Top Stocks that Benefit from Rising Gold Prices

For centuries, investing in gold has helped families build generational wealth.

Strong global markets with higher local demand for gold has made it a preferred investment.

In the last five years, gold prices have more than doubled while they've quadrupled in the past decade. When other asset classes struggle to keep up with inflation, gold shines.

It's one of the most obvious hedges against inflation.

As an investor, you don't always have to invest in physical gold or digital gold. There are many backdoor plays in the stock market that let you ride the bull market when gold prices are on the rise.

As things are now, gold shows no signs of stopping with prices hovering near Rs 71,000 per 10 grams in the domestic futures market and US$ 2,344 in the global markets.

Let's look at some stocks that stand to benefit from the gold price rise.

#1 Muthoot Finance

The first stock that benefits from rising gold prices is Muthoot Finance.

In case of gold loan companies like Muthoot Finance, they tend to benefit from the increase in gold prices as the value of the collateral held by them rises. This usually leads to an increase in the ticket size of loans.

Muthoot Finance has been a trusted name for 85 years, especially in South India. It offers a wide range of financial services and is popular for its hassle-free gold loans.

The company's gold loan portfolio has doubled in the past five years to Rs 795 billion (bn). With over 4,700 branches in 29 states, the company serves 200,000 customers daily.

The company has kept pace with digital advancements with its Muthoot Online, iMuthoot App, and Loan at Home App, which is now used by 32% of its gold loan customers.

The company's gold loan AUM has increased by 22% YoY, with consolidated profit after tax surging by 23% on a YoY basis. Muthoot has opened 487 new branches in just 9 months, expanding its footprint.

As a result, the company's stock price has surged around 69% in the year gone by.

Muthoot Finance is expanding its branch network with ongoing incentives.

The company raised Rs 4.8 bn recently through the debentures public issue. There are also plans to recover an additional Rs 2.8 bn from Asset Reconstruction Company (ARC) to boost its resources.

The focus is on maintaining robust net interest margins (NIM) and yields to improve profitability.

Its gold loan segment continues to be a top priority, and it tailors its services to focus on operational efficiency.

#2 Manappuram Finance

Next on the list is Manappuram Finance, which is a leading gold loan NBFC.

As we mentioned above, gold financiers like Manappuram benefit from rising gold prices.

They give loans to people who offer gold as security or collateral. When the price of gold goes up, the value of the gold they hold as collateral also increases.

This means they can offer bigger loans to their customers because the gold is worth more. So, when gold prices rise, these companies can benefit because they can lend more money.

With 5,200 branches in 28 states and an AUM of Rs 404 bn, the company is a prominent player with many firsts to its credit.

Manappuram Finance pioneered many gold loan innovations by launching online gold loans in 2015. Moving away from a one-size-fits-all approach, the company introduced options for higher loan amounts at higher price points.

It was also the first company to offer one-day interest, empowering borrowers to settle gold loans at the earliest, when the standard industry norm is seven days or a month.

The company is profitable, with 46% YoY profit growth in FY23. It also shows strong growth in AUM and revenue. In FY23, its fee-based business reported Rs 280 m in profits.

The company has diversified into microfinance, vehicle, housing finance, and SME lending, to de-risk its business.

The share price of Manappuram Finance has shot up by 55.9% in the past 12 months.

Manappuram Finance is all geared up for 8-10% growth in the gold loan portfolio while strategically expanding to other services.

The company also has plans to maintain healthy net interest margins with increased gold loan yields.

#3 Titan Company

Next on the list is Titan Company. For over 38 years, Titan has been a household name known for its watches, jewellery, and eyewear.

The company's brands, like Tanishq, Mia, Zoya, and Caratlane, cater to gold investors with varied budgets. The company has a 7% market share as a jewellery retailer.

Titan, particularly through its jewellery division Tanishq, can be impacted by rising gold prices in many ways:

• Increased inventory value: As gold prices rise, the value of Titan's existing gold inventory also increases. This can lead to higher asset values on their balance sheet.
• Higher revenue from gold sales: If Titan is able to pass on the increased cost of gold to customers, it can lead to higher revenue from gold jewellery sales. However, this depends on consumer demand and market competition.
• Hedging: If Titan hedges its gold inventory against price fluctuations, it can benefit from rising gold prices.

