Mar 12, 2013, 04.43 PM IST
The most recent jewellery IPO TBZ is quoting at more than 27x its trailing twelve-month earnings. Company is yet to pay dividend. Renaissance, Thangamayil and Shree Ganesh Jewel look far more attractive than TJL: VS Fernando
By VS Fernando
Tara Jewels Ltd (TJL) is part of the Tara group promoted by Rajeev Sheth (Chairman & Managing Director) who holds a diploma in gemology and has over three decades of experience in jewellery business. He reportedly promoted Rose International in 1981 and became promoter-managing director of Inter Gold India (P) Ltd in 1989. TJL was incorporated in 2001 as Tara Ultimo (P) Ltd. Consequent to the merger of two group companies viz. T Two International (P) Ltd and Tara Jewels Exports (P) Ltd in fiscal 2009, the company’s name was changed to the present one.
The company has four manufacturing units - one in China and three units in Mumbai (two in Seepz and one in MIDC). The manufacturing units are spread over an area of 84,584 square feet employing 35 designers and 955 craftsmen.
Currently TJL derives nearly four-fifths of its turnover from exports of studded jewellery manufactured in-house as well as by third parties. The company’s exports are concentrated with USA and Hong Kong accounting for approximately 40% and 35% of the revenue. Its top ten customers account for nearly 70% of the export sales.
TJIL entered the jewellery retail business in October 2008 and conducts its retail operations under the brand “Tara Jewellers”. As on August 31, 2012, TJL had 30 retail stores spread over an aggregate area of 29,949 square feet. Retail business accounts for about one-fifth of the company’s turnover.
The Offer: As per CARE Rating, this issue size were to be Rs 220 cr comprising of fresh issue of Rs 150 cr and ‘offer for sale’ of Rs 70 cr. Whereas the offer for sale amount has remained unchanged, the company has pruned the fresh issue by more than Rs 40 cr. Thus the present IPO consists of a fresh issue of Rs 109.50 cr and an offer for sale of Rs 70 cr from one of the existing shareholders. The price band being Rs 225 to Rs 230 for Rs 10 paid up share, the quantum of the offer works out to between 78 and 80 lakh shares.
Issue Object: The fresh issue is to meet the expenses of establishing retail stores (Rs 66 cr) and repayment or pre-payment of loans (Rs 50 cr). The IPO also provides an exit route for one of the existing shareholders, Fabrikant H.K. Trading Limited, who invested in the company as early as 2006.
Issue Grading: The offer has been graded by Credit Analysis and Research Limited which has assigned “CARE IPO Grade 3” indicating average fundamentals. According to CARE, while its grading reflects the experience of the promoters in the Gems & Jewellery Industry with fully-integrated operations, established marketing and distribution channel, the grading is constrained by the high operating risk arising out of the customer and geographical concentration of sales, working capital intensive operations, susceptibility to volatile raw material prices and forex fluctuation.
Valuation: Jewellery industry commands a P/E of more than 19x and P/BV of 3.4x as compared to the market composite of 15.4x and 2.1x respectively. Nevertheless, many a jeweler is currently discounted in single digit and the industry’s average operating margin is abysmally low at less than 5% as compared to the market composite of over 22%.
Currently Jewellery industry discounting is largely influenced by Titan which commands a P/E of 40x. The most recent jewellery IPO TBZ too is quoting at more than 27x its trailing twelve-month earnings. Considering these, TJL’s P/E of less than 9x may perhaps look cheap. But, does that merit investment? TJL is yet to pay dividend . Scrips like Shree Ganesh Jewel is currently offering more than 5% yield on its current market price which is less than a half of TJL’s offer. In fact, among the listed stocks, Renaissance , Thangamayil and Shree Ganesh Jewel look far more attractive than TJL.
As regards the post-listing performance of jewelers, Thangamayil and TBZ, which opened subdued on listing, have fetched sizeable returns in recent months while Shree Ganesh and Renaissance are still quoted at a heavy discount.
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