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

Ladies and gents, good morning, and welcome to the Kalyan Jewellers India Limited General Update Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Menon from ICICI Securities.

Hi, everyone. It's a wonderful good morning, good afternoon, good evening depending on the part of the world are joining this call from. At ICICI, we are hosting the general business update call of Kalyan Jewellers today. So we have the entire management of the team. So just requesting Abraham from the management to introduce the management participants. Post which, we'll open the floor for Q&A. Thank you.

Hi. Good morning, everyone. Today, we have on the call Sir Ramesh Kalyanaraman, Promoter and Executive Director; Mr. Sanjay Raghuraman, Chief Executive Officer; Mr. V. Swaminathan, Chief Financial Officer; Mr. Sanjay Mehrottra, Head of Strategy and Corporate Office; and me, Head of Treasury and Investor Relations. Yes. I'll leave the floor open for the call.

[Operator Instructions] We have our first question from the line of Manoj Menon from ICICI Securities.

Team, a few days back, I mean, we --Ramesh, actually, so we saw you in CIBC. There's a lot of questions asked by our team, [Foreign Language] team, I think, beyond what was there in the quarterly release about, let's say, are you planning to buy more aircrafts? Or let's say, is there any issues regarding auditors or some stuff like that? I think what will be helpful in a floor like this would be to clarify anything which are coming your way? And what's your stance on some of these aspects?

Yes. Thank you, Manoj. So again, again, back to aircraft after a long time, so at Kalyan, we do not have any plans to buy any aircraft, okay? So in fact, you are all aware that we had initiated steps to sell 2 business jets during FY 2023. We received the funds by the end of FY 2024. And as we speak, by September, there are no aircraft in the books, except for a helicopter, which we have not told that we will sell, and there is no plans to sell the helicopter. And regarding what you spoke about the auditors, there's absolutely no basis for this. We are in regular touch with our auditors. And as we speak, the auditor is conducting the audit for the third quarter. In any case, you would get the audited financial statement for December quarter in the coming weeks. And let me reemphasize at this juncture that we have always strived to maintain a very high standard in our bookkeeping, quality of auditors, diversity and depth of our Board of Directors, disclosures, internal control processes and overall corporate governance. Did I answer you, Manoj?

Yes. Yes, Ramesh.

We take the next question from the line of Gaurav Jogani from JM Financial.

My question is, again, with regards to certain rumors that are floating around. So one is regarding, there has been some IT raids that has been conducted by the department. And then there is some overvaluation of inventories, and also the fact that the other question is that Manoj has already asked. So plus there are -- this is franchisee thing where you have changed the franchisee agreement retrospectively, and then there are many franchisees that are leaving. So probably if you can clarify all of these.

Yes. So of all, you told about 3 or 4 things. I can confirm that there are -- there have been no raids at any of our premises. As you mentioned, it was just a rumor. And then you were talking about what inventory, right? So inventory levels, as mentioned in our financial statement, go through multiple levels of audits, which all of us know. In fact, I would like to draw our attention to free cash flow generated over the last couple of years. As you are all aware, we have repaid around INR 450 crore debt over the last 18 months in addition to around INR 170 crores of dividend which we paid last payout. And we are well on target to achieve this year's target to reduce debt. So I don't think there's any -- that's all I can tell you about the inventory and stuff, okay? And then you were asking about the franchisee terms. This also we have mentioned in our previous interactions. We have, of course, made changes to the franchisee agreement during the current financial year, but this is only for the new showrooms which are coming up in the financial year, and it will not impact any of the agreements that we have signed in the past under the previous model. Did I answer everything?

Yes, just a last thing here. In terms of the franchise agreement, the new ones at least, are you, what kind of traction are you seeing post introducing this, the new terms? Is it favorable to the franchisee? Are they agreeing for it? Or are there any resentment from them?

We are, of course, you know that we opened 50 showrooms this financial year. We are again going to open 30 more in the financial year, which was there in the update and which is the new model. Next year's expansion plan is also there in the update, which we did in the last week. Okay. Next year, 75-plus Kalyan showrooms, okay? And everything is a new model. And we have started signing for the next year, and it is very favorable for the next financial years.

[Operator Instructions] The next question comes from the line of Vihang Subramanian from Zaaba Capital.

