Stock prices of listed jewellery companies such as Titan Company, PC Jeweller and Tribhovandas Bhimji Zaveri hit their new life-time high levels on Monday. The stocks have more than doubled and gained in the range of 125-170 per cent over the past year.

The strong buying interest is on account of the permanent shift to organised players after a series of regulations like the levy of 1 per cent excise duty on gold jewellery, requirement of PAN for jewellery purchases of over ₹2 lakh, demonetisation and implementation of 3 per cent GST. Also, gold prices have remained stable or in a narrow range, which has kept the demand momentum intact.

“Among all consumer categories, jewellery has the largest share of the unorganised segment, both in absolute terms (at ₹1.4 lakh crore) and percentage terms (at 70 per cent).

“The value migration to organised players is so strong that Titan and PC Jeweller are expected to report by far the highest earnings CAGR over FY17-20 in our consumer and retail universe,” said Vishal Punmiya, analyst at Motilal Oswal. According to Elara Capital, this shift is likely to continue for the next five years.

Titan is the market leader among organised jewellery players followed by PC Jeweller. While PC Jeweller has a strong presence in wedding jewellery (which accounts for 60 per cent of India’s jewellery market), Titan’s share is only 2 per cent in the wedding jewellery market. In other words, these two players will be the biggest beneficiary of the structural shift in the demand for organised players.

Profitability boost

“As Titan focusses on new offerings in the jewellery business to drive same store sales growth, we expect a profitability boost for the jewellery segment.

“We expect Titan to achieve a 275 basis points margin expansion to 11.7 per cent over FY17-20E, driven by growth in low operating leverage jewellery business (70-80bps every year until FY20E) and a recovery in watches & eyewear businesses (margin to improve by 200 bps and 160 bps, respectively,” pointed out Elara Capital.

Motilal Oswal initiated coverage on PC Jeweller with a buy recommendation and sees 21 per cent upside in the company’s stock price (target price of ₹490). “Significant store expansion, opening of large-format destination stores, superior gold hedging policies compared to unorganised players, dedicated focus on wedding jewellery and diamond jewellery, banking on the trust factor built through best practices and brand investments, wide range to cater to diverse customers have all played a major role in driving rapid sales growth of 22.8 per cent CAGR over FY12-17. We expect strong 27 per cent CAGR over FY17-20 in the domestic business (64 per cent of consolidated sales in FY17) resulting in CAGR of 21 per cent, 24 per cent and 30 per cent in consolidated sales, EBITDA and adjusted net profit over the next three years.,” it said.

Titan, TBZ and PC Jeweller have reported spectacular performance in the first half of FY18 on all the three parameters not only on an absolute basis but also relative to FY17. For example, revenues of Titan and PC Jeweller have jumped 36 per cent and 23 per cent year-on-year, respectively, in H1FY18 against 15-16 per cent in FY17, according to Capitaline data. Net profit growth of the two companies, which remained in the 3-6 per cent range in FY17, galloped to 34-80 per cent in H1FY18. The same has been the trend for TBZ.

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