Kalyan Jewellers - Er Report

Equity Research Report
KALYAN JEWELLERS INDIA (LTD)

NSE: KALYANKJIL | BSE: 543278
Industry: Diamond Cutting / Jewellery
Investment Summary
High / Low : ₹ 395 / ₹ 101
• Kalyan has built a national brand and a pan-India presence (although Current Market Price : ₹ 339
still shallow), but the business model is still focused on South India Market Cap : INR 35,889 Cr
with sub-par return on capital. Shares Outstanding : 103.12 Cr
• Since 2013, it has expanded to the rest of India which offers higher
margins, and is now accelerating its network roll-out by taking the Stock Price performance
capital-light franchise route
• If executed well, this can trigger structural ROE expansion and result
in stronger earnings growth trajectory
Company Overview
• Kalyan Jewellers (Kalyan) is one of the leading Jewellery companies
in India operating a total of 209 stores across India and the Middle
East.
• Accelerating its network roll-out in high-margin states outside Source: Bloomberg
South India by building its own stores and through a franchisee
model.
• Middle East contributed 17% of revenue. Owing to its roots in Company Snapshot
Kerala (established in 1993), Kalyan has a larger presence in south
India with 61% of the stores and 66% of revenue coming from the Founded: 1993
five southern states. Headquarters: Thrissur, Kerala
• In recent years, the company has pivoted to becoming a national Chairman & MD: Mr. T.S.Kalyanaraman
player and has recently decided to take the franchisee route to Website: https://www.kalyanjewellers.net
expand aggressively, especially in the rest of India states. Key Products: Diamond, Gems and Jewellery
Industry: Diamond Cutting/Jewellery
Financial Snapshot
Key Highlights
P/E Ratio : 65.1x
• Strong brand recognition and market leadership in India. Sector P/E Ratio : 76.50x
• Diversified product portfolio catering to various segments. Debt-to-Equity Ratio : 0.66x
• Expanding distribution network across India and international markets. Return on Equity (ROE) : 13.5%
• Growing online presence (Candere). Return on Assets (ROA) : 4.64%
• Aggressive expansion into high Gross margin segments using FOCO Current Ratio : 1.33x
modelling ex: studded jewellers. Operating Profit Margin : 7.90%
• Robust financials with high profitability and low debt levels. Interest Coverage : 3.25x
• The management has been focusing on franchising, COCO to FOCO
model which will reduce capex and inventory days.
• Over the past 5 years the D/E has reduced rom 1.25 to 0.66.
Consensus Rating
Shareholding Pattern (As of Dec 2023)
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Source: Company Reports
Protégé Disclaimer: The information is not intended to be used as the basis of any investment decisions by any person or entity. Protégé offers ready-made diversified
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1
KALYAN JEWELLERS INDIA LTD
Business model Distribution Network:
Jewellery designing and targeted sourcing is done in-house by Kalyan, Kalyan jewellers boasts a robust distribution network
but manufacturing is done by contract manufacturers for a fee. spanning across India and Middle East ensuring easy
However, Kalyan controls the entire manufacturing process and bears accessibility for its customers. It leverages a multi-pronged
the raw material and product risks. approach, including:
• The Company has a total of 180 showrooms
Kalyan has built a spectrum of brands catering to different customer across India (22 states) and Middle East.
cohorts and occasions: • It has 147( 82%) showrooms in India and 33
(18%) showrooms in Middle East.
• Occasion Wear : Tejasvi, Rang, Anokhi ( Antique and • In India 52% of showrooms are in South India
precious studded jewellery). and remaining 48% are located in Non-South
• Light Wear : Ziah, Antora (precious diamond jewellery). regions.
• others : Glo, Hera, Laya and Apoorva (Good uncut diamonds • Across South India Tamil Nadu (23) and Kerala
and precious stones). (20) dominates by having a combined total of 43
• Aspirational jewellery : Focusing on Mid to high end showrooms.
customers. • In FY24 the company will focus to expand in non-
• Staple regional jewellery : For the value conscious South markets.
customers. • My Kalyan is a customer outreach, and it has 990
• Women’s work wear : For weddings, Mid to high end locations across 21 states of India.
customers.
Key Growth Drivers
 Kalyan operates in 21 states, but the bulk of
Revenue Segmental Breakup: its revenue comes from five states and one
union territory in the south. It is now
embarking on an aggressive expansion plan
in the rest of India where higher margins
are on offer, by building both its own stores
and through a franchise model.
 India’s USD 57bn jewellery market is
undergoing a major change. Shoppers are
turning away from the small, standalone
and family-run retailers they have
traditionally gone to and instead are
increasingly buying from regional or
Source: Company Reports national chains.
 The reasons range from regulations about
mandatory hallmarking to reforms like the
goods and sales tax. Kalyan is hoping to
Manufacturing:
ride this wave, having built up a national
Kalyan jewellers not only procures gold from third parties but also has
brand after years of advertising and a
4 in-house manufacturing facilities located in Sharjah and Oman.
hyper-local strategy.
• SAIF Facility 1 : Installed Capacity 1020 Kg, Utilization: 12%.
• SAIF Facility 2 : Installed Capacity 5400 Kg, Utilization: 2%.
• Kenouz Facility: Installed Capacity 12,420 Kg, Utilization: 5%. 1Yr Returns Comparison
• Oman Facility : Installed Capacity 720 Kg, Utilization 13%.
2
Industry Overview
• India’s highly fragmented jewellery market is a USD 57bn opportunity, dominated by wedding jewellery with 60% share, per
Technopak estimate (source: Joylukkas DRHP).
• Urbanization, young demographics and favorable regulatory changes (e.g. mandatory gold hallmarking to show purity of gold)
are key sector tailwinds for organised players.
• Over a long period of time, the industry has grown just below the nominal GDP growth of the country.
• The bulk of the industry is still unorganised (nearly 68%) but regulations such as mandatory hallmarking, reforms such as GST,
and evolving consumer preferences have now accelerated this transition from unorganised to organised jewellery.
• Even if the jewellery market grows at a 6% 10-year CAGR, a potential transition to organised jewellery from 32% share at present
to 60% in the next 10 years should drive sales of organised jewellery at twice this rate.
• Jewellery retailers with a scalable business model may outpace the organised sector growth and grow at a CAGR of 15-20% in the
coming decade.
Indian Jewellery Market growth

