Buy Kalyan Jewellers Ltd For Target Rs.625 by Motilal Oswal Financial Services Ltd
Robust growth continues, positive store rollouts
* Kalyan Jewellers (KALYANKJ)’s consolidated revenue grew 40% YoY to INR72.9b (in line). The Indian business delivered 42% YoY revenue growth, driven by store additions (added net 22 Kalyan India stores and 23 Candere stores) and 24% SSSG (23% in south, 25% in non-south). Growth was driven by good traction during the festive and wedding season. The momentum was resilient in Jan’25 as well, despite volatility in gold prices.
* Growth was also supported by the company’s focus on new customer acquisition (33% share of new customers in 3QFY25). Revenue growth in studded (+54%) outpaced gold revenue growth (+37%), leading to an increase in studded share to 30% (27% in 3QFY24).
* Gross margin for the Indian business contracted 170bp YoY to 12.8% after adjusting the inventory loss of INR548m. The margin contraction was likely due to the rising mix from franchised stores (40% revenue mix).
* Ad spends rose just 9% YoY as higher spends in 2QFY25 (+89% YoY) were due to early Diwali. EBITDA margin contracted 30bp YoY to 6.7% (due to a higher mix of franchise stores). PBT margin improved 40bp YoY to 5.4% due to lower interest costs on debt repayments.
* The Middle East delivered 23% revenue growth with SSSG of 16%. Studded share stood at 19%. There was no store addition during the quarter. Kalyan opened its first store in the US.
* With the successful scale-up of its new franchise businesses (~40 revenue contribution) and stable success in non-southern markets, the company has established itself as a leading brand in the industry. However, with a slowdown in urban markets, there is a possibility of pressure on discretionary consumption/categories in FY26. Thereby, we normalize our target multiple to 50x P/E on Dec'26 EPS and reiterate our BUY rating with a TP of INR625.
Operationally in line; rapid store expansion
India business
* Healthy revenue growth with double-digit SSSG: India revenue grew 42% YoY to INR63.9b and same-store sales increased by 24% YoY. SSSG was 23% in south regions and 25% in non-south regions. Non-south markets showed promising growth, with revenue contribution increasing to 56% from 54% YoY. New customer additions remained healthy; share of new customers at over 33%. Studded share improved to 29.5% in 3QFY25 from 27.2% in 3QFY24.
* Strong growth in profitability: After adjusting the inventory loss, EBITDA grew 36% YoY to INR4.3b. PBT grew by 53% YoY to INR3.5b and APAT grew by 54% YoY to 2.6b. Reported profit rose 30% YoY to INR2.2b.
* In 9MFY25, net sales, EBITDA, and APAT grew 37%, 27%, and 42%, respectively.
* Rapid store expansion: The company added net 22 My Kalyan stores in India, reaching a total of 253 stores. Candere added 23 stores, reaching a total of 59 stores. Total stores in India stood at 253. ‘My Kalyan’ grassroots stores reached 1,027 in 3QFY25, contributing ~13% to revenue from operations in India and over 33% to enrolment in advance purchase schemes in India..
The Middle East
* Sales grew 23% YoY to INR8.4b. SSSG was 16%.
* There was no store addition during the quarter.
* Studded share stood at 19%.
* Gross margin contracted by 20bp YoY to 14.8% and EBITDA margin was flat YoY at 7.7%. ? EBITDA grew 22% YoY to INR644m.
* APAT grew only 11% YoY to INR153m, impacted by the recent implementation of corporate tax in the UAE.
Consolidated performance
* Consolidated revenue grew 40% YoY to INR72.9b (est. INR72.3).
* Gross margin contracted 150bp YoY to 13.1% (est. 14.2%) after adjusting the inventory loss of INR548m.
* EBITDA margin contracted 30bp YoY to 6.8%. (est. 6.8%).
* After adjusting the inventory loss, EBITDA grew 34% YoY to INR4.9b. PBT grew by 46% YoY to INR3.5b and APAT grew by 44% YoY to INR2.6b.
* Reported profit rose 21% YoY to INR2.2b. ? In 9MFY25, net sales, EBITDA, and APAT grew 35%, 26%, and 35%, respectively.
Key takeaways from the management commentary
* The strong revenue growth was driven by robust festive and wedding demand across both gold and studded jewelry categories. In January, both wedding and non-wedding demand remained stable despite gold price fluctuations.
* While the solitaire category plays a significant role in LGD sales, Kalyan does not focus on solitaires, ensuring that LGD sales do not hurt overall business performance.
* The company expects PBT growth in FY26 to exceed revenue growth, driven by continued operational efficiencies and reduced interest costs following debt repayments.
* In FY26, Kalyan plans to launch 170 showrooms across Kalyan and Candere formats - 75 Kalyan showrooms (all FOCO) in non-south India, 15 Kalyan showrooms (all FOCO) across south India and international markets, and 80 Candere showrooms in India.
* The company has already started signing LOIs for FOCO showrooms planned for FY26 in India and international markets.
Valuation and view
* We cut our EPS estimates by 1% for FY25 and 4% for FY26.
* With the successful scale-up of its new franchise businesses (~40 revenue contribution) and sustained success in non-southern markets, the company has established itself as a leading brand in the industry. Its non-south expansion has improved the studded jewelry mix, while asset-light expansion supports cash flow generation for debt repayment and enhances profitability by lowering interest costs. It is also gaining momentum in the Middle East and the US.
* However, with a slowdown in urban markets, there is a possibility of pressure on discretionary consumption/categories in FY26. Thereby, we normalize our target multiple to 50x P/E on Dec'26 EPS and reiterate our BUY rating with a TP of INR625.
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