Goldiam International Limited (526729) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Goldiam International's Q4 FY '24 Earnings Conference Call hosted by Monarch Networth Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Dani from Monarch Networth Capital Limited. Thank you, and over to you, Mr. Dani. Please go ahead.

Thank you. Good afternoon, everyone. On behalf of Monarch Networth Capital, we're delighted to host the Senior Management of Goldiam International. We have with us Mr. Rashesh Bhansali, Executive Chairman; and Anmol Bhansali, Managing Director of the company. We will start the call with the opening remarks from Rashesh sir and then we'll move to Q&A. Thank you, and over to you, sir.

Thank you, Rahul. Hello, everybody. On behalf of Goldiam International, we welcome you all to our Q4 FY '24 earnings call. This has been a remarkable year for Goldiam. Despite starting off with an 11% decline in the first quarter, we have ended the year with a full year growth of 13% and a quarterly growth of 10%. This achievement is a testament to the hard work and initiatives taken by us to drive growth and profitability. For the quarter, our revenue grew by 12% year-on-year to INR 1,513 million, while EBITDA increased by 21% year-on-year to INR 274 million. Our margin stood at 18.1%, reflecting a growth of 140 basis points year-on-year. PAT was INR 178 million, marking a 10% growth here. Throughout the year, we have focused on improving the contribution from our lab-grown diamond jewelry segment. We are pleased to announce that this segment now represents 49% of our revenue, up from 21% in the year FY '23, the previous year. For the quarter, lab-grown diamonds contributed 54% compared to 23% year-on-year. A significant achievement for Goldiam has been our ability to improve our inventory position, thereby enhancing our working capital cycle. We have kept pace with the latest trends and created a niche in our customers' mindset with our unique offerings. Despite concerns about falling lab-grown diamond prices, our strength in offering higher caratage and converting it into high-end jewelry has led to stable margins for the company. Our niche remains in design, and we believe that the margin profile in lab-grown diamonds will remain healthy. As on March 31, 2024, we had an order book of INR 120 crores despite during May, we received 2 additional export orders of INR 30 crores each, totaling to INR 60 crores. We will execute these orders also within the next 3 months. As lab-grown diamonds continue to gain traction in the U.S., we are rapidly expanding our footprint in other geographies as well. FY '25 marks a new era for Goldiam as we launch our retail operations for lab-grown diamonds in the domestic market under the brand Erah. We have tirelessly worked towards this goal and have appointed Mr. Abhinav Kumar, an industry expert with a rich pedigree as President of India Retail for Goldiam and for Erah. We plan to have our first few stores running -- up and running by Q3 FY '25 in time for the festive season and aim to become the largest retailer of lab-grown diamond jewelry in our country. Lab-grown diamonds offer an attractive value proposition and combined with Goldiam's unique design capabilities, we remain extremely optimistic about the domestic market. This pricing strategy provides a great product for the first time and value buyers who have typically been exposed to inferior quality alternatives like Zirconia and Swarovski. Overall, we remain extremely optimistic about the years ahead for both natural and lab-grown diamonds. With these, I close my opening remarks. Thank you very much for joining.

[Operator Instructions] The first question comes from the line of Dixit Doshi with Whitestone Financial Advisors Pvt. Ltd.

Sir, in the inventory that we have, so I suppose we use -- we grow and use our own diamonds that we grow ourselves, and we also buy lab-grown diamonds from outside. So when we record inventories because we have been reading in papers that lab-grown prices -- diamond prices have been decreasing recently. So do you have to mark down the inventory?

Yes, we do mark down the inventory as and when we believe that we are buying at a much differential price. So even in the third quarter, as you see the margin in the third quarter in the stand-alone, you'll see it is down. That's because a huge inventory markdown has happened and Goldiam as a prudent company, right, works on inventory at cost or market price, whichever is less. So we have taken a markdown in the inventory to ensure that the [Technical Difficulty] as per current pricing of purchase or growth of lab-grown diamonds.

Okay. Okay, sir. And this INR 120 crore order book was as of 31st March '24 and another INR 60 crore order that we received. So total, it would be like INR 180 crore order book, which has to be executed in Q1, is it -- Q1, Q2?

We are trying to execute all of that in Q1, but the last INR 60 crores, we have just received in the last 10 days. And our delivery time for that is in another 3 months. So maybe there might be some spillage over to the next quarter.

Okay. And if you can give us some metrics about the stores that we are planning in India, how big the stores would be, what could be the CapEx per store or inventory, how much...

Absolutely, Mr. Dixit. Is Anmol online?

Yes, yes. I'm here.

Anmol, I would like to take -- introduce Anmol and let him answer these details.

Thank you for your question. We're planning a store CapEx for malls around INR 2.5 crores that includes about INR 1.8 crore to INR 1.9 crore in inventory and the balance between build-out costs plus the rental deposit. For high street stores, we are planning a store CapEx of INR 3.2 crores to INR 3.5 crores depending on size of store available, location, et cetera, where inventory would be about INR 2.7 crores to INR 2.8 crores with the balance being build-out plus deposit costs. So we'll be having a mix of mall as well as high street store depending on location and favorable mix available.

