Thangamayil Jewellery can touch Rs 240: PN Vijay

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Thangamayil Jewellery can touch Rs 240: PN Vijay

Thangamayil Jewellery can touch Rs 240 in the next 15 months, says PN Vijay, Portfolio Manager.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by PN Vijay See what other Experts & Brokerages are saying about Thangamayil See messages about Thangamayil

Thangamayil Jewellery can touch Rs 240 in the next 15 months, says PN Vijay, Portfolio Manager.

Vijay told CNBC-TV18, "Thangamayil has a long history. It was promoted as a partnership with Balu Jewellers way back in 1984, but then later converted itself into a company and then went public. It is concentrated in the southern part of Tamil Nadu from where it covers Kerala also; Tamil Nadu and Kerala account for more than 30% of the jewellery purchases in the country."

He further added, "Thangamayil in the recent past has expanded rapidly and now has 14 outlets and also has a very strong branch expansion program. It's had a sizzling last quarter where its sales went up by 80% to Rs 310 crore helped ofcourse by gold prices. Its EBITDA and profits doubled and even its EBITDA margins went up by more than 200 basis points."

"Now the triggers for the stock are ofcourse the huge branch expansion plans. Even with its size now, it accounts for a very small percentage of the gold retail market in the South and the fierce brand loyalty it enjoys from its customers. The second advantage is it essentially deals in gold jewellery. 94% of its turnover comes from gold jewellery and so it's not subject to the vicissitudes of diamond prices. It's also a local player and is not in the international market."

"One of the concerns is that it's got a very strong branch expansion program and has borrowed money for that. Its debt equity is more than 1:1, so it has interest costs which are a bit of risk, but the cash flows are very strong. It's expecting a CAGR of more than 45% in the next five years."

"In terms of valuations, at the current price of Rs 160 it is trading slightly above 3.5 times its expected price earnings for financial year 2012. This is a very low PE even for a midcap company, so I am predicting a 50% increase in its price to Rs 240 in the next 15 months."