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Tara Jewels: Affordable jewellery

The IPO is well-timed, issue is reasonably priced at 11.5-11.8 times FY 12 earnings (post-issue earnings)

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Tara Jewels’s initial public offering (IPO) is well-timed, as sentiments are favourable towards jewellery players. and have touched new highs recently, thanks to expectations of improved volumes. Tara currently drives majority of revenues from the exports business but plans to rapidly expand retail operations. The rate of retail business’ growth has been impressive so far, as it currently contributes 20% of revenues from a mere 1.7% in FY 10.

With 30 stores (spanning an area of 29,949 square feet) under the brand, plans to add another 20 (mainly in latter two) by FY 13-end involving an investment of Rs 66.5 crore in the next six months.

Says Rajeev Sheth, chairman and managing director, “In three years, we have got 30 stores. In the fourth, we will have 50. Our plan is to increase the share of retail business drastically from the current level.”

The company is an integrated business model, as it is involved from designing to manufacturing to exporting and retailing. This has helped in fetching better margins.
 

STRONG GROWTH
In Rs crore FY09 FY10 FY11 FY12
Sales 754 804 1,142 1,399
% chg

6.7 42.0 22.5
Operating profit 55 67 97 132
% chg

20.8 45.7 35.5
OPM (%) 7.3 8.3 8.5 9.4
Net profit 7 24 41 54
% chg

244.3 68.9 32.9
NPM (%) 0.9 3.0 3.6 3.9
Source: Company, RHP
 
ISSUE DETAILS
Price (Rs/share) 225/230
Issue size (Rs crore) 179.5
Net issue size (Rs crore) 109.5
Opens on 21-Nov
Closes on 23-Nov
ICRA rating 3/5
*Includes offer for sale of Rs 70 crore by Fabrikant H K Trading

 

Its jewellery is sold under the brands Sattva, Heart2Heart and Cherished Hearts to blue chip retailers like Walmart, JC Penny, and JKB International, among others. Its strong international relationship can also be judged from investment by Crystalon Finanz AG, a subsidiary of Austria-based Swarovski AG to the tune of Rs 40.5 crore (9% stake) at Rs 225 (lower end of the price band) by way of pre-IPO placement.

The company plans to add stores in high-street locations and jewellery clusters, ensuring a high conversion ratio. Unlike the drawer system of most jewellers, it believes in displaying 100% of the inventory to the customer.

On the valuation front, the issue is reasonably priced at 11.5-11.8 times FY 12 earnings (post-issue earnings). Sales and net profit have grown at a CAGR of 32% and 50% respectively between FY 10-12.

However, competition and high debt to ratio of 2 times are key downside risks. Leverage is expected to come down as Rs 50 crore from IPO to be used for repayment of debt. There are also other risks like negative operating cash flow in past two financial years and increase in working capital cycle to 200 days in FY 12 from 183 in FY 11, which may continue for some more time.

Investors with a high risk appetite and long investor horizon can invest in the company.

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