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

Ladies and gentlemen, good day, and welcome to D.P. Abhushan Limited Q3 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ajit Mishra from E&Y. Thank you, and over to you, sir.

Thank you, Muskan. Good evening to all the participants on this call. I am Ajit Mishra, Ernst & Young Investor Relations. 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 risk that could cause future results performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. Please note that we have mailed the press release results. 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'll be happy to send that 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. Santosh Kataria, Chairman and Managing Director; Mr. Anil Kataria, Whole-Time Director; and Mr. Vikas Kataria, promoter. We will start the call with a brief overview of the industry, company performance for the quarter gone past and then conduct Q&A session. With that said, I will now hand over the call to Mr. Anil Kataria. Over to you, sir.

[Foreign Language]

Thank you, Anil ji. Now I will take this moment to highlight our business development initiatives during the quarter 3 of this financial year. As per the guidance for financial year '25 strategic expansions, we launched a new showroom in Neemuch, Madhya Pradesh during quarter 3 of this financial year. This showroom spans a super built-up area of 7,700 square feet with the modern ground plus 3 layout located just 150 kilometers from our registered and administrative office in Ratlam. Following the successful launch of our Ajmer showroom in the previous quarter, we are pleased to share that both locations are receiving a positive response from our customers. Additionally, the construction of our second showroom in Ratlam is progressing well. This showroom will have a carpet area of 12,000 square feet with 8,000 square feet dedicated to retail and remaining for back office operation. We expect to launch this showroom by the end of this financial year. To support our strategic expansion plans, we are planning to raise up to INR 600 crores through the QIP route. This will enable to strengthen our market presence and drive long-term value creation. Over the 5 year of D.P. Abhushan Limited is set to expand its new showroom network on pan-India basis, targeting key regions such as Gujarat, Chhattisgarh and various part of Madhya Pradesh and Rajasthan. This expansion aim to enhance our market reach, provide customers with greater access to our product and solidify our brand's position in the market. I would like to share our market and promotional activities during the quarter. We organized two significant jewelry exhibitions, Parinay and Jewels of Mewar. This took place in Ajmer, Banswara, Bhilwara and Udaipur from November 25 to December 8. These events were a fantastic opportunity for us to showcase a diverse range of our bespoke jewelry collection. The exhibitions attract a substantial number of customers, and we were thrilled to such a positive response. The variety and quality of our collection resonated well with the attendees, leading to impressive sales figure. This success of these exhibitions not only boosted our sales, but also built up our brand presence in this region. With that, I would like to pass the call over to Mr. Vikas Kataria, who will provide a detailed overview of quarter 3 financial performance of the company. Thank you, everyone.

Thank you, team EY. Thank you, Anil ji. Thank you, Santosh ji. And a warm welcome to everyone on the call. I'm excited to talk you through our financial highlights for quarter Q3 and FY '25. This quarter has been exceptionally with total revenue reaching INR 1,085 crores, a 42% increase compared to INR 766 crores in quarter 3 FY '25. This growth was driven by sustained demand during the festive and greeting season. Our EBITDA stood at INR 56 crores, up 92% from INR 29 crores in the same period last year. Additionally, our PAT reached INR 37 crores, marking our highest ever growth of 123% year-on-year compared to INR 17 crores in Q3 FY '24. In terms of store performance, I would like to highlight some of our top-performing stores. Our flagship store in Ratlam contributed the highest revenue of INR 750 crores in 9 months FY '25. Store in Bhopal, Banswara, Ujjain also recorded significant growth with year-on-year increase of 76%, 54% and 51%, respectively. Moving to our revenue mix, 93% of sales contribution by gold, 5% from diamond, 2% from silver and 0.3% from other, which includes platinum and all. Looking ahead, we are optimistic about the continued growth potential in the jewelry industry. Our expansion strategy focus on emerging markets and product diversification position us well to capitalize on upcoming opportunities and delivery sustained growth. With that, I do now like to open the floor for question and answer. Thank you, everyone.

[Operator Instructions] The first question is from the line of Mayank Kapoor an individual investor.

Congratulations, sir, on a fantastic set of numbers. I have a few questions. Question number one being that I see that revenue has increased about 42% for this quarter on a year-on-year basis, whereas our gross profit has increased 72%. So wanted to understand what is the reason behind the gross margins being improved.

Thank you, Mayank, for asking the question. So yes, this quarter, we give the extraordinary result and our profit margin increased because we are majorly focused on the wedding jewelry and like, diamond jewelry, both the things we are focusing. So that's why the margin is increased.

Got it. Got it, sir. And sir, on the QIP announcement, we are planning to raise a large sum. And earlier, we were thinking about going for the franchisee route to increase our number of stores. So just wanted to understand how can we think about the next...

