Rajesh Exports Ltd (Rs.283.60)

A High - Risk - High - Gain Opportunity For Long Term, Amidst US Rate Cuts, Future Expansion And Perennial Mangement Issues..

Rajesh Exports Limited (REL), incorporated in 1989 and headquartered in Bangalore, India, is a global leader in the gold industry. As the only company worldwide with a presence across the entire gold value chain—from refining to retailing—REL processes an impressive 35% of the world's gold production, making it the largest processor and exporter of gold products from India. Renowned for being the lowest-cost producer of gold jewellery, the company operates state-of-the-art manufacturing and research facilities, with key operations in Bangalore and a significant refining facility in Balerna, Switzerland.

The Company is the largest refiner of gold in the world. With the acquisition of Valcambi, the world’s largest gold refinery at Switzerland, Rajesh Exports has built up a total capacity to refine 2,400 tons of precious metals per annum. Valcambi is a LBMA accredited refinery, the gold bars produced at Valcambi are good delivery bars, accepted across all the precious metal exchanges of the world and by all the Bullion banks.

Rajesh Exports Ltd is the largest Manufacturer of gold products in the world. Across its various manufacturing facilities Rajesh Exports has a total installed capacity to manufacture 400 tons of world class gold products per annum including the finest plain and studded jewellery, medallions and coins. 

Rajesh Exports has set up the world’s finest R&D facilities in Switzerland and in India for developing new designs and for evolving innovative manufacturing process for manufacture of world class gold products.

The Company exports its products to various countries around the world and also supplies its products to bullion banks, central banks, wholesale jewellery trade and retail jewellery trade.

Rajesh Exports has set up 82 retail jewellery showrooms under the brand name of SHUBH Jewellers. SHUBH Jewellers is one of the most trusted household jewellery brand names in South India known for quality, designs and value for money prices of its products.

REL's extensive marketing network covers India and major global gold markets, supported by one of the largest active jewellery design databases with 29,000 unique designs. Committed to innovation, REL has developed advanced technologies and processes in jewellery manufacturing while upholding the highest standards of corporate governance.

The US Fed's Rate Cut: The U.S. Federal Reserve's recent rate cuts could provide a supportive macroeconomic backdrop, while the company’s future growth prospects, particularly through diversification into lithium-ion batteries, add further interest. However, it’s important to examine the June 2024 quarterly results realistically and understand the company's broader context before making an investment decision.

June 2024 Quarter Results: Marginal Sequential Improvement: The sales of the company declined by 29.56% to Rs.60,355.50 crore in the quarter ended June 2024 as against Rs.85,688.59 crore during the previous quarter ended June 2023.

The net profit of Rajesh Exports declined 96.17% to Rs.11.86 crore in the quarter ended June 2024 as against Rs.309.36 crore during the previous quarter ended June 2023.

On the positive side, the company’s net profit (on sequential basis) rebounded in Q1 2024-25, growing by 137.57% from the previous quarter to ₹11.86 crore.

This, though Rajesh Exports Ltd's June 2024 quarter results showed a sequential improvement compared to the previous March 2024 quarter, but they still fall short of robust performance on a yearly basis. However, this is expected to improve from 2025, when its Lithium-ion battery factory starts operation.

The order book position of Rajesh Exports Ltd, as of  30th June, 2024 is a whooping Rs.7,02,564 million.

US Dollar Impact on Gold Prices and Rajesh Exports: Gold, being globally priced in USD, often becomes cheaper when the dollar weakens. With the U.S. cutting rates, the dollar is expected to fall, which makes gold more affordable for international buyers. This can boost demand for gold, especially in emerging markets, which could benefit Rajesh Exports, both as a gold refiner and exporter.

Rajesh Exports’ business, which processes 35% of the world’s gold, stands to gain from higher gold consumption as the metal becomes more accessible. Additionally, a weaker dollar could also ease cost pressures on the company’s export operations, further helping its profitability.

Diversification into Lithium-Ion Battery Manufacturing: One of the key future growth avenues for Rajesh Exports is its planned foray into the lithium-ion battery market. Under the PLI (Production Linked Incentive) scheme, the company is setting up a 5 GWh lithium-ion battery manufacturing facility. The plant is expected to be operational by 2025, adding a significant new revenue stream to the company’s existing gold business.

