S Bhattacharya

Kalyan Jewellers story is honestly one of the best lessons in how markets can completely lose their mind while the actual business just keeps grinding. From an all time high near 794 in Jan 2025, the stock crashed almost 40% in a few weeks, wiping out over 20000 crore in market cap. And the irony is the business itself was firing on all cylinders. Revenue crossing 25000 crore, aggressive expansion across India and Middle East, first store opening in the US. So what actually went wrong. First, a real event. Govt cut customs duty on gold from 15% to 6% in July 2024. This compressed inventory values overnight and Kalyan booked a one time hit of around 120 to 130 crore. Genuine impact, but management was upfront that this was industry wide and fully recoverable by Q4. Then came the real circus. January 2025 turned into a full blown rumor mill. IT raid rumors that never happened. Fake inventory claims that collapse the moment you look at 450 crore of debt repaid plus 170 crore in dividends, fake books just dont generate that kind of cash. A franchisee revolt story that got massively blown up, when in reality only 3 to 4 partners were terminated over contract breaches. Then the wildest one, bribing fund managers at Motilal Oswal, which MOAMC themselves publicly denied, sending the stock up 7% the very next day. And finally FIR rumors that turned out to be just a civil dispute with one ex franchisee. On top of all this, promoter pledge panic. People saw the pledge percentage rise and assumed distress, but most of it was old collateral from the Warburg Pincus buyback back in FY20, and the fresh top up was simply because collateral value fell after the stock itself crashed. Classic chicken and egg. Fast forward to FY26 and the numbers speak for themselves. Revenue past 35700 crore, PAT at 1350 crore, ROCE near 29%. The capital light FOCO engine is clearly working. Whats next is what gets me excited. 150 new stores planned for FY27. Zero non GML debt targeted by H1 FY27. A brand new regional brand to take on unorganised local jewellers. Candere already PAT positive and scaling with 50 more stores. Plus non core real estate being sold off to clean the balance sheet even further. The part most people will miss is the EBITDA vs PAT divergence. EBITDA margin looks weaker because FOCO partners take their share of revenue, but PAT margin expands because interest cost basically disappears once debt is gone. Thats the real story, not the headline EBITDA print. If FY28 plays out as guided, revenue could be near 50000 crore and PAT crossing 2100 crore, and management has even hinted at reopening COCO stores once the balance sheet is fully clean, which could be the next leg of margin expansion. Sometimes the best setups happen exactly when the noise is loudest and the fundamentals are quietly compounding underneath. Kalyan feels like a textbook case of that.

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