PV Sindhu fan? Strike gold with these jewellery stocks

Brokerage ICICI Securities has come out with a report stating the ongoing albeit silent structural change in favour of organised jewellers remains one of the best themes to bet on for long-term investors.

By Aprajita Sharma  
Monday, August 22, 2016

While PV Sindhu might have taken home the silver medal at the Rio Olympics, here's how you can strike gold:

With festive season round the corner along with a sharp surge in gold prices, it is time to add jewellery stocks in your portfolio.   

Brokerage ICICI Securities has come out with a report stating the ongoing albeit silent structural change in favour of organised jewellers remains one of the best themes to bet on for long-term investors.

Apart from macro benefits such as rollouts of the 7th Pay Commission and normal monsoon, the brokerage believes jewellery companies will also benefit from 1) 50 per cent year-on-year (YoY) higher number of wedding days between October 2016 and Jun 2017, 2) stimulus to revenues and margins due to higher gold prices, and 3) favourable base.

The brokerage also said Street is overly concerned about the near-term impact of regulatory changes. On the contrary, these changes are acting as a stimulus for growth of the organised jewellery sector befitting Titan company (Titan) and PC Jeweller (PCJ), it said.

The jewellery sector reported strong revenue growth in the June quarter in spite of many challenges such as closure of stores for nearly 10 days in Apr 2016 due to jewelers strike, and impact of mandatory PAN card for jewellery purchases above Rs 2 lakh. However, over 10 per cent surge in gold prices (highest in the past 14 quarters) and healthy consumer offtake helped the companies to report strong revenue growth.

While other consumer companies are jittery ahead of the rollout of Goods and Services Tax (GST), it is not a major concern for jewellery companies.

"Though there will be overhang on the jewellery sector due to uncertainty about the expected GST rate, we believe the overall tax incidence may not increase ahead," said the brokerage. Currently, jewellery attracts 10 per cent customs duty, 1 per cent excise duty and nearly 1 per cent VAT. "Even if there is any marginal increase in tax incidence, the shift from unorganised sector to organised sector will be faster post rollout of GST," the brokerage added.

Stocks to watch

 

  1. Titan Company: With healthy earnings growth momentum helped by rising gold prices and improvement in consumer sentiment post normal monsoon, the brokerage reiterated its 'buy' rating on the stock with a target price of Rs 488, an upside of 18 per cent against Thursday's closing.  
  2. PC Jeweller: The regulatory changes may impact the business in short term, but ICICI Securities is extremely positive about long-term growth of PCJ. It reiterated 'buy'  rating on the stock with a target price of Rs 576, an upside of 25.47 per cent against Thursday's closing.

 

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