Rajesh Exports Limited’s exciting venture into advanced technology energy solutions, gained significant traction through a Tripartite Agreement with the Ministry of Heavy Industries (Government of India), the Department of Industries and Commerce (Government of Karnataka), and ACC Energy Storage Pvt Ltd. Selected as one of three successful participants in the Rs.18,100 crore PLI Scheme for Advanced Chemistry Cells, REL has established a 100% subsidiary, ACC Energy Storage, to manufacture lithium-ion cells for batteries. The agreement includes assurances of support from both the central and state governments for the establishment of a 5 GWh Factory, with a customised incentive package from Karnataka. Last year's, Mr.Rajesh Mehta emphasised the company’s commitment to providing clean and green energy solutions, aiming to position REL as a global leader in advanced energy storage technology while continuing its legacy in the gold business.

The diversification into energy storage solutions is strategically important, as the demand for batteries—driven by electric vehicles (EVs) and renewable energy—continues to rise both in India and globally. By 2025, when production begins, Rajesh Exports could see substantial new revenue from this sector, helping to offset any volatility in the gold market.

Expanding Retail Presence:  In addition to its gold refining and export business, Rajesh Exports has expanded into gold retail through its ‘Shubh Jewellers’ brand. The company currently operates 82 retail outlets across Karnataka, catering to growing domestic demand for branded and affordable gold jewelry.

While this segment is relatively small compared to the company’s global operations, it provides steady domestic revenues and a hedge against volatility in international markets. The potential for further expansion in this segment could be a positive long-term driver of growth.

Recapitulation:

💢 Good Sequential Improvement: The June 2024 results show slight recovery compared to the March 2024 quarter, indicating resilience in a challenging global environment. However, caution is needed as year-over-year performance has not been strong.

💢Dollar Weakness Benefits Gold Consumers: With the U.S. cutting rates, the weakening dollar could lead to increased gold demand, which would benefit Rajesh Exports’ core business in gold refining and exporting. This could help improve margins and revenue in future quarters.

💢Lithium-Ion Battery Business: The upcoming lithium-ion battery plant, expected to start production in 2025, presents a new and exciting revenue stream. With the global push towards electric vehicles and renewable energy, this venture could significantly boost Rajesh Exports’ topline in the years to come.

💢Expanding Retail Footprint: The company’s network of 82 retail stores in Karnataka offers a stable domestic revenue stream. The retail expansion adds another layer of diversification to the business.

Caveat -- A Matter of Governance: It is a concerning reality that, of late, the promoters of Rajesh Exports Ltd. have adopted an uncooperative, careless, and somewhat mischievous attitude towards shareholders. This shift in their demeanor has grown increasingly hostile, painting a picture far from the ideal of corporate governance. For a company that prides itself on being the largest gold refiner in the world, with an impressive order book as of June 30, 2024, such behavior is not only unexpected but detrimental to its corporate ethos.

Even more alarming is the company's recent practice of submitting quarterly results to the BSE and NSE without including a valid telephone number—a glaring oversight that raises red flags. This, in my view, is a blatant violation of the disclosure norms set by SEBI, and it casts a shadow on corporate transparency. The fact that such omissions are allowed to pass unchecked by the stock exchanges is both perplexing and troubling.

What's more concerning is that Rajesh Exports is not alone in this regard. According to my observation, a significant number of listed Indian companies seem to engage in similar questionable practices, which undermines the integrity of the market.

As a dedicated market participant, I sincerely urge the Indian Stock Exchanges, along with SEBI, to ensure that all companies adhere to basic governance standards. At the very least, companies should provide a valid address and telephone number with the documents they submit. This is not just a formality; it is a fundamental expectation of transparency and accountability in the financial markets.

Why 2025 could be the tentative Year For Commencement of Operations of the Battery Plant?

We know from above that Rajesh Exports is setting up a 5 GWh lithium-ion battery plant in Karnataka, under the Indian government's Production Linked Incentive (PLI) scheme. The project is expected to use advanced chemistry cells, and Rajesh Exports has established a subsidiary called ACC Energy Storage to oversee the construction and operation of the facility.

Although specific completion dates have not been officially confirmed as Rajesh Mehta and his team went mute since more than a year, the timeline aligns with the government's broader objectives for battery storage, which aim for completion within the stipulated time under the PLI guidelines. Also, given the scale and complexity of such projects, including the PLI support, the plant could take a few years to become fully operational. 

