After touching all time high of Rs 32,200 per 10 gram on September 14 th of this calendar year, gold prices are have corrected by 2% to Rs 31,540 as on November 17. According to a Bloomberg report, gold imports by India, the world's largest buyer, are set to climb for the first time in six quarters thanks to a decline in gold prices and higher demand seen in festive season. Says Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation, overseas purchases may jump 27.4% year on year to as much as 200 metric tons in December 2012 quarter. All this good news has created renewed interest and strong optimism towards jewellery manufacturers and retailers. However Titan Industries and Tribhovandas Bhimji Zaveri (TBZ), has been buzzing on bourses for different reasons.
After debuting at a discount (4.2%) to the issue price in May and underperforming Sensex till August Tribhovandas Bhimji Zaveri (TBZ) has suddenly found a lot of takers in its growth story. The stock was trading below the issue price of Rs 120 for quite some time partly due to lackluster market sentiments and rising gold prices. It had even touched a low level of Rs 88 on August 16. But since then it has outperformed Sensex and even its larger peer Titan Industries. This is due to impressive financial performance post FY12, hopes of good business in the festive season and good execution of its expansion plans. On Friday, TBZ stock closed with a gain of 4.4% (up 16.5% in a week, 173% in three months) after touching a new high of Rs 243.45 and hitting a 5% upper circuit.
Even Titan Industries, which has been an underperformer for last six months, thanks to fears of unabated spurt in gold prices affecting volumes, has outperformed Sensex since September and touched its new high of Rs 301.5 on Friday before closing with a decline of 1.3%. The company is India's largest branded jewellery retailer and hence will be the biggest beneficiary of improving demand.
While TBZ's stock still has lot of headroom thanks to a reasonable valuation of 12 times FY14 estimated earnings, Titan Industries' valuation of 30 times factors in most positives.
TBZ: Execution justifies outperformance
In first half of FY13 (H1), the company's sales and net profit of Rs 634 crore and Rs 35.3 crore forms 45.75% and 61.7% of FY12 sales despite sluggish market conditions (year on year data not available). The company has improved its margins in H1FY13 compared to FY12. Financial performance is expected to get better in the second half thanks to festive and marriage season.
Says Shrikant Zaveri, chairman and managing director, in September 2012 quarter result press release, "Overall volumes are expected to recover in second half of FY13 (22% higher wedding dates in December 2012 quarter) and the company is maintaining momentum of its retail expansion across key markets." . The company plans to quadruple its exiting 14 store count in FY12 to 57 by FY15 (mainly large format stores) with an investment of Rs 1,200 crore and is well on track. In first half, the company opened 5 new showroorms in Mumbai, Gujarat (2) and Kolkata (2) and targets to add another 7 in the remaining period of FY13.
Topline growth will be healthy in the coming quarters thanks to higher sales in existing showrooms and addition of new showrooms. However rising expenditure on account of retail expansion will pull back margin improvement. The company's spending on advertisement has been on the rise as percentage to sales has risen from 2.4% in FY12 to 3.3% in September 2012 quarter. However analysts continue to be positive on the company.
Says Abhijeet Kundu, analyst, Antique Stock Broking, in his post result note on November 9, "TBZ has witnessed a re-rating primarily due to the rising confidence over its execution abilities. The company has been consistently increasing its retailing space according to plans and is witnessing drop in interest cost due to shift to gold leasing model. We believe that the company would witness further re-rating in valuations with improvement in consumer sentiment and revival in sales."
Titan Industries: Outperformance precedes recovery
Titan Industries has been reporting single digit sales growth and significant decline in volumes in its jewellery business (80% of overall sales) in past two consecutive quarters. However, profit before interest and tax (PBIT) margin has been maintained. In September 2012 quarter, the same in fact jumped 272 basis points to highest ever 12.5%.
The management expressed improvement in business outlook as it saw a good demand in Navratri and Dussehra, there has been positive change in sentiment amd plenty of auspicious wedding dates in December 2012 quarter apart from festivals will help. Analysts expect the worst to be over for the company's volumes and expect a recovery. Says Gautam Duggad, analyst, Motilal Oswal, "Sequential improvement in consumer sentiment, higher festive season demand, more auspicious wedding dates, low base in second half of FY12 (decline of 5% and 7% in December 2011 and March 2012 quarter respectively) and aggressive retail expansion plans should augment the volume recovery."
The company is also well on track about its expansion plans of adding 2 lakh square feet in FY13 (1 lakh square feet added in first half including October) and larger part of the remaining to come in the current quarter. The benefits of direct import of gold has yet to come in, which will be an added positive and will improve PBIT margins of jewellery business by 50 bps.