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Antique- Tribhovandas Bhimji Zaveri - Go for the GOLD... _Initiation Coverage_

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Antique- Tribhovandas Bhimji Zaveri - Go for the GOLD... _Initiation Coverage_ Powered By Docstoc
					I N D I A R ES E A RC H
I N I T I AT I N G C O V E R A G E
G E M S & J E W E L L E RY

JUNE 2012




    Tribhovandas Bhimji Zaveri Limited
    Go for the GOLD...




      Abhijeet Kundu
      +91 22 4031 3430
      abhijeet@antiquelimited.com
ANTIQUE STOCK BROKING LIMITED                                                                              FROM THE RESEARCH DESK            14 June 2012 | 1




       Recommendation :                 BUY                    INITIATING COVERAGE
       CMP
       Target Price
                                :
                                :
                                        INR110
                                        INR158                 Tribhovandas Bhimji Zaveri Limited
       Potential Return         :       44%                    Go for the GOLD...
                                                               Investment Highlights
                                                               Tribhovandas Bhimji Zaveri Ltd. (TBZ) is a high growth potential story in the organised
      Abhijeet Kundu                                           Indian jewellery sector backed by: 1) strong brand (the most important factor for trust
      +91 22 4031 3430                                         amongst gold consumers); 2) innovative ability; and 3) aggressive expansion plans.
      abhijeet@antiquelimited.com
                                                               We estimate TBZ to record strong earnings growth with a CAGR of ~52% to INR1.33bn
                                                               during the next two years (FY12-14e) led by a net sales CAGR of 42% to INR28.0bn.
                                                               We initiate coverage with a BUY recommendation and a target price of INR158,
                                                               implying FY14e PE of 8x.
                                                               Store expansion to drive growth
                                                               TBZ is embarking on a strong retail expansion plan to drive growth during the next
     Market data
     Sector                     :                   Retail     three years. The company which currently operates about 14 stores across 10 cities in
     Market Cap (INRbn)         :                         7    5 states (retail showroom carpet area of 47,796 sq ft), plans to add 43 showrooms (25
     Market Cap (USDm)          :                    132       large format high street showrooms and 18 small format high street showrooms) by the
     O/S Shares                 :                         67   end of FY15e, which would take the total number of showrooms to 57 (total carpet
     Free Float (m)             :                        17
                                                               area ~150,000 sq. ft.) in 43 cities across 14 states. This would drive sales at a strong
     52-wk HI/LO (INR)          :          123/103
     Avg Daily Vol ('000)       :                        53    CAGR of 42% to INR28.0bn during the next two years.
     Bloomberg                  :                 TBZL IN      Profitability on a structural uptrend
     Source: Bloomberg
                                                               PAT margins would witness consistent improvement during the next three years with the
     Returns (%)                                               application of the gold lease model. TBZ's interest outgo during FY13e and FY14e is
                         1m    3m        6m         12m        estimated to drop to INR215m and INR360m, respectively, as against INR315m in FY12.
     Absolute            (8)        -         -            -
                                                               This in turn would improve net margins by 53bps during FY13e and FY14e to 4.7%.
     Relative         (11)          -         -            -
     Source: Bloomberg                                         Valuation and outlook
                                                               At the CMP of INR110, the stock trades at a PE of 8.5x FY13e and 5.6x FY14e. On an
     Shareholding pattern
                                                               EV/EBITDA basis, it trades at 4.2x FY13e and 2.7x FY14e. We believe that TBZ would
       Promoters
                                                   FII         trade at a premium over its peers like Shree Ganesh Jewellery (which has yet to create a
          74%
                                                  12%          branding in the domestic jewellery retailing) and Thangamayil Jewellery (which is more
                                                               of a regional brand as compared to TBZ which has been able to create a presence
                                                    DII
                                                    3%
                                                               across both the key geographies of west and south India). We therefore value the stock
                                                               at a PE of 8x FY14e, providing a target price of INR158 and recommend a BUY.
                                                  Others
                                                   11%
                                                               Key financials
                                                               Year ended 31st Mar           2010        2011        2012e          2013e        2014e
     Source: BSE                                               Revenue                       8,849       11,939       13,855        18,592       28,055
                                                               EBITDA                          484         866         1,236         1,593        2,456
     Price performance vs Nifty                                EBITDA margin (%)               5.5          7.3          8.9           8.6          8.8
       105                                                     EBITDA growth (%)              50.9         79.0         42.7          28.9         54.2

       100                                                     PAT (INRm)                      154         392           572          867         1,325
                                                               PAT growth (%)                  47.4      154.7          46.1          51.5         52.8
         95
                                                               EPS(INR)                         2.3         5.8          8.5          12.9         19.8
         90                                                    EPS growth (%)                  47.4      154.7          46.1          51.5         52.8

         85                                                    PE (x)                          47.9        18.8         12.9           8.5          5.6
          May-12 May-12        Jun-12     Jun-12               EV/EBITDA (x)                   17.6         9.8          6.9           5.4          3.5

                    TBZ                   NIFTY                RoE (%)                        23.1         36.6         34.5          19.9         23.3
                                                               ROCE (%)                       16.7         26.1         32.0          33.5         40.2
     Source: Bloomberg
                                                               Source: Company, Antique;
ANTIQUE STOCK BROKING LIMITED                                                                 FROM THE RESEARCH DESK               14 June 2012 | 2




                                    Background
                                    TBZ is a 148-year-old jewellery retailer in India with 14 showrooms in 10 cities across
                                    5 states, with a total carpet area of approximately 47,796sqft. They are primarily
                                    focused towards gold and diamond-studded jewellery along with foray into platinum
                                    and jadau jewellery. The designing and manufacturing of their products is done either
                                    in-house or by third parties. All its showrooms trade under the name of "Tribhovandas
                                    Bhimji Zaveri". Its flagship showroom in Zaveri Bazar, Mumbai, was established in
                                    1864. Since 2001, TBZ has opened several showrooms, including seven during August
                                    2007 and October 2008.
                                    Out of TBZ's 14 showrooms, 11 are "large format" high street showrooms (carpet area
                                    of 3,000 sq. ft. or more) and 3 are "small format" high street showrooms (carpet area
                                    of 1,000-3,000 sq. ft.). Effective June 01, 2011, TBZ surrendered the lease for one of
                                    its showroom to the lessor and on July 27, 2011 it opened a new showroom in Rajkot,
                                    Gujarat. It has closed one small format showroom in Pune on March 31, 2012 and
                                    opened a large format showroom in Pune on April 1, 2012.

