Should you invest in this newly listed jeweller? - Views on News from Equitymaster

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Should you invest in this newly listed jeweller?

Mar 20, 2013

Jewellery retailing in India is expected to grow at a CAGR of 10% to 12% up to 2015. Jewellery contributes to around 6% of total retail trade in the country. Recent years have witnessed a gradual shift of consumer interest towards branded variety of jewellery from the traditional ones. This is because of higher disposable incomes and rising aspirations of rising middle class population.

Taking cue from this rising consumer interest, branded jewellers are expanding their operations in a big way. Such expansions call for huge investments too. Thus, recently, three jewellery retailers namely TBZ, Tara Jewels (Tara) and PC Jewellers (PCJ) opted for the IPO route to source funds for their expansion plans. In our series of articles starting today, let us see how have these companies performed in the recent past, especially in the quarters following the IPO. We will also see how their stock prices have performed post listing and whether the current valuations provide opportunities for investing in these stocks. In today's article, we will discuss their background.

Overview

Firstly we will see how these companies compared with each other at the time of their IPO in terms of past experience, reach and product mix.

Newly listed jewellers: A comparison
  TBZ Tara PCJ
Experience
Established in 1864 2001 2005
No of years in jewellery retailing 148 2 7
Geographic coverage at the time of IPO
No of stores 14 30 30
No of cities 10 19 23
No of states 5 5 8
Regions covered Maharashtra, South India North, west and central India North and central India
Product mix (Mar 2012)
Exports as a % of total sales NA 81% 33%

No of years in jewellery retailing

Trust is an important factor which customers consider while making jewellery purchases. Companies having more experience in business will garner more trust from their customers. In this regard, TBZ is far ahead of the other two with almost 150 years of jewellery retailing experience. The company opened its first showroom in 1864. Tara and PCJ although established jewellery business in 2001 and 2005 respectively, are relatively new entrants to the retailing part of it.

Geographic diversification

These traditional jewellers have usually been more of a local phenomenon. However, these days they are opening stores across the country. Having a more geographically wider market ensures benefits of diversification. It protects companies from region specific issues. Both TBZ and Tara were present in 5 states at the time of their IPOs. However, PCJ which mainly focussed on the markets of Delhi and NCR had stores in 8 north Indian states. Also, PCJ has relatively fewer stores per city that it operates in. Having country wide presence also helps in building brand value of the company.

Product mix

One more important aspect to look at is the quantum of export sales as compared to the total sales of the company. We notice that almost 80% of Tara's sales are from exports to various countries. This makes it highly vulnerable to economic conditions in these countries as also expose it to forex fluctuation risks. We also observed that more than 70% of these exports come from top 10 customers thereby giving rise to concentration risks.

Conclusion

We observe that TBZ had far lesser no of stores (14) as compared to Tara (30) and PCJ (30). The company thus has the potential to build on its rich experience in the business and open more stores in newer states and cities/towns. Also, Tara is likely to face issues arising out of economic uncertainties in the countries that it exports to including the US (majority exports to the US. In our next article, we will do a careful analysis of the past financial performance of the company and their future growth strategy to find out which amongst these is the best.

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