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Strong business momentum led by SSSG in Q1FY23

Kalyan Jewellers, in its exchange fillings today said that in Q1FY23 it witnessed robust momentum in both footfalls and revenue across India as well as in Middle East. Consolidated revenue is expected to grow over 105% in Q1FY23, whereas India business to report +115% growth on YoY. Management alluded that it is witnessing strong operating momentum driven by resilience of category business along with shift in demand from unorganized to organized. On margin front, it is expected to improve on YoY largely driven by increase in the studded mix and share of business from non-south markets. In the middle east operation, it is expected to grow by over 65% YoY. Online format Candere recorded of over 80% revenue growth during the quarter. We remain positive on the business momentum and retain BUY with a DCF based Target Price of Rs101 (implying 28.8x FY24E EPS).

Long term strategies at play - strong revenue momentum led by SSSG

Management has observed strong revenue growth led by increase in same-store-sales growth along with higher footfalls during the quarter. Consol. revenue is expected to increase over 105% whereas domestic business has given over 115% on YoY. Business has seen continuous strong momentum driven by shift in demand from unorganized to organized markets as consumers clearly demand purity certification and transparency in gold jewelry purchase. Further, Management has launched first franchised showroom (in Aurangabad) under FOCO model and developed a roadmap for five more franchise stores to access the market opportunity in non-south markets. Kalyan added 3 new stores in non-south markets taking store count to 127 in India.

Middle East business is on the right path

Middle East business (Contributes 17% of topline), The Company has observed 65% YoY revenue growth led by the overall recovery in the economic activity in the region and the return of tourist traffic, which has been visible over the past several quarters. The growth has driven by same store sales growth as management has added single unit during the quarter. Kalyan added 1 store taking up the store count to 31 in Middle East region.

Our view

As we have argued in our Thematic report that we expect organized jewelry sector to benefit from, (a) formalization, (b) pent up demand from deferred weddings in CY21, (c) store addition in tier-2/3 markets, and (d) online jewelry picking up consumer preferences for fast fashion/ daily wear segment. High traction of the digitally-oriented initiatives taken by Kalyan, particularly around e-commerce confirms this trend and consumer shift in demand for light weight jewelry to drive top-line for the company

Valuation and Risks

Kalyan draws significant share of revenues from south and hence the company aims to expand its light weight jewelry offerings through combination of online and offline format catering the aspirational demand in west and north. We note Kalyan’s hyperlocal strategy revolves around store opening in non-south markets, improving studded ratio, serving millennials with online format, and meeting their aspirational demand by introducing new age designs. We remain positive on the business momentum and retain Buy rating, with a DCF based TP of Rs101 (implying 28.8x FY24E EPS).Risks: irrational competition; leading to lower demand for jewelry; rising gold prices.

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