Jewelry Giants Clash: Titan and Kalyan Jewellers’ Asset-Light Strategies Compared

The jewelry sector is dominated by several key players, among which Titan and Kalyan Jewellers stand out for their asset-light business models. This approach allows both companies to maximize profits without substantial capital investment.

Business Models

Kalyan Jewellers operates new showrooms under a franchise-owned and company-operated (FOCO) model. This means while the showrooms are owned by franchisees, Kalyan manages the business operations. This model allows Kalyan to expand rapidly without heavy capital expenditure.

Titan, on the other hand, leases gold, designs jewelry, and sells the finished products. After the sale, Titan returns the leased gold, thus avoiding the need for large capital investments. This strategy ensures a steady cash flow and reduces financial risk.

Financial Performance in Q2

The Q2 results for both companies highlight different strengths. Titan’s sales grew by 36% year-on-year in September, compared to a 27% increase for Kalyan Jewellers. This indicates Titan’s superior performance in sales growth.

However, when it comes to operating profit, net profit growth, and earnings per share (EPS) growth, Kalyan Jewellers outperformed Titan. This suggests that Kalyan has a more efficient profit generation mechanism, despite lower sales growth.

Quarterly Comparison

A comparison of the June and September quarters reveals that Titan exhibited better performance than Kalyan Jewellers in the recent quarter. This indicates Titan’s ability to maintain consistent growth and adapt to market conditions.

Stock Performance and Valuation

Titan is known for providing stable and consistent returns, maintaining a 20% compound annual growth rate (CAGR) over the years. This positions Titan as a low-risk, stable investment with ongoing growth potential as a large-cap stock.

Kalyan Jewellers, in contrast, has shown remarkable performance primarily over the past two years. The company’s stock has surged, driven by efficient management and robust profitability. The stock is currently at an all-time high, significantly above its median price-to-earnings (PE) ratio. This surge has been largely fuelled by foreign institutional investor (FII) buying, especially after retail investors withdrew post-IPO.

Shareholding Patterns and Borrowings

Titan’s shareholding pattern has remained steady, with consistent holdings by promoters, FIIs, and domestic institutional investors (DIIs). This stability reflects confidence in Titan’s long-term performance.

Kalyan Jewellers, however, has seen significant changes. While promoter holdings have consistently been at 60%, FII holdings have surged from 2.75% in September 2022 to 26% currently. DII holdings have also increased from 2.58% to 4.86%. This indicates growing institutional confidence in Kalyan’s future prospects.

In terms of borrowings, Titan’s debt levels are increasing, which could be a point of concern for investors. Conversely, Kalyan Jewellers is decreasing its borrowings, reflecting a more conservative and potentially sustainable financial strategy.

Technical Analysis of Kalyan Jewellers

The latest price of Kalyan Jewellers India Limited is at ₹587.25, reflecting a gain of ₹34.50 (6.24%) from the previous trading day. Trading volume stands at 11.70 million, which is significantly higher than the 22-day average of 2.56 million, confirming the strong advance of the price.

* Volume Ratios: The 50-day up/down volume ratio is 3.05, indicating a strong accumulation condition. This is an improvement from the previous day’s 2.75 and 2.28 a week ago.

* Short-term Trends: The stock has been in a confirmed uptrend since June 3, reconfirmed six times since.

* Support and Resistance: The nearest support level is at ₹480.55, based on an unfilled gap from June 28. There is currently no resistance, indicating significant upside potential.

* RSI and MACD: The 14-day RSI is at 85.72, suggesting an overbought condition. However, in a confirmed uptrend, the RSI can stay in this region for extended periods. The 12-26 day MACD value of 30.36 and MACD signal of 25.73 indicate a bullish condition gaining momentum.

* ADX and DMI: The 14-day ADX trend analysis shows a DMI+ at 43.06 and DMI- at 11.14, confirming a strong bullish condition since June 19. The ADX value of 52.72 suggests a very strong uptrend.

* Bollinger Bands: The Bollinger Bands show an upper value of 562.83, a middle of 508.39, and a lower of 453.95. The %b is at 1.22, indicating the current price is above the upper band.

* ATR and Stop Loss: The 14-day ATR is ₹25.73. For long positions, consider a stop loss at ₹454.27, one ATR below the low end of the support level at ₹480.

Conclusion

Titan and Kalyan Jewellers both present compelling investment opportunities, albeit with different risk and growth profiles. Titan offers stability and consistent growth, making it a reliable choice for risk-averse investors. Kalyan Jewellers, with its recent surge in performance and institutional backing, offers a potentially higher return but comes with higher risk.

Investors must weigh these factors carefully, considering their risk tolerance and investment horizon. For those looking for a stable investment with steady returns, Titan remains a strong candidate. Conversely, for those willing to take on more risk for the possibility of higher returns, Kalyan Jewellers could be an attractive option.