Slide 1

Ethics issue in capitalism and market system

Submitted by : Prashant MaharshiISBE/PGP/SS/2011-13

What is capitalism?Capitalism also called free market economy, dominant in the Western world since the breakup of feudalism, in which most of the means of production are privately owned and production is guided and income distributed largely through the operation of markets. Capitalism can be defined as an economic system in which the major portion of production and distribution is in private hands, operating under what is termed a profit or market system.

Why IPO is done?Although rooted in antiquity,capitalism is primarily European in itscapitalism is primarily European in itsorigins; it evolved through a numberorigins; it evolved through a numberof stages, reaching its zenith in theof stages, reaching its zenith in the19th century. From Europe, and19th century. From Europe, andespecially from England, capitalismespecially from England, capitalismspread throughout the world, largelyspread throughout the world, largelyunchallenged as the dominantunchallenged as the dominanteconomic and social system untileconomic and social system untilWorld War I (1914-1918) ushered inWorld War I (1914-1918) ushered inmodern communism (or Marxism) asmodern communism (or Marxism) asa vigorous and hostile competinga vigorous and hostile competingsystem.system.

Principle of capitalism Private Ownership No legal limit on the accumulation the Property Free Market No government intervention in the economy The Profit motive

Features of IPOCompany nominates lead merchant banker(s)Disclose of securities to be issued & price band for biddingAppointment of syndicate membersBidding processProcess normally remains for 5 daysBids have to be entered within the specified price bandOn the closure of the process, the book runners evaluates the price levelsAt last the book runners & the issuer decides the final priceAllocation of securities is made to the successful biddersRest get refund orders.

TRIBHOVANDAS BHIMJI ZAVERIIPO

About the Company

The 148 year old company, Tribhovandas Bhimji Zaveri, Mumbais local jeweller, plans to raise around Rs. 200 crore through 16.7 million shares.

The company is in the retail jewellery business with 14 showrooms across 5 states mainly in western and central India.

Around 72% revenue comes from gold jewellery and 25% from diamonds

About IPOOffer Date24 26 AprilPrice BandRs. 120 126 per ShareMinimum Application45 SharesReserved for QIB50%Reserved for Non Institutional Bidders15%Reserved for retail35%Total Amount to be raisedRs. 200 CroreTotal No. Of Share on sale16.7 millionGot BID for1.62 crore sharesSubscribed by1.15 times

PlansTo finance establishment of new showrooms

To expand this to around 57 showrooms, adding 43 new ones in India by 2015

To use about Rs. 20 Crore to open 9 new large format showrooms by the end of fiscal 2013.

To finance working capital requirements

The remaining amount would be used for general corporate purpose

Financial InformationIn Rs. CroreFY 10FY 119 Months FY 12Net Sales88511941117% Change32.334.9NAOperation Profit4787102% Change1137.2NANet Profit1740.450.5% Change63.5137.6NA

Competitors / PeersTanishq

Rajesh Exports

Gitanjali Gems

Shri Ganesh Jewellery

Suraj Diamond

Share holding pattern post IPO

Day 1 tradingListing Day Trading InformationBSENSE Issue Price: Rs. 120.00 Rs. 120.00 Open: Rs. 115.00 Rs. 115.05 Low: Rs. 110.00 Rs. 110.50 High: Rs. 119.80 Rs. 120.00 Last Trade: Rs. 111.20 Rs. 111.00 Volume: 1,157,892 1,253,983

No. of times issue is subscribed

Strength of TBZStrong and trusted Brand Name

Focus to develop new design and products by understanding customer requirement with constant interaction

The company has substantial experience in expanding operations and managing the launch of new showrooms.

The company has its own manufacturing facilities in Kandivali with a carpet area of 5,755 sq. ft.

Weakness of TBZ

Inventory risk and gold price fluctuation is also high

Working capital situation of the company is not good

Financial performance of the company is also not encouraging

Peers are doing good in compare to TBZ

Opportunities for TBZBranded retail chains are expanding their presence by creating growth opportunities in jewellery marketThe Indian gold jewellery sector accounted for 61% total domestic gold demand in 2011It is expected that domestic industry to grow at a CAGR of 10% 12% up to 2015 because of: Higher disposable incomeRising young population with the urge to spendHigher no. of women investing her saving in gold/diamond jewellery Conscious marketing efforts by companies Steady rise in gold prices across the global market.

Threats of TBZ There is intense competition in the jewellery retailing market

Branded players are also willing to expand

Devaluation of gold may affect the business

The company has not registered its jewellery designs so it could be duplicated by competitors

The new tax policy where the customer has to give his/ her PAN number on purchase made above `5 lakh is likely to hinder the business.

Future Strategy of TBZThe company is planning to add 43 showrooms by end of fiscal year 2014

It is building additional facility at Kandivali with a carpet area of Approx. 17739 sq. ft.

Increasing marketing activities to increase footfalls and sales at showrooms.

Focusing to increase its diamond studded jewellery sales which will improve its overall profit margin.

ConclusionIPO of TBZ got moderate response because:

The Shares are offered quite expensive in compare to its peersAs it intend to utilize 70% of its raised funds for working capital needs , this may affect the performance of the company.The opening of new stores will mount pressure on profitability due to time taken for break-even of new stores, higher marketing expenses and working capital requirement Even though the gross margin inthe gold segment is around 10.86 %, while that in the case of diamondjewellery is around 36 %, company intent to invest in gold business.

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