Company Name – Renaissance Global Limited (Renaissance Global) Current Share Price – INR 98.6 (January 19, 2023) Market Cap – INR 936 cr |
1. What is interesting about the stock?
A diamond is a girl’s best friend. But what is a better friend – maybe, a Disney princess diamond!
Renaissance Global Limited, the holding company of the group, was incorporated in 1989 as Mayur Gems & Jewellery Exports Pvt Ltd. It was acquired by Mr. Niranjan Shah and his family in 1995. It was reconstituted as a public limited company and acquired its present name in 2005.
Renaissance Global is a jewelry company focused on distributor, manufacturing, and supplying licensed branded jewelry. It is engaged in designing and manufacturing jewelry in gold, silver, platinum, studded with polished diamonds, and semi-precious and precious stones.
The Company currently holds exclusive licenses for Enchanted Disney Fine Jewellery, Disney Treasures Fine Jewellery, Star Wars Fine Jewellery, and Hallmark. The Company has also launched its brands Irasva, Made For You, and Jewelili.
Renaissance Global has long-standing relationships with marquee global customers. Its B2B clients include Signet Group, Fred Meyer, Helzberg Diamonds, Lao Feng Xiang, department stores like JCPenney, Kohls, Macy’s, and Walmart, and e-commerce platforms like Amazon, Argos, and Jewellery Television. It also sells to retailers in the Middle East like Damas, Joyalukkas, and Jawhara.
Company has eight manufacturing facilities, six in Mumbai (Maharashtra), one in Bhavnagar (Gujarat), and one in Dubai. In 2019, it opened the first IRASVA retail store in Mumbai. As of March ‘22, it had three stores, with plans to expand to 25 stores in India in the next couple of years.
In 2020, the Company launched a direct-to-consumer (D2C) business. This business has shown strong momentum and it expects this business to contribute meaningfully in the future.
Exports contribute to ~96% of revenue in FY22.
Acquisition of Disney Jewelry License:
In 2018, the Company acquired Jay Gems for ~ USD26 million, which had the exclusive “Enchanted Disney Fine Jewelry” license. This marked the Company’s entry into branded jewelry. In 2019, acquired exclusive licenses for the Middle East, China, India, South Africa, Philippines, Malaysia, and Singapore, and in 2020, the Company signed an agreement with Lao Feng Xiang, the second largest retailer in China for distribution of Enchanted Disney Fine Jewelry.
The Company, through its wholly subsidiary Renaissance FMI Inc, acquired Four Mine Inc. which specializes in the sale of branded lab-grown diamond engagement rings. Renaissance Global also signed a strategic licensing partnership with National Football League (NFL) to design a unique branded jewelry collection using NFL intellectual property.
Growth Strategies:
Renaissance Global is expected to show significant growth especially driven by Branded Jewellery segment, of which D2C, is a high-margin business. This shift to licensed brands business and D2C channels will also reduce working capital requirements, and improve profitability, and return ratios. Company plans to achieve at least 50% of revenues from the branded jewelry segment over the next 3-4 years.
2. Key Historical Financials
Company revenue and profit have been growing 8% and 20% on a CAGR basis respectively in the last 5 years. However, the Company faced challenges in FY2 and FY21 due to COVID-19. FY22 revenue growth is also muted with de-growth in Q2FY23 on a YoY basis
EBITDA margin is stable at around 6-8%
Renaissance Global has high leverage: Net Debt/EBITDA ratio of 3x
Cash conversion days are also quite high due to high inventory days – leading to poor cash flow conversion in FY22
ROCE and ROE were 11% and 12% respectively in FY22 – reasonable but not great
3. What is my view on company valuation?
The Company has traditionally traded at a median P/E (5-year) level of 7.5x, but on a TTM basis is currently trading at 10x. As it is considered a distributor and manufacturer of retail jewelry, it trades much lower than the 25-30x of the players in the sector (excluding Titan, which trades at ~66x) which have their brands.
I believe that a consistent financial performance and increasing contribution of D2C and own-brand sales should trigger a rerating, which should lead to an expansion in the P/E ratio and improvement in fundamental ratios like ROE/ROCE.
4. What are the risks to the investment analysis?
Risks to the analysis are:
Any slowdown in discretionary consumption would act as a key risk to demand of the company’s products
Any changes in government regulations, tax regimes, or economic developments in the countries in which the Company conducts business would impact its profitability
The Company faces currency risk as it operates in multiple countries but reports in Indian Rupees. Any variability in currency impacts its reported profitability
About the Author
I have over 17 years of experience in private equity and public markets. I am an engineer by background an MBA from a premier institute in India.
Disclosure
I have had no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.