D. P. Abhushan Limited (DPABHUSHAN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to D.P. Abhushan Limited Earnings Conference Call Q1 FY '25. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddesh Chawan from E&Y. Thank you, and over to you, Mr. Siddesh. Mr. Chawan, your line is unmuted, you may go ahead with the presentation.

Good evening to all the participants. Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties, and other factors. It must be viewed in conjunction with our business risks that could cause future result performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. Please note that we have mailed the results and the same are available on the company's website. In case if you have not received the same, you can write to us and we will be happy to send the same over to you. To take us through the results and answer your questions today, we have the top management of D.P. Abhushan Limited represented by Mr. Anil Kataria, Whole-Time Director; and Mr. Vikas Kataria, Promoter. We will start the call with a brief overview of the company and the quarter gone past, and then conduct a Q&A session. With that said, I will now hand over the call to Mr. Anil Kataria. Over to you, sir.

Namaskar, Siddesh. Thank you. Good evening, everyone. [Foreign Language]. Vikas bhai. Thank you so much, everyone.

Good evening, everyone. Thank you, Anil bhai. Before going through our performance, I would like to highlight current industry trends. In 2024, so far, gold has appreciated by 16%, making it one of the best-performing assets globally. However, during the quarter, from April to June 2024, gold demand in India fell by up to 20 -- 15% Y-o-Y. This is due to seasonal impact. The period from mid-May to the end of July typically tends to be slack season for jewelry purchasing due to fewer wedding dates. A potential revival in demand is expected with the onset of the upcoming festival season in the later part of Q3. The continued notion of gold jewelry as an investment is the leading factor driving the market. Bridal jewelry plays a significant role in driving the market. In countries like India, the high expenditure on wedding ceremony and celebration is expected to positively influence market growth. Turning to our remarkable Q1 FY '25 financial performance. Despite elevated gold price and weak industry demand, our consolidated revenue impressively grew by 7% year-over-year to INR 504 crores. Our EBITDA soared by 51% to INR 38 crores with a strong margin of 8% during Q1 FY '25. Our profit after tax surged to INR 25 crores, reflecting a remarkable growth of 60%. We are very optimistic about sustaining this dynamic growth momentum throughout FY '25. Additionally, we proudly lead the industry in footfall to conversion ratio, achieving an outstanding 87% as of June '24. Aligning with our strategic initiative, we are expanding our presence with the construction of a second showroom in Ratlam and have initiated the construction of new jewelry showroom in Ajmer, Rajasthan, and Neemuch, Madhya Pradesh. As we move forward, our company outlook remains highly positive. We are making concentrated efforts to boost our business operations and strategically planning to expand in Madhya Pradesh, Rajasthan, Chhattisgarh, and Gujarat to tap into emerging markets with growing purchasing power. We plan to open 3 new stores in FY '25, aiming to increase the total number of stores from 8 in FY '24 to 20 by FY '28. This expansion will significantly enhance our market reach and accessibility, thereby boosting our revenue. We are also focusing on diamond studded jewelry to fetch higher margins from customers. Our target is to increase the revenue share from diamond studded jewelry from 6% to 15%. We continue to shine in the jewelry retail sector and remain committed to excellence in customer satisfaction. With that said, I would like to now open the floor for questions and answers. Thank you.

[Operator Instructions] The first question is from the line of Darshil Pandya from Finterest Capital.

Sir, just wanted to know, you told the 3 stores that we are opening, are they all owned stores or that will be rented one? I am presuming that's owned stores.

No, no, all the stores we are opening, the new stores, they are rental stores.

The new ones that you're -- all 3, all 3 of them?

All 3 are the rental stores, yes.

Okay, got it. And sir, as you can see that this quarter's margins are quite surprising. So what would be the steady state of margin that we can anticipate the company to go into?

So there's one thing, we are more focusing on studded proportion of diamond jewelry and gold jewelry where we can drive high margins. So we are trying to achieve more percentage, more trade margin and EBITDA margin we are expecting.

