here is the correct spreadsheet
https://docs.google.com/spreadsheet/ccc?key=0Ar55s_sCPoredGpBclZPd0EwMGVTbnRwZUNhSVZ4dlE&pli=1#gid=0
Q1 results out and look good.http://www.bseindia.com/xml-data/corpfiling/AttachHis/Thangamayil_Jewellery_Ltd_240712_Rst.pdf
The stock reacted positively and made new all time highs today. Good going.
even with 11% rally today its quoting at < 5 ttm eps with 40% yoy growth
Hi Rohit,
Thanks for posting the details of your management meet, these are quite insightful.
I have been tracking this co for sometime and have always liked the story here but haven't been able to build a long term position as I'm quite concerned of the following:
1. Last 5 yrs have been extra-ordinary for gold prices. Prices have zoomed at 25-30% p.a. Its but obvious that the charm for gold has increased (read speculation) and so has been the business. People in this business must have made big inventory gains also and patted their back. How should we see this in ref to Thangamayil?
2. Every otherjeweler is expanding. In luckow itself, i',m seeing lots of advertisements and new store openings. Isn't this environment risky?
3. If we analyse the inventory as a % of turnover for thangamayil, the same has increased from 16% in 2007 & 2008 to 33% last year. Isn't this risky?
FY 07 08 09 10 11 12
| 16 | 16 | 26 | 26 | 32 | 33 |
4. Similarly the debt has been increasing. It has increased from 0.88 to 1.85 last year:
FY 08 09 10 11 12
| 0.88 | 1.31 | 0.93 | 1.37 | 1.85 |
I remain concerned as the co is taking the debt route aggressively to expand plus this business has some inherit major risks like - 1. Theft 2. Cash transactions form a major part of sale.
On the positive, the track record of the company has been excellent till now. They have been disclosing things and providing propertaxationand also giving good dividends. So if they are actually very good and this growth is not based on just inventory gains then this co has a long way to go.
Would appreciate help on above queries.
Thanks & Regards,
Ayush
Hi Ayush,
Sorry to but in but let me try and answer these queries:-
1). Agree gold prices have zoomed and ideally this should have let the demand come down at retail level. But, it hasreversedin the sense that volume wise also company has grown by around 30% annually. I checked with my friend who owns a gold shop in Madurai and he told that demand continues to be decent. Also, that in most towns 95% of sales is done by top 5 stores which is kind of unique to south india i guess. So yes, company would have gained oninventory, but growth in volume sales are indication that off take of jewellery is happening.
2). Again, somescuttlebuttfrom my friend. He says large stores wherever they enter, they usually take down the volume of smaller players and new business tends to move to these players. Average cost of each store is around 50 lacs, and they are from first month selling around 400 gms of goldâŚfrom these new storesâŚassuming margin of 4% they should be able to break-even real fast.
3). Inventory increase has happened on account of extra inventory being kept in new stores and also to an extent due to increase in gold prices. average inventory levelsare around 100-120 days. This increase has been funded by debt, but going ahead company wants to use gold loans and non-fund limits to purchase gold. This will ensure that cost is reduced and also that inventory is always hedged.
On a lighter note, if gold prices crash, though company might suffer in short term, there will be a maddening demand to buy gold 
cheers,
saurabh
Hi Ayush,
Apologies for delay in the response. I was occupied with other things.
I believe that meeting the promoters when you have questions of this sort really helps. The look on their face, the shine in their eyes, and other expressions are more often than not sufficient to make an investment. Majority of my holding in Thangamayil was bought after my meeting with Mr. Ramesh. Let me draw some examples from the meeting and whatever I know about the industry as an in line response to your questions below:
1).