                                    Exhibit 1: Store locations
                                    Location                                             State                                    No. of stores
                                    Zaveri Bazar, Mumbai                                 Maharashtra                                                1
                                    Borivali, Mumbai                                     Maharashtra                                                1
                                    Santacruz, Mumbai                                    Maharashtra                                                1
                                    Ghatkopar, Mumbai                                    Maharashtra                                                1
                                    Thane                                                Maharashtra                                                1
                                    Pune                                                 Maharashtra                                                1
                                    Punjagutta (Hyderabad)                               Andhra Pradesh                                             1
                                    Basheerbagh (Hyderabad)                              Andhra Pradesh                                             1
                                    Vijayawada                                           Andhra Pradesh                                             1
                                    Ahmedabad                                            Gujarat                                                    1
                                    Surat                                                Gujarat                                                    1
                                    Rajkot                                               Gujarat                                                    1
                                    Indore                                               Madhya Pradesh                                             1
                                    Kochi                                                Kerala                                                     1
                                    Total                                                                                                          14
                                    Source: Company, Antique


                                    Exhibit 2: Top 7 stores revenues (INRm)
                                     2500

                                     2000

                                     1500
     Top seven stores account for    1000
     ~70% of total company’s
                                       500
     revenues
                                           0
                                                Mumbai




                                                                                                           Ghatkopar,
                                                               Mumbai




                                                                                                                        Gujarat
                                                               Borivali,




                                                                           Panjagutta,




                                                                                              Ahmedabad,




                                                                                                                                      Santacruz,
                                                Zaveri
                                                Bazar,




                                                                           Hyderabad




                                                                                                                        Surat,
                                                                                                            Mumbai




                                                                                                                                       Mumbai
                                                                                                Gujarat




                                    Source: Company, Antique
ANTIQUE STOCK BROKING LIMITED                                                                 FROM THE RESEARCH DESK   14 June 2012 | 3




                                     India, a high potential market for organised jewellery
                                     India is one of the largest markets of gold jewellery consumption in the world with
                                     organised jewellery forming just 10% of the overall market. According to the Industry
                                     estimates, the Indian gems and jewellery industry is expected to grow at about 10-
                                     12% during the next three years. We expect organised jewellery retailers like TBZ to
                                     grow at a strong pace and outperform their unorganised peers (family jewellers) led
                                     by ramp up of retail space, consistent innovation and marketing.

                                     India - the largest market for gold jewellery
                                     India has been the largest consumer of gold jewellery (in tonnage terms) around the
                                     globe over several decades.
     In 2011, India accounted for    Gold is a renowned metal not only for its traditional use for adornment but also for its
     29% of total global gold        stance as a time-tested investment-class asset. Gold is viewed by Indians as a secure
     jewellery consumption, 25% of   and easily accessible investment by the rural community, which accounts for around
     total consumer bar and coin     70% of the population. In India, gold continues to have the added virtue of being an
     investment demand               inflation hedge, and allocation to gold is an ideal way to achieve a diversified portfolio
                                     because of its low to negative correlation with other mainstream assets (historical
                                     correlation on weekly returns for five years ending March 2010 of -0.2 to +0.4).
                                     Gold is one of the limited ways in which Indian investors can diversify their currency
                                     exposure. As per data from the World Gold Council (WGC), the consumption of gold
                                     in India has doubled over the past two decades - going up from approximately
                                     400tonnes in 1987 to about 800tonnes in 2007. In 2011, India accounted for 29% of
                                     total global gold jewellery consumption, 25% of total consumer bar and coin investment
                                     demand.
                                     The WGC believes there is considerable potential for growth in the Indian jewellery
                                     market given that domestic income levels are on the rise according to HIS Global
                                     insight's projections for 2010-15, notwithstanding that budgets are being constrained
                                     by the prevailing high price of gold.
                                     CARE Research estimates that with the rise in the overall household income with multiple
                                     members earning, the demand for gold in India is bound to remain robust despite its
                                     higher prices in the last two years.

                                     Exhibit 3: Country-wise consumer demand for Gold (tonnes) (4QCY11)
                                     Countries                        Jewellery                             Total            Total
                                                                                              bar and coin invest
                                     India                                     567                           366              933
                                     Greater China                             545                           266              811
                                     China                                     511                           259              770
                                     Middle East                               166                            34              200
                                     USA                                       115                            80              195
                                     Other                                       59                          482              540
                                     World Total                           1,963                           1,487           3,450
                                     Source: World Gold Council, Gold Demand Trends Q4-2011


                                     Industry estimates indicate 10-12% growth in the gems and jewellery
                                     sector
                                     The growth outlook for the gems and jewellery sector in India is stable and CARE
                                     Research expects the domestic industry to grow at a CAGR of 10-12% up to 2015. The
                                     key drivers for growth will be higher disposable income, rising young population with
ANTIQUE STOCK BROKING LIMITED                                                 FROM THE RESEARCH DESK           14 June 2012 | 4




                                higher aspiration levels, higher number of working women and conscious marketing
                                efforts of companies.

                                Nevertheless the traditional demand drivers like weddings and festivals continue to be
                                in place (forming about 50-55% of the overall demand for jewellery in the country).
                                Over centuries, gold has been an inseparable part of the Indian society and fused
                                well into the psyche of an Indian. There is a culture of buying gold during auspicious
                                occasions of Diwali, Akshaya Tritiya, Dussehra, etc., and also during weddings. In
                                rural India, farmers typically buy gold jewellery after every successful harvesting season
                                as it forms the best form of investment (savings) and has proven to be a natural hedge
                                against inflation.

