NEW DELHI: Tribhovandas Bhimji Zaveri Ltd (TBZ) plans to raise Rs 2,100 million through 16.7 million shares to fund its expansion plans of establishing new showrooms across the country and to meet its working capital requirements.
The company is into the retail jewellery business which is dominated by the unorganized market controlling 90% of the market share. In the organized market, TBZ has peers like Gitanjali Gems and Tanishq by Titan, the latter being the largest branded jewellery retailer in India.
The company recorded a robust 40% growth in its top line while earnings have grown at 75% CAGR over FY08-11. Further, the company has already achieved a turnover of Rs 11,185 million in the first nine months which translates into a 25% annualized growth for FY12E.
The company’s operating margins have also improved over the years to 9.2% in 9MFY12 from 5.4% in FY08 primarily due to the increase in the share of diamond jewellery and rising gold prices. TBZ has 14 showrooms out of which 11 are large format stores with an area of ~3000 sq ft.
Volume growth in case of gold jewellery seems to be a major concern for the company due to the rising and volatile gold prices. Company registered mere 8% growth in gold jewellery volumes as against 26% in diamond jewellery.
Further annualizing the 9 months volumes for the company we expect the company might actually deliver a volume degrowth in case of gold jewellery while a lesser 12%-13% growth in diamond jewellery volumes. TBZs plans to quadruple its showrooms to 57 from current 14 by FY15 would involve huge capex spending which might lower the return ratios as well as impact the operating margins.
TBZ inventory turnover ratio has seen a downward trend falling from 3.1 times in FY10 to 2.8 in FY11 and further to 2.2in 9MFY12. Another risk with TBZ as compared to Titan is that the inventory of gold itself is subject to greater price fluctuations as compared to the latter which buys gold on lease rather than outright purchase.
At the upper band of the price band, TBZ is valued at 12.5x of its 9MFY12 annualized EPS of Rs.10.06. Company which has peers like Titan and Gitanjali gems which although fall in the same sector aren’t strictly comparable due to their size and reach.
Titan Industries is currently trading at 35x while Gitanjali Gems is trading at 6x its FY12 earnings.
We believe investors would be better off to wait and watch as to how the company actually delivers on its expansion plans, relook at the factors and then take a call on the stock from a longer term horizon.
Having said this, investors with a higher risk appetite can certainly look at the stock at the IPO price.