After debuting at a discount of 4.2 per cent on its issue price in May and underperforming the Sensex till August, Tribhovandas Bhimji Zaveri (TBZ) has suddenly found many takers for its growth story. The stock was trading below the issue price of Rs 120 for quite some time partly due to lacklustre market sentiments and rising gold prices. But since then it has outperformed the Sensex along with its larger peer Titan Industries.
The TBZ stock touched a new high of Rs 266.85 on November 20, up 20 per cent in a week and over 173 per cent in three months.
Even Titan Industries, which had been an underperformer for the last six months, has performed well on the Sensex since September, touching a new high of Rs 301.5 on November 16, though it has gone down 3.4 per cent since then. The company is India’s largest branded jewellery retailer and hence, would be the biggest beneficiary of improving demand.
TBZ’s stock still has a lot of headroom, thanks to a reasonable valuation of 13 times the estimated earnings for FY14. Titan Industries’ valuation of 29 times the estimated earnings factors in most positives.
Execution justifies outperformance for TBZ
In the first half of FY13 (H1), the company’s sales and net profit of Rs 634 crore and Rs 35.3 crore, respectively, were 45.75 per cent and 61.7 per cent of sales in FY12, despite sluggish market conditions. The company has improved its margins in the first half of FY13, compared to the previous year.
Shrikant Zaveri, chairman and managing director, said in a press release about the September quarter results, “Overall volumes are expected to recover in the second half of FY13 (22 per cent higher due to wedding dates in the December quarter) and the company is maintaining momentum of its retail expansion across key markets.”
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The company plans to almost quadruple its existing 14-store count in FY12, to 57 by FY15 (mainly large format stores) with an investment of Rs 1,200 crore. In the first half, it opened five new showrooms in Mumbai, two each in Gujarat and Kolkata, and targets to add another seven in the remaining period of FY13.
Abhijeet Kundu, analyst with Antique Stock Broking, says in his post-results note on November 9, “TBZ has witnessed a re-rating primarily due to rising confidence over its execution abilities. The company has been consistently increasing its retailing space according to plans and is witnessing a drop in interest cost due to shift to gold leasing model.”
| GROWTH TRAJECTORY | ||||||
| In Rs crore | Titan | TBZ | ||||
| FY12 | Q2FY12 | FY13E | FY12 | H1FY12 | FY13E | |
| Sales | 8,839 | 2,276 | 10,129 | 1,385 | 634 | 1,853 |
| % chg | 35.5 | 8.5 | 14.6 | 16.0 | – | 33.8 |
| Operating profit | 834 | 249 | 1,003 | 122 | 59 | 153 |
| % chg | 36.2 | 24.0 | 20.3 | 40.9 | – | |
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However, the central bank has recently imposed a ban on lending for gold purchases, the impact of which, if any, would be felt from the next quarter.
Titan Industries has been reporting single-digit sales growth and significant decline in volumes (10-20 per cent) in its jewellery business (80 per cent of overall sales) in the past two consecutive quarters. However, the profit before interest and tax (PBIT) margin has been maintained. In the September quarter, the same, in fact, jumped 272 basis points to the highest ever 12.5 per cent.
The management expressed an improvement in business outlook as it saw good demand during Navratri and Dussehra. There has been positive change in sentiment and plenty of auspicious wedding dates in the December quarter, apart from festivals, which would help.
Bhaskar Bhatt, Titan’s managing director told Business Standard the company is eyeing a 25-per cent sales growth in FY13, to Rs 11,000 crore. Growth, though lower than the 35 per cent registered in FY12, is commendable given the macro environment and the base.
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 five per cent and seven per cent in December 2011 and March 2012 quarters, respectively) and aggressive retail expansion plans should augment the volume recovery.”
The company is also well on track over its expansion plans of adding two lakh square feet in FY13 (one lakh square feet were added in the first half, including October) and a larger part of the remaining to come in the current quarter.