The third quarter results reveal a troubling pattern for the Bengaluru-based jewellery manufacturer: whilst revenue continues its upward trajectory, profitability remains under severe pressure. On a year-on-year basis, the company has more than doubled its net profit from ₹35.50 crores in Q3 FY25, but the sequential decline from Q2 FY26's ₹104.05 crores highlights the volatility inherent in the company's low-margin, high-volume business model.
For the nine-month period ending December 2025, Rajesh Exports accumulated net sales of ₹5.42 lakh crores, representing a remarkable 141.20% growth over the corresponding period last year. However, this impressive topline expansion has not translated into proportionate bottom-line growth, with nine-month net profit standing at ₹166.00 crores compared to ₹92.92 crores in the previous year—a growth rate that pales in comparison to the revenue surge.
| Quarter | Revenue (₹ Cr) | QoQ % | Net Profit (₹ Cr) | QoQ % | PAT Margin % |
|---|---|---|---|---|---|
| Dec'25 | 2,35,098.28 | +34.18% | 71.48 | -31.30% | 0.03% |
| Sep'25 | 1,75,211.76 | +33.20% | 104.05 | +1,191.82% | 0.06% |
| Jun'25 | 1,31,541.80 | -33.96% | -9.53 | -588.72% | -0.01% |
| Mar'25 | 1,99,189.68 | +106.14% | 1.95 | -94.51% | 0.00% |
| Dec'24 | 96,630.48 | +44.39% | 35.50 | -22.08% | 0.04% |
| Sep'24 | 66,923.67 | +10.88% | 45.56 | +284.15% | 0.07% |
| Jun'24 | 60,355.50 | — | 11.86 | — | 0.02% |
Financial Performance: Margin Compression Amid Volume Growth
The quarter-on-quarter comparison reveals the fundamental challenge facing Rajesh Exports: operating in a business with razor-thin margins. Operating profit before depreciation, interest, tax, and other income (PBDIT excl OI) stood at ₹113.65 crores in Q3 FY26, declining from ₹176.10 crores in Q2 FY26. This translated into an operating margin of just 0.05%, down from 0.10% in the previous quarter—a compression of five basis points that, whilst seemingly marginal, represents a significant deterioration in a low-margin business.
The company's profit before tax for Q3 FY26 reached ₹65.48 crores, a substantial decline from Q2 FY26's ₹137.02 crores. Interestingly, the company recorded a negative tax charge of ₹6.00 crores during the quarter, resulting in an effective tax rate of -9.16%. This anomaly boosted the net profit figure, but the underlying operational performance remains concerning.
Interest costs continued their upward march, rising to ₹45.51 crores in Q3 FY26 from ₹38.63 crores in Q2 FY26, reflecting the working capital intensive nature of the gold refining and manufacturing business. Depreciation remained relatively stable at ₹13.37 crores compared to ₹12.75 crores in the previous quarter.
Capital Efficiency Concerns: Weak Return Profile
One of the most glaring concerns for Rajesh Exports remains its anaemic return on equity (ROE) of just 5.16% on average, significantly below acceptable thresholds for capital efficiency. For a company operating in a capital-intensive industry, this weak ROE indicates that the business is struggling to generate adequate returns for shareholders relative to the equity capital deployed. The return on capital employed (ROCE) stands at 5.95% on average, further underscoring the challenge of achieving meaningful profitability in the gold refining and manufacturing space.
The company's balance sheet as of March 2025 showed shareholder funds of ₹15,681.45 crores, comprising share capital of ₹29.53 crores and reserves of ₹15,651.92 crores. Notably, Rajesh Exports operates with zero long-term debt, positioning itself as a net cash company with an average net debt to equity ratio of -0.10. This conservative financial structure provides cushion during volatile periods but also raises questions about whether the company is deploying capital optimally to drive growth and returns.
Current assets stood at ₹17,238.76 crores as of March 2025, down from ₹18,640.55 crores in the previous year, whilst current liabilities surged to ₹13,435.37 crores from ₹6,705.28 crores. Trade payables nearly doubled to ₹12,418.02 crores from ₹5,920.38 crores, indicating increased supplier credit utilisation to finance the expanding business operations.