Actually, majority of their stores have opened in the past few months. That has led to volume growth. They believe the opportunity is quite large in Tamil Nadu itself to an extent that they can easily set up more than 50 stores before thinking about moving to other state (Andhra, Kerala, etc.). Mr. Ramesh said, and I agree, âin Mumbai and Gujarat, people put money in stocks and real estate. Humare yaha sab sone mein paisa lagata. Thats how people have been brought up here. Its ingrained in the culture.â if prices tank, people will buy more quantity, if prices go up, they might decrease the quantity slightly, but they will continue to buy it. Slowly and gradually, the company is increasing its reach in the state leveraging its hub and spoke model (one city and then 4-5 smaller towns/rural areas around it). The kind of facilities (ac, customer attention and care, gifts, quality, certification, etc.) provided by the company is helping it capture higher market share. Increasing gold prices is just âsone pe suhagaâ 
2). Every otherjeweler
Thatâs partially true, and let me explain why. As per some studies, there are approx 3 lac jewelers in India. However, the share of branded jewelry in Indian jewelry market is less than 10%, led by Tanishq. Of course there are people in the industry who believe that only Tanishq qualifies as the real player in branded jewelry, given the name Tata associated with it which adds ethics, then there is product quality, logo, customer service etc. But, branded jewlery actually includes players like Gitanjali, Tara jewellers, PC Jewellers, TBZ, Joyalukkas, Forever, Orra, Malabar, Thangamayil, etc. as well, because the enjoy the characteristics of a brand. Each one of them is trying to expand their market share and there is enough room to grow. How? By eating the market share of mom and pop shops. Given the malpractices of such lala companies, people are actually shifting to organized retailers. There are other drivers as well (increasing number of working women, increasing per capita income, changing consumer preferences, increasing consumer awareness, etc) for a shift from a lala to Tanishq (across India) or a lala to Thangamayil, where they are setting shops. So yes, organized/brand players will eat the market share from unorganized players and thats what we are experiencing across the country.
However, when problems arise only few survive. So, some Subhiksha or Koutons will emerge out of this lot as well. But for those who understand this business well and manage it properly, there are ample opportunities.
(I would like to add here that Tanishq has gone through a very difficult time for years before things clicked. Ah, its a case study in itself. But that was more challenging because they were trying an all India expansion. The likes of Thangamayil, the regional experts, should do fine)
3).
16 | 26 | 26 | 32 | 33
You might call my response cheesy, but then you-know-who has said, ârisk comes from not knowingâ. It is different from uncertainty (which in this case is of price and is unknowable). The inventory has gone up yes, but the number of stores have gone up too. They need stock to display and provide various options to customers. Give them some time. They should do fine.
4). | 1.31 | 0.93 | 1.37 | 1.85
Debt, for growth, as long as it is managed properly is alright. I am sure you have noticed they have gold and jewelry lying in inventory, which is liquid. As pointed by others earlier, with increasing portion of gold loans, the cost of debt should come down. Yes, if debt becomes too high to manage, they will be in a problem which can get compunded if gold prices go down significantly (but this will get mitigated by higher volumes) and/or people stop buying gold and jewelry (unknown and unknowable). In other cases, they will do fine and continue to grow.
I hope this clarifies. Please let me know your thoughts. Also, I will really encourage you to meet the management once and/or visit their store(s). As part owners of the business, specifically when you have such concerns, it always helps if you meet the person who is running the show for you. If you get a feeling he cant manage things for you, you let go, if you believe he will do fine, then most probably he will
propertaxationand
Completely agree. They are in this business because this is what they love and understand the best and they are sharing the wealth with co-owners (shareholders) as well. So far so good
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Rohit has summarized well but let me add something on last part.
I remain concerned as the co is taking the debt route aggressively to expand plus this business has some inherit major risks like - 1. Theft 2). Cash transactions form a major part of sale.
1). Banks donât give loan unless inventory is insured. So theft is covered. Any wise businessman wonât try to save money on insurance. weather it is inventory or factory or plant.
2). If you see past record, it looks extremely clean. If you see their numbers, nothing looks out of order. There is no reason that it will change. Same people are at command, so why would I believe that it will change?
Now let me add one more thing here. Promoters own a big farm and since they are devotee to Lord Krishna they have Gaushala with about 500 cows. They also provide free one time meal to employees at all the stores. There is free tea/coffee for customers or even potential customers. I was told that milk and vegetable come free from their farm.
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Hi,
As per an interview in moneycontrol today, company plans to raise fresh funds. Any idea on this?
Regards,
saurabh
From the same link:
ââRegarding fund raising plans in the near future, it is under serious consideration by our boardâ, he said. However, the company has not yet finalised the size and means of the planned fund raising, Ramesh said.â
Not something to be concerned about. Anyways, I am sure if and when they decide and act upon something relevant, weâll come to know.
