Thangamayil Jewellery Limited (TJL) is tapping the capital markets with an issue to raise Rs 2875.25 lakhs in a price band of Rs 70-75. The issue opens on Wednesday the 27th of January and closes on Friday the 29th of January. The name Thangamayil is actually two words together which mean gold and peacock. Thangamayil in tamil means ‘Golden Peacock’ and that is also the logo of the company.
| Issue Size | Rs 2875.25 lacs |
| Price Band | Rs 70-75 per share |
| Offering based on price fixed | 38,33,667 shares at Rs 75 to 41,07,500 at Rs 70 |
| Employee Reservation | Rs 90 lacs or 1,20,000 at Rs 75 to 1,28,571 shares at Rs 70 |
| Net Offering based on price fixed | Rs 2785.25 lacs or 37,13,667 shares at Rs 75 to 39,78,929 shares at Rs 70 |
| QIB’s | Rs 1392.62 lacs or 18,56,833 shares at Rs 75 to 19,89,464 shares at Rs 70 |
| Non Institutional Investors | Rs 417.79 lacs or 5,57,050 shares at Rs 75 to 5,96,839 shares at Rs 70 |
| Retail Investors | Rs 974.84 lacs or 12,99,786 shares at Rs 75 to 13,92,628 shares at Rs 70 |
| Marketcap post issue | Rs 97.95 crs to 102.90 crs |
| Book Running Lead Manager | Keynote Corporate Services Limited |
| Isssue Opening Date | Wednesday 27th January |
| Isssue closing date | Friday 29th January |
| IPO Grade | 3/5 by Brickwork Ratings indicating average fundamentals |
Business
The company is in the business of gold jewellery, diamond and platinum jewellery. The company has a manufacturing unit near Madurai where it manufactures ornaments which are made to order and general articles of jewellery like chains and bangles. It also procures gold jewellery from various dealers across India like West Bengal, Gujarat, Andhra Pradesh and Kerala. The company sells gold jewellery made from 22K and assures its customers of the quality it sells.
TJL is into retail marketing and has its largest showroom in Madurai. It is spread over three floors and covers an area of 11,416 sq feet. Besides Madurai the company has showrooms in Ramanathpuram, Dindigul, Karaikudi and Rajapalayam. It is the stated objective of TJL to spread within Tamil Nadu and have its presence in tier 2 towns only. It is for this reason that they have not gone to cities like Chennai or Coimbatore. They are in the process of opening new shops at Tuticorin, Theni, Nagercoil, Thirunelveli, Kovilpatti and Sivakasi.
These additions will take the number of outlets from the present 5 to 11. TJL has introduced a concept of price guarantee. It will buy back gold jewellery for remaking from its customers and the price of gold is fixed. There is one price of gold for buying and selling and on this price old jewellery is bought. This assurance helps in the business and attracts customer loyalty.
Goldsmiths were the way business was done historically in India. One had to give gold to a goldsmith, and you approved a design, and then he hand crafted the same. Stories of mixing of the gold, quality, less weight etc were quite normal those days. Slowly but surely the goldsmith is becoming a thing of the past, and organised manufacturing and retailing are taking over. In organised retailing one gets to see a variety and can invest in buying jewellery instantly. With modern equipment one can test the purity of gold as well.
The prospects for organised retail are improving and the fact that India is one of the largest consumers of gold in the world will help matters. The opportunities going forward will help this kind of business.
Financials
TJL had total income of Rs 224.60 crs for the year ended March 2008 which grew to Rs 246.86 crs for the year ended March 2009. For the half year ended September 2009, sales have grown substantially to Rs 209.43 crs. Net Profit after tax has grown from Rs 5.61 crs in March 2008, to Rs 7.49 crs in March 2009. There has been a big jump in the half year where the profit is now at Rs 7.97 crs.
The equity of the company pre IPO is Rs 988.59 lacs which would increase to 13992 lacs if the price is fixed at Rs 70 or to Rs 13719 lacs if the price fixed is at Rs 70. Based on the pre-IPO equity the company reported an EPS of Rs 5.67 for March 08, Rs 7.58 for March 09 and Rs 16.12 for the half year ended September 2009 on an annualised basis. If we were to convert the earnings on a fully diluted basis the EPS for March 2009 would be Rs 5.35 and Rs 11.39 for the half year ended September 2009 on an annualised basis at the lower price band and Rs 5.46 for March 09 and Rs 11.6 for half year ended September 2009 on an annualised basis.
Objects of Issue
| Setting up of retail outlets at six different locations
(Tuticorin, Theni, Nagercoil, Thirunelveli, Kovilpatti and Sivakasi) |
1968.42 lacs |
| Renovation of Madurai Showroom | 175.00 lacs |
| Contingencies at 5% on above | 107.17 lacs |
| Working Capital | 2278.00 lacs |
| Public Issue Expenses | 255.00 lacs |
| TOTAL | 4783.59 lacs |
The above objects would be met by a combination of the IPO proceeds, pre-ipo placement and internal accruals of Rs 1283.59 lacs.
Comparison
We have quite a few listed players in the diamond trade like Shrenuj, Suraj Diamonds, Asian Star, Flawless Diamonds etc and a couple in the jewellery business like Gitanjali Gems and Renaissance Jewellery. TJL is strictly not comparable to the diamond players as there sales from diamonds is less than a few percentage points of their total sales. Secondly most of the diamond companies are exporters and overseas conditions and state of the economy plays a vital part in their business. Diamond is more of an upper class play and resale value of diamonds is not as much as gold simply because gold can be melted and the shape recast, while diamond cannot.
If we are to compare it with Gitanjali it is a mix of diamonds, brand and retail while TJL believes primarily in gold jewellery through its exclusive showrooms in tier 2 towns of Tamil Nadu with quality assurance and price guarantee being its salient features. On a fully diluted basis the offer price at the lower price band of Rs 70 is on a price earnings multiple of 6.15 and at the upper price band of Rs 75 the multiple is 6.47 times half year ended September 2009 results on an annualised basis.
Without talking of the future it would be appropriate to mention that all these showrooms would be up and running in the first quarter of financial year 2010-2011. The sales and profits of these showrooms would be reflected in the financial numbers of the calendar year 2010-2011. It should also be mentioned that Indians whether they are from rural India or urban India know the value and importance of gold. In every marriage and on important festivals, buying of gold is a ritual and almost mandatory. The shape of jewellery will change but not the metal. This offers multiple growth opportunities to such companies.
Conclusion
A straight forward business model where the focus is Tamil Nadu, tier 2 towns, gold jewellery and the USP is quality (22K gold hallmarking) and price assurance. The company buys back gold jewellery at a price for the day. With a clear focus on markets, business and niche area this company will do well going forward. It should also be mentioned that with gold assaying machines (to check purity of gold) it helps in creating customer goodwill and increasing his confidence. I believe that though this is a low margin high volume game, the prospects are glittering and should help the company and its investors make money in the long run.
SEBI Disclaimer: – I intend to subscribe to the issue