Just one question. If you could clarify on the promotion plain. If you could just clarify at what price has that been done? And what are the terms that was laid?

Yes. So the pledge of shares reflecting against the promoter name, all of us know. And I'm just reconfirming that it was to acquire shares from all the [ takers ], okay? And one thing which we can say is that before entering into promoter financing agreement, we, of course, had enough attention, have given enough attention to liquidity and per the [ levels ] and they have controlled our exposure accordingly. And you know that as promoters, we have always prioritized the company interest ahead of everything, okay? And it would be very inappropriate for me to talk about it further because this call is not a promoter call, meaning it's for Kalyan, and let me please stop at this.

Sir, just actually...

One thing which I can tell you, this was also brought from what were -- in the range of INR 530. So that also I'll tell you for your comfort.

But could you just clarify if it's, like, the deal went to 1 party or multiple parties?

Yes. So there are multiple parties, multiple lenders for the transaction.

The next question comes from the line of [ Brahm Prakash ], an investor.

Yes, I'm one of the retail investor, actually. So I mean, congratulations first for the fantastic business that this year has given for the Q3. However, at the same time, on the day of when this business it was given to the market, we are seeing continuously fall in the market. Market has not taken into it positively yet. That's what we can see from the last 6 days. So is there something that the market is sensing that this increase in this [ gain ] will not continue further for the next quarter or the next year, something, or even it is government issue or something that the retail industry is not aware of?

No. So as I gather from the questions on this call, I presume that there might have been some rumors floating around and -- which is all baseless. And that is the main intention of this update call also, okay? In the business front, nothing has changed because Q3 was great, and we have updated the numbers of Q3. The results will also come in the next 2 -- few weeks. And nothing majorly can change over a week, right? So there can be possibly some rumors which have been floating around, and that was the main intention of this update call as well.

The next question comes from the line of [ Raj S. Vias ] from TM Investment Technologies Private Limited.

As you mentioned rightly so that you made some changes to the franchisee agreement, and it is only applicable for the new showroom jeweler coming up for, I guess, next year. So can you elaborate on the same, like, what are the changes, like, with respect to the existing this agreement, like, is it old agreement, franchisee agreement and the new? So what are the intricacies or any challenges that you guys have faced, sir?

No. So there are no challenges being faced, as I mentioned before, because this change of franchisee is not a surprise for anybody. It has been a planned execution. And the major change is that initially, the franchisee stores, we were investing for the CapEx fit-out and the franchisee partner was investing for the inventory. Now the new model is CapEx and inventory is being invested by them. That is the major change which we have done.

Okay. Okay. That looks, like, good, right?

Yes, everything is perfectly aligned, and that's why we gave the next year expansion plan also and everything is on track.

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

To these, asked, from [indiscernible] thought from them. One, just one other participant asked that is there any termination of [ India JI agreement ], if you can clarify on that?

No, I'm not -- it's not really clear, okay? Your voice is not very clear. Can you repeat the question again?

I -- is there any termination of any agreement that you had already signed? Or maybe there's more that has been opened?

Yes. Of course, we have a few terminations of contracts where there can be some -- what we call some breach of contracts done by some franchisee partners and stuff, not major, maybe 3 or 4.

Okay. And there are even more rumors...

As I've been intimated before, okay? When we have changed our franchisee, we have told before that there has been terminations in the franchisees.

Okay. There is one more rumor going around in the market. I won't [ say ] the agency. But the rumor is there is one which is -- which may have or likely conduct an inquiry on Kalyan Jewellers, stating that the promoters or promoter group had driven some fund managers to rise the price in the market. That's one I have heard.

Yes, I've read, very, as well, allegation. Okay, we have always conducted our business and our interactions with all stakeholders, okay, with very high level of integrity and transparency. So I can only leave this like this wherein I cannot answer further on this, and it's very absurd when you hear it said..

The next question comes from the line of Prolin Nandu from Edelweiss Public Alternators.

So a few questions, right? One is that on this franchisee agreement, right? So let's say, if I'm a franchisee who joined in FY '24, FY '25 and FY '26, for me, everything else remaining equal, how will my IRR change, right, for a franchisee who has joined in FY '24, '25 and '26? If you can just help us understand whether there is any significant change in IRR to make it a little less attractive for franchisee to come and take the franchise of Kalyan? If you can just give some color on this part.