I get it. But then what would be the steady state for this year, as you can see that -- for the whole year, what is something that we are aiming at?

So somewhere around like the 4+ -- we are looking at 4% plus PAT margins, we are looking at. And the EBITDA margin is around like 6% to 7%.

Okay. I presume that this quarter was one of the quarters...

Sorry?

So we can say that this was one of the quarters that we saw some extraordinary margins?

Yes, this is a good quarter, because the gold prices are higher -- like by say 17% to 20% the gold prices are higher comparatively last year. So that's why we get a good margin. And we are trying to achieve and maintain the same margins in the entire year.

Got it. Sir, one just last question, just a normal general question. So we do sell jewelry only, or we also make jewelry and supply to the other businesses that is common in practice?

No. So we do jewelry retail only. We are not doing B2B.

No B2B, this is all B2C?

All B2C, yes, entire B2C.

And how much have we put up in this rental -- the new showroom that we have put up, how much money have we put up till date?

So it depends upon the area. So normally we are taking one place in Rajasthan, Ajmer, and other is in Neemuch, Madhya Pradesh, where we are paying somewhere around INR 80 to INR 100 a square feet rental.

INR 80 to INR 100, okay. And all this, the short-term borrowings that we see on the books are all for working capital?

Yes, all for working capital.

The next question is from the line of Mr. Vikrant Kashyap from Asian Market Securities.

A couple of questions. One, you said you have got good margin because gold rates have gone up and you have a studded share of 6%. The commentary from market leaders in Indian jewelry segment suggests that the volatility in gold prices and increased competition is impacting margin in their gold jewelry. However, they are gaining good margin in studded. So how higher gold prices bring better margin for you? I am just trying to get some clarity.

No. So higher gold prices, nothing happened with the margin, but the proportion of studded jewelry will increase the margin definitely. So right now and before, our studded ratio is 6% and now we are planning to achieve between 10% to 15% of the studded ratio, the gold versus studded ratio. Just wanted to add that as of now we are operating in Tier 2 and Tier 3 cities. What trend we have seen in the past years is like the studded jewelry demand has increased in Tier 2, Tier 3 cities as well, as compared to Tier 1 cities. So in all our stores, we are trying to implement one shop-in-shop model of our total sales. Like out of total sales, 52% is the wedding jewelry sales. So technically, every 5 out of 10 customers come in for the wedding jewelry. So in Indore, we have implemented one shop-in-shop model, where which is an exclusive outlet for the wedding customers, where there is a different hospitality, different feel, different designs, enhanced designs. So in all the showrooms, we are planning to implement. This will help to increase our margins like we can fetch premium making charges from our wedding customers by showing them the high-end jewelry. And in this way, our diamond studded sales might increase from 6% to 12% to 15% in the next 3 to 4 years what we are targeting. And average making charges for our pure gold jewelry is like 9% to 10%, and for the diamond studded, it is like 15% to 17%.

15% to 17%?

Yes.

So could you please tell me the number, what was the studded sales last quarter and last year?

Studded sales last quarter was like 6% of the total sales.

And last year same quarter was also 6%?

That we need to check, we will get back to you.

I am just trying to get the delta of 300 plus margin expansion, it’s a huge number. If your studded jewelry gives you a turnover of INR 500 crores quarterly run rate and 6% of share is from studded jewelry, then it clearly indicates that last year same quarter it should be less than 3%.

This year, the margin expansion is not just only because of the studded jewelry sales, but it is also somewhere because of the gold prices increment. And how it has impacted our margin is like because we are following the weighted average cost of method, and we have been in this business since 1940. So in our inventory there is gold which is like INR 100 per 10 grams ranging from INR 70,000 per 10 grams. So our weighted average cost is always lesser than the current market price. And this is because we are following the natural hedging. Like whatever gold we sell on the day, we purchase it on the same day, in some 2 hours or 3 hours slot. So there is like 10%, 15% of profit margin expansion due to increment in gold prices also. But this EBITDA 8%, we will be able to maintain it around 6% to 8% somewhere.

