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

?? Ladies and gentlemen, good day, and welcome to Kalyan Jewellers India Limited Q1 FY '27 Earnings Conference Call.??[Operator Instructions]??Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Agarwal from SGA.?Thank you, and over to you, sir.?

Thank you. Good evening, everyone, and thank you for joining us on Kalyan Jewellers India Limited's Q1 FY '27 Earnings Conference 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 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 would 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 let me welcome everyone to the call. Q1 performance has been very satisfactory given the overall context. Demand remained robust during most part of the recently concluded quarter, except for 1 month of?Adhik-Maas?during which wedding-related demand slowed down in certain parts of the country. While consolidated revenue growth ex-bullion and PAT growth have been 38% and 32%, respectively, on a stand-alone basis, the revenue growth ex-bullion and PAT growth have been 38% and 25%, respectively.? Sharp rise in international oil prices and the resultant pressure on Forex led us to launch our Shine with India gold recirculation campaign. The larger objective of the initiative was to increase the share of recycled gold, reducing the dependence on imported gold and thereby make the business more resilient. The initiative was well received by our customers, helping us to increase the share of recycled gold as a percentage of revenue to over 46% during Q1 FY 2027.? For the month of June, the share of recycled gold was in excess of 55%, and our efforts will be to maintain the share in the range of 55% to 60% going forward. I'm extremely happy to let you know that we have unveiled our first regional brand exclusively tailored for Tamil Nadu markets. We have named it?Akshaya Thanga Maligai?and will also be known by its short name ATM. Inventory at ATM shall be curated specifically for Tamil Nadu preferences with designs, rates and price points aligned to regional locations and buying patterns. This will position the brand to compete directly with established regional jewelry chains and unorganized players rather than Kalyan's existing showroom network.? The first showroom will be launched on 21st August in Chennai and shall be followed by another four showrooms in the next coming months.? We have made considerable progress with respect to the sale of non-core real estate assets. We have signed the agreement with potential buyers for 2 separate parcels of land with an aggregate consideration amount to around INR 102 crores. We expect to conclude the sale process and receive consideration before the end of the ongoing quarter. Regarding the non-GML debt reduction, we are well on track to complete the repayment by end of September. Post that, we will initiate steps for the release of the second tranche of real estate collaterals.? And now talking about the ongoing quarter. The quarter has started off very well despite the volatility in gold prices. We are upbeat about the upcoming festive and wedding season and are fully geared up with fresh collections and campaigns. Thank you, and I will hand over it to Sanjay. He will read you through the numbers.?

Thank you, Ramesh, and hello, everybody. Good to be talking to you all again. In the numbers that I'm just going to be calling out now, I will be referring to revenue numbers. Those numbers are net of bullion?sales. I'm just mentioning it upfront. The company reported consolidated revenue of INR 10,008 crores, a growth of 38% over the corresponding quarter of the previous year. And consolidated EBITDA came in at INR 633 crores versus INR 508 crores in the same quarter -- in the corresponding quarter of the previous year.?Consolidated profit after tax came in at INR 349 crores versus INR 264 crores.? Coming now to the breakup of the quarterly performance between India and the Middle East. The India business came in at INR 8,503 crores versus INR 6,142 crores in the corresponding quarter of the previous year. And India EBITDA came in at INR 500 crores versus INR 434 crores when compared with the corresponding quarter of the previous year. India PAT came in at INR 321 crores compared to INR 256 crores in the corresponding quarter of the previous year.? Moving on now to talk about the Middle East business. Revenue in the Middle East for the quarter came in at approximately INR 1,320 crores versus INR 1,026 crores compared to the corresponding quarter in the previous year. And EBITDA in the Middle East came in at INR 90 crores versus INR 73 crores in Q1 of the previous year. The Middle East business posted a profit of INR 25 crores for the quarter compared to INR 22 crores for the corresponding quarter of the previous year.? Lastly, talking about Candere, our e-commerce business, it posted a revenue of INR 141 crores versus INR 66 crores in the corresponding quarter of the previous year. And the quarter recorded a profit of INR 2.1 crores versus a loss of INR 10 crores in the corresponding quarter of last year. With this, I'm done with the summary of the financials, and we now open the floor for questions. Thank you.?

?? [Operator Instructions] The first question is from the line of Jaswinder Singh from BPCL.

? Sir, I just want to know about any bonus issued from the company?

No no. No bonus.?

? Hello?I am audible?

Yes. No bonus issue.

? That's true. But what we expect that how we can take on Tanishq, you can say that share is rising very high. That is INR 4,000 and ours is sir very low. How we are competing from the share of that?

