Goenka Diamond & Jewels Limited is entering the capital markets with an initial public offering (IPO) of 10,000,000 equity shares of face value of Rs.10 each with a price band of Rs. 135- 145 per share. The Company is looking to raise in excess Rs. 1.35 bn through this issue. The issue shall constitute 30.93% of the fully diluted post issue paid up capital of the Company.
Valuation and recommendation:
We value the stock at Rs. 159, by using the DCF method (WACC: 14.8% and Terminal Growth 5%), which offers an upside of 18% over the lower end of the price band and 10% over the upper end. Moreover, the issue appears attractive with an annualized FY10 P/E of 6.9x compared to an average of 15.7x for its peers (Shrenuj, Asian Star, Renaissance, Rajesh Exports and Gitanjali). Additionally, Goenka enjoys better EBITDA margins and net margin of ~10% and ~8.2%, respectively compared to 5.7% and 2.3% of its close peers (Shrenuj, Asian Star and Renaissance). Besides, it has enjoyed a superior ROE (FY09) of over 46% compared to a peers’ average of 10%-18%. Thus, we recommend investors to Subscribe to the issue.
The issue closes on March 26, 2010.