Yes. So as I mentioned before, the major change would be the investment, okay, wherein the ROCEs can be a bit more lower, because initially, they were investing only in the inventory, okay? Now they are investing for the CapEx as well as inventory. So the ROCEs can go around by approximately 2%.

And sorry, can you give some approximately range as to will it go down from 18% to 16%? Or what could that number be?

Yes. So the usual ROCEs are approximately 17%. So now it can come down up to 15% Okay.

Okay. And when you think from a franchisee point of view, right, I mean 17% to 15% is a decent enough difference, right? So how is the franchisee thinking, right, whether that 15% still makes sense? Because there are not many opportunities that will give you 15%. Or how should one -- if you, as a business owner, step into the shoes of another business owner, let's say, the franchisee, what is it that is bringing him on table even at 15% IRR?

Here again, the proof of the pudding in eating, right? So as I mentioned, 50 showrooms this year is in the new model. And all the new showrooms for the next year is in this model. And we have almost signed up all the franchisees for the next financial year. And even now, there is a huge waiting list for taking our franchisee. And the major advantage for a Kalyan franchisee is the FOCO model, wherein they do actually nothing and they get 15% ROCE. And again, most of the people leverage also. So the return on equity is much higher than the ROCE.

Right. I understand. So is there any change in the franchisee agreement between the franchisee that you have signed in FY '25 and the ones which you intend to sign next year? Or it remains -- it's the same?

So the last -- the second half of the financial year is almost everything the new model, okay? That is the same model for the next financial year. And let me be very clear that there is no destructive change, right? So obviously, the newest rooms are being changed use model. It's not changed in the back. I mean people who have taken the first showroom cannot come to this model now.

I understand. I understand. So just from a slightly more longer term, right, if we leave some of the noises apart, which you have adequately kind of answered, you as, again, owners of this business has had a fantastic run, right, in past few years since listing, outperforming the jewelry sector, organized jewelry sector. So what is it that -- on the business side, that keeps you awake at night or you worry about, right, some of the things which you think can derail this fantastic run that we have? If you can just, from a longer-term perspective, right, just share your thoughts on this.

Again, I have done this in the previous calls when people ask, okay, wherein the only area which we focus now is on execution because we are into expansion mode. We are going to open 80 showrooms in the financial year, wherein 50 have been already opened by September, okay? And next year also, we are going to open 170 showrooms spread across Candere and Kalyan. So execution is our primary focus. There is no new strategy which has to be in place. There is no new R&D, which has to be done for Kalyan Jewellers. It is predominantly focused on execution, for which we are aligned. Our whole team is working only to make this execution in tune with our execution plan. So otherwise, business is the same, everything remains the same. And there is nothing major which can change over a week.

The next question comes from the line of Abhishek Sengupta from [ AB Capital ].

Yes, yes. I just wanted to ask that we have been growing very nicely for the last few years. I just wanted to ask in the long term, like for next 3, 4 years, will the same type of sales growth continue going forward, like, next -- mainly for next 3 years?

So again, I will tell you that right, like what you said the last 2, 2.5 years, the SSSG has been very strong. It has been in the double digits. And the store expansion plan is also on track. The new franchisee more or less really working for the brand. The expansion for the brand is really happening. Market share gain is really happening, huge shift from unorganized to organized is in place. So there is nothing major which can change in the near future. That is the only thing which I can tell you. And again, there are a number of markets where we can go and expand. Even with this store count, we are only 50% to the industry leader. And there is -- there are markets where we can go and enter. I cannot tell further on the 3- or 4-year number, but this is what I have to tell for you to actually observe.

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

In terms of the franchisee, could you just -- have we offered the franchise agreement that we have, have you offered to other franchisee our -- and the store has been closed on the locations, [indiscernible] then?

You were talking about the franchisee closure, right?

Closure, yes, yes.

Okay. So there is a -- you -- all of us know that there is a lock in of 4 years, and we. If we close the franchisee, it will be only if there is some breach, and even if we do, it will be converted to own store rather than closing the premise, because the premise is also in the name of Kalyan Jewellers. The lease is in the name of Kalyan Jewellers. And that is why the lease has been in the name of Kalyan Jewellers because the relationship can weary, but we cannot leave the premise because it's a Kalyan brand.

