Titan vs Kalyan Jewellers: Why HSBC favours both stocks amid jewellery sector growth

Analysts at HSBC Global Investment Research have picked Titan Company and Kalyan Jewellers as their preferred stocks among India’s listed jewellery companies, citing growth opportunities in the sector, particularly in daily-wear jewellery and B2B manufacturing.

In a report titled India Jewellery: Finding the gold in the gold rush, analysts Nihal Mahesh Jham, Pratik Gothi and Nupur Vyas said the shift towards daily-wear jewellery could benefit the concentrated industry structure. They noted that CaratLane, part of Titan, is the largest player in the daily-wear segment, followed by BlueStone.

The analysts also highlighted the growing trend of large organised jewellery retailers outsourcing the production of basic, entry-level jewellery pieces while retaining higher design-focused manufacturing in-house. According to HSBC, this could benefit the wider jewellery value chain, with some companies in the segment recording revenue growth above that of organised jewellery retailers.


HSBC said its framework for evaluating jewellery companies includes growth outlook, return on capital employed (RoCE), operating cash flow (OCF) and leverage trends, performance stability, including hedging proportion, and promoter background and track record.

Given that the jewellery industry is working-capital intensive, the analysts said high growth could lead to weak OCF. As a result, they believe trends in OCF and RoCE are more important to track than absolute levels.

Titan Company: Buy | Target price: Rs 5,550

HSBC has retained its Buy rating on Titan Company with a target price of Rs 5,550 per share.

The brokerage uses a P/E-based valuation and a forward target multiple of 60x for Titan. According to the report, this is in line with the company’s trading multiple since 2017, when the margin profile of its jewellery business moved back into double-digit territory.

HSBC’s target multiple is below the 69x average over the past five years, as the analysts expect the jewellery business EBIT margin to remain below the 12-13% range seen in some of those years.

The analysts said the target multiple also factors in the relatively better outlook for the jewellery segment within the overall consumption landscape.

“We apply our forward P/E multiple of 60x to our TTM-Sept’28 EPS estimate of Rs 92.44 to derive our rounded target price of Rs 5,550. Our target price implies 9% upside and we have a Buy rating as despite the muted consumer environment, we think Titan is one of the few consumer companies with growth visibility,” the analysts said.

However, HSBC flagged several downside risks for Titan, including a severe and prolonged macroeconomic slowdown leading to lower discretionary spending, a sharp correction or high volatility in gold prices, failure to achieve jewellery revenue guidance and higher discounting weighing on margins.

The analysts also said conflict in the Middle East could continue to weigh on Titan’s international operations.

Kalyan Jewellers: Buy | Target price: Rs 770

HSBC has also retained its Buy rating on Kalyan Jewellers with a target price of Rs 770 per share.

Kalyan Jewellers, analysts believe, is well placed to capitalise on the growth opportunity in the Indian jewellery segment and drive strong growth.

HSBC uses a P/E-based sum-of-the-parts (SOTP) valuation methodology for Kalyan. The company’s average P/E since listing stands at 35x, while the average over the past three years, following a turnaround in return ratios, has been 45x.

The brokerage has retained its target P/E multiple of 40x, which is at a discount to the three-year average. HSBC said the recent volatility in Kalyan’s stock has increased its beta and risk profile, even as operational performance remains strong.

For Kalyan’s Middle East and other businesses, HSBC applies a target P/E multiple of 15x, reflecting the slow network expansion potential of the Middle East business.

“As the company repays debt, concludes the sale of land holdings, and overall share price volatility abates, we expect the multiple to re-rate,” the analysts said.

HSBC applies a forward P/E multiple of 40x to Kalyan’s India business TTM-June 2028 EPS estimate of Rs 18.83 and a forward P/E multiple of 15x to the Middle East and other businesses’ TTM-June 2028 EPS estimate of Rs 0.86. This results in a blended and rounded target price of Rs 770, according to the report.

The analysts, however, flagged several downside risks, including execution risk, as Kalyan’s franchisee stores may not be as profitable as expected; competition risk from higher competitive intensity; slower-than-expected network expansion; and high volatility in gold prices.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)