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Apr 25, 2012, 05.13 PM IST | Source: Moneycontrol.com

Avoid Tribhovandas Bhimji IPO: Hem Securities

Hem Securities has come out with its report on Tribhovandas Bhimji Zaveri Ltd (TBZ)'s IPO issue. The research firm has recommended to avoid the issue.

Hem Securities has come out with its report on Tribhovandas Bhimji Zaveri Ltd (TBZ)'s IPO issue. The research firm has recommended to avoid the issue.

Objects of Issue
The Company intends to utilise the Net Proceeds for the following objects:

1. To finance the establishment of new showrooms;
2. To finance incremental working capital requirements; and
3. General corporate purposes.

Organized retailing in jewellery includes Tata-owned Tanishq, Tribhovandas Bhimji Zaveri, Gitanjali Group, Swarovski, Reliance Jewels, etc. who have set shop in major cities. Apart from specialty retail players, retail chains such as Shoppers Stop, Lifestyle and Big Bazaar now have “shop-in-shops” or jewellery counters from branded players such as Gitanjali, Orra, Kiah, etc. The last few years has also seen the entry of international luxury jewellery brands in India such as Cartier and Chopard. Further, jewellery exporters are also actively looking at the domesticmarket and plan to open their retail outlets.

Business Details

Company is a well-known and trusted jewellery retailer in India with 14 showrooms in 10 cities across five states, which have a total carpet area of approximately 48,818 sq. ft. It primarily sell gold jewellery and diamond-studded jewellery. Company also sell other products, including platinum jewellery and jadau jewellery. The design and manufacture of its products is done either inhouse or by third parties. All of co’s showrooms trade under the name of “Tribhovandas Bhimji Zaveri”. Its flagship showroom in Zaveri Bazar, Mumbai was established in 1864. Since 2001, it have opened several showrooms, including opening seven showrooms between August 2007 and October 2008.Out of co’s 14 showrooms, 11 are "large format" high street showrooms (carpet area of 3,000 sq. ft. or more) and three are “small format” high street showrooms (carpet area of 1,000-3,000 sq. ft.). Four of Co’s showrooms are in Mumbai, Maharashtra; one is in Thane, Maharashtra; one is in Pune, Maharashtra; two are in Hyderabad, Andhra Pradesh; one is in Vijayawada, Andhra Pradesh; one is in Ahmedabad, Gujarat; one is in Surat, Gujarat; one is in Rajkot, Gujarat; one is in Indore, Madhya Pradesh; and one is in Kochi, Kerala. Effective June 1, 2011, company surrendered the lease for one showroom to the lessor and on July 27, 2011 it opened a new showroom in Rajkot, Gujarat.

The company closed one small format showroom in Pune on March 31, 2012 and opened a large format showroom in Pune on April 1, 2012. Company plan to open an additional 43 showrooms (25 large format high street showrooms and 18 small format high street showrooms) by the end of Fiscal 2015, which would give it a total of 57 showrooms (with a total carpet area of approximately 150,000 sq. ft.) in 43 cities across 14 states. Company manufacture diamond-studded jewellery for sale in its showrooms at a facility in Kandivali, Mumbai, which has a carpet area of 17,739 sq. ft. It has an annual production capacity (based on one eight-hour shift per day) of approximately 100,000 cts. of diamond-studded jewellery, 4,000 kgs of gold refining and manufacturing 4,500 kgs of gold jewellery components. This facility was opened in Fiscal 2011. Company also have another manufacturing facility in Kandivali, Mumbai, which has a carpet area of 5,755 sq. ft. Prior to the opening of the new facility, all of co’s manufacturing was done at this facility. Company shifted the majority of its production activity to the new facility during the third quarter of Fiscal 2011. Company produced 35,509 cts. of diamond-studded jewellery in Fiscal 2011 and 37,402 cts. of diamond-studded jewellery in the nine months ended December 31, 2011.

Valuation: The company is bringing the issue at price band of Rs 120-126 per share which will turn into p/e multiple of 8.9-9.3 at post issue annualized eps of Rs 13.42. The company with its more than 145-year History has strong brand name but looking at the valuation of company, issue seems to be fully priced at current level.Hence ,we recommend investors to Avoid the issue.

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