Okay. And in the market, you have also given update that you are going to open new stores. So are they continuing on the stores? Or you have planned for franchisees terms?

So all the new stores for the next financial year, as updated recently, will be FOCO model franchise in India.

So this agreement will be released in the international markets too?

International markets, there are small tweaks, but there is no major change in the international model per se.

Okay. So we are offering margins with franchising partners?

Margins?

We are offering to the franchise partners that we are doing in the Indian markets?

Yes. So margins can vary because international markets, the gross margins can vary, but the methodology is the same.

The next question comes from the line of Prafull Ray from ?rjav Partners.

Yes, Prafull. I just wanted more clarity on what would be the impact of these manufactured diamonds on our business? I'm also hearing that the price of natural diamonds is on a steady decline. Will there be multi-markdown because of this? And how do you see our future versus the changing industry trend?

Now again, as mentioned before, the lab-grown diamonds predominantly is in the Solitaire product. And as a brand, Kalyan Jewellers, we have not focused too much on Solitaire even before. And hence, we don't see an impact on our standard ratio. And even if you look at the last week update, which we did, the revenue growth was approximately 41% in India. And we have also said that the revenue growth is across our products, gold, studded, et cetera.

[Operator Instructions] The next question comes from the line of Pradeep from [ Strings ].

I'd ask you, like, to reduce the stock fall because the PE is so high. Why can't this be promoted, instead, to buy back some shares? Maybe the -- clarify on the margins, because the margin cut are the INR 60 crores onetime loss, which has been expected in this quarter. Promoting it can be -- maybe if you sample masses in the market, maybe sentiment will change, right, given we buy back to reduce the fee. Or you can simply say that promoter wants to bear the -- or maybe -- somehow it's illegally, right? You can bear the INR 60 crores in terms of, I mean, charges mix, kind of, I don't know. You can do that?

You're asking about company buyback, right?

Yes, the company buy back. Because the problem, basically, you say that fee is very high. The only way that there'll be is a buy back.

Yes, so as a company...

And second thing that, actually, that made the [indiscernible] basically is the onetime loss included because of the duty cut, which is continue on this quarter as well. So my question was this series continue on Q4 as well, it is going to reduce only to this quarter only, have you made the mitigation or something that -- so that the thing with margin will not be less as it was Q2? Or are you planning to this -- the promoters, maybe you're simply planning to get INR 60 crores somehow to them, so what's basically coming on the balance sheet. Maybe -- because the markets' sentiments are the same because of the economy, because they are expecting this onetime lock to continue for it for a few more quarters. Because -- I don't know. The inventory has been completely settled now, the past inventory before the rate cuts. Can you answer that?

Yes. Yes. So because the question is long, I would just recheck the question. One was you are talking about a company, are we planning for a buyback or can we plan, right? So as of now...

There's already the fee, yes.

Yes. Yes. So as of. now, we are using the free cash flow generated to reduce our debt, okay, and release the real estate collateral, which is making the balance sheet very heavy. So post the debt repayment, if we do not find appropriate avenues to invest the free cash flow, we could surely well with cash buyback. And if you are mentioning about the promoter buyback, of course, you know that we are on a silent period now, and we just do the buyback from a couple of months before.

So what happens to this onetime loss of the inventory? The inventory you had before the gold will be cut? You stated in the previous [indiscernible] that it is, indeed, maximum INR 120 CR and that INR 70 CR has been adjusted in Q2 and remaining INR 60 CR is adjusted in Q3. This will continue like Q4 as well?

No. We clearly told, the inventory loss, onetime loss will be partially in Q2 and then remaining in Q3. So it is all done by now. There is no more "inventory loss" which can come in Q4.

Have you not definitely raised the margin on, like, this in your diamond stated products to mitigate all this onetime loss -- more like one time losses...

We will not be able to -- as you know, that we are in the retail business. 40%, 50% of customers are coming back to the same brand. Because we had a onetime loss, we will not be able to increase our gross margin. And again, it might not be very favorable for the customer. And customers are all lifetime customers, and we will not be able to frequently change things because of some macroeconomical reason. So -- and it is what -- the revenue is also growing, strong market share growth. So we cannot disturb anything. And this is onetime and all investors also understand that it's one time.