⚠️ Capital Efficiency Alert
Weak Return Profile: With ROE at 5.16% and ROCE at 5.95%, Rajesh Exports is generating returns well below cost of capital. Whilst the company maintains a debt-free balance sheet, the inability to convert massive revenue growth into proportionate profitability raises fundamental questions about the sustainability of the business model and whether shareholders are being adequately compensated for the capital deployed in this low-margin, high-volume operation.
Industry Dynamics: Navigating Commodity Price Volatility
As the world's largest gold refiner with capacity to process 2,400 tonnes of precious metals annually, Rajesh Exports operates in a unique position within the global gold value chain. The company's fully integrated business model—spanning from mining to retail through its own brand—provides vertical integration benefits but also exposes it to volatility across multiple segments of the gold industry.
The massive revenue fluctuations witnessed over recent quarters reflect the inherent challenges of operating in a commodity-linked business where gold prices, currency movements, and global demand patterns create significant volatility. The company's five-year sales compound annual growth rate (CAGR) of 20.58% demonstrates its ability to scale operations, but the corresponding five-year EBIT CAGR of -25.19% reveals the profitability challenges that have plagued the business.
The gems, jewellery, and watches industry in India has witnessed consolidation and increased competition, with organised players expanding their footprint. Rajesh Exports' focus on manufacturing and refining places it in a different segment compared to retail-focused peers, but the company's own retail operations face stiff competition from established jewellery chains.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity |
|---|---|---|---|---|
| Rajesh Exports | 40.23 | 0.32 | 5.16% | -0.10 |
| P N Gadgil Jewellers | 20.07 | 4.53 | 17.44% | 0.35 |
| Ethos | 68.38 | 4.64 | 8.68% | -0.34 |
| Bluestone Jewellery | NA (Loss Making) | 3.94 | 0.00% | 2.40 |
| Sky Gold & Diamonds | 24.95 | 5.52 | 22.56% | 0.56 |
| Senco Gold | 12.00 | 2.73 | 13.11% | 0.90 |
Peer Comparison: Valuation Disconnect
When compared to industry peers, Rajesh Exports presents a perplexing valuation picture. The company trades at a price-to-earnings ratio of 40.23x, significantly higher than peers like Senco Gold (12.00x) and P N Gadgil Jewellers (20.07x), despite delivering substantially lower returns on equity. The sector average ROE hovers around 12%, more than double Rajesh Exports' 5.16%.
The company's price-to-book value of 0.32x appears attractive on the surface, suggesting the stock trades at a significant discount to its book value. However, this metric must be viewed in context of the weak return profile—when a company generates ROE below its cost of capital, book value becomes a less relevant valuation anchor. Peers with stronger return profiles command P/BV multiples ranging from 2.73x to 5.52x, reflecting market recognition of superior capital efficiency.
Rajesh Exports' debt-free status provides it with financial flexibility that some peers lack, but this advantage is offset by its inability to generate adequate returns on the equity capital deployed. The company's market capitalisation of ₹5,090 crores positions it as the sixth-largest player in the peer group, but its operational performance lags significantly behind smaller competitors who demonstrate superior profitability metrics.
Valuation Analysis: Premium Without Justification
At the current price of ₹169.10, Rajesh Exports trades at what can only be described as an expensive valuation relative to its fundamentals. The P/E ratio of 40.23x compares unfavourably to the industry P/E of 52x, but this relative discount provides little comfort given the company's weak return profile and margin pressures. The company's valuation grade has oscillated between "Very Expensive" and "Risky" over the past year, currently sitting at "Very Expensive" since August 2025.
The enterprise value to EBITDA multiple of 13.25x and EV to EBIT of 16.08x appear reasonable in isolation, but fail to account for the deteriorating quality of earnings and margin compression witnessed in recent quarters. The PEG ratio of 0.17x might suggest the stock is undervalued relative to growth, but this metric loses relevance when the underlying business demonstrates negative EBIT growth over the medium term.
