Glittering pedigree alone can’t justify higher discounting!
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OFFER AT A GLANCE |
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Name |
Tribhovandas Bhimji Zaveri Ltd |
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Offer |
Fresh Issue of 166.67 lakh shares of Rs 10 each. |
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% on Total Equity |
25% |
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Offer Price |
Between Rs 120 and Rs 126 |
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Offer Amount |
Between Rs 200 cr and Rs 210 cr |
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Application Quantity |
45 & Multiples of 45 |
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Offer Opens |
April 24, 2012 |
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Bid/Offer Closes |
April 26, 2012 |
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Rated By |
CRISIL |
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Rating |
3 out of 5 |
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Lead Managers |
IDFC Capital, Avendus Capital |
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Registrars |
Karvy Computershare |
The Offer
The present offer is a fresh issue of Rs 166.67 lakh shares at a price band of Rs120 to Rs126 for a paid-up value of Rs10.
Issue Object
The company intends to utilize the issue proceeds for establishing new showrooms, besides funding incremental working capital requirements and general corporate purposes.
Pedigree
The genesis of the issuer, Tribhovandas Bhimji Zaveri Ltd (TBZ), dates back to 148 years. Established as a partnership firm, the jewellery retailer popularized the brand “TBZ – the original since 1864” in 10 cities across five states. The partnership firm was converted into a limited company in 2007.
TBZ reportedly has 14 showrooms (aggregating to about 50,000 sq. ft.) under the name “Tribhovandas Bhimji Zaveri”. Whereas gold jewellery formed about 74%, diamond-studded items accounted for 22% of the total revenue in FY11. The company has a diamond-studded jewellery making unit in Kandivli, Mumbai.
TBZ’s promoter Shrikant Zaveri has more than 30 years of experience in the gems and jewellery industry. Shrikant Zaveri’s older daughter Binaisha (29) heads strategy and marketing while his younger daughter Raashi (25) oversees the IT system.
TBZ’s century-old presence in the retail jewellery business has helped it create a strong brand recall. TBZ was one of the first to offer buy-back guarantee on its jewellery way back in the 1930s. The company’s track record reflects consumers’ trust in the quality and purity of TBZ products.
Dormant for a long period, the company has expanded steadily during the last decade. From a single store till 2000, the company has added more than a dozen stores in the past 11 years. TBZ has been largely focusing on western and southern India – around 70% of the overall revenue in FY11 was from the western region. The company derived about 53% of its revenues from Mumbai in FY11 with its flagship store at Zaveri Bazar contributing the most.
TBZ’s revenues grew at 40% CAGR between FY08 and FY11 to Rs 1190 cr, largely driven by branch additions and a steady increase in gold prices. A higher proportion of diamond-studded jewellery helped maintain EBITDA margin at around 5.8% between FY08 and FY10. EBITDA increased at 52% CAGR during FY08-11. During the same period, PAT increased at a CAGR of 73%.
Prospects
Retailing gold and diamond jewellery through self-owned stores is working capital intensive as compared to franchisees and shop-in-shops. Among the leading names in jewellery retailing, TBZ, Joyalukkas and Thangamayil operate through own stores while Gitanjali and Tanishq have a mix of franchisees and shop-in-shops. TBZ’s working capital days are in line with its peers, Joyalukkas and Thangamayil, at around 75 days (FY09-FY11 average). TBZ’s inventory days are higher at 79 days due to higher proportion of diamond-studded jewellery, which has lower inventory churn as compared to gold jewellery, and also because of its own diamond manufacturing facility. Gitanjali and Tanishq predominantly retail diamond-studded jewellery.
In larger cities, especially in western and southern India, the jewellery retailing market is getting increasingly competitive, evidenced by slow growth and decline in the company’s same store sales. This is necessitating more store openings and entry into tier-2 and tier-3 cities.
With many regional and national jewellery retailers as well as jewellery manufacturers and exporters lining up aggressive expansion plans, the competition is expected to intensify. While this pans out, the shift from unbranded jewellery to branded jewellery will likely provide some room for the players to co-exist and compete on customer loyalty and variety, underlined by quality assurance. On the flip side, this will likely lead to higher spending on advertising, lower volumes and realisations and/or suppressed margins on gold jewellery.