1.4
1.3
1
0.9
0.8
0.7
0.6
Source: Statista
Indian Jewellery Market
• Opportunity size: India’s jewellery market size was around USD57bn in FY22, per Technopak estimate.
• Gold jewellery demand has grown broadly in line with the nominal GDP growth rate (barring few periods of
disruptions).
• Regulatory tailwinds: Reforms such as GST (July 2017) and mandatory hallmarking (June 2021) benefit the
branded players as they already sell hallmarked jewelleries. Hallmarking is the process of creating a mark on a gold
jewellery to signify purity of gold.
• Jewellery is a highly fragmented market: Organised share is around 32% while the unorganised players dominate
the market with over two-thirds of the market share.
• Structural rise of organised market: Even if the jewellery market grows at a 6% 10-year CAGR, a potential
transition to organised jewellery from 32% share at present to 60% in the next 10 years should drive sales of
organised jewellery at twice this rate.
• The south is the largest market for jewellery in India with 40% market share by value. However, demand is higher
for plain gold jewellery which has lower margins.
• Markets outside of South India are key to achieve higher profitability: They have higher studded ratios, resulting
in much higher gross margins (almost 2x of plain jewellery).
3
Key Growth Drivers
❑ Pan-India Expansion:
• The untapped potential of Non-South markets for jewellers is very high.

• To capitalize the market the Co. uses FOCO modelling (Franchise-Owned Company-Operated) this allowed them to
capitalize on this potential with remarkable speed exceeding their expectation with response and growth pace.
• This FOCO model allows them to expand their jeweler market without having to meaningfully investing in assets this makes
faster market expansion with more capital efficient.
• Instead of investing in physical assets FOCO model provides franchisees with necessary training marketing support and
other resource they need.
• This allows them to scale their business quickly with maintaining quality standards.
• The franchising store strategy has been successful with this in FY23 32 showrooms are opened and 25 stores have been
signed for Letter of Interest.
❑ SSSG (Same Store Sales Growth):
• SSSG focus to increase customer retention, frequency, average transaction, overall customer experience and attract new
customers
• To achieve this, they focus on the existing store rather not having to worry about new stores.
• SSSG will improve their growth by mid- high single digit growth.
• In FY2023-24Q1 company has achieved overall growth of 10% using SSSG.
❑ Improving Profitability:
• The company is trying to increase its profitability by increasing its Gross margins.
• To achieve this entry into the high margin segment in the Non-South regions using studded jewellers.
• Studded jewellers requires more value addition than non studded jewellers so the margin will be higher.
• Their entry into the Non-South region and studded jeweler segment will improve their profitability.
❑ Calibrated expansion in the Middle East:
• The company currently has 18% of their showrooms in Middle East.

