Shares of Kalyan Jewellers saw their target price upgraded by brokerage firm Citi, following the company's latest financial results. Despite a robust 32% year-on-year increase in consolidated net profit for the June quarter, Citi analysts have flagged concerns regarding potential margin pressures that could impact the jewellery stock in the immediate future.
Kalyan Jewellers announced a consolidated net profit of Rs 348.7 crore for the June quarter, a significant jump from the previous year. Revenue from operations also surged by 45.7% year-on-year, reaching Rs 10,588.9 crore. This strong top-line performance indicates healthy demand and continued expansion for the jewellery retailer.
Mixed Operating Performance and Margin Contraction
While revenue growth was impressive, the company's operating profitability showed a mixed picture. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) increased by 24.5% year-on-year to Rs 632.5 crore. However, the EBITDA margin experienced a contraction, narrowing to 6% from 7% in the corresponding quarter last year. This reduction in margins is attributed to higher operating costs and a less favorable business mix, which weighed on overall profitability despite the substantial increase in sales.
Citi's Detailed Analysis
Citi noted that Kalyan Jewellers' revenue, excluding bullion sales, grew by 38% year-on-year in the June quarter, slightly missing the brokerage's estimates by approximately 1%. More significantly, the company's overall profitability fell below Citi's expectations. The reported earnings received a boost from a Rs 41 crore inventory-related benefit, stemming from recent changes in customs duty regulations. Excluding this one-off gain, adjusted EBITDA saw a more modest 16% year-on-year increase, with adjusted net profit rising by 20%.
These adjusted figures, according to Citi, were disappointing relative to forecasts. Adjusted EBITDA came in 17% below Citi's estimate, and adjusted profit after tax trailed expectations by 20%. This suggests a weaker-than-anticipated underlying operating performance, leading the brokerage to issue a caution on the margins front, even as it raised the Kalyan Jewellers stock target to Rs 800 from its previous Rs 750.