The revived sales momentum after the Covid-19 pandemic, coupled with the usher in of festive season, shines brightly over the jewellery sector. After jewellery players Titan and Kalyan Jewellers reported better-than-estimated June quarter performance (Q1FY23), analysts believe a re-rating is on cards as prices of gold soften.
Kalyan Jewellers posted a consolidated profit after tax (PAT) of Rs 107.77 crore in Q1FY23, while Titan saw a 13-fold jump in net profit year-on-year (YoY) to Rs 763 crore. Further, total income of Titan’s jewellery segment was up 208 per cent to Rs 7,600 crore in Q1FY23, and Kalyan Jewellers’ revenue from operations jumped 103.6 per cent YoY to Rs 3,332.6 crore.
Against this backdrop, analysts see more upside for jewellery stocks as festive demand kicks in post the correction of gold prices.
“The shift from unorganized to organized players will benefit organized players like Kalyan Jewellers and Titan. Since the South Indian market is more inclined towards gold jewellery over studded, the festive season would augur well for jewellery players in India,” said AK Prabhakar, head of research, IDBI Capital.
The dominant player in South India markets – Kalyan Jewellers’ Southern business contributed 65 per cent to overall sales in April-June quarter, whereas studded share improved to 24 per cent against 20 per cent in the base period.
Going forward, Kalyan’s thrust on store expansion, increased studded sales, and higher share of non-south business would aid their margin profile, said analysts.
“We model revenue and Ebitda CAGRs of 16 per cent and 23 per cent over FY22-24E. We maintain a ‘buy’ stance on Kalyan Jewellers with an unchanged target price of Rs 100 per share,” ICICI Securities said.
For Titan, the management plans to increase market share of studded jewellery in Southern India (especially in Andhra Pradesh and Tamil Nadu) after they gained strong traction over the last three years. That apart, they have targeted jewellery business’ margins to grow 12-13 per cent in FY23-24, on the back of better revenue mix, higher ticket size purchases and increase in diamond prices.
Hence, analysts believe that Titan is well-placed to capitalize on long term growth opportunities in the jewellery segment due to higher market share gains, network expansion, regional thrust, hallmarking benefits, and omni-channel strategy.
“We expect FY23 to be a strong year for Titan on the back of a low base in its core business. The company’s strong growth outlook, industry tailwinds in the medium term and strong balance sheet makes it a best play in the retail space. Hence we maintain our ‘buy’ call on the stock with an unchanged target price of Rs 2900,” said analysts at Sharekhan.
That said, a latest report by the Gold World Council indicated that the demand for gold will dip in the second half of calendar year 2022 due to uncertain economic outlook, higher import duty, and additional curbs on accumulation of gold.
Therefore, analysts warn of painful quarters down the line once the festive and wedding season peaks off.
“Multiple weddings post normalization of Covid-19 norms will boost balance sheets of the jewellery players in the first half of fiscal 2023 (H1FY23). However, we anticipate demand to taper off in the second half as the wedding season peaks off,” said independent market analyst Ambareesh Baliga.
Sharing a similar view, Deepak Jasani, head of retail research at HDFC Securities expressed caution over tepid July-September quarter in FY23 once festive season demand weakens from August.
At the bourses, shares of Titan have shed 23.4 per cent, while those of Kalyan Jewellers have added about 1.6 per cent in Q1FY23. In comparison, frontline indices Nifty50 and the S&P BSE Sensex have declined over 9 per cent each, during the same period.