Kalyan Jewellers India Limited (KALYANKJIL.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kalyan Jewellers India Limited Q2 and H1 FY '26 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Rahul Agarwal. Thank you, and over to you, sir.

[indiscernible] '26 Earnings Conference Call. Today on the call, we have with us Mr. Ramesh Kalyanaraman, Executive Director; Mr. Sanjay Raghuraman, CEO; Mr. V. Swaminathan, CFO; Mr. Sanjay Mehrottra, Head of Strategy and Corporate Affairs; and Mr. Abraham George, Head of Investor Relations and Treasury. I hope everyone had a chance to view our financial results and investor presentation, which were recently posted on the company's website and stock exchanges. We will begin the call with opening remarks from management, followed by an open forum for question and answers. Before we begin, I'd like to point out that some of the statements made during today's call may be forward-looking. A disclaimer to that effect was included in the earnings presentation. I would now like to invite Mr. Ramesh Kalyanaraman, Executive Director of Kalyan Jewellers India Limited, to give his opening remarks. Thank you, and over to you, sir.

Thank you. Good evening, and -- an excellent all-round performance during the recently concluded quarter. Momentum on the ground remained robust for most part of the quarter with an exceptional 9 days of Navratri sale to end the quarter on a very strong note. The pickup in the momentum that we witnessed during Navratri continued to the ongoing quarter as well. Same-store sales growth for the 30-day period ending Diwali was in excess of 30% on a like-for-like basis. As I mentioned during the previous call, we had consciously paused the repayment of debt in India as we were focused on getting the approval for the lease of the real estate collateral pertaining to the debt already repaid over the last 2 years. During the last quarter, we received approval from the lead bank of our consortium for the lease. Subsequently, we have reduced INR 130 crores of debt, taking the non-GML debt levels to INR 550 crores as on 30th September and are on track to achieve the annual debt reduction target of INR 300 crores. We have also initiated steps to monetize the noncore real estate assets. I'll now hand over to Sanjay. He will take you through the numbers. Thank you.

Thank you, Ramesh. Good afternoon, everybody. I'm really happy to be talking to you after a good quarter and an excellent festive season. In the just concluded quarter, our company reported consolidated revenue of INR 7,856 crores, a 30% growth over the corresponding quarter of the previous year. Consolidated EBITDA came in at INR 497 crores versus INR 319 crores in the corresponding quarter of the previous year. And consolidated profit after tax came in at INR 261 crores versus INR 130 crores during the corresponding quarter of the previous year, a growth of 100%. Coming now to give you the breakup of the numbers, quarterly numbers between India and Middle East, starting with India. For the just concluded quarter, India revenue was INR 6,843 crores compared to INR 5,221 crores in the corresponding quarter of the previous year. India EBITDA was INR 432 crores versus INR 257 crores in the corresponding quarter of the previous year. And India profit after tax was INR 262 crores compared to INR 120 crores in the corresponding quarter of the previous year, a growth of 118%. Coming now to talk about our Middle East business. Revenues in the Middle East for the quarter was approximately INR 866 crores versus INR 800 crores in the corresponding quarter of the previous year. EBITDA in the Middle East was INR 61 crores versus INR 59 crores for the same period of the previous year. The Middle East business posted a profit of INR 15 crores for the quarter compared to INR 14 crores in the corresponding quarter of the previous year. Talking about Candere, the business posted a revenue of INR 93 crores in the quarter versus INR 41 crores in the corresponding quarter of the previous year. We recorded a loss of INR 9 crores in the quarter versus a INR 4 crore loss in the corresponding quarter of the previous year. Talking about the first half of the year, consolidated revenue came in at INR 15,125 crores, a 31% growth compared to the corresponding first half of the previous year. And consolidated profit after tax at INR 525 crores, a growth of 70% compared to the first half of the previous year. During the quarter, we opened 32 stores, 15 in Kalyan, India, Middle East stores -- 2 Kalyan stores in the Middle East and 15 Candere stores. I'm now done with the summary of the financials, and we open the floor for questions. Thank you.

The first question is from the line of [indiscernible]

Congrats on the results. A couple of questions from me. First is many of your peers have called out fairly precise numbers for the festive season sales. So could you throw some light on how Kalyan has performed?

Yes. So I told you we look at Diwali minus 30 days, and the same-store sales growth have been 30% plus. Because total revenue will misguide you because we have added a number of showrooms, et cetera. So it will not be a right, what you call, way to look at it is what we thought. So Diwali minus 30 days every year, we tell you and SSDs are very strong, 30% plus.

Okay. And the other bit is that after Diwali, you tend to see a pretty significant drop off on this trend versus the normal sort of momentum. How is this year panning out? Is the same? Is it different.

No, it's going strong. SSDs are very similar to what we saw pre-Diwali. And post Diwali also, weekends are very strong. And as we speak, things are moving almost in the same line.

Got it. And in terms of your full year guidance for the number of stores that you'll open up, what's the number now?

