Avoid Tribhovandas Bhimji IPO, says Nirmal Bang

Tribhovandas Bhimji Zaveri Ltd (TBZ), established in 1864, is a jewellery retailer. TBZ 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. The company is primarily into gold jewellery and diamond-studded jewellery.  TBZ plans to open an additional 43 showrooms (25 large format high street showrooms and 18 small format high street showrooms) by the end of FY15, which would take the total to 57 showrooms (with a total carpet area of approximately 150,000 sq. ft.) in 43 cities across 14 states. The company has a dedicated design team, currently comprising 25 designers, 10 of whom are skilled in computer-aided design (CAD).

TBZ manufactures diamond-studded jewellery for sale in 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 FY11. The company also has another manufacturing facility in Kandivali, Mumbai, which has a carpet area of 5,755 sq. ft.  CRISIL has assigned a ‘Grade 3 out of 5’ to the TBZ IPO which indicates ‘Average Fundamentals’.  As on March 31, 2012, TBZ had 1,192 employees. In FY11, revenue from operations was Rs. 1193.9 crores on a consolidated basis, of which 72.51% was from the sale of gold jewellery, 22.08% was from the sale of diamond-studded jewellery and 5.41% was from sale of other products. In the nine months ended December 31, 2011, revenue from operations was Rs. 1117.4 crores on a consolidated basis, of which 72.48% was from the sale of gold jewellery, 25.20% was from the sale of diamond-studded jewellery and 2.32% was from sale of other products. PAT for FY11 and the nine months ended on Dec 31, 2011 were Rs. 40.3 crores and Rs. 50.3 crores on a consolidated basis, respectively.

TBZ has an age old presence in the retail jewellery space where it enjoys a strong brand recall. The company is planning to open 43 retail showrooms at an aggressive pace by the end of FY15E, there is a chance that the company may face some execution challenges even though all the strategies are in place. We also feel that the opening of new stores will mount pressure on profitability due to time taken for break-even of new stores, higher marketing expenses and working capital requirement. A TBZ share is offered at 12.46x P/E calculated at higher band and 11.84x at lower band of price for FY12E which we feel is quite expensive compared to its peers. We feel that investors can “AVOID” the IPO, says Nirmal Bang research report.

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