Classic Diamonds at Rs 16 with Book Value at Rs 56….Should you Buy ? Think Twice….this blog inspired by Response of Dr Sudeep
Dr Sudeep has responded on my recent Sesa Goa blog and requested to throw some light on Classic Diamonds as it’s available for Rs 16 while the Book Value is Rs 56
Well,Dr Sudeep…here’s my take on Classic Diamonds
The Company was set up in 1986 and is run by a Father & Son Bhansali Duo and they own 64% of the Share Capital…The Company plans a preferential allotment of 750000 Share warrants to them…For such a small issue choosing the Warrants route rather than an upfront Shares Issue creates some doubt on promoters liquidity situation
Most certainly Classic Diamonds has regular market makers…even yesterdays volumes were decent…77000+ on BSE and over a Lakh shares on NSE…The Face Value is Rs 2 and the 52 Week High Low is Rs 62 and Rs 7
It’s been earning between Rs 20 crs and Rs 30 crores annualy for the past five years…FY 08 was good at Rs 31 crs,after an Interest charge of Rs 30 crs,giving an EPS of Rs 8 on an Equity of Rs 7.69 crs.It maintained the Dividend at 25%…that’s 50 Paise per share…that’s a poor 6.25 % payout from the EPS of Rs 8…so it’s not even a Dividend Yeild Scrip and makes you suspect on the quality of earnings when shareholders are not being rewarded well…It paid them just under Rs 2 crs,even though it earned a net of Rs 31 crs
The full year FY 09 results should be out next week on June 25,2009…but it had earned Rs 9 crs in the first half and then lost Rs 3 crs in the third quarter to net an aggregate of just Rs 6 crs…last quarter may not excite…In FY 08 the last quarter had shown under Rs 6 crs…Jewellery constituted 1/3 rd of the business in FY 08,upfrom 25% in FY 07…so profits are even throughout the year…..Assuming no further loss and a flat quarter,the EPS would probably be around Rs 2…So expect the Company to skip Dividend for FY 09 or reduce it from 25%
March 31,2008 shows the Company is servicing debt of just under Rs 350 crs….The Reserves are Rs 209 crs and that’s why you are getting excited because it computes to a Book Value of Rs 56…The Debt Equity is 1.6
But The Business Model is not secure…The company earned Rs 31 crs in FY 08 on a topline of Rs 710 crs…that’s a net margin of below 5%…It’s Net Block is Rs 50 crs at 31/3/2008 and Capital Employed of Rs 565 crs was blocked in nearly equal ratio in High Inventories and High Debtors….maybe typical of the Diamonds and Jewellery Sector but these areas simply devour working capital and put pressure on interest cover and are prone to manipulation too