Jewelry : Transcending tradition; adorning fashion by Motilal Oswal Financial Services Ltd
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Hyper-local play; execution needs to be critical!
* A giant stride The jewelry sector has been experiencing a significant trend towards formalization, with the organized market accounting for 36-38% of the total jewelry market, compared to ~22% in FY19. The total jewelry market reported ~8% revenue CAGR during FY19-24, reaching a market value of INR6,400b. The organized market clocked ~18-19% revenue CAGR while Titan, Kalyan, and Senco combined recorded ~20% revenue CAGR during FY19-24.
* towards the organized channel with We are optimistic about the jewelry category and anticipate ongoing rapid shifts in consumer purchasing behavior, transitioning from unorganized/local to organized channels. Factors such as increasing ticket prices, enhanced shopping experiences, greater product variety, et al. are fueling this momentous trend.
* the franchise model being a growth catalyst: In addition, after achieving success in new markets/states, top players are further motivated to expand into newer geographies. The franchise-based model consistently achieved success, prompting several players to modify their business models. The franchise model is not only asset-light but also enables faster reach. Jewelry store penetration is at its peak, driven by small jewelers, which offers significant growth opportunities for organized players.
* Our take: We initiate coverage on Kalyan Jewellers and Senco Gold with a BUY rating and a TP of INR525 (based on 45x FY26E EPS) and INR1,300 (based on 35x FY26E EPS), respectively. We reiterate our BUY rating on Titan with a TP of INR4,150 (premised on 65x FY26E EPS).
* Key risks: 1) gold price volatility; 2) failure in store unit economics, especially in new markets; 3) capital inefficiency in rapid store expansion; and 4) pricing pressure (with respect to making charges) due to competition.
Top-10 organized players command >30% of the total jewelry demand
* We analyzed the organized jewelry market, which makes up 36-38% of the total jewelry market, by players to gain a deeper understanding of the industry. The top 10 players in the organized jewelry sector collectively control over 30% (90% of the organized market) of the total jewelry demand in India. We estimate that these players held less than 20% of the total market share in FY19.
* The proliferation of stores and consumers' growing inclination towards purchasing jewelry from branded retailers, especially in the last 3-4 years, have brought about significant shifts in the market composition
Store mix vs. population mix vs. GDP mix
* We collected store locator information for the top 18 organized retailers to analyze the state-level competitive landscape and the market mix of each player. The top 10 states account for 78% of the organized retail network, comprising over 2,000 stores. These states represent 60% of the total population and contribute 68% of the GDP. The top 5 states are Tamil Nadu, Maharashtra, Karnataka, West Bengal, and Uttar Pradesh, with a store mix of 15%, 14%, 10%, 8%, and 7%, respectively.
* The store-to-GDP ratio for the top 10 states is 1.1x, compared to 0.7x for other states. Tamil Nadu has the highest ratio of 1.7x, followed by West Bengal at 1.4x.
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