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CRISIL Raises Thangamayil Jewellery’s Fundamental Grade
Sep 25, 2012 6:54 AM
By Dilipp S Nag
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RAPAPORT... CRISIL Research has revised its fundamental grade of Thangamayil Jewellery Ltd. to “3/5” from “2/5.” The upgrade indicates that the company’s fundamentals are “good” relative to other listed equity securities in India, the analysts explained.
The researchers noted that Thangamayil’s successful opening of new stores and their healthy performance are the main reasons for the revision. Despite high gold prices and rising competition in its primary market of Tamil Nadu, the company’s strategic execution – selection of store location and size – has helped it grow faster than expected.
CRISIL stated that the company has evolved from a single location jewelry retailer to a multi-location player in the past three years and has created a strong brand. After opening six stores in the previous fiscal year, it has added seven more stores during this current year, taking the total number of stores to 22. The addition of four new stores in the next six to eight months will take its total store count to 26.
The company’s gold volume has increased at a compounded annual growth rate (CAGR) of 18.3 percent in the past five years to 3,036 kilograms (kgs) from 1,309 kgs and it is expected to touch 4,651 kgs by fiscal 2014.
CRISIL noted that Thangamayil is also benefiting from rising gold prices on account of appreciation of its gold inventory. Its gross margin improved from 10.6 percent in fiscal 2010 to 12.6 percent in fiscal 2011 and further improved to 13.3 percent in fiscal 2012.
With further appreciation in gold prices during the initial months of current fiscal 2013 its gross margin is expected to be in the range of 12.5 percent to 13 percent, which is higher than the fiscal average since 2006, but lower than the fiscal 2012 average on account of lower volume due to high gold prices, it added. Better inventory management in times of rising gold prices also supports the grade.
“Although higher gold prices have resulted in higher profitability, Thangamayil’s older stores faced volume pressure, which has constrained our grade,” CRISIL stated. The company’s same-store sales of the nine old stores were down by 24 percent during the April to June 2012 period due to higher gold prices and jewelers’ strike in the country in April. It added that any sharp fall in gold prices will have a significant bearing on the company’s inventory.
CRISIL also assigned a valuation grade of 3/5, indicating that Thangamayil’s stock price is aligned to the current level of INR 226 per share and stated that the one-year fair value of the stock is INR 239.
The Madurai-based jeweler mainly sells gold and gold products, which constitute 95 percent of its revenue.
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Tags:
Crisil, Dilipp S Nag, gold, India, jewellery, Jewelry, Rapaport, retail, Thangamayil Jewellery
Thangamayil
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