Khazanchi Jewellers Q2 FY26: Strong Festive Demand Drives Record Profitability

The quarter's standout performance was driven by exceptional revenue growth, with net sales jumping 35.88% sequentially to ₹548.60 crores and 46.23% year-on-year, reflecting strong festive season demand and successful execution of the company's expansion strategy. Operating margins expanded to 5.89%, the highest in at least two years, whilst profit after tax margin reached 4.29%, demonstrating improving operational efficiency and pricing power in a competitive jewellery retail landscape.

The jewellery retailer has demonstrated remarkable transformation since its incorporation in 1996, with FY25 marking a watershed year when revenues more than doubled to ₹1,771 crores. The company's current quarter performance suggests this momentum is not only sustained but accelerating, with sales growing at 22.3% compared to the previous four-quarter average. This growth trajectory positions Khazanchi Jewellers amongst the faster-growing players in India's organised jewellery retail segment, which has been gaining market share from unorganised players.

Financial Performance: Margin Expansion Drives Profitability Surge

Khazanchi Jewellers' Q2 FY26 results showcase a company hitting its operational stride. Net sales of ₹548.60 crores represented the highest quarterly revenue in the company's history, driven by strong festive demand during the Navratri and Dussehra period—traditionally the most auspicious time for jewellery purchases in India. The 35.88% sequential growth from Q1 FY26's ₹403.75 crores demonstrates the pronounced seasonality in jewellery retail, whilst the 46.23% year-on-year expansion reflects both market share gains and the company's store expansion programme.

More impressive than top-line growth was the significant margin enhancement. Operating profit (PBDIT excluding other income) surged 53.33% quarter-on-quarter to ₹32.31 crores, with operating margin expanding 67 basis points sequentially to 5.89%—the highest level recorded in at least eight quarters. This margin improvement suggests effective management of gold prices, better product mix favouring higher-margin items, and operating leverage benefits from scale. The company's ability to maintain pricing power despite competitive pressures in the organised jewellery segment is noteworthy.

Profit before tax reached ₹31.53 crores in Q2 FY26, up 56.09% sequentially and 117.08% year-on-year. The effective tax rate of 25.34% was marginally higher than the previous quarter's 25.00% but significantly lower than the 32.14% recorded in Q4 FY25, indicating more efficient tax planning. Net profit of ₹23.55 crores translated to earnings per share of ₹9.52—the highest quarterly EPS in the company's history—providing a solid foundation for shareholder returns.

The quality of earnings remains robust, with minimal reliance on other income (just ₹0.33 crores or 1% of operating profit). Interest costs remained well-controlled at ₹1.04 crores despite higher working capital requirements during the festive season, reflecting the company's prudent financial management. The interest coverage ratio of approximately 30 times demonstrates comfortable debt servicing capability.

Operational Excellence: Capital Efficiency and Balance Sheet Strength

Khazanchi Jewellers demonstrates commendable capital efficiency metrics that distinguish it from many peers in the capital-intensive jewellery retail sector. The company's return on equity of 16.97% and return on capital employed of 18.12% reflect efficient deployment of shareholder capital and strong profitability relative to the capital base. Whilst these returns are below the exceptional levels seen in some peer companies, they represent healthy performance for a company in growth mode with significant reinvestment requirements.

The balance sheet as of March 2025 reveals a company with strengthening fundamentals. Shareholder funds stood at ₹231.45 crores, up from ₹187.76 crores in the previous year, with reserves growing to ₹206.70 crores. Long-term debt of ₹25.60 crores represents a debt-to-equity ratio of just 0.11, providing ample financial flexibility for future expansion. The company's net debt-to-equity ratio of 0.19 is remarkably low, indicating conservative leverage and strong cash generation capabilities.

Working capital management has been a focus area, with current assets of ₹295.32 crores as of March 2025 supporting the growing business requirements. The inventory-heavy nature of jewellery retail is evident in the current asset base, but the company has demonstrated improving inventory turnover as reflected in the strong sales-to-capital-employed ratio of 4.29 times. This metric suggests the company generates ₹4.29 of revenue for every rupee of capital employed, indicating efficient asset utilisation.

Cash flow dynamics warrant attention. FY25 saw operating cash flow of zero after accounting for a ₹48 crores increase in working capital, reflecting the inventory build-up to support rapid revenue growth. Whilst negative operating cash flow in a growth phase is not uncommon for retailers, sustained cash generation will be crucial to fund expansion without excessive reliance on debt. The company raised ₹89 crores through financing activities in FY24, primarily through equity issuance ahead of its public listing, providing a capital cushion for near-term growth initiatives.

