Tara Jewels IPO Analysis

Tara Jewels IPO Analysis, Buy, Subscribe, Indian Jewelry Stocks, Gitanjali Jems, Rajesh Exports, Gold, .
Tara Jewels Limited is coming out with a 100% book building; initial public offering (IPO) of 79,77,778 equity shares of Rs 10 each in a price band Rs 225-230 per equity share. The issue will open on November 21, 2012 and will close on November 23, 2012.

  • Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
  • The issue opens for subscription on November 21, 2012 and closes on November 23, 2012.
  • The shares will be listed on BSE as well as NSE.
  • The face value of the share is Rs 10 and is priced 22.50 times of its face value on the lower side and 23.00 times on the higher side.
  • Book running lead managers to the issue are Enam Securities and ICICI Securities.
  • Compliance Officer for the issue is Amol Raje.

Profile of the company
Tara Jewels is an integrated player in the jewellery industry with experience ranging from designing to retailing of jewellery. It is conferred with the status of a Star Trading House by the Ministry of Commerce & Industry, Government of India and have been the highest exporter in gems and jewellery sector for the years 2008-2009 and 2009-2010. The company’s business can be divided into three operations namely, manufacturing, exporting and retailing. Its portfolio of products includes gold, platinum, honeydium, pristinium and silver jewellery with or without studded precious and semi-precious stones. The products have presence across different price points and cater to customers across high-end, mid-market and value market segments.
The company has four manufacturing units, of which one is located in Panyu, China. The other three units are located in Mumbai out of which two units are situated in SEEPZ and one in MIDC. For the two months period ended May 31, 2012, Fiscal 2012, 2011 and 2010 the company has achieved an aggregate production of 554.77 kgs, 10,616.40 kgs, 4,753.25 kgs and 2,562.91 kgs of jewellery, respectively. The manufacturing units are spread over an area of 84,584 square feet employing 35 designers and 955 craftsmen, as on September 30, 2012.
It exports studded jewellery which is manufactured by it and by third party manufacturers. The company exports studded jewellery to jewellery chains including Christ Uhrean and Schmuck and retailers including Walmart. Tara Jewels primarily export to Australia, China, Canada, European Union, South Africa, UAE, UK and USA. In the European Union, the company export to 12 countries including Austria, Germany and Switzerland. The company’s income from export operations has grown at a CAGR of 19.77% from Fiscal 2010 to Fiscal 2012. For the two months period ended May 31, 2012, Fiscal 2012, 2011 and 2010, the income from export operations constitutes 78.82%, 80.90%, 80.99% and 97.59% of the company’s total income, respectively.
IPO Grading
CARE has assigned an ‘IPO Grade 3’, indicating average fundamentals, to the initial public issue of the company.
Proceeds is being used

  • To meet the expenses of establishing retail stores
  • For repayment or prepayment of loans; and
  • For general corporate purposes

Industry Overview
US is the world’s largest market for jewellery followed by China, India and the Middle East and in Europe, the UK and Italy are the largest consumers. The global retail jewellery including diamond and gemstones is expected to cross total sales of $185 billion in 2010 and $230 billion by the year 2015 growing at Compounded Annual Growth Rate (CAGR) of 4.6% between 2010 and 2015. India is the world’s largest consumer of gold (importing 339 tonnes of gold in calendar year 2009). To meet its consumption requirements for jewellery and investments, India imported gold to the tune of 970.70 tonnes in fiscal 2011. Almost 95% of the gold imported is used for jewellery. The major supplier countries are Switzerland, South Africa, Australia and UAE.
The gems and jewellery sector is primarily an export driven industry in India since major portion of rough diamonds that are imported, are exported back after they are cut and polished. In fiscal 2011 the gems and jewellery industry accounted for approximately 17.5% of India’s total merchandise exports amounting to $43.14 billion. India is also a major exporter of cut and polished diamonds and has, in recent times, also picked up its exports of gold jewellery.
In terms of diamonds, 11 out of 12 stones (diamonds) sold around the globe are cut and polished in India. The US, known for its high consumption of high-priced jewellery, is reducing its jewellery fabrication work and is outsourcing majorly to India and China. The proportion of the US imports of fabricated jewellery from India has risen by 50.5% in fiscal 2011. The export of the gems and jewellery industry grew at a CAGR of 21.33%, from fiscal 2002 to fiscal 2011. The total exports for fiscal 2011 is $43.14 billion which is more than 46.56% more than the exports in fiscal 2010. The major gems and jewellery export destinations in fiscal 2011 were the US (11%), the UAE (47%), Hong Kong (22%) and Belgium (5%). The industry has been able to reduce its dependence on the US market and explore other markets like the UAE and Hong Kong.
Pros and strengths
Leadership in exports market for studded jewellery
Access to advanced technology and modern machinery
Strong sales and marketing network
Strong and long-term relationship with customers
Risks and concerns
Top 10 customers account for 70% of total revenue from export
High level of competition in Indian retail Industry
Not entered into any long-term contracts for export
Dependency upon key suppliers for gold and polished diamonds
Seasonal Sales
Fund Raising for Domestic expansion which accounts for hardly 20% of sales.
Debt-Equity Ratio significantly high & Repayment from the Funds raised will not reduce this materially.

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The issue has been offered in a price band of Rs 225-230 per equity share. For year ending March 31, 2012, total income of the company, on consolidated basis was at Rs 1400 crore, with PAT at Rs 54.13 crore, resulting in an EPS of Rs 30, on equity base of Rs 18 crore. Book value a share, stood at Rs 154 on March 31, 2012. However, operations of the company are highly working capital intensive. With 30 stores, it had an inventory of Rs 589 crore and receivables of Rs 467 crore, which are largely financed by bank. Receivables of Rs 467 crore, represents for about 5 months, on export sales of Rs 1,134 crore in FY12. Domestic sales of Rs 265 crore in FY12 are largely from 30 stores, which need to be ramped up going forward, as annual average of Rs 9 crore is seen quite low. 
The company is likely to improve its retail sales mix in FY14, as the trend in the jewellery business has seen encouraging growth, but it also faces stiff competition from the existing players and threat from the new entrants.
Peers are available at significantly lower P/E multiples – Renaissance Jewellery (4x), Rajesh Exports (8.8x), Shree Ganesh (1.6x) and Gitanjali (8.3x) – on a Post Issue basis, this stock intends to command a P/E of 10.5x its FY2012 EPS, which is on the higher side.
There might be a post listing spike as the Jewellery stocks are doing well. However, the IPO can be avoided and investment can be made at a later date when the stock is available at a cheaper price. 

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