Avoid Tara jewels IPO, says GEPL Capital

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GEPL Capital has come out with its Tara jewels IPO. Considering the high debt on books and negative cash flow from Operations for the past 2 years, the company does not deserve such high valuations. One should avoid the issue, says the research firm.

Tara jewels is an integrated player in the jewellery industry with experience ranging from designing to retailing of readymade jewellery. Company’s business is divided into 3 verticals; manufacturing, exporting & retailing. Tara Jewels exports studded jewellery to 12 countries across the globe and their major clients include Walmart, Christ Uhrean & Schmuck.

Leader in exports market for studded jewellery: Tara Jewels design and quality of studded jewellery has helped them to strengthen their presence in the international markets. Currently the company exports to Australia, China, Canada, European Union, UK & USA. The company’s exports have grown from Rs 6.06 bn in FY08 to Rs 11.33 bn in FY12.

Strong sales and marketing network: Tara Jewels has 3 overseas sales and marketing offices in Europe, Australia & USA. The company believes in ongoing relationships with international customers. Tara Jewels’ international marketing initiatives are participating in international trade fairs & jewellery exhibitions.

Expansion in retail operations: In October, 2008 Tara jewels started retail operations and currently has 30 existing stores across India. The company intends to expand its retail chains from metro cities to Tier1 & 2 cities. Tara Jewels operates retail stores in a “Company Operated” model which is likely to ensure higher control, better customer service & higher margins.

Valuation & Recommendation: At the upper end of its price band of Rs 230 Tara Jewels is available at a P/E of 10.46x its FY12 earnings which is more expensive compared to its peers; Goenka Diamond (4.51x), Gitanjali Gems. (8.03x) & Renaissance Jewellery (3.98x). Considering the high debt on books and negative cash flow from Operations for the past 2 years, we feel that the company does not deserve such high valuations. Hence, we advise investors to AVOID the issue.