.94 -113851.01 -134301.01

Operating Profit 4417.11 6303.02 8315.70 9848.55

Interest -1724.31 -2087.21 -2462.91 -2733.83

Gross Profit 2692.80 4215.81 5852.80 7114.72

Depreciation -445.41 -563.72 -300.00 -315.00

Exceptional Items 0.00 180.67 0.00 0.00

Profit before Tax 2247.39 3832.76 5552.80 6799.72

Tax -231.90 -267.12 -471.99 -577.98

Profit after Tax 2015.49 3565.64 5080.81 6221.75

Minority Interest -13.78 -17.54 -21.93 -23.90

Net Profit 2001.71 3548.10 5058.88 6197.85

Equity Capital 842.70 848.72 848.72 848.72

Reserves 20999.64 24324.98 29405.79 35627.54

Face Value 10.00 10.00 10.00 10.00

EPS 23.75 41.81 59.61 73.03

9

Quarterly Ended Profit & Loss Account (Consolidated)

Value (Rs. In mn) 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11E

Description 3m 3m 3m 3m

Net Sales 24266.14 25953.27 31676.41 34210.52

Other Income 65.59 49.33 24.90 29.88

Total Income 24331.73 26002.60 31701.31 34240.40

Expenditure -23001.13 -23950.47 -29487.67 -31850.00

Operating Profit 1330.60 2052.13 2213.64 2390.41

Interest -539.85 -601.77 -672.99 -740.29

Gross Profit 790.75 1450.36 1540.65 1650.12

Depreciation -53.85 -67.56 -80.83 -87.30

Exceptional Items 180.67 0.00 0.00 0.00

Profit before Tax 917.57 1382.80 1459.82 1562.82

Tax 26.83 -145.99 -118.81 -125.03

Profit after Tax 944.40 1236.81 1341.01 1437.80

Minority Interest 10.68 -4.49 -18.55 -18.92

Net Profit 955.08 1232.32 1322.46 1418.87

Equity Capital 848.72 848.72 863.20 863.2

Face Value 10.00 10.00 10.00 10.00

EPS 11.25 14.52 15.32 16.44

10

Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(in mn) 84.27 84.87 84.87 84.872

EBITDA Margin (%) 6.77% 6.67% 6.82% 6.84%

PBT Margin (%) 3.44% 4.05% 4.55% 4.72%

PAT Margin (%) 3.09% 3.77% 4.17% 4.32%

P/E Ratio (x) 13.05 7.42 5.20 4.25

ROE (%) 9.23% 14.16% 16.79% 17.06%

ROCE (%) 10.17% 12.34% 13.84% 14.50%

Debt Equity Ratio 1.19 1.21 1.06 0.92

EV/EBITDA (x) 5.91 4.17 3.16 2.67

Book Value (Rs.) 259.19 296.61 356.47 429.78

P/BV(X) 1.20 1.05 0.87 0.72

Charts:

Net Sales & PAT

11

P/E Ratio(x)

Debt Equity Ratio

12

EV/EBITDA (x)

P/BV(x)

13

Outlook and Conclusion

At the current market price of Rs.310.00, the stock is trading at 5.20 x FY12E

and 4.25 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.59.61 and Rs.73.03 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 30% and

46% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 3.16 x for FY12E and 2.67 x for

FY13E.

Price to Book Value of the stock is expected to be at 0.87 x and 0.72 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.347.00 for Medium to Long term investment.

Industry Overview

India possesses world's most competitive gems and jewellery market owing to its low

cost of production and availability of skilled labor. Gems and jewellery form an

essential part of the Indian tradition. The components of jewellery include traditional

gold, diamond and platinum, accompanied by a variety of other precious and semi-

precious stones.

The Indian gems and jewellery sector is expected to grow at a compound annual

growth rate (CAGR) of approximately 13 per cent during 2011–2013, on the back of

increasing Government efforts and incentives together with private sector initiatives,

according to a report 'Indian Gems and Jewellery Market Forecast to 2013', by

research firm RNCOS. As per the research report, with India's consumption pegged at

nearly 24 per cent in 2008, the country remains world's largest gold consumer and

this share is expected to grow further. Moreover, India also forms the largest cutting

and polishing Industry for diamond in the world. The Government policies and the

14

banking sector have provided a lot of assistance to this sector with around 50 banks

providing nearly US$ 3 billion of credit to the Indian diamond industry.

India will soon overtake the US to become the third-largest men's luxury jewellery

market in the world, according to Euromonitor International. The study estimated that

the country's men's jewellery market stood at around Rs 954 crore (US$ 194.4

million), in sales and it is projected to grow by 36.4 per cent in 2012. "Although it's a

niche market, it is growing. Nobody can ignore it now," as per GR Radhakrishnan,

Managing Director, GRT Jewelers, who pegs the share of men's jewellery in its total

sales at 20-25 per cent.