                                Unorganised retailing at 90% - Huge opportunity for organised retailing
                                According to CRISIL Research, the Indian jewellery retailing market is estimated at
                                INR973bn as of 2009-10. Within the jewellery retailing market in India, the share of
                                gold jewellery is estimated to be around 80%. The Indian jewellery retail industry is
                                highly unorganised with the organised market accounting for a mere 10%. Jewellery in
                                India is retailed mainly through three formats: national stores, regional stores, and
                                small family run businesses. The purchase of jewellery is largely based on trust exhibited
                                by customers. There are over 300,000 jewellery retail outlets across the country, indicating
                                a high level of fragmentation.

                                Exhibit 4: Jewellery retailing market composition (India)




                                                                                                 Diamonds, 15%


                                                    Gold , 80%

                                                                                                 Others, 5%




                                Source: Company, Antique


                                According to Industry reports, in the last few years, the Indian domestic market has
                                shown very promising signs for the organised gold jewellery retail industry. The growth
                                witnessed in the penetration of branded and organised retail across categories such
                                as Fast Moving Consumer Goods (FMCG), consumer durables, apparels and home
                                improvement can be replicated in the Gems and Jewellery sector. The two major sub
                                segments within jewellery, gold (22 carat and above) and diamonds, with the former
                                constituting 80% of the value of jewellery consumption and the balance 20% comprising
                                diamonds and gemstone jewellery. The overall size of domestic Gems and Jewellery
                                sector is pegged at INR870bn as of 2008-09) according to a FICCI-Technopak study)
                                and is expected to grow up to INR1,832bn by 2014-15e.

                                Increased urbanisation, higher percentage of younger population, multiple-income
                                families and more women in the workforce is giving rise to higher disposable income
                                level, leading to impulse buying and a preference for superior lifestyle. The median
ANTIQUE STOCK BROKING LIMITED                                                FROM THE RESEARCH DESK          14 June 2012 | 5




                                age of an Indian is 25.3 years, one of the lowest in the world compared to 36.7 years
                                in the US and 44.2 in Japan. The urban population currently accounts for 29% of the
                                total population and is expected to increase to 40% by the year 2020. These factors
                                are currently driving the demand for gems and jewellery, especially diamond jewellery.
                                The neo-rich with an inclination to buy cutting-edge gadgets are purchasing jewellery
                                in modern and aesthetic design as a fashion accessory completely in contrast to the
                                rural folks who buy jewellery as an alternate medium of investment.

                                As per the National Sample Survey, in urban India the share of essential items like
                                food, clothing, electricity, fuel and footwear in the total average annual per capita
                                consumption has reduced, whereas the share of durable goods has increased, which
                                reflects the changing preferences of consumers. The increased consumer awareness
                                and consciousness generated through the vigilant measures adopted through campaigns
                                of the government is expected to drive the demand for branded and hallmarked
                                jewellery. However, in spite of the increasing preference for luxury items, the per capita
                                spending by an Indian is lowest in the world.

                                Increase in penetration of finance would aid the organised gems and
                                jewellery industry in India
                                The credit card market has expanded rapidly over 2002-03 to 2007-08 with the total
                                number of cards in circulation increasing nearly four-fold. The credit card penetration
                                in the country continues to grow at a steady pace but India remains underpenetrated
                                in comparison to many other Asia-Pacific countries. During 2007-08, cardholders had
                                collectively spent INR580bn. This level of spending translated into a CAGR of 29.2%
                                during 2002-03 to 2007- 08. Consumers credit card spends are generally directed
                                towards apparel shopping, fuel purchase and buying durables and jewellery.

                                Significance of diamond jewellery and low priced jewellery on the
                                rise led by elevating gold prices and improving lifestyle
                                There has been a steady rise of diamond studded jewellery in India for weddings,
                                engagements and for the purpose of gifts led by increased branding and fashion
                                consciousness. Also, with the rise in gold prices, consumers are turning to diamond-
                                studded jewellery which gives them a higher perception of luxury and value. The
                                introduction of certified diamonds has increased trust and made diamond valuations
                                more transparent. With only a gradual recovery from developed markets for diamonds,
                                especially the US, Indian manufacturers have now zeroed in on the ever-growing
                                demand from domestic market for diamond-studded jewellery. Many big and small
                                diamond companies have launched aggressive marketing campaigns to tap consumers
                                offering high-end branded jewellery with future buy back and exchange schemes.
                                Brand-awareness in the diamond industry among Indian consumers, much like the
                                developed world, is increasing, and hence, brands will play a key role in enhancing
                                the demand.

                                Further, there is a shift in consumer preference to low-priced diamond jewellery which
                                is about 50% cheaper than normal diamonds and even pure gold jewellery. Ornamental
                                'daily-wear' jewellery has rapidly gained acceptance and popularity in the Indian
                                market. Similarly, diamonds have rapidly gained importance. Consumers are gradually
                                preferring diamonds because of the guaranteed buy back schemes, transparent written
                                pricing and, most importantly, third-party certification.
ANTIQUE STOCK BROKING LIMITED                                                FROM THE RESEARCH DESK           14 June 2012 | 6




                                Organised jewellery gaining ground
                                In our view, branded and organised retail share will grow in urban markets and focus
                                on rural markets will increase penetration. Family owned businesses are moving towards
                                greater degree of professionalism and trust on the neighbourhood jeweller is being
                                replaced by hallmarking and certification of jewellery.

                                Organised retailing in jewellery includes Tata-owned Tanishq, Tribhovandas Bhimji
                                Zaveri, Gitanjali Group, Swarovski, Reliance Jewels, etc. who have set shop in major
                                cities. Apart from specialty retail players, retail chains such as Shoppers Stop, Lifestyle
                                and Big Bazaar now have "shop-in-shops" or jewellery counters from branded players
                                such as Gitanjali, Orra, Kiah, etc. The last few years have also seen the entry of
                                international luxury jewellery brands in India such as Cartier and Chopard. Further,
                                jewellery exporters are also actively looking at the domestic market and plan to open
                                their retail outlets.

