Kalyan Jewellers Creates A New All-Time High: 243% Up in 8+ Mths

Kalyan Jewellers’ Record Surge to a New All-Time High

The all-time high of Kalyan Jewellers can be a result of many factors. Its previous all-time high was made on 09 November 2023 at ₹ 359.15. It took 1 month and 19 days to create a new all-time high at ₹ 362 on 28 December 2023. In between, it made a low of ₹ 304.1 on 30 November 2023, implying a correction of over 15%. It may represent a change in the investors’ sentiment about the company due to improved financial condition or may represent overvaluation. Let’s go through the factors contributing to its all-time high.

Factors Contributing to a Stock’s All-Time High

Positive Earnings Reports

• In the last 5 quarters, its revenue has seen a double-digit growth year-on-year. In Q2 FY24, its revenue increased by 27.11% year-on-year and reached a record high of ₹ 4415 crores.
• Compared to its revenue, which increased by 0.8% QOQ, the operating expenses saw a reduction of 14.28%. It may mean that the company has become operationally more efficient.
• Its profit margin in 2022 was the highest in the last 5 years. It had a net margin of 3.08%, which resulted in a net income of ₹ 433 crores.

Favourable Industry Trends

• Kalyan Jewellers has already captured a significant portion of the branded jewellery business in south India, and now it is focused on expansion in the non-south market. Considering the growth opportunities available in the domestic market, its growth is expected to continue, and business will become geographically diversified.
• The Middle East is considered one of the biggest gold markets in the world. Kalyan Jeweller chose it as a strategic location for its international presence as a lot of Indian people live in the mentioned area, so it will not be difficult for it to grab people’s attention.
• As people become more accustomed to buying expensive products online, a new growth avenue for the jewellery sector will open. Kalyan Jewellers can benefit from the trend by increasing its online presence and providing comparatively low-priced products to onboard customers, which can be later upgraded to higher-end products.

Positive Analyst Ratings

According to Simply Wall Street, based on the discounted cash flow model, the fair value of Kalyan Jewellers’ share is ₹ 79.51. However, its CMP is ₹ 352.15, which means the stock is 342.9% overvalued. It has a price-to-earnings ratio of 72.8x, which is higher than the peer average of 51.2x, thus making it overvalued. The company has high-quality earnings, but its current net profit margin of 3.1% is lower than the previous year’s value of 3.2%. Its earnings are expected to grow at 33.1% annually, whereas the revenue may grow by 24.7% annually.

Potential Scenarios Following an All-Time High

(Based on the chart of 1-month timeframe)

Converting numbers and candles into information can provide us with the market’s stance on the stock, which may help us make correct investment decisions. Since the listing of Kalyan Jewellers in March 2021, it has made only 3 all-time highs after a gap of at least a month. In May 2023,, it started its bull rally with higher highs and higher lows every month. We can expect the trends to continue so the investors may enter the stock at the price of their liking but keep the stop loss at the low made in the previous month.

Making Informed Investment Decisions

For any stock, reaching an all-time high is a significant milestone. Still, conducting thorough research and considering various factors is essential before making investment decisions. To make informed choices that align with your investment goals and risk tolerance, one needs to analyze the company’s fundamentals, industry trends, management’s strategy, and overall market conditions.

Company’s Financial Health

• In 2022, Kalyan Jewellers had a debt of ₹ 4295 crores covered by a free cash flow of ₹ 254 crores and cash & equivalents of ₹ 270 crores. It shows a vast difference between the debt and funds, which makes it essential for the company to increase the amount under free cash flow or cash & equivalents.
• In the short term, it has a liability of ₹ 6369 crores covered by assets of ₹ 8382 crores. The assets of ₹ 2331 crores cover its long-term liabilities of ₹ 710 crores. The company can easily maintain its financial health due to the substantial difference between assets and liabilities.

Industry Outlook

• The industry can see an increased demand for its products as people’s disposable income increases with the growth of the Indian economy. Gold, real estate and equity are the three investment options that investors choose for good returns. We may see some products in line with the expectation of people looking for gold just as an investment option.
• Since their inception, sovereign gold bonds have attracted many investors looking for gold as an investment option. As they become available more frequently and the lock-in period gets reduced, the gold industry can have their sales reduced from the section of customers that buy gold as an investment option.

Market Sentiment

On 28 December 2023, Kalyan Jewellers made a new all-time high, which can be attributed to factors such as positive earnings reports, favourable industry trends, etc. The revenue of the company has shown continuous growth with a comparatively smaller increase in operational expenses, which means that the company is also focused on achieving operational efficiency. However, investor caution is advised due to the company’s high valuation compared to the peer average and its financial health, including a significant debt covered by lower free cash flow and cash equivalents. The future growth trajectory of the stock depends on its ability to balance growth and financial stability along with the broader industry outlook. Investors need to conduct detailed research, considering factors like company fundamentals, industry trends, and financial health, to make informed investment decisions.