Rajesh Exports at Rs 46…should you import into it ?…this is a reply reproduced as a Blog for better dissemination, to Gautam Agarwal’s response in yesterday’s Classic Diamond Blog

Dear Gautam,

Rajesh Exports is in a different league all together…It’s a Premier Trading House…..It’s sales are Rs 10000 crs ….It’s market cap is over Rs 1100 crs at Rs 46 share price…..It’s book value is Rs 33 as on 31/3/2008…Face Value is Rs 1….In FY 08 it earned Rs 200 crs on a topline of over Rs 8000 crs…that’s a small 2.5 % net margin…and in a tough FY 09,we’ve seen erosion in Profits…It will probably close FY 09 with less than Rs 100 crs Net profit,although topline would be Rs 10000 crs…That’s an EPS of Rs 4,half of FY 08 performance….so a 11 Multiple is fine currently(would include some premium for land assets too) ….Their Fixed Assets show Rs 65 crs…so the land you’re talking about at Rs 450 value crs in 2007 may not be in this Company fully…Even if it is ,the per share Value comes to Rs 18 only at this 2007 Valuation…The Land Valuation has probably dropped 40%….So Adjusted Book Value to current date would be closer to Rs 50 at best….With share Price at Rs 46,there is no real margin of safety here…..Also they show Debt of over Rs 1000 crs as on 31/3/2008 and networth is lower…Opening Cash on 1/4/2009 was Rs 5000 crs,but the current liabilities were also over Rs 4000 crs…Net Current Assets though were over Rs 1500 crs
Promoter,Rajesh Mehta has recently pledged 1.5 cr shares for personal reasons…Why would he need Rs 50 crs,assuming a hairline to today’s price ?…..52 Week High/Low is Rs 86/Rs 18…market Volumes are quite strong..in lakhs everyday

At Rs 20 it was clearly a less risky and tempting buy…At Rs 46,the risk goes up,even more in context of declining profits and margins and tight liquidity situation

On the other hand ,Classic Diamond is small…Market Cap is just above Rs 60 crs..Looks tempting to buy it out…but Enterprise Value shoots up with the High Debt…and there is a question mark on the quality of Earnings,Inventories and Debtors

But yes,Rajesh Exports has scale of Operations….and is a better bet than Classic Diamonds,if at all you want exposure in this sector.