KOCHI: Malabar Gold and Diamonds Ltd (MGDL), one of India's largest jewellery retailers, with a sales turnover of Rs96,100 crore in FY26, is set to consolidate 51 group companies in a restructuring exercise that is expected to nearly double its EBITDA margin to 8.94 per cent on a pro forma basis, while leaving the promoters with more than 80 per cent ownership in the merged entity.
The restructuring, which is awaiting final approval from the National Company Law Tribunal (NCLT), is expected to be completed in the third quarter of FY27, or by December 2026, according to the rating agency's assessment.
The exercise is aimed at simplifying the group's complex corporate structure, strengthening governance and improving operational efficiencies, while preparing it for a potential initial public offering (IPO).
The promoters' shareholding is expected to be diluted by about 15 per cent following the issuance of merger consideration shares, but they will continue to hold a strong majority stake of over 80 per cent, Ind-Ra said in its October rating report.
More than 2,500 investors across the franchisee retail entities are expected to receive shares in Malabar Gold and Diamonds Ltd (MGDL), the group's flagship company, through a share swap.
The consolidation will bring the group's Indian jewellery retail operations and smaller ancillary service entities under MGDL. The group currently operates through a combination of directly held and franchisee-run businesses, with different ownership structures and significant inter-company transactions.
The merger is expected to create a more streamlined corporate structure, improve transparency in financial reporting and reduce organisational complexity.
Margins could nearly double
The proposed restructuring is expected to materially change the group's reported financial profile.
MGDL's pre-merger revenue rose 45 per cent year on year to Rs96,100 crore in FY26, according to provisional estimates, from Rs66,100 crore in FY25. Earnings before interest, taxes, depreciation and amortisation (EBITDA) increased to Rs4,030 crore from Rs1,650 crore, taking the EBITDA margin to 4.19 per cent from 2.50 per cent.
On a pro forma post-merger basis, revenue stood at an estimated Rs94,600 crore in FY26, against Rs69,800 crore in FY25. EBITDA increased to Rs8,500 crore from Rs3,700 crore, lifting the margin to 8.94 per cent from 5.28 per cent.
Ind-Ra noted that wholesale jewellery manufacturing and old-gold sales to external vendors historically accounted for more than 30 per cent of the group's consolidated revenue. These activities typically generate operating margins of only 0.25–0.5 per cent, weighing on the group's overall profitability.
However, the projected improvement should be viewed with some caution. Ind-Ra attributed part of the FY26 profitability increase to inventory gains and expects operating margins to moderate in FY27 as those gains normalise. The post-merger figures are pro forma estimates rather than the actual financial performance of a completed merger.
Debt rises with expansion
The improvement in profitability has come alongside an increase in the group's financing requirements.
Total financial debt rose to Rs7,400 crore in FY26 from Rs5,900 crore in FY25. Ind-Ra expects debt to increase further during FY27–FY28, given the planned addition of showrooms, expansion of manufacturing capacity and high inventory requirements.
The group met 50–55 per cent of its inventory funding requirements through customer advances and short-term borrowings during FY25 and FY26. The rating agency did not separately quantify the contribution of each source.
Working capital requirements have also increased amid a sharp rise in gold prices, which has raised the value of inventory and necessitated higher borrowings. Fund-based working-capital limits were utilised at an average of about 90 per cent at the standalone level and 95 per cent at the consolidated level over the 12 months ended June 2026.
Ind-Ra reported negative operating cash flow in FY26, primarily due to increased inventory, and expects cash flow from operations to remain negative in the near term. It nevertheless expects the group to generate sufficient cash accruals to support much of its incremental working-capital and investment requirements.
Expansion continues
Malabar operated 295 showrooms across 22 Indian states as of June 20, 2026, including 173 in South India. The group added 37 showrooms during FY26 and plans to continue opening about 50 stores annually.
The promoters also have international jewellery retail operations through a separate group holding structure, comprising more than 448 showrooms across 14 countries.
Ind-Ra upgraded MGDL's long-term bank loan rating to IND AA- from IND A+, with a Positive Outlook. Successful completion of the consolidation, alongside sustained operating performance and sound liquidity, could support a further positive rating action.
The agency also cautioned that delays in completing the merger could prolong the group's complex corporate structure.
