TBZ - IPO - A Touch of Gold

The first IPO for the fiscal 2012-13 is on the investors’ radar, as one of the oldest family-owned jewellery business hits the market to raise funds through this route. Tribhovandas Bhimji Zaveri (TBZ) is tapping the capital market to raise funds of approximately Rs 200 crore through issuance of 1.66 crore of equity shares at a price band of Rs 120 and Rs 126. The issue for the same opens on April 24, 2012 and will close on April 26, 2012. The proceeds of the issue is to finance the establishment of new showrooms (approximately 10 per cent of the raised funds), finance incremental working capital requirement (approximately 80 per cent of the raised funds) and spend the remaining for general corporate purposes.

TBZ is a more than 145-year-old jewellery company from Mumbai and would fall among the niche establishments with a long and good track record. It is a trusted and well known brand having 14 showrooms in 10 cities. Of its total revenue, around 72 per cent comes from the selling of gold jewellery, around 25 per cent from diamond-studded jewellery while the rest i.e. 3 per cent from platinum and ‘jadau’ jewellery. The gross profit margin in the gold segment is around 10.86 per cent while that in case of diamond jewellery it is around 36 per cent.

The company is tapping the market as it has huge expansion plans and wishes to grow three-fold in the next three years. From the existing 14 showrooms the company plans to open 43 new showrooms, thus taking it to a total of 57 showrooms by the end of fiscal 2015. It has already started planning for the same and the first showroom is probably going to go live by the first week of June.

One thing to be noted is the use of the words ‘Tribhovandas Bhimji Zaveri’ by certain third parties that has created some confusion in the minds of consumers as well as investors. The management has clarified that it is only they who have the right to use this name and that the other parties, which primarily includes its other family group members, can use it only by adding a prefix or suffix. However, as per the DRHP, two retiring partners have the rights to use the brand name without modification. This might affect the company.   

On the financial front, the company has performed well in the past. For FY11, its operating income increased by 35 per cent to Rs 1,194 crore while profit after tax increased substantially by 136 per cent to Rs 40 crore. The numbers are very impressive when we look at the nine months’ performance of the company. On the topline front it has almost reached its FY11 numbers while it has witnessed a 25 per cent rise in its bottomline.

On the valuation front, the company, on an estimated annualized EPS of FY12, is available at a price to earnings multiple of 9.69 times which is lower when compared to its peers like Gitanjali Gems’ P/E of 10.6 times. However, when we look at the EBITDA margins of TBZ, this is much higher at around 9 per cent when compared to Gitanjali Gems’ margins at 4.41 per cent.

Going ahead the company’s focus area would be diamond jewellery where it has better margins. TBZ has huge expansion plans and hence one has to watch out for the execution of the same. We believe that with good business growth, coupled with the old and trusted brand image of TBZ, there could be some gains on the bourses which could be grabbed by the investors.