                                Due to shrinking margins, large diamond processing companies are adopting a forward
                                integration strategy into the manufacturing or retailing of the jewellery business, both in
                                the business to business (B2B) and business to consumer (B2C) segments. This is expected
                                to lead to the entry of new jewellery retail stores and brands in the country, directed
                                towards attracting the increasingly brand-conscious consumers and also enacting
                                favourable exchange policies.

                                High gold prices and increase in borrowing & operating costs have made the survival
                                of family-owned jewellers difficult. Though the neighbourhood shop owners have their
                                own advantages of high level of customisation and strong customer relationships, they
                                are weighed down by factors like purity, low branding, higher gold wastage (at 0.5%-
                                1%) in manufacturing and weak exchange options. Organised retail provides guarantee
                                for the exchange of goods by charging only about 2% of the total asset value as
                                against 10-15% charged by local shops.

                                Aggressive expansion, innovation and marketing would aid
                                organised share
                                The key selling proposition of organised retailers in jewellery has been the quality
                                certification (hallmarking in jewellery industry parlance). Organised players have gained
                                significant leverage by providing certificates of quality for the goods sold at their
                                outlets. Some players have even made available "karatmeters" in their stores, whereby
                                consumers can verify the purity of gold being used.

                                Most organised retailers have laid high emphasis on jewellery designing, providing
                                consumers with a wider range of designs tailored for diverse purposes beyond the
                                traditional Indian wedding jewellery. These players have capitalised on the growing
                                popularity of ornamental 'daily wear' jewellery and diamond jewellery, to boost their
                                market share.

                                Additionally, organised players have been enhancing the overall consumer experience
                                by providing a better ambience in the showrooms. Most players have adopted
                                aggressive marketing strategies in order to attain visibility and brand value within the
                                highly competitive jewellery retailing space. Improved customer segmentation, targeting
                                mechanisms with specific designs and exclusive range and new usage styles have
                                attracted a new set of consumers and created new occasions.
ANTIQUE STOCK BROKING LIMITED                                                 FROM THE RESEARCH DESK     14 June 2012 | 7




                                Investment Rationale
                                TBZ witnessed strong sales growth during FY07-11
                                TBZ posted a strong improvement in performance during the period (FY07-12), recording
                                35% CAGR in sales to INR13.9bn. This was in the backdrop of an 18% increase in
                                retailing space during the period. Therefore, its same store sales during the period
                                contributed to the tune of 17% CAGR. Its average revenue per store has consistently
                                been on the uptrend, increasing from about INR1,69,000/sqft to INR3,01,000/sqft, a
                                CAGR of 12% CAGR FY07-12.

                                Exhibit 5: Revenue trend (INRm)
                                 16,000
                                                                                                          13,855
                                 14,000
                                                                                                11,939
                                 12,000
                                 10,000                                              8,849

                                   8,000                              6,687
                                   6,000                    4,394
                                   4,000         3,052

                                   2,000
                                        0
                                                  FY07      FY08      FY09           FY10        FY11      FY12

                                Source: Company, Antique


                                Exhibit 6: Increase in revenue /average sqft (INR’ 000/sqft)
                                 350
                                                                                                           301
                                 300                                                             270

                                 250
                                                                                    204
                                                           184       192
                                 200           169

                                 150

                                 100

                                   50

                                    0
                                              FY07         FY08      FY09          FY10         FY11       FY12

                                Source: Company, Antique


                                Exhibit 7: Retail space (sqft)
                                 60,000

                                                                                                          47,796
                                 50,000                                             44,196      44,196
                                                                     42,526
                                 40,000

                                 30,000                     26,962
                                                 20,731
                                 20,000

                                 10,000

                                        0
                                                  FY07      FY08      FY09           FY10        FY11      FY12

                                Source: Company, Antique
ANTIQUE STOCK BROKING LIMITED                                                                                                       FROM THE RESEARCH DESK                14 June 2012 | 8




                                                                        Profitability witnessed consistent uptrend during the last three years
                                                                        TBZ's EBITDA and PAT grew at a CAGR of 45% and 50% to INR1,241m and INR572m,
                                                                        respectively, during FY07-12. EBITDA margins consistently witnessed an improvement
                                                                        during FY09-12, leading to an improvement of 414bps to 9.0%. The improvement in
                                                                        profitability has been led by gross margin increase of 312bps to 17.2%. This could be
                                                                        attributed to higher contribution from the diamond jewellery business and its improving
                                                                        margins. Gross profits margins in the diamond business rose to 36% during FY12 from
                                                                        about 26.1% in FY09. During FY09, gross margins had been impacted due to the
                                                                        global meltdown and the resultant slowdown in the Indian consumption due to
                                                                        uncertainty.

     Exhibit 8: TBZ’s profitability trend                                                           Exhibit 9: TBZ’s sales mix trend (%)
      10                                                                                9.0          80                          71.7         73.5            72.5         72.6
                                                                                                              68.2
                                                                           7.3                       70
       8
              6.3                                                                                    60
       6                    5.4                              5.4                                     50
                                               4.8
                                                                                              4.1    40
       4                                                                         3.3                                                                                           25.4
                                                                                                     30           24.4              23.2                           22.1
                    2.4                                                                                                                             21.6
                                  1.7                             1.9
                                                     1.6                                             20
       2
                                                                                                     10
       0                                                                                               0
              FY07              FY08           FY09          FY10              FY11     FY12e                  FY08               FY09             FY10        FY11           FY12

                                  EBITDA margin %                  PAT Margin %                                                             Gold     Diamond

     Source: Company, Antique                                                                       Source: Company, Antique


     Exhibit 10: TBZ’s gross profit margin trend (%)                                                Exhibit 11: Gold price trend (INR per troy ounce)
      40                                                                                             90,000
                                                                                       35.9
      35
                                                                        29.3                         75,000
      30                                              28.0
              26.1               26.1
      25                                                                                             60,000

      20
                                                                                                     45,000
      15            11.2                                   10.9            12.2           10.9
                                        10.1
      10                                                                                             30,000

       5
                                                                                                     15,000
       0
                FY08              FY09                 FY10               FY11          FY12                0
                                                Diamond            Gold                                     4QFY07         4QFY08          4QFY09         4QFY10     4QFY11    4QFY12

