Khazanchi Jewellers Limited (543953) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Khazanchi Jewellers Limited H2 FY '24 Earnings Conference Call hosted by Kirin Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Preeti Bhardwaj from Kirin Advisors Private Limited. Thank you, and over to you, ma'am.

Good afternoon. Thank you. On behalf of Kirin Advisors, I welcome you all to the conference call of Khazanchi Jewellers Limited. From the management side, we have Mr. Rajesh Mehta, that is the Chief Operating Officer; and Mr. Vikas Mehta, Chief Financial Officer; now I hand over the call to Mr. Rajesh Mehta, Chief Operating Officer. Over to you, sir.

Thank you. Hello, everyone. Very good afternoon. [Foreign Language] I warmly welcome each one of you to our first conference call of Khazanchi Jewellers Limited. Before we deliver, before we tell you about the financials of our company, I would brief about my company in short. Khazanchi Jewellers Limited has an experience of around 50 years in jewelery industry. Our founder, Mr. Tarachand Mehta, in 1971 started the jewelry business and incorporated in the name of Khazanchi Jewellers in the year 1996. Our headquarters is located in Chennai, Tamil Nadu. And we are holding various authority licenses as BIS, Hallmarking License for Quality, IIBX for import of gold bullion and supporter of import-export certificates, et cetera. With our various categories of product and extensively a library of around 5 lakh designs, our company specializes in a device range of products, including gold, diamonds and precious stones. We are into manufacturing of wedding jewelries, exclusive design and traditional South Indian jeweleries. We have a retail space of 1,200 square feet, especially designed for a seamless shopping experience. In FY '24, Khazanchi Jewellers Limited has successfully sold around 1,400 kg of gold jewelry. We also offer various types of bullion items, coins, bars and we are one of the prominent players in our wholesale and retail market. Our central focus is on crafting, producing, and delivering high quality of jewelery that spans a broad spectrum of items, including necklaces chains, rings, earrings, bangles, bracelets, nose pins, mangalsutras, kundan items, jadav items et cetra, et cetra. We are dedicated to creating executive wedding jewelery and festival pieces that capture the essence of special occasions. The competitive advantage lies in our integration of quality, manufacturing from various regions of India to manufacture unique design catering to both retail and wholesale demand. Since our promoters have a very vast experience, we have very selected and exclusive artisans from all over India who produce exclusive jewelry for us which attracts lots of customers and wholesalers, which make us unique from other competitors. Backed by experience promoters and the dynamic young leadership with a proven track record supported by a seasoned senior management team and Board of Directors, we excel in wholesale business of manufacturing and selling gold jewelry to national retailers. Our brand is with trust transparency, innovation, strict ethical values and business practices. We have established strong system and procedures to migrate risk and ensure quality control by strictly observing Hallmark norms. Furthermore, our commitment is to design and innovation across over product range set up apart in the industry. As we have a very large experience as our management has a very large experience, we have been having customer range from generations in our retail segment and providing quality products to all our wholesale unique quality products to all our wholesale shopkeepers, that is our wholesale clients. There forward, our business strategies encompass several key initiatives. To start with, we are moving to our new showroom, which is of 10,000 square feet with the aim to broaden our product portfolio and boost our capacity. The proposed showroom is located in 286 NSC Bose Road, which is a jewelry hub of South India, a very prominent wholesale market of work all over Tamil Nadu. Spanning 3 floors, the showroom is set to become a flagship destination for our customers. We have acquired a 3,045 square feet, around 3,304 square meters of land plot on NSC Bose Road and then commence prominent construction stage for the showroom, anticipating to open by May 2025. The funding for the new venture will be sourced from the net proceeds of our recent issue, embracing a large format model, this showroom will offer an immense experience for our clients. Moreover, we have obtained all necessary approvals for trade licenses and registrations reaffirming our commitment to compliance and operational readiness. We are poised to deliver exceptional experience and further strengthen our presence in the market. We also aim to expand our customer networks in existing market by venturing into a new geographical territory, strengthening inventory management practices in another priority, ensuring optimal stock level to meet demand efficiency. We continue to remain customer-centric focusing on delivery expense exceptional services with a wide design portfolio and tailored solutions. We believe our strategies will bring remarkable business growth in the coming time satisfying all our stakeholders. The company got listed on the BSE SME platform in the month of August 2023. Now I put light on the financial highlights. In FY '24, our company's standalone financial performance demonstrated substantial growth and improved operational efficiency. We recorded a total income of around INR 821 crores, a 70.51% increase from the previous year. Our EBITDA also rose significantly, up by 148.97% to INR 41.78 crores. while the EBITDA margin widens by 160 basis points to 5.09%. Notably, PAT rose to 261.13% to INR 27.32 crores. The improvement is also reflected in 176 basis point rate in the PAT margin to 3.33%. These results demonstrate strong financial health and significant progress towards achieving our strategic growth objectives. As we are in the jewelry industry and the prices of gold has been appreciating year-on-year. The company has an additional benefit of increasing valuation of gold prices of our stock of at least 20% per annum for the past at least 3 years. For the further stand-alone H2 FY '24, our total income reached INR 415.38 crores with a growth of 67.38%. EBITDA for the quarter grew by 84.6% to INR 21.02 crores with the EBITDA margin improving by 47 basis points to 5.06%. PAT for the quarter increased by 102.59% to INR 11.6 crores and the PAT margin rose to 49 basis points to 2.79%. With these brief remarks, now I request to open the floor for question and answers. Thank you once again for your presence.

