All that glitters is Thangamayil

Thangamayil, who? This was the question that popped up in early 2010 when it was announced that Thangamayil Jewellery Ltd (TMJL), a jewellery retailer based in Madurai in southern Tamil Nadu, was coming out with a public issue. It was a modest IPO – for Rs 28.75 crore.

Stock performance

Apart from the fact that shares of many jewellery retailers from the State who had entered the capital markets more than a decade back were either languishing or had virtually disappeared from investors’ radars, the Madurai outfit was not well known outside the region. It was not clear how the stock would perform once it was listed. Moreover, there were not many companies from southern Tamil Nadu that had gone public around that time and how the promoters of TMJL would be able to push the issue through investors was unclear. The issue was oversubscribed only about 1.12 times with retail and non-institutional investors pitching in with their support.

But the performance of the stock since listing has surprised those who track the markets. Thangamayil Jewellery, which traded at a discount on the day of its listing on the Bombay Stock Exchange in February 2010, has scarcely fallen below its Rs 75 issue price(face value of Rs 10) in the past two years. The lowest it recorded in FY 2010-11 was about Rs 80 in April 2010 from where it has been steadily ascending. True, market gyrations affected this stock too. But its valuations have remained always much higher than its offer price.

While in 2010-11 the share was traded in the price band of Rs 150-170, in the past 12 months, the lowest the stock had hit was Rs 136 and the highest was Rs 203. In the National Stock Exchange, the stock was trading around Rs 175 on Friday, giving it a low P/E of 4. It has seen good dividend play too, with last year’s dividend being Rs 7/share.

You don’t need to go too far to understand the reasons for its strong stock market performance. Sales, which were Rs 127.15 crore in 2006-07, has grown nearly ten times in the past six years to Rs 1,131.61 crore in FY2011-12. Its net profit has moved up from Rs 4.02 crore to Rs 59.06 crore during the same period during which the company expanded its branch network. In the current fiscal, the company is targeting 50 per cent growth in income, to reach Rs 1750 crore.

Branch expansion

Mr Ba. Ramesh, Joint Managing Director, TMJL, Madurai, while explaining how the company got the confidence to go public when there were not many listed companies from southern Tamil Nadu, said that many companies from the region were “not going public due to their size.” But in TMJL’s case, the initial success in branch expansion gave him confidence “to scale-up the operation that in turn necessitated an equity fund-raising exercise”. The size of the issue, at about Rs 29 crore, was very small and its visibility was also low. He said “being a small issue, it sailed through” and no great efforts were made by merchant bankers and thanks to reasonable pricing, “a good amount of retail appetite was witnessed”.

He said TMJL' s stock had “never dipped, on average, below the issue price” and had consistently outperformed the market even in adverse environments. Many mutual funds like Fidelity MF “are sitting tight” on their holdings in the company. The promoters hold around 70 per cent of the paid up capital, which at Rs 13.71 crore is very small, particularly in relation to TMJL' s sales. Its excellent performance has held the stock price high.

The success story scripted by Thangamayil Jewellery also reinforces the belief in the growing purchasing might of the rural/semi urban population of the country, already established by the performance of the automobile and FMCG sectors in this market segment. And it has broken the myth that high value and fashionable products like jewellery are mainly patronised by the urban elite.

Out of its total branch network, only a handful – Madurai, Tuticorin, Salem and Coimbatore branches – are in municipal corporations.

The rest are in medium-sized towns and some in the rural heartland, in place such as Dharapuram, Cumbum, Theni, Krishnagiri and Vallakoil. That it is able to set such a scorching pace in income growth in such a short time stands testimony to not only the increasing aspirations of the rural population but its purchasing power too.

Mr Ramesh said that more than 60 per cent of their current sales are from small branches. This ratio would only improve in coming years due to faster penetration into the business of the unorganized sector, whose presence is more in smaller towns, by the organised players in the industry. Another reason was the growing disposable income with the lower middle class because of their children getting into well-paying jobs in sectors such as software.

He argued that only bigger brands could offer “cost effective pricing due to their market positioning.”

Therefore, at the end of the day, both the customer and the company will benefit from TMJL’s strategy of penetrating the rural areas and small towns. For the time being, TMJL will be only in Tamil Nadu, till such time its consolidation process is over.

What could be a challenge is managing the supply chain since its branches are dispersed across 17 cities and towns spread in the State.

Mr Ramesh said that TMJL maintains the supply side using centralised warehousing. He says “our software is tuned to trigger the fast moving inventory” and within a span of four hours the company could transfer its consignment from its warehouse to any branch.

Diamond jewellery

On whether TMJL will expand into diamond jewellery some time soon as growth in value comes from it, he says the company would “like to be in the gold jewellery business as the return on capital employed is almost assured.”

He added, “diamond is a tricky business” and in the southern parts of the country where TMJL operates “we don’t expect any momentum in diamond off take.”

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