     Source: Company, Antique                                                                       Source: World Gold Council


                                                                        Store expansion to drive growth
                                                                        TBZ is embarking on a strong expansion plan to drive growth during the next three
                                                                        years. The company which currently operates about 14 stores across 10 cities in 5
                                                                        states (Retail showroom carpet area 47,796 sq feet), plans to add 43 more showrooms
                                                                        (25 large format high street showrooms and 18 small format high street showrooms) by
                                                                        the end of FY15e, which would take the total to 57 showrooms (with a total carpet
                                                                        area of approximately 150,000 sq. ft.) in 43 cities across 14 states. Therefore, the
ANTIQUE STOCK BROKING LIMITED                                                                             FROM THE RESEARCH DESK          14 June 2012 | 9




                                                company plans to grow its retailing space by about 79% CAGR during the next three
                                                years, which would drive sales at a significant level during the next three years. We
                                                estimate sales to grow by 42% CAGR during FY12-14e to INR28.0bn.

                                                Exhibit 12: Plan of expansion
                                                                                    Current                   FY13e         FY14e             FY15e
                                                No. of Showrooms                           14                    26             41                57
                                                Large format                               10                    19                27             36
                                                Small format                                 4                    7             14                21
                                                Retail carpet area (sq ft)             47,796                 79,296       113,796           1,50,000
                                                No. of cities                                9                                                    43
                                                No. of states                                5                                                    14
                                                Source: Company, Antique


                                                Initial expansion in known geographies would increase the
                                                probability of success
                                                TBZ currently has a presence in Maharashtra, Gujarat, Madhya Pradesh, Andhra Pradesh
                                                and Kerala. Further, majority of the company's retailing space (about 73%) is concentrated
                                                in Western India, particularly in Maharashtra (52% of total retailing space) and Gujarat
                                                (21% of total retailing space). Going ahead, TBZ's first phase of expansion (13 stores)
                                                would be critical for the company during FY13e and would be primarily focused on its
                                                existing geographies like Gujarat and Maharashtra. Therefore, the initial phase of
                                                expansion in a familiar geography with established brand strength increases the probability
                                                of smooth execution of the expansion and success for the company.

                                                TBZ has tasted success in the gold heavy southern markets
                                                Gold consumption in India is skewed towards the west and south regions, together
                                                accounting for almost 70% of the total consumption. TBZ already has a strong presence
                                                in the west (Maharashtra and Gujarat) which accounts for 32% of the overall gold
                                                demand in India. In the largest market in India, South, where the preference for heavy
                                                gold jewellery is higher, TBZ has been able to spread its success in Andhra Pradesh
                                                and Kerala. It has about 19-20% of its retailing space operating successfully in these
                                                two states. Importantly, TBZ’s store in Panjagutta (Hyderabad) figures in the company’s
                                                top 3 contributors to sales. Therefore, TBZ has been able to cater to two different set of
                                                consumers with different tastes and preferences. This in turn shows the ability of the
                                                company to scale up into a strong national jewellery retailer in the coming years.

     Exhibit 13: TBZ’s existing retail space composition                     Exhibit 14: Geographical segmentation - Gold jewellery (India)


                                    Kerala, 6
                      Andhra                                                                                                North , 18%
                    Pradesh, 13
                                                                                           West , 32%


                 Madhya
                Pradesh, 8                            Maharashtra,
                                                          52



                                                                                                                               South , 37%
                      Gujarat, 21                                                                East , 13%




     Source: Company, Antique                                                Source: Company, Antique
ANTIQUE STOCK BROKING LIMITED                                               FROM THE RESEARCH DESK        14 June 2012 | 10




                                Strong branding and innovation led designs to aid growth
                                According to the management, its key strength in penetrating newer markets would be
                                its strong branding and innovative designs. The company has a dedicated design
                                team, currently comprising 25 designers, 10 of whom are skilled in computer-aided
                                design (CAD). The company introduces four innovative designs per annum to drive
                                sales. TBZ has recently launched a range of wedding jewellery which could be
                                dismantled and used for smaller occasions as well.
                                Additionally, TBZ procures ready-made products from over 120 different vendors in
                                different regions in India, Italy, Turkey and Thailand. Within India, the ready-made
                                gold jewellery is primarily outsourced from vendors in Jaipur, Kolkata, Ahmedabad,
                                Rajkot, Amritsar, Cochin and Hyderabad, thereby covering the taste and preferences
                                of all major jewellery consuming geographies in India. Their ready-made diamond-
                                studded jewellery is sourced from about 35 vendors within India and from a small
                                number of vendors in Italy, Turkey and Thailand. The company purchases ready-made
                                diamond-studded platinum jewellery from three vendors in India.
                                TBZ has successfully made some inroads in the South-based Hyderabad and Cochin
                                market through its creative designs, and has been able to achieve a sizable turnover,
                                particularly in the former market (Hyderabad).

                                Increasing diamond-studded jewellery sales to aid margins
                                TBZ plans to increase its overall profit margin by increasing the diamond-studded
                                jewellery sales. Sales of diamond-studded jewellery has a higher profit margin than
                                sales of gold jewellery. For example, in FY11 and FY12, TBZ's gross profit margin on
                                sales of diamond-studded jewellery was 29.3% and 35.9%, respectively, compared
                                with 12.2% and 10.9%, for sales of gold jewellery. The increase in diamond-studded
                                jewellery sales would be done through cross-selling diamond-studded jewellery to
                                gold jewellery buyers, increasing advertising for diamond-studded jewellery, introducing
                                diamond-studded jewellery promotion schemes such as the Diamond Bangle Mela
                                and launching new diamond-studded jewellery products at various price points, including
                                at entry level. In this context, TBZ has launched the Diamond Necklace Collection and
                                the TBZ Solitaire Collection.

