India's jewellery sector is witnessing a gradual shift beyond traditional wedding-led demand, with daily-wear jewellery and outsourced manufacturing emerging as key growth opportunities, according to a report by HSBC.
HSBC said most listed jewellery players, excluding Titan Company and Kalyan Jewellers India, remain largely regional operators, typically concentrated in a single state or region. These companies are heavily skewed towards the wedding segment, with a product mix dominated by plain gold jewellery.
These jewellery players typically generate gross margins of around 12-13%, HSBC noted, reflecting the higher share of plain gold jewellery and the occasion-led nature of demand. Studded jewellery generally contributes less than 10% of sales for these regional operators.
However, the brokerage sees significant potential in the daily-wear jewellery segment, which remains at an early stage of development. Titan's CaratLane is currently the largest player in the category, followed by BlueStone.
“The segment's key opportunity is the shift towards daily-wear jewellery, which should benefit the concentrated industry structure,” HSBC said.
Another structural opportunity is emerging in B2B jewellery manufacturing. Large organised retailers are increasingly outsourcing the production of basic and entry-level jewellery while retaining higher design-focused manufacturing in-house.
HSBC believes this trend as potentially beneficial to the wider jewellery value chain as the revenue growth of some of these companies exceeds the aggressive growth of organised jewellery retail companies.
HSBC's framework for evaluating jewellery companies focuses on five factors: growth prospects driven by store additions and industry trends, RoCE, operating cash flow and leverage, performance stability including hedging practices, and promoter background and track record.
The brokerage cautioned that jewellery is a working-capital-intensive business, meaning rapid growth can put pressure on cash flows. Therefore, it believes trends in operating cash flow and RoCE are more important than absolute levels when assessing companies.
HSBC retained its ‘Buy' ratings on Titan Company and Kalyan Jewellers India shares, with unchanged price targets of Rs 5,550 and Rs 770, respectively.
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