Risk-reward turning favourable; structural story intact – upgrade to BUY
We upgrade Kalyan Jewellers to BUY (from Add) as over 35% correction in the stock price in last one year provides material margin of safety, in our opinion. We maintain our earnings estimates and expect Kalyan to deliver strong SSSG in FY26, supported by strong festive and wedding-led demand. We reiterate our positive stance on the stock as we believe it may continue to outperform peers on the back of 1) aggressive store expansion through its asset-light FOCO model, 2) adding growth levers from omni-channel format Candere, 3) improving balance sheet health through further debt reduction of INR 3.5–4.0bn in FY26. With steady demand trends despite elevated gold prices, coupled with an accelerating store rollout, we expect Kalyan’s revenue momentum to remain strong going ahead. We maintain TP of INR 670.
Despite higher gold prices, festive-led demand to drive double digit SSSG
Over the two last months, gold prices have risen by 15% (+42% YoY). Despite this, we expect Kalyan to deliver strong SSSG, aided by festive demand and the beginning of wedding season.
While the high base of Q2FY25 (37% revenue growth post the customs duty cut) poses a challenge, demand preponement into Navratri is likely to offset it. It is also ramping up the introduction of lower carat, lightweight jewellery, enabling affordable daily-wear purchases.
Aggressive store rollout and Candere expansion
Over FY23–25, Kalyan added 152 stores through FOCO model. For FY26, management has reiterated guidance of 90 new stores, largely FOCO-driven. In Q1, Kalyan added 10 new showrooms in India, taking the global store count to 287 (161 FOCO; 126 COCO).
Kalyan is focusing on Candere’s aggressive expansion by growing its retail footprint from a digital-first brand to an omni-channel retailer. The company has also appointed Shah Rukh Khan as a brand ambassador for Candere. The expansion aims to bring Candere’s lightweight lifestyle jewellery to customers by creating a seamless online and offline shopping experience. The company has added 70 stores in the last 18 months and aims to add 80 stores in FY26. Candere is now at 81 stores (41 FOCO), delivered INR 1.9bn TTM revenue and continues to scale via FOCO model; it expects to turn PAT positive by FY26-end. Management highlighted stable margins and improving productivity across clusters, reinforcing confidence in its omni-channel strategy.
Additionally, Kalyan plans to launch new regional brands in CY25, with hyperlocal positioning tailored to specific cultural and market preferences – aimed at deepening penetration and enhancing relevance.
Asset-light model driving returns and capital efficiency
Kalyan reduced working capital debt by INR 5.2bn in FY25, with further targeted reduction of INR 3.5–4.0bn in FY26 (pending release of INR 2bn excess collateral). Capex remains contained at ~INR 1.5bn in FY26.
The FOCO rollout has accelerated capital-efficient scaling, improving RoCE to 21.8%, RoE to 17.8% and inventory turns to 3.2x. Net debt-to-equity (ex-GML) remained negligible at ~0.02x, highlighting strong internal accruals and disciplined capital allocation. In our view, the continued FOCO-led expansion of both Kalyan and Candere could further strengthen the return profile.
Valuation and risks
We maintain our estimates, modelling in revenue/EBITDA/PAT CAGR of 28%/28%/38% over FY25–27E. After the recent stock price correction, we upgrade Kalyan to BUY (from Add) with an unchanged DCF-based target price of INR 670, as risk-reward has turned favourable. At our TP, the stock would trade at 43x FY27E EPS. Key risks: Delay in showroom expansion and potentially higher competitive intensity in core South Indian markets.
