Shares of Thangamayil Jewellery Ltd (TJL) jumped nearly 7 percent on September 2 after brokerage firm HDFC Securities has initiated coverage on the stock with a buy rating and kept a target price of Rs 2500 a share from current market price.
At 9:20am, the stock was trading at Rs 2175 on BSE, up 7 percent from previous close while India's benchmark Sensex gained 0.25 percent to 82575 points.
The brokerage expects Thangamayil Jewellery, a prominent player in Tamil Nadu, to achieve a revenue CAGR of 26 percent, EBITDA CAGR of 33 percent, and PAT CAGR of 41 percent over FY24-27. This growth is fueled by the advantages of formalization, rapid store expansion, value-for-money products, and access to capital at competitive 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", HDFC Securities said in a latest note.
HDFC Securities expects a significant rerating as Thangamayil Jewellery's ROE rises from 18 percent in FY23 to 32 percent in FY27, significantly outperforming Titan, the market leader in the organized jewellery sector.
The brokerage also expects Thangamayil Jewellery to open 30 large-format stores between FY25-27, nearly doubling its current store area, and forecasts a 26 percent sales CAGR over FY24-27, driven by strong external and internal tailwinds. Historically, the company has been conservative in expansion, adding only 19 stores from FY14 to FY24.
The formalization of the jewellery industry has accelerated since the hallmarking norms were introduced in June 2021. Additionally, the Union Budget's reduction of import duty from 15 percent to 6 percent in July 2024 is expected to further benefit the sector, it said.
Organized jewellers like Thangamayil are well-positioned to capture a larger share of the Tamil Nadu market. Initially, many customers are expected to shift from small, traditional jewellers to value-focused retailers, drawn by the latter's ability to provide a superior customer experience, a broader product range in larger store formats, lower making charges, and access to finance at competitive rates (with average borrowing costs falling from 6.7 percent in FY20 to 4.8 percent in FY24), it added.
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