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Should you invest in this newly listed jeweller?- II - Views on News from Equitymaster
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  • Apr 9, 2013

    Should you invest in this newly listed jeweller?- II

    Jewellery retailing has become even more competitive with the entry of 3 new players in the listed space. In our previous article, we presented an overview of these three newly listed jewellery retailers namely Tribhovandas Bhimji Zaveri (TBZ), Tara Jewels (Tara) and PC Jewellers (PCJ). We will now have a look at their past financial performance. We will have a look at how their expansion plans have panned out since their respective IPOs and how they fare in terms of current valuations. Financial performance

    Let us have a look at important financial parameters of these companies for the last 4 years.

    Average growth for last 4 years for TBZ, Tara and PCJ has been 34%, 21% and 77% respectively. PCJ has the highest growth rate, however, this comes on a relatively much smaller base as the company started operations in 2005 itself. Similarly, net profits too display higher growth numbers for PCJ in particular because of low base effect.

    In terms of profit margins, PCJ has the highest among the three. Presently these margins are comparable with the industry leader, Titan Industries (Tanishq) too. FY12 operating profit margins for PCJ and Titan have been 10.9% and 10.3% respectively. Net profit margins are currently higher than Titan (6.7%) at 7.6% in FY12.

    Jewellers require huge inventory to stock ion their showrooms and are resultantly working capital intensive in nature. Their short term borrowings are much higher than the long term borrowed funds. Debt to equity is thus relatively high for jewellery companies. The same has been 2.44, 1.53 and 1.25 times respectively for TBZ, Tara and PCJ.

    Tara Jewels has the worst return ratios among the newly listed peers. Here too, PCJ seems to be outperforming its peers in recent years.

    Last 4 years performance
      TBZ Tara PCJ
    Sales growth (in %) 34 21 77
    PAT growth (in %) 69 50 107
    Operating profit margin (in %) 6.8 7.25 9.7
    PAT margin (in %) 2.7 3.04 6.5
    Debt to equity (x) 2.44 1.53 1.25
    RoCE (in %) 24.85 13.41 41
    RoE (in %) 38.19 16.12 58
    TTM PE 24.45 8.01 8.46
    PE: Price to Earnings
    TTM PE as on April 8, 2013

    Looking at the increasing consumer interest towards branded jewellery, all these companies have charted out huge expansion plans for the next couple of years. However, what needs to be seen is whether they are able to execute these successfully and on time. One major constraint in the expansion process is finalising of the locations for the stores. This is particularly important as stores are taken on lease and leased rentals are determined on the basis of showroom locations. Also, the location would decide the footfall in the showroom and resultantly the sales.

    How have these done post the IPO?

    Although its only been a while since these companies got listed, it would be interesting to note that TBZ has already opened 10 new stores in past one year since its IPO. PCJ which came out with public offer only 3-4 months back, will be opening 4 additional stores in April. Tara however has not yet launched any new store.


    In terms of valuations, both Tara and PCJ trade at reasonable valuations of 8 times their respective trailing twelve month (TTM) earnings. However, TBZ is currently trading at 24 times it TTM PE.


    Although all these companies are into the jewellery business, their business models are quite different from each other. While Tara is majorly into exports, TBZ has been in the jewellery retailing business for quite some time and does not export at all. In recent years, PCJ has been the best performer amongst the three. PCJ seems to have double advantage of good past performance and stock available at attractive valuations. However, it is not enough to compare these companies amongst themselves. The jewellery industry is fiercely competitive with the presence of established players like Titan and Gitanjali. Thus, investors would have to look at other peers too before deciding upon a stock.



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