Invest in Tribhovandas Bhimji Zaveri IPO for long term: SMC
SMC Global has come out with its report on Tribhovandas Bhimji Zaveri Ltd (TBZ)'s IPO issue. According to the research firm, any investor with long time horizon can go for this issue.
April 21, 2012 / 16:22 IST
SMC Global has come out with its report on Tribhovandas Bhimji Zaveri Ltd (TBZ)'s IPO issue. According to the research firm, any investor with long time horizon can go for this issue.
TBZ, established in 1864, is India's top jewellery retailer. The company sells gold jewellery, diamond-studded jewellery, platinum jewellery and jadau jewellery under the brand "TBZ - the original since 1864", through 14 retail stores/showrooms (totaling ~50,000 sq. ft.) in 10 cities across five states. The company has a manufacturing unit for diamond-studded jewellery in Kandivli, Mumbai. It was awarded the 'Readers Digest Trusted Brand Asia' in the category of 'Jewellery Shop' in 2006, 2007 and 2008. The company plans to open 44 more showrooms by the end of Fiscal 2014 in 43 cities across 14 states.Strong Brand Name: The trusted brand "TBZ - the original since 1864” has received award “the Readers Digest Trusted Brand Asia” in the category of Jewellery Shop in 2006, 2007 and 2008. It has also won the awards for both products and customer service, including the Jaipur Jewellery Show Gold Souk Awards in the year 2007.Design, Innovation and Product Range: The company focuses on developing new products and designs, to understand customer requirements through customer interactions, national and international jewellery trade shows and trend forecasting reports. The company offers jewellery from various parts of the world such as Italy, Turkey and Thailand.Well-Established Systems and Procedures: The Company has established systems and procedures for staffing, management processes and the implementation of current and long-term objectives. Its operational processes are set forth in an operating manual.Expansion Experience: The Company has substantial experience in expanding operations and managing the launches of new showrooms. Within a short span, 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: The Company manufactures diamond-studded jewellery for sale in its showrooms at a facility in Kandivali, Mumbai, which has a carpet area of 5,755 sq. ft. This facility produced 31,103 cts and 18,045 cts. of diamond studded jewellery in Fiscal 2010 and the six months ended September 30, 2010, respectively. It is also building an additional facility in Kandivali, Mumbai with a carpet area of approximately 17,739 sq. ft. which will have 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 4,500 kgs of coining.Experienced Management: The management of the company has rich experience in the jewellery sector. The Chairman and Managing Director has worked in the jewellery retail sector for more than 30 years.Expanding Retail Network: The Company plans to open an additional 44 showrooms (26 large format high street showrooms and 18 small format high street showrooms) under the Tribhovandas Bhimji Zaveri brand by the end of Fiscal 2014.To increasing Same Showroom Sales: In order to increase same showroom sales, the company focuses to augment its footfalls by continuing its marketing activities such as advertising, organizing events, participating in exhibitions and launching new products and promotions.Increasing Diamond-Studded Jewellery Sales: In order to increase the overall profit margin by increasing the diamond-studded jewellery sales, it plans to increasing its diamond studded jewellery sales through cross-selling diamond-studded jewellery to gold jewellery buyers, increasing advertising for diamond-studded jewellery, introducing diamond-studded jewellery promotion schemes and launching new diamond-studded jewellery products at various price points, including at entry level.To take advantage of Economies of Scale: In addition to purchasing the inventory and raw materials in bulk in order to lower the relative costs, it plans to take advantage of additional economies of scale as it increases its number of showrooms.Increasing In-house Manufacturing and Outsourced Manufacturing Activities: The Company intends to increase its in-house manufacturing and outsourced manufacturing activities. In this regard, it is building a new facility in Kandivali, Mumbai with a carpet area of approximately 17,739 sq. ft., which will have an annual production capacity (based on one eight-hour shift per day) of approximately 100,000 cts. of diamondstudded jewellery, 4,000 kgs of gold refining and 4,500 kgs of coining.Industry Outlook: India is one of the fastest growing economies in the world, with an average real GDP growth rate of 7.8% per annum during the last two years. But if we talk of jewellary market, US holds approx 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. The Indian gold jewellery sector accounted for 61% of total domestic gold demand in 2011 according to World Gold Council. 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. Factors like higher disposable income, rising young population with the urge to spend, higher number of working women and conscious marketing efforts of companies are the drivers for growth.Valuation: Considering the P/E valuation on the upper end of the price band of Rs 126 the stock is priced at pre issue P/E of 9.39x on its annualised FY11 EPS of 13.42. Post issue, the stock is priced at a P/E of 12.52 on its annualised EPS of 10.06. Looking at the P/B ratio at 126, the stock is priced at P/B ratio of 3.93x on the pre issue book value of 32.08 and on the post issue book value of 55.56, the P/B comes out to 2.27x. On the lower end of the price band of 120 the stock is priced at pre issue P/E of 8.94x on its annualised FY11 EPS of 13.42. Post issue, the stock is priced at a P/E of 11.93 on its EPS of 10.06. Looking at the P/B ratio at 120, the stock is priced at P/B ratio of 3.74x on the pre issue book value of 32.08 and on the post issue book value of 55.56, the P/B comes out to 2.16x.Outlook: The fundamentals of the company look average. It has old presence in the retail jewellery business which has resultant into strong brand recall. As the company plans to expand to 22 stores by end-FY13 at a faster-than ever pace, there is a chance it may throw up execution challenges even though its strategies (regarding store location, size, format, personnel and schedule) are in place. Moreover, it plans to open new stores which are likely to put pressure on profitability due to higher marketing expenses and working capital requirement. As it is the family business of the company, the risk of brand dilution, especially if they underperformed on quality, cannot be ruled out. Moreover, the new tax policy where the customer has to give his/ her PAN number on purchase made above Rs 5 lakh is likely to hinder the business. Hence it is recommended that any investor with long time horizon can go for this issue. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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