Okay. Okay. And if recently, DBS also slashed prices of CVD. So do you have any view on the pricing because -- and its impact on the demand in itself because consumers generally get concerned when the prices decline so rapidly?

Right. So I would request you to differentiate in the news articles and in the media between the B2B wholesale prices as well as the consumer prices. So most of the reporting is now related to consumer prices and, of course, that is going to be an ongoing situation because retailers have not passed on as much of the cost benefit as they've received from the B2B trade side. So for us, we already see -- we have been seeing price stability for quite a while now. Unfortunately, the media is commenting more on B2C and consumer prices. Therefore, I would request you to please see that angle. In light of consumer demand, at the moment, we see no change. And I think the trend of lab-grown still continues to be very, very strong. And most consumers in the price brackets that we service are trending increasingly to purchasing lab-grown diamonds.

And my last question, sir. We entered a few markets outside U.S. also. So how has been the response in these new geographies?

So response has been very positive. We are growing our accounts. We have basically introduced our products in -- a little bit in Middle East as well as in certain countries in Europe. And in both of these regions also, lab-grown has also started selling through.

[Operator Instructions] Next question comes from the line of Bhavesh Chauhan with Aditya Birla Money.

My question was regarding the price falls in lab-grown diamond. Since, sir, it is artificially made, can it happen that over time, over the next 2, 3 years, we might see a further 40%, 50% fall until like nearing cost plus some profit margin at that levels?

Thank you, Mr. Bhavesh. So just I'll address that question first and then open it up to our Chairman as well. We believe the B2B prices up to a certain size, which is really what is the commercial sizes that sell in the U.S. and across the world have reached a stable bottom. We, as growers ourselves, we don't see very massive declines coming ahead and we believe this is really the low point in terms of prices. This cost plus model is already being followed and has been being followed for in the lab-grown diamond growing site for quite a while now. And I would say the -- certain hard costs, like actually the labor required to cut and polish rough diamonds into polished diamonds to be used in jewelry purposes, that does not change regardless of the material. So we believe that we are at a very good base and a very strong base and have been for the last few months up to the -- about 3 to 4 carats of polished diamond size. I'll open it up to our Chairman, if he wants to add any further comments or anything.

Mr. Bhavesh, I think Anmol, our Managing Director, has answered this absolutely to the team. I also would like to tell you that there's a certain cost involved of electricity, which is a lot of cutting and polishing, whether in Bombay, Surat, Ahmedabad or wherever your factories are, right? And if you see all the costs involved because human labor is still -- there's a big part of it in cutting these diamonds. So we also believe that the fall will not be in this kind of a range anymore, and we've come almost to the bottom. So we are very happy that we are offering our retail offerings soon within the next 2 quarters and where we can give to consumers the price -- the jewelry price at the absolutely correct market price.

Okay. That's helpful, sir. And my second question is on how the acceptability of this lab-grown diamond has been in the U.S.? Obviously, it's growing very fast, but any particular number that how it has grown over the last, let's say, 5 years or 3 years in the U.S. as an industry?

Sure. So as an industry, lab-grown diamonds have basically taken the U.S. by storm. So you have to understand it caters very well to a market or middle income market who, for a long time, has not been able to afford solitaire-oriented and large diamonds. So lab-grown fits as the perfect midway segment for them to buy in into the solitaire jewelry. As per the last report, we've seen lab-grown diamonds in unit sales have crossed 50% of the engagement ring market in the U.S. In value terms, it's still much lower. However, it's growing very rapidly. We believe in the segments we cater to and the retailers we cater to, this is going to be a predominant part of our sales as time progresses.

Okay. Lastly, sir, apart from the U.S., where -- which are the other nations who have taken very good acceptability of this product?

So U.S. is the largest by far. It's also, of course, the largest jewelry market in general. We believe we see already some traction coming in Europe. And I think even domestically in India, through private client sales, we are seeing good traction. However, on a mass market scale there at the moment, there's no other large region that has launched lab-grown diamonds.

Next question comes from the line of Bhavya Gandhi with Dalal & Broacha Stock Broking.

Congratulations for the retail brand. A couple of questions from my end. Sir, if you can throw some light on the EBITDA and gross margin for LGD business for this quarter and for, I mean, on full year basis. Just wanted to know what has been the trend? Are we losing gross margins or EBITDA margins on LGD?

Thank you for the question, Bhavya. On the EBITDA and gross margins for the LGD business, yes, for the quarter, it would be slightly more subdued as we have taken an inventory adjustment versus the full year. However, we do believe that we will maintain our margins as we -- and protect them as they have been in the past year as we move forward as well.

Okay. If you can indicatively provide what would be the absolute inventory that would have been taken in this quarter?

Let me get back to you on that separately, Mr. Bhavya.

