Thangamayil shining: The strong financials caused a price surge!

22 ส.ค.Company Overview
Thangamayil Jewellery Limited (TMJL) is a rapidly growing company in India with a chain of retail jewellery stores in Tamil Nadu. They specialize in selling Gold, Silver, Diamonds, and Platinum, with gold being the main source of income. The majority of their ornaments are purchased from dealers in states like Andhra Pradesh, Gujarat, Kerala, and West Bengal for sale in their stores. Established in 1947, Thangamayil is headquartered in Madurai, India.

Market Capitalization
● Current Market Cap - ₹ 5,128 Cr.
● Market Cap 3-years back - ₹ 802 Cr.
● The figures indicate that the company has increased over six times in the past three years, which is truly remarkable.

Revenue & Profit Growth


● In the last three years, this stock has demonstrated an impressive compounded annual growth rate of 28% in its sales figures.
● Meanwhile, the total profit growth during this period has been a modest 12%.
● The company has successfully maintained a operating profit margin of 6%, which has risen from 4% in FY24.
● For the fiscal year 2024, the earnings per share have seen a remarkable increase, soaring from 29.10 in fiscal year 2023 to 44.91.

Increasing Product Demand

● Inventory Turnover Ratio
➖ This ratio typically assists in determining whether the growth in sales is primarily due to rising product prices or if it is also influenced by increased demand for the product.
➖ Current Inventory Turnover - 3.14
➖ Inventory Turnover 3 years ago - 2.63
➖ These figures indicate that product demand has risen over the past three years.

Valuation

● P/E Ratio
The company's present price-to-earnings (PE) ratio stands at 42.3, significantly higher than its 1-year median PE of 31. When we look at the industry average PE of 31.6, it indicates that the stock might be considered somewhat overvalued at this time.

● PEG Ratio
The company has a PEG ratio of 1.3, indicating that its current P/E ratio is valid.

● Intrinsic Value
➖ Thangamayil Jewellery is currently trading at ₹1870, which is nearly 2.5 times its intrinsic value of ₹764, indicating that the stock is overvalued at this moment.
➖ When we compare Thangamayil to its competitors, such as Titan and Kalyan Jewellers, some interesting insights emerge. Titan's current market price (CMP) stands at ₹3560, which is nearly 5.5 times its intrinsic value of ₹652. Meanwhile, Kalyan Jewellers has a CMP of ₹545, approximately 4.7 times its intrinsic value of ₹115.
➖ These numbers don't necessarily indicate that Titan and Kalyan Jewellers are overvalued; rather, they suggest that Thangamayil could be an attractive investment choice.

Debt Analysis

● Debt to Equity Ratio
➖ The company carries a debt of approximately ₹532 Cr., resulting in a debt-to-equity ratio of 1.08.
➖ When discussing debt, it's important to note that for a small-cap company, this isn't necessarily a major concern. The key factor to consider is whether the company can consistently meet its loan interest payments.
➖ To assess this, we should examine the interest coverage ratio.

● Interest Coverage Ratio
With an interest coverage ratio of 5.62, it’s evident that the company is well-equipped to manage its loan interest payments regularly.

Cash Flow Analysis


● Operating cash flow has seen a remarkable surge, soaring to 330 crore from just 10 crore in FY23.
● The CFO/PAT ratio is currently at 0.74 of the five-year average, indicating that the company is quite proficient at converting its profits into cash.

Shareholding Pattern


● The promoters have maintained their 67.33% stake for the last three quarters.
● Foreign Institutional Investors (FIIs) have been steadily raising their stakes since June 2023, now holding 1.08%.
● Domestic Institutional Investors (DIIs) have also grown their stakes to 12.08% in June 2024, up from 11.46% in June 2023.
● At the same time, retail investors have been consistently selling their shares over the past few quarters.

Mutual Fund Holding


● Notable small-cap funds such as SBI Small Cap Fund and DSP Small Cap Fund have made substantial investments in this stock, representing 0.63% and 1.55% of their total assets under management, respectively.
● Additionally, ICICI Prudential Exports and Services Fund has recently added (in July 2024) its position in this stock, accounting for approximately 1.11% of its overall portfolio value.

Technical Aspects
● From a technical standpoint, this stock appear to be currently overextended. Any pullbacks could provide a valuable opportunity to take positions.
● Stock Volume & Delivery surged by 3.4 times & 3.2 times respectively vis-a-vis their 5 day average with a 5.48% move in price.

Conclusion
While the company primarily functions in Tamil Nadu, it's fascinating to note that this state accounts for the largest portion (40%) of India's overall gold consumption. Furthermore, the company is gearing up to make its mark in the Chennai market by launching a flagship store along with 3-4 satellite locations.

Given the increasing demand for gold jewelry, we anticipate that Thangamayil Jewellery will thrive in the industry in the years ahead.