Kalyan Jewellers growth stays strong as franchise expansion offsets margin pressure

Investment View and Valuation

Motilal Oswal Financial Services retains a BUY rating on Kalyan Jewellers, supported by successful franchise scaling, continued progress in non-Southern markets, customer acquisition, potential operating-margin improvement and balance-sheet deleveraging.

The broker’s target price is Rs 700, based on 35 times March 2028E price-to-earnings. Motilal Oswal reduced its FY27E and FY28E EPS estimates by 3-4 per cent following the margin miss, although it raised sales estimates by 2 per cent for both years.

Revised Financial Estimates

Q1 FY27 Operating Performance

Kalyan Jewellers reported strong Q1 FY27 consolidated revenue growth of 46 per cent year on year to Rs 1,05,889 million, marginally above Motilal Oswal’s estimate of Rs 1,05,663 million. India revenue increased 47 per cent year on year to Rs 90,255 million, though it was below the broker’s estimate of Rs 92,862 million.

India same-store sales growth was 28 per cent, comprising 30 per cent in South India and 27 per cent in non-South markets. Revenue growth was 34 per cent in the South and 43 per cent in non-South markets.

Candere revenue increased to Rs 1,410 million from Rs 660 million in Q1 FY26. The business turned profitable, reporting a profit of Rs 21 million compared with a loss of Rs 100 million a year earlier.

Margin Performance and Profitability

Profitability was the principal disappointment during the quarter. India gross margin, adjusted for a one-time Rs 410 million customs-duty gain following the increase in duty from 6 per cent to 15 per cent, declined 280 basis points year on year to 10.8 per cent.

The decline reflected a higher proportion of exchanged gold, promotional offers linked to the exchange campaign and a favourable one-off contribution from platinum and silver sales in Q1 FY26. The studded-jewellery share moderated to 28 per cent from 30 per cent, although studded revenue grew 36 per cent.

India EBITDA increased 6 per cent year on year to Rs 4,590 million, but the EBITDA margin was 5.1 per cent against Motilal Oswal’s estimate of 6.7 per cent. India PBT and adjusted PAT each increased 14 per cent to Rs 3,911 million and Rs 2,919 million, respectively.

Store Expansion and Franchise Strategy

Store expansion continued through the asset-light FOCO model. Kalyan added a net 12 India stores to reach 354, while Candere added five stores to reach 129. Total India stores stood at 483.

Management plans to open 84 Kalyan stores, all under the FOCO model, and 50 Candere stores in FY27. Kalyan also plans to open its first regional store in Chennai in August 2026 and has launched Akshaya Thangam, a jewellery brand designed exclusively for Tamil Nadu.

Middle East Business and Customer Trends

The Middle East business recorded 29 per cent revenue growth, supported by 25 per cent same-store sales growth. Studded jewellery accounted for 16 per cent of the business. No Middle East stores were added in Q1 FY27, but management was discussing a larger FOCO partnership with potential regional investors.

Management said demand remained healthy in July, similar to Q1 FY27, helped by wedding demand. Recycled gold accounted for more than 46 per cent of Q1 FY27 revenue and over 55 per cent in June. Management intends to retain a 55-60 per cent contribution going forward.

Growth Outlook and Deleveraging

Motilal Oswal forecasts FY26-28E revenue, EBITDA and PAT compound annual growth rates of 24 per cent, 18 per cent and 23 per cent, respectively. The broker expects revenue contribution of more than 50 per cent from franchise businesses and non-South expansion to support cash generation and profitability.

Kalyan repaid Rs 5,600 million of non-gold-metal-loan debt in FY26, reducing such debt to Rs 3,200 million. Management reiterated its objective of becoming debt-free, excluding gold metal loans, by the end of September 2026.