Industry Context: Organised Jewellery Retail's Structural Tailwinds

Khazanchi Jewellers operates in India's organised jewellery retail segment, which continues to gain share from unorganised players driven by increased consumer preference for branded jewellery, hallmarking regulations, and GST compliance requirements. The company's 46.23% year-on-year revenue growth significantly outpaces the estimated industry growth rate of 15-20%, suggesting market share gains and successful execution of its expansion strategy.

The jewellery retail sector in India is characterised by strong seasonality, with festivals and weddings driving 60-70% of annual demand. Q2 (July-September) and Q3 (October-December) typically see peak demand due to festivals like Akshaya Tritiya, Navratri, Dussehra, Dhanteras, and Diwali. Khazanchi's Q2 performance benefited from this seasonal uptick, with the company likely to see continued momentum in Q3 FY26 given the concentration of auspicious days for jewellery purchases.

The competitive landscape includes national chains like Titan's Tanishq, Kalyan Jewellers, and regional players across South India. Khazanchi's home market of Tamil Nadu and surrounding states represents one of India's largest jewellery consumption markets, with strong cultural affinity for gold and jewellery purchases. The company's Chennai base provides proximity to Thrissur in Kerala—India's gold trading hub—potentially offering sourcing advantages.

Peer Comparison: Valuation Premium Amidst Strong Growth

Comparing Khazanchi Jewellers to listed peers in the gems and jewellery sector reveals a company trading at premium valuations relative to its profitability metrics but justified by superior growth rates. The peer group includes established players like Goldiam International, Timex Group, D.P. Abhushan, KDDL, and Shringar House, each with distinct business models and market positioning.

Khazanchi Jewellers trades at a P/E ratio of 40.15 times, above the peer median of approximately 34 times but below Timex Group's 65.38 times. The premium to peers like D.P. Abhushan (23.88x) and Goldiam International (30.28x) reflects the market's recognition of Khazanchi's superior growth trajectory—the company's 116% revenue growth in FY25 dwarfs most peers. However, the valuation appears stretched relative to the company's ROE of 16.97%, which lags several peers including D.P. Abhushan (28.39%) and Shringar House (26.58%).

The price-to-book ratio of 6.70 times sits in the middle of the peer range, significantly below Timex Group's exceptional 30.72 times but above KDDL's 2.98 times. This metric suggests the market values Khazanchi's growth potential and brand equity, though not to the extent of premium watch retailer Timex. The company's conservative debt-to-equity ratio of 0.19 compares favourably to peers, with several competitors maintaining negative net debt positions (cash-rich balance sheets).

Dividend yield of 0.07% is minimal, reflecting the company's growth stage and capital reinvestment priorities. Most peers similarly offer negligible dividend yields, with only KDDL (0.80%) and Goldiam International (0.53%) providing meaningful income returns. For Khazanchi, capital allocation towards store expansion and working capital to support growth appears more appropriate than dividend distribution at this stage.

Valuation Analysis: Premium Pricing Reflects Growth Expectations

At the current market price of ₹731.90, Khazanchi Jewellers commands a market capitalisation of ₹1,811 crores, positioning it as the sixth-largest company in its peer group. The stock trades near its 52-week high of ₹734.95, having appreciated 39.33% from its 52-week low of ₹525.30, reflecting strong investor confidence in the company's growth trajectory.

The P/E ratio of 40.15 times trailing twelve-month earnings appears elevated on an absolute basis, particularly when compared to the broader market. However, context is crucial: the company's revenue CAGR of 90.30% over five years and EBIT CAGR of 105.40% justify a growth premium. The PEG ratio of 0.62 suggests the stock may not be overvalued relative to growth rates, as PEG ratios below 1.0 typically indicate reasonable valuation for growth stocks.

Enterprise value metrics provide additional perspective. EV/EBITDA of 28.84 times and EV/EBIT of 28.99 times are elevated, reflecting both the growth premium and the relatively modest debt levels (which reduce enterprise value relative to market cap). The EV/Sales ratio of 1.05 times is reasonable for a retail business with improving margins, suggesting the market is not pricing in excessive optimism about future profitability.

The company's valuation grade has oscillated between "Fair" and "Expensive" through 2025, currently classified as "Expensive" as of October 6, 2025. This classification reflects the premium multiples relative to historical averages and peer valuations. However, for growth-oriented investors willing to pay up for strong execution and market share gains, the valuation may be justified by the company's improving operational metrics and structural growth opportunities in organised jewellery retail.

Shareholding Pattern: Stable Promoter Base, Limited Institutional Interest

Khazanchi Jewellers' shareholding structure reflects a promoter-dominated company with minimal institutional participation, typical of recently listed small-cap companies. Promoter holding has remained steady at 74.51% across the last five quarters, indicating strong alignment between management and shareholders and absence of any dilution concerns.

