The share price of well-known gold jewellery designer Sky Gold has soared by 771 per cent in the last year, making it an exceptional performer on the stock market. Brokerage company Nuvama is still positive on the stock despite this significant increase and is forecasting an additional 44 per cent upside. A “Buy” call has been given by the company for Sky Gold, with a target price of ₹3,600 per share.
“SKYGOLD can be a long-term compounding story. Given its record of overachieving its targets in the past; aggressive growth for FY24-27 and execution capabilities of management, we think that SKYGOLD can be a long-term growth story,” said the brokerage.
Over the last five years, Sky Gold has produced extraordinary profits; since August 2019, the stock price has soared by 2600 per cent from ₹92.5. The stock has gained 145 per cent so far in 2024, and it has returned positively in five of the last eight months. After registering gains of over 26 per cent in July and 39.6 per cent in June, the stock increased by 21 per cent in August, extending its upward trend for a third straight month.
In the meantime, following a 25.4 per cent increase in April, it lost 1.3 per cent in May. Before that, it dropped by 10.3 per cent in February and 8.5 per cent in March. January had a 13.5 per cent increase.
Strong Q1FY25 Earnings Boost Confidence
For the quarter ending in June 2024 (Q1FY25), Sky Gold has revealed strong results. In the April-June quarter, the company’s net profit increased by 99 per cent to ₹21 crores, compared to ₹11 crores in the corresponding period of the previous year. In comparison to the same period in the previous fiscal year, when revenue was ₹376 crore, it increased by 92% to ₹723 crore for the quarter.
Sky Gold’s managing director, Mangesh Chauhan, credited the company’s recent growth into a larger facility in Navi Mumbai, which has greatly boosted its manufacturing capacity, for this outstanding success.
“In Q1 FY25, our capacity utilization stood at 33% of the total capacity (including additional capacities from acquisitions). This highlights our capability to scale operations and strengthen our position in the gold jewellery market both in India and globally,” Chauhan said.
“Moving forward in FY25, we plan to increase capacity utilization at our new facility, invest in IT and automation, implement an ERP system, strengthen our mid-management and regional sales teams, and optimize our financials through the use of gold metal loans to improve profitability and reduce borrowing costs,” he added.
Nuvama’s Upgraded Estimates
Given Sky Gold’s outstanding performance in Q1FY25, Nuvama has raised its projections marginally. The brokerage now projects that during FY24–27, the company’s revenue, EBITDA, and PAT would increase by 53%, 56%, and 70%, respectively. Although recent fundraising has resulted in a minor diluting of earnings per share (EPS), Nuvama expects a 63 per cent compound annual growth rate (CAGR) for EPS.
“We maintain ‘BUY’ with a revised TP of INR3,600 (35x FY26E earnings). We expect its EPS to grow at 84% over FY24-26E. Despite such a high growth, the company should be able to grow at a healthy rate in upcoming years. This gives us comfort in our target multiple. Our EPS growth and target multiple imply a PEG ratio of 0.4 which leaves enough margin of safety for investors and room for further upgrade in P/Ex multiple as the company executes its strategy,” it said.
Sky Gold increased its monthly manufacturing capacity from 200 kg to 750 kg after moving to a new plant in FY24. The company is attempting to improve wallet share from current customers and client acquisitions to raise utilisation, which was at roughly 47% in Q1FY25. With goals to raise export contributions to 10% in FY25, the company has added clients to the export market and has experienced incremental volume growth over the last four quarters. Nuvama anticipates that in the medium to long term, exports will play a major role in driving volume growth.
For ₹88 crore in Q1FY25, Sky Gold also purchased Sparkling Chains and Starmangalsutra. The company’s addressable market has increased from 35 per cent to 70 per cent as a result of these acquisitions. With a PAT of ₹15 crore, the management plans to scale these firms and aims for sales of ₹500–600 crore in FY25. The company intends to raise ₹270 crore to finance working capital requirements for the combined entity as well as capacity expansions at these new entities.
Focus on High-Margin Segments
Since diamond jewellery and 18-carat gold have larger profit margins, Sky Gold is concentrating on these markets. By FY27, the management hopes to reach revenue of ₹6,300 crore, with a profit after tax (PAT) margin of 3% and a return on capital employed (RoCE) of 25%. With greater capacity, recent acquisitions, improved export contributions, and improvements in market share, Nuvama thinks the company will easily meet these goals.
PAT margins are likely to increase as a result of Sky Gold’s gold metal loan (GML) usage, which is currently at 10% and is anticipated to reach 100% by December. The company may end up surpassing Nuvama’s present projections in terms of margin.
Sky Gold, which was established in 2008, provides business-to-business services to well-known jewellery shops, including Senco Gold, Joyalukkas, Kalyan Jewellers, and Malabar Gold. Sky Gold has tremendous potential for long-term investors and is well-positioned to maintain its remarkable growth trajectory thanks to its ambitious development plans, strategic acquisitions, and emphasis on high-margin industries.