Important things to note from the interview:
-
50% revenue growth: âThe company expects revenue of Rs 1,750 crore this financial yearâ
-
Volumes continue to go up: âEven though gold and diamond prices have risen sharply during last one year, our sales volumes have increased significantlyâ
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Sales not affected by poor monsoons: âRamesh is also not worried about the low monsoon rain this year and said sales growth at its stores in July suggests that deficit in rainfall wonât impact muchâ
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Expansion to continue: âThe company currently has 20 stores and it is likely to have 28 outlets by March 2013.â
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Hub and spoke model strategy: âOur main focus would be on smaller towns in Tamil Nadu synergised with bigger towns like Salem, Krishnagiri, Namakkal and Dharmapuri in the form of cluster format in and around these townsâ
Regards,
saurabh
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Hi,
I met a client of mine today who is a gold jewellery trader, so i asked him why do ppl keep buying gold even when the prices are rising and his expectations on market.
his answers were
1). Gold buying in urban population is definitely not increasing, as ppl are looking or are able to find out other means of investments
2). An opposite scenario exists in rural and semi-urban India, where buying gold is still considered the safest investment. So that is what is driving sales.
3). If rains are good, farmers start to buy gold in anticipation of normal crops and better yields. Therefore, demand starts to pick up from September onwards. But like this year if rains are bad, then gold sales in rural parts may go down.
regards,
saurabh
Rohit, thanks for sharing the details. Have bought some, will continue to monitor.
Hi
figures seem to be really good but jump in interest cost at a higher proportion remains a concern.
nevertheless good story to follow.
Hi,
Since lot of us have doubts on the debt of the company, though would explain how finance is used in buying gold and hedging related to it.
Method 1: Consignment Basis)- In this type of sale the company buys gold using its own funds. Usually clients have a flexibility of fixing of gold prices within 11 days of purchase of gold. Gold buying can be done from banks, bullion traders etc.
Method 2: Gold Loan)- In this companies directly borrow gold from banks in kgs and the same is also returned in kgs. The advantage is that pricing is lower and borrower has flexibility to fix gold pricecompulsorilyin 180 days from borrowing date. Since, most jewellers have sales cycle of around 120-150 days, they are usually able to fix gold price of borrowing as per the sale price. This is used rarely, though as most banks donât keep large gold deposits with them.
Method 3: SBLC Method)- In this a bank on behalf of Thangamayil will issue a Standby LC (financialguarantee), against which a bank like Nova Scotia, SBI,BOI etc will give company the gold. Again as aboveThe advantage is that pricing is lower and borrower has flexibility to fix gold pricecompulsorilyin 180 days from borrowing date. Since, mostjewelershave sales cycle of around 120-150 days, they are usually able to fix gold price of borrowing as per the sale price. Thus, 180 fixing of gold prices compulsorily forces jewelers to hedge there gold inventory.
Method 4:Cash Credit)- A lot of companies including Thangamayil have been using cash credit limit to buy gold. The idea here is that even though overall costing is higher one there is no compulsion to hedge gold prices. As lot of playersbelievegold prices will keep going up they use this facility.
In our case Thangamayil has stated they want to avail more of Gold Loans and SBLC backed loans which should reduce the pricing and also automatically hedge their inventory.
Regards,
saurabh
just to add my 2 cents to the discussion, I have noticed that a few of my south Indian contacts have an almost obsessive fascination with gold, not only do they buy it during festivals,but also a lot of gold changes hands during marriages when the brideâs family gives gold to the groom. This is not the exception but rather the norm as i discovered later.
It is present in TN at the moment but IMHO it would not hurt for them to remain a southern region concentrated player particularly if they can crack other rich states like Kerala which has high NRI remittances and purchasing power. It is best that they stick to regions/areas where they understand the customer well rather than going in for very aggressive plans which might jeopardize the potential growth story.
For People who have invested in it, how much cap have you guys given to it as a % of your overall portfolio. I am looking to go for it but unsure about the ideal weightage.
I have no idea on thangamayil and neither have i read the business or P/L.
But since i live in tamilnadu and know of the branding in tamilnadu i can say thangamayil is still unknown name in big and small towns.Past three years big/small towns have seen many brands like Jos Allukkas,Kalyan,nathella,GRT,Swarnamahal etc coming in and i should say thangamayil has reached late. They are expanding a lot but the other brands are already there, that is a problem.
It might be a great brand name in making or may be not.Will need to wait n see.
I am not holding the stock as of now
Opening of New Branch at Dharmapuri|20/08/12 11:39
Thangamayil Jewellery Ltd has informed BSE that the Company is opening its 21st (Twenty First) branch at Dharmapuri - on August 19, 2012 between 10.35 Am and 11.25 Am admeasuring 2200 spft.
The company iscapitalizing advertisement expense, isnt it wrong? Its an expense so should have been deducted asexpense. The followingattachments is from one of thequarterlyreports of the company.
Thangamayil is planning an equity issuance, as future working capital can not be continued to be funded via debt. This is from a friend in investment banking circle. No of equity shares to go up by approximately 1.25x.