• The international operations will be primarily franchise driven for the next 3 years.
• The Company aims to reduce capital investment by converting their owned stores to franchised model and networking
further through the franchise model.
❑ Improving online sales (Candere):
• The company’s digital business Candere has generated a revenue of INR 1,567 millions in FY23.
• Two showrooms launched in FY23.
• Another 25-30 showrooms to be launched in FY24.
• Introducing the omnichannel experience.
• Set out to achieve exponential market growth.
❑ Hyper local player (My Kalyan):
• These mini stores provide holistic education on gold industry for customers who are not very knowledgeable
• This includes enrollment in gold and diamond purchase plans and enrollment in insurance plans
• This store has affordable diamond collections ranging from INR 5,000 - 15,0000.
• This My Kalyan contributed about 16% of the revenue and 39% of enrollment schemes
• At present across India 990+ My Kalyan Grass root store are active.
4
Financial Analysis
Revenue Mix
Product Wise Break-Up -India

● Gold is sourced from multiple
sources including spot purchase,
gold metal loans from banks and
exchange of old jewellery by
customers.
● Kalyan has built a spectrum of

brands catering to different
customer cohorts and occasions.
Location Wise Break-Up
● South states contributed two-thirds

of Kalyan’s domestic revenue.
● Middle East business is also sizeable
with 31 stores and 14.2% of sales
● Since network expansion is focused
on non-southern states, which
typically have higher margins, the
margin profile is likely to improve as
the store rollout gathers steam.
Cash flow Analysis
● Net changes in cash has improved from INR-215.84 Crores in FY22 to INR-8.12 Crores in FY23.
● Changes in working capital has improved from INR -560 Crores in FY22 to INR-86.58 Crores in FY23.
● Capital Expenditures increased 102% YoY from FY22-FY23.
● The overall Free Cash Flow of the company stood at INR 826.25 Crores from 172.84 in FY22 480% Yoy growth.
5
SWOT Analysis
❑ STRENGTHS
• Good brand equity, Pan-Indian player

• Diversified product range
• Significant market opportunity
• Solid Network with strong management leadership
❑ WEAKNESS
• The competitive intensity is much in this segment due to unorganized players in the market they do not follow any rules
and regulations made by the government thereby gaining unfair advantage
• The Company continues to face stiff competition across most regions of the country from strong organized regional
players within such regions as well as from other national players.
❑ OPPORTUNITY
• The market for organized jewellery making is projected to grow at 14% CAGR
• Aggressive foray into Non-South and Middle East countries
• Increased presence in Sub-Urban, Rural areas where organized players presence is low
• Utilizing Omni-Channel retailing to increase customer retention and drive revenue growth
❑ THREATS
• Volatile gold prices impact consumer demand which in turn lead to short term fluctuations which can get pushed to
succeeding quarters
• Disrupted retail operations due to pandemic and others.
Peer Comparison – High durability
6
Corporate Governance
Company Board of Directors

