Over 600% returns in a year; Nuvama sees 60% more upside in this jewellery stock

Domestic brokerage Nuvama has given a 'buy' call on Sky Gold on the back of the latest acquisitions and the management guidance upgrade of FY27. The brokerage gave a price target of Rs 3,204 apiece which implies a 60 per cent upside from the previous close. 

As per Nuvama, Sky Gold's recent acquisition of Sparkling Chains Pvt/Starmangalsutra is beneficial to the company as it will increase the addressable market. Currently, Sky Gold operates in a casting jewellery segment which accounts for 35 per cent of total jewellery sales in India. Meanwhile, Sparking Chains is in the business of manufacturing chains which account for 20 per cent of total jewellery sales and Starmangalsutra manufactures mangalsutras which account for 15 per cent of total jewellery sales in India. 

Through these acquisitions, the addressable market for Sky Gold has risen to 70 per cent from 35 per cent. 

"The acquisition is done at 7x FY24 P/Ex which is at a discount to Sky Gold’s valuation. There is a minimal increase in the shareholding of promoters. We see this acquisition as positive and new entities to grow at a faster rate from hereon. Shift to organised from the unorganised segment and growth in exports should drive volumes," the report read.

Factoring in the acquisitions, Nuvama has upgraded its estimates and now expects revenue/EBITDA/PAT to grow 53 per cent/56 per cent/67 per cent over FY24–27. 

Further, the brokerage believes, the promoters have grown the business over the last two years and are now confident in the scalability of both businesses. Both entities will continue to operate as 100 per cent subsidiaries of Sky Gold. 

Noting other benefits, Nuvama said, Sky Gold has also started the processes of recruiting a CFO, product head for the 18 carat jewellery category, and sales head for exports. It plans to increase craftsmen by two times in the standalone entity over the next three years.

In Thursday's trade, shares of Sky Gold hit a lower circuit of 5 per cent at Rs 1,896.55 apiece. In a year the stock has given a muti bagger returns of over 600 per cent against Nifty50's rise of 24 per cent.

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