TBZ wants to leverage its brand and is, thus, focusing on opening new stores across the country. The company’s strategy is to open large stores in major cities followed by small to medium stores in nearby towns, which will ensure volume growth. It is planning to add 43 new showrooms under the Tribhovandas Bhimji Zaveri brand in the next three years, which is around three times its current size. By the end of FY13, the company plans to add eight new stores by utilising the IPO proceedings. The company claims to have identified all the eight locations and is in the process of signing letters of intent.
Valuation
Compared to other large traditional/regional players, TBZ has been increasing its focus on diamond-studded jewellery, which contributed 22-24% to overall sales over the past three years. The company’s diamond business has been generating gross margins of 26-28% as compared to 10-12% in gold jewellery. Nevertheless, despite having a higher proportion of diamond jewellery, TBZ’s overall profitability was lower than its peers mainly because of higher employee cost and lower margin on gold jewellery as compared to other players. Among the listed retailers, only Thangamayil’s operating margin is in double digits.
Jewellery industry currently commands a higher P/E of 18x as compared to the market composite of 16x. The industry’s Price to Book Value is also higher at 4x as compared to the market composite of 2.4x. These ratios are largely influenced by Titan whose market cap is more than two-thirds of the jewellery industry. Titan currently enjoys an ultra high P/E of about 39x and P/BV of 21x.
On the other hand, companies like Thangamayil and Shree Ganesh have a P/E of less than 5x and their P/BV is also lower than the market composite (2.4x). TBZ, whose OPM is far lower than Thangamayil, is pricing its share at a P/E of around 15 times and P/BV of more than 5 times. When Thangamayil, which has had an exponential growth post-issue and having a dividend base of 50%, is quoted only 4 times its earnings, how long will TBZ, which is yet to join the dividend list, be able to hold its P/E at 15 times post-listing is anybody’s guess.
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How Tribhovandas compares with peers |
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SCRIP |
NOS |
M-CAP |
P/E |
P/BV |
P/FV |
P/R |
OPM |
YLD |
PRICE |
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(20-APR-2012) |
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(Rs Cr) |
(x) |
(x) |
(x) |
(x) |
(%) |
(%) |
(Rs) |
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Titan Industries |
|
21,080 |
38.8 |
20.6 |
237.4 |
2.5 |
8.5 |
1.1 |
237.45 |
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Rajesh Exports |
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4,083 |
11.1 |
2.6 |
138.3 |
0.2 |
2.7 |
0.4 |
138.30 |
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Gitanjali Gems |
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3,032 |
10.9 |
1.3 |
33.3 |
0.4 |
5.4 |
0.9 |
332.75 |
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Shree Ganesh Jewel |
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505 |
2.2 |
0.5 |
8.3 |
0.1 |
4.6 |
3.6 |
83.30 |
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Suraj Diamonds |
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306 |
2.6 |
0.3 |
4.6 |
0.1 |
3.2 |
2.7 |
45.90 |
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Thangamayil Jewel |
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231 |
4.0 |
2.3 |
16.8 |
0.2 |
10.9 |
3.0 |
168.10 |
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Renaissance Jewel |
|
162 |
3.8 |
0.6 |
8.5 |
0.2 |
14.1 |
2.4 |
84.70 |
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Jewellery Compo |
15 |
29,969 |
18.0 |
4.0 |
60.3 |
0.6 |
4.6 |
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Market Compo |
2,904 |
6,219,907 |
16.0 |
2.4 |
29.7 |
1.3 |
22.0 |
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Tribhovandas |
Hi-band |
840 |
15.6 |
5.7 |
12.6 |
0.7 |
7.3 |
0.0 |
126.00 |
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Lo-band |
800 |
14.8 |
5.5 |
12.0 |
0.7 |
7.3 |
0.0 |
120.00 |
In fact, sans Thangamayil, none of the jewellery IPOs that hit the market in recent years is currently quoting above their IPO prices. The last jewellery issue viz. Shree Ganesh, which was incidentally lead-managed by one of the book-running lead managers of TBZ, Avendus Capital, is currently quoting at 68% discount! Going by this TBZ’s price does not exude much optimism.
