Thangamayil Jewellery
Vanakkam Chennai!
We recently attended inauguration ceremony of flagship store (10,000 sq ft) with respect to Thangamayil jewellery (TJL) Chennai store and came back positive about medium term prospects on back of:
▪ Chennai being high potential market (40-45% of Tamil Nadu jewellery sales), TJL did not have any material presence on account of balance sheet constraints and non- availability of quality real estate space in main catchment area. In our view, both material issued are getting addressed on account of proposed right issue and company constructing the store from the ground level in right catchment area (T. Nagar). We expect TJL to adopt cluster strategy and go on blitzkrieg and launch another 10-15 jewellery stores over next 12-18 months in Chennai and adjoining areas, thereby giving maximum bang for the buck
▪ TJL has right to win despite Chennai despite it being hyper competitive market as it being “D-mart of jewellery retail”, where focus is on optimizing inventory turns and maintaining reasonable making charges – thereby catering to low and middle income group ; whereas most of other mainstream jewelers target middle and upper income group customers
▪ High decibel media campaign on back of Chennai foray within Tamil Nadu satellite media shall help management to create increased awareness about the brand in rest of Tamil Nadu (ex-Chennai), which in turn shall uplift SSSg at an aggregate level
▪ Increasing share from high margin studded jewellery (10% of sales in FY24 to 12% by FY27), as Chennai city has higher affinity towards diamond jewellery
▪ Increased consumer deposits from its Digigold app shall enable the company to mitigate risks related to sharp surge in interest rates on gold metal loan
Key risk to our call in near term: We can see EPS cuts of 6-7% for FY26-27, if interest rates on gold metal loan were to increase from current 2.5% to 6% on structural basis due to increasing global uncertainty.
Outlook and Valuation: We believe Thangamayil Jewellery, a leading jewellery player in Tamil Nadu, is set to achieve 28%, 34%, and 40% 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 DMart 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 continue to maintain a high-conviction BUY and a target price of INR 2,400 (25x FY27 EPS, representing a 25% premium to its five-year one-year forward average PE).
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