Company background
Established in 1864, Tribhovandas Bhimji Zaveri Ltd (TBZ), is India’s one of the top jewellery retailer. The company sells gold jewellery, diamond-studded jewellery, platinum jewellery and jadau jewellery. These products are sold under the strong brand name “TBZ – the original since 1864”. As on 31st March 2012, the company has 14 retail stores (totaling ~50,000 sq. ft) in 10 cities across five states. In last five years, the company has largely focused in western and southern cities of India with steady expansions. In FY11, ~70% of revenue came from western region. The company has a manufacturing unit for diamond-studded jewellery in Kandivli (Mumbai).
Industry outlook
Jewellery retailing has been a fragmented business, with a presence of large number of small retailers across the markets in the world. However, branded retail chains are expanding their presence at rapid pace by creating growth opportunities in emerging key jewellery markets of India and China. As per industry reports, US holds ~29% of the sales in 2008 followed by China, India, the Middle East and Japan as the biggest consumers. In Europe, the UK and Italy are the largest consumers, and Italy is also one of the world's largest jewellery fabrication centers. These seven key markets account for about 80% of the total worldwide sales.
Key World Markets for Gold
Source: RHP
According to World Gold Council, the Indian gold jewellery sector accounted for 61% of total domestic gold demand in 2011. The growth outlook for the gems and jewellery sector in India is stable and it is expected that domestic industry to grow at a CAGR of 10-12% up to 2015. The key drivers for growth will be higher disposable income, rising young population with the urge to spend, higher number of working women investing her savings in gold/diamonds jewellery as an asset class and conscious marketing efforts of companies are the key drivers for growth. These factors have kept India’s gold demand resilient over the past few years, despite steady rise in gold prices across global markets.
Peer comparison
TBZ is into jewellery retail market comparing itself with only other retail players in the sector like Titan Industries Limited, Gitanjali Gems and Thangamayil Jewellery Ltd. Here, is a table with important ratios to compare with its peers and position in the market.
IPO details
TBZ, is offering 16,666,667 shares to pubic with this IPO. The price band of this issue is Rs 120 to Rs 126. The lead managers are IDFC Capital Ltd and Avendus Capital Pvt Ltd. The registrar is Karvy Computershare Pvt Ltd. The object of the issue is:
1) To finance the establishment of new showrooms at Rs 182 mn (approx),
2) To meet working capital requirements of Rs 1565 mn (approx), and
3) For general corporate purposes.
IPO Grading
Credit rating agency, CRISIL has assigned 3/5 grade to the IPO of TBZ which indicates average fundamentals. However, this grade is not an opinion on whether the issue price is appropriate to the issue fundamentals. Also, it’s not a recommendation to buy, sell or hold this graded instrument.
Strengths
Strong and trusted brand name “TBZ – the original since 1864” with rich experience of management in jewellery sector.
Focus to develop new products and designs by understanding customer requirements with constant interactions. Also, offers designer jewellery from global markets such as Italy, Turkey and Thailand considering customer preferences.
Well established systems and procedures for staffing, management processes and the implementation of current and long-term objectives.
The company has substantial experience in expanding operations and managing the launch of new showrooms. Within, a 15 month period from August 2007 to October 2008, it has opened 7 new showrooms, which show that it has invaluable experience in selecting potential markets, real estate locations, training staff and undertaking the marketing.
The company has its own manufacturing facilities in Kandivali (Mumbai) with a carpet area of 5,755 sq. ft.
Business strategy to grow in future
The company is planning to add 43 new showrooms under the TBZ brand by end of fiscal year 2014 with these IPO proceedings incurring cost of Rs 182 mn (approx) across cities of India.
Increasing its in-house manufacturing activities. In near term, TBZ is building an additional facility in Kandivali, Mumbai with a carpet area of approximately 17,739 sq. ft. which will have an annual production capacity of approximately 100,000 cts. of diamond-studded jewellery 4,000 kgs of gold refining and 4,500 kgs of coining.
Increasing marketing activities to increase footfalls and sales at showroom.
Focusing to increase its diamond studded jewellery sales which will improve its overall profit margin.
Risk factors
There is intense competition in the jewellery retailing market and is further poised to increase with expansion by branded players in the sector.
Negative publicity could adversely affect its reputation and results of operations.
Devaluation of gold may affect the business.
The company has not registered its jewellery designs under the Design Act, 2000. So, company’s revenue stream could be affected if its designs are duplicated by competitors.
The company should work aggressively on its expansion plan otherwise its business operations could be affected.
Financial Analysis and Valuation
TBZ’s top-line grew at ~40% CAGR between FY08 and FY11 to Rs 11.9 bn, driven by revenue from branch additions and steady increase in gold prices. In FY11, the revenue from operations was Rs 11,939 mn (consolidated), of which ~73% was from sale of gold jewellery, ~22% from the sale of diamond studded jewellery and ~5% was from the sale of other products. The company registered PAT of Rs 400.29 mn in FY11.
As on Dec 31, 2011 (9 months period), the revenue from operations was Rs 11.173.73 mn (consolidated), of which ~73% from sale of gold jewellery, ~25% from sale of diamond studded jewellery and ~2% was from the sale of other products. The company’s net profit stood at Rs 503.13 mn at end of Dec 31, 2011 (9 months period).
The company is a small player in the organized retail jewellery market. At Rs 120-126, the valuation comes around 13 times, on its FY12 earnings, on the post issue capital of Rs 66.66 cr. This makes the offer expensive for its subscribers.
Conclusion
IPO of TBZ shall get moderate response for its subscription from institution and retail investors due to its strong brand image in retail jewellery sector. But, as discussed the pricing of this issue looks expensive and fundamentals are average. Also, ~70% of the funds are intended to be utilized for working capital needs and mere Rs 19 crore will be utilized for expansion plans. The returns from expansion plans will accrue from FY14 onwards if expansion is executed in phases with planning and feasible study of new markets. So, it’s recommended to subscribe to this public issue if you intend to hold as long term investment stock in your portfolio.
Author
Hiral Thanawala is a PGDM (Finance) graduate and Certified Financial Planner. He can be reached at hiralthanawala@gmail.com
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