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MARKET PERFORMANCE OF JEWELLERY IPOs IN LAST 5 YEARS |
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CO NAME |
IPO |
LISTING DAY |
CURRENT |
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DATE |
PRICE |
PRICE |
GAIN % |
PRICE |
GAIN % |
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Shree Ganesh Jewel |
19-Mar-10 |
260 |
163.25 |
-37.2 |
83.30 |
-67.96 |
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Thangamayil Jewel |
27-Jan-10 |
75 |
71.10 |
-5.2 |
168.10 |
124.13 |
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Renaissance Jewel |
19-Nov-07 |
150 |
164.80 |
9.9 |
84.70 |
-43.53 |
Investment Banker’s Track
The track record of IPOs managed TBZ’s investment bankers too is far from satisfactory. Of the 14 public issues managed by IDFC Capital between 2008 and 2010 just two are currently quoting at a premium. Five issues have drained more than a half of their investment value.
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IDFC CAPITAL-ASSOCIATED IPOs |
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Issuer |
IPO |
IPO |
LISTING DAY |
Current |
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Date |
Price |
Price |
Gain% |
Price |
Gain% |
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Gammon Infra |
10-Mar-08 |
33 |
31.58 |
-5.4 |
14.32 |
-57.1 |
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KSK Energy |
23-Jun-08 |
240 |
190.50 |
-20.6 |
71.05 |
-70.4 |
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Adani Power |
28-Jul-09 |
100 |
100.05 |
0.0 |
69.20 |
-30.8 |
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JSW Energy |
7-Dec-09 |
100 |
100.75 |
0.8 |
55.80 |
-44.2 |
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Godrej Propert |
9-Dec-09 |
490 |
534.55 |
9.1 |
609.55 |
24.4 |
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Man Infra |
18-Feb-10 |
252 |
348.25 |
38.2 |
206.70 |
-18.0 |
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SJVN |
29-Apr-10 |
26 |
25.05 |
-3.7 |
19.75 |
-24.0 |
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Jaypee Infra |
29-Apr-10 |
102 |
91.30 |
-10.5 |
48.60 |
-52.4 |
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Engineers India |
27-Jul-10 |
290 |
321.15 |
10.7 |
252.60 |
-12.9 |
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Gujarat Pipavav |
23-Aug-10 |
46 |
54.05 |
17.5 |
61.25 |
33.2 |
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Va Tech Wabag |
22-Sep-10 |
524 |
683.76 |
30.5 |
434.85 |
-17.0 |
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Ashoka Build |
24-Sep-10 |
324 |
333.35 |
2.9 |
207.75 |
-35.9 |
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Shipping Corp |
30-Nov-10 |
140 |
132.45 |
-5.4 |
62.25 |
-55.5 |
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A2Z Mainten |
8-Dec-10 |
400 |
328.90 |
-17.8 |
110.60 |
-72.4 |
In the case of Avandus Capital, all the five issues handled by the merchant banker are currently quoting below their offer prices.
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AVENDUS CAPITAL-ASSOCIATED IPOs |
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Issuer |
IPO |
IPO |
Listing Day |
Current |
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Date |
Price |
Price |
Gain% |
Price |
Gain% |
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IL&FS Transport |
11-Mar-10 |
258 |
273.75 |
6.1 |
190.15 |
-26.3 |
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Shree Ganesh |
19-Mar-10 |
260 |
163.25 |
-37.2 |
83.30 |
-68.0 |
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Parabolic Drugs |
14-Jun-10 |
75 |
64.80 |
-13.6 |
28.85 |
-61.5 |
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PTC India Fin |
16-Mar-11 |
28 |
24.90 |
-11.1 |
17.05 |
-39.1 |
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Innoventive Ind |
26-Apr-11 |
117 |
93.60 |
-20.0 |
116.55 |
-0.4 |
Concerns
- There are seven group/partnership entities carrying out similar operations. They operate without a formal non-compete agreement.
- Some of the retiring partners have the right to use the brand name Tribhovandas Bhimji Zaveri with modifications – through prefixes and suffixes – as specified in the deed. There are also other players sharing the brand name which may dilute the brand value and affect the goodwill.
- Expansion plans are at a nascent stage.
- Twelve of the existing showrooms are at leased premises which may affect the operations if the company fails to extend the lease in future.