Timbor Home coming with an IPO of 36,90,000 equity shares

Timbor Home

• Timbor Home Limited is coming out with a 100% book building; initial public offering (IPO) of 36,90,000 equity shares of Rs 10 each in a price band Rs 54-63 per equity share.
• Up to 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, 15% would be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on May 30, 2011 and will close on June 2, 2011.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 5.4 times of its face value on the lower side and 6.3 times on the higher side.
• Book running lead managers to the issue is Corporate Strategic Allianz.
• Compliance Officer for the issue is Akanksha Kailash Bijawat.

Profile of the company

Timbor Home was incorporated as Inside Outside India Dot Com on May 11, 2000 and converted into Public Limited Company on June 13, 2009 vide a fresh certificate of incorporation on becoming a Public Limited Company. The company has three manufacturing units one located at Changodar in Ahmedabad, the second unit at Vatva GIDC in Ahmedabad, and the third at Umreth in Anand district. The total manufacturing facility of the company amounts to 2,00,000 Sq feet. The kitchen & furniture manufacturing is based at the Changodar unit, the Stainless Steel Kitchen baskets and accessories is manufactured at the Vatva Unit while manufacturing of doors, wood treatments and storage is based at Umreth. The company now manufactures kitchen- kitchen components, furniture, door- door frames and Kitchen baskets and accessories. The company operates as a manufacturer-retailer having a Pan-India presence with more than 80 exclusive stores of kitchen, door and furniture retail outlets operating on Franchise Model.

The company markets its products under the brand names Timbor Cucine- Modular Kitchens, Timbor Doors- Doors & Door Frames, Timbor Home- Home Furniture, and IKI Kitchens- Hi-end kitchen solutions using ‘Hettich’ Hardware and accessories. Entire Home Furniture Requirements made available to the consumer under the same roof in Solid Teak Wood. Wide range of furniture including sofa’s, centre tables, side tables, TV units, chairs, beds, wardrobes, bedside units, dressers, bar units, dining tables, dining chairs, kids bedroom units etc are included under the Home Furniture section.

The company is one of the major retailer and manufacturer of Modular Kitchens in India. Its modular kitchens are durable, affordable yet trendy. The company has introduced a new concept and trend giving kitchen a great look through Hi-end modular kitchens with customized solutions, world class cabinetry, shutters, storage and hardware along with Red Dot award winning fittings which are made available to Indian consumers solely using Hettich hardware and accessories. Hitech Kitchens bring in international concepts to Indian households. They are state-of-art products which are targeted to hi-end markets.

The company have set-up a production facility at Umreth for manufacturing doors and all this is offered with customization in terms of size and thickness for the customers. The Doors also come under wide range of designs and types it also manufacture eco friendly doors with Sinewave/Honeycomb Core. The company has a large timber drying and chemical treatment facility. The company converts logs of soft and hardwood into kiln dried sawn timber to be used in the construction and joinery industry. The products of the company are sold to traders and actual users.

IPO Grading

CRISIL Equities has assigned a CRISIL IPO grade of 1/5 to the proposed IPO of the company, indicating poor fundamentals of the company.

Proceeds is being used for

• Purchase of Machinery
• Establishment of new stores across India
• Additional working capital requirements
• Public Issue Expenses
• General Corporate Purpose
• To list shares of the company

Industry Overview

Modular Kitchen in India has created a revolution for all the homemakers. Kitchen is that special place in every home meant to explore culinary passions and especially in India, everything related to Food is revered. In India, where food is assigned divine properties, Kitchen is more than a place to cook. Kitchens in India are considered Altars. As Home Decor and Home Interiors are gaining importance, the company find new concepts in Kitchen Decor making waves. One such modern concept of Modular Kitchen is gaining immense popularity in India.

Modular Kitchens are based on functional practicality and the onset of Modular Kitchen in the furniture market of India have spelt a consciousness that even kitchens can have a style statement and at the same time be comfortable and elegant.

Modular kitchen have been appreciated owing to its compact design that optimizes the available space. Therefore, in case of paucity of space, which is very common in India, Modular Kitchens have come as a real boom.

In India, Modular Kitchens are available in a ready-to-install pre-fabricated format to fit easily in the existing structures. The best part is that Modular Kitchens are available in any various colors and patterns. Once you are sure of the color and the size, all one has to do is place an order and the Modular Kitchen is ready o be installed. Considering the Indian mindset, Modular Kitchens have a good role to perform. In case of oil or turmeric stains, the material by which Modular Kitchens are made can be cleaned easily. Secondly, the material is durable so there is absolutely no worry of it being damaged. Though the concept of Modular Kitchen is not Indian, it find Modular Kitchens, Modular Kitchen Cabinets in Indian market that suit Indian household conditions.

Pros and strengths

Wide network of exclusive brand outlets- The company is a manufacturer retailer in the modular kitchen industry and currently has more than 80 exclusive ‘Timbor Cucine’ stores in more than 17 states selling only the companies products. For the doors and furniture the company is planning to open exclusive stores across India. Furthermore, as the company manufactures and supplies fully finished products it is in direct touch with the end buyer and consumer.