So we opened India, Kalyan, 25 till September. Before festive, again, Q3, we opened 15. So we are at 40 as we speak approximately. And yes, so we -- meaning the plan is to open 84 for this year.

Got it, sir. And the final bit is on margins. The first half, the margins have been very healthy at the PBT level. Any sort of thoughts on how this trend will evolve into the full year?

So usually, if you have noticed Q3, the margins, PBT margins or the gross margins are always on the higher side in Q3 when compared to Q2, specifically because of the own store, what revenue share between South and non-South and the product share also. So that is how we should look at it. And the pilot is still on, and we get a margin growth in the gross margins. So that is how we should look at it. You know that the repayment of debt is also there. So interest saving can also be there. So with all this, PBT margins should be more in H2 than in H1.

Got. On the pilot bid, just to be clear, what is the plan going forward?

We are maintaining the same levels because now the debt reduction also has started. So we will maintain the same levels. And if you look at the next financial year, we have the remaining INR 400 crores of debt to be reduced. And now the collateral release is also there. So that liquidation can also happen. So the debt repayment for the next financial year can be earlier than what we thought. And once that is done, then we might go into increasing the pilot phase.

The next question is from the line of Gaurav Jogani from JM Financial.

Congrats on the strong set of numbers. Sir, my first question is with regards to the gross margin only. I mean if you can quantify how much is the advantage in this quarter because of this -- the pilot? And is there any other advantage in terms of the last time we had some non-hedge gain -- sorry, non-hedge gains also on silver and the other metals. So if you can quantify that number?

You're talking about Q2, right?

Q2, yes.

Yes. So around the same range, so maybe 0.2%, 0.3% because of the pilot and the rest can be very minimal for other metals like platinum, silver, et cetera.

Sure. And this kind of a gain, at least can we expect for the next couple of quarters more to sustain given that now, although you are not incrementally doing this pilot, but at least it will sustain at the current levels?

It should be in the same level. And as I told you before, pilot will continue at the current level for the financial year. So it should maintain at the same 0.2, 0.3% increase in gross margin. And usually, Q3 gross margins are better than Q2.

Sure. And just lastly, on Candere, we are seeing now losses in Candere it is coming out at a gradual pace. When can we expect profitability in that segment?

So Candere, if you look at even now, store EBITDA, we are already positive and positive means it is meaning strong double-digit EBITDA positive at the store level. And even if you look at the corporate EBITDA, we are almost neutral now. Way forward, this financial year, we will end Candere with PAT neutral PAT positive and the revenue target for the year will be around INR 500 crores.

Sure. Sir, just one clarification. When you say PAT neutral it will be on the exit basis, not for the full year, right?

Full year.

The next question is from the line of Nihal Mahesh from HSBC.

I had 3 questions. First was a clarification on the debt payment. So in your annual report, specifically for the non-GML part, I think you're looking at taking it from INR 880 crores to INR 400 crores. So just wanted to check this INR 130 crore reduction is specifically for that? And does that target stay?

Yes. So if you look at the non-GML, March non-GML was optically higher because of issues with GML. So what I told of INR 130 crore debt reduction was negating all that because if you look at only non-GML, we have reduced INR 350 crores for H1.

Fair enough. So that target of INR 400 crores or INR 4 billion of non-GML loan at the end of FY '26, that stays.

Yes. So it will be at the range of INR 400 crores non-GML by March 31. And next year, it will be debt free.

Understood. That's absolutely clear. Sir, the second thing was that in the earlier call, you had mentioned about 2 parts to the pilot. One was obviously the local jewelry brand, if you could give an update on that. And the second part is the pilot related to changing the sourcing specifically for brand Kalyan. If I understand that is something you're pausing, but the pilot for the local -- hyperlocal jewelry brand continues as per expectations for a launch in Q3.

So it is on track. And from day 1, procurement pattern will be like the pilot for the regional brand? For Kalyan Jewelers, we will not increase the pilot. It will go in the same range for the financial year. And now about the launch of the regional brand, it should be in Q4.

Q4. Any further details you want to share other than the thought of 5 stores and investment of INR 3 billion, INR 3.5 billion more than that, that you want to clarify in case there is more details to that?

It remains the same. So we will do 5 showrooms in the next 12 months. And the investment will be around INR 300 crores to INR 350 crores. And we have also got franchisee inquiry for that, but maybe the first couple of stores will be our own store.

Understood. Sir, the last question is generally with the kind of gold price movement that we've seen historically, it has seem to obviously see a lot of increase in the inquiries of franchisees that have happened historically. Have you seen that? And does that then give you a confidence not this year because there would be a pipeline that in FY '27, the store addition could be -- or the franchise addition could be much better in India than what maybe at this point we are thinking?

No. Even now, you know that franchisee capital availability is much more than the 84, 85 showrooms, which we want to open this financial year. And we are putting franchisees on hold even for the next year, right? So expansion scale cannot increase more than this. It is especially because we don't -- we have to check the bandwidth very often, okay? And again, interest level has increased, but interest level was already overboard for us. So some of them, we have -- they have expressed interest for the regional brand, which we will surely evaluate.

