Steady as a rock
Reiterate coverage with a high-conviction BUY: We recently met Thangamayil management and came back positive about its medium-term growth prospects. We reiterate our high-conviction BUY with a TP of Rs 2,550 (Dec-26 EPS). Key takeaways from our meeting are as follows: a) Jewellery demand remains strong, underpinned by tailwinds of hallmarking, the recent customs duty reduction from 15% to 6%, and aggressive store expansion. However, in the near term, the demand environment is challenging due to the sharp surge in gold prices. b) Store addition momentum is expected to sustain as the company plans to add 8-10 stores annually over the medium term. The flagship Chennai store (9000-10,000 sq ft) is likely to commence operations from Jan 2025. c) Adjusted EBITDA margin to see at least c100bps improvement from 5.2% in FY24 to 6.2%, led by improving mix, operating leverage, and higher making charges on gold jewellery. d) Risk capital for store addition is well supported by the announced rights issue of up to Rs 6 bn and increased contributions from the Digi Gold app/advanced purchase scheme. Key risks to our call: a) increased volatility in gold prices could impact consumer demand and b) mainstream jewellery branded players could foray into T2/T3/T4 cities, where Thangamayil primarily operates.
▪ Outlook and valuation: Entering a golden era; reiterating the high-conviction BUY:
We believe Thangamayil Jewellery, a leading jewellery player in Tamil Nadu, is set to achieve 26%, 33%, and 41% revenue, EBITDA, and PAT CAGR, respectively, over FY24-27. This growth will be driven by the benefits of formalisation, accelerated store expansion, its value-for-money offerings, and the easy availability of capital at competitive interest rates. We view TJL as the D-Mart of Tamil Nadu’s jewellery retail sector, applying principles of “high inventory turns and reasonable margins,” in contrast to other listed jewellery players who focus on “high operating margins and low inventory turns” to generate respectable return ratios. We reiterate our high-conviction BUY with a target price of INR 2,550 (25x Dec-2026 EPS, representing a 25% premium to its 5-year one-year forward average PE). We anticipate significant rerating, as TJL’s ROE improves from 18% in FY23 to 32% in FY27, substantially surpassing that of Titan, the market leader in the organised jewellery space.
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