Okay. And in the investor PPT, is the average realization that you've mentioned, is it for the quarter? Or is it for the full year for natural and lab-grown?

Right. It's for the quarter.

It's for the quarter. Okay. Got you. And also, if you can just talk about the overall environment. I know you said that the prices are near rock bottom, but about the natural diamond, how has been the environment for natural diamonds, because it still constitutes 50% of our revenue? Yes.

Absolutely. So in general, we do believe that natural diamond jewelry will still remain a significant minority part of our sales. It will always be some significant portion of our sales. So yes, we are, of course, still very well invested in that industry. In terms of sales, we definitely see the trend continuing where customers are more and more increasingly moving bridal jewelry to lab-grown because they want the benefit of a larger carat diamond and a large solitaire look. However, there is certain strength pockets for mined -- for natural diamond jewelries, largely in the lower price points, where the difference between lab and natural diamond jewelries in terms of pricing is not that significant. Other than this, I'll open it up to our Chairman, if he wants to add any more comments related to the mine diamond and natural diamond market.

So Bhavya, it's very important that all analysts understand that Goldiam's majority market is U.S.A. And in U.S.A., it's been very well accepted, the lab-grown diamonds. Mine diamonds also work with a certain segment of consumers out there and which will continue to work. Again, a focus you have to understand is that U.S. is, of course, the largest retailer for jewelry in the world, but there are other markets. China is one, Europe is another one. Australia is the other one. And I mean, diamond jewelry is sold all over the world. And in those areas, lab-grown diamond still has a very small share. I'm very hopeful and positive that the share will change. But currently, it's only natural diamonds that sell over there. So the business of natural diamond is there, and it will continue to be there. But Goldiam's ability and focus is customer-oriented. The customers of Goldiam are asking for more and more lab-grown diamonds and that's what we are catering to.

Right. And the incremental INR 120 crore order that we've received, that is completely LGD? And is it from new customers or from old customers?

Well, there's a mix. There are orders from newer customers here as well. So at least 10% to 12% will be completely new customers from this. And no, it's not completely LGD. It's a mix between LGD and natural. And the open order of INR 120 crore plus the new order, right, will have a mix of close to 65% LGD and the balance natural.

Okay. Got it. And if you can share the wholesale rate for 1 carat LGD in the current market, average would also work.

Sorry, explain me the question again.

Yes. One carat wholesale rate, I mean, the cost of manufacturing and the wholesale rate for 1 carat LGD in the Indian markets.

Anmol, do you want to take this?

So the wholesale rate, Bhavya, we can get back to you on. We would not want to share it also so publicly, but we can get back to you with those figures. And our cost of manufacturing is, honestly, pretty much the same as the current 1 carat B2B wholesale rate.

Okay. Got it.

And that's also a result of a great reason why we have shifted a lot of our focus to distribution as against CapEx-oriented into the growth of lab-grown machinery.

Got it. Fair enough. Fair enough. And if you can share, I mean, what sort of average selling price are we looking when it comes to retail? What invoice value are we targeting? And if you can throw some light on that.

Absolutely. So we are very excited for Erah Retail to open up in Q3 this year. The retail entity and the brand will be focused on non-wedding day jewelry, which is modern jewelry retail, both within malls as well as high streets. We will have a significant mall-based presence. And we hope that we will -- within the first year of operations and store launch itself, effectively in calendar year 2025, become the largest COCO lab-grown diamond jewelry retailer in India. Our average retail price that we're looking at, ballpark is between the range of INR 45,000 to INR 55,000, which places us in between -- slots us right where modern mall-based jewelry retailers are currently selling in India today.

Next question comes from the line of Rashmi Sharma with Samar Wealth.

So my first question is, over the past 3 years, we have grown at a CAGR of 14% and profit has increased by 21%. So what is your guidance for the next 3 years?

I'd deflect this question to our Chairman regarding revenue and profit guidance in the future.

Rashmi, thank you for your question. I think as a company, we've always been conservative. We've been working towards more businesses that are more margin-oriented businesses. But you see, Goldiam's growth will continue the way you've been seeing it. And we'll be happy to maintain EBITDA margins at close to 20%, 21%.

Okay, sir. So sir, my next question is, like regarding the brand Erah, like what revenue and margins can we expect from this brand? And secondly, what -- which states we will focus on and begin with the early stages?

So thank you, Ms. Sharma. I couldn't get the second part of your question. But related to margins for the Erah brand, I would like to say that we are targeting this brand to be set up where breakeven at revenue per store would be around INR 30 lakhs to INR 35 lakhs of monthly sales. So that's where we are targeting the Erah brand to be. Gross margins would be higher than our competitors who are large mall-based jewelers in our country. All of them are predominantly in natural -- all of them are in natural diamond jewelry only. And because of us being in lab-grown diamond jewelry, we'll be able to get a certain gross margin higher than what they can achieve. And that's how we are trying to set up the Erah brand. I hope this answers the question.

Yes. My second question was at which stage will you focus on and begin with in the early stages?