It is to be noted that the PLI (Production Linked Incentive) scheme for Advanced Chemistry Cell (ACC) batteries, which includes Rajesh Exports' 5 GWh lithium-ion battery plant, requires participants to complete their projects within a specific timeline. According to the PLI guidelines, the manufacturing facilities should be completed and production started within two years from the award of the incentive, with an additional performance period of five years after that. This means that companies need to start production by 2025 to meet the requirements of the scheme. 

Attractive Investment Outlook for Rajesh Exports: As the clean energy sector gains momentum in India, Rajesh Exports stands out as a compelling investment opportunity. Recent developments surrounding the company's lithium-ion battery manufacturing facility highlight its potential for growth and market leadership.

On June 3, 2024, The Business Standard reported that Indian government is intensifying efforts to enhance testing capabilities for advanced chemical cells (ACC) as part of its Production-Linked Incentive (PLI) scheme. This initiative is particularly significant for key beneficiaries, including Rajesh Exports, Ola Electric Mobility, and Reliance New Energy Ltd., all of which are approaching the two-year deadline to operationalize their manufacturing facilities.

Incidentally, Rajesh Exports signed its contract for establishing a lithium-ion battery manufacturing plant under the PLI scheme in July 2022. With the deadline looming, the urgency for the facility's completion is paramount. 

The groundwork for this project however began with an official announcement in January 2023, when Rajesh Exports entered into a tripartite agreement with the Ministry of Heavy Industries and the Karnataka government to set up a 5 GWh lithium-ion cell factory in Karnataka. This strategic investment underscores Rajesh Exports' commitment to contributing to India's burgeoning clean energy landscape.

The government's recent push to ramp up testing capabilities is crucial for ensuring that the ACC batteries produced meet rigorous safety and performance standards. The Ministry of Heavy Industries has been proactive in encouraging testing agencies like iCAT and ARAI to secure accreditation from the National Accreditation Board for Testing and Calibration Laboratories (NABL). This step not only enhances the credibility of the testing process but also assures investors of the reliability of Rajesh Exports' products in the electric vehicle and energy storage markets.

As Rajesh Exports nears its two-year deadline, the readiness of its manufacturing plant is likely to influence stock prices positively. Increased enthusiasm in India's clean energy and electric vehicle sectors further amplifies this potential. The enhanced testing infrastructure will boost confidence in the quality of Rajesh Exports' ACC batteries, solidifying its market position.

The approaching deadline signifies that production is on the cusp of becoming fully operational. This pivotal moment for Rajesh Exports could trigger a notable uptick in its stock price, reflecting heightened investor confidence as the company enters the ACC battery market.

In summary, Rajesh Exports is poised to benefit immensely from the government's initiatives aimed at bolstering testing infrastructure. The ability of its ACC batteries to meet stringent quality and safety standards will not only enhance market confidence but also create new opportunities in the electric vehicle and energy storage sectors. 

This development fortifies Rajesh Exports' competitiveness in India's rapidly evolving clean energy landscape, aligning seamlessly with the country's broader objectives for sustainable energy solutions.

Investors should take note: as the deadline approaches, Rajesh Exports could emerge as a key player driving growth in the clean energy sector, making it an attractive buy for those looking to capitalize on the future of sustainable energy.

Conclusion: At the CMP of Rs. 283.60, Rajesh Exports offers a high - risk - high - gain opportunity with 2 to 3 years perspective (Like my earlier recommendations: Zomato Ltd at Rs.53, Reliance Infrastructure ~Rs.100, Wockhardt Ltd at Rs.170, Premier Explosives Ltd at Rs.28/29, P C Jewelers Ltd at Rs.27/29, etc)

The weakening U.S. dollar and growing demand for gold could provide a near-term boost, while the company’s foray into lithium-ion battery manufacturing offers significant long-term growth potential.

Investors looking for a diversified company with exposure to both traditional (gold) and future-ready (lithium-ion batteries) sectors may find Rajesh Exports an interesting pick. 

Also, as the company navigates the complexities of global demand for gold and the execution of its battery project, it’s crucial to keep an eye on its financial performance in the coming quarters.

Finally, while the June 2024 quarter showed some improvement and it still has a humongous order book position, challenges persist, including the management issues and lack of any information from the company's end since the beginning of last year.

It is therefore essential to approach the stock with realistic expectations and with cautionary visions.