Gitanjali in talks to raise $100 mn

Plans to divest 10% in a restructured brand holding company.

Gitanjali Gems Ltd. (GGL), the Mumbai-based leading branded jewellery manufacturer and retailer, has planned a “restructured jewellery brand holding company”where it will divest 10 per cent of equity to private equity (PE) investors, to raise $100 million.

It is in talks with global PE investors Blackstone and CX Partners to do so. And, two sources privy to the development said Bain, Apex and Advent are also front-runners to so invest through acquisition of stake.

The Mehul Choksi-promoted GGL’s aim in doing so is to assess actual valuation of the holding company. Choksi says this would also enhance existing corporate governance practices and bring “world class efficiency” to the company.

KPMG, the global consultancy firm, is currently working on restructuring the company. Initial indications are that the entire domestic jewellery business, including rough diamond sourcing, cutting and polishing to branded jewellery retailing, will come under one roof. This proposed entity will be restructured as a holding company under the parent company, GGL.

According to sources, in a separate valuation prepared by these PE players, the holding company is valued at close to Rs 5,000 crore, three times the current market capitalisation of Rs 1,600 crore of the entire group.

‘Strategic, not financial’
“We do not comment on market speculation,” said Choksi, when asked. But he did confirm the company was in talks with some PE firms but looking at more of a strategic partner than pure funding.

Sources said, “The company intends to issue fresh shares to PE players, thereby divesting its minimum stake between four to five per cent. Later, if need arises, additional equity will be divested with the new valuation.”

The company plans to sell equity shares below the current market price. The GGL share closed today on the Bombay Stock Exchange at Rs 197.65. Rothschild is the investment banker and Keynote is the advisor to the deal. At least two PE players will be engaged in the proposed equity sale. The company, said sources, expected the deal to be signed by January-end.

According to the due diligence, around Rs 50 crore will go to the GGL account, while the remaining Rs 400 crore will be re-invested in the company for working capital and inventory build up.

On how the subsidiary would have a higher valuation than the parent company, an analyst said the subsidiary would be a low-debt company, with a minimum working capital cycle, along with high possibility of return on investment. Considering half of the PE multiple of the industry leader, Tanishq, the valuation could be much higher. GGL’s current book value is close to Rs 2,200 crore.

The company plans to bring all jewellery brands under the holding company, which will be converted into a separate branded jewellery chain.

“With growing interest in Indian consumerism due to high disposable income with the average middle class, global PE players are looking at the Indian jewellery sector, which has been growing at 20 per cent for the past two years,” said Choksi.