JM Financials initiated coverage on Kalyan Jewellers with a ‘Buy’ rating and a target price of Rs 700, implying an upside of 19.4%. The brokerage initiated coverage on the back of the company’s significant growth potential, strategic advantages, and other factors. Here are three solid reasons:
JM Financial on Kalyan Jewellers: Huge unorganised market providing large growth opportunity
First and foremost, according to Nuvama, the Indian jewellery market was valued at Rs 6.4 lakh crore in FY24, with the organised sector only accounting for 38%. The organised segment is expected to see a higher growth rate of 20% CAGR over FY24-28, compared to 16% for the overall market.
Kalyan Jewellers, which is the 4th largest player, is positioned well to capture significant market share during this transition from unorganised to organised players. Especially, in stable gold prices, making the environment more favourable for organised entities.
Improved pricing transparency, better quality products, increased promotional activities, and industry consolidation influenced by regulatory changes like GST implementation and mandatory PAN requirements for large transactions are expected to lead this shift.
JM Financial on Kalyan Jewellers: Strong moats to drive future growth
Over the years, Kalyan has developed strong competitive advantages, which were built on core values of trust, transparency, and marketing. These “moats” include pioneering initiatives such as being the first to sell BIS hallmarked jewellery since 2006. The first to introduce detailed price tags disaggregating various components like metal weight, stone price, and making charges in 2008.
Plus, Kalyan Jewellers‘ distinctive ‘My Kalyan’ model functions as an essential tool for acquiring customers, bringing in almost 15% revenue of FY24 from regions without store presence by engaging with potential customers in hinterland areas.
JM Financial on Kalyan Jewellers: Asset-light franchise model for expansion
For expansion, the company has transitioned to an asset-light franchise-owned company-operated (FOCO) model, which is significantly more capital efficient than its previous company-owned company-operated (COCO) model. Under this model, the investment in store inventory and capital expenditure (capex) is primarily taken care of by the franchise partner, which enables a much faster rollout of new stores.
In FY25 alone, Kalyan Jewellers added 74 net stores in India and plans to add 85-90 new stores annually over FY26-28. This aggressive expansion is the major driver for the projected robust revenue acceleration (25% revenue CAGR over FY25-28). While this model leads to some contraction in EBITDA margin due to profit sharing with franchise partners, it results in lower capital requirements, reduced interest costs, and an expansion in PBT (Profit Before Tax) margin to 5% by FY28.