Tribhovandas Bhimji Zaveri (TBZ) - A Touch Of Gold

The first of the IPOs for FY12-13 is here. One of the oldest family-owned jewellery businesses is all set to hit the primary market to raise funds. Tribhovandas Bhimji Zaveri (TBZ) is tapping the capital market to raise approximately Rs 200 crore through the issuance of 1.66 crore equity shares at a price band of Rs 120-126. The issue opens on 24th April, 2012 and closes on 26th April, 2012. The proceeds of the issue would go into financing the establishment of new showrooms (approximately 10 per cent of the raised funds), funding the incremental working capital requirements (approximately 80 per cent of the raised funds) and the remaining towards general corporate purposes.

TBZ is a more than 145 year-old jewellery company from Mumbai, and is among those companies that have created a niche for themselves in this business. It is a trusted and well-known brand having 14 showrooms across 10 cities. Of its total revenues, around 72 per cent comes from selling gold jewellery, 25 per cent comes from selling diamond studded jewellery, while the rest comes from platinum and jadau jewellery. The gross margin in the gold segment is around 10.86 per cent, while that in the case of diamond jewellery is around 36 per cent.

The company is tapping the market as it has huge expansion plans on the cards and wishes to grow threefold over the next three years. In addition to the existing 14 showrooms, it plans to open 43 new ones, taking the total number of showrooms under its umbrella to 57 by the end of FY15. It has already started planning for the same, and the first showroom will probably go live by the first week of June 2012.

Another notable point is that the name ‘Tribhovandas Bhimji Zaveri’ is also used by certain other third parties, and hence there could be some confusion in the minds of consumers as well as investors. But the management has clarified that they only have the right to use this name and other parties which majorly include the other family members of the group can use this name by adding any prefix or suffix to it. However, as per the DRHP, two retiring partners have the right to use the brand name without modification, which could 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 1194 crore while the Profit After Tax (PAT) increased substantially by 136 per cent to Rs 40 crore. The numbers look decent when we look at the nine-month 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. However, one needs to consider that this is more to do with the prices of gold that have gone up substantially during the past year, rather than with the volumes.

On the valuations front, the stock on an estimated annualised EPS of FY12, will trade at a price-to-earnings multiple of 9.69x, which is lower as compared to that of its peers like Gitanjali Gems, which trades at a P/E of 10.6x. However, when we look at the EBITDA margins of TBZ, they are much higher at around nine per cent as compared to those of Gitanjali Gems, which stand 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 going ahead.

The issue could see a reasonable interest based on the fact that the company has a sound brand image, and hence, one could invest in this IPO for listing gains. We believe that the long-term future plans as envisaged by the company may or may not materialise.