Questions:

1) Revenue:
A) What is the revenue mix (Domestic: International) at present? From AR 20121, it mentions
over 80% of sales being derived from exports; given your current retail expansion what kind of
split (sales mix domestic: export) are you aiming for FY13-15?

B) What kind of new geographies are you aiming to export in the next 3 years, given your new
manufacturing base in UAE?

C) On a consolidated basis SGJH clocked revenues of 5,840 Cr in FY 2011. It has already clocked
10,288 Cr in FY2012. Given the tough macroeconomic scenario, what kind of sales growth do
you target for FY13 and FY14?

2) Operating Margins:
Give the last 5 quarter results:

Consolidated: Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

Revenue 2,572.21 2,651.24 2,862.59 2,124.35 3,038.20
EBITDA 111.47 126.06 129.56 262.43 162.25
EBITDA margin 4.33% 4.75% 4.53% 12.35% 5.34%

Standalone:
Revenue 2,406.34 1,522.42 1,466.74 1,278.27 2,069.78
EBITDA 97.69 76.8 53.3 218.39 117.77
EBITDA margin 4.06% 5.04% 3.63% 17.08% 5.69%

As compared to the last 4 financial years,

Consolidated: FY 09 FY 10 FY11 FY12

Revenue 2,860.09 3,475.52 5,840.16 10,120.97
EBITDA 137.23 176.31 304.6 493.69
EBITDA margin 4.80% 5.07% 5.22% 4.88%

Standalone:
Revenue 2,149.99 2,952.25 5,243.15 6,593.61
EBITDA 201.51 251.55 389.72 523.93
EBITDA margin 9.37% 8.52% 7.43% 7.95%

Kindly take us through what caused this drastic fall in Operating margins. Also as seen in the
past, standalone business operated at a better margin than which has now reversed (last 5
quarters). Kindly explain this change.
3) Client Concentration:
Page 21/56 of AR 2012 mentions the largest client contributing 13% of sales (down from 17% in
FY11); what is the revenue concentration from top 10 customers and top 5 customers?

Also what is your strategy to mitigate the geo-political risk at your major export geographies
(contingent liabilities arising from the default of largest client)?

4) Contingent Liabilities:
We understand it is natural for an exporter to have huge contingent liabilities based on the
contingency of a probable payment default from customers abroad. Given the following trend

FY09 FY10 FY11 FY12

Shree Ganesh Revenue 2860.09 3475.52 5839.91 10120.97
Contingent Liabilities 693.49 978.31 1203.3 1785.89
%age of Revenue 24% 28% 21% 18%

Rajesh Exports Revenue 11376.91 17894.96 20045.16

Contingent Liabilities 126.89 46.67 139.39
%age of Revenue 1% 0% 1%

Gitanjali Gems Revenue 5088.88 6527.63 9456.4

Contingent Liabilities 425.18 1652.9 4972.9
%age of Revenue 8% 25% 53%

Titan Industries Revenue 3957.03 4808.87 6725.72 8983.15

Contingent Liabilities 38.96 53.61 58.15 158.45
%age of Revenue 1% 1% 1% 2%

Thangamayil Jew Revenue 246.84 450.95 657.72 1131.51

Contingent Liabilities 0 0 0 0
%age of Revenue 0% 0% 0% 0%

a) As compared to a pure exporter like Rajesh Exports or a pure retailer like Titan Industries in
the same business, your contingent liabilities are abnormally high. What kind of business
risk does this entails and what is the possible course correction for Shree Ganesh?
b) Given your retail foray with ready selling to retail customers, CL as %age of sales should
come down with growing retail shops. What kind of CL as %age of revenue to you target for
the future?
 c) Also given the rise of CL in absolute rise in contingent liabilities how serious a threat in
terms of continuation of business and liquidity does it poses on a major customer default?

5) Long Average Collection Period from Debtors:

Based on the debtor turnover ratio, the average collection period for Shree Ganesh is pretty
high, which implies somewhat inefficient management of debtors or less liquid debtors. Kindly
take us through the terms of your credit sales and help us understand this.