The stock's 52-week range of ₹151.00 to ₹239.00 illustrates the volatility that has characterised trading in Rajesh Exports shares. Currently trading 29.25% below its 52-week high and just 11.99% above its 52-week low, the stock appears to be gravitating towards the lower end of its trading range as investors reassess the company's growth and profitability prospects.
Shareholding Pattern: Stable Promoter Base, Rising FII Interest
The shareholding pattern for Rajesh Exports has remained relatively stable over recent quarters, with promoter holding steady at 54.55% across the last five reporting periods. This unwavering promoter commitment, with zero pledging of shares, provides some assurance about management's confidence in the business, though it has not translated into improved operational performance.
Foreign institutional investors (FIIs) have gradually increased their stake, rising from 14.72% in June 2024 to 15.26% in September 2025, representing a cumulative increase of 54 basis points. This uptick suggests some international investors see value in the company's integrated gold business model, despite the margin pressures. Insurance companies maintain a significant 10.80% stake, unchanged from the previous quarter but down slightly from 10.95% in December 2024.
Mutual fund participation remains minimal at 0.16%, indicating limited interest from domestic institutional investors. The lack of meaningful mutual fund ownership often signals concerns about business quality or growth prospects. Non-institutional holdings stand at 19.23%, down from 19.56% in the previous quarter, suggesting retail investors may be reducing exposure amid the company's operational challenges.
| Shareholder Category | Sep'25 | Jun'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|
| Promoter Holding | 54.55% | 54.55% | 54.55% | 0.00% |
| FII Holding | 15.26% | 14.94% | 14.70% | +0.32% |
| Mutual Fund | 0.16% | 0.15% | 0.17% | +0.01% |
| Insurance | 10.80% | 10.80% | 10.95% | 0.00% |
| Non-Institutional | 19.23% | 19.56% | 19.63% | -0.33% |
Stock Performance: Prolonged Underperformance
Rajesh Exports' stock performance paints a picture of sustained underperformance across virtually all timeframes. Over the past year, the stock has delivered returns of 6.45%, significantly trailing the Sensex's 9.66% gain and generating negative alpha of -3.21%. More concerning is the medium to long-term performance, with the stock down 44.27% over two years whilst the Sensex gained 14.98%, resulting in a staggering negative alpha of -59.25%.
The three-year performance is particularly dismal, with the stock plummeting 77.83% compared to the Sensex's 35.81% gain—a negative alpha of -113.64%. This catastrophic wealth destruction extends across longer timeframes, with five-year returns of -64.70% against the Sensex's 59.83% gain, and a ten-year return of -76.47% versus the Sensex's 259.08% surge.
The stock's high beta of 1.55 indicates it is significantly more volatile than the broader market, amplifying both gains and losses. However, the sustained negative alpha across all timeframes suggests this volatility has worked decidedly against investors. The stock's risk-adjusted return of 0.14 over the past year, compared to the Sensex's 0.84, further underscores the poor risk-reward profile. With annualised volatility of 46.80%—more than four times the Sensex's 11.53%—investors have endured substantial turbulence without commensurate returns.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -6.88% | -0.94% | -5.94% |
| 1 Month | -2.40% | -0.35% | -2.05% |
| 3 Months | -9.67% | -1.52% | -8.15% |
| 6 Months | -4.11% | +3.32% | -7.43% |
| YTD | -8.07% | -2.28% | -5.79% |
| 1 Year | +6.45% | +9.66% | -3.21% |
| 2 Years | -44.27% | +14.98% | -59.25% |
| 3 Years | -77.83% | +35.81% | -113.64% |
Investment Thesis: Structural Challenges Outweigh Scale Advantages
The investment thesis for Rajesh Exports rests on shaky foundations. Whilst the company's position as the world's largest gold refiner and its fully integrated business model provide scale advantages, these benefits have failed to translate into sustainable profitability or shareholder value creation. The company's Mojo score of 41 out of 100, resulting in a "SELL" rating, reflects the confluence of negative factors affecting the investment case.
