Gold stocks are shining on strong sales; delivers triple-digit returns so far this year

Gold has historically been regarded as the safest investment as commands a long-term value, protects against uncertain times like high inflation, and also acts as a hedge for stocks. When a crisis like the one brought on by COVID or the recent tensions between Russia and Ukraine weighs on financial markets, gold frequently helps investors as a hedge to absorb the shocks in the equity and bond markets.

Indians have a special bond with gold, as it plays an important part in religious ceremonies and serves as a status symbol. On top of that, gold is as liquid as cash, making it possible to obtain loans against yellow metal with ease.

The Indian Hindu calendar has auspicious days to buy gold, like Dhanteras and Dussehra. Additionally, Akshaya Tritiya is also a very auspicious occasion, and buying gold during this time remained a popular activity. Gold sales stood strong in the most recent Dhanteras and Akshaya Tritiya, despite a rise in the gold price.

So far this year, the demand for gold has skyrocketed in India as residents celebrated major festivals after nearly two years of muted celebrations due to the pandemic which pushed the sales. Another factor that contributed to the increase in sales was a drop in gold prices, as the US Fed's continuous rate hikes increased the opportunity cost of holding non-yielding assets.

Media reports state that gold imports increased by 677% YoY in May of this year, prompting the government to increase the customs duty on gold to 12.5% on June 1 from 7.5% earlier. 

Meanwhile, India's gold demand has reached pre-pandemic levels and has witnessed an annual growth of 14% during the July-September quarter, at 191.7 tonnes, mainly driven by strong consumer interest, according to a recent World Gold Council (WGC) report.

According to the "Gold Demand Trends Q3 2022" report by WGC, the total demand stood at 168 tonnes during the July-September quarter of 2021. Investment demand increased by 6 per cent to 45.4 tonnes during the third quarter of 2022, compared to 42.9 tonnes in the same period last year.

In value terms, gold investment demand in the third quarter was ₹20,150 crore, up 10 per cent from ₹18,300 crore in the same period last year, the report said.

Robust sales lift stock prices

As gold sales climbed, stocks in the sector also shined and delivered more than 30% returns in the last three months, with some doubling investors' money in just six months.

With a return of more than 91.34% over the previous three months and a staggering return of 344.02 over the last six months, shares of PC Jeweller were at the top of the list.

For the September ending quarter, PC Jeweller posted a consolidated net profit of Rs. 85.9 crore as against a net loss of Rs. 78.9 crore in the same quarter of last fiscal year. It reported a 72% YoY rise in total revenue of Rs. 958.1 crore compared to Rs. 556.5 crore in the same period last year. The company reported its highest-ever EBITDA margin during the quarter at 16.42%, an expansion of nearly 929 basis points.

Similarly, Titan stock jumped 42.74% to date from June-mid lows. And at the current price, the stock is trading 51.43% above its 52-week low of Rs. 1,825. In a most recent report, domestic brokerage Motilal Oswal said that it believes Titan will continue to be a standout performer and its medium-to-long-term outlook remains attractive. It sees the stock breaching the Rs. 3,000 mark in the next 1 year. The brokerage has a 'buy' call on the stock with a target price of Rs.3,135

"Titan has been the standout performer among all of its consumer peers, in terms of revenue, earnings, as well as stock price performance, over the past five years. "For a company of its size, sales of ₹36,600 crore in FY23E and the 20 per cent revenue and earnings CAGR is extremely impressive," said Motilal Oswal.

In contrast, Kalyan Jewellers started trading above its issue price of Rs. 87 for the first time in September. In the past three months, the stock has soared 54 per cent, as against a 3.82 per cent rise in the Nifty 50. Further, over the last six months, it zoomed 67.33 per cent, as compared to a 5.76 per cent surge in the benchmark index.

In the second quarter of FY23, the company registered a consolidated revenue growth of 20% YOY and 50% in H1 FY23. It said the Middle East business witnessed revenue growth of more than 65 per cent during the recently concluded quarter.

Kalyan Jewellers' online jewellery platform Candere launched its first physical showroom during the quarter. Candere recorded revenue growth of more than 15 per cent during the July-September period compared to the same period of the previous year, PTI reported.

The company added five new showrooms in India (all non-south) during the recent quarter, including its first physical showroom by Candere. As of September 30, 2022, Kalyan Jewellers' total number of showrooms across India and the Middle East stood at 163.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.