Reality Check: Jewellery Stocks: Festive Demand Boosts Revenue 

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Major jewellery companies such as Titan Company (₹3,612.4), Kalyan Jewellers India (₹347.9) and Thangamayil Jewellery (₹1,420.35) reported their Q3-FY24 earnings last week. Broadly, the companies reported growth in revenue boosted by festive demand in the quarter and a rally in gold price.

The price of the yellow metal saw a rally in the December quarter, triggered by the Israel-Hamas war. In terms of dollar, the average price of gold for Q3-FY24 was $1,972 per ounce, 14 per cent higher when compared to $1,726 in the same quarter of the previous year. In the domestic market, the Q3-FY24 average price of gold futures stood at ₹57,888 per 10 gram, 16 per cent higher as against ₹49,990, its Q3-FY23 average price.

The share price of Thangamayil Jewellery appreciated by 6 per cent last week as the company’s margins improved and net profit doubled for the quarter year-on-year (yoy). On the contrary, the stock of Titan Company and Kalyan Jewellers declined 4 and 2 per cent respectively as their margins dipped. Another reason could be profit-booking by traders/investors since the stocks have run up on the expectations of a strong quarter on the back of festive demand.

Over the past year, the jewellery stocks have given a stellar performance (refer table), comfortably beating the benchmark Nifty 50. Consequently, the valuation of the stocks now stands stretched. The trailing price-earnings of Titan, Kalyan and Thangamayil stood at 99, 65 and 31 respectively.

Results roundup

The top line yoy growth of Titan Company, Kalyan Jewellery and Thangamayil Jewellery for Q3-FY24 stood at 22, 34 and 20 per cent (refer table).

For Titan, apart from EyeCare (de-grew 4 per cent yoy), other segments saw growth in revenue. Jewellery, which contributes to nearly 80 per cent of the total revenue, saw a growth of 23 per cent. New buyers’ contribution was at nearly a healthy 50 per cent. Revenue of CaratLane, a major subsidiary, grew 32 per cent. There was a dip in net profit margin by 50 basis points (bps) yoy to 7.5 per cent in December quarter due to soft demand in studded i.e., diamond jewellery in which the margins tend to be higher than gold jewellery.

Kalyan Jewellers’ India business remained robust as the domestic sales expanded by about 40 per cent driven by strong same store sales growth (SSSG). New customer additions stood at over 38 per cent. Net profit margin shrank by 30 bps to 3.5 per cent because of a higher share of revenue from franchised showrooms. Overall, the company added a net 22 stores during the quarter.

Thangamayil Jewellery’s net profit doubled in Q3-FY24 to ₹28 crore versus ₹13.8 crore in the corresponding quarter of the previous year. An inventory gain of about ₹65 crore boosted the bottom line. Thus, the net profit margin shot up to 3.1 per cent for third quarter FY24 compared to 1.8 per cent for the same quarter of the previous year. This was due to considerable increase in volume of diamond products. The company sold 4,098 carats in Q3-2024 versus 2,791 carats in Q3-2023, a 47 per cent jump. Nevertheless, the non-gold sales contribution is just under 10 per cent.

Going ahead, gold prices are likely to go up. If the increase happens at a modest pace, the hit on jewellery demand can be lower. But if the price rises sharply, the demand can take a hit in the coming quarters. Also, the valuation has expanded considerably in the last year. Hence, broadly, the risks now seem to outweigh the reward. Therefore, investors looking to buy jewellery stock afresh can wait.