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A Quick Overview Of How Sarine Technologies Ltd Makes Its Money

Sarine Technologies Ltd (SGX: U77) is an Israel-based company that develops and manufactures precision technology products that are used in the processing of rough diamonds and gemstones into the polished versions you see in jewellery stores.

The company recently caught my attention due to its long-term market-beating performance. Over the last five years, Sarine Technologies’ share price has climbed by 181%; in the same period, the Straits Times Index (SGX: ^STI) has been essentially flat.

As such, I decided to take a deeper look at the company. Here’s what I found out about how Sarine Technologies makes its money.

The products

Here’s a chart showing the different kinds of products Sarine Technologies offers:

Sarine Technologies product chart
Source: Sarine Technologies’ earnings presentation

The company’s customers are mainly manufacturers of diamonds and gemstones (those who turn the rough stones into polished ones) and jewellery retailers.

As you can see from the chart, Sarine Technologies’ product suite is used throughout the entire diamond industry value chain, from the evaluation of rough diamonds all the way to the assessment and grading of polished diamonds.

The types of revenue

Sarine Technologies also earns revenue by providing maintenance and other types of services. Here’s a breakdown of the company’s revenue in 2015 and 2014:

Sarine Technologies revenue breakdown table
Source: 2015 annual report

We can see that the revenue from the sale of products dominates. But, it is also a lot more volatile as compared to the services revenue.

It’s worth noting as well that some of Sarine Technologies’ products have a recurring-revenue element to them. Even after the customers have bought the products, they are still charged a fee on a per-use basis. All told, the company considers 45% of its total revenue in 2015 to be recurring in nature.

A geographical breakdown

The following table shows the different geographical sources of Sarine Technologies’ revenue in the first nine months of 2016 and 2015:

Sarine Technologies geographical revenue chart
Source: Sarine Technologies’ earnings presentation

Almost 80% of Sarine Technologies’ revenue is currently derived from India. This is an artefact of India’s position as the leading diamond manufacturing centre of the world; India accounts for around 90% of all the stones polished worldwide.

But if Sarine Technologies moves further down in the diamond industry value chain (toward the retail and trading segments), it’s likely the company will see more revenue coming from regions such as North America and Europe, where there’s strong consumer demand for polished diamonds.

A Foolish conclusion

There are a number of moving parts with Sarine Technologies’ business.

By understanding how the company makes its money, investors can have a better grasp on the long-term economics of its business model, especially given that it operates in a cyclical industry.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.