Target: ₹360
CMP: ₹317.35
Kalyan Jewellers continues to deliver revenue outperformance (32 per cent y-o-y) compared to peers (21 per cent Titan) driven by franchise-led retail expansion (31 per cent y-o-y) while SSSG (same store sales growth) performance was decent (at +8 per cent y-o-y vs 22 per cent for Titan). Extension of the FOCO (franchisee owned company operated) model in West Asia and in Candere format shall be ROIC (return on invested capital) accretive. Sharp improvement in ROCE/ROE as per TTM (by 210bp to 19/15 per cent vs FY23) more than offsets the relative contraction in operating profit margins.
We note higher share of non-south revenues (now 46 per cent contribution) and increased studded sales are natural tailwinds for Kalyan’s margin profile and the benefit should continue to accrue for next few years (franchisee revenue at lower gross margins will likely mask the benefits partially). We like the focus on recruiting new customers (+36 per cent share in 2Q).
At current valuation, we revise our rating to Add (from Buy) with TP of ₹360.