Despite its rapid expansion and big-ticket deals, Gitanjali Gems’ financials and stock movement is nothing to write home about

Gitanjali Gems Limited, a manufacturer and retailer of diamonds & jewellery, has been trying to expand its business horizon, with a number of overseas acquisitions and strategic moves over the past few years.

From the established retail & lifestyle sectors and to investment in real estate, the company has its fingers in a number of business pies. Despite all these overseas expansionary moves, its profits from its core business seem shaky.

A closer look at the financials of the company does not reveal a glittering picture. Gitanjali's operating margin has remained between 6%-8% quarter after quarter; this does not warrant the ambitious expansion and diversification plans frequently announced by the company.

For instance, for the September 2010 quarter, with net sales at Rs1,358.08 crore and operational profit of Rs79.05 crore, the operating margin stood at 6%.

While profits remain under pressure, the company continues to 'expand' overseas.

On 2 February 2011, the company said in a filing to the Bombay Stock Exchange (BSE) that it was "aiming to acquire (the) assets (of) M/s DIT Group SpA., an Italy-based jewellery company. However, in the same release, Gitanjali confirmed that DIT "is under liquidation process with the Civil Court of Alessandria (Italy)."

The Indian company also claimed that Gitanjali "has fulfilled the conditions prescribed by the (Italian) Court and now the matter is up for completion of final formalities."

On 28 December 2010, Gitanjali Gems Ltd informed the BSE that it had "acquired 90% stake in 'Giantti Italia S.R.L.', a company based in Milan, Italy." It confirmed that it had acquired the "said stake from its Dubai based wholly-owned subsidiary 'Gitanjali Ventures DMCC'. By virtue to this acquisition 'Giantti Italia S.R.L.' has become a direct subsidiary of the Company."

This acquisition was ostensibly aimed at "growth of the branded jewellery business and (to) gain the designing and branding concepts expertise from Italy."

In a recent interview with a business daily, Mehul Choksi, chairman and managing director, Gitanjali, said that his company was "planning an investment of about $100 million-$150 million in its e-retailing venture, which it was hoping to launch by the end of FY11."

In yet another interview with a business news channel last month, Mr Choksi had said that the company was "targeting" to bring down its debt by "more than Rs500 crore in the next year (2012)."

The stock hit an intraday high of Rs395 on 12 November 2010. But from then onwards, the scrip has steadily dropped. Today, the scrip was trading at Rs199.95 on the BSE.

In 2006, Gitanjali had announced that it had acquired a majority ownership interest in Samuels Jewelers Inc, in Austin, Texas.

But despite its rapid expansion and big-ticket deals, the financials and the stock movement are nothing to write home about.— Moneylife Digital Team