Sorry, your voice is not clear.

So, sir, I was talking about the QIP that we are planning on doing. And just wanted to understand how do we think about the number of stores going forward, both in terms of the company-owned stores. I think we had a target of doubling our stores in the next 2, 3 years and then also the franchisee stores. So just wanted to ask that.

Right. Yes. So we are doing QIP to like -- definitely, we are doubling the number. So maybe another 2, 3 years, we are doubling the number. And as well as we are also planning to open a few franchisees. So, yes, maybe both the routes we are taking to in our growth plan.

Got it, sir. Just wanted to understand more on the QIP side, why is that we are raising the money, not for the franchisee stores or some other reason?

No, no. So for the QIP, we are doing to -- for our own stores, the company-owned stores, we are raising money for.

And sir, for the 9 months, I see that we have grown by 45% already, whereas we are, I think the guidance of 15%, 20%. So are we -- I think it's good to revise it. Are we doing that? And how do we -- how should we see that for the next year?

Sorry, I can't hear you properly. Can you repeat again?

Yes, sir, I'm saying we have given the growth guidance of 15%, 20%. However, this year we already grown by 45%. So are we going to revise our guidance? And how should we take that number for the next year?

Yes. So definitely, we are trying to achieve the same growth. But yes, like conservative, we say at least 20%, 25%, we are trying to achieve the growth.

[Operator Instructions] The next question is from the line of from [ Kushal from InVed Research ].

[Foreign Language] What will be the end use of this INR 600 crore. That is my first question. The second is [Foreign Language] clearly margins are inflicted for the last, I think, 2, 3 years. Now I think the management is working on improving margins. Wanted your commentary [Foreign Language].

Right. [Foreign Language]

[Foreign Language]

So, we're trying to doubling the number. Almost [Foreign Language]

10 stores, okay. [Foreign Language]

[Foreign Language] So, accordingly.

[Foreign Language]

Majorly we are focusing in MP, Rajasthan, and now we are moving towards Gujarat, Chhattisgarh and we are also considering UP and Bihar.

Okay. Okay. [Foreign Language] Tier 2, Tier 3 towns. [Foreign Language]

Tier 2 and Tier 3. Our focus is major Tier 2 and Tier 3. And maybe one or two stores in Tier 1. So we are still considering.

Got it. My next question was on margins. [Foreign Language] How you try to improve this? What are the levers to improve margins?

We are trying to improve. [Foreign Language]

The next question is from the line of Shreya Tiwari, an individual investor.

Congratulations for the good set of numbers, sir. Sir, I have just one question. As you have mentioned about the franchisee model stores that you are going to open. So are there any -- how many stores are we planning to open in the next 2, 3 years?

So, franchisee, we are trying to open like the two, three franchisees in the next 2 years, and then we'll expand more on franchisee. So initially, we just want to open like the two, three, four as a franchisee first...

Okay [Foreign Language] And then we are going ahead with the franchisee model. Okay, sir. And have we finalized the locations for franchisee stores?

Yes. So the location which we have in mind like in MP, Rajasthan and Gujarat, Chhattisgarh, so the same location is as a franchise or the company-owned stores.

[Operator Instructions] Next question is from the line of [ Heet Parekh ] from Ashika Institutional Equities.

Sir, I have just one question. Our flagship store in Ratlam saw a 23% quarter-on-quarter degrowth in the top line. So what was the reason for that.

Store degrowth?

Yes, sir, Ratlam store 3Q numbers coming at INR 264 crores versus, sir, 2Q numbers coming at INR 343 crores.

Ratlam store is doing [indiscernible] in this quarter, like in this financial year, we just crossed INR 750 crores this year.

9 month numbers, sir, I agree it's crossing INR 750 crores Ratlam store. I was just asking, sir, was there any one-off in the 2Q quarter for Ratlam store the INR 343 crores and in the third quarter, the numbers have been almost INR 90 crores less -- INR 80 crores.

Because of the prices is little high. The gold prices little high. That's why the -- We're doing the extraordinary in quarter 2 because [Foreign Language]

Okay, sir. [Foreign Language]

Because of the gold prices support. [Foreign Language] Better than last.

[Foreign Language] I was just asking on quarter-on-quarter basis. And sir, one more question. Sir, out of our total revenue, how much is coming from wedding jewelry and how much is coming from day-to-day jewelries.

So almost like the 50%, 55% is coming from the wedding jewelry.

50% to 55%. And sir, what is directionally are we seeing -- just as you mentioned in your opening comments that there is strategic shift happening towards 18-carats and rose gold, white gold kind of jewelry. So how are you seeing the demand shaping up in this segment at GP level?

