BSE Ltd (BSE) own and operate the BSE exchange platform (formerly, the Bombay Stock Exchange), the first stock exchange in Asia, which was formed on July 9, 1875.

Laying foundation for the next leg of growth

BSE Ltd (BSE) own and operate the BSE exchange platform (formerly, the Bombay Stock Exchange), the first stock exchange in Asia, which was formed on July 9, 1875.

BSE Ltd (BSE) own and operate the BSE exchange platform (formerly, the Bombay Stock Exchange), the first stock exchange in Asia, which was formed on July 9, 1875.

BSE Ltd (BSE) own and operate the BSE exchange platform (formerly, the Bombay Stock Exchange), the first stock exchange in Asia, which was formed on July 9, 1875.

BSE Ltd (BSE) own and operate the BSE exchange platform (formerly, the Bombay Stock Exchange), the first stock exchange in Asia, which was formed on July 9, 1875.

Rajesh Exports[RJEX_IN; Rs.213 billion/US$2.99 billion market cap; US$2.62 million total average daily value traded] reported positive growth in net profit on a QoQ and YoY basis despite a blip in revenues due to a global economic slowdown and a higher gold price. Revenues for the fiscal third quarter [ended December] came in at Rs.406 bn, down 8% on a YoY basis. However, the strategy to focus on the sale of high margin products by the company is expected to revive growth for the company in the coming quarters. The surging order book also indicates that the company will show sustained growth in revenues and profitability for the FY03/2020 and beyond [more details below]. For the third quarter, EPS increased marginally by 0.2% to Rs.10.72 vs. Rs.10.70 in Q3 FY2019, while net profit also increased by 0.2% from Rs.3.15 bn in Q3 FY2019 to Rs.3.16 bn in Q3 FY2020. The net profit growth was marginally positive as compared to the decline in revenues on account of decrease in raw material costs as a percentage of sales leading to an improvement in gross margins for the third quarter in a row. Our conversations with CEO Rajesh Mehta suggest the company is on track to post sustained growth YoY and QoQ in both revenue and EPS for the current fiscal year ending 03/2020, as well as next year. Our FY03/2021 earnings forecast of Rs. 50.64 per share implies a growth of 13% over the FY03/2020E earnings. The USA end market remains robust with strong consumer spending accompanying record low unemployment, while Europe has shown an uptick as evidenced by the export orders executed by the company in Q3 FY2020. Maintain Estimates and Price Target Rs. 900; 25% Upside We maintain our FY2021 earnings estimates of Rs.50.64 per share on account of a continued growth in revenues and an increase in profitability. We maintain our one-year price target of Rs. 900 on the stock. Our price target represents an upside of approximately 25% from the current levels. Our 12- month price target on the stock is based on DCF methodology and backed by traditional P/E multiples as well. Please see detailed earnings and valuation model attached. Rajesh Exports is the world’s largest refiner of gold and largest exporter of gold jewelry with a 40% market share in India. With over 30 years of operating history, the company is a low cost manufacturer due to economies of scale, and it derives 90% of its revenues from exports. The company is rapidly expanding in retail stores in India as well, with 82 stores presently. The company is a prime beneficiary of secular growth in Indian and Asian gold and jewelry demand. Over the last five years, the company has recorded a CAGR of 29% in EPS and 44% in revenues. Our DCF-based price is Rs.857 which assumes a 13% WACC and a 3% terminal growth rate. Our Rs. 900 price target implies a P/E multiple of 20x on our FY03/2020 EPS estimate of Rs.44.66, and a P/E of 18x on our forward FY03/2021 estimate of Rs.50.64. We continue to remain positive on the margin growth story based on the company’s strong execution seen over the last 18 months. While the company operates at a low level absolute of operating margins, a relatively small increase in margins can be highly accretive to the EPS. Currently, the stock is trading at a P/E multiple of just 16x on our FY03/2020 EPS estimate, and a P/E of 14x on our forward FY03/2021 estimate, which is at a significant discount to its 5-year average P/E of 16x, as well as the overall Indian stock market where the benchmark NIFTY Index is trading at a trailing 27x P/E level. Also, the stock is trading at a Price/Sales ratio of just 0.12 on our FY03/2020 revenue estimate and a P/S of 0.11x on our forward FY03/2021 estimate, which is at a significant discount to the trailing P/S ratio of 2.0x for the NIFTY Index. Order Book Swells by 17% QoQ to Rs.624 bn At the end of the third quarter ended December, the order book surged by Rs. 90 bn to Rs. 624 bn from Rs. 534 bn at the end

Difficult times ahead; downgrade to Hold

Attractive valuations and dividend yield; maintain Buy

Have a break; downgrade to Hold