Demand conditions for Kalyan Jewelers India Limited, appears encouraging. Ramesh Kalyanaraman, executive director of Kalyan Jewellers, said the government’s move to hike import duty on gold has not had a significant impact on consumption so far. Still, how the demand picks up in the coming days will be an important factor to watch.
The company continues to be one of the major beneficiaries of the shift in demand from the unorganized to the organized segment.
“We expect the organized jewelery sector to benefit from (a) formalisation, (b) reduction in demand from postponed weddings in CY21, (c) growth in stores in tier-2/3 markets, and (d) online jewelry Consumer preferences are picking up for the fast fashion/daily wear segment,” analysts at Centrum Broking said in a report on July 7.
Kalyan Jewelers released its Business Update for the June quarter (Q1FY23). It reported a massive 115% year-on-year (YoY) revenue growth in India operations during the quarter under review. Recall that Q1FY22 was affected by the second wave of covid. Nevertheless, according to the company, the revenue growth was 22% as compared to Q1FY20. Further, revenue in India in the last twelve months was around 35% higher than FY20 revenue.
India’s gross margin of operations improved year-on-year due to better portfolio mix but remained largely unchanged sequentially. In Q4FY22, the measure was over 15%.
In the Middle East, the company continued to see strong traction in demand primarily due to improving economic and tourism activities. In Q1, revenue grew 65% year-over-year.
Overall, consolidated revenue increased 105% year over year. Investors are pleased with the company’s shares rising about 3% so far since the announcement.
Going forward, the jeweler aims to open more stores in markets other than southern India, and this will be a key driver for margin expansion, according to the company. In Q1, Kalyan Jewelers opened three stores in the non-South and one in the Middle East, taking the total number to 158 at the end of Q1.
Herbal blends are also more common in non-Southern markets. It aims to enable non-South and South markets to contribute equally to revenue by FY25. At present the ratio is 35:65. This will enable a 2% increase in gross margin.
To be sure, rising gold prices and increased competition could be major risks for the stock, which is down nearly 25% from the 52-week high seen on Nov. 10. In addition, investors would do well to keep a close eye on store expansion.