Further, few open points/ red flags based on my research are as under:
• Whether a diamond jewellers books can be trusted considering that it is one of the most unorganised sector. Also the fact that the auditors of the company are a small CA firm not having a website of its own. One positive aspect that have been very transparent in their disclosures in the annual report, wherein the financials at a detailed line item level are disclosed
• What could be the MOAT for the early movers? As per the below statement by Anmol Bhansali, the only MOAT is as under:
“There are two processes of manufacturing lab-grown diamonds. Most large diamonds, which… when I say large, I mean one carat and larger; most diamonds of that size are grown via the CVD process, which is the same process that we use at Goldiam. Within that, there is no way to differentiate diamonds in terms of the formula for growing any such thing. Some manufacturers may be producing poorer quality and not have great consistency with their production. So we have reached a stage where we are going to very well commercialized US quality diamonds and we’re very happy with our production at Goldiam regarding commercialised, pleased diamond growth.
From our angle, we’ve always maintained that distribution will be the key differentiator between us and our competition. Today and even for, I believe, the foreseeable future, Goldiam is the only jewellery entity which is fully backwards integrated into lab-grown diamonds. So, whenever you look at us, you have to analyze us from the angle and viewpoint of a jewellery company first rather than a loose diamond company doing a little bit of jewellery here. So as a jewellery company, we are the only ones with our captive growing capacities in lab-grown diamonds.
We are using that as a jewellery entity and another jewellery distributor. In two ways, number one, it allows us to offer more products to our retailers, which earlier we could not do. And number two, selling those products will enable us to enjoy higher margins because we also enjoy the margin of growing the lab-grown diamond. So, from our angle, we are focused on not distributing our diamonds loose in a large or extended way to the general market and general diamond trading hubs. We are focused on integrating it within jewellery and selling the jewellery onward to our retailers or direct-to-consumer, whichever way is preferable. So, from that angle, we believe, and we’ve always maintained, distribution is the key.
In that sense, how we defend ourselves with increasing competition is already happening. If it happens in the future, more competition will come, and markets will open up. However, we believe that we have to, as a prudent distributor, work with our retailers to put in good SKUs, well-designed SKUs of finished jewellery, integrated with our lab-grown centres and use our Lab to empower that supply chain. That’s the way forward.”
• Is the manufacturing process be easily replicated? Looks like yes, however the co. can have an early mover advantage.
• Since they are not merely into diamonds but in the diamond jewellery, the gold price is also going to impact the sales. The fluctuation in the price of gold would have an impact on the companies revenues/ earnings?
• Director’s remuneration is very high to the tune of aggregate remuneration of Rs. 16 Crores.
• Why the GSTR 1 return for the month of March 23 was delayed, was that to jack up the turnover – It’s a very big red flag.
• Can it be said that one of the reasons for such high dividend distribution is because they are also an investment company having big amounts parked in mutual funds and it looks that promoters look to build capital using the dividend cash flow. Does it mean that they are not really having a strong positive outlook on their own business?
• The quantum of fixed assets is at Rs. 50 Cr which is very less considering the size, growth, research and technology needed to scale in this new domain. Further, the number of employees is only 40 and the rest are contract labours which seems to be very less in comparison to the peers.
• The VP (Sales & BD) appointed in NY, left the job in 5 months.
• Increase in the turnover base of lab grown diamonds would have a significantly positive impact on the ROE base, although once the competition creeps in such high margins would not sustain for a longer time. In FY, 2022-23, already, the industry is in the phase of Price war and price reduction on the lab grown diamonds, which has also impacted their top line this year.
• Since they are working with the retailers and also are further looking to work only with the retailers, I don’t think they would ever be able to command pricing with the customers.
• There is no senior sales executive stationed outside India for the market development.
• There is no clarity on the resale value of the lab grown diamonds, although it is being said that the retailers would offer buyback, however natural diamonds are bought back by anyone, whereas lab grown diamonds may be only bought by the seller making it negative from the customers perspective as many people still consider jewellery as an investment.
• The US ban on dollar payments to Russia would have a negative impact even going forward until this geo-political issue comes down.
• Company is looking to increase our wallet size with each retailer, right, as well as the ticket size with each retailer instead of adding new retailers.
• The co. doesn’t seem really focused/ aggressively looking to venture into other regions outside of US.
• They do not really seem to have a great in house research & development team, therefore how they are going to stay ahead of the competition by innovating new things is not clear. They are not an innovation based company.
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