RBZ Jewellers Q3 FY26: Strong Profit Growth Masks Underlying Concerns

The Ahmedabad-based jeweller, originally incorporated in 2008 and converted to a public limited company in March 2023, has demonstrated impressive top-line momentum in Q3 FY26, with net sales reaching their highest quarterly level at ₹226.33 crores. However, this revenue surge came at the cost of profitability compression, as PAT margins contracted sharply from 12.79% in Q2 FY26 to 7.70% in Q3 FY26. The company's stock has struggled to gain traction with institutional investors, evidenced by negligible mutual fund holdings (0.00%) and declining foreign institutional investor participation, which dropped from 0.90% in December 2024 to 0.00% by December 2025.

Financial Performance: Revenue Surge Accompanied by Margin Compression

RBZ Jewellers' Q3 FY26 results present a mixed picture of operational execution. Net sales surged 56.00% quarter-on-quarter to ₹226.33 crores, marking the company's highest quarterly revenue on record. Year-on-year growth stood at a respectable 16.78%, demonstrating sustained demand momentum. However, the headline revenue growth masked significant profitability challenges. Net profit declined 6.09% sequentially to ₹17.43 crores, despite the substantial top-line expansion, indicating deteriorating operational efficiency.

The margin compression story becomes clearer when examining the profitability metrics. PAT margin contracted sharply from 12.79% in Q2 FY26 to 7.70% in Q3 FY26, a decline of 509 basis points. Operating profit margin (excluding other income) also weakened from 19.44% to 13.04%, losing 640 basis points quarter-on-quarter. This margin erosion suggests either aggressive pricing to drive volume growth or rising input costs that the company struggled to pass on to customers. Gross profit margin similarly declined from 17.77% to 10.86%, further confirming the pressure on profitability.

Interest costs nearly doubled quarter-on-quarter, rising from ₹2.55 crores in Q2 FY26 to ₹4.98 crores in Q3 FY26, the highest quarterly interest burden on record. This 95.29% sequential increase suggests either increased working capital borrowings to fund the revenue expansion or rising interest rates on existing debt. Employee costs remained relatively stable at ₹4.21 crores, declining slightly from ₹4.52 crores in the previous quarter, indicating disciplined headcount management.

Operational Challenges: Working Capital Intensity and Debt Dynamics

A deeper examination of RBZ Jewellers' balance sheet reveals structural challenges that constrain profitability. The company's cash flow statement for FY25 shows negative operating cash flow of ₹14.00 crores, driven by working capital changes of ₹66.00 crores. This working capital intensity is characteristic of the jewellery retail business, where inventory holding and credit extended to customers consume significant capital. The company relied on financing cash flows of ₹7.00 crores in FY25 to partially offset the operating cash outflow.

The company's return on equity of 14.68% (five-year average) positions it in the lower tier of profitability amongst peers, though it remains adequate for a capital-intensive retail business. Return on capital employed averaged 15.70% over five years, reflecting moderate capital efficiency. The company's debt-to-EBITDA ratio of 2.26 (average) indicates moderate leverage, whilst the EBIT-to-interest coverage ratio of 6.51 times provides adequate cushion for debt servicing, though the recent spike in interest costs warrants close monitoring.

Industry Context: Navigating a Fragmented Jewellery Market

The Indian gems and jewellery sector remains highly fragmented, with organised players like RBZ Jewellers competing against numerous regional and local jewellers. The sector has witnessed consolidation trends in recent years, driven by changing consumer preferences towards branded jewellery, GST compliance advantages for organised players, and increasing acceptance of digital platforms. However, the sector also faces challenges from volatile gold prices, fluctuating consumer sentiment, and intense competition on pricing and designs.

RBZ Jewellers' 16.78% year-on-year revenue growth in Q3 FY26 compares favourably with the broader sector dynamics, suggesting the company is gaining market share or benefiting from regional demand strength. The company's focus on maintaining a stable promoter holding of 75.00% across quarters indicates long-term commitment, whilst the absence of promoter pledging eliminates a key governance risk. However, the near-complete exit of foreign institutional investors from 0.90% in December 2024 to 0.00% by December 2025 raises questions about institutional confidence in the company's growth trajectory.

Peer Comparison: Valuation Discount Despite Operational Similarities

RBZ Jewellers trades at a price-to-earnings ratio of 12.92x (trailing twelve months), representing a significant discount to the sector average of approximately 17x amongst comparable peers. The company's price-to-book ratio of 2.26x also sits below the peer average, suggesting the market assigns lower quality multiples to RBZ Jewellers relative to competitors. This valuation gap persists despite the company's return on equity of 14.68% being broadly in line with peers like Manoj Vaibhav Gems N Jewellers (13.37%) and T B Z Ltd. (9.60%).