[Operator Instructions] The first question is from the line of from V.N. from Shanti Financial.

Yes. Congratulations for stellar result. My query to the management is to try to understand how did you have such a huge increase in revenue in profits and consequently, why has the earnings per share not kept pace with the top line growth and the bottom line growth that you have posted?

Please repeat the question. It's not audible properly?

Yes. So you had the excellent results. So I'd like to understand how did the company post such huge increase in top line and bottom line. Will this continue for the next year also because these are extraordinary results?. Congratulations.

Thank you.

Sure. And the second question is on the earnings per share, however, the increase is not as big as the sales and the profit growth. So can you explain why that?

Yes. Overall, we have been working on the -- items which are providing higher revenues to the company. So on a second -- on the -- in this coming year, we have been focusing on the items which are providing higher margins to the company. And we are also having a strategy of marketing door to door to all our suppliers, all our shop dealers so that they could understand about our uniqueness of our product, and they could join business with us. That's the main reason of we are having an expanded business. And regarding -- that's what -- that's the reason for our top line increase and the earning per share. Earnings per share is around INR 10 -- INR 11 this year, and it is obviously going to continue as we are having a small retail showroom. And we are expanding on an retail segment where the margin is higher. So we are expanding it to the 10,000 square feet showroom where we will be having a higher retail sales, which will once again give a higher retail margin. So the earnings per share is going to continue and continue to appreciate in the same segment with the same percentage of growth.

Sir, I would like to thank you. I'd like to understand the next year, can we expect similar good results in terms of growth percentage?

Surely, the growth story will surely continue. The management is working very hard. It is like since we have entered into the, what they say, capital market now, but this is on hard efforts of the management from past 20 years -- past 50 years, I'm very sorry. And it is the third generation which has been working in the company for the development of the company.

The next question is from the line of Aastha from Pkeday Advisors. Please go ahead.

Sir, congratulations on the excellent result. I have a couple of questions. The first one, is it the continuation with the previous question that the analyst had asked. Sir, I wanted to understand that the revenue has increased significantly, right? Sir, is it just because of the product, the gold pricing or we have grown volume wise as well?

We have grown by volume wise as well because the price is appreciated only to the extent of 15% to 18%. But since the company has made a very higher growth.

Understood, sir. Sir, secondly, the margins, like you said, the margins have improved because we are selling higher-margin products, right?

Yes. We have started focusing on that type of segments and that type of products.

Okay. Sir, you have to give us revenue breakup as per product-wise, it's ornaments and then bullion. But we do sell gold, silver, diamond jewelry as well, right? yes. So can we get a bifurcation of that as well?

The current bifurcation, I don't hold much. Actually, for the gold ornaments, we are having a sale of around INR 650 crores and for bullions around INR 140 crores. And retail segment we have -- and because it is gold and it is in total, what they say, we have sales for B2B and B2C differentiation only. You can drop in my number. You can drop in your number. If you want in detail revenue, I can provide you on that.

