Marvel Pick

KDDL Limited CMP: ₹2,438; TP: ₹3,360 MCap: ₹3,105cr

A monumental opportunity lying dormant, Unnoticed by the market’s gaze
KDDL Limited (formerly known as Kamla Dials and Devices Limited) is a well-established company operating in India and Switzerland.
Renowned for its expertise in the manufacturing and trading of watches and components, KDDL specializes in crafting intricate watch
hands, dials, and now bracelets. The Company has earned its reputation for its precision and quality. Moreover, KDDL offers top-tier
precision stamped components and progressive tools for various industries, including electronics and automotive sectors. Through its
subsidiary, Ethos Limited, KDDL operates India's largest organized retail chain for luxury Swiss watches. The Company generates major
revenue streams in standalone is coming from manufacturing watch components, progressive tools, precision engineering components,
and subassemblies, KDDL is poised for impressive growth. We anticipate standalone revenue growth of 20%+ over FY24-26E with
EBITDA growth outpacing revenue, particularly due to the focus on stamping and bracelet segments, which offer enhanced EBITDA
margins. This is expected to bolster return ratios and facilitate funding for any forthcoming CAPEX through internal accruals.
Consequently, we recommend a BUY rating with a TP of ₹3,360, representing a 38% upside from the CMP.

Investment Thesis –

(A) Underappreciating market opportunities –

KDDL operates as a diversified company with a focus on watches and precision engineering across three business divisions: watch
component manufacturing, stamping division, and watch retailing. While the standalone entity comprises component
manufacturing and stamping division, the consolidated entity includes the subsidiary watch retailing division. We find that the
current P/E ratio of ~12x FY26 earnings for the standalone business, after factoring in a holding company discount of 50%, does
not adequately represent its potential. This is especially true considering its expansion into other components such as bracelets.
Additionally, we observe that the market is not fully accounting for the growth opportunities within the standalone business, nor
is it considering the potential within the stamping segment, which is a significant driver in industries like EVs and aerospace.

(B) KDDL is at a pivotal crossroads, a business primed for limitless scalability and unrivaled competitive dominance.
Traditional watches have long held sway as the preferred choice for consumers spanning various demographics, price ranges,
genders, and age brackets. Within the premium and luxury market segments, traditional watches stand out for their esteemed
quality, rich heritage, and renowned brand names. Despite global economic fluctuations, there has been a notable surge in the
population of Ultra High Net Worth Individuals (UHNWIs) in recent years, a trend anticipated to continue as disposable incomes rise,
particularly in economies like India which are experiencing rapid growth. In India (faster growing economy), the number of UHNWIs
stood at 6,884 in 2020 and is projected to soar by 63% to reach 11,198 by 2025. Among UHNWIs, investments in art, watches, and
luxury handbags retain a significant allure. Leveraging its expertise, KDDL has been supplying watch components to Swiss clients
since 1983, and through its subsidiaries, it holds substantial potential for robust growth, expected to sustain double-digit growth
rates over the next decade. KDDL set new records in revenue and profitability, surpassing an overall revenue of over ₹300cr with a
growth of ~41% YoY in FY23. The export revenue surged by an impressive 56.8% in FY23, outpacing the domestic revenue growth of
15.5% YoY.
Marvel Pick
1. Eigen - Mastering precision metal molding with an unmatched competitive advantage.
 Established in 2006-07, this segment initially served the automotive and aerospace sectors before venturing into the
electric vehicle (EV) segment during the COVID pandemic.
 Primarily focused on precision metal stamping, this division has accumulated over 14 years of experience in building more
than 1000 tools. The company boasts its own design team, which tailors tools to meet the specific requirements of
customers.
 Serving a diverse clientele of 40+ customers worldwide, including notable names like Siemens, Continental, and Kaynes,
the division generates 70% of its revenue from exports (₹100cr overall revenue in FY23).
 Eigen division currently possesses a capacity of 600bn components, with utilization rate ranging from 65-70%. The price
realization of components varies based on thickness, spanning from less than a rupee to $25 per unit. Considering the
demand and growth potential in this segment KDDL is planning to expand its capacity.

