Titan, Kalyan: Jewellery stocks to dazzle in festive season, say analysts

Analysts see more upside for jewellery stocks as festive demand kicks in post the correction of gold prices

The jewellery sector shines bright as sales pick up after the pandemic and the festival season nears. After Titan and Kalyan Jewellers reported better-than-estimated June quarter performance (Q1FY23), analysts believe a re-rating is on the cards as gold prices 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) at Rs 763 crore. The total income of Titan’s jewellery segment was up 208 per cent to Rs 7,600 crore in Q1FY23. Kalyan Jewellers’ revenue from operations jumped 103.6 per cent YoY to Rs 3,332.6 crore.

Analysts see upside for jewellery stocks as festival demand kicks in post correction in 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 A K Prabhakar, head of research, IDBI Capital.

Kalyan Jewellers' southern India business contributed 65 per cent to overall sales in the April-June quarter, whereas studded jewellery share improved to 24 per cent against 20 per cent in the base period.

Kalyan’s store expansion, increased studded sales, and higher share of non-south business would aid the company’s 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.

Titan’s management plans to increase the company’s market share of studded jewellery in Southern India (especially in Andhra Pradesh and Tamil Nadu) after the segment 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 a better revenue mix, higher ticket size purchases and an increase in diamond prices.

Analysts believe that Titan is placed well to capitalize on long-term growth opportunities in jewellery due to higher market share gains, network expansion, regional thrust, hallmarking benefits, and omnichannel 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 report by the World Gold Council indicated that the demand for the metal will dip in the second half of calendar year 2022 due to an uncertain economic outlook, higher import duty, and additional curbs on the accumulation of gold.

Analysts warned of painful quarters down the line once the festival 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.

Deepak Jasani, head of retail research at HDFC Securities, cautioned about 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.