Okay, sir. Got it. Sir, you said that we supplied to businesses also, right? So I just want to understand that how much revenue is coming from direct like those business segments from -- not directly from retail clients but from are we selling to Titan or any other such companies? So how much revenue we are getting from those clients? And if possible, can you please give us top 5 customers? Is it possible?

Yes, top customers are there. I can give you the detail also. Just a minute, I'll check it out. We are supplying to the major, what we say, multi-store top lines, and we are supplying to Joyalukkas. And our major clients who are very familiar in the south as KVM Jewellers, JT Jewellers, Mullen Jewelers. Actually, they are all the, what they say, multi-stores with 2, 3 stores, 4 stores and they are operating very good in all over South India.

Okay. So Sir, can you please give me a breakup, I mean, how much we are supplying to -- but in percentage terms, how much revenue we are generating from retail segment and how much from business...

You want the percentage of margin, you said?

Sir, percentage of, yes, I didn't get you. Percentage of?

Percentage of margin, what we have into B2B or B2C, you're talking about that?

Yes, the margins as well as revenue breakup. I mean, yes, the sales break.

Revenue break up. Around 50% of the revenue is generated from B2B, 10% of the revenue is from the retail segment. Of our B2B segment, we have a gross margin of around 3.5% and retail segment, we have around 8% to 9%.

Got it. So [ 30% ] is from B2B and 70% is from retail.

No, no, no, no. That's what we are expanding on the retail segment now. Our revenue is 10% on retail now, 90% is from B2B.

Okay, okay. I got it.

Yes, yes.

So do we have in-house designers with us? In-house, we like, do we give the manufacturing of jewelery to outside, like as in for job work or we have?

Yes, obviously, we do give jewelery to the job work people because in-house we cannot have all the artisans who are best all over the India. So what are the best available wherever they are working, we provide them. We get the things manufactured from them and then we sell it.

The next question is from the line of Jay Prakash from Arihant Capital. Please go ahead. Jay Prakash, the line for you has been unmuted. You may proceed with your question. As there is no response from the current participant, we will move to the next question, which is from the line of Anmol Soni, who is an individual investor.

so first of all, I'm happy to see the good sets of numbers. So I have 2 questions. One is regarding -- my first question is regarding the tax expenses. So in first half of the financial year '24, there was a low provision for tax or advance tax paid, which was showing the inflated profits. But then in H2, it was set off. So, what was the actual reason behind this, due to which there was less tax, which was booked in H1? So it was showing more EPS for that half and less EPS for the other half on the same revenue, almost same revenue. So my first question is regarding this.

You're not talking about the taxation part?

Yes.

Taxation part, you said that it has been paid less in the first half and subsequently it has paid in the final fair half. Correct?

Right -- on the similar sales of both half years.

Regarding that I have to consult my auditor why it was done in such fashion. But you provide me your number, I will answer it for that.

Okay. And my second question is about the demand outlook for next 1 or 2 years, especially after the sudden spike in precious metal prices, what will be the outlook for?

Yes. If you take up the history of gold, whenever there is a spike in gold prices, when the prices have increased, the demand have obviously increased with the intention of the investors that the prices will go up. And as is expectation, the prices have always been increasing. So, the person whoever has invested in gold at whenever time, he has got a better return, and he is happy at the time of purchase. So the demand is going to obviously increase in the coming years.

So from the volume terms also, there will be a good demand?

Yes, sir. Volume side also, the demand has been increasing, and it will increase substantially.

The next question is from the line of Jai Prakash from Arihant Capital. Please go ahead.

Do we outsource design from other jewelers or we have our own artisans for it?

Yes, we do jewelers, we do outsource from our -- from artisans outside and from other venues, other jewelers also because all the exclusivity, we cannot arrange it all inside our campus. So we source it from outside also.

So do you have any plan in the next financial years to hire more artisans of your own rather than outsourcing?

Yes, possibility, those products, which are we supplying to our B2B clients, which are in very much huge volumes, we are planning to have in manufacturing units in the coming -- near future.

Okay. And what is our current design portfolio right now?

Yes, we are having a design capacