Issue
Highlights
Issue Period
|
21/11/12-23/11/12
|
Price Band
|
Rs. 225-230
|
Face Value
|
Rs. 10
|
Lot Size
|
50
|
Issue Type
|
100 % Book Building
|
Industry
|
Gems & Jewellery
|
Listing
|
BSE,NSE
|
Registrar
|
Link Intime India
|
Issue size
|
Rs. 179.5 crore
|
Maximum Retail
Subscription Limit
|
Rs. 1,95,500 (17 Lots)
|
Issue
Details
Offer for
sale: of Rs. 70 crore by Fabrikant HK Trading Ltd.
Fresh
equity: Rs. 109.5 crore
Industry
Analysis
India is
the largest consumer of gold in the world importing 970 tonnes of gold in the financial year 2011 and 95 % of this gold found its
way into jewellery manufacturing. India is also a leading diamond processing nation with a
market share of 60 % in value terms (and 90 %
in volume terms).India with its low-cost skilled labour force having
expertise in jewellery manufacturing and
diamond processing-cutting, polishing and setting-qualifies for the leadership
position in gold & diamond jewellery manufacturing .Gems & jewellery
sector is predominantly an export oriented industry. In FY 2011, Gems & Jewellery
sector accounted for 17.5 % of India’s total merchandise exports amounting to
43 billion US dollars. Since FY 2002, Gems & Jewellery industry
has been growing at a CAGR of 21.33 %.In India, retail jewelry-manufacturing accounts
for only 4 % of the total jewellery market while rest is dominated by
unorganized players comprising local goldsmiths and small neighborhood jewellery
shops.
Company Analysis
The company is an integrated player of the industry
with expertise in designing and retailing jewellery and has been conferred with
the ‘Star trading House‘status by the Ministry of Commerce & Industry .
Tara jewels limited is engaged in following business
activities-
1.
Jewellery manufacturing
with manufacturing units in Panyu (China) and rest three in Mumbai (2 units in SEEPZ
and 1 in MIDC)
2.
Jewellery export to 19 countries
3.
Jewellery retailing under the
brand name Tara Jewel Ltd from 30 existing stores
The product portfolio of Tara Jewels Ltd includes gold,
silver, platinum, Honeydium and Pristinium with or without studded precious
stones and its client list includes reputed names like Christ Uhrean &
Schmuck and Walmart. The company primarily exports to Australia, China, Canada,
European Union (12 countries), South Africa, UAE, UK and USA.
Strengths
·
The
company is presently having 30 retail outlets and plans to open 20 new retail
outlets
·
Tara
Jewel Ltd holds a leadership position in jewellery export sector
·
The
company employs high end technology and machines for manufacturing of precision
oriented jewellery
·
Tara
Jewels Ltd maintains long term relationships with customers by collaborated
brands like Heart2Heart, Candy Hearts, Snow Diamonds and Cherished Hearts.
Concerns
·
Being
a predominantly export oriented company; dollar-rupee exchange fluctuations
could be fatal for the company.
·
Alike
all export oriented companies rising rupee is detrimental to its profitability
·
The
company’s foray into retail business
with its limited operating
history makes it vulnerable to the fierce competition posed by the established
players
·
A major fall in gold and raw diamond prices
could be fatal for the company as gold and diamond constitute for more than 90
% of the total raw material cost
·
Top
10 customers accounted for 70 % of the total export revenue and such type of
client concentration poses risks like
pricing pressure sudden volume drop owing to order cancellations etc. might affect the profitability
·
Income
from the USA accounts for the 40 % of the total income and any slowdown in the
USA could severely affect the profitability of the company.
·
Net
cash flow from operations in negative for FY 2012
Objects
of the Issue
1. To raise funds for establishing new
retail outlets : Rs. 66.48 crore
2. Existing loan disposal: Rs. 50 crore
3. Listing is supposed to enhance the
brand value
4. Issue related expenses: NA
Financial
analysis #
·
Post issue equity considered for the calculations
·
FY 2012 Financial data used
Parameter
|
Value
|
P/E
|
10.4
|
P/B
|
2
|
Return on Equity
(ROE)
|
19.5 %
|
Profit CAGR (4
year)
|
25 %
|
PEG
|
.42
|
Net Profit Margin
(NPM)
|
4%
|
Current Ratio
|
1.2
|
Market Cap to
Sales Ratio
|
.4
|
Debt Equity Ratio
|
3.2
|
PEG
|
.2
|
Return on Capital
employed
|
25 %
|
Inventory Turnover
Ratio
|
2.37
|
Interest Cover
|
1.5
|
Net Asset Per
Share
|
Rs.113
|
Comparison
with the peers #
·
Peer data for FY 12 as per moneycontrol site as on 20/11/2012
Peers
|
P/E
|
NPM
|
ROE
|
Debt/Equity
|
Titan Industries
Ltd.
|
39.97
|
6.71%
|
41.87%
|
.07 *
|
Gitanjali Gems
|
15.3
|
3.28 %
|
9.81%
|
1.01
|
Goenka Diamonds
|
43.21
|
3.84%
|
7.36%
|
.41
|
Renaissance
Jewellery
|
3.08
|
5.79%
|
13.84%
|
.63
|
Tara Jewels Ltd
|
10.4
|
4%
|
19.5%
|
3.2
|
·
* FY 2011 figure
Inference
Prima-facie
fundamentals of the company looks intriguing but underlying weaknesses can’t be
ignored. Though Tara Jewels is an export leader but presently it is not having
a proven jewellery retailing track record. Tara jewels had negative ‘Cash flow from operations’ for
the financial year 2012 and the same was counter balanced by higher borrowing resulting in a higher debt-to-equity
ratio and problems in interest payment. Besides, geo-political risks like
slowdown in USA and any major fall in gold prices would be fatal for the
company as we have seen in FY 2009 due to global recession Tara jewel saw its
net profit contracted by 67%.In a way to repay debt and for increasing its retail
footprint this issue is being floated and the company has already allotted 18
lakh shares to Crystalon Finanz AG at the price of Rs. 225 per share in Pre-IPO
placement. Tara Jewel is not a value buy but it has registered a lucrative
growth in its sales and profit over last 4 years and investors who are
comfortable with the underlying risks may apply for this issue. If Tara Jewel
continues to grow in future and performs well on the jewellery-retailing front
this stock could fetch handsome returns in future provided favorable
geo-political situation and broader markets not going into a tailspin.
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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