Firm buying to keep the rally going in gold jewellery stocks, say analysts

Gold jewellery retailers: Kalyan Jewellers, Titan, PC Jewellers, Thangamayil Jewellery, and Tribhovandas Bhimji Zaveri have rallied 21-72% so far since April as compared to a 13% gain in the Sensex

Stocks of gold jewellery retailers have been able to retain their sheen in 2023 despite volatile gold prices. Kalyan Jewellers, Titan, PC Jewellers, Thangamayil Jewellery, and Tribhovandas Bhimji Zaveri (TBZ) have rallied 21-72 per cent so far since April as compared to a 13 per cent gain in the benchmark Sensex index. 

The rally gained steam on the back of gold’s 6 per cent fall from its all-time high and strong consumer buying, recently reflected in the pre-quarterly sales update from industry leaders Titan Company and Kalyan Jewellers. 

The uptrend in the stocks thus will continue in the medium-to-long term as jewellery buying is expected to only improve from hereon in the run-up to the Diwali festivities, analysts note. 

“Demand momentum for the next 2-3 months may be muted and the stocks can remain sideways. But for the remaining quarters, Diwali buying will drive a strong uptick and shares such as Kalyan, TBZ and Senco Gold will be good medium to long term-bets, which can give returns of 25-30 per cent”, said Jateen Trivedi, vice president-research at LKP Securities. 

For the latest quarter, Titan reported 21 per cent year-on-year (YoY) sales growth in its jewellery division led by higher buyer growth over average ticket size, supported by robust Akshaya Tritiya sales in April and wedding purchases in June. 

Kalyan Jewellers’ 31 per cent yearly consolidated sales growth was also above expectations. The firm launched 12 stores in the quarter and plans to add 20 more before Diwali. The company added it is gearing up with fresh collections and campaigns for the upcoming festive and wedding season starting with Onam towards the end of Q1. 

In a recent note, analysts at HSBC said the company can deliver strong double-digit growth in coming quarters and improve its return on equity led by rising scale on asset-light expansion, which will help further re-rating for the stock following the sharp rally recently. It raised the price target on the stock from Rs 150 to Rs 200. 

Meanwhile, V K Vijaykumar, Chief Investment Strategist at Geojit Financial Services, is bullish on Titan. “Titan has delivered excellent returns in the long term, it is an expensive stock but it has been always expensive. Investors can expect very good returns from the scrip in the long run”. 

Motilal Oswal Financial Services too has a buy rating on Titan with a target price of Rs 3,325, an upside of around 10 per cent over Monday’s closing price. 

“Titan has compounded earnings by 20 per cent for an elongated period and has ample opportunities for growth, given its sub-10 per cent share in the jewellery market and the ongoing challenges faced by its unorganized and organized peers. The medium-to-long-term earnings growth potential is unparalleled,” the brokerage said recently. 

That apart, the strong conviction of investors in the space has also been indicated by the recent bumper listing of jewellery retailer Senco Gold, which was listed at a 36 per cent premium on the bourses last week.  

Analysts are positive on the company from a long-term perspective given its strong brand recall, cheaper valuations and strong market presence, especially in the East India region. 

“The company has strong business model with good return profile, which is expected to further improve in the coming years based on the shift happening from unbranded to branded players in the key markets,” said Sharekhan in a note. 

Overall, as rate hike fears are likely to keep gold prices in check going ahead, this will lend a bullish outlook to the stocks, analysts note.