Is it only because the back inventory has been completely, like -- you are like whatever inventory was there, volume inventory is completely be fulfilled? You're -- or you're still being pending like...

No. I did not get you there. Can you repeat?

The inventory was there, so the loss is there because of the inventory loss. What is purchased [indiscernible] was there. That's what we believe now.

We believe the inventory loss, duty cut is majorly for the gold loan quotient, because we will not be able to hedge it, the duty cut, meaning duty. So it's not an impact for the whole inventory. It's for inventory, which is majorly into the gold loan quotient, GML.

Is that completely, like, fulfilled for -- in this quarter...

Yes. Q2 plus Q3, the onetime loss will be fully covered. Q2, the number you already know and the remaining will come in Q3.

Is the -- promoter can tell the media something that basically, CEO, you should bear, maybe I'd ask -- in terms of loan or something like that, it's legally allowed, right? It's not you are being managed in some balance sheet. But in a -- you can look -- you're looking for sentiment to the -- the market is saying that basically, you see, promoters are willing to pay INR 60 crores from their side -- some of -- because the market has crashed and that Kalyan has -- stock is in clash, more than INR 600 crores. INR 60 crores, maybe. INR 600, so it's a bit of a minimum amount, right? It's 0.0001, maybe, right, which promoter can be right? Just for market sentiment, I think...

No, no. I don't know. I don't know how you are pending all this. According to me, there is no revenue where INR 50 crores, INR 60 crores can be done by the promoter, okay? This has happened to all the players. All the registered players have the same issue. All the other players also have the same issue. It is a onetime loss and everyone knows about it.

So has your OPM grown from Q2 to Q3 now as it has been?

Pardon?

Your operating margin has been growing from a little bit in Q3? Or still the same?

From Q3, you mean?

Yes. The Q3 results is coming up.

No, no, Q3. Q3 result is not yet out. So I'm not...

I understand now. Sorry.

In the next few weeks, you will be able to understand about it.

So when will the Q3 results coming up, like...

We are yet to announce. We are yet to announce. But yes, in a few weeks.

Okay. But has the -- OPM has been increased so far, like in your case. So have we increased?

No, I will not -- no, no, no. I will not be able to tell that number because you understand that this update call was not for that, and please cooperate. You can please come on after a couple of weeks when we announce our results, I will surely clarify.

No, no, no, what I'm not asking about us [ getting married ], I'm asking about the margins you have been giving away to the store or taking from the store has the same in Q2 and Q3.

Those margins are really stable. And the store level gross margins are really stable.

We'll see them there. They have not changed, we are now adjusted to recover any losses.

No, we are not.

So you're not adjusted to recover any onetime loss. Okay.

No. No. No.

And so the buyback, if I ask, is there a plan for that?

As I told you, we have already layered out our strategy for the next 1.5, 2 years. We will use the free cash generator to reduce our debt and release the real estate collateral, which is making our balance sheet look very heavy. Post the debt repayment, if we don't find appropriate avenues to invest the free cash flow, then we would surely evaluate a cash buyback.

Has the promoter has placed any shares in last 1, 2 months?

Pledged, you mean?

Pledged your shares of product?

Yes, You know we pledged 3, 4 months before when we bought stock...

The last part, I understand that what it is that's all there. But last 1, 2 months have been...

No, no. No.

The next question comes from the line of Pavan from Fidante Asset Management.

Are you seeing any increase in competition either it like store rent levels because there are more people looking to open stores in a similar location that you would be looking? Are in the making charges that you can charge to customers because the competition is reducing or at the [Foreign Language] in the fee that you pay to them for manufacturing charges? Any places that you are seeing? And in terms -- if not at the country level, are you seeing any [Foreign Language] pockets like Maharashtra or West Bengal, like in Eastern Asia, any such thing?

The competition, you know that it has always been there. And we are a brand. We are very hyper local, so we compete with local players, regional players and also national players. It is not a new thing, which has come up for us. And if you look at competition, you have seen the numbers, for the past many quarters. Revenue has been growing. There is no impact on the gross margin at the store level, so that leaves a message for you.

