TBZ Q2 FY26: Stellar 163% Profit Surge Signals Strong Festive Momentum

The company's performance reflects the strength of India's organised jewellery market, where TBZ has carved a niche with its legacy brand positioning and lightweight jewellery concept. With promoter holding stable at 74.12% and zero pledging, the company demonstrates strong governance credentials despite the absence of institutional investor participation.

The stock has underperformed the broader market over the past year, declining 16.01% compared to the Sensex's 9.00% gain, translating to a negative alpha of 25.01 percentage points. However, the recent quarterly results suggest a potential turnaround in operational performance that could support a rerating of the stock.

Financial Performance: Margin Expansion Drives Profitability

The September 2025 quarter witnessed robust revenue growth of 21.30% year-on-year to ₹687.83 crores, compared to ₹567.05 crores in the corresponding quarter last year. On a sequential basis, revenue expanded 10.23% from ₹624.01 crores in Q1 FY26, indicating sustained momentum in consumer demand for jewellery products ahead of the festive season.

What stands out is the dramatic improvement in operating margins. The operating profit margin (excluding other income) reached 9.33% in Q2 FY26, the highest level in at least eight quarters, marking a substantial expansion of 312 basis points year-on-year from 6.21% in Q2 FY25. This improvement reflects better operating leverage as the company scales its revenue base whilst maintaining cost discipline.

The profit after tax margin expanded to 4.58% in Q2 FY26 from 2.11% in Q2 FY25, a remarkable improvement of 247 basis points. This margin expansion was driven by both operational efficiency gains and better gross profit realisation, which improved to 7.20% from 4.12% year-on-year. The company's focus on lightweight jewellery and certified diamonds appears to be yielding positive results in terms of value realisation.

Interest costs remained elevated at ₹16.48 crores in Q2 FY26, though marginally lower than the ₹17.67 crores recorded in Q1 FY26. The jewellery business is inherently working capital intensive, and TBZ's debt levels reflect this characteristic. However, the improving profitability profile suggests the company is generating adequate returns to service its debt obligations.

Operational Excellence: Quality of Earnings Strengthens

TBZ's operational performance in Q2 FY26 demonstrates improving quality of earnings, with the company achieving its highest quarterly operating profit of ₹64.18 crores (excluding other income). The 150-year-old brand appears to be successfully leveraging its heritage positioning whilst adapting to modern retail formats and consumer preferences.

The company's return on equity (ROE) stands at 10.41% for the latest period, a significant improvement from the historical average of 7.75%. Whilst this remains below best-in-class jewellery retailers, the trajectory of improvement is encouraging. The return on capital employed (ROCE) has similarly improved to 10.92% from an average of 8.84%, indicating better capital efficiency as the business scales.

On the balance sheet front, TBZ maintains a shareholder equity base of ₹657.21 crores as of March 2025, with total current assets of ₹1,585.29 crores supporting the inventory-intensive jewellery business. The debt-to-equity ratio stands at 1.06, which is elevated but not uncommon for jewellery retailers given the working capital requirements of the business.

Employee costs have remained stable at ₹23.45 crores in Q2 FY26, representing 3.41% of revenue, indicating efficient workforce management. The company's ability to drive revenue growth without proportionate increases in employee costs suggests improving productivity metrics across its retail network.

Cash Flow Concerns: Working Capital Absorption

One area of concern is the company's cash flow generation. For FY25, TBZ reported negative operating cash flow of ₹26.00 crores, marking the lowest level in recent years. This was primarily driven by working capital absorption of ₹175.00 crores, reflecting inventory build-up and receivables expansion as the company scaled its operations.

The jewellery business is inherently working capital intensive, with companies needing to maintain substantial inventory to offer variety to customers. However, the magnitude of working capital absorption in FY25 suggests TBZ may need to focus on inventory turnover optimisation and tighter receivables management to improve cash generation.

The company's EBIT-to-interest coverage ratio stands at 2.37 times, which provides a modest cushion but leaves limited room for error. In an environment of volatile gold prices and changing consumer preferences, maintaining adequate debt servicing capacity will be critical for financial stability.

Industry Context: Organised Jewellery Market Dynamics

The organised jewellery retail market in India is undergoing significant transformation, with consumers increasingly preferring branded players offering certified products, transparent pricing, and buyback guarantees. TBZ, as one of the pioneers in promoting these concepts, stands to benefit from this structural shift towards organised retail.

The company operates in the gems, jewellery, and watches segment, competing with both large national chains and regional players. The festive season and wedding calendar significantly influence quarterly performance, with Q3 (October-December) typically being the strongest quarter due to Diwali and wedding season demand.

Gold price volatility remains a key external factor influencing consumer sentiment and purchase decisions. The recent moderation in gold prices has supported volume growth across the industry, benefiting established players like TBZ who can offer competitive pricing backed by scale advantages.

Peer Comparison: Valuation Discount Reflects Quality Concerns

TBZ trades at a significant valuation discount to most peers, with a P/E ratio of 17.31 times compared to the peer average of approximately 32 times. The price-to-book ratio of 1.94 times is also below the peer average of around 3.70 times. This discount primarily reflects the company's lower return on equity of 7.75% compared to peers averaging approximately 19%.

