Is Thangamayil the cheapest way to ride India’s gold price surge?

Stock price movement of TJL

Cracking the code of jewellery retail: A business model that works

Jewellery retail is unlike fashion or FMCG, where products are manufactured and priced based on costs. Jewellery retailers deal in gold — a commodity with a fluctuating price. This means that while customers see jewellery as a long-term investment, businesses must manage price volatility, inventory risks, and capital costs with precision. For a company to succeed in this space, it must strike the right balance between price competitiveness, operational efficiency, and scale.

Inventory turnover: The hidden growth engine

One of the most critical aspects of running a successful jewellery business is inventory management. Gold is not just an input cost — it is an appreciating asset, and poor inventory turnover can result in locked capital, increased debt burdens, and exposure to unpredictable price fluctuations. Many jewellers, particularly those focused on premium segments, hold inventory for long periods, betting on seasonal demand spikes during weddings and festivals. However, this strategy ties up capital and makes businesses vulnerable to price swings.

Thangamayil has taken a different approach. Instead of relying on seasonal peaks and premium pricing, it focuses on fast inventory turnover, ensuring that gold moves quickly through its stores.

TLJ’s objectives for FY’25

Its inventory turnover ratio stands at 3.5x, significantly higher than the industry average of 2x. This means that, on average, Thangamayil sells and replenishes its gold stock twice as fast as most competitors, allowing it to:

• Reduce its exposure to gold price fluctuations, ensuring that sudden drops in prices do not result in heavy inventory losses.

• Keep capital free for expansion and reinvestment, rather than locking it into unsold stock.

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• Offer more competitive pricing to customers, as the cost savings from efficient inventory management allow the company to charge lower making charges without hurting profitability.

This strategy is particularly effective in smaller cities, where customers buy gold more frequently for investment and daily wear rather than for purely ceremonial purposes.

Stock turnover of TJL

Why Tamil Nadu’s smaller cities are a strategic goldmine

Tamil Nadu is one of India’s largest jewellery markets, accounting for nearly 40% of the country’s total gold demand.

Tamil Nadu’s share of gold demand

However, the majority of this demand has traditionally been met by unorganised, family-run jewellers, who have operated for decades based on trust and long-standing customer relationships. As the industry formalises and more customers demand hallmark certification, transparent pricing, and better resale value, organised players like Thangamayil are gaining ground.

Unlike national brands that focus on high-end showrooms in metro cities, Thangamayil has strategically built its presence in Tier-2 and Tier-3 cities, where demand is high, but organised jewellery penetration remains low. The logic behind this is clear — while metros are lucrative, they are also highly competitive, with premium brands dominating consumer preference. Smaller cities, on the other hand, offer lower operational costs, high gold consumption, and less direct competition from major national players.

By focusing on these markets, Thangamayil has built a strong local brand identity and customer loyalty. This allows it to expand efficiently without high advertising costs or high real estate expenses, making each store more profitable over time. Now, with its planned expansion into Chennai, the company is taking a calculated step into the metro market, testing whether its cost-driven approach can succeed in a more brand-conscious consumer segment.

Financial strength: Scaling without overleveraging

One of the biggest risks in retail expansion is over-reliance on debt. Many fast-growing retailers struggle because they borrow aggressively to fund new store openings, leading to higher interest costs and lower profitability. However, Thangamayil has maintained a disciplined approach to expansion, ensuring that it scales without burdening its balance sheet.

The company’s net debt-to-equity ratio is expected to decline from 1.2x in FY23 to just 0.5x by FY27, even as it aggressively adds new stores. This is possible because of its smart financing model, which relies on:

• Gold-on-Lease financing – Instead of purchasing all its gold outright, Thangamayil leases gold from banks, reducing the need for high upfront capital and lowering borrowing costs.

• Advance Purchase Schemes – Customers pre-book jewellery at a fixed price, allowing Thangamayil to secure interest-free working capital.

• DigiGold App – A digital gold investment platform that ensures steady customer deposits, further reducing the company’s reliance on external financing.

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By combining these financial strategies, Thangamayil is able to fund its expansion with minimal debt, making it less vulnerable to interest rate fluctuations and financial stress.

Net debt/equity ratio of TJL

From plain gold to studded jewellery: Expanding profit margins

While Thangamayil has built its business primarily on plain gold jewellery, the company is now shifting its product mix to include higher-margin studded jewellery, such as diamonds, gemstones, and premium wedding collections.

Currently, studded jewellery makes up only ~9% of Thangamayil’s total revenue, but as it expands into metro markets like Chennai, this share is expected to increase to close to 15% in the next three to five years. This shift is significant because studded jewellery offers higher profit margins than plain gold, allowing the company to improve its EBITDA margins from 5.2% in FY24 to close to 6.5%-7% within the next three to five years.

By diversifying its product mix, Thangamayil is ensuring that it remains a volume-driven player and a profitability-focused retailer.

Non-gold sales composition of TJL

Valuation: Pricing in growth without overpaying?

For Thangamayil, the bullish trend in gold prices has certainly helped in revenue growth, but what makes its valuation compelling is its ability to scale profitably while maintaining strong return ratios.

Note: This is not a prediction of where the stock price could head. It’s just an if-then calculation for academic purposes.

