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Domestic brokerage Motilal Oswal analysts are optimistic about the jewellery sector, prompting them to initiate coverage on Kalyan Jewellers and Senco Gold. Meanwhile, they have reaffirmed a 'Buy' rating on Titan.
For Kalyan Jewellers, analysts foresee robust growth driven by an asset-light expansion strategy focused on franchises. They anticipate this approach will generate ample cash flow to repay its Indian debt of Rs 600 crore within the next two years.
Highlighting a studded ratio of 28 per cent in FY24, the analysts commend Kalyan Jewellers for aligning with evolving consumer preferences, particularly towards youth-oriented and non-traditional trends. Considering these factors, Motilal Oswal has a 'Buy' rating, with a target price of Rs 525, based on a 45x P/E multiple on FY26E earnings.
Regarding Senco Gold, considered a prominent player in the organised retail jewellery market, the company maintains a strong presence nationwide, particularly in the eastern region where it operates 159 stores. With approximately 4 per cent market share in the eastern market, primarily in West Bengal, analysts believe, Senco Gold is well-positioned for growth.
Therefore, Motilal Oswal forecasts a revenue/earnings before interest taxes, depreciation and amortisation (Ebitda)/profit after tax (PAT) compound annual growth rate (CAGR) of 19 per cent/20 per cent/26 per cent during FY24-26E for Senco Gold, and has a 'Buy' rating, with a target price of Rs 1,300, based on a 35x P/E multiple on FY26E earnings.
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Analysts underscore ongoing shifts in consumer behaviour favouring organised retail channels over unorganised ones, supported by factors such as higher ticket prices, enhanced shopping experiences, and expanded product offerings.
They note the jewellery sector's major trend towards formalisation, with the organised market now commanding 36-38 per cent of the total market, up from approximately 22 per cent in FY19.
Overall, the jewelley sector has seen an approximately 8 per cent revenue CAGR during FY19-24, reaching Rs 6,40,000 crore in market value, with the organised segment growing at 18-19 per cent.
Furthermore, analysts have reiterated their ‘Buy’ call on Titan, with a target price of Rs 4,150, due to its superior execution track record and strong competitiveness in such a fragmented market.
“We model 17 per cent/20 per cent/25 per cent revenue/Ebitd/PAT CAGR during FY24-26E,” analysts said.
Titan, Kalyan Jewellers, and Senco Gold together have achieved a robust ~20 per cent revenue CAGR during FY19-24, driven by successful expansions into new markets and states. The franchise model has been pivotal in this expansion, offering an asset-light approach that facilitates rapid growth and market penetration.
Analysts caution, however, that key risks include gold price volatility, challenges in new market economics, capital inefficiencies in rapid expansions, and pricing pressures due to competitive forces.
