The initial public offering (IPO) of jewelry retailer Tribhovandas Bhimji Zaveri Ltd. (TBZ) opened for subscription on Tuesday. TBZ aims to raise around $39 million (INR 2 billion) through its IPO of 16.7 million equity shares to finance the establishment of new stores and for the incremental working capital requirements.
Here’s what the analysts had to say about TBZ’s public issue.
“The fundamentals of the company look average. It has an old presence in the retail jewelry business, which has resulted in strong brand recall. As the company plans to expand to 22 stores by the end of fiscal 2013 –at a faster-than ever pace–there is a chance it may throw up execution challenges even though its strategies regarding store location, size, format, personnel and schedule are in place,” brokerage SMC said in a report.
SMC added that new stores are likely to put pressure on profitability due to higher marketing expenses and working capital requirements. As it is a family business, TBZ runs the risk of brand dilution, especially if they underperformed on quality, it noted.
“It is recommended that any investor with long time horizon can go for this issue,” SMC opined.
TBZ currently operates 14 showrooms in 10 cities and plans to open an additional 43 showrooms by the end of fiscal year 2015. The company plans to invest $3.7 million (INR 191.94 million) to open new showrooms and $31.3 million (INR 1.60 billion) to meet incremental working capital requirements, among others, according to its draft prospectus filed with the capital market regulator Securities and Exchange Board of India (Sebi).
Ronald Siyoni, analyst at KR Choksey Shares & Securities, stated that the company’s expansion lays significant onus on management to encounter working capital issues, higher liquidity to finance purchase of inventory, establishment of new showrooms and hiring and training of additional employees.