Sarin

Sarin: 3Q13 net profit grew 22% y/y to US$3.1m. Adjusting for the one off US$2.6m tax charge on exempt profits for prior periods, core net profit jumped 124% y/y to US$5.7m. This came as revenue expanded 48% y/y to US$17.3m due to increased Galaxy-related revenues from a broader installed base. During the quarter, the group delivered 5 Galaxy family systems to customers and overall group recurring revenue increased by over 50% y/y. On a q/q basis however, revenue and core net profit fell 21% and 32% respectively, due to a slow down in Indian manufacturing activity, attributable to the weakening Indian Rupee against the USD, tightened credit lines available to Indian diamond manufacturers and a squeeze in mnftrs’ margins on the back of high rough diamond prices. Mgt notes, with the major economies of the US, Japan, Europe and China showing varying degrees of growth, the macroeconomic environment is expected to remain positive for the rest of FY13. Adds, in spite of the challenging conditions in the diamond mnftg industry in India, the group’s sales and profitability remained robust in 3Q13, which vindicates its strategy to focus on recurring revenue models. The group will continue to focus on growing its recurring revenue base with new products and services. Following the launch of Sarine Light in Japan with retail jewellery chain CIMA, other Japanese retailers have placed orders, and the Group has delivered systems to additional customers in Japan, who have already begun issuing Light Performance reports. In addition, the Group is also seeing increasing interest for Sarine Light in other markets. The Group will launch Sarine Light in additional markets in the Far East (initially Hong Kong, Taiwan and Korea), as well as commence marketing to high-end diamond jewellery retailers in the U.S. in early 2014. Coming up next in the product pipeline are the Galaxy Ultra and Sarine Loupe. The process aimed at their commercialisation can be expected to begin after the Indian Divali holiday. The counter trades at 20.1x annualized 9M13 P/E, 8.4x P/B.