Big whale Ashish Kacholia trims stake in this multibagger jewelery stock

These market wizards are known for their sharp instincts and ability to identify trends early, making strategic investments that deliver outstanding returns.

Their success has turned them into household names among investors, with many closely tracking their moves, hoping to replicate even a fraction of their success.

For those who look to these investment maestros for inspiration, there’s intriguing news on the horizon.

Ashish Kacholia, a name synonymous with spotting hidden gems, has recently trimmed his stake in a multibagger stock.

Who is Ashish Kacholia?

When we talk about successful investors in India, it’s common to mention Ashish Kacholia.

Kacholia is known for identifying the best multibagger stocks. He is known as the ‘big whale’ of the Indian stock market.

Over the years, he has picked the best multibagger stocks by looking at the fastest-growing companies from the midcap and smallcap space.

He started his career with Prime Securities in 1993. In 2003, he started Hungama Digital Entertainment Company along with Rakesh Jhunjhunwala. He is also the proprietor of Lucky Securities.

Which stock did Ashish Kacholia sell and why?

The company in question is Sky Gold which is in the business of designing, manufacturing, and marketing jewelery. The company specializes in 22 karat gold jewelery. It has recently expanded its product line to include lightweight, diamond-studded pieces.

As per the bulk deal data available with the stock exchanges, big whale Ashish Kacholia, on 23 September 2024 sold a total of 76,720 equity shares of Sky Gold or 0.6% stake in the company, at an average price of ₹2,602.93 bringing the total deal value to nearly ₹19.97 crores.

At the end of the June 2024 quarter, the investor held about 2.6% stake in the company.

While we don’t know why he sold shares of Sky Gold, here’s what we can guess.

Profit booking

One possible reason behind Ashish Kacholia’s stake sale could be profit booking, especially after the significant rally in the company’s stock.

In 2024 alone, the stock has surged by 169.9%, with a notable 75% jump in just the past three months.

This remarkable rise can be attributed to Sky Gold’s recent acquisitions.

In June 2024, Sky Gold acquired two businesses: Sparkling Chains and Starmangalsutra, both of which are involved in the manufacturing of jewelery made from gold, silver, and other precious metals or stones.

Sparkling Chains specializes in chain production, while Starmangalsutra focuses on mangalsutras.

locally, both companies were privately held and promoter-owned, initially kept separate due to their differing design and manufacturing processes.

However, as part of Sky Gold’s long-term strategy, the company decided to bring these businesses under its umbrella.

The total acquisition cost amounted to ₹87.5 crores, with ₹49.98 crore allocated for stocks and ₹37.5 crore for repayable loans.

These loans are interest-free and will be repaid based on Sky Gold’s liquidity. The two acquired companies reported a combined revenue of ₹370 crore in FY24, and they are expected to generate ₹500-600 crore in FY25.

The acquisition has also increased Sky Gold’s manufacturing capacity from 750 kg a month to 1,050 kg a month.

This acquisition is seen as a strategic and timely move, aligning with the jewelery retail market’s shift from unorganized to organized players.

It effectively doubles Sky Gold’s addressable market, covering 80% of the products sold in jewelery stores, thus enhancing its market presence.

Additionally, both acquired companies are financially and operationally mature, which reduces conflicts and strengthens Sky Gold’s investment appeal.

Moreover, factors such as no cash transaction, no excessive dilution, and an interest-free loan, provide further confidence in the deal’s success.

Growth plans

India’s jewelery exports have surged significantly over the past year, rising from approximately ₹34,600 crore in FY23 to around ₹55,200 crore in FY24, reflecting an impressive 62% growth. Sky Gold is keen to capitalize on this booming export market.

Currently, exports account for only 6% of the company’s revenue, but management has ambitious plans to increase this to 30% by FY27 and they appear on track.

In Q1 FY25, exports increased to 11%, with Sky Gold supplying jewelery to key markets such as the UAE, Singapore, and Malaysia, where preferences closely mirror those of India.

To tap into larger markets like the US and Europe, Sky Gold is focusing on research and development over the next two quarters to create products specifically tailored to these regions.

In contrast to India’s preference for 22-carat jewellery, Western markets show a higher demand for 14-carat and 18-carat studded jewelery.

To support this expansion, the company has hired a new operations head with over 25 years of experience in the US and European markets.

These strategic growth initiatives could highlight why Ashish Kacholia remains invested in the stock.

The financials

Sky Gold’s revenues have consistently grown at a 25% CAGR, rising from ₹7,219.0 m in FY20 to ₹17,454.8 m in FY24.

Sky Gold’s PAT growth follows a similar impressive trajectory, increasing at a 61% CAGR from FY20 to FY24, with FY24 witnessing a significant jump of over 100% to ₹404.8 m.

PAT margins have also improved, reaching 2.3% in the last financial year.

Going ahead, the management’s vision is to achieve revenues of ₹63 bn by FY27, with its two new acquisitions.

The management aims to maintain PAT margins in the range of 3-4% over the long term.

What’s next?

Sky Gold’s management is focused on expanding its corporate business to 100% over the next three years.

A significant milestone on this path is the potential onboarding of Tanishq, one of India’s largest jewelery retailers.

In a recent conference call, management confirmed that all product meetings with Tanishq have been completed and they are now awaiting final confirmation.

Currently, the company finances its inventory primarily through working capital loans with an interest cost of around 9-10%.

By Q3 FY25, Sky Gold aims to shift entirely to gold metal loans (GML), which would lower interest costs and improve its margins.

Additionally, the management anticipates that a better product mix and an increased share of exports will help elevate gross margins to 7-8%, up from 6% in FY24.

This improvement is expected as exports generally provide higher margins in the jewelery business.

About Sky Gold

Sky Gold is in the business of designing, manufacturing, and marketing jewelery, but not how we are used to it.

It does not sell its products to the end users, but rather to the jewelery retailers we all know about.

The company specializes in 22 karat gold jewelery and has recently expanded its product line to include lightweight, diamond-studded pieces.

What sets Sky Gold apart is its specialization in lightweight jewellery. 90% of Sky Gold’s inventory is priced between ₹5,000 to 100,000 with the remaining inventory in the ₹1-2 lakh range.

With a team of over 500 employees, Sky Gold’s products are available in more than 2,000 retail outlets across India and over 500 outlets globally.

For more details about the company, you can have a look at Sky Gold company fact sheet.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com