The next question is from the line of Devanshu Bansal from Emkay Global.

Congratulations on very good numbers in H1. Sir, you mentioned that 30% SSG for festive. I wanted to check if you could also split this growth into number of buyers. Has that also sort of picked up in relation to whatever trends we have seen in H1 and within buyers, if you can comment on, say, coins, plain gold jewelry and studded, that will also be useful.

Yes. So studded ratios are going strong. And new buyer share is in mid-30s, and it is also maintaining the same level. And what else did you ask?

I was checking on the buyer growth, sir. So this 30%, how much is the buyer growth in this overall, overall bill cuts, maybe what is the bill cut growth in this 30% SSG?

Yes. So ticket levels have been the same, maintaining almost the same ticket level. And the SSDs have been 30%. So that's why I told you the new buyer share is almost 30% plus.

Sorry, so ticket level, you're saying versus last year, it is same if we compare this. So how can this be 50%, 60% increase in gold price.

Yes. So ticket customer does not increase their budget only because the gold prices are going up because they have their own budgets. But of course, our customers are okay to increase maybe 15%, 20% of their budget. But nowadays, why the ticket size is maintaining at the same level is because the number of times customers shop jewelry has predominantly increased now over the last if you look at 5 to 7 quarters, there has been customers who are coming more frequently than before. And new buyers are coming to again shop with a lesser ticket size than our own customers.

Sure, sure, sure. And second thing that I wanted to understand is on the inventory side. So I guess this is mostly related to inventory that is there at our stores. So last year, September, it was around INR 7,000 crores on stand-alone. Now it is about INR 8,650 crores, so which is like 25% up. And from a growth perspective also, we have seen a similar number. So I wanted to check, I think we have done a very good job that despite this 50%, 60% increase in gold price, the inventory -- despite this 50%, 60% increase in gold price plus this 25% growth, the inventory has only grown by about 25%, right? So what exactly are we sort of doing? Are we lightweighting? Are we introducing lower carted products? So any comments there?

Yes. So like I have mentioned before, when the inventory price goes up, we do decrease the volume at the store level also. But of course, it cannot be identically reduced wherein if gold prices go up by 50%, we cannot reduce volume by 50%. But we take initiatives to reduce volume at the store. It can be by way of reducing the care page. It can be by reducing the, what we call, the volume of jewelry in plain gold, et cetera. It's what threefold, fourfold exercise, which we do.

Okay. And has there been a significant conversion also maybe from COCO to franchisee? Is that also a major reason here?

Meaning -- what you...

Have we sort of over the last 12 months, so have we also sort of converted some of our COCO stores to FOCO stores so that this inventory may not have increased to that extent?

Yes. There has been a few conversions in South India, but that is not the major driver. The major driver is because we cut the volume at the store appropriately.

The next question is from the line of Aliasgar from Motilal Oswal Mutual Fund.

Congratulations, sir, on excellent numbers. Sir, question is on the -- I mean, gold prices have risen quite sharply. So have you -- I mean, making charges seen any pressure because of that? Otherwise, probably, if I think of it this way, maybe the industry profit pool would have doubled. So just if you can share some thoughts on how are the making charges trending with such a sharp rise in gold prices? And also a related question is there's some reduction in gross margin, which I understand probably could have been because of the higher mix of franchisee? Or do you think that has seen some impact because of also making charges?

Yes, it is only because of the franchisee share, which has moved up when compared to Q1, if you are talking about Q1 to Q2.

Correct. And what about the making charges? Are you seeing any pressure on making charge because the gold price is going up? Or given that gold price doubling, if you assume the similar making charge, then basically the profit pool of the industry would have almost doubled?

Yes. So when the price goes up, some benefit we pass on to the customers also, which is an industry norm, some tactical campaigns, et cetera. But otherwise, we don't see any competitive intensity increasing because of this.

Okay. So percentage making charges is more or less the same?

Yes, it's more -- but of course, we do some tactical making charge benefit or something, but the making charge remains the same as we speak.

Got it. So that basically means that if the gold price have doubled probably in the last 1 year or so, then to that extent, the profit pool of the industry would have also doubled, right? Because if you are assuming the same making charges on the gold prices.

Yes. So even industry does the same. So it is like one player cannot decide what the industry should do, right? So industry players usually go like-for-like, wherein almost they do the similar tactics only for customers to come in.

Understood. Got it. And just if you can talk about the store addition, you gave the number for, I think, 80 stores, which is, I think, for Kalyan, right? Overall, if you can tell me across all different formats, what is the store addition we are building for this year?

So yes, 80 was for Kalyan. And to be precise, 84 Kalyan, India, and we want to do 6 international, out of which 3 run. We opened 2 in Middle East and 1 in U.K. and 80 Candere is the plan for the year.

Okay. And out of those 80 Candere, how many are already rolled out?