The complete absence of foreign institutional investors (FIIs), mutual funds, and insurance companies signals limited institutional research coverage and discovery. Total institutional holdings of just 1.77% (entirely from other domestic institutional investors) suggest the stock remains under the radar of major fund houses. This creates both opportunity and risk: as the company scales and demonstrates consistent performance, institutional buying could provide significant upside, but lack of institutional support also means limited buying interest during market corrections.

Other DII holdings have shown gradual improvement, rising from 1.44% in September 2024 to 1.77% in September 2025—an increase of 0.33 percentage points. Whilst modest, this trend suggests growing institutional recognition. The non-institutional public holding of 23.72% comprises primarily retail investors and high-net-worth individuals, providing reasonable liquidity despite the small-cap status.

Promoter composition reveals a family-controlled business with Tarachand Mehta (10.57%) and associated family members and HUFs holding the majority stake. Importantly, there is zero promoter pledging, eliminating concerns about forced selling or governance issues related to pledged shares. This clean shareholding structure is a positive indicator of financial stability and promoter confidence.

Stock Performance: Sustained Outperformance Across Timeframes

Khazanchi Jewellers' stock has delivered exceptional returns across multiple timeframes, significantly outperforming both the Sensex and its sectoral peers. The stock's 22.19% gain over the past year compares favourably to the Sensex's 9.48% return, generating alpha of 12.71 percentage points. This outperformance has been even more pronounced over shorter periods, with the stock gaining 16.90% in the past month versus the Sensex's 1.17%—a remarkable 15.73 percentage points of alpha.

The two-year return of 145.52% is particularly impressive, reflecting the company's transformation following its April 2023 conversion to a public company and subsequent listing. This period has seen the company more than triple shareholder wealth, vastly outpacing the Sensex's 29.08% return over the same period. Such performance places Khazanchi amongst the top-performing small-cap stocks in the consumer discretionary space.

Technical indicators paint a bullish picture. The stock trades above all key moving averages—5-day (₹716.58), 20-day (₹677.38), 50-day (₹630.38), 100-day (₹611.29), and 200-day (₹590.80)—indicating strong upward momentum. The current trend classification of "Bullish" (since October 13, 2025) is supported by positive readings across multiple technical indicators including MACD, Bollinger Bands, and Dow Theory.

Risk-adjusted returns reveal a favourable profile. With one-year volatility of 19.85% and absolute returns of 22.19%, the stock achieves a risk-adjusted return of 1.12, superior to the Sensex's 0.77. The positive Sharpe ratio and classification as "LOW RISK HIGH RETURN" suggest the stock has delivered strong returns without excessive volatility—an attractive combination for risk-conscious investors. However, the beta of 1.35 indicates the stock is 35% more volatile than the market, meaning it will likely amplify both gains and losses relative to broader market movements.

Investment Thesis: Growth Story With Quality Credentials

Khazanchi Jewellers presents a compelling investment case built on multiple pillars: exceptional revenue growth, improving profitability, conservative financial management, and exposure to the structural shift towards organised jewellery retail in India. The company's Mojo score of 77/100 and "BUY" rating reflect this positive fundamental outlook, though investors must weigh growth potential against premium valuations.

The quality assessment of "AVERAGE" reflects solid but not exceptional profitability metrics. ROE of 16.97% and ROCE of 18.12% are respectable for a retail business but trail some higher-return peers. The company's five-year sales CAGR of 90.30% and EBIT CAGR of 105.40% demonstrate strong historical growth, though sustaining such rates will become progressively challenging as the base expands. Positively, the company maintains no promoter pledging and a conservative debt-to-EBITDA ratio of 1.14 times, providing financial flexibility.

The financial trend classification of "OUTSTANDING" for Q2 FY26 reflects record-breaking performance across multiple metrics—highest quarterly revenue, highest operating profit, highest PAT, and highest operating margin. This momentum suggests the company is successfully executing its expansion strategy and benefiting from favourable industry dynamics. However, investors should recognise that jewellery retail is inherently seasonal, and Q2-Q3 represent peak quarters.

Technical indicators support the positive fundamental view, with the stock in a confirmed bullish trend and trading near 52-week highs. The alignment of fundamentals and technicals creates a favourable setup, though the stock's high beta of 1.35 means investors should prepare for volatility during market corrections.

Key Strengths & Risk Factors

Outlook: What to Watch

The path forward for Khazanchi Jewellers hinges on executing its expansion strategy whilst maintaining the operational excellence demonstrated in Q2 FY26. The company must balance growth investments with cash flow generation, navigate gold price volatility, and defend margins against intensifying competition from national chains. Success on these fronts could justify current valuations and drive further upside; missteps could result in significant valuation compression given the premium multiples.