Indian sellers on eBay, a leading online marketplace, export an item internationally

every 32 seconds, according to the company's Asian exporters' index. 44 pieces of

jewellery are sold every hour by Indian sellers on eBay.

Ratings agency CRISIL has launched a Gold Index to track the performance of gold

prices in the Indian market. This is the first index launched by CRISIL in the

commodities space. The purpose of the CRISIL Gold index is to provide an

independent, relevant and common benchmark for performance evaluation of

investment products with gold as underlying investment, according to a release from

CRISIL.

Swiss watchmaker Rado, a part of the world's largest watch conglomerate The Swatch

Group, recently unveiled its luxury jewellery collection at the Rado boutique in

Banjara Hills in Hyderabad. This range features beautiful diamond studded watches.

The Rado jewellery collection brings together an exquisite selection of the brand's most

celebrated products. The Swiss watch brand has been a pioneer in the use of

innovative materials such as hard metal, high-tech ceramic, lanthanum and ceramos.

It also features convex, dome-shaped sapphire crystals, affording innovative watch

designs and shapes. The jewellery range is priced from Rs 30,000 (US$ 574.66) to Rs

4,000,000 (US$ 76,626.75).

"In the last 3- 4 years, a lot of Indians are investing in gold which is in the paper

format. People should take a long-term perspective while investing in gold. ETFs as a

15

concept is picking up," as per Jiju Vidyadharan, Head, Funds and Fixed Income

Research, CRISIL Research.

Industry Structure

The gems and jewellery industry in India is greatly dominated by the unorganized

players, but with the growing economy and increasing income levels, the organized

segment and retailing of branded jewellery is fast catching up in the currently

fragmented market which is worth US$ 16 billion and shows huge potential for growth

in the future. The centre of trade in India's Gems and Jewellery industry is Mumbai.

Most imports of gold and rough diamond arrives in Mumbai. However, most of the

processing of diamonds takes place in Gujarat.

Key Industry Components

Diamonds: Currently India is the major polishing and cutting hub for diamonds. India

is also the third largest consumer of polished diamonds. The surge of urbanization

and rapidly growing middle class in India has led Indian consumerism to new heights,

particularly in the diamond jewellery sector. Every 11 out of 12 diamonds sold around

the world are processed in India regardless of the place they are mined.

Gold: The country became a leader in the table of most gold consuming nations with

the consumption amounting to about 16,000 tonnes. The other key markets include

Japan, China, Turkey, Italy, USA and UK. It is also estimated that about 600 tonnes of

gold is used to make jewellery.

Costume jewellery: The Indian costume jewellery market is also witnessing growth in

the international market, as per the Export Promotion Council for Handicrafts. The

industry body further stated that the Government is also working towards formulating

an international compliance code for manufacturing costume jewellery.

The current global costume jewellery and accessories market is estimated at US$ 16.3

billion, of which India only exports around US$ 53 million, thereby, providing a huge

opportunity area for the Indian costume manufacturers.

16

Exports

India is the largest market for gold jewellery in the world, representing an amazing 746

tonnes of gold in 2010. The net exports of gem and jewellery grew from US$ 22,616.35

in April-October 2010 to US$ 26,160.04 in April-October 2011.

Gems and Jewellery Industry in India: Road Ahead

The enormous growth of the Indian gems and jewellery industry has seen the arrival of

many new branded jewellery shops in various metros of this country. Brands such as,

Damas Jewellery, Reliance Retail, Swarovski, and Joy Alukkas are either opening or

have already opened their new branches. The availability of cheap labour and presence

of well skilled people in various states of India is helping in the growth of diamond

polishing and gold jewellery markets. According to experts in the jewellery industry the

growing demand for expensive jewellery in India is a result of the strengthening Indian

economy. India will soon overtake the US in the not so distant future, as per a

statement given by Rapaport Group, the well known keeper of global diamond related

data.

______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

17

Firstcall India Equity Research: Email – info@firstcallindia.com

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

D. Ashakirankumar Automobile

A. Rajesh Babu FMCG

H.Lavanya Oil & Gas

Dheeraj Bhatia Diversified

Manoj kotian Diversified

Nimesh Gada Diversified

Firstcall India also provides

Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s,Takeover

Offers, Offer for Sale and Buy Back Offerings.

Corporate Finance Offerings include Foreign Currency Loan Syndications,

Placement of Equity / Debt with multilateral organizations, Short Term Funds

Management Debt & Equity, Working Capital Limits, Equity & Debt

Syndications and Structured Deals.

Corporate Advisory Offerings include Mergers & Acquisitions(domestic and

cross-border), divestitures, spin-offs, valuation of business, corporate

restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &

Execution, Project Financing, Venture capital, Private Equity and Financial

Joint Ventures

Firstcall India also provides Financial Advisory services with respect to raising

of capital through FCCBs, GDRs, ADRs and listing of the same on International

Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and

other international stock exchanges.

For Further Details Contact:

3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071

Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089

E-mail: info@firstcallindiaequity.com

www.firstcallindiaequity.com