The Hindu Business Line : Vaibhav Gems: Reject

Like most other listed players, Vaibhav Gems too has over a period integrated vertically from an exporter of gems to an exporter and retailer of jewellery.

Retail stores abroad to improve margins
Diversification through entry into Asian markets
Forward integration to improve margins

Jewellery sales now contribute over 70 per cent of the company's sales compared to less than 30 per cent a few years ago. - H. Vibhu

Shareholders can reject the open offer of Vaibhav Gems, a Jaipur-based gems and jewellery manufacturer and exporter.

The market price is at a 50 per cent premium to the offer price.

The stock trades at 18 times its trailing per share earnings and has scope for further gains once its international retail plans start paying off.

Institutional investors have taken a stake in the company through the preferential route and the offer is being made to satisfy regulatory norms. The offer closes on May 2.

Like most other listed players, Vaibhav Gems too has over a period integrated vertically from an exporter of gems to an exporter and retailer of jewellery.

Improved margins

The value addition made in India has increased resulting in higher offtake of finished studded and plain gold jewellery. Jewellery sales now contribute over 70 per cent of the company's sales compared to less than 30 per cent a few years ago. This has resulted in improved margins.

Retailing abroad

Unlike other players, such as Rajesh Exports or Gitanjali, which are setting up retail operations at home, Vaibhav is concentrating its retail strategy in the US and Asian markets. The US is one of the top importers of jewellery. Sales to the US have so far been mainly via large retailers or wholesalers rather than through exclusive stores.

Opening of exclusive stores can further improve margins as the company has control of the entire supply chain.

Vaibhav is staying clear of competition on the domestic front where other players are testing out the retail strategy.

Asian presence

Having a presence in the fast-growing Asian markets such as Japan, Hong Kong and Thailand will enable the company reduce dependence on the US market and also take advantage of the recent demand pick up in Asian markets.

Despite being the top importer, the demand from the US was lacklustre in 2005 after a strong demand pick-up in 2004. Jewellery exports fell sharply in November and December 2005.

On the other hand, the economic growth in Asia is spurring consumer spending in these countries.

The demand for jewellery has been growing in double-digit in the Asian markets.

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