Target: ₹2,550

CMP: ₹2,374.40

We recently met Thangamayil management and came back positive about its medium-term growth prospects. We reiterate our high-conviction BUY with a TP of ₹2,550 (Dec-26 EPS).

Key takeaways from our meeting are as follows: Jewellery demand remains strong, underpinned by tailwinds of hallmarking, the recent customs duty reduction from 15 per cent to 6 per cent, and aggressive store expansion. However, in the near term, the demand environment is challenging due to the sharp surge in gold prices; Store addition momentum is expected to sustain as the company plans to add 8-10 stores annually over the medium term. The flagship Chennai store (9000-10,000 sq ft) is likely to commence operations from Jan 2025;

Adjusted EBITDA margin to see at least 100bps improvement from 5.2 per cent in FY24 to 6.2 per cent, led by improving mix, operating leverage, and higher making charges on gold jewellery; and risk capital for store addition is well supported by the announced rights issue of up to ₹600 crore and increased contributions from the Digi Gold app/advanced purchase scheme.

Key risks are: increased volatility in gold prices could impact consumer demand; and mainstream jewellery branded players could foray into T2/T3/T4 cities, where Thangamayil primarily operates.