KALYAN JEWELLERS INDIA LIMITED
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Stock Research and Analysis Report (information valid up-to December 8 2024)
ABOUT US
Kalyan Jewellers is one of India's largest and most trusted jewellery brands, with a legacy spanning over three decades in the retail jewellery business.
It has various product segments including wedding jewellery, staple regional jewellery, aspirational jewellery, studded jewellery and also a matrimony service called "Kalyan Matrimony."
Kalyan Jewellers has established itself as a leading player in the organised jewellery retail sector in India, holding approximately 6% of the market share.
Kalyan Jewellers has a presence across 23 states and Union Territories in India. They have 13 procurement centres across key jewellery manufacturing regions in India. As of November 2024, they have a total of 288 showrooms globally of which 252 are in India and 36 are in the Middle East in countries such as UAE, Qatar, Kuwait and Oman. They are planning to open their first store in the US in the first half of FY 25.
86% of their showrooms are in India whereas 14% are in the Middle East. In FY 24, 86% of their revenue also came from India while the rest 14% came from Middle East. Within India, 38% of their presence is in South India whereas 62% is in non-south india regions.
Candere is Kalyan Jewellers' digital-first jewellery platform, focusing on lightweight, everyday jewellery for working women, youngsters, and Gen-Z consumers. Candere operates through both online channels and physical showrooms, creating an omni-channel presence. Kalyan Jewellers acquired Candere in 2017, making it their primary digital platform.
As of March 31, 2024, Candere had 13 physical showrooms in India. Kalyan Jewellers is focusing on strengthening Candere's brand presence and enhancing its operational efficiency.
FOCO MODEL
Kalyan Jewellers utilises the "Franchisee Owned Company Operated (FOCO)" model as a key element of its growth and expansion strategy.
This approach aims to expand the company's retail network rapidly while minimising capital investment. In essence, the FOCO model involves Kalyan Jewellers partnering with franchisees who invest in the establishment of new showrooms, while the company retains operational control.
Kalyan Jewellers retains control over the showroom's operations, ensuring that the brand standards and customer experience are consistent across all locations. The company is responsible for aspects such as staff training, marketing, product assortment, and daily operational procedures.
The FOCO model enables Kalyan Jewellers to expand its retail footprint rapidly and cost-effectively, allowing the company to allocate its capital resources strategically toward other growth initiatives, such as debt reduction, shareholder rewards, and international expansion.
The company has rapidly expanded its FOCO network in India, with 76 FOCO Kalyan showrooms operating as of March 31, 2024.
The company plans to further accelerate its FOCO expansion in India, with plans to open 80 new FOCO showrooms in FY25, with signed LOIs for all planned locations.
The company has plans to open five more FOCO showrooms in the Middle East in FY25.
This FOCO model will help Kalyan Jewellers increase their revenue significantly by accelerating growth. At the same time it will help them improve ratios such as the ROCE due to lower capital employed. However, the FOCO model results in lower EBIDTA margins for Kalyan Jewellers as they had higher operating margins in self-owned showrooms compared to franchisee owned ones.
SECTOR ANALYSIS
Source: indbiz.gov.in
India's per capita income is estimated to grow from US$ 2450 to US$ 4000 between FY 23 and FY 30 at a CAGR of 7.25%. A rise in per capita income will lead to a growth in disposable income and this will eventually lead to a growth in demand for gold and diamond jewellery in the country. An eventual overall boost in the jewellery sector will lead to demand growth for players like Kalyan Jewellers which have 6% of the total market share in the organised retail jewellery segment. According to statista.com, the jewellery market in India is supposed to grow at a healthy CAGR of 6.01% between FY 2024 and FY 2029. Thus, data on the per capita income growth and the jewellery market growth shows a strong growth trajectory for retail jewellers like Kalyan Jewellers.
India's jewellery market is largely unorganised and consists of mainly small jewellery retailers. Kalyan Jewellers comes under the organised jewellery retail segment which is rapidly growing in India over the years. The organised jewellery market was about 5% of the total market size in 2000. However, this is expected to grow to an estimated 40% in 2025. The management estimates this to continue growing further expanding the market for organised jewellery retailers like Kalyan Jewellers who might enjoy volume growth and sales growth as a result.
Source: Trading Economics
Gold is a primary raw material for Kalyan Jewellers and hence gold prices are of key significance for their costs and margins. Gold prices have been on a rise since April 2024 from approximately 2000 USD per troy ounce to about 2789 USD per troy ounce where it peaked on October 30 2024. Since then, gold prices have reduced slightly. Thus, an increase in gold price is harmful for retailers such as Kalyan Jewellers. However, the Indian government, in the Union Budget 2024, reduced the import duty on gold from 15% to 6%. The reduction took effect on July 24, 2024. This reduction led to an increase in domestic demand for gold and boosted revenue for retailers such as Kalyan Jewellers. However, companies like Kalyan Jewellers who had bought gold inventory at higher prices faced losses due to this cut. Kalyan Jewellers faced an expense of about 120 crores on writing off gold inventory. It wrote off 70 crores during Q2 FY 25 while the rest 50 crores will be written off during Q3.
Source: IBEF
Jewellery companies significantly benefit from the wedding season in India happening during Q3 and Q4 every year. As the number of weddings per year in India increase, the revenue growth for jewellery retailers also increases as jewellery shopping plays a significant role in Indian weddings. This trend should persist and benefit companies like Kalyan Jewellers in the coming years.
FINANCIALS
(Consolidated figures in Rs. Crores)
PEER COMPARISON
SWOT ANALYSIS
RISKS AND MITIGATION
Risk 1: Competition from local organised and unorganised jewellers could impact market share and pricing strategies.
Mitigation 1: Kalyan Jewellers uses a “hyperlocal jeweller” approach, which involves:
Understanding local design preferences.
Localising brand communication and marketing with regional and local ambassadors.
Tailoring product portfolios to local market preferences.
Engaging local artisans.
Staffing showrooms with individuals who speak local languages.
Using a grassroots outreach network (“My Kalyan”).
These measures help Kalyan Jewellers increase their presence in different localities across India and capture market share by connecting with customers.
Risk 2: Fluctuations in gold prices and impact on inventory.
Mitigation 2: The company procures gold through gold metal loan facilities from banks. This strategy allows the company to borrow gold and repay the loan with gold at a later date, mitigating the risk of price increases during the loan term. They also use hedging instruments, such as futures and options contracts on domestic and international commodity exchanges.
Risk 3: Risks around inventory management.
Mitigation 3: The company uses a centralised Enterprise Resource Planning (ERP) system that provides real-time visibility into inventory levels across all locations. This system enables management to monitor inventory movements, respond quickly to shifting customer demand patterns and to replenish or reallocate inventory as needed. Furthermore, the adoption of a franchise model, where franchisees carry the inventory, helps optimize inventory on the company's balance sheet and reduce carrying costs. Kalyan Jewellers aims to optimise its inventory holding days and overall working capital. Their target is to reduce the overall working capital to around 100 days in the medium term which is currently 191 days down from 272 days in March 2021.
SHAREHOLDING SUMMARY
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