6% to 8% is a healthy margin, I am agreeing to that point. A couple of questions, what is your inventory turnover ratio?

5x. Somewhere around 5.

Okay, great. 5x is the highest consumer conversion ratio, that's a very good metric for the company.

Yes. And our inventory carrying days is 70 days, so in every 70 days, our inventory will change.

Okay. So if I take an example of say 5,000 square foot store, how much inventory do you carry?

So it depends upon like the area. If the town is like small, so we will keep around like INR 25 crores inventory, INR 30 crores inventory. And if the store size is bigger and the population is good, so there we keep somewhere around INR 40 crores, INR 50 crores inventory.

Also, in the presentation, you mentioned that in your jewelry, you launched an enticing franchisee program in 2023. So the new stores that you roll out, it's company owned, or it's franchisee or company operated?

These 3 new stores that we have rolled out, they are entirely company owned. But we are already in process of launching our franchise FOCO model. And we have received a few applications for this also. There are some interests which have come in, like 30 to 40 interests. We will shortlist some places where we can implement this FOCO model on pilot basis. And then we will go ahead full-fledgedly if everything goes successful in next year or two.

Okay. So these 8 stores -- the 12 stores that we have planned, 3 are owned. So rest of the stores that we have…

No, rest of -- all this will be 20. If any franchise stores come in, that will be over and above that 20.

Okay. And have you disclosed your franchisee model? How you are going to share margins with the partners? Anything that you can share?

We are working on it. We already are through with the model like how franchisee partner will get margins and everything. So we already made the complete entire structure.

Okay, got it. On your opening remarks, you mentioned that due to higher gold prices and lower wedding seasons, there were impact in your top-line growth. Because in last 3 quarters, it was in double-digit growth. So can you quantify how much wedding season was lesser in this quarter that has impacted…

So in particular, this quarter, there are multiple reasons, because election is going on and due to the limited wedding dates, that's why the season was little low in the first quarter. I think in normal case, there are like 45 days to 60 days where the marriage dates, but in this quarter there is like 25 to 27 dates are available for wedding. Normally, it is...

Okay. So how do you see quarter 2 onwards?

Quarter 2 is again like it's a little slow because till August, it's a slow season because of the Shraavan month and the Hindu traditional festival. But after September, October, we will see the growth in everything. Because in quarter 3, November, December is a lot of wedding dates. So the preparation will start earlier. So without a doubt, there is a good demand in both the quarters, quarter 2 and quarter 3.

Okay. One more question on your gold procurement. You said, every day you purchase gold. So all of your gold sales you purchase or there are some exchange of gold jewelry or maybe advance purchase from customers in terms of monthly schemes? Are they a mix of that or it is only state purchase from backers?

It’s a mix of that. So everything, we sell the new product and we buy old jewelry. We are doing some advance deposit scheme. And after the overall difference, we buy immediately. So like if someone buys new jewelry and sells old jewelry, so the difference we buy immediately. Like we have some system, so after 2, 3 hours, we are refilling everything.

Okay. So can you tell me some numbers that how much your sales are coming from gold exchange? How much is coming from monthly purchase programs?

So our old gold exchange program is like somewhere around 20% to 25% we are procuring from the old gold. And the monthly saving scheme is somewhere around 3% to 5% the total entire sale.

Mr. Kashyap, we request you to return to the question queue for follow-up questions. [Operator Instructions] The next question is from the line of [ Mr. Priyam Poddar from Value Equity ].

I would first congratulate the management for a good set of numbers. So this is pertaining to the EBITDA margin. Just want a confirmation that this quarter we happen to get better EBITDA margins only because of higher sales in diamond studded jewelry. Is our understanding right?

So higher EBITDA margin was not just solely because of the higher studded sales, but it was also because of the increment in the gold prices also, sudden increment, sudden spike in the gold prices. And also, our sales mix got improved a little bit. And yes, that was the reason for the higher EBITDA margin.

