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Industry-leading growth; beat in margin

• Kalyan Jewellers’ (KALYANKJ) consolidated revenue grew 31% YoY to INR72.7b (in line). The Indian business achieved 31% YoY revenue growth, driven by store additions (added net nine Kalyan Indian stores and eight Candere stores) and 18% SSSG (20% in South, 16% in non-South). Management indicated that there is no pent-up demand likely to emerge from the recent moderation in gold prices, as weddings have not been postponed. Studded share remained stable at 30.2% in 1QFY26 vs 30.4% in 1QFY25. Studded revenue rose 30%.
• Gross margin for the Indian business contracted 60bp YoY to 13.6%. The margin contraction was likely due to the rising mix from franchised stores (~43% revenue mix in 1QFY26). EBITDA margin for the Indian business expanded 40bp YoY to 7% (beat), driven by stable advertising costs and improved sourcing efficiencies. The company is working to reduce its credit period as part of its efforts to improve operating margins. The PBT margin expanded 80bp YoY to 5.6%, while PBT rose 54% YoY.
• The Middle Eastern business delivered 27% revenue growth. Studded share stood at 18.4%. There were no store additions during the quarter.
• The company is launching a new growth vertical by introducing various regional brands. In order to deepen its presence in new markets, Kalyan aims to establish regional brands offering exclusively localized designs, with the first launch planned for CY25. A pilot is expected in FY26, starting with five COCO stores, followed by franchise-led expansion. The initial capex will be ~INR3b. Management indicated that the format may have lower GM, but inventory turns will be higher and ROCE will be in the range of 18-20%. We await further clarity on this initiative.
• With the successful scaling of its new franchise businesses (~40% revenue contribution) and stable success in the non-Southern markets, the company has established itself as a leading brand in the industry.The company is further establishing a region-specific store format to combat increasing competition from unorganized players. We model 21%/17%/21% revenue/EBITDA/PAT CAGR during FY25-28E. We reiterate our BUY rating with a TP of INR700 (based on 50x Jun’27 P/E).

Robust growth continues with healthy store expansion India business

• Healthy revenue growth with double-digit SSSG: India’s revenue grew 31% YoY to INR61.4b (inline), and same-store sales increased 18% YoY. SSSG was 20% in Southern regions and 16% in non-Southern regions. South’s revenue growth was 30%, while non-South’s revenue stood at 33% YoY. Non-Southern markets showed promising growth, with revenue contribution increasing to 51%. Studded share remained stable at 30.2% in 1QFY26 vs 30.4% in 1QFY25. Studded revenue rose 30%.
• Strong growth in profitability: EBITDA grew 38% YoY to INR4.3b (est. INR3.9b). PBT grew 54% YoY to INR3.4b (est. INR2.9b) and APAT grew 55% YoY to 2.6b (est. INR2.2b). Management stated that the current GML rates are back to September 24 levels of ~4%, given the geopolitical uncertainties.
• Rapid store expansion: The company added net nine My Kalyan stores in India, reaching a total of 287 stores. Candere added eight stores, reaching a total of 81 stores. Total stores in India stood at 368. ‘My Kalyan’ grassroots stores reached 1,047 in 1QFY26, contributing ~16% to revenue from operations in India and over 31% to enrolment in advance purchase schemes in India.

Middle East

• Sales grew 27% YoY to INR10.3b. There were no store additions during the quarter. The studded share stood at 18.4% vs 16.4%.
• Gross margin contracted 70bp YoY to 14% and EBITDA margin contracted 60bp YoY to 7.1%. EBITDA grew 17% YoY to INR728m. APAT grew 18% YoY to INR221m. Consolidated performance
• KALYANKJ’s consolidated revenue grew 31% YoY to INR72.7b (est. INR70.8b).
• Gross margin contracted ~50bp YoY to 13.9% (est. 13.4%).
• EBITDA margin expanded 20bp YoY to 7%. (est. 6.6%). EBITDA grew 35% YoY to INR5.0b. PBT grew 49% YoY to INR3.5b and APAT grew 49% YoY to 2.6b.

Key takeaways from the management commentary

• Demand in the first three weeks of July was healthy. The last week of July to the first week of August is not comparable due to a high base created by the customs duty cut. That said, management believes that the high base impact should be offset in 2QFY26, which will benefit from key festive events such as Navratri and the conclusion of Shradh.
• Management indicated that there is no pent-up demand likely to emerge due to the gold price moderation, as weddings were not postponed.
• Going forward, the company aims to focus on monetizing its real-estate collateral (which is ~INR2b), developing a new retail format alongside Kalyan and Candere, and undertaking supply-side restructuring to improve gross margins.
• The initial investment in new regional brands will be INR3b (largely inventory), and Kalyan will open five stores, post which the store expansion will be FOCOled. The first store will be launched in FY26.
• The company plans to open 170 showrooms with 90 Kalyan and 80 Candere formats in FY26.

Valuation and view

• We have largely maintained our EPS estimates for FY26 and FY27.
• With the successful scale-up of its new franchise businesses (~40 revenue contribution) and continued 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 the asset-light expansion supports healthy cash flow generation for debt repayment and enhances profitability by reducing interest costs. It is also gaining momentum in the Middle East and the US.
• We model 21%/17%/21% revenue/EBITDA/PAT CAGR over FY26-28E. We reiterate our BUY rating with a TP of INR700 (based on 50x Jun’27 P/E)

Key takeaways from the management commentary Demand environment and outlook

• Demand in the first three weeks of July was healthy. The last week of July to the first week of August is not comparable as the base was high, given the custom duty cut. That said, management believes the impact of a high base will be offset in 2QFY26, as 2Q will have festivities such as Navratri, the ending of Shradh, etc.
• Management indicated that there is no pent-up demand likely to emerge due to gold price moderation, as weddings were not postponed.
• Going forward, the company will focus on monetizing its real estate collateral (which is ~INR2b), creating a new retail format alongside Kalyan and Candere, and undertaking supply-side restructuring to improve gross margins.
• The initial investment in the new regional brand will be INR3b (largely inventory) and the company will open 5 stores, post which the store expansion will be FOCO-led.
• The studded jewellery segment remained steady and is a strategic focus area for future growth.
• Gold loan interest rate is back to 4%.

Cost and margin

• KALYANKJ managed input cost pressures effectively through better operating leverage and sourcing efficiencies. GM improvement was due to the pilot project and a higher mix of silver/platinum, which involve higher margins.

New format focused on regional brands launching soon

• The company will launch a company housing regional brands that offer localized jewelry to compete with regional brands. There will be multiple brands, each allocated to a particular state.
• The company will be launching its first regional brand in FY26, starting with five showrooms requiring capital of INR3b (largely inventory), and further expansion will be FOCO-led.
• KALYANKJ stated that while the products will have lower gross margins, they will involve a high inventory turn and RoCE will remain in the range of 18-20%.
• The sourcing strategy will be modified and benefit from a leaner credit period. The pilot is currently underway.
• KALYANKJ indicated that it may raise debt in the subsidiary.

Candere

• Candere is expected to be PAT level neutral/positive by FY26 end.
• The company plans to launch 80 Candere showrooms in India during FY26 through a mix of FOCO and COCO showrooms.

International business

• The ME demand continues to remain robust.
• 1Q saw healthy growth of 27%, partially aided by the refurbishment/relocation of 8 showrooms in the region in the last 12 months.
• The company sees a growing opportunity among the Indian diaspora in the GCC region and continues to strategically expand its presence.
• Currency fluctuations have a marginal impact on the Middle East profitability, but operational performance remains healthy.

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