Khazanchi Jewellers Ltd Downgraded to Hold Amid Valuation Concerns Despite Strong Financials

Quality Assessment: Strong Operational Metrics Support Stability

Khazanchi Jewellers continues to demonstrate commendable operational quality, underpinned by its ability to service debt efficiently. The company’s Debt to EBITDA ratio stands at a low 1.14 times, signalling prudent leverage management and financial discipline. Return on Capital Employed (ROCE) remains healthy at 19.97%, while Return on Equity (ROE) is a respectable 16.70%, reflecting effective utilisation of shareholder funds.

Quarterly results for Q2 FY25-26 reinforce this quality narrative, with net sales growing at an impressive annual rate of 90.30% and operating profit surging by 105.40%. Profit After Tax (PAT) for the quarter reached ₹23.55 crores, marking an 85.3% increase compared to the previous four-quarter average. Similarly, Profit Before Tax (PBT) excluding other income rose by 83.8% to ₹31.20 crores, while PBDIT hit a record ₹32.31 crores. These figures underscore the company’s operational strength and consistent earnings growth.

Valuation: Elevated Multiples Trigger Downgrade

The primary catalyst for the downgrade lies in the company’s valuation, which has shifted from ‘Expensive’ to ‘Very Expensive’. Khazanchi Jewellers currently trades at a Price-to-Earnings (PE) ratio of 41.08, significantly higher than many of its peers in the gems and jewellery sector. For context, competitors such as Thangamayil Jewellers and Rajesh Exports have PE ratios of 40.95 and 37.3 respectively, while others like PC Jeweller and Senco Gold are valued more attractively at 12.53 and 20.08.

Other valuation multiples also reflect this premium pricing. The company’s Enterprise Value to EBITDA (EV/EBITDA) ratio stands at 29.49, and Enterprise Value to Capital Employed (EV/CE) is 5.92, both indicating a stretched valuation relative to earnings and capital base. The Price to Book Value ratio is 6.86, further emphasising the expensive nature of the stock. Although the PEG ratio is a modest 0.64, suggesting earnings growth is somewhat priced in, the overall valuation remains a concern for investors seeking value.

Market capitalisation grading remains modest at 3, reflecting the company’s mid-sized stature within the sector. Despite the high valuation, the stock price has shown resilience, closing at ₹745.40 on 4 February 2026, up 1.15% from the previous close of ₹736.90, and nearing its 52-week high of ₹799.50.

Financial Trend: Robust Growth Counters Valuation Pressure

Khazanchi Jewellers’ financial trajectory remains impressive, with the company delivering market-beating returns and earnings growth. Over the past year, the stock has generated a total return of 23.21%, substantially outperforming the BSE500 benchmark return of 9.12%. This outperformance is supported by a 64% rise in profits over the same period, highlighting strong earnings momentum.

Net sales and operating profits have exhibited double-digit annual growth rates, with net sales expanding at 90.30% and operating profit at 105.40%. The company has also reported positive results for two consecutive quarters, signalling sustained operational momentum. These trends suggest that Khazanchi Jewellers is well-positioned to capitalise on favourable market conditions and consumer demand within the gems and jewellery sector.

However, the stock’s one-month return of -4.77% underperformed the Sensex’s -2.36%, and year-to-date returns are slightly negative at -2.88%, indicating some short-term volatility and profit-taking pressures. This mixed performance may have contributed to the cautious stance reflected in the Hold rating.

Technicals: Price Stability Amid Volatility

From a technical perspective, Khazanchi Jewellers has shown relative price stability despite recent market fluctuations. The stock’s trading range for the day on 4 February 2026 was between ₹736.00 and ₹749.50, closing near the upper end of this band. The 52-week low of ₹525.30 and high of ₹799.50 indicate a wide trading range, but the current price remains closer to the peak, suggesting underlying strength.

Day-to-day price changes have been modest, with a 1.15% increase on the latest trading session. This controlled volatility, combined with strong fundamentals, supports the stock’s technical profile as a steady performer. Nonetheless, the elevated valuation multiples may temper further upside in the near term, prompting a more cautious technical outlook.

Investor Sentiment and Market Positioning

Despite the company’s strong fundamentals and market-beating returns, domestic mutual funds hold no stake in Khazanchi Jewellers. This absence of institutional ownership may reflect reservations about the stock’s elevated valuation or concerns regarding business scalability. Institutional investors typically conduct rigorous on-the-ground research, and their limited exposure suggests a cautious stance.

Given the company’s mid-sized market capitalisation and sector positioning, investors may weigh the potential for continued earnings growth against the risk of valuation correction. The Hold rating thus reflects a balanced view, recognising both the company’s operational excellence and the premium at which it currently trades.

Conclusion: Hold Rating Reflects Valuation Caution Amid Strong Fundamentals

Khazanchi Jewellers Ltd’s downgrade from Buy to Hold by MarketsMOJO on 3 February 2026 is primarily driven by a reassessment of its valuation metrics, which have moved into the ‘Very Expensive’ category. While the company boasts outstanding financial performance, robust growth rates, and solid technical stability, the elevated PE ratio of 41.08 and high EV/EBITDA multiples suggest limited upside at current price levels.

Investors should consider the company’s strong ability to generate returns on capital and consistent earnings growth, balanced against the risk of valuation compression. The stock’s recent outperformance relative to the broader market is encouraging, but short-term volatility and lack of institutional backing warrant a cautious approach.

Overall, the Hold rating signals that while Khazanchi Jewellers remains a fundamentally sound company, prospective investors may prefer to wait for a more attractive entry point or clearer signs of valuation stabilisation before committing fresh capital.

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