Okay. And we anticipate that the current run rate of the EBITDA margins would be maintained for the next quarter of FY '25?

It would be around -- like as we told, it would be between, I mean, you can tell about like 20% plus/minus from here for the full year. But the higher volumes will offset the margin in terms of total profitability. Because there was a sudden spike in the gold prices, so that's why we have seen in the recent past trend that whenever there is a sudden spike in the gold prices, the customer takes a back foot. And once the gold prices get stabilized, the sales gets on increasing. Also because of the elections, the volumes were down. Because of elections, the movement of cash and everything is very difficult to the customers who buy in form of cash.

Got it, sir. And this is one thing with respect to our footfalls. So we have seen like our footfalls have been growing continuously. So what are the measures that you are taking to increase that footfall? And we have seen that you are maintaining a very decent conversion ratio also. So if you can let us know.

Yes. For increasing our footfalls, we have been implementing our constant expansion strategy. Like we have already announced a new showroom in Ratlam, because we found that the current showroom is not able to cater to all the customers that are coming. So we have planned a very big showroom, like an almost 12,000 square feet showroom in Ratlam. As well as we are increasing our base in Ujjain as well. Like we are a two-story showroom, we are increasing it to three-story showroom.

Correct. And so the store size would be higher than the earlier store?

Yes. So we are generally following two models, like one is the medium-sized store, which ranges from like 3,000 square feet to 6,000 square feet, 7,000 square feet. And one is the higher-end store format, like the flagship stores, which is more than 10,000 square feet. So currently, our Indore showroom is a flagship showroom, which is around 15,000 square feet. All other showrooms are ranging between 2,500 square feet to 6,000 square feet. So currently, the two showrooms where we are opening, both are ranging between 6,000 square feet to 7,000 square feet. So now looking to the population, looking to the increasing trend in sales, we are now focusing on like 5,000 square feet to 7,000 square feet of showrooms. Like two showrooms of 5,000 to 7,000 in a year, and one showroom which will be more than 10,000 square feet showroom in a year.

Okay. So as you have announced that this year you would be having three showrooms, right?

Yes.

So the size would be, again, of 6,000 square feet or 10,000 square feet, if you can clarify on this one?

So the Ratlam showroom is somewhere around 10,000 square feet, and the other two stores is like 2,500 square feet to 3,500 square feet.

The next question is from the line of Mr. Ayush from Shravas Capital.

I am actually new to the company, so forgive my ignorance, but I just wanted to understand what percentage of the inventory is hedged?

So we maintain the natural hedging policy. So we do not hedge anything on MCX or like that. We maintain a natural hedging policy, like whatever gold we sell on the particular day, we buy it on the same day at the same price.

Okay. So this is passed on to the customer, you are saying?

Sorry?

So whatever price increase is taken, it is automatically passed on to the customer? Like say, for example, gold prices are increasing, even the price of gold that you sell will automatically increase and then that's how the margins go forward, correct?

I can't understand your question.

No, I got it. I understood the natural hedging part. Thank you.

The next question is from the line of Raaj from Arjav Partners.

Sir, how much is the average selling price of our products?

So like the APP is like INR 90,000, average product price.

INR 90,000 is the average selling price of product?

Yes.

So it is ASP. And how much is the ATV or average transaction value?

I will get back to you.

All right, yes. What is the expected amount of CapEx that you are trying to do in FY '25?

CapEx, we require somewhere around INR 6 crores to INR 8 crores to build a new showroom, because we are coming up with 3 new stores in FY '25. And for inventory, we require somewhere around INR 100 crores.

Okay. CapEx of INR 6 crores to INR 8 crores, it will be for one store?

No, no, for 3 stores.

For 3 stores. And inventory INR 100 crores for all the 3 stores?

All the 3 stores, correct.

And sir, can you again explain to me the store format which you implemented in Indore?

