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Apr 25, 2012, 08.34 PM IST | Source: Moneycontrol.com

Avoid Tribhovandas Bhimji Zaveri IPO: KM Global

KM Global Finserv has come out with its report on Tribhovandas Bhimji Zaveri Ltd (TBZ)'s IPO issue. According to the research firm, one should avoid the issue.

KM Global Finserv has come out with its report on Tribhovandas Bhimji Zaveri Ltd (TBZ)'s IPO issue. According to the research firm, one should avoid the issue.

TBZ is a gold and diamond studded jewellery retailer with 14 showrooms (totaling ~49,000 sq ft) in 10 cities across five states. The company has a manufacturing unit for diamond-studded jewellery in Kandivli, Mumbai. It has an annual production capacity of approximately 100,000 cts. of diamond-studded jewellery, 4,000 kgs of gold refining and manufacturing 4,500 kgs of gold jewellery components. The company plans to add 43 showrooms by fiscal 2015. Post expansion the total number of showrooms would be 57 in 43 cities across 14 states. Shrikant Zaveri is the Chairman and Managing Director of the company, has an experience of over 30 years in the jewellery retail sector.

Highly Competitive Industry - The Indian retail jewellery industry is highly fragmented and dominated by the unorganized sector, from which the organized retail jewellery sector faces intense competition. The players in the unorganized sector offer their products at highly competitive prices and many of them are well established in their local sectors. High competition will lead to higher spending on advertising, lower volumes and realisations and/or suppressed margins on gold jewellery.

Working Capital Intensive - Due to working capital intensive nature of the business, the net margins are strained because of high leverage. Going forward as the company plans to add new showrooms, margins will continue to be under pressure.

Brand Dilution - Some of the retiring partners have the right to use the brand name Tribhovandas Bhimji Zaveri with modifications - through prefixes and suffixes. Currently, there are other players sharing the brand name Tribhovandas Bhimji Zaveri. Hence, the company faces the risk of brand dilution if any player underperforms on quality terms.

TBZ’s market capitalization is Rs 800-840 Cr on a price band of Rs 120-126. It is asking for a valuation of 10-10.5 times FY12 estimated EPS of Rs 12 which is quite aggressive compared to other listed players in this space. We recommend investors to avoid this issue.

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