Kalyan Jewellers stock jumps 2.5%, tops midcap gainers; UBS reiterates ‘buy’ with huge upside

According to fresh market updates, Kalyan Jewellers India shares rose more than 2 percent in early session on Tuesday, emerging as the top midcap gainer, after UBS reiterated its bullish view on the jewellery retailer. The brokerage stated the firm anticipates stronger expansion in the second half of the current financial year despite a high base.

The stock was trading 2.5 percent elevated at Rs 578 in early deals, taking its year-to-date gain to around 19 percent. In comparison, the Nifty 50 has fallen 13.3 percent so far this year. Kalyan Jewellers' market capitalisation stood at around Rs 59,600 crore. The upside came despite softness in the broader market. At 9:23 am, the Sensex was down 379 points, or 0.52 percent, at 72,392, while the Nifty was 106 points softer at 22,675.

UBS maintains 'Buy', sees stronger H2 expansion

UBS maintained its 'Buy' rating on Kalyan Jewellers with a target price of Rs 900 per share. The target implies an upside potential of around 60 percent from the stock's previous closing price.

Citing takeaways from its interaction with the firm's management, UBS stated Kalyan Jewellers has a stronger expansion outlook for the second half of the financial year, even as the firm faces a high base. The impact of elevated gold prices on demand and average ticket sizes varies across customer segments, according to the brokerage. In the meantime, Kalyan Jewellers intends to continue its aggressive store and network expansion.

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UBS additionally highlighted the firm's gold savings schemes, which provide greater visibility on same-store expansion. Gold exchange activity is anticipated to stay elevated, while the firm plans to manage the associated impact on margins, the brokerage stated.

Network expansion stays a key expansion driver

The latest commentary reinforces UBS's investment thesis from earlier this month, when the brokerage initiated coverage on Kalyan Jewellers with a 'Buy' rating and the same Rs 900 target price.

UBS had highlighted the jeweller's emergence as a pan-India retailer and its capital-light franchise-owned, firm-operated, or FOCO, model as key factors supporting rapid expansion. According to the brokerage, Kalyan Jewellers has been adding stores at nearly twice the pace of Titan.

The firm's topline recorded a compound annual expansion rate of around 35 percent between FY22 and FY26, according to UBS. The brokerage anticipates topline and earnings to compound at around 23 percent annually over the next five years, supported by continued network expansion.

UBS had additionally argued that there was room for a further re-rating despite the stock rising six-fold between FY22 and FY26. At the time of its initiation, the brokerage estimated Kalyan Jewellers was trading at around 30 times FY28 earnings, a roughly 45 percent discount to Titan.

Q1 earnings rises 32%, topline jumps 46%

Kalyan Jewellers had noted a 32 percent year-on-year gain in first-quarter net earnings to Rs 348.7 crore, compared with Rs 264.1 crore in the year-ago period. Topline rose 45.7 percent to Rs 10,588.9 crore from Rs 7,268.5 crore. EBITDA increased 24.5 percent to Rs 632.5 crore from Rs 508 crore, although the EBITDA margin contracted to 6 percent from 7 percent a year earlier.