Name Designation
Mr. T.S. Kalyanaraman Managing Director
Mr. Vinod Rai Chairman, Non-Executive and Independent Director
Ms. Kishori Jayendra Udeshi Independent Director
Mr. Agnihotra Dhakshina Murty Chavali Independent Director
Mr. T.K. Seetharam Whole time Director
Mr. T.K. Ramesh Whole time Director
Mr. Anil Sadasivan Nair Independent Director
Mr. T.S.Anantharaman Independent Director
Mr. M. Salil Nair Non-Executive Director
Mr. Anish Kumar Saif Non-Executive Director
Shareholding Summary
Total Promoter Holding Foreign Institutions Holding
7
Key Investment Risks
 Execution risk: Kalyan’s franchisee stores may not turn out to be as profitable as expected by the company. Possible reasons
include lower-than-expected throughput from franchisee stores, worse-than-expected gross margin, lower ratio of studded
jewellery (‘studded ratio’), etc.
 Competitive pressures: Kalyan operates in the value segment of gold jewellery and as a strategy, it maintains 40% of store
inventory in the low-priced segment. Any sharp rise in competitive intensity may come in the way of achieving target store
margins.
 Slow network expansion: Lower-than-expected growth in network expansion.
 High volatility in gold prices: Consumers generally defer their gold/jewellery purchases during times of high gold price
volatility which decreases overall demand.
 Lower economic growth: A lower-than-expected growth of the overall economy would result in decline in discretionary
spending which may impact jewellery demand.
 Low free float: Promotors (61%) and private equity investor (High dell 26.4%) together own over 86% of company shares,
and free float is low at 12%, keeping stock liquidity low. Any major stake sales (as new listed stocks are required to increase
their free float to at least 25% within three years of IPO, as per SEBI regulations) may present an overhang in that short period
of time and cause significant share price volatility.
Forensic Analysis
8
Financial Statements
Consolidated Balance Sheet (in INR Cr)
● Total Revenue during the year FY23 rose 29.9% on a YoY basis.
● The company's EBITDA increased by 31% YoY during the fiscal .
● The net income of the company increased by 93.17% YoY.
● The basic EPS of the company increased by 93.17% YoY.
● Net profit margins during the year grew from 3.2% in FY22 to 10.3% in FY23.
9
Financial Statements
Consolidated Income Statement (in INR Cr)
Consolidated Cash flow Statement (in INR Cr)
10
Company History
11
Technical Analysis
1Yr Returns Comparison EMA & SMA
Delivery & Volume
Bulk Block Deals
12
Key Results Announcement Dates
Ex-Date Key Results Dates

31-Jan-24 Quarterly Results
14-Nov-23 Quarterly Results
9-Aug-23 Quarterly Results
15-May-23 Audited Results & Final Dividend
7-Feb-23 Quarterly Results
4-Aug-22 Quarterly Results
11-May-22 Audited & Quarterly Results
3-Feb-22 Quarterly Results
TTM Stock Price Performance Chart
13
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Equity Research Report

KALYAN JEWELLERS INDIA (LTD)

Shareholding Pattern (As of Dec 2023)

Source: Company Reports

Indian Jewellery Market growth

Indian Jewellery Market

Key Growth Drivers

• The untapped potential of Non-South markets for jewellers is very high.

❑ SSSG (Same Store Sales Growth):

❑ Calibrated expansion in the Middle East:

• The company currently has 18% of their showrooms in Middle East.

❑ Improving online sales (Candere):

❑ Hyper local player (My Kalyan):

Product Wise Break-Up -India

● Kalyan has built a spectrum of

Location Wise Break-Up

● South states contributed two-thirds

Cash flow Analysis

• Good brand equity, Pan-Indian player

Peer Comparison – High durability

Company Board of Directors

Mr. T.S. Kalyanaraman Managing Director

Mr. Vinod Rai Chairman, Non-Executive and Independent Director

Ms. Kishori Jayendra Udeshi Independent Director

Mr. Agnihotra Dhakshina Murty Chavali Independent Director

Mr. T.K. Seetharam Whole time Director

Mr. T.K. Ramesh Whole time Director

Mr. Anil Sadasivan Nair Independent Director

Mr. T.S.Anantharaman Independent Director

Mr. M. Salil Nair Non-Executive Director

Mr. Anish Kumar Saif Non-Executive Director

Total Promoter Holding Foreign Institutions Holding

Key Investment Risks

 Slow network expansion: Lower-than-expected growth in network expansion.

Consolidated Balance Sheet (in INR Cr)

Consolidated Income Statement (in INR Cr)

Consolidated Cash flow Statement (in INR Cr)

Source: Company Reports

1Yr Returns Comparison EMA & SMA

Delivery & Volume

Bulk Block Deals

Key Results Announcement Dates

Ex-Date Key Results Dates

TTM Stock Price Performance Chart

BSE Ltd. Financial Services

About Protégé Wealth

For more details, visit www.protegewealth.in

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