                                Profitability on a structural uptrend
                                Structurally, profit margins are expected to witness an improvement going ahead. This
                                would be primarily driven by rising composition of diamond jewellery and operating
                                leverage in the coming years. Further, initiatives like higher sourcing of gold from buy
                                back schemes from existing clients would facilitate margin accretion. In the recent
                                quarters, the company has saved about 250-300bps of sourcing cost through buy
                                back of gold. The company has increased its sourcing of gold from existing customers,
                                from 26% to 32-33% of its gold requirement.
                                However, during FY13e and FY14e, we have factored in a higher contribution from
                                gold jewellery in the initial phase of expansion. We estimate gross margins for TBZ at
                                18.3% and 17.9% during FY13e and FY14e, respectively. Further, we estimate EBITDA
                                margins to drop to 8.6% during FY13e and 8.8% during FY14e as against 8.9%
                                during FY12. The drop in EBITDA margin would be due to the ramp of operations
                                leading to higher initial cost.
ANTIQUE STOCK BROKING LIMITED                                                           FROM THE RESEARCH DESK     14 June 2012 | 11




                                Change in gold sourcing policy would enhance cash flows and
                                profitability
                                Company is changing its policy with regards to sourcing of gold from outright purchase
                                and holding of gold inventory to leasing of gold, which we believe would be similar to
                                Titan's jewellery business. TBZ further plans to consume current gold inventory of about
                                INR3bn over the next three years.
                                The company is working on applying the policy to all its expansion plans. This will in
                                turn lead to an asset light model in the coming years, thereby leading to a reduction in
                                working capital requirement, higher cash flows, and improvement in RoCE levels.
                                Additionally, a lower exposure to gold inventory in the balance sheet would mean
                                lower mark to market losses in a situation of volatility in gold prices. Nevertheless, the
                                company would be saving about 7% on its working capital loans, with gold lease
                                involving about 6% cost as against the 13% interest cost associated with the loan
                                required for outright purchase of gold covered in the interest outgo related to its working
                                capital loans.
                                With the application of the gold on lease model, TBZ's interest outgo during FY13e
                                and FY14e, we estimate would be at INR215m and INR360m, respectively, as against
                                INR315m in FY12. This in turn would aid net margins of the company during FY13e.
                                We estimate net margins of the company to expand by 53bps to 4.7% during FY13e
                                led by the relatively lower interest outgo.

                                Exhibit 15: PAT margin improvement to be led by lower interest outgo and ramp up in
                                operations
                                 10                                   8.9                                        8.8
                                                                                               8.6
                                   8           7.3

                                   6                                                                                     4.7
                                                                                                       4.7
                                                                               4.1
                                   4                    3.3

                                   2

                                   0
                                                 FY11                   FY12                    FY13e              FY14e

                                                                 EBITDA margin (%)       PAT Margin (%)

                                Source: Company, Antique


                                Exhibit 16: Interest payout increasing at a lower rate over EBITDA, improving return
                                ratios
                                 3,000
                                                                                                                 2,456
                                 2,500

                                 2,000
                                                                                               1,593
                                 1,500                                 1,236
                                                  866
                                 1,000
                                                                                315                                      360
                                   500                     225                                         215

                                       0
                                                     FY11                   FY12                 FY13e             FY14e

                                                                               EBITDA      Interest pay out

                                Source: Company, Antique
ANTIQUE STOCK BROKING LIMITED                                                FROM THE RESEARCH DESK          14 June 2012 | 12




                                Exhibit 17: Asset light model to aid RoCE (%)
                                 45                                                                            40.2

                                 36                                                           33.5
                                                                             32.0
                                                            26.1
                                 27

                                               16.3
                                 18


                                   9


                                   0
                                              FY10          FY11             FY12            FY13e            FY14e

                                Source: Company, Antique


                                Increase in captive production aiding diamond jewellery margins
                                Tribhovandas Bhimji Zaveri (Bombay) Limited, the Company's 100%-owned subsidiary,
                                manufactures diamond studded jewellery for sale in their showrooms at two facilities in
                                Kandivali, Mumbai. The new facility has a carpet area of 17,739 sq. ft. and an
                                annual production capacity (based on one eight-hour shift per day) of 100,000cts. of
                                diamond-studded jewellery, 4,000kgs of gold refining and manufacturing 4,500kgs
                                of gold jewellery components. The old facility has a carpet area of 5,755sqft. TBZ
                                shifted majority of its production activity from the old to the new facility during 3QFY11.
                                In the overall process, TBZ increased its captive production of diamond jewellery from
                                50% in FY10 to about 60-65% in FY11 and about 80-85% in FY12. During FY13e, the
                                company expects to produce about 90-95% of its diamond jewellery requirement from
                                its own manufacturing facility. The increase in captive production together with increase
                                in diamond prices has led to improvement in gross margins of diamond jewellery from
                                28% in FY10 to 36% in FY12.

                                The savings due to captive manufacturing of diamond jewellery has been in the form
                                of reduction in diamond handling charges to 3rd party ( of about INR2,000 per carat),
                                lower making charges on handmade jewellery and savings in raw material inventory
                                (raw material sourcing to manufacturing process reduced from about 90 days to 21
                                days). Additionally, the duplication of diamond jewellery designs has been controlled
                                with captive production.

                                Strong procurement policies, standardisation and systems provide an
                                edge
                                TBZ is one of the very few jewellers which are consistently improving their procurement,
                                marketing and selling policies to scale up to a leading national jewellery retailer.

                                The company has a centralised procurement policy and it generally purchases in large
                                volumes in order to stock their 14 showrooms. According to the management, by
                                purchasing in bulk, the company is able to purchase inventory at lower prices than its
                                competitors in the unorganised sector, which enables them to sell products at competitive
                                prices. Further, at the store level, all of the company’s showrooms are of standardised
                                design and follow a standard operating procedure, which focuses on converting footfalls
                                into customers. Its training programmes are designed to increase the efficiency of the
                                sales teams and to increase conversion ratios and ticket sizes.
ANTIQUE STOCK BROKING LIMITED                                                FROM THE RESEARCH DESK          14 June 2012 | 13




                                TBZ analyses its sales on a daily basis using Oracle ERP software, and therefore, is
                                able to track any variances from the targeted sales.