No, no. So we don't have any plans for bonus share issue as of now.? ?

?? The next question is from the line of Ashish Kanodia from Citigroup.?

Just a couple of questions from my side. First, if you can -- like we have seen 1Q has some impact of old gold exchange. But if you look at -- sorry, because of Adhik-Maas, when you look at July, how has been the demand trend??

Yes. The demand on ground is strong. It continues like Q1.?

Sir, when you say Q1, would you exclude the Adhik-Maas or you think like -- or is it very similar to the full quarter number??

I cannot give you a direct guidance like that. But on the ground, things are strong.?

Sure. Second thing is when I look at the margins and if I exclude the impact of the inventory gain, then the profit growth looks subdued because when we look at PBT growth, excluding the one-off gain of INR 410 crores, at least on a stand-alone basis, it comes to only 14%. And this, I think, would be one of the lowest we have seen where the profit growth has been lower than the revenue growth. And I think on the old gold exchange, you have called out that this trend should continue where you want to maintain 55% to 60% of old gold exchange. So on the PBT margin side, how should we look at that? And secondly, this quarter, was there anything else also which led to lower margins??

So now you should take it in this way, wherein you, first of all, negate the bullion, okay? Then the PBT margins are around what, 5.1%, which was at around 5.5%, 5.6% before, okay? So the onetime gain from the customs duty, basically, if you cut it into three, okay? Onetime gain of what INR 30 crores, INR 40 crore, that we had to give back to the consumers by way of offers, et cetera, for people to come and exchange their old gold instead of paying cash, okay? And you know that exchange itself is margin dilutive by around 0.2%, 0.3%. That also has to be taken care. And then you would have remembered, you still will remember that we had some onetime gain of platinum, silver, et cetera, which was in the range of 0.2%. So all put together, this PBT margins are at 5.1%.?

Got it. And then just going forward, when we think of the margins, at least on a PBT level, we should expect this 0.2%, 0.3% margin dilution to kind of continue because at least for the next 2, 3 quarters, the old gold exchange levels will remain high and you will not have the benefit that -- maybe there will be some benefit of the inventory gain in 2Q as well. But for the next 2, 3 quarters, this 0.2%, 0.3% margin dilution on the old gold exchange, will that continue??

No. So here, Ashish, what we should do is like, don't look at the short term because short term, yes, our focus will still be on recirculating gold. But again, what we are doing on the recirculation gold is that we are not only promoting customers to exchange, but also, we are promoting cash for gold. The cash for gold is really catching up, and it should ideally negate the margin dilution, which happens due to exchange. And of course, anyways, we have the -0 from the customs duty, which we used in the previous quarter to negate the margin dilution. So to answer your question, for the full year, I don't think there will be an impact. Even on a conservative basis, I think we'll be able to maintain the PBT margins of the previous year.? ?

?? [Operator Instructions] The next question is from the line of Vivek Gautam from GS Investment.

Just wanted to understand, because I? have started tracking the company recently, what are the differentiators for our company versus competition, and how is the opportunity size and expected growth rate in the time to come? And how have we been able to perform in the non-South market, which has been our core area?

Yes, non-South, you know that we have been growing in the non-South markets over the last 2, 3 years. Our revenue share from the non-South markets are what, more than what, 50%, 60% now. And Kalyan has its own USP. We are a very hyperlocal brand. We compete the local players, unorganized players and also national players because we keep 30%, 40% of inventory, which is local and 50%, 60% of inventory which is national. With the national inventory, we compete national players. With the local inventory we play -- we compete local players. And there is no new strategy for Kalyan which has to be done there. We only focus on execution because it is -- we are expanding 70, 80 showrooms a year. It's FOCO model. The return on capital, the growth is very high now because you know that we were in late teens. Now we are at what, approximately 20%. Way forward ROCEs will further improve because we focus on capital-light expansion.?

Any highlight about the differentiator of our -- for our company because this is a very crowded sector even though the demand is quite high for -- how do we differentiate ourselves in this highly competing world of jewelry sir??

I told you there are two types of players. One is regional players, one is a national player. We have positioned ourselves in between both of them, and we are the only brand, or very few brands like Kalyan positioning where acceptance of the brand across the country has been very strong. And that is why you see the expansion. That is why you see the SSSGs have been very strong over the last 2, 3 years. And it will still continue. If you look at the CAGR growth also, if you look at the last what, 3 years, the CAGR is what, more than what, 33%. Last 2 years the CAGR was what, more than what, 30, what, 8 percent (sic) [ 38% ]. So revenue growth has been strong, expansion also has been strong.?