Got it. One more thing in reference to the earlier discussion on diamond inventory, how do you -- like is that -- what part of the inventory would be coming from diamonds alone? Is this number of materials if you can disclose it? And how do you hedge that if you see a slight decline in prices?

So first of all, let me tell you that the decline in prices are on Solitaire's, and as a brand, we don't talk too much Solitaire and we don't focus on it. And diamonds, we cannot hedge, okay? And 1/4 of inventory or approximately 1/4 of the inventory will be stable.

The next question comes from the line of Manish Poddar from Invesco Asset Management.

Just 2. One is, is there anything, let's say, any development or any change, let's say, of whatever is happening in the last 1 week? Any feedback, anything from, let's say, vendors or let's say our franchisee partners? If you can call out if there is any, that will be helpful.

How are they even related to stock market? Stock market volatility is always there. So I don't think the vendor or a franchisee partner is even bothered about our stock market volatility. And nothing has changed over the last week. Everything is on track and everything is going the direction which we want, except for the stock price.

Okay. And that's very comforting, and just one more thing. You all mentioned about, let's say, franchisee closures. Is this marginal? Or this is also a focus, this is anything material?

Come back.

In the earlier comments, you mentioned that there have been some franchisee closures. Is this part of the course? Or is this material is what I'm trying to understand?

Majorly out of the 100-odd franchisee, which we have. There has been closures of around 3 or 4, okay? And predominantly, it is because of some breach of contract terms, which they would have done. And you know that we have a lock in 4 years, so it cannot be voluntary. They cannot -- we cannot do a voluntary -- they cannot volunteer for a, what you call, closure. If there has been some breach, then we would have -- surely, we would have terminated the contract, okay? One franchise who has a couple of showrooms, that is the termination that I referred to.

The next question comes from the line of Sanjay Singh from Tenex Capital.

Just wanted to understand how many FOCO franchisees you have as on date?

As on date? Or as on September?

I mean, whatever as of last, whatever you've reported.

So we have around 120-odd franchisee stores, FOCO.

Okay. And rest COCO? Or rest are FOCO?

Everything is FOCO. We don't have any other model except for company-owned, then otherwise, if you're a franchisee, it's FOCO. So FOCO and COCO.

110 FOCO models and rest are company owned.

Yes. Yes. Yes.

Yes. Okay. And so when the franchisee in the franchise, FOCO stores, is the gold hedged by the franchisee? How does it work? Because we own the inventory, so technically, you cannot hedge it. So how does it work?

Yes. So we do not get into that, okay? The only thing what we do is that the inventory, they do a cash flow hedge. So whatever inventory is sold, then they buy it back. So that's what we [ forced ] to, because we have 2 bank accounts wherein that cash can be used to only do [ retrace ] the inventory.

Okay. So is there any agreement with the franchisee that if gold prices fall, because these franchisees are not more a financial partners per se, because they're not involved in the business. They are effectively giving finance. And for them, anything which gives the highest return is where they would go. So is there agreement with franchisees where in case the gold price falls, it's Kalyan's prerogative that they would have to kind of compensate the franchisees?

No, no, how can we compensate for the gold price. The inventory is owned by them, okay? The only thing that we have done is we have put in a system wherein to ensure that the volume of gold at the showroom is maintained at the initial level, which we have fixed for them. Even though when we tell you INR 20 crore inventory, internally, it's not INR 20 crore inventory. It is XYZ kilograms of gold and XYZ units of sterling, okay? That level has to be maintained. That system we have put in place.

Yes. But what I'm trying to say is these are financial partners. If in case, for some reason, I mean, last year or last few years or last many years, for 20 years now, gold has been on upswing. And if you look at the previous 20 years, 1980s to 2000 gold have -- gold price halved. So in case we see some kind of issue with gold prices, then, I mean it's -- the franchisee is a financial partner. You would say, no, I need my returns. So in that sense -- in some sense, Kalyan is also exposed to the -- even if the franchisee holds the inventory, right?

