IPO - Thangamayil Jewellery Ltd - All that glitters is not gold!!!

All that glitters is not gold - Yes, here comes another Public Issue - by a Gold Jewellery  business. It is not a high end business, but a well known business in the city of Madurai (in Tamil Nadu - southern part of India).

There are very many players in this industry and not many get into the Stock Market to raise funds for the business. The reasons being:

1. They all operate in an unorganised sector

2. Most of the purchase and sales are in Cash

3. Lot of competitions and individual's taste differ, when it comes to jewellery.

4. If you are not updating your patterns and designs, you are out of the race.

There are very many players in the southern part of India, who has an established customer base and created a brand for themselves (GRT, Vummudiars, NAC etc.,). There are many business with big showroom and facilities - like Joy Alukas, GRT, Kazhana etc.,

All the above are fine. But, if you read the Red Herring Prospectus, you see that the company is planning to raise about Rs.29 crores by this IPO.

The price band is fixed at Rs.70 - Rs.75.

The issue is open between 27th Jan 2010 and 29th Jan 2010.

If you look at the objectives of the issue, they are planning to fund new retail outlets and more for the working capital. 

They plan from this IPO               - 29 crores,

Pre-IPO placement                       -  6 crores

Internal accruals                          - 13 crores

Total                                          - 48 crores

Land & Building                          -   8 crores

Interiors                                     -   9 crores

Working Capital                         - 23 crores

Other assets & Issue expenses  - 8 crores (inclg contingencies)

Total                                        - 48 crores

The company is also having a Debt (secured & unsecured) to the tune of Rs.53 crores!

It has a negative cash flows in 2005, 2007, 2008, 2009 & 6 months ended Sep-09!!!

With all the above and no big business in other parts of the State (forget about National presence), it is not worth investing in this IPO.

The only positive in this IPO is that the family running the business is well experienced in this trade and has a name in the city of Madurai.

The liquidity of the share and trading volumes would be a question mark.

I would prefer to invest in other stocks than this IPO, on fundamental basis, considering the high price band and the cyclical nature of the business. 

Only those who have a good risk appetite can subscribe to this issue.

Cheers,

Gopal