The valuation discount likely reflects several factors: RBZ Jewellers' micro-cap status (market capitalisation of ₹592.00 crores) limits liquidity and institutional participation; the company's "Does Not Qualify" valuation grade signals structural concerns about sustainable value creation; and the absence of dividend payments provides no income support for investors. Peers like T B Z Ltd. and Manoj Vaibhav Gems N Jewellers trade at even lower P/E multiples (7.27x and 7.35x respectively), suggesting the broader micro-cap jewellery segment faces valuation headwinds.

Valuation Analysis: "Does Not Qualify" Grade Limits Investment Appeal

RBZ Jewellers carries a "Does Not Qualify" valuation grade, which has persisted since early 2024 with brief interruptions. This grade reflects fundamental concerns about the company's ability to generate sustainable shareholder value at current valuation levels. The company's PEG ratio of 0.16x appears attractive on the surface, suggesting the stock trades at a significant discount to its growth rate. However, this metric must be interpreted cautiously given the volatile quarterly earnings pattern and margin compression trends.

The stock's enterprise value multiples provide additional context: EV/EBITDA of 9.81x and EV/EBIT of 10.25x sit at reasonable levels for a growing jewellery retailer. However, the EV/Sales multiple of 1.38x indicates the market assigns relatively low profitability expectations, consistent with the observed margin pressures. The company's book value per share of ₹61.26 against the current market price of ₹152.95 implies a 2.50x price-to-book multiple, suggesting limited upside unless operational improvements materialise.

Shareholding Pattern: Institutional Exodus Raises Red Flags

The shareholding pattern evolution over the past five quarters reveals concerning trends in institutional confidence. Foreign institutional investor holdings declined steadily from 0.90% in December 2024 to 0.00% by December 2025, representing a complete exit from the stock. Domestic institutional investor holdings similarly contracted from 1.89% to 0.06% over the same period, indicating broad-based institutional selling pressure.

Promoter holding remained rock-solid at 75.00% throughout the period, with no pledging of shares, which eliminates governance concerns related to promoter financial stress. The promoter group is led by Rajendrakumar Kantilal Zaveri (38.23%) and Harit Rajendrakumar Zaveri (36.75%), indicating strong family control. Non-institutional holdings increased from 22.22% to 24.94%, suggesting retail investor accumulation even as institutional investors exited. This divergence between institutional and retail investor behaviour warrants caution, as institutional investors typically possess superior research capabilities and risk assessment frameworks.

Stock Performance: Severe Underperformance Across All Timeframes

RBZ Jewellers' stock performance presents a sobering picture of sustained underperformance against both the broader market and its sectoral peers. Over the past year, the stock declined 25.02% whilst the Sensex gained 8.52%, resulting in negative alpha of 33.54 percentage points. This underperformance extends across multiple timeframes: the two-year return of -4.53% compares unfavourably with the Sensex's 15.47% gain, whilst the stock has underperformed its sector by 53.30 percentage points over the past year.

Recent price action shows some stabilisation, with the stock gaining 8.13% over the past week and 7.37% over the past month, outperforming the Sensex which declined during both periods. The stock trades above all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting near-term technical strength. However, the overall technical trend remains "mildly bearish" as of February 3, 2026, with multiple technical indicators showing mixed signals. The stock's beta of 1.09 indicates higher volatility than the broader market, consistent with its micro-cap status and limited liquidity.

Investment Thesis: Positive Financial Trend Offset by Valuation and Technical Weakness

RBZ Jewellers' investment thesis rests on four key pillars: valuation, quality, financial trend, and technical positioning. The company's "Does Not Qualify" valuation grade represents the most significant headwind, signalling fundamental concerns about sustainable value creation at current price levels. The quality assessment of "Average" reflects moderate financial performance, with adequate return ratios but concerning working capital intensity and negative operating cash flows.

The financial trend turned "Positive" in Q3 FY26, driven by record net sales of ₹226.33 crores and profit before tax less other income growing 46.60% versus the previous four-quarter average. However, this positive momentum is tempered by the sharp margin compression and rising interest costs. The technical trend of "mildly bearish" reflects the stock's sustained underperformance and weak price momentum over longer timeframes, despite recent stabilisation.

Outlook: What to Watch in Coming Quarters

The trajectory of RBZ Jewellers over the next few quarters will depend critically on management's ability to restore margin stability whilst sustaining revenue momentum. Investors should monitor several key indicators to assess whether the company can overcome its current challenges and justify a re-rating.