Kalyan Jewellers Stock Up 945%: HSBC’s 7 Reasons to Buy

Kalyan Jewellers Stock Up 945%: HSBC’s 7 Reasons to Buy

In a remarkable surge that has captivated the investment community, Kalyan Jewellers India Ltd has witnessed a staggering 945% increase in its stock price over the past three years. This extraordinary performance has garnered significant attention from global financial institutions, with HSBC standing out for its bullish stance on the stock. The renowned foreign brokerage firm has recently reaffirmed its positive outlook on Kalyan Jewellers, citing seven compelling reasons for its continued optimism. This article delves into HSBC’s rationale and explores why Kalyan Jewellers might still have considerable potential despite its impressive gains.

Kalyan Jewellers: A Brief Overview

Founded in 1993, Kalyan Jewellers has established itself as one of India’s leading jewellery retailers. With a strong presence across the country and a robust brand reputation, the company has grown rapidly, leveraging both traditional retail and modern retail strategies. As of now, Kalyan operates 217 stores, a number that still trails behind major competitor Titan’s extensive network. This gap presents a significant growth opportunity, underscoring the potential for Kalyan Jewellers to expand further and capture a larger market share.

HSBC’s Bullish Stance: Key Reasons to Buy

1. Midway Through Value Creation Journey

HSBC’s first reason for its optimistic outlook on Kalyan Jewellers is the belief that the company is still only midway through its value creation journey. Despite the impressive 945% increase in stock price over the past three years, HSBC sees substantial room for growth. The brokerage highlights that Kalyan’s current store count of 217 is less than half of Titan’s store network. This suggests that Kalyan has significant potential to increase its store count and expand its market presence substantially over the next decade. HSBC anticipates that this expansion will drive continued industry-leading revenue growth, making Kalyan Jewellers an appealing investment opportunity.

2. Strong National Brand Positioning

The second reason HSBC cites is Kalyan’s established position as a national brand. Much like Titan, Kalyan Jewellers has differentiated itself from regional competitors by building a strong brand presence across India. This national recognition provides Kalyan with a natural advantage in pursuing capital-light expansion strategies. Unlike regional rivals, Kalyan benefits from a brand equity that supports its expansion into new markets with a proven value proposition.

3. Resilience Against Disruptive Competition

HSBC’s third point highlights Kalyan’s resilience against disruptive competition. The company’s aspirational yet value-oriented positioning has made it less susceptible to competitive threats. In fact, HSBC suggests that Kalyan is somewhat of a disruptor in its own right, reshaping the value proposition within the organized jewellery segment. This positioning helps Kalyan maintain a competitive edge and mitigate the risks associated with new entrants or disruptive business models in the market.

4. Growth Potential through Franchise and Brand Expansion

Another significant factor driving HSBC’s positive outlook is Kalyan’s strategy of scaling up through the franchise model. This approach has been instrumental in expanding the Kalyan format, and HSBC sees potential for similar success with the Candere brand, which specializes in studded jewellery. By emulating the growth strategy of Titan’s Caratlane, Kalyan could achieve substantial growth in the studded jewellery segment. A successful scale-up of Candere could serve as a major catalyst for Kalyan’s stock performance, further enhancing its investment appeal.

5. Margin Expansion and Operational Efficiency

HSBC identifies two long-term sources of margin tailwinds for Kalyan Jewellers. Firstly, the scale achieved by Kalyan presents an opportunity to capture greater value by opening owned stores in lucrative markets rather than relying on franchise partners. This shift could lead to gradual long-range margin expansion, which is a critical lever for value creation. Additionally, HSBC notes that a successful track record in terms of trade, such as reduced gold loan interest rates, could further enhance margins and contribute to the company’s overall profitability.

6. Attractive Valuation Relative to High-Growth Peers

In the context of valuations, HSBC believes that Kalyan Jewellers presents an attractive opportunity compared to other high-growth consumer stocks. With a projected FY26 price-to-earnings (PE) ratio of 56 times, Kalyan is viewed as reasonably valued relative to other structural high-growth companies with similar economics, such as DMart and Titan. This attractive valuation, combined with the company’s robust growth prospects, enhances the investment appeal of Kalyan Jewellers.

7. Growing Investor Base and Enhanced Return on Equity (ROE)

Finally, HSBC points to the growing investor base and the consistent rise in Kalyan’s return on equity (ROE) as factors contributing to its positive investment thesis. As the company’s ROE improves and growth appears structural, the fall in the hurdle rate for Kalyan suggests that the stock is positioned for continued performance improvements. This trend indicates that Kalyan Jewellers is likely to maintain its growth trajectory and deliver further value to shareholders.

Recent Performance and Market Sentiment

The positive sentiment surrounding Kalyan Jewellers is reflected in its recent stock performance. Shares of Kalyan Jewellers surged nearly 4% to reach a new 52-week high of Rs 715 on the NSE. This uptick follows a recommendation from US brokerage firm Citi, which reiterated its ‘Buy’ view on the stock and raised its target price to Rs 770 from Rs 650. The strong performance of Kalyan Jewellers has also been mirrored by other jewellery stocks, such as Senco Gold and Goldiam International, which have also reached new 52-week highs.

Conclusion

Kalyan Jewellers India Ltd has undeniably been a standout performer in the stock market, with its shares appreciating by an impressive 945% over the past three years. HSBC’s bullish stance on the stock is underpinned by several key factors, including the company’s ongoing value creation journey, strong national brand positioning, resilience against competition, growth potential through franchise and brand expansion, margin expansion opportunities, attractive valuation, and a growing investor base.

While Kalyan Jewellers has already achieved remarkable gains, HSBC’s analysis suggests that the stock still has significant upside potential. Investors looking for opportunities in the jewellery sector may find Kalyan Jewellers to be an appealing choice, given its robust growth prospects and favorable market positioning. As the company continues to execute its expansion strategies and capitalize on market opportunities, it is likely to remain a key player in the Indian jewellery industry and an attractive investment proposition.