This jewellery stock has zoomed over 300% in last 10 months on firm outlook

In the past 10 months, the market value of Kalyan Jewellers has jumped over four-fold or 305 per cent from a level of Rs 105.65 amid strong financial performance

Shares of Kalyan Jewellers India (KJIL) rose 3 per cent on BSE to hit a new high of Rs 427.85 in Thursday’s intra-day trade on expectation of healthy earnings growth ahead. The stock surpassed its previous high of Rs 419 touched on March 2.

In the past 10 months, the market value of KJIL has jumped over four-fold or 305 per cent from a level of Rs 105.65 amid strong financial performance. In comparison, the S&P BSE Sensex rallied 17.4 per cent during the same period.

KJIL’s consolidated revenue continued to witness strong year-on-year (YoY) growth of 26 per cent, 30 per cent and 31 per cent in FY22, FY23 and 9MFY24 on the back of healthy same store sales growth and ongoing store additions.

The management said the ongoing quarter has also started off well and they are looking forward to ending the financial year 2024 (FY24) on a strong note.

According to analysts, KJIL is likely to report over 20 per cent YoY revenue growth in the medium term, supported by continued same store sales growth and incremental revenue growth through new Kalyan stores of 58 in FY24 and 80 in FY25 apart from smaller store format additions (Candere) of 10 and 50 in FY24 and FY25, respectively.

India Ratings and Research (Ind-Ra) believes KJIL’s revenue growth will be supported by the addition of showrooms largely through the franchisee model and a continued uptick in demand for organised retail jewellers.

The franchise model helps KJIL to reduce its investments for opening new showrooms (Rs 3.5 crore for furniture and fixtures and Rs 20 crore towards inventory on an average).

Ind-Ra expects the shift to the asset-light franchisee model to result in lower margins; however, lower capital deployed is expected to result in higher return indicators.

EBITDA (earnings before interest, taxes, depreciation, and amortization) growth from the improved scale coupled with adoption of a capital-efficient franchisee model has resulted in strengthening of the leverage and return indicators, the credit rating agency said. 

Management plans to divest non-core assets and convert certain company-owned showrooms to franchises, which Ind-Ra expects to contribute to the improvement in leverage levels.

Demand has remained steady in January and February 2024, however, gold inflation in March 2024 has led to delay in demand (a typical trend in gold inflation months), according to Motilal Oswal Financial Services (MOFSL)

The brokerage said they are cautious about the near-term consumption trend, but continue to prefer Titan Company for its robust execution track record and its eagerness to expand the user base.

Consumer preference for branded jewelers will keep the robust growth rate intact for the category, MOFSL said in a company update. They maintain ‘buy’ rating on the stock with a target price of Rs 4,300 per share.