Top 4 Luxury Stocks to Ride India's Premiumisation Trend

The Indian economic landscape is experiencing a fascinating shift, marked by a growing middle class, an evolving consumer mindset and social media's aspirational influence.

Gone are the days of frugality. The new mantra of ''have it and flaunt it'' has been making the rounds through the aisles of luxury stores and the showrooms of sleek SUVs.

This is evident from the growing demand for premium products and services in the country.

From Hermes to Rolex, luxury consumer goods brands have been making a beeline to tap into a market riding on the growing affluence of Indians.

The top business houses of India are also partaking in this investment opportunity.

Reliance Retail has introduced several luxury brands to India, such as Kate Spade, Burberry, Diesel, Hamleys, Jimmy Choo, and many others.

TimeVallee, the luxury watch multi-brand boutique has launched its first-ever digital boutique in India in partnership with Tata.

Apart from this, the top beauty brands such as Bobbi Brown, Clinique, Estee Lauder, and M.A.C have also launched their online platforms with Tata.

By identifying and investing in companies capitalising on the premiumisation trend, investors can benefit from the changing landscape of the Indian economy.

So, with this in mind, we highlight 5 investment opportunities to ride this surging market trend.

#1 Eicher Motors

First on our list is Eicher Motors.

Eicher Motors is India's leading company in the premium motorcycle segment, manufacturing mid-weight (250cc - 750cc) motorcycles.

The company's premium offering includes the well-known Royal Enfield brand, which enjoys a healthy 88% market share in the 250cc+ segment.

The brand faces little competition with foreign manufacturers like Harley Davidson, Indian and Triumph.

As India's luxury sector expands, Royal Enfield has positioned itself as a key player, successfully capturing the hearts and wallets of the next generation.

Royal Enfields's 40% of the customer base falls under the 26-35 year-old bracket, 33% under 18-25 and the balance 27% under over 35 years.

This strategic targeting allows the company to tap into the burgeoning disposable incomes and growing desire for luxury experiences among young Indians. However, the company's brand goes beyond demographics.

Over the years, Eicher Motors has carved out a niche for itself with its offerings. The result is a brand that is not only loved, but also actively aspired by young India.

Apart from two-wheelers, the company is present in the commercial vehicle segment through a JV with Volvo. This non-motorcycle business segment accounted for over 13% of total revenue in the initial half of fiscal 2024.

Eicher Motors Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	10.77%	-5.31%	-5.40%	17.06%	40.03%
Operating Profit Margin (%)	34.16%	29.64%	25.52%	25.25%	27.79%
Net Profit Margin (%)	22.66%	19.89%	15.38%	16.20%	20.05%
Return on Capital Employed(%)	40.58%	24.69%	16.71%	18.31%	27.48%
Return on Equity(%)	28.05%	19.47%	12.67%	14.02%	21.19%

Data Source: Equitymaster

The company's international business, growing over 4x between 2019-2023, accounted for 14% of total revenues in the first half of financial year 2024.

This, in tandem with the growing market share of Royal Enfield, which can be explained by the massive business growth.

Between 2019-2023, the company's sales and net profit grew at a 5-year CAGR of 10.2% and 6%, respectively.

The 5-year average Return on Equity (RoE) and Return on Capital Employed (RoCE) also stand at an admirable 25.5% and 19.1%, respectively.

Going forward, the company aims to expand in India with a well-diversified distribution network, while actively catering to the international market.

#2 Titan

Next on our list is India's favourite jewellery stock, Titan.

The company, a success story from the house of Tatas, needs no introduction. It is an excellent play on the shift towards premiumization in the country, given the scope of its iconic jewellery brand, Tanishq.

Over the years, Titan has successfully built leadership positions across the watches, jewellery and eyewear categories led by its trusted brand and differentiated customer experience.

The jewellery business, housing the luxury brands Zoya and Tanishq, is the country's leading player (7% market share) in the organized jewellery market.

It accounted for over 85% of Titan's total sales in the first half of financial year 2024.

Titan's consistent commitment to growth and innovation is evident in its ongoing efforts. The retail giant isn't simply upgrading and expanding existing stores nationwide.

It is also growing strategically via the acquisition of CaratLane, a leading online jewellery platform.

This acquisition signifies the company's clear understanding of the evolving consumer landscape and its willingness to embrace technology to reach a wider audience, particularly the younger generation.

By integrating CaratLane's digital expertise and customer base, Titan is expanding its reach and strengthening its position in the online jewellery market.

Furthermore, it is adapting to emerging trends and responding to shifting market dynamics.

Titan Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	23.17%	6.22%	2.95%	33.01%	40.92%
Operating Profit Margin (%)	10.99%	12.45%	8.82%	12.41%	12.78%
Net Profit Margin (%)	7.02%	7.09%	4.50%	7.63%	8.07%
Return on Capital Employed(%)	26.36%	26.00%	14.66%	23.04%	27.47%
Return on Equity (%)	24.90%	23.45%	13.76%	26.18%	30.97%

Data Source: Equitymaster

The business has done well with a wide presence across jewellery, watches, eyewear, fashion accessories, fragrances and the relatively new Indian dresswear segment.

