Tuesday, April 17, 2012

IPO ANALYSIS : TRIBHOVANDAS BHIMJI ZAVERI - AN IPO TO FUND WORKING CAPITAL GAP

ISSUE OPENS ON 24-04-12 AND CLOSES ON 26-0412.

CRISIL IPO GRADE 3


BRLMs - IDFC CAPITAL AND AVENDUS CAPITAL


REGISTRAR - KARVY.


PRICE BAND RS 120-126.

TRACK RECORD OF BRLMS IN RESPECT OF IPOS MANAGED IN THE LAST 2 YEARS.

IDFC CAPITAL


NAME OF THE COMPANY

ISSUE PRICE

CMP

FIRSTCHOICEIPO RECOMMENDATIONS

A2Z MAINTENANCE

400

115

AVOID

ASHOKA BUILDCON

342

210

APPLY

GUJ PIPAVA

46

60

APPLY

MANINFRA

252

215

AVOID


AVENDUS CAPITAL



NAME OF THE COMPANY

ISSUE PRICE

CMP

FIRSTCHOICEIPO RECOMMENDATIONS

PARABOLIC DRUGS

75

30

AVOID

INNOVENTIVE INDUSTRIES

117

120

APPLY



TBZ is a well-known and trusted jewellery retailer in India with 14 showrooms in 10 cities across five states. TBZ primarily sells gold jewellery and diamond-studded Jewellery. All the showrooms are under trade name of “Tribhovandas Bhimji Zaveri”. The flagship showroom in Zaveri Bazar, Mumbai, was established in 1864.


The company plans to open an additional 43 showrooms by the end of Fiscal 2015. The public issue is to fund expansion (Rs 19cr), augment additional working capital requirements (Rs 160cr) and for general corporate purposes (Rs 31cr).

The offer:

Public issue of 16,666,667 equity shares of Rs 10 FV, in the price band of Rs 120-126.

FINANCIALS:

The company has grown at a CAGR of 40% from FY08 to FY11. This was primarily due to branch expansion and steady increase in gold prices during that period.

RS IN CRORES


31-03-10

31-03-11

31-12-11
(9months)

Total revenue

885

1194

1118
PAT
  17
    40
    50
EPS
3.88
 8.00
 10.06
EQUITY
10.00
 50.00
 50.00

NAV as on 31-12-11 is Rs 32.

The company will have post issue equity base of Rs 66.66cr.

RISKS:

1. No independent valuation was conducted for the acquisition of 100% of the share capital of Tribhovandas Bhimji Zaveri (Bombay) Limited, a company which was owned and controlled by the promoters.

2. TBZ has not identified the exact locations where they propose to establish new large format high street showrooms.

3. The RBI has advised banks to classify accounts of Jewellers as ‘high-risk’, requiring banks to apply enhanced due diligence before granting loans to Jewellers. This may adversely affect the ability to obtain financing in a timely manner and on acceptable terms.  

4. The objects of the Issue for which funds are being raised have not been appraised by any bank or financial institution.

5. TBZ was not compliant with the requirements of Section 383A of the Companies Act. 
.
6. The Indian retail jewellery industry is extremely competitive.

7. The average cost ranges from Rs 1 to 10.


VALUATION AND RECOMMENDATIONS:

TBZ is a small time player in the organized retail jewellery market. At Rs 120-126, the company is demanding a valuation around 13 times, on its FY 12 earnings, on the expanded post issue capital of Rs 66.66cr, which is very expensive.

More importantly, nearly 70% of the IPO funds are intended to be utilized for working capital needs. For branch expansion the company has earmarked just Rs 19cr.

TBZ is yet to identify the places where they want to open their branches. The fruits of expansion, if any, will accrue in FY14.

In all probability the IPO funds will be utilized to reduce the bank borrowings.

Even taking account the brand image the company enjoys the IPO looks expensive. AVOID INVESTMENT.









2 comments:

  1. All jewellers need working capital to fund the gold inventory in the stores. However, this does not mean any loss of value, as these are more or less perfectly hedged. The same inventory then gets reported as sales after adding other cost and margin. Thats the way jewellery retail business runs. Check out Rajesh Exports epansion plan and the fund requirement indicated. The risk comes when the inventory turn is low, or the company fails to open the stores and hence the fund lies with it as cash investment, which is no great service to the investors.

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  2. Yes Jewellery business need large inventory. Our point here is that less than 10% of the IPO amount is going for expansion, for which the IPO is envisaged.

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