2. Taratec – Unmatched Market Dominance

 This division comprises a range of watch components such as dials, hands, indexes, and bracelets, recently introduced to
the market. All the titan hands will have taratec brand and 10% of the LVMH requirement are catered by Taratec. Serving
Swiss brands, Taratec offers competitive pricing compared to Chinese counterparts.
 KDDL’s watch hand division dominates the domestic market with over 90% market share and stands as the primary hands
supplier in Swiss market. Partnering with 100+ Swiss brands and presently working with 60 brands, it holds a significant
presence in the Swiss market.
 Specializing in the fabrication of intricate watch dials, including multilayer designs and dials with stone settings, KDDL
excels in dial polishing. It serves numerous renowned watch brands worldwide, solidifying its position as a leading supplier
in the industry.
 Started commercial production at a new plant in Bangalore, Karnataka, dedicated to manufacturing high-quality steel
bracelets for watches. Targeting the mid and high-end Swiss and European watch markets, the plant boasts a total
capacity of 100k steel bracelets p.a. With current capacity, this division alone holds a revenue potential of ₹40-45cr.

3. Ethos - Transforming aspirations into reality with the surge in per capita income.
 Currently commanding a 20% market share, Ethos sets its sights on doubling its presence to 40% within the decade. With
a targeted SSSG of 13-14% over the next ten years and an overall revenue CAGR of ~25%, the ambition is to secure a
position among the top three retailers by the decade's end.
 The company plans to open 15-20 new stores in FY26, following 25 openings planned for FY25, while it is still in the testing
phase for jewelry. Additionally, Ethos considers the addition of a maximum of two boutique luggage stores within the
next 12-15 months.
 Each store's payback period is estimated at three years, with a CAPEX and working capital investment (WCInv) of ₹7.5cr
per store. But the long-standing relationship with brands is hard to create. This brand equity has led to collection of Ethos
exclusive brands.
 We believe Ethos is still at a nascent stage, akin to Hengdeli’s position two decades ago. Since 2003, Hengdeli has
witnessed a remarkable 17-fold increase to ~₹14,600cr by 2014 in luxury watch sales. While not predicting an identical
trajectory for Ethos, the significant opportunity, trajectory, and potential longevity of the narrative cannot be
overlooked.

(C) Key Risks

1. Change in consumer preference - Ethos could encounter challenges related to shifting customer preferences and evolving
needs, potentially impacting both growth and profitability and consequently leading to a decline in earnings multiples.
2. Currency risk - A significant depreciation of the Rupee against the Swiss Franc implies that imported watches into India
will become notably more expensive.
Marvel Pick
3. Slowdown in Growth – A deceleration in growth resulting from macroeconomic events can adversely affect overall
performance.

(D) Valuation and Outlook

KDDL is at the inflection point as there is enough empirical evidence to suggest that business can be perfectly scaled. Despite
the emergence of smart digital watches, the allure of premium watches continues to surge, promising growth for both Ethos
and KDDL. The discount between KDDL and Ethos is expected to be notably lower than any other holding company (assuming
50% compared to more than 75% for some of their counterparts). This is attributed to KDDL’s robust performance in its Dial
business, boasting strong EBITDA margins exceeding 20% and generating substantial profits. For Luxury watches, KDDL is one
of the dominant suppliers of watch parts and is pioneer in the business of Dials. In fact, KDDL standalone business has higher
gross and EBITDA margins compared to Ethos. Thus, we believe that the stock merits trading at ~25x P/E multiple compared
to 12x FY26 EPS currently on a standalone basis. Factoring in a 50% holding company discount to Ethos, our target price
(TP) is projected at ₹3,360, indicating a potential upside of 38%. However, we advise purchasing in a staggered manner,
with around ₹2,100 being an attractive price.

Particulars FY26E (₹ in Cr)

KDDL Standalone PAT 94
Target Multiple 25x
Standalone Value 2,340
KDDL’s value in Ethos (assuming 50% discount) 1,936
Total derived market capitalisation 4,276
Target Price (₹ per share) 3,360

Research Team
Bhavesh Chauhan Vinit Agarwal
Head of Research Analyst
022-6819 0509 022-6819 0517
bhavesh.chauhan@adityabirlacapital.com vinit.agarwal@adityabirlacapital.com
ABML research is also accessible in Bloomberg at ABMR

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