170 New Showrooms And Digital Marketing Will Expand Future Market Reach

Key Takeaways

• Planned showroom expansion and digital marketing strategies are expected to boost revenue growth and enhance brand visibility in new markets.
  
• Improved operational efficiency, debt reduction, and a balanced store mix strategy may positively impact net margins and future profitability.
  
• Increased competition, regulatory changes, and tax impacts in key markets, along with volatile gold prices, pose challenges to Kalyan Jewellers' profitability and earnings stability.

Catalysts

Manufactures and retails various gold and precious stone studded jewelry products.

• The company has plans to launch 170 showrooms across Kalyan and Candere formats in FY 2026, which suggests significant expansion that could drive future revenue growth.
  
• The robust wedding season demand and continuous investment in showroom launches are expected to have positive impacts on both revenue and earnings growth going forward.
  
• There is a focus on marketing strategies that leverage digital media, enhancing brand visibility and potential customer acquisition, which could positively influence revenue and net margins by reaching new market segments.
  
• The anticipated leverage in employee expenses due to an increasing operational base, coupled with savings from debt reduction, may lead to improved net margins.
  
• A strategic shift towards a more balanced mix of COCO and FOCO stores by FY '27 might enhance operating leverage and profitability, positively impacting future earnings.

Kalyan Jewellers India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kalyan Jewellers India's revenue will grow by 26.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.8% today to 3.8% in 3 years time.
• Analysts expect earnings to reach ₹18.2 billion (and earnings per share of ₹17.99) by about March 2028, up from ₹6.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 59.7x on those 2028 earnings, down from 70.4x today. This future PE is greater than the current PE for the IN Luxury industry at 21.9x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.97%, as per the Simply Wall St company report.

Kalyan Jewellers India Future Earnings Per Share Growth

Risks

• The introduction of a corporate tax in the UAE has impacted the profit growth from Kalyan Jewellers' Middle East operations, potentially affecting the company's overall earnings.
  
• Volatility in gold prices presents a risk to demand stability, as short-term fluctuations can lead to pause or postponement in consumer purchases, potentially impacting revenue during periods of significant price changes.
  
• The hyper-expansion plan, primarily through a franchise model (FOCO), may lead to a decrease in EBITDA margins due to lower margins in franchise stores compared to company-operated stores, affecting overall profitability.
  
• Increased competition and campaign intensity from local and regional players in key markets, particularly in South India, could force higher advertising and promotional expenditures, impacting net margins.
  
• The impact of regulatory changes such as potential U.S. tariff increases on gold imports, leading to increased gold lease costs, which cannot be directly passed on to consumers, could put pressure on the company’s cost structure and earnings.

Valuation

• The analysts have a consensus price target of ₹687.5 for Kalyan Jewellers India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹810.0, and the most bearish reporting a price target of just ₹575.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹473.5 billion, earnings will come to ₹18.2 billion, and it would be trading on a PE ratio of 59.7x, assuming you use a discount rate of 15.0%.
• Given the current share price of ₹453.55, the analyst price target of ₹687.5 is 34.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.