Yes. So the people -- now the people is trying to get some fancy jewelry like the rose gold, white gold jewelry. And in 22-carat there are the rose gold jewelry also available. And in diamond rose gold jewelry is very popular nowadays. So people are like buying rose gold jewelry and white good jewelry. So definitely, the demand is very high in particular segment.

So how much, sir, are you doing -- what is the percentage contribution from rose gold, white gold jewelry?

Yes. So the white gold and rose gold jewelry contribution is nothing very much, but yes, 10% to 15% is the total contribution.

[Operator Instructions] The next question is from the line of Rohan Singh, an individual investor.

I wanted to understand store metrics in the investor presentation. So when comparing the year-on-year performance for the first 9 months, Ratlam, our oldest stores grew by 42%. On the other hand, our stores in Bhopal, Banswara and Ujjain showed even higher growth than Ratlam. So what are your observations regarding the performance and growth of these locations.

Definitely, all stores doing a very good growth in this FY like the 9 months growth. So -- and the other store is very new store [Foreign Language] growth is very high. So we are trying to achieve more growth in the other stores like Banswara, Ujjain, Bhopal, and Udaipur, and Kota, where we're trying hard to get more growth.

Okay. Okay, sir. And my second question is, could you please provide the capital expenditure incurred for the newly opened stores in Ajmer and Neemuch? Additionally, what is the current inventory value held by these stores? My second question is, could you please provide the CapEx incurred for the newly opened stores in Ajmer and Neemuch?

Yes. This is approx INR 2 crores to INR 2.5 crores. And inventory is held at the store is INR 55 crores to INR 60 crores.

Okay. Okay. And my last question is till when can we expect the stores to reach breakeven with their reference to the current performance?

Around 6 to 9 months.

The next question is from the line of Pranav from Singular Capital.

My first question was the other expenses have jumped up significantly quarter-on-quarter. Any points -- any details you'd like to give on that?

Yes. So we are launching the new store. So the marketing budget is a little bit increased in particular quarter. So that's why we are launching the new store. That's why the other expenses budget is a little higher, particularly this year.

Okay. Sir, second question is on our inventory accounting model. So as I understand, our inventory accounting model is slightly different from most of our other peers that we use the historical average cost method. So I just wanted to understand if we were to use inventory model comparable to our peers, our gross margins would be lower. Sir, any sense you could give us on how much lower our gross margins would be in that case?

Gross margin is lower, like 2%, 3% lower than like the other player in the industry. So our gross margin is lower -- like the 2%, 3% lower than the other player in the market.

Yes, sir, I'm saying we use a historical average cost of acquisition model...

We're using the weighted average method. So like if the market is like the 88,000, but our inventory price is somewhere around like 73,000, 74,000 is our inventory price.

Understood. That is what I was saying. We have inventory cost is 73,000, 74,000, whereas if we were using the FOFO model or some other inventory accounting model, our cost of inventory would be higher than what we have currently. Is that the right way to understand this?

Yes, yes, yes.

So in that case, our gross margins -- can you give us an example on a like-like basis of what our gross margins would look like in that case? Because I'm just trying to understand, sir, like you said, our gross margins are different to peers, but using different accounting methods for inventory, it doesn't make a lot of sense to compare. So on a like-to-like basis, what they would look like is what I'm trying to understand. Maybe you could just take this question offline. I'll get in touch with you guys.

I'll get back to you.

[Operator Instructions] The next question is from the line of Kushal from InVed Research.

Since I'm new to the company, [Foreign Language] how do we hedge our inventory? Do we -- are we doing GML loans? Or suppose if tomorrow gold prices go down, what will happen to our inventory value?

Yes. So we are -- thank you for asking the question. So we are doing a weighted average method. So our inventory price and market price is different. So always -- as of now, our inventory price is lower than the market, around like maybe like 7%, 8%, 10% is lower than the market. If market goes down, so we are already hedged. We are already hedged. And yes we've the plan to hedge the inventory. [Foreign Language]

Okay. But going forward, sir, say, let's say, 1 or 2 years out, if market -- gold market goes down.

If market price and our book price is the same, then definitely, we are doing the hedging method [Foreign Language] gold metal loan plus future trading and the future options, right?

So as of now, there is no hedging, but we are using an accounting policy, which is we are marking our inventory lower versus the market value of the inventory.

Yes, yes. So in weighted average, our price is almost like the 7% to 8% or 10% less than the current market price.

[Operator Instructions] As there are no further questions from the participants. I now hand the conference over to the management for closing comments. Over to you, sir.

Thank you. [Foreign Language] Thank you so much.

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