TBZ: A Glittering IPO Offer – Invest

  • Date: April 25, 2012
  • Offering: IPO is of Price Range Rs 120 – 126, available from April 24 – 26
  • Description: TBZ is a small cap sized domestic Gems and Jewellery firm with big growth plans
  • Opinion: Strong Brand and fast expansion likely. Fairly priced. Invest.

TBZ – Description and Profile

  • Tribhovandas Bhimji Zaveri Ltd (TBZ) is an established Mumbai based Jewellery retailer.
  • Incorporated in 1949, TBZ has 14 showrooms in 10 cities, and 1,192 full-time employees. It’s a primarily domestic business. Only two of the showrooms are owned; the rest are leased.
  • Jewellery Product lines include Gold Jewellery (72.5%), diamond studded (22%), Platinum and Jadau (5.5%). Manufacturing of Diamond studded Jewellery is at a 17k sq ft factory at Kandivili, Mumbai.
  • Promoters are Shrikant Zaveri (2nd gen. entrepreneur) and daughters Binaisha and Raashi Zaveri
  • FY11 revenues were 1149 cr, PAT 404 cr, and recent Operating margins were 9.3%
  • In five years, sales growth of gold jewellery is 8%  (CAGR) and diamond 38%
  • Showroom area is of approx 48,818 sqft, indicating sales of Rs 2.35 L/sq ft per year. This compares favorably with Tanishq (1.67L) and Gold Plus (1.05L). These chains are of a different scale nationally, but this is till positive for TBZ.
  • TBZ offers the Kalpavruksha Plan, a retail Installment based purchase plan. This helps ease the payment pressures for large buys.

Personal Notes: A visit to a TBZ is a treat by itself. The ambience is plush, the salespersons are courteous, knowledgeable and helpful. The jewellery is beautiful and expensive. As I leave, I say to myself – ‘I’ll come back here when it’s a big occasion, and I’m ready to spend a lot’ :-)

Why Is TBZ going for an IPO?

  • The Business plan is to open an additional 43 showrooms (25 large format high street showrooms and 18 small format high street showrooms) by end FY15, which would give a total of 57 showrooms (with a total carpet area of approx. 150,000 sq. ft.) in 43 cities.
  • From a strong regional player, TBZ is embarking on an aggressive phase of growth to take the business national.
  • TBZ will also meet the new listing norms where promoters can hold a maximum of 75% of shares.
Tribhovandas Bhimji Zaveri, IPO, JainMatrix Investments

TBZ Financials

Industry

  • The overall size of domestic Gems and Jewellery sector is pegged at Rs 87,000 crore as of 2008-09, according to a FICCI-Technopak study and is expected to grow up to Rs 183,200 crore by 2014-15, a CAGR of 10-12%. Estimates are that only 10% of this industry is the organized sector.
  • Quick calculations give TBZ a rough Market share of 8.5% of the organized Indian jewellery market.
  • Organized sector competition to TBZ is from Titan, Shree Ganesh, Joy Alukkas, Thangamayil and Kirtilal Kalidas, Reliance Jewels and Big Bazaar. However, TBZ’s business model is closest to Titan.
  • Government recently raised the duties on Gold imports, this raises cost of gold Jewellery. Another new rule is on the requirement of PAN number for purchases of more than Rs 5 lakh.

Key Strengths of TBZ and IPO offer

  • TBZ is a local trusted high quality brand, and can be leveraged by the firm.
  • Strong industry experience from the 2nd generation entrepreneur promoter.
  • The price volatility in this sector due to commodity inputs like gold and diamonds appears to be well managed by TBZ in terms of their procurement systems.
  • IT systems appear to be strong
  • Current operations are Cash Flow positive.

Key Weaknesses/ Issues/ Challenges

  • An unknown is the ability to scale up the Retail presence to 4 times the current size in 3 years.
  • Intense competition from both current organized and unorganized sector
  • Will this firm transition from a Family business to a professionally managed one? This is not necessary immediately, but definitely if TBZ grows from small cap to mid cap, it may be required.

Strategic Thoughts around this IPO

  • The TBZ IPO offer straddles a key trend – the transition of Indian Gems and Jewellery retail from unorganized to organized sector in India. This is expected to accelerate over the years.
  • Consumption trends. This business is part of the India consumption story. As India becomes both more populous and affluent, Gems and Jewellery sales are bound to multiply.
  • Looking beyond Gems/Jewellery, the consumption theme has been rewarded in FMCG, Food, consumer goods, and auto categories where PEs are high.

IPO Offering Outline and Valuations

  • Offer is of 1.66 crore shares in price range Rs 120 to Rs 126/- available from April 24-26th.
  • This 25% dilution will collect Rs 210 crores at upper end, and value the firm at 840 crores market cap
  • TBZ valuation (PE) will be at 12.46 times at the upper end of price band. This compares favorably with Titan (39X) but is higher than Gitanjali Gems (11X), Thangamayil (4X) and Shree Ganesh (2.68X). However, TBZ business model is closest to Titan.
  • Crisil graded the IPO 3/5, citing reasons related more to the industry competition than the company
  • The IPO proceeds will be used for opening new showrooms and working capital requirements and debt reduction.
  • The D/E ratio of the company was 1.5 as on Dec 31 ‘11, will come down to 1.1 post IPO.

Opinion, Outlook and Recommendation

  • This is a good investment opportunity. I expect this IPO to be a success and get oversubscribed. Also there should be an appreciation of the share on listing.
  • TBZ is an IPO for the medium risk oriented investor with a 2-3 year perspective
  • Interested investors should watch the subscription numbers till 25 April and take their decision.

JainMatrix Knowledge Base

Disclosure: It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it.

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