Kalpesh’s Portfolio

Goldiam International Ltd

Have been reading about this company recently,

Company is completely backward integrated, manufacturing LGD’s (Lab grown Diamonds) in their own factory.
Lab grown diamonds are in demand in US market because it cost really cheap relative to natural diamonds.
Company is making upto 40-45% EBITDA margin on LGD & 30% on LGD Jewellery whereas Natural Diamond Jewellery makes just 20%.
revenue share of LGD Jewellery is 20% and LGD is 5% rest 75% is natural diamond jewellery. This 25% share will increase rapidly in future to 50%, this will improve margin’s.
Company went to launch its own e-commerce website for US retailers and now 20-25% sales coming from it, management expect it to grow in future.
Company also looking to expand into EU and Australia, also looking to sell in domestic market.

Looks like a very high growth company is trading at market cap of 1550Cr at PE of just 15.

What a great investment opportunity where nothing can go wrong.

But wait,

1. When their retailer place order for one LGD , it replaces their own order of one Natural diamond, so revenue will decrease and I think it started happening.
2. LGD manufacturing machine price is just 75Lakhs, so many people will start their own diamond manufacturing, competition is going to be furious few years down the line.
3. Goldiam’s margin is 40-45% on LGD at the moment, this margin may be going to go to 3-4% range 10 years from now. This is how things always happen in capitalism.
4. If one performs DCF considering cited points, market cap of 1550cr seems priced to perfect. Things may swing either way in next 2-3 years but for longer term this stock is clear avoid for me.
5. Big investors would want to exit in next 1-2 years, so surely this stock will be pushed to retailers with great story, keep eyes wide open.

Note : – I have not deep dived in this stock and not expert in diamond and diamond jewellery industry, so take my opinion with pinch of salt. I’m writing this post for my own future reference.