Returns are in 2 levels, okay? One was the inventory, for example, if they have invested INR 20 crores, say after 7 years, 10 years, that inventory of INR 20 crores might have been INR 25 crores or might be INR 18 crores, okay, whatever the case is according to you. The major area where we focus is the return of the so-called 15%, 17% is on the day-to-day business, okay, where cash is generated. So that is where they look at their return rather than the gold price. The returns, they're making sure -- this is where they focus on. That is the actual return by cash. The other thing is only either increase in their inventory investment or decrease in their investment, right? There is no cash flow impact on that. That's why we have put the system in place, as I told you.

Typically, when you open a franchisee store, what is the sales which you get from 1 store and on average, INR 20 crores, INR 30 crores?

It depends upon inventory. So the inventory can vary from INR 20 crores to INR 30 crores. For making our life easier, if it is a INR 20 crore store, we will target a 2.5 stock turn, but that's the target for us for revenue. So INR 50 crore revenue for a INR 20 crore inventory.

Okay. So when you open a store, the first sale is INR 20 crores in your books?

Yes, the initial revenue will be INR 20 crores in our book. And the -- we will keep a target inventory turn of around 2.5x, a 3-year average, the first 3-year average.

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

Sir, just one last clarification on rumor -- about the rumor only. And there was also one rumor stating that there was an FOR against the promoters so...

Pardon. I'm not able to hear you properly.

Sir is it better now?

Yes, yes. Clear.

Yes. So I think there is one more rumor that is floating around regarding there is some FOR done against the promoters. So go on with a clarification on that one, too.

So I can confirm that we have not received any FIR against the company or the promoter. Anyway, if there was something, then we should surely update in the stock exchange, right, so that itself makes it clear that we have not received any FIR against the company or promoter. Yes, we are in the seat of summon, which has a reference to an affair number. This pertains to litigation with a franchisee partner, where the dues was settled and the contract was terminated due to breach of contract terms. According to the legal advice we received, this is purely commercial and civil in nature and does not warrant an FIR. We have already taken legal action on it. But to your question, we have not received any FIR against company or the promoters.

The next question comes from the line of Rajeev from Nuvama Wealth Management Limited.

Sir, how long were these terminated franchisees in the system?

How?

How long were they associated with us?

This core franchisee whom I was referring to was only for about 6 months or something.

Yes. Okay. Secondly, the SSSG, just a clarification, the SSSG report, this is largely on secondary sales, right? Or it is on secondary sales, right, not on primary?

Only secondary.

Okay. And the primaries are largely in tandem with the secondaries or because of, let's say, the momentum you've seen that you're trying to push a little more primaries now?

No, no. So we follow a replenishment model when the inventory is sold, we refund.

Sure. Sure. And thirdly, in terms of the agreement, there used to be -- if I am right, there used to be a minimum guarantee in terms of the yields, your franchisee makes, right? Has there been any tweak on that front?

No minimum guarantee for franchisee. We have not given any minimum guarantees. And for Candere, yes, we had what we call, given certain minimum guarantee for Candere because we also know that Candere, as a brand, we have to open the stores and then with a so-called number of stores only, we will be able to start our campaigns so -- for which, we have a minimum guarantee in place for Candere. But for Kalyan Jewellers, we give only one guarantee, which is the gross margin. So gross margins, we tell them that there's a gross margin guarantee. But we don't have a return guarantee. We don't have a revenue guarantee.

So my question was that they get 60% of the...

Yes, yes, yes. That they'll get. So 60% of the gross margin is guaranteed.

If it falls below 12%, we'd be guaranteed 12%, no?

Yes, of course, yes. That's the guarantee which we give.

[Operator Instructions] The next question comes from the line of Sanjay Singh from Tenex Capital.

I just had another question. For your inventory, is it gold on loan? Or I mean, do you hedge it by gold on loan? How much percentage do you hedge? And how do you hedge it?

Abraham, do you want to take it?

We use gold metal loan also to hedge our inventory. All our gold inventory is completely hedged. Gold metal loan constructs about close to 40% of our overall gold inventory.

And the rest would be -- how do you hedge it? 28 counts to -- I mean, through exchanges.

Through exchanges. Through multiple exchanges, yes.

Thank you. As there are no further questions, I now hand the conference over to the management for its closing comments.

Thank you very much for joining the call. It was a very last minute call. Thank you very much, and we'll meet you again in a couple of weeks. Thank you very much.

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