Kalyan Jewellers shares gained 2.5% on Tuesday following a positive report from brokerage UBS. The firm reiterated a "Buy" rating with a target price of Rs 900 per share, citing the company's aggressive store expansion as a key growth driver. Investors are now watching how the company manages profit margins amidst rising gold prices.
Kalyan Jewellers shares rose 2.5% on Tuesday, outperforming the broader market. This move followed a report from brokerage UBS, which maintained a "Buy" rating on the stock and set a price target of Rs 900 per share. The brokerage cited the jeweler's ongoing expansion strategy as a primary reason for its optimistic outlook.
The company’s growth plan relies heavily on the "Franchise Owned, Company Operated" (FOCO) model. This strategy allows the company to open new stores more rapidly than traditional models by reducing the upfront cash needed for each new location. This capital-light approach has enabled the firm to grow its store count at a faster pace compared to larger competitors like Titan. UBS analysts expect this expansion to be a major contributor to revenue in the second half of the current fiscal year.
From a valuation perspective, Kalyan Jewellers currently trades at a lower earnings multiple than market leader Titan. The brokerage suggests that as the company continues its pan-India expansion and scales its operations, there is potential for the valuation gap to narrow. This re-rating theory depends on the company successfully maintaining its growth momentum while managing its debt and cash flow.
However, there are risks that investors should consider. Gold prices remain high, which can influence consumer demand and transaction values. The company is also navigating margin pressure caused by increased gold exchange activity, where customers trade in old jewellery for new items. While this exchange model helps drive customer retention, it often comes with lower profit margins compared to fresh gold sales.
Moving forward, the key factor for investors will be the company’s ability to protect its profit margins while executing its expansion plans. Monitoring the same-store sales growth and the impact of gold price volatility on consumer buying patterns in the coming quarterly results will be important to understand the actual performance versus expectations.