The near-term drivers present a mixed picture. The quarterly financial trend has turned "Positive" as of December 2025, marking an improvement from the "Flat" trend in the previous quarter. However, this positive classification appears generous given the sequential profit decline and ongoing margin pressures. The technical trend remains "Mildly Bearish," with the stock trading below all major moving averages and displaying weak momentum indicators.
The company's quality grade of "Average" reflects its mediocre long-term financial performance, characterised by declining operating profit growth despite revenue expansion. The valuation grade of "Very Expensive" indicates the stock offers poor value at current levels, particularly given the weak return profile and operational challenges.
Key Strengths & Risk Factors
✓ Key Strengths
- Market Leadership: World's largest gold refiner with 2,400 tonnes annual capacity provides scale advantages and operational leverage
- Vertical Integration: Fully integrated business model from mining to retail offers control across the value chain
- Debt-Free Balance Sheet: Zero long-term debt and net cash position provide financial flexibility during volatile periods
- Stable Promoter Holding: Consistent 54.55% promoter stake with zero pledging demonstrates management commitment
- Rising FII Interest: Gradual increase in foreign institutional ownership from 14.72% to 15.26% suggests international investor confidence
- Revenue Growth Trajectory: Five-year sales CAGR of 20.58% demonstrates ability to scale operations significantly
⚠ Key Concerns
- Anaemic Return Profile: ROE of 5.16% and ROCE of 5.95% indicate poor capital efficiency and value destruction
- Razor-Thin Margins: Operating margins of 0.05% and PAT margins of 0.03% leave no room for error or external shocks
- Declining Profitability: Five-year EBIT CAGR of -25.19% reveals fundamental profitability challenges despite revenue growth
- High Volatility: Beta of 1.55 and annualised volatility of 46.80% create significant price risk for investors
- Sustained Underperformance: Negative alpha across all timeframes, with three-year returns of -77.83% versus Sensex's +35.81%
- Minimal MF Participation: Just 0.16% mutual fund holding suggests domestic institutional investors see limited value
- Commodity Price Exposure: Business highly vulnerable to gold price fluctuations and currency movements beyond management control
Outlook: What to Monitor
Positive Catalysts
- Sustained quarterly margin expansion above 0.10% indicating improved pricing power or cost management
- ROE improvement towards double digits demonstrating better capital allocation and operational efficiency
- Consistent quarterly profit growth without the extreme volatility witnessed in recent periods
- Increased mutual fund participation signalling domestic institutional confidence in the turnaround story
- Successful diversification into higher-margin retail operations reducing dependence on low-margin refining
Red Flags
- Further margin compression below 0.05% operating margin indicating deteriorating competitive position
- Consecutive quarters of sequential profit decline suggesting structural rather than cyclical challenges
- Rising debt levels or deterioration in working capital management compromising the debt-free status
- Promoter stake dilution or pledging of shares indicating loss of confidence or financial stress
- Continued negative alpha generation and underperformance relative to both Sensex and sector peers
The Verdict: Scale Advantage Fails to Deliver Shareholder Value
Score: 41/100
For Fresh Investors: Avoid initiating positions. The combination of razor-thin margins, weak return profile (ROE 5.16%, ROCE 5.95%), expensive valuation (P/E 40.23x), and sustained underperformance across all timeframes makes this an unattractive investment opportunity. The company's inability to convert massive revenue growth into proportionate profitability raises fundamental questions about business model sustainability.
For Existing Holders: Consider reducing exposure or exiting positions, particularly if holding unrealised losses. The structural challenges facing the business—including margin compression, commodity price volatility, and poor capital efficiency—suggest limited near-term catalysts for meaningful appreciation. The stock's high volatility (46.80%) and negative alpha generation across all periods indicate poor risk-adjusted returns.
Fair Value Estimate: ₹140-150 (17% downside from current levels), based on normalized earnings potential and peer comparison adjusted for inferior return profile.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
