87
(^) Outlook BUSINESS / (^) 22 December 2017
GST is now having a much bigger impact on the in-
dustry structure. The country has more than 500 , 000
small and big jewellers, of which 70 %- 80 % are unor-
ganised. With much stringent KYC compliance and
GST, local jewellers have started increasing their pric-
es which has blunted their competitive edge versus
organised players. This has already started showing
in the results of organised jewellers who have report-
ed higher-than-industry growth rate in the fi rst half
of the current fi scal year.
ANTI-FRAGILE
According to economist Nassim Taleb, “The resil-
ient resists shocks and stays the same; the anti-frag-
ile gets better.” TMJL displayed anti-fragility by get-
ting better during the regulatory storm. It started
working on improving inventory turns by imple-
menting technology systems which was further aid-
ed by its cluster-based store network. Designs from
any store can be made available to customer with-
in a day’s time. Further, as the long-term deposit
schemes were disallowed, it was able to maintain
its advances even as other players lost 50 %- 90 % of
theirs. TMJL proactively reached out to all its cus-
tomers for converting their deposits either into pur-
chases or short-term deposits. As of FY 17 , customer
advances fi nanced about 24 % of its inventory. With
inventory coming down and advances increasing,
TMJL was able to reduce its debt-to-equity substan-
tially from 1. 9 x in FY 12 to 0. 7 x in FY 17. A much lean-
er balance sheet and reinstatement of gold-on-lease
scheme helped it reduce interest cost substantially.
It is also noteworthy that Thangamayil has never
missed paying dividends.
CHANGING GEARS
TMJL went for an IPO in 2010 to fund its expansion.
This was the phase of rapid expansion during which
the store count increased from two in FY 07 to 31 by
FY 13. This expansion came to a screeching halt as
the industry entered into a regulatory storm. The
store count remained stagnant till FY 17. However,
now TMJL is again entering the expansion phase
and plans to open fi ve stores in FY 18. Not much ca-
pex is required to set up a new store if one is oper-
ating in tier-II and tier-III cities and targeting low
to middle income segment. The investment in in-
ventory ranges from # 5 crore to # 15 crore, depend-
ing on the store size. TMJL is also setting up small
100 sq ft outlets called TMJL-Plus that would act as
customer care centres and also sell silver articles.
Expanding branch network and same-store sales
growth should lead to high revenue growth, espe-
cially in Tamil Nadu.
As sales growth picks up, operating leverage will
kick in along with decreasing interest costs. This
should shore up profit margins. In H 1 FY 18 , sales
grew 17 % YoY, while EPS jumped 71 %. EBITDA and
PBT margins are already looking up at 4. 6 % and
2. 7 %, respectively, in H 1 FY 18 compared with about
3. 8 % and 1. 5 % in FY 17. When the cycle picks up, sales
should grow north of 15 %. With profi tability also like-
ly to expand in the years to come, the return on eq-
uity should also reach its historical level of 30 %-plus.
At 20 times estimated FY 19 earnings, the stock is an
attractive bet on India’s love for gold, the shift from
unorganised to organised, mean reversion in profi t-
ability and an anti-fragile company with a prudent
management. b
The stock is part of Equirus Long Horizon Fund Strategy
A dazzling affair
Thangamayil’s return ratio has improved drastically
ROCE(%)
3.52
-1.11
13.07
15.25
FY14 FY15 FY16 FY17
Source: Company
CY17 RETURN 244%
net profit#14,cr
ttm p/e (x) 39
roce 15.25%