ICRA has assigned an IPO Grade 2 to the proposed initial public offering Renaissance Jewellery Limited (RJL) indicating below average fundamentals. The IPO grading assigned by ICRA takes into account the significant experience of RJL’s promoters and its management in the diamond studded jewellery industry and the advantages available to the company on account of its being located in SEEPZ SEZ. The grading however is constrained by RJL’s high geographic and client concentration.

Besides, the grading also factors in RJL’s vulnerability to developments like imposition/changes of/in antidumping and other similar duties in its target markets for exports.

RJL is currently a US-centric company, with over 97% of its revenues coming in from that country (as of 2006-07). Although RJL is now diversifying into other regions like Hong Kong, the UAE and the UK, it still has a very high exposure to the US, and is vulnerable to regulatory/market changes like imposition of duties and movements in (dollar-rupee) exchange rates. This apart, RJL has very high concentration on a few customers.

In 2006-07, the largest customer accounted for around 42.9% of its revenues on a consolidated basis.The same year, the top five customers accounted for 97.2% of its revenues. So far, RJL was focussing on large distributors in the US, but now plans to target smaller distributors/retailers (having up to 10 stores) there, through its subsidiary RJNY. As of now, loss of even one customer can adversely impact RJL’s income and profits. The company’s success in targeting smaller distributors is yet to be established.In the past, RJL’s exports to the US benefited significantly from the US Generalised System of Preferences(GSP1). Under this, a duty waiver was given to India and some other nations (like Thailand) for export of studded jewellery to the US.

However, since July 2007, the duty waiver has been withdrawn and exports of studded jewellery from India to the US are subject to a 5.71% import duty. This could eliminate the advantage RJL enjoyed so far vis-à-vis other players,particularly from China, who were not eligible under the US GSP. Import duty has also been imposed on other major jewellery exporting countries like Thailand.

The US dollar has been under pressure vis-à-vis the Indian rupee for sometime now. The average dollar rate (vis-à-vis rupee) depreciated around 6.4% during April-June 2007 over the previous quarter. Dollar depreciation has a direct impact on the price competitiveness of Indian exports. If the trend of a strengthening rupee were to continue, RJL’s margins could take a hit. Being an export oriented company, RJL is sensitive to dollar-rupee movements although its position is partly hedged (around 85%) by the fact that its purchases (gold and diamond) are denominated in US dollars.
ICRA assigns IPO gradings on a scale of IPO Grade 5 through IPO Grade 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals. An ICRA IPO Grade is a symbolic representation of ICRA’s currentassessment of the fundamentals of the issuer concerned. Such an assessment involves a comparison both with peers and with other listed equity securities.

Company profile

RJL is in the business of manufacturing studded gold, platinum and silver jewellery using polished diamonds, precious and other semiprecious coloured stones. Its product portfolio includes rings, earrings, pendants, bracelets, necklaces etc. In FY06, the company added bridal jewellery and gemstone jewellery to its product portfolio.

The company has recently opened up retail stores in India under the brand Lucera,which are mainly into low value jewellery made of alloy and cultured diamonds along with very limited high value products. Gems and Jewellery Export Promotion Council recognized RJL as the second largest exporter of studded precious metal jewellery from SEEPZ-SEZ, Mumbai for the year 2005-06.