                                Continuous marketing would aid branding and sales
                                TBZ's marketing activities mainly focus upon generating footfalls in its showrooms through
                                above and below the line activities. Above the line activities are those that are
                                implemented through mass media, such as television, radio, newspapers, magazines,
                                billboards and the Internet. Below the line activities focus upon customer contact through
                                localised road shows, customer get-togethers and locally sponsored activities. The
                                company’s marketing plan aims to capitalise on jewellery buying occasions by combining
                                product launches and discounts around traditional holidays and new age celebrations.
                                It also launches new product lines, such as Oodiyanam, its pendant set collections,
                                and Turkish and Italian collections. The company attempts to create new occasions to
                                purchase jewellery, such as at the TBZ Bangle and Chain Festival and Mangalsutra
                                Mela. It holds jewellery sale campaigns centered around Mother's Day, Women's
                                Day, Valentine's Day, and other occasions appealing to younger generations.

                                TBZ captures customer data in its showrooms in order to send existing customers invitations
                                for sales promotions, mailers on auspicious occasions and other communications. It
                                runs free seminars for consumers to help educate them on purchasing jewellery.
                                Additionally, TBZ sets up stalls at jewellery exhibitions and social gatherings.

                                In addition to the normal marketing initiatives, the company has an advance payment
                                scheme called "Kalpavruksha", which encourages customers to pay advance amounts
                                throughout a plan period. They offer plan periods of 12, 18 and 24 months and
                                provide discounts on the purchase price of their products according to the plan length.
                                They began this scheme in November 2008. As at December 31, 2011, there were
                                22,924 members of this scheme. In FY11, 5,127 members purchased INR117.84m
                                worth of jewellery pursuant to the scheme, representing 0.89% of their revenue from
                                operations on a consolidated basis for the period.

                                Clear focus on increasing same showroom sales
                                In order to increase same showroom sales, TBZ is focused on increasing: footfalls,
                                footfall conversion, and average ticket size of each sale.

                                In order to increase footfalls, the company plans to continue its marketing activities such
                                as advertising, organising events, participating in exhibitions, promotions and launching
                                new product lines (i.e. temple jewellery collection and men's jewellery collection). The
                                company plans to capitalise on existing jewellery buying occasions by combining product
                                launches and discounts around traditional occasions as well creating new occasions,
                                such as the TBZ Bangle and Chain Festival and Mangalsutra Mela.

                                One of the key focus areas is on the conversion of each footfall into a customer. The
                                company trains its employees in sales techniques and product knowledge in order to
                                increase the conversion rate. TBZ attempts to reduce the number of footfalls that walkout
                                without purchasing by stocking a wide range of jewellery across different price points.

                                The company plans to increase ticket sizes by training its employees in up-selling and
                                selling complementary products such as pendants with earrings, and by introducing
                                new lines of jewellery.
ANTIQUE STOCK BROKING LIMITED                                               FROM THE RESEARCH DESK        14 June 2012 | 14




                                Valuation and outlook
                                At the CMP of INR110, the stock trades at a PE of 8.5x FY13e and 5.6x FY14e. On
                                an EV/EBITDA basis, it trades at 4.2x FY13e and 2.7x FY14e. We believe that TBZ
                                would trade at a premium over its peers like Shree Ganesh Jewellery (which has yet to
                                create a branding in the domestic jewellery retailing) and Thangamayil Jewellery
                                (which is more of a regional brand as compared to TBZ which has been able to create
                                a presence across both the key geographies of west and south India). We therefore
                                value the stock at a PE of 8x FY14e, providing a target price of INR158 and recommend
                                a BUY.

                                Risks
                                Aggressive expansion during the next three years could be a risk
                                TBZ took three years to add about 8 stores since FY07, while it is planning to add about
                                14 stores per annum in the next three years. While the constraint on funds for expansion
                                and a cautionary step during scaling up operations for the first time is a reasonable
                                argument, we believe that expanding at such a rapid pace holds some amount of risk.

                                Volatility in gold prices could lead to slowdown in jewellery sales and impact
                                expansion plans
                                Any high volatility in gold prices has normally a negative impact on the volume growth
                                in the Indian jewellery industry. Therefore, volatility in gold prices going ahead could
                                impact the volumes of TBZ which is a big risk in a scenario of rapid expansion. In
                                2009, gold demand in India was severely affected due to global financial crisis,
                                record high prices of approximately INR18,232/10 grams during November 2009
                                and high volatility in gold prices. Record gold prices reached during the 3QCY11,
                                combined with an increase in price volatility and local currency weakness, have impacted
                                the demand for gold jewellery in India. According to WGC, the price highs may have
                                encouraged substitution of demand away from jewellery and towards investment
                                products. Also, consumer preferences may be shifting towards lighter weight gold
                                jewellery at lower price points. There is anecdotal evidence that during periods of high
                                gold prices and high volatility, consumers make only necessary basic purchases and
                                hold on to cash as they wait for opportune buying conditions.
ANTIQUE STOCK BROKING LIMITED                                                                                         FROM THE RESEARCH DESK            14 June 2012 | 15




