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Gitanjali Gems – Why Poor Retailers Lost More Than Mehul Choksi

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The scam hit Gitanjali Gems and Nirav Modi’s Firestar Diamonds together accounted for nearly 6 per cent of the diamond and jewellery trade in value terms in 2015-16. The most imminent shutdown of the two companies would have an impact of 5-6 per cent on the diamond and jewellery foreign trade in value terms over the next year i.e. 2018-19.  Also, Non-performing assets in this segment would rise to 30 per cent which makes the whole diamond industry unattractive for investment.

Being the largest jewellery retailers in the country, the two companies — Gitanjali and Nirav Modi — employed 648 and 2,200 employees respectively, according to filings in March 2017. A combined 3,000 persons would be rendered jobless and another 7,000-8,000 temporary workers and employees at franchisees are expected to be affected. “The sector employed 22,000 people, according to data available for 22 companies of this sample of 34 companies. The two companies constitute 12-15 per cent of the total industry workforce excluding craftsmen and temporary employees  – Report from Care Ratings

Three different, highly market influent clarifications are soughted from Gitanjali Gems by BSE. This includes jewellary export council membership cancellation, attaching more properties, along with high profile resignations

1. The Exchange has sought clarification from Gitanjali Gems Ltd with respect to news article appearing on Money Control- February 23, 2018 titled “MCA may move NCLT to attach properties of Mehul Choksi, Nirav Modi”. The reply is awaited. -BSE

2. The Exchange has sought clarification from Gitanjali Gems Ltd with respect to news flash appearing on CNBC TV18 – February 23, 2018 titled “Enforcement Directorate has lined up more assets to be attached from Mehul Choksi and Nirav Modi”. The reply is awaited -BSE

3. The Exchange has sought clarification from Gitanjali Gems Ltd with respect to news article appearing on The Economic Times – February 23, 2018 titled “Jewellery Export Council may Cancel Firestar, Gitanjali Gems’ Membership”. The reply is awaited -BSE

4. Anil U Haldipur (Independent Director of Gitanjali Gems Ltd) has submitted to BSE a copy of the Resignation Letter submitted to the Board of Gitanjali Gems Ltd dated February 14, 2018-BSE

Interesting factor is, in the last one year the retail stock holding percentage has gone up by nearly 6% from 19.5% to 25%. This clearly shows that last one year there has been a continuous outflow of stocks from promoters and high pockets towards poor retailers.

Gitanjali is a classic example for how much a retail investor should consider below parameters along with financial statements and annual reports

1. Ethics of promoters -The whole history!!
2. Promoter holdings pattern during last 5 years
3. Easy understanding of business

As of today, Gitanjali is trading at Rs. 20.4, still in lower circuit with huge sell quantity in place. A simple look at above graph shows how Mehul Choksi and crew have been betraying and fooling poor retailers and institutions like LIC which manages public money. This is a lesson to fund managers to perform a retrospective on their investment decision parameters. 

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