Unique brand positioning- The company is providing the customers value for their money and have positioned the kitchens at an affordable price with a focus on the middle income segment. The company is focusing towards the untapped market in the middle income segment which is both brands conscious and aspirational in nature. The company feels it is targeting one of the fastest growing segments, having an increasing level of disposable income and lots of opportunities in the future.

Integrated low-cost producer- The company manufactures almost 75% of the components that go into making a modular kitchen, the major strengths includes raw material sourcing to finishing. The company employs extensive logistics and supply chain management systems to maintain maximum flexibility, which enables the company to meet their needs in an efficient manner without relying on any one vendor, factory or country.

Experience and Technical Know-how- The promoters of the company have past experience and are well versed in the building material and timber industry since the last 15 years while, the company has acquired machinery from European and Indian Suppliers and they have also provided technique and joinery details. The Felder Group originally Austria based has supplied Machinery worth Rs 112.71 lakh for the purpose of sizing, cutting, drilling and formatting the wood by computerized software with European Technology.

Risks and concerns

Dependency on third party transportation- The company is dependent on third party transportation providers for the supply of raw materials, finished goods and delivery of products. In the event of non availability of its own fleet of trucks, third party transportation services are used which may not be available due to strike or any other reason, hence, may have an adverse impact on the receipt of supplies of raw material, finished goods and delivery of the finished products thereby adversely affecting the company’s operations.

Dependency on external suppliers for major component of raw materials- The company is dependent largely on external suppliers for the timely supply of raw materials. The company procures its raw material from manufacturers and authorized distributors appointed by the manufacturers based on its requirement. It analyzes the production requirement on a monthly basis; based on which it place orders to its suppliers. Wood procurement constitutes a significant part of its cost and total lead time. Further, if the company fails to correctly analyze the product requirement or non-availability of required raw materials or any other item of production in desired quantity and quality at the right time may adversely affect the company’s sales commitment and profitability.

Time-bound nature of business- The dealers, retailers and distributors are generally situated close to the geographically dispersed customers and far from the company’s production facilities. The company has to ensure that its products reach the end users exactly when they need them. Therefore, any interruption in its ability to reach its products to the distributors, dealers, end users, due to any reason including those not within its control, could have a material adverse effect on the company’s business, results of operation and financial condition.

Stiff competition- The company faces stiff competition in its business from organized and unorganized players. Most of the end-users are price conscious. Pricing is one of the important factors that play an important role in selection of these products. The market for its products is highly competitive on account of both the organized and unorganized players. Some of the competitors may have longer industry experience and greater financial, technical and other resources, which may enable them to react faster in changing market scenario and remain competitive. Growing competition may adversely affect the company’s business operation and financial condition.

Outlook

Timbor Home is a manufacturer and retailer of modular kitchens, furniture and doors, and door and window frames. The company markets its products under brand names Timbor Cucine, Timbor Doors Timbor Home and IKI Kitchens. It has a pan-India distribution network and three manufacturing units located in Gujarat. The Company has introduced a new concept and trend giving kitchen a great look through Hi-end modular kitchens with customized solutions, world class cabinetry, shutters, storage and hardware along with Red Dot award winning fittings which are made available to Indian consumers. Hitech Kitchens bring in international concepts to Indian households. They are state-of-art products which are targeted to hi-end markets. The company procures its raw material directly from licensed saw mills, reputed manufacturers, importers and suppliers which helps the company to establish an efficient supply chain at competitive prices and ensures timely delivery. The company has also implemented ERP which helps in raw material planning.

On the concern side, the company’s products have weak branding in a highly fragmented furniture industry, where unorganized players have almost 90 percent market share. Timbor is a relatively small player in terms of size and number of stores. Out of its 84 stores, only 3 are company owned. This exposes the company to the risk of franchisee stickiness, which may hinder its future growth prospects / margins. The company may also face tough competition from players like Future group, Godrej, Nilkamal, Style Spa, Millennium Lifestyle and Durian - who already enjoying a strong brand recall. The company is dependent on third party transportation providers for the supply of raw materials, finished goods and delivery of products and the company does not have any long- term contracts with its general and major customers which may adversely affect its results of operations.

The company is coming with an initial public offer of 36,90,000 equity shares of face value of Rs 10 each for cash at a price per equity share on the price band of Rs 54-63 per equity share. Issue will constitute 25.00% of the fully diluted post issue paid up capital of the company. During FY10, the company has reported a turnover of Rs 51 crore and net profit of Rs 1.78 crore. Based on the EPS of Rs 3.07 for the fiscal years ending March 31, 2010 the P/E comes at 17.59x at the lower price band while, it comes at 20.52x at the upper price band. Other peers like Green Ply and Archid Ply are available at better valuation. Timbor Home Limited operates as a manufacturer-retailer having a pan-India presence with exclusive stores of kitchen, door and furniture retail outlets operating on Franchise Model. The company is into the business that is mainly characterized by unorganised players having market share of over 80%. Timbor is a relatively small player in terms of size and number of stores, and has limited brand recall which exposes it to severe competition, hence we will recommend ‘avoid’for the issue.

Peer Group Comparison (Rs. in Millions)