Thangamayil Jewellery Ltd Downgraded to Buy Amid Mixed Technical Signals and Valuation Concerns

Quality Assessment: Sustained Operational Excellence

Thangamayil Jewellery continues to demonstrate strong operational fundamentals, underpinning its quality rating. The company reported outstanding results for Q3 FY25-26, with net sales reaching a record ₹2,405.83 crores and PBDIT at ₹172.11 crores, both highest to date. Net profit surged by 79.08%, reflecting efficient cost management and favourable market conditions. The firm has maintained positive quarterly results for five consecutive periods, signalling consistent execution.

Management efficiency remains a highlight, with a return on capital employed (ROCE) of 16.15%, indicating effective utilisation of capital resources. Institutional investors hold a significant 21.32% stake, having increased their holdings by 1.46% over the previous quarter, signalling confidence in the company’s governance and strategic direction.

These factors collectively sustain a strong quality grade, supporting the company’s Buy rating despite other headwinds.

Valuation: Expensive Yet Discounted Relative to Peers

Valuation metrics present a mixed picture. Thangamayil Jewellery’s ROCE of 14.6% is commendable, but the stock’s enterprise value to capital employed ratio stands at 5.2, indicating a relatively expensive valuation. However, when benchmarked against its peers in the diamond and gold jewellery industry, the stock trades at a discount to the average historical valuations, suggesting some valuation cushion.

Notably, the company’s price-to-earnings-to-growth (PEG) ratio is 0.5, reflecting undervaluation relative to its earnings growth rate of 109.6% over the past year. This low PEG ratio implies that the market may not have fully priced in the company’s profit acceleration, offering potential upside for investors willing to look beyond short-term volatility.

Financial Trend: Robust Growth Amidst Market Volatility

Thangamayil Jewellery’s financial trajectory remains impressive, with net sales growing at an annualised rate of 37.38% and operating profit expanding by 23.92%. The company’s net profit growth of 79.08% in the latest quarter underscores its ability to convert top-line growth into bottom-line gains effectively.

Long-term returns have been exceptional, with the stock delivering 83.99% returns over the past year, vastly outperforming the Sensex’s 5.16% return in the same period. Over three and five years, the stock has generated cumulative returns of 527.60% and 970.03% respectively, dwarfing the Sensex’s 35.67% and 74.40% gains. Even over a decade, the stock’s 3,010.23% return highlights its strong compounding ability.

However, short-term performance has been more volatile. The stock declined 11.50% over the past week, significantly underperforming the Sensex’s 1.00% fall. Month-to-date and year-to-date returns also lag the benchmark, reflecting recent market pressures and profit-taking.

Technical Analysis: Shift from Bullish to Mildly Bullish Signals

The primary catalyst for the downgrade from Strong Buy to Buy is the change in technical grading. The technical trend has shifted from bullish to mildly bullish, signalling a more cautious outlook on price momentum. Key technical indicators present a mixed scenario:

• MACD: Weekly readings are mildly bearish, while monthly remain bullish, indicating short-term weakness but longer-term strength.
• RSI: Weekly RSI is bearish, suggesting the stock is experiencing selling pressure in the near term; monthly RSI shows no clear signal.
• Bollinger Bands: Both weekly and monthly bands are mildly bullish, implying moderate upward price volatility.
• Moving Averages: Daily averages are mildly bullish, supporting some near-term price support.
• KST (Know Sure Thing): Weekly KST is bullish, but monthly KST is mildly bearish, reflecting conflicting momentum across timeframes.
• Dow Theory: Weekly trend is mildly bearish, monthly trend bullish, again highlighting short-term caution versus longer-term optimism.
• On-Balance Volume (OBV): No clear trend on weekly or monthly charts, indicating volume is not confirming price moves decisively.

Price action today saw the stock close at ₹3,164.50, down 5.00% from the previous close of ₹3,331.15, with intraday lows touching ₹3,053.45. The 52-week high remains ₹4,138.15, while the low is ₹1,526.45, illustrating a wide trading range and recent volatility.

Comparative Performance and Market Context

Thangamayil Jewellery’s stellar long-term returns have significantly outpaced the broader market indices, including the Sensex and BSE500. The stock’s 3-year return of 527.60% versus Sensex’s 35.67% and 5-year return of 970.03% versus Sensex’s 74.40% highlight its exceptional growth trajectory. This outperformance is supported by strong fundamentals and consistent earnings growth.

However, the recent short-term underperformance relative to the Sensex, combined with mixed technical signals, has tempered enthusiasm. The downgrade to Buy reflects a balanced view that acknowledges the company’s strengths while recognising the need for caution amid evolving market dynamics.

Risks and Considerations

Investors should be mindful of valuation risks, as the company’s relatively high enterprise value to capital employed ratio of 5.2 suggests limited margin for error. Additionally, the recent technical deterioration indicates potential near-term price weakness. Market volatility in the gems and jewellery sector, influenced by gold prices and consumer demand fluctuations, also remains a factor.

Nonetheless, the company’s strong institutional backing, robust financial performance, and attractive PEG ratio provide a solid foundation for medium to long-term investors.

Conclusion

Thangamayil Jewellery Ltd’s investment rating adjustment from Strong Buy to Buy is primarily driven by a shift in technical indicators from bullish to mildly bullish, coupled with valuation considerations despite outstanding financial results and long-term growth. The company’s quality metrics remain strong, supported by high management efficiency and institutional confidence. While short-term price momentum has softened, the stock’s attractive fundamentals and historical outperformance continue to make it a compelling investment opportunity for those with a medium to long-term horizon.

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