Understanding the key valuation drivers

At its core, Thangamayil’s valuation rests on a few fundamental pillars:

1. Revenue growth from expansion: The company’s store expansion plan is a key revenue growth driver. With each new store contributing additional sales, the topline growth is expected to compound at 20-25% CAGR over the next three years.

2. Improved EBITDA margins: Historically, Thangamayil has operated on lower margins due to its high-volume, low-cost model. However, with the gradual increase in studded jewellery sales, margins are projected to expand to reach close to ~7%.

3. Same-Store Sales Growth (SSSG): A key metric for retail businesses, SSSG measures how much existing stores are growing without relying purely on new openings. Thangamayil has maintained a solid SSSG of above 20% (for the last three years), and with improving consumer sentiment, this trend is expected to continue.

Same store sales growth of TJL for FY25

Same store sales growth of TJL

4. Balance sheet strength: Unlike many retailers that take on excessive debt to fund expansion, Thangamayil has managed its growth with smart capital allocation strategies like gold-on-lease financing and advance purchase schemes.

These factors create a strong foundation for valuation, but the bigger question is how Thangamayil is priced relative to its peers.

Comparing Thangamayil to larger players

To understand whether Thangamayil is fairly valued, it helps to compare its valuation multiples with larger jewellery chains like Titan and Kalyan Jewellers.

Titan (Tanishq) trades at ~80x FY24 earnings, driven by its premium brand positioning, diversified business model (watches, eyewear, jewellery), and strong profitability.

Kalyan Jewellers trades at ~70x FY24 earnings, benefiting from its aggressive expansion in both India and the Middle East, though at lower return ratios than Titan.

Thangamayil currently trades at ~45x FY24 earnings despite growing its profits faster than Titan and Kalyan.

Given that Thangamayil is expected to grow its net profits over the next three years, the current multiple does not fully price its growth potential. If the company successfully executes its expansion plan while maintaining profitability, a valuation re-rating could be a reasonable expectation.

Assumptions for valuation growth

For Thangamayil to justify a higher valuation multiple, a few key assumptions need to hold:

1. Gold prices remain favourable: While jewellery retailers benefit from higher gold prices in absolute revenue terms, extreme volatility can impact customer sentiment. If gold stabilises in a gradual uptrend, it ensures continued demand without shocking price-sensitive buyers.

2. Studded jewellery contribution rises as expected: A major part of the company’s margin expansion story is dependent on increasing the contribution of studded jewellery to 15% of sales. If this transition is slower than expected, it could limit margin improvements.

3. Metro expansion in Chennai is successful: The company is entering its first major urban market, where pricing strategy and brand positioning will be tested. If Chennai performs well, it sets the stage for expansion beyond Tamil Nadu, which could drive long-term valuation upside.

4. SSSG and operational efficiencies hold up: As the company expands, it must ensure that its existing stores continue growing at 10-12% SSSG while keeping inventory turnover high. If store productivity drops, it could weigh on overall profitability.

If these assumptions play out as expected, Thangamayil could see a meaningful valuation re-rating, aligning it more closely with national players like Kalyan Jewellers.

Potential risks to valuation

While Thangamayil’s business model is efficient, there are a few risks that investors should consider when evaluating its valuation:

1. Gold price volatility: The company hedges only 89% of its inventory, meaning it still has some exposure to sudden price swings. If gold prices were to drop sharply, customer demand might rise, but inventory markdowns could negatively impact margins.

2. Urban market challenges: Chennai is the company’s first major urban expansion, and consumer preferences in a metro are different from Tier-2 and Tier-3 cities. If it fails to capture market share in Chennai, future metro expansions may be harder.

3. Execution risks in store expansion: Expanding from 58 to 90 stores is a significant jump and is capital-intensive. If not executed carefully, it could strain operations and impact return ratios.

4. Competitive pricing pressure: While Thangamayil’s pricing model works in smaller cities, urban consumers are more brand-conscious. If competitors like Kalyan or regional players undercut its pricing strategy, it could impact its expected margin expansion.

Final verdict: Is Thangamayil’s stock underpriced?

At the current multiple, Thangamayil is not expensive compared to its growth potential, but it is also not as cheap as a deep-value stock. The company has a clear growth path, strong return ratios, and a disciplined capital allocation strategy, all of which support the argument for a valuation re-rating.

If it executes well on its store expansion, successfully transitions to higher-margin jewellery, and proves its ability to compete in metro markets, it deserves a higher multiple. This would still keep it below Titan’s valuation but more in line with Kalyan Jewellers, which has a similar growth trajectory but operates at lower margins.

For long-term investors, Thangamayil presents a compelling case as an under-the-radar jewellery stock with strong fundamentals and an efficient business model. If the company continues on its current trajectory, there is a reasonable case to be made for an upside from current levels. However, given the risks associated with gold price volatility and urban expansion, investors should track execution closely before assuming a valuation re-rating is guaranteed.

As the jewellery industry continues to shift towards organised retail and branded players, Thangamayil remains one of the few regional brands with an expansion roadmap and a scalable model, making it an interesting stock to watch in India’s evolving gold market.

Note: This article has relied on data from the annual report and industry reports. For forecasting, we have used our assumptions.

Parth Parikh has over a decade of experience in finance and research, and he currently heads the growth and content vertical at Finsire. He has a keen interest in Indian and global stocks and holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies. Previously, he has held research positions at various companies.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article.

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