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Sunday, April 22, 2012

Tribhovandas Bhimji Zaveri Ltd. (TBZL) IPO Analysis Report


Tribhovandas Bhimji Zaveri Ltd. (TBZL) IPO Review


Issue Highlights

Face value: Rs. 10
Price band: Rs. 120 to 126
Lot Size: 45 Shares
Issue size (Quantity): 1,66,66,667 Shares
Issue Size: (Rupee): 210 crore (at the upper price band)
Maximum Retail Subscription: Rs. 1,98,450
Issue Period: 24/4/2012-26/4/2012
Issue Type: 100 % book building
Listing : BSE,NSE

Industry Analysis

Global Scenario

India is the world’s third largest market for jewellery after USA and China.
Tb2


After the 2008 financial crisis, jewellery demand-growth from the USA is sluggish and India, China and Middle East and Latin America would constitute the potential gold market.


Indian scenario
Gold-jewellery sector in India accounts for 61 % of the total gold demand in the country (year 2011 figure). With around 1 crore marriages taking place annually demand of gold jewellery in India is robust and shall keep on increasing, though rising gold prices appeared like a deterrent and forced buyers to cut-down on the quantity and  purity (in carat terms).
Factors responsible for rising jewellery demand-
·         Traditional factors like buying gold during weddings, festival and on auspicious days like Akshay Trutiya etc
·         India growth story resulting in rising middle class with money to dispose
·         Changing demographics and consumer preference-people especially women have learnt to splurge on jewellery as a fashion accessory
Gold jewellery accounts for 80 % of total jewellery market in India, followed by diamonds(15 %) and others (5%).


Company Profile

TBZL is one of the trusted jewellery retailers of India, with 14 showroom spread over 10 cities across five states with a total carpet space of around 48,818 sq. ft.
Company primarily  retails gold and diamond studded jewellery  along with limited  exposure to platinum and other forms of jewellery under the brand name of ‘Tribhovandas Bhimji Zaveri ‘.
TBZL plans to open 43 new showrooms across 14 states by the end of FY 15 which shall raise the showroom count to 57.

Strengths
·        
       A 145 years old trusted brand name ‘Tribhovandas Bhimji Zaveri ‘
·         TBZL employs stat of the art techniques like CAD for jewellery designing
·         TBZL implemented ERP solutions from Oracle to improve business operations
·         Companies in-house manufacturing units are equipped with state of the art machineries

Risks
·         Decrease in the value of gold and diamonds would reduce the inventory value of the company and the same could adversely affect the financial viability of the company
·         Company’s subsidiaries  have been running into losses during last 3 years.



·         Company is prone to latest-design related risks
·         Company requires intensive working capital and the same is meted through loans and sudden demand for the repayment of the same by lenders could jeopardize the profitability of the company
·         Brand name of the company is being used by 5 other entities in India

Objects of the Issue

1.          To finance establishment of new showrooms - Rs. 19.19 crore
2.          Working capital requirement - Rs. 160.44 crore
3.           General corporate purposes – NA

Financial Analysis ##

##
1.      Post issue equity considered for the calculation of FY12
2.      All calculations at the upper price band of Rs. 126


Parameters
FY11
FY 12 Annualized
EPS
Rs. 8.1
Rs. 10.1
Book Value
Rs. 22
Rs. 76.2
P/E
15.6
12.5
P/B
5.7
1.7
ROE (Return on Equity)
36.8%
13.2%
NPM (Net Profit Margin)
3%
5%
Interest Cover
3.8
4.4
CAGR (Profit) 4 year
53 %
73%
PEG
.3
.17
Current Ratio
1.1
1.2
M-Cap/Sales
.5
.6
Current ratio
1.1
1.2

Comparison with Peers #

* FY 11 peer-data as per moneyconrol site

Company
P/E
NPM
ROE
PEG
TBZL
12.5
5%
13.2 %
.17
Titan Industries
39.12
6.45%
41.97%
.84
Giatanjali Gems
10.9
4.12%
9.96%
.38
Thangamayil jewellery
3.98
4.13%
30.6%
.05
Rajesh Exports
11.11
1.2%
15.5%
.44

Inference

In India jewellery market is still dominated by unorganized players comprising of Sunars (gold smith) next door and brand awareness is still in nascent stage. Even consumers  who go  for  branded jewellery give much importance to designs besides purity (which has become a second-rung watch-factor in the era of hallmarking) thus making jewellery business a vulnerable one. Failing on the design front could be disastrous for a jewellery retailer. Providing a wide range of  designs requires higher inventory and thus imparts pressure on the working capital and working capital requirement is the sole purpose of this IPO.
There was a sudden spurt in the FY12 fundamentals which really raises some questions.

Just 3 quarters of cash(& equivalent) for FY12 is more than double that of previous year(FY11) along with borrowings reducing to half, just 3 quarter FY12 net worth  is 46% higher than the same for whole FY 11- such figures are really very hard to digest.
Despite all this , price-to-earnings multiple of TBZL is very high and only next to Titan- Titan is backed by the credibility of TATA’s and is a diversified company and thus incomparable to TBZL in the practical sense.
TBZL neither enjoys brand recognition like Gitanjali Gems nor valuations are cheap like Thangmayil Jewellery, value investors better avoid this risky IPO.
As far as listing gains are concerned, it’s like a lottery which depends on many factors.
In past too, we have seen many fundamentally weak IPOs giving listing gains and subsequently landing to the ground reality, what was worse that many fundamentally weak IPOs  wiped the capital of investors on the listing day only.
Better to stay away from this IPO.

Disclaimer: Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of the report.


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