Thangamayil Jewel

Thangamayil Jewellery is entering the capital market on 27^th January 10, with a public issue of Rs. 28.75 crores, with the price band of Rs. 70 to Rs. 75 per share.

The company is a regional player with presence in Madurai and engaged in jewellery retailing. To broad base its presence, the company is planning to open retail outlets in Tuticorin, Dindigul, Theni,Nagarcoil, Thirunelveli, Kovilpatti and Sivakasi and want to spread to the whole state, instead to a city. For this, fund requirement is estimated at Rs. 48 crores, which has been partly mobilized from pre-IPO placement of Rs. 6.25 crores, at Rs. 75 per share, while Rs. 12.84 crores is coming from internal accruals. Balance of Rs. 28.75 crores is to come via IPO. As the company has a net worth of Rs. 37 crores, as at 30-9-09, it may not be difficult to source a part fund from internal accruals. The company had a total loan of Rs. 51.25 crores as at 30-9-09, which is largely to finance the working capital requirement of the company, as it has been holding net current assets of close to Rs. 80 crores, of which, Rs. 78 crores is as inventory.

The company has also been improving on its financial performance year after year. For FY 09, the total income of the company was at Rs. 247 crores, with PAT at Rs. 7.50 crores, giving an EPS of Rs. 8.30. For 6 months ending 30-9-09, the total income improved to Rs. 209 crores, with PAT at Rs. 7.97 crores, resulting in an annualized EPS of  Rs. 17.50.

The company is a tiny player and would continue to remain a small cap company, with an expected market cap of close to Rs. 100 crores. Its present paid up equity of Rs. 9.89 crores is likely to move to Rs. 13.75 crores, post IPO.

We all know that, it is the time to move to branded jewellery with quality assurance provided to the customers. Also, retail jewellery segment has better margin as compared to exports or trading in bullion and diamonds. The company is trying to expand in Tamil Nadu state with minimal capex, which will help the company to post a growth of about 40% every year, over next 3-4 years.

Expecting an EPS of Rs. 15 for FY 10 on conservative basis, share at the upper band of Rs. 75 is being issued at a PE of 5 times, which looks reasonable, while comparing with the other listed peers. Also, expected growth in the coming years can make the stock looks attractive, due to fall in its PE multiples. However, due to small cap status and being a regional player with presence in about 2 states, it may be a limiting factor for the stock.

Still, on an overall basis, stock at upper band of Rs. 75, looks reasonably priced, which is likely to give listing gain as well as gain over next 6-12 months.