     Financials
     Profit and loss account (INRm)                                                    Key Assumptions
     Year ended 31 Mar                   2010     2011 2012e 2013e           2014e     Year ended 31 Mar                     2010     2011 2012e 2013e           2014e
     Revenues                            8,849    11,939   13,855   18,592   28,055    Gold jewellery sales growth            35.6     33.2    15.7      35.7      54.0
     Expenses                            8,365    11,073   12,619   16,999   25,600    Diamond jewellery sales growth         23.2      37.8   33.0      34.4      44.9
     EBITDA                               484       866    1,236    1,593     2,456    Raw material cost as % of net sales    85.6     84.1    81.4      81.7      82.1
     Depreciation & amortisation            30       45       55       70        95
     EBIT                                 453       821     1,181   1,523     2,361    Cash flow statement (INRm)
     Interest expense                     219       225      315      215       360    Year ended 31 Mar                     2010     2011 2012e 2013e           2014e
     Other income                            4        4        5        6         7    EBIT                                   453       821    1,181   1,523      2,361
     Profit before tax                    238       600      871    1,314     2,008    Depreciation & amortisation              30       45      55        70        95
     Taxes incl deferred taxation           84      208      299      447       683    Interest expense                       (219)    (225)   (315)    (215)      (360)
     Profit after tax                     154       392      572      867     1,325    (Inc)/Dec in working capital           (329)    (321)   (551)    1,167      (246)
     Adjusted profit after tax            154       392      572      867     1,325    Tax paid                                (84)    (208)   (299)    (447)      (683)
     Recurring Diluted EPS (INR)           2.3      5.8      8.5     12.9      19.8    CF from operating activities          (148)      113      71    2,098      1,167
                                                                                       Capital expenditure                     (20)    (160)    (48)    (111)      (240)
     Balance sheet (INRm)                                                              Inc/(Dec) in investments                   -      (1)       -      (29)         -
     Year ended 31 Mar                   2010     2011 2012e 2013e           2014e     Income from investments                   4        4       5         6         7
     Share Capital                        100       500      500      670       670    CF from investing activities            (16)    (157)    (43)    (134)     (233)
     Reserves & Surplus                   566       570     1,158   3,695     5,020    Inc/(Dec) in share capital                4       12      15    1,840           -
     Networth                             666     1,070    1,658    4,365     5,690    Inc/(Dec) in debt                       257       17     (32)   (1,859)         -
     Minority Interest                       0        4        0        0         0    Dividends paid                             -        -       -         -         -
     Debt                                2,053     2,070    2,038     179       179    Others                                  (93)      48     (39)         -         -
     Capital Employed                    2,719    3,144    3,696    4,544     5,869    CF from financing activities            168       76     (55)     (19)          -
     Gross Fixed Assets                    471      631      679      790     1,030    Net cash flow                             4       32     (27)   1,945       934
     Accumulated Depreciation              (70)    (124)    (169)    (239)     (334)   Opening balance                          55       59      91        64     2009
     Net Assets                           401       507      510      551       696    Closing balance                          59       91      64    2,009      2,943
     Goodwill on consolidation               0        0        0        0         0
     Capital work in progress               42         -       7        7         7    Growth indicators (%)
     Investments                              -       1        1       30        30    Year ended 31 Mar                     2010     2011 2012e 2013e           2014e
     Current Assets, Loans & Advances                                                  Revenue                                32.3     34.9    16.0      34.2      50.9
     Inventory                           2,868    4,254     5,019    7,991   11,045    EBITDA                                 50.9     79.0    42.7      28.9      54.2
     Debtors                                31       85       31      112       169    PAT                                    47.4    154.7    46.1      51.5      52.8
     Cash & Bank balance                    59       91       64    2,009     2,943    EPS                                    47.4    154.7    46.1      51.5      52.8
     Loans & advances and others            80      166      166      250       350
     Current Liabilities & Provisions
                                                                                       Valuation (x)
     Creditors                             739    1,805     1,938    6,175    8,997
                                                                                       Year ended 31 Mar                     2010     2011 2012e 2013e           2014e
                                                                                       PE                                      47.9    18.8    12.9       8.5       5.6
     Other liabilities & provisions         34      174      200      268       410
                                                                                       P/BV                                   11.1      6.9      4.4      1.7       1.3
     Net Current Assets                  2,264    2,617    3,142    3,919     5,100
                                                                                       EV/EBITDA                              17.6       9.8     6.9      5.4       3.5
     Deferred tax assets/(liabilities)      12       19       36       36        36
                                                                                       EV/Sales                                1.0      0.7      0.6      0.5       0.3
     Application of Funds                2,719    3,144    3,696    4,544     5,869
                                                                                       Dividend Yield (%)                      0.0      0.0     0.0       0.0       0.0
     Per share data
     Year ended 31 Mar                   2010     2011 2012e 2013e           2014e
                                                                                       Financial ratios
     No. of shares (m)                    10.0     50.0      50.0     67.0      67.0
                                                                                       Year ended 31 Mar                     2010     2011 2012e 2013e           2014e
                                                                                       RoE                                    23.1     36.6    34.5      19.9      23.3
     BVPS (INR)                            9.9      16.0     24.7     65.1     84.9
                                                                                       RoCE                                   16.7     26.1    32.0      33.5      40.2
     CEPS (INR)                            2.8       6.5      9.4     14.0     21.2
                                                                                       Debt/Equity (x)                         3.1      1.9     1.2       0.0       0.0
     Margins (%)                                                                       EBIT/Interest (x)                      (2.1)    (3.7)   (3.7)     (7.1)     (6.6)
     Year ended 31 Mar                   2010     2011 2012e 2013e           2014e     Source: Company Antique

     EBITDA                                5.5       7.3      8.9      8.6      8.8
     EBIT                                  5.1       6.9      8.5      8.2      8.4
     PAT                                   1.7       3.3      4.1      4.7      4.7

     Source: Company, Antique
Important Disclaimer:

This report is prepared and published on behalf of the research team of Antique Stock Broking Limited (ASBL). ASBL, its holding company and associate
companies are a full service, integrated investment banking, investment advisory and brokerage group. Our research analysts and sales persons provide
important inputs for our investment banking and allied activities. We have exercised due diligence in checking the correctness and authenticity of the
information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions
expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without any notice. ASBL or any
persons connected with it do not solicit any action based on this report and do not accept any liability arising from the use of this document. The recipients
of this material should rely on their own judgment and take their own professional advice before acting on this information. The research reports are for
private circulation and are not to be construed as, an offer to sell or solicitation of an offer to buy any securities. Unless otherwise noted, all research reports
provide information of a general nature and do not address the circumstances of any particular investor. The distribution of this document in certain
jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such
restrictions. ASBL its holding company and associate companies or any of its connected persons including its directors or employees shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained, views and opinions expressed in
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in, and buy or sell the securities thereof, of company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn
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specific recommendations or views expressed in this report.


Analyst ownership in stock                                                                                                                                      No
Company ownership in stock                                                                                                                                      Yes




                                             Antique Stock Broking Limited
                                         Nirmal, 2nd Floor, Nariman Point, Mumbai 400 021.
                                         Tel. : +91 22 4031 3444 • Fax : +91 22 4031 3445
                                                        www.antiquelimited.com

				
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