C Mahendra Exports Ltd IPO Price INR 95-110 (FV 10)

Sector Gems & Jewellery

Website www.cmahendra.com
Issue Opens 31 December 2010
Issue Closes 6 January 2011
No. of Shares-Fresh Issue 1.5 Crore
Aggregating INR 165 Crore (at Upper band)
Key Executives Mahendra C. Shah, Pravin K. Mehta
Champaklal K. Mehta, Sandeep M. Shah
Registrar Link Intime
BRLM Anand Rathi, Yes bank
Post Issue Equity INR 60 Crore

Company Background
Incorporated in 1978 at Surat (it has present registered office at Mumbai), C Mahendra Exports Ltd is engaged is in the business of
manufacturing and trading of diamonds, precious stones and jewellery. It is an integrated diamond and diamond jewellery player
encompassing sourcing of rough diamonds, trading of rough and polished diamonds, processing of diamonds and manufacture of
diamond jewellery.

Company introduced the flagship brand "Ciemme" in 2003, as a life style brand. Under this flagship brand, they sell jewellery
products like rings, earrings, necklace sets, bracelets, based on various concepts. In overseas market, they sell jewellery only under
"Ciemme" brand name. In USA they sell diamond jewellery to retail outlets through Ciemme (NY) LLC. In Middle East they
directly sell it to the customers.

Currently, Company has two facilities for cutting and polishing of diamonds at Varachha and Udhana in Surat. Further, Ciemme
Jewels Limited owns a jewellery manufacturing facility in MIDC, Andheri, Mumbai. C Mahendra Exports marketing offices
spread across Surat, Mumbai, Delhi, Kolkata, Hong Kong, New York, Los Angeles and Antwerp to market cut & polished
diamonds to domestic and international markets. It has 8 exclusive retail stores and 1 franchisee store in India. It obtains grading
from reputed diamond certifying institutions like GIA (Gemological Institute of America), IGI (International Gemological
Institute) and HRD (Hoge Raad voor Diamant)

Objectives of the Issue

It plans to raise about Rs. 165 Crore (at Upper Band) from the issue, it plans to utilize the proceeds as (besides meeting General &
Issue expenses etc.):
Particulars ` Crore
Setting up of a diamond processing unit at Gujarat Hira Bourse, SEZ, Surat 36.05
Setting up of a jewellery manufacturing unit at Mumbai 23.63
Setting up retail outlets 30
Brand development expenses 20
Investment in capital of C. Mahendra BVBA, Belgium 80
Total Rupees Crore 189.68
Besides, IPO it plans to put internal accruals & reserves for these objectives.
 Highlights
 Gems & Jewellery form the largest export form India. About US$ 22 Billion (12% Share of export) exports are from this
industry.
 According to World Gold Council (WGC), the Indian jewellery market currently is worth about Rs.700 bn (USD14.58
bn). Of this, the urban jewellery market is valued at Rs.280 bn (USD5.83 bn) and the rural & semirural market is valued
at Rs.420 bn (USD 8.75 bn). Gold jewellery forms around 80% of the Indian jewellery market (approx. Rs.560 bn (USD
11.67 bn), with the balance comprising fabricated studded jewellery that includes diamond studded as well as gemstone
studded jewellery. While a predominant portion of gold jewellery manufactured in India is for domestic consumption, a
predominant portion of rough, uncut diamonds processed in India in the form of either polished diamonds or finished
diamond jewellery is exported.
 The Indian gems and jewellery industry is competitive in the world market due to its low cost of production and
availability of skilled labour. The industry employs over 1.30 mn people directly and indirectly. In addition, the industry
has a worldwide distribution network, which has been established over a period of time.
 The Indian gems and jewellery sector is largely unorganized at present. There are over 100,000 jewellery manufacturing
units throughout India and about 6,000 players in the domestic diamond processing industry. There are about 450,000
goldsmiths spread throughout the country. India was one of the first countries to start making fine jewellery from
minerals and metals and even today, most of the jewellery made in India is handmade.
 The diamond processing industry in India has traditionally been one of the largest components of the global trade in
diamonds. India occupies a prominent place in the global diamond industry and has established its position as the largest
exporter of cut and polished diamonds in the world.
 The diamond industry is largely dependent on the supply of rough diamonds. Australia, Botswana, Russia and South
Africa are the major suppliers of rough diamonds and constitute most of the diamond mining markets. Rough diamonds
produced at the mines are distributed for further processing to cutting and polishing centers around the world
 India, China, Israel and Belgium are the leading countries engaged in the diamond cutting and polishing industry globally.
India accounts for approximately 80% share in terms of carat and 90% in terms of pieces.
 C. Mahendra has vast experience of over 3 decades into the business. It is gradually expanding its retail network to take
benefit from rising domestic market for branded jewellery.
 Further, it has operations in Europe to cater the demand for Gems & Jewellery products, also to outsource diamonds from
Belgium. It also has operations in USA, Hong Kong, UAE, etc.

Financial Highlights
` Crore FY 10 June 2010 FY 11 E
Total Income 1865.3 677.43 2723.27
Operating Expenses 1767.31 616.69 2491.79
Operating Profits 97.99 60.74 231.48
Interest 76.94 15.42 81.00
Depreciation 9.5 2.2 10.50
PBT 11.55 43.12 139.98
Tax 5.46 2.74 21.00
PAT 6.09 40.38 118.98
Equity (FV 10) 45 45 60
EPS (Rs.) 1.35 8.97 19.83
PE @ Rs. 110 81.28 12.26 5.55
\
 Peerset Comparison
` Crore (FY 10) C Mahendra** Shree Ganesh Gitanjalai Shrenuj
FY 10 Total Sales 1865.3 2956 6527.6 1036
FY 10 PAT 6.09 168.3 200.17 15.5
Equity 60 61 85 13.9
Face Value 10 10 10 2
H1 FY 2011 Total Sales 1354.86 3028 4376 568
H1 FY 2011 PAT 80.76 147 158.7 13
H1 EPS 13.46 24.10 18.67 1.87
CMP 110 195 200 43
H1 PE (Annualized) 4.09 4.05 5.36 11.49
Market Cap 660 1190 1700 299
M Cap/FY 10 Sales 0.35 0.40 0.26 0.29
**Note: C Mahendra H1 Result is June Quarter Results Doubled.

Risks
 The issue seemed stretched, as in FY 2010, its performance was muted whereas peers displayed good numbers.
 There is no control over the prices of Gold & Precious stones and margins are thin in the industry.
 There are forex and global economic risks in export markets. The best season for Indian Industry is Oct-Dec, which is
over and sector as a whole may see correction.
 The issue is given a low “ICRA-2” Grade.

Valuation & Recommendation: Better value at lower end.

C Mahendra is mid sized Gems & Jewellery player. At upper band INR 110/Share it looks stretched, as the best performance
period for the scrips from the sector is behind. At lower INR95/Share there is some value, however given the excitement in
primary market listing gains cannot be ruled out, even on applying at “Cut Off”.

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