>TRIBHOVANDAS BHIMJI ZAVERI LIMITED: Go for the GOLD...

Investment Highlights

Tribhovandas Bhimji Zaveri Ltd. (TBZ) is a high growth potential story in the organised Indian jewellery sector backed by: 1) strong brand (the most important factor for trust amongst gold consumers); 2) innovative ability; and 3) aggressive expansion plans. We estimate TBZ to record strong earnings growth with a CAGR of ~52% to INR1.33bn during the next two years (FY12-14e) led by a net sales CAGR of 42% to INR28.0bn. We initiate coverage with a BUY recommendation and a target price of INR158, implying FY14e PE of 8x.

Store expansion to drive growth

TBZ is embarking on a strong retail expansion plan to drive growth during the next three years. The company which currently operates about 14 stores across 10 cities in 5 states (retail showroom carpet area of 47,796 sq ft), plans to add 43 showrooms (25 large format high street showrooms and 18 small format high street showrooms) by the end of FY15e, which would take the total number of showrooms to 57 (total carpet area ~150,000 sq. ft.) in 43 cities across 14 states. This would drive sales at a strong CAGR of 42% to INR28.0bn during the next two years.

Profitability on a structural uptrend

PAT margins would witness consistent improvement during the next three years with the application of the gold lease model. TBZ's interest outgo during FY13e and FY14e is estimated to drop to INR215m and INR360m, respectively, as against INR315m in FY12. This in turn would improve net margins by 53bps during FY13e and FY14e to 4.7%.

Valuation and outlook

At the CMP of INR110, the stock trades at a PE of 8.5x FY13e and 5.6x FY14e. On an EV/EBITDA basis, it trades at 4.2x FY13e and 2.7x FY14e. We believe that TBZ would trade at a premium over its peers like Shree Ganesh Jewellery (which has yet to create a branding in the domestic jewellery retailing) and Thangamayil Jewellery (which is more of a regional brand as compared to TBZ which has been able to create a presence across both the key geographies of west and south India). We therefore value the stock at a PE of 8x FY14e, providing a target price of INR158 and recommend a BUY.

To read report in detail: TBZL

RISH TRADER