In the first nine months of FY24, Titan has opened 43 Tanishq stores, 51 Mia stores, 1 Zoya store, and 40 Caratlane stores. It is constantly expanding its reach with 1,800+ watch outlets and 975 eyewear stores.

The company has also diversified into the fashion segment, including online presence at Tata CLiQ, Ajio, Nykaa, Myntra, etc.

Titan's stock price has been moving up steadily, increasing by 45.7% over the last year.

The company maintained its profitability despite a slight margin decline in jewellery due to a lower studded mix, increased competition, and marketing investments. The company is hopeful to maintain EBIT margins within 12% to 13% in the coming years.

The Tata group company is planning an aggressive growth through store expansion in the next few years. The target is to increase Tanishq's presence in at least 300 towns, owing to a projected 20% CAGR in the jewellery segment for FY25 and beyond.

Titan Smart Labs is developing next-generation wearable products to redefine the market. Also, the TEAL subsidiary business is poised for a strong recovery in FY25.

#4 Rajesh Exports

Next on the list is Rajesh Exports. The company is a refiner, manufacturer, and exporter of gold products.

It is the only company in the world with a solid presence across the entire value chain of gold, starting from refining to retailing. It is responsible for processing 35% of global gold production.

The company has a massive design portfolio of 29,000 active jewellery designs, selling through wholesale and retail chains. It manages this portfolio through its refining facilities in Switzerland and India, with a combined annual refining capacity of 2,800 tonnes of precious metals.

The prominent gold and diamond jewellery retail chain store of Rajesh Exports is under the brand name Shubh Jewellers, with 80 showrooms in Karnataka. To achieve global distribution targets, it plans to launch an e-commerce platform.

The company is continuously strengthening front-end operations to become an integrated company.

In India and China, there is a tremendous opportunity to shift the gold market from unorganised to organised players.

Despite this leading market position, shares of the company have crashed over 50% in the past one year owing to a series of controversies and financial setbacks.

The company has been on the receiving end for some time now and it all started when it entangled in various compliance-related issues, including instances of missing documents during earnings filings, and tax-related controversies.

This, coupled with massive fall in revenue, set the stage for Rajesh Exports' downfall.

The recent correction has brought the company to dirt cheap valuations. Rajesh Exports currently trades at a PE multiple of 12x and a price to book value of 0.6x.

Keeping aside the current headwinds, Rajesh Exports is a strong contender for making a comeback in 2024.

#5 Kalyan Jewellers

Last on the list is Kalyan Jewellers. It is one of the largest jewellery retailers in India, offering wedding jewellery and everyday pieces.

The company has a strong presence in 5 Middle Eastern countries with 33 showrooms. It contributed to 18% of its revenue in FY23.

The company uses an innovative franchise-owned company-operated (FOCO) model with a corporate guarantee to grow rapidly, adding 15 new showrooms in FY23.

Supported by the gold market, the share price of Kalyan Jewellers has been trending up, rallying over 305% in the last year.

The company has ambitious plans to achieve 50% of its revenue from non-south Indian markets by FY25. Its online jewellery platform, Candere, is already showing growth. It has established the US market as its potential destination.

Looking ahead, the company is prioritising to reduce debt and increase the revenue share of franchisees.

It's also focusing on strategically expanding to target markets like Tamil Nadu, where high-ticket jewellery demand drives revenue growth.

In Conclusion

Gold prices have been on fire, surging over 14% in 2024.

Favourable international markets have pushed bullion prices. In recent quarters, gold demand in China has increased. As a result, the central bank has added substantial volumes of bullion to its reserves.

While the companies we have discussed offer exciting opportunities in the gold market, several other gold mining, manufacturing, and retail businesses can also experience the ripple effect of rising gold prices.

Other stocks like Deccan Gold Mines, Goldiam International, PC Jewellers, Thangamayil Jewellery, and Tribhovandas BhimJi Zaveri could also glow with rising gold prices.

For investors, these trends present opportunities to diversify portfolios and capitalise on the potential gains in the gold market.

However, it's crucial to conduct thorough research. As gold prices continue to fluctuate, keeping an eye on these stocks could be a golden opportunity in the ever-evolving landscape.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...