While the sales have grown at a 5-year CAGR of 20.3%, the net profit has reported a 24.3% growth.

The RoE and RoCE stand at a 5-year average of 23.5% and 23.8%, respectively.

While the company has added some debt on its books, the debt to equity and interest coverage ratio are at the comfortable level of 0.6x and 15.8x, respectively.

#3 Ethos

Third on our list is the newly listed Ethos.

Ethos is a newly listed, rapidly growing luxury watch retailer with a strong omnichannel presence.

The company has partnered with prestigious brands like Rolex, Longines, Omega, and Rado, offering a diverse selection for Indian consumers.

Ethos boasts over 60 brands across 56 stores in 22 cities. Notably, 27% of their revenue comes from exclusive partnerships, highlighting their unique market position.

Apart from this, the company also deals in the pre-owned luxury watch market, having forayed in 2019.

This segment, expected to reach 50% of the new watch market, provides an accessible entry point for new enthusiasts.

With a first-mover advantage, Ethos leverages its pan-India sourcing platform and restoration facilities to offer certified pre-owned watches backed by warranties.

While this segment currently represents 6% of its revenue, it has experienced a significant 61% year-over-year growth.

Ethos strategically focuses on the premium, luxury, and bridge-to-luxury segments, which collectively represent 49% of the market value and are well-poised for the fastest growth.

Ethos Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	24.38%	3.57%	-12.58%	46.42%	36.15%
Operating Profit Margin (%)	8.51%	12.79%	15.27%	14.64%	17.12%
Net Profit Margin (%)	3.01%	-0.29%	1.23%	4.05%	7.65%
Return on Capital Employed(%)	17.98%	11.81%	12.26%	21.20%	21.68%
Return on Equity (%)	12.80%	-0.97%	3.11%	12.05%	13.97%

Data Source: Equitymaster

The business has registered a 5-year CAGR sales and profit of 17.6% and 72.1%, respectively. The returns have been strong, with the RoE and RoCE averaging over 16.9% and 8.2%.

Going forward, Ethos aims to expand into other luxury segments, signing partnerships with brands in luggage and jewellery.

Ethos, with negligible debt on its books, is all set for a clear vision and strong growth trajectory. It is well-poised to capitalize on the booming luxury market in India.

#4 Aditya Birla Fashion

The last on our list is Aditya Birla Fashion.

Aditya Birla Fashion & Retail (ABFR) is undergoing a fascinating transformation. The retail giant is moving beyond its established roots in affordable fashion towards the lucrative luxury market.

While the company has long dominated the high street with iconic brands like Louis Philippe, Van Heusen, Allen Solly and Peter England, W, Aurelia it's now setting its sights on a more premium clientele.

This shift is evident in Aditya Birla Fashion's acquisitions. The addition of The Collective, a curated platform for international luxury fashion brands, marked the company's first foray into the high-end segment. It is the leading luxury e-commerce destination.

This was followed by strategic partnerships with renowned international names like Ted Baker, Ralph Lauren, and American Eagle, Christian further solidifying their presence in the luxury space.

Recently, the company has partnered with Galeries Lafayette to open luxury brand stores and is now with Christian Louboutin.

But Aditya Birla Fashion's ambition doesn't stop there. They've also been actively acquiring a stake in Indian luxury brands such as Shantanu Nikhil, Sabyasachi and Masaba; recognizing the vast potential within the affluent Indian consumer segment.

This strategic move allows them to capitalise on the growing demand for premium products and services while leveraging their existing brand recognition and distribution network.

Going forward, Aditya Birla Fashion will continue to expand distribution in newer markets while optimising its overall network.

It is a great contender for tapping into the luxury market as a pure-play fashion powerhouse with an elegant bouquet of leading fashion brands and retail formats.

Aditya Birla Fashion and Retail Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	12.17%	-5.04%	1.58%	46.04%	-8.37%
Operating Profit Margin (%)	19.13%	17.11%	19.93%	29.95%	21.00%
Net Profit Margin (%)	9.63%	8.39%	10.73%	19.54%	13.21%
Return on Capital Employed(%)	18.94%	13.88%	17.06%	38.19%	20.60%
Return on Equity (%)	13.99%	10.66%	12.69%	27.89%	14.50%

Data Source: Equitymaster

Between 2019-2023, the business reported a 5-year sales growth of 11.2%. The company has been on an acquisition spree, funding most of its inorganic growth by means of external borrowings. The debt-to-equity ratio in fiscal 2023 was at 0.8 times.

This has been eating away most of the company's profits, dampening returns. The 5-year average RoCE stood at 6.4%.

Given the business is yet to reach its full potential, the company is likely to face some near term growth and profitability challenges. However, the long-term prospects look promising.

In conclusion

As you can see, India's luxury boom is here to stay and could drive the performance of many companies.

However, just like any investment, investing in them requires careful analysis and consideration of individual risk profiles.

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...