Continuing
my discussion on Winsome Diamond, if one compares Winsome
Diamond valuation with that of Gitanjali Gems, one finds
that Winsome is quoting at a huge discount to Gitanjali. Based on Mar’12 net
profits of 258 crores and EPS of 28.35, Gitanjali is quoting at a P/E of 15.7
based on last quoted price of around Rs. 445. Whereas, Winsome Diamond,
based on Mar’12 net profits of 96 crores and EPS of 9.35, is available at a P/E
of only 3.55 based on last quoted price of around Rs. 32.
Gitanjali
is a very strong brand and shall command a premium in the stock market as
compared to lesser known brands.
But, if you compare the sales of Winsome with that of Gitanjali, Winsome is not far behind and hence must have brand value of its own (Winsome sales for Mar’12 stand at 5546 crores vs. 7745 crores of Gitanjali).
But, if you compare the sales of Winsome with that of Gitanjali, Winsome is not far behind and hence must have brand value of its own (Winsome sales for Mar’12 stand at 5546 crores vs. 7745 crores of Gitanjali).
(1) Based
on valuations by P/E method, Winsome has the potential to
reach a P/E of around 10 (much less than 15.7 of Gitanjali). A P/E
of around 10 should take its price to about Rs. 95 (close to its high
of around Rs. 115 in 2007 bull run). All time high of Winsome
is more than Rs. 400 in eighties.
(2) Based on Enterprise Value/Revenue or market capitalization vs. sales (say MC/S) ratio method, a stock that enters bull phase, this ratio reaches around 2 and may even go up to 5-7. For Winsome diamond, it is 0.06 (Based on (i) market price of around 32 (ii) 2011-12 sales - 5546 cr and (iii) MC - 340 cr). If this ratio has to approach 2, then on present sales of March 2012, Winsome price should reach around Rs. 1060 and much more based on 2013/14 sales.
(3) However, for the time being I shall target a price of only Rs.
95 (based on P/E method) for Winsome and reassess its target (i) after it
achieves Rs. 95 and (ii) based on market conditions for diamond jewellery
sector at that time.
(4) Just to mention, FIIs hold around 55 % stake in Winsome diamond.
Whatever you have said in favour of Winsome is true,but there must be some reason that all scrips dealing in gems & jewellery have skyrocketed whereas Winsome has been languishing ever since it listed.There is suspicion on its foreign holding too.They have invested at such high valuation without looking at business model & return on their investment?Or market is stupid to give rich valuations to all scrips in this sector except Winsome?Please explain its severe under performance so far in 18 years.Investors have only burnt their fingers in touching Winsome Diamond.
ReplyDeleteJust because current market price of Winsome is lower than what FIIs paid for acquiring stake in Winsome does not go to prove that FIIs have invested in Winsome at a high rate without studying the business model. As and when Winsome becomes bullish (difficult to predict the time), I think it has the potential to cross 4 figure mark. I think FIIs have same thing in their mind.
ReplyDeleteI have been holding shares since this company was called as Su-Raj Diamonds. I added few thousand shares after reading your blog. Now the stock price has crashed to Rs. 16 today, completely negating your recommendations. Why Jatin mehta has resigned ? What happens to the devolvement of L/C's of US$ 95 million ? (This is some coincidence..your target price was also 95)Why the company is not coming out with explanation ? You must respond immdtly
ReplyDeleteEven, I am going through the same pain as you are. I am unable to understand what this company is up to. May be the answer lies in one of my blogs titled "Some priceless quotations on stock markets. Must read for every investor". All the best to you!
DeleteIt is difficult to digest that a company with such a pedegree could fall by the way side. Will Company management explain ?
ReplyDelete