Sir when are -- what about our plans of becoming a zero debt company sir? By when can we?achieve it??

No, I didn't get you there.?

Zero debt company sir? We were planning to compare...

In a couple of months, because I told you, September we will be debt free non-GML.?

And there were some issues in the past regarding corporate governance with RPT et cetera also. Moneylife magazine highlighted it and that -- some Motilal Oswal and some other mutual funds, some issues were there. If you would like to say something on that front also because that overhang might be there on our company, sir, if you can clarify it will be good sir.?

How can I comment on all these kind of questions. I am very sorry. ?

? [Operator Instructions] The next question is from the line of Madhav Agarwal from SKP Securities.?

Sir, you still maintain your target to open 84 Kalyan showrooms in India? Because I see in the current quarter, it has been you have opened 12 FOCO stores, right? So for the full year, you maintain your guidance for Kalyan, and for -- like for Candere also you had guided for 50 stores, so those targets remain??

Yes. No change in target. So last year also has been like this only. So no change in target. Usually, H2 is heavier than H1 in terms of store expansion and there is no change in target of number of showrooms in Kalyan and Candere.?

Okay. And sir, broadly speaking, if you can just share like if someone today takes up the franchisee of Kalyan, so what are the return, ROI for the franchisee partner broadly, if just you can share?

?Yes. So our franchisee FOCO where franchisee invests in CapEx and inventory, and we run the store for them. It's a margin share. And their ROCEs will be in the range of what, 14%.

14%?

Yes. ?

? ?[Operator Instructions] The next question is from the line of?Prolin Nandu from Edelweiss Public Alternatives.

A few questions from my end sir. Just on the margin bit right, could you help us understand why these margins on the exchange side of things would be lower in part? And when it comes to capital or ROCE, it would be different, right, I understand. Could you just help us understand why margins are lower? Will the return on capital take care of it?

Yes. So exchange, we do with the gold rate -- the gold rate at the jewelry store, right? And the gold rate usually has a -- usually if we buy it for cash, we have a premium which we will get for the gold rate itself. So when we do a cash sale, with the cash if we buy bullion, we get what 0.5%, 0.75% markup on the spot rate in which we sell gold at the store, which does not happen when you do an exchange. That is the margin dilution.?

Okay. And the capital employed part will pretty much take care of the margin dilution and you would be largely neutral on the ROCE side of the segment.

Yes capital deployment, there is no major change because anyway next day, we would have bought bullion only, instead of that day only we buy, that's it. And as I mentioned that we are pushing the cash for gold also so that this margin dilution which is there on exchange, we would like that to be negated by the cash for gold. So cash for gold is a new product, which is really catching up now. And we think that -- and that is actually margin accretive also because we buy at the -- what -- we buy at a discount to the spot price.?

And sorry, what is the cash for gold, could you...?

?If a consumer wants to sell his or her gold for cash at the Kalyan store, now it is open. It was not open earlier. We used to promote only exchange. So for the June quarter, gold for cash portion was in single digit. Now it is moving to double digits. Which is highly margin accretive when compared to exchange. But we want that to get negated with exchange.?

Understood. Sir, I'm just trying to understand whether most of our peers in the organized market have this scheme or we are the first one to do it? And does it in any which way affect our core business or dilute our brand in any which way??

No, it is not like our own customer. It does not mean that if a consumer sells gold, they are poor, right? Even a person who has gold, who -- or who used to go to unorganized segment to sell gold because organized players only buy their own gold, okay? Now that is also getting organized. And now almost all the organized players are also catching it up and other players are also started, and that is growing as a segment. It does not dilute the brand in any way.?

Okay. And you're saying peers also are doing this, right??

Yes, now almost everyone have started.?

Okay. Understood. And lastly, so what you're saying is that the exchange margin dilution will be taken care by cash for gold -- including cash for gold and rest of the things should be as it is right, of? last year and hence, the PBT margin should be similar to what you did in FY '26? Is that -- Did I get that correct??

Yes. For the full year, we are -- even on a conservative basis, we hold to the PBT margin of the last financial year. That's also on a consolidated basis because we are really seeing this cash for gold quotient coming up. And the promotional offer for the exchange campaign has also been tapered down a bit and our focus is also there for cash for Gold. And I think the margin -- PBT margin should catch up to the previous year on even a conservative basis.? ?

? [Operator Instructions]?The next question is from the line of Devanshu Bansal from Emkay Global.?

Sir [Audio Gap]. Hello?

I'm not able to hear you.