We recommend to BUY Tribhovandas Bhimji Zaveri Limited
(TBZ) with a price target of `330.
INVESTMENT ARGUMENTS:
India - the largest jewellery market, highly unorganized, huge
potential to organize: India is the largest consumer of gold in the
world. According to a CARE Report, the Indian domestic gems and
jewellery industry has the potential to grow from an ~ `2,20,000Cr
(Gold Jewellery share ~80%) in FY12 to ~`3,00,000 Cr by FY14,which
implies a CAGR of 14% with the organized sector expected to grow
by ~30% during the same period. Currently market is fragmented across
the value chain. There are ~ 450,000 unorganised players across the
gems and jewellery sector. The Organized National Jewellers and Large
Regional Jewellers account for ~ 6% and ~10% of this market
respectively. Changing demographics, fast urbanization, more women
in work force and reliable quality of gold will lead to sustained increase
in the share of organized market. We believe, companies such as TBZ
will be a natural beneficiary of this change. (Data Source: CRISIL
and CARE)
Strong brand, huge expansion to drive profit growth: TBZ is a
148 year old brand in premium and wedding jewellery. Promoters are
in the business of jewellery for the last 4 generations. Jewellery is a
business of customer's trust and therefore vintage with a credible track
record gives jewellers immense competitive edge and moat. The
company makes money primarily by making charges and mark up it
levies on the gold and diamond. TBZ raised `200 crore from the IPO
in year 2012 and plans to use funds for expanding its retail presence to
57 stores spread across 43 cities by FY2015 from 19 stores currently.
High brand recall for wedding and fashion jewellery along with
aggressive expansion will drive net profit growth during the years
to come.
Valuations & View: TBZ has delivered 65% CAGR in net profit
during FY08-FY12. We expect profit CAGR of 40-45% over FY12-
FY16E on the back of huge expansion in retail presence. Stock currently
trades at PE and EV/EBIDTA of 13.5x and 9x FY14E, which looks
reasonable considering the growth potential. Listed peer like Titan
trades at ~27xFY14E. We believe, high double digit growth, high
RoE(25%+) and good and visible brand will lead to rerating of the
stock valuation over time. Recommend BUY with a target of `330
(19xFY14E EPS and 12xFY14E EV/EBIDTA)