Indore store is a flagship store where we have like 15,000 square foot area, and it's a flagship store, so where we keep everything. It is a best store where we have the best diamond jewelry, gold jewelry, we have a wedding lounge there, and everything we have in Indore store.

Okay. And you also have a separate section exclusively for wedding jewelry, right?

Yes, wedding lounge, yes.

Wedding lounge. And that you are trying to implement to all of your 8 stores?

Yes, all of our 8 stores.

Okay. And how much is the expected EBITDA improvement that we are expecting from this exercise?

It will be around 2 basis points. 1 to 2 basis points.

And how much of sales are we expecting in FY '25, since you will be adding 3 new stores to your total store count?

Like almost INR 200 crores to INR 250 crores of sales, looking to the current gold prices, from the new stores.

And these stores are expected to start in FY '25 itself, right?

Yes, in Q3.

So INR 200 crores to INR 250 crores sales is for the full year or is it from Q3 onwards?

It is from Q3 onwards.

Okay. So in FY '24, you did sales of around INR 2,340 crores. So are we expecting a growth of around 15% or so?

Yes.

The next question is from the line of [ Mr. Priyam Poddar from Value Equity ].

Thanks for the follow-up. I would just like to ask something. How are you able to maintain the quality and what differentiates yourself from the rest?

Can you repeat your question once again?

Sure. I wanted to ask, what do you do yourself that -- what makes your jewelry different from others? That is number one. And how do you ensure that you are maintaining a very decent quality?

Yes, very nice question. So we started our journey from the small town of Madhya Pradesh, Ratlam. So at that time, there is no quality parameter. There is no like the hallmarking, BIS, I mean, nothing to be like who verified the jewelry. So at that time, our forefathers, our parents set the QC standard, so where we put every jewelry, we put our stamp DP4 plus the karigars, the vendors who make the jewelry, plus 4. So that means the gold purity is 92%, plus 4% is alloy, and 4% is like the soldering. So with this concept, we started our quality. And the designing is different to any other jewelers, because we understand the local market very well, we understand the trend very well. So our jewelry design and the collection will change very frequently. Like every 3, 4 months we have some new things, new designs and the entire look and feel is different.

Okay. And while you have already shared your expansion plans for different states, I just wanted to know, any thoughts to enter into Maharashtra or Mumbai?

So Maharashtra and Mumbai, definitely we have in our plan, but after 2 years maybe we are focusing on Mumbai and big metro cities. Because right now we think there is a lot of scope in the Tier 2, Tier 3 cities where the competition is less, but the purchasing power is very high. So we are more focusing on particular those areas first.

The next question is from the line of Mr. Priyansh as an individual investor.

Firstly, I would like to ask you that you have told that you will open 12 more stores and you have already decided where to open 3 more stores. So have you decided the places the other stores will be going to open?

Yes. So we mostly identified -- more than 20 new locations we already identified where we want to open within 3 years.

Okay. Actually sir, I would like to ask you that there is a sudden spike in the profit margin from 5% to 8%, and you have recently told that the hike in the margin is because of the hike in the gold prices. But you have said that the total sale value purchased on the same day, the gold you sell today, you purchase on the same day. [Audio Gap] have we increased the making charges of our jewelry?

We have not been increasing our making charges, but some of the profit margins have been improved because of the increasing gold prices. So we have been following the weighted average cost method, where some of the profit on inventory gain gets booked in the cost of goods sold in our trading account. So like 20% of the increase in EBITDA margin is due to the increasing gold prices and the rest is out of business. But we will be able to maintain our EBITDA margin somewhere between 6% to 8% in the year. And our increasing volumes, once the gold prices get stabilized, the increasing volumes will offset the margins, the decreasing margins.

As there are no further questions, I would now like to hand the conference over to Mr. Anil Kataria for closing comments.

Thank you, everyone, [Foreign Language]. Thank you very much.

Thank you.

Thank you very much. On behalf of D.P. Abhushan Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.