Kalyan Jewellers: Story Behind the 270% Stock Rally

Kalyan Jewellers has been one of the standout performers in the consumer discretionary space over the last year (Sep ‘23 to Sep ‘24), with its share price surging by over 270%. This rally can be analyzed through a variety of factors, including favourable macroeconomic conditions, particularly the heightened demand for gold, alongside robust company-specific fundamentals. This article aims to provide an analysis of the various elements influencing Kalyan Jewellers’ stock movement, offering insights without constituting a recommendation.

1. Indian Jewellery Market Factors

a) The Big Shift to Organised Players

You see, India has perennially been a market of unorganized players. You take fashion, food, jewellery. However, with industrialization hitting us at the turn of the decade things have started to change. The average Indian consumer today is more aware and more literate than he was ten years ago. She knows organized retailers would provide her with better quality and better after-sales service. Kalyan Jewellers is riding this exact wave. Take a look at the infographic below.  

b) India’s Love for Gold

India is one of the largest consumers of gold, with jewellery accounting for a substantial portion of the demand. Cultural, religious, and investment-driven factors are critical in India’s gold consumption. According to the World Gold Council, India consumed approximately 774 tonnes of gold in 2022, making it the second-largest market globally. Indian households collectively hold close to $2 trillion worth of gold.

• The wedding season and festive periods in India (like Akshaya Tritiya and Diwali) traditionally witness a strong demand for gold jewellery.
  
• The Indian government’s reduction in gold import duties in the Union Budget also helped to make gold less expensive, thus boosting demand.

2. Company-Specific Factors

While macro factors have certainly benefited the entire jewellery sector, Kalyan Jewellers’ performance has outpaced many of its peers due to its unique positioning and execution on multiple fronts.

a) Bold Changes in Geography

Kalyan borrows its origin from South India and relies heavily on the South market for most of its revenues. However, the company was quick to realize this and started venturing into non-south markets in order to make a name for itself as a pan-India player. This move has been a welcome change. Take a look at the revenue split now in terms of geography, it stands almost at 50-50 which was close to 70-30 back in 2021.

b) Dipping toes into Franchise Model

One of the most influential business decisions that Kalyan Jewellers has taken was back in June ‘22 wherein the company forayed into the franchise model. Earlier, they were opening stores on their own from start to finish, which would naturally stretch the balance sheet of the company. The management perhaps realized the importance of having an asset-light expansion strategy which would in turn introduced operating leverage in the business. As a result, Kalyan opened its first Franchise Owned Company Operated (FOCO) store in June ‘22 and there has been no looking back after that. 

FOCO stores are a retail model where the franchisee owns the store and is responsible for the investment in its setup, but the company takes full control of its day-to-day operations, including staffing, management, and inventory. What this does is helps the company save cash as they do not have to deploy 100% of the cash requirement in relation to the store opening.

From 15 stores in FY23, the count of FOCO stores has jumped to ~67 in FY24. Many brokers estimate that all the further store openings will be FOCO stores which is in line with what the company has also guided for. 

c) Playing the Right Game

One of the key drivers of Kalyan Jewellers’ stock rally has been its ability to leverage digital platforms effectively. The company has invested heavily in developing an omnichannel strategy, blending online and offline retail to provide customers with a seamless shopping experience.

• Kalyan Jewellers’ online platform, Candere, has seen exponential growth in the last two years, contributing significantly to overall sales. The convenience of buying jewellery online, coupled with trust in the Kalyan brand, has driven digital sales to new heights.
• The company’s strong presence on e-commerce platforms and its direct-to-consumer (D2C) model have allowed it to capture the younger, tech-savvy demographic, which is increasingly comfortable with online shopping.

d) Strong Brand Value and Marketing Strategy

Kalyan Jewellers has built a strong brand over the years through strategic marketing and celebrity endorsements. Their long-standing association with Amitabh Bachchan, one of India’s most trusted public figures, has helped reinforce the brand’s image of trust and reliability.

• The company’s recent marketing campaigns have also emphasized the “Trust is Everything” philosophy, which resonates well with Indian consumers, especially when purchasing high-value items like gold jewellery. Trust is a crucial factor for Indian families, particularly in rural and semi-urban areas.
• Additionally, Kalyan has tapped into the millennial and Gen Z markets through targeted campaigns, using digital platforms to engage younger customers. This has allowed the company to remain relevant across different demographics.

Conclusion: A Golden Run for Kalyan Jewellers

Kalyan Jewellers’ stupendous run-up is the result of a combination of favourable macroeconomic trends and strong company-specific fundamentals. The rising global and domestic demand for gold, coupled with the company’s successful expansion strategy, omnichannel presence, and improved profitability, have all contributed to this meteoric rise. 

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_{Windmill Capital Team: Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.}