The valuation gap is justified by quality differentials. TBZ's ROE of 7.75% lags substantially behind competitors like Shanti Gold (32.22%) and Shringar House (26.58%), indicating lower capital efficiency. Additionally, TBZ's debt-to-equity ratio of 1.06 is amongst the highest in the peer group, reflecting higher financial leverage and risk.

However, the recent improvement in operating performance, with ROE reaching 10.41% in the latest period, suggests the quality gap may be narrowing. If TBZ can sustain margin improvements and demonstrate consistent profitability growth, the valuation discount could compress over time.

Valuation Analysis: Attractive Entry Point Despite Concerns

At the current price of ₹191.50, TBZ trades at a P/E ratio of 17.31 times trailing twelve-month earnings, representing a substantial discount to both the industry P/E of 61 times and the peer group average. The price-to-book ratio of 1.94 times is reasonable given the improving ROE profile, though it reflects the market's concerns about capital efficiency.

The enterprise value-to-EBITDA multiple of 10.67 times appears reasonable for a jewellery retailer with improving margins and double-digit revenue growth. The EV-to-capital employed ratio of 1.46 times suggests the market is valuing the business at close to its capital base, leaving room for upside if operational improvements continue.

The stock's valuation grade is classified as "Very Attractive" based on proprietary metrics, having been upgraded from "Attractive" in November 2023. This classification reflects the combination of reasonable multiples relative to growth prospects and improving return ratios. The PEG ratio of 0.76 suggests the stock may be undervalued relative to its growth potential.

The dividend yield of 1.15% provides modest income support, with the company maintaining a conservative payout ratio of 21.95%. This suggests management is retaining most earnings to fund growth and reduce leverage, which is appropriate given the company's financial position.

Shareholding Pattern: Stable Promoter Base, Institutional Exodus

The shareholding pattern reveals a stable promoter base at 74.12%, with no pledging of shares—a positive indicator of promoter confidence and financial discipline. The Zaveri family, led by Shrikant Gopaldas Zaveri holding 50.06%, has maintained consistent ownership through various market cycles.

However, a concerning trend is the complete exit of foreign institutional investors (FIIs) in September 2025, down from 0.55% in June 2025. This 55-basis-point reduction suggests institutional investors may have concerns about the company's growth prospects, cash flow generation, or competitive positioning. The absence of any mutual fund or insurance company holdings further underscores the lack of institutional conviction.

Non-institutional holdings have increased marginally to 25.88% from 25.33% in the previous quarter, indicating some retail investor interest. However, the overall institutional holding of 0.00% is a red flag that sophisticated investors are not participating in the stock despite the attractive valuation multiples.

Stock Performance: Significant Underperformance Amid Volatility

TBZ's stock performance over the past year has been disappointing, with the stock declining 16.01% compared to the Sensex's 9.00% gain. Year-to-date, the underperformance is even more pronounced, with the stock down 19.08% against the Sensex's 8.22% gain, resulting in a negative alpha of 27.30 percentage points.

The stock trades 34.31% below its 52-week high of ₹291.50, though it has recovered 23.27% from its 52-week low of ₹155.35. This wide trading range reflects the volatility inherent in small-cap stocks and the market's uncertainty about TBZ's growth trajectory and profitability sustainability.

The technical picture shows the stock in a "Mildly Bullish" trend as of November 11, 2025, having recently reversed from a "Mildly Bearish" trend. The stock trades below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), indicating persistent selling pressure despite the recent quarterly results.

On a longer-term view, the stock has delivered impressive returns, gaining 148.70% over three years compared to the Sensex's 37.22%, demonstrating an alpha of 111.48 percentage points. The five-year return of 340.23% significantly outpaces the Sensex's 93.78%, suggesting that patient investors have been rewarded despite recent volatility.

Investment Thesis: Turnaround Story with Execution Risks

TBZ presents a classic turnaround investment thesis predicated on operational improvement, margin expansion, and market share gains in the organised jewellery segment. The company's recent quarterly performance validates this thesis, with profit growth exceeding 160% year-on-year and margins reaching multi-quarter highs.

The investment case is supported by several factors: improving return ratios (ROE of 10.41% and ROCE of 10.92%), expanding operating margins (9.33% in Q2 FY26), strong revenue growth (21.30% YoY), and attractive valuation multiples (P/E of 17.31x, P/BV of 1.94x). The company's 150-year brand legacy and first-mover advantage in transparency initiatives provide competitive moats.

However, significant risks temper the bullish narrative. Negative operating cash flow of ₹26.00 crores in FY25 raises concerns about working capital management and the sustainability of profit growth. The company's elevated debt levels (debt-to-equity of 1.06) and modest interest coverage (2.37 times) leave limited financial flexibility. The complete absence of institutional investors signals potential concerns about governance, growth visibility, or competitive positioning.

Key Strengths & Risk Factors

Outlook: What to Watch

The critical watchpoint for TBZ is whether the company can convert improving profitability into positive cash flow generation. The jewellery business requires substantial working capital, but the magnitude of cash absorption in FY25 suggests potential inefficiencies in inventory management or receivables collection that need addressing.

Q3 FY26 results will be particularly important as they capture the crucial festive and wedding season. Strong performance in this seasonally strong quarter would validate the operational improvements seen in Q2 FY26 and provide confidence about the sustainability of margin expansion. Conversely, disappointing Q3 results would raise questions about whether Q2's strong showing was merely timing-related rather than reflecting structural improvements.