Debtor Turnover Average Collection

Ratio (x) Period (Days)
Shree Ganesh 4.75 76.84
Rajesh Exports 18.28 19.97
Gitanjali Gems 2.61 139.85
Titan Industries 63.53 5.75
Thangamayil Jew. 3,650.03 0.10

Furthermore on the same issue, as seen in the Annual Report of 2012 (Page 47/56), a large part
of the debts outstanding are for a period exceeding six months which is a cause of worry, as
these might lead to further bad debts and dent the bottom line. What actions are you taking in
this regard for faster collection of outstanding debts?
6) Risk of Bill Collection Failure :

Based on the data from Annual Report 2012,

AR 2012 Page No
Sale of Goods (Rs Cr.) 10,120 42/56
Exports 80% 4/56
Credit Sales (Rs Cr.) 8,096
Sundry Debtors (Rs Cr.) 3,002 42/56
Debtor Turnover (x) 4.75
ACP (days) 76.84
Bills Discounted (Rs Cr.) 1,234 48/56
%age of Revenue Outstanding 12%

The average collection period is ~77 days. So we see a huge 12% of the revenue is outstanding
(revenue yet to be collected but showing up in the balance sheet as reserves).
Kindly take us through the coverage/provisions to mitigate the risk of default on such a huge
amount.

7) Retail Expansion:
At present there are 46 company-owned ‘Gaja’ stores and 7 franchisee-run ones. The company
has given projections of opening 100 stores by FY ’13. It plans to have 50 company-owned stores
in two years and 50 franchisee-run stores in one year.
 a) What is the average contribution to revenue and profitability from each store, both
company owned ones and franchise stores? Earlier management mentioned that average
domestic profit per show room of SGJHL is around 33 lakh per quarter.
b) Kindly update us on the capital expenditure incurred (both store opening as well as
inventory pile up) for opening new stores? Apart from utilizing IPO proceeds do you need
other sources of funds (internal accruals/debt) to fund these?
c) What is the current projection on store count based on Company owned outlets, franchise
stores and shop-in-shop stores within Bharti EasyDasy stores?
d) What is the revenue projection from retail sales for FY13 and FY14?
e) The management earlier announced plans of opening stores and launching the GAJA brand
in China, Korea and Japan. What is the update on those plans?

8) Capacity Expansion:
Based on the AR 2011, the management produced 15.5 tonnes of Gold Jewellery, 2.08 tonnes of
Medallions and 2.74 million carats of Precious/semi-precious stones. Management is said to be
targeting 50 tons capacity from existing 20 tonnes (Mar 2012).

Facility Current Capacity (As per AR 2012) Craftsmen

Manikanchan
(SEZ) 42000 of handcrafted jewellery 502
Mondalpara 1,500 kgs of Italian fusion jewellery, 60
600 kgs of bangle jewellery and
450 kgs of plain and studded gold jewellery 400
Domjur 20,000 kgs of handcrafted jewellery and
1.5 lac carat diamond studded jewellery
Refining capacity: 35,000 kgs
a) What is the target capacity of production by FY2013? What is the target capacity utilization
for FY13 and FY14?
b) The company has 7 production facilities at Manikanchan SEZ and two scrap gold refineries at
Domjur and Mondolpara. With the Domjur facility finally going on-stream what kind of
refining capacity (operational) are you expecting from it by end of FY13 and FY14?
c) Also as part of the JV with Italian company SALP SPA, the company is targeting a 10 tonnes
capacity at Domjur. What is the capital outlay for all these in FY13 and FY14?

9) Gold refinery at Domjur, UAE: Margin booster ?

a) As indicated by management earlier, the Domjur refinery apart from augmenting capacity
by ~4 tonnes will significantly contribute in reducing cost of gold and enhance margins.
What kind of margin impact do you envision from this?
b) Also the company plans another 20tonne refinery in UAE to complement the manufacturing
facility there. By which period shall this be operational?
10) Gold NBFC:

The recent foray into Gold NBFC from the company is a welcome step as it creates a window of
opportunity to procure gold at lower costs. The Chairman has announced in magazine about 26
branches operational in Gujarat of NBFC loan against gold.

a) What is the expected revenue contribution (in %age terms) from this business?
b) Given the recent clampdown on lending against gold by the RBI what is your strategy
regarding expansion of this business line?
c) What is the average rate of interest in your gold loans? How does it compare to other
established players like Muthoot and Mannapuram?

11) Premium Brands:

Shree Ganesh has recently forayed into the premium segment with opening the first store in
Mumbai (Apr 30, 2012). The management has given guidance of 5 stores by FY14 with an
investment of Rs 125 Cr.

These stores will be very exclusive catering to a niche clientele, who have to take prior
appointment. Initially, it will house GAJA Heritage, GAJA Diamonds, GAJA for Men and GAJA by
Sunita Shekhawat collections starting from Rs 10 lakh. The management also plans for 11 such
stores in Middle East.

a) Given the perceived weakness of the GAJA brand as compared to Tansihq from TITAN and
other brands from Gitanjali with their star endorsers, how do you attract the very rich niche
clients?
b) These stores can help boosting margins by nature of their premiumness and brand value.
What kind of revenue and profit projections can we expect from this by FY14?
c) Also management has accepted the need for a better brand endorser to significantly
improve the brand value. What efforts are being made in this regard?

12) Solar Power:

Shree Ganesh Jewellery House Ltd. (SGHJL) has invested nearly Rs80 crore in solar business by
buying 55% stake each in two companies, marking its foray into renewable energy space,
reports PTI.

The company has acquired 55% in Alex Astral Power Ltd which has 25-MW solar power project
in Gujarat and Alex Spectrum Radiation Ltd in Rajasthan with a total investment of nearly Rs80
crore; both companies are now its 55% subsidiaries. Alex Green is co-promoted by the Sureka
Group.
 a) Since your retail expansion and capacity addition in India and UAE entails huge capital what
is the justification of such unrelated diversification?
b) Give the huge expertise of the management wouldn’t it be better to focus your resources at
the core business, especially at the time of falling gold sales and declining margins?
c) Given the Alex group’s plans of massive 500MW solar power what kind of further
investments are required from Shree Ganesh in this regards?
d) Since both companies are subsidiaries ( >51% stake) what kind of revenue and profit
contribution can be expected from Alex group in consolidated results ?

13) Debt sourcing:

Recent Bloomberg data shows company sourcing huge loans to the tune of 2770 Cr from a
consortium of 21 Indian banks led by SBI and Axis Bank.

a) Since your revenues are largely export based, why is the company not looking as ECB
financing which would also provide it with natural hedge since the UAE dirham is a much
stable currency as compared to INR?
b) What kind of debt servicing (in terms of D/E and Interest Coverage) thus the company wants
to aim forward for FY13 to FY15?

14) Improving brand GAJA:

GAJA hadn’t had any star brand endorsers post Mandira Bedi. While Gitanjali is continually
pushing for aggressive branding with plethora of star endorsers, SGJH have not roped in any
fresh faces yet.

a) What kind of brand promotion and endorsements are you planning? What would be your
promotion budget (as %age of retail sales) going forward which is critical for the success of
retail chain.
b) Is there a credibility/visibility issue with the brand which is why star endorsers are unwilling
to endorse this? What corrective actions are you looking at?

15) Tax Rate:

Regarding the tax front, the company is paying minimal tax due to its EOU status and
manufacturing facilities in SEZ. Going forward what effective tax rate do you envision for FY13
and FY14?

16) Dividends:

Given the strong cash flows (operating cash of 199.06 Cr in FY12 as compared to -182.57 Cr in
FY11) the company maintained the same old dividend of Rs 6 (as in FY11). The dividend payout
(Rs 5 on annualized EPS of Rs 75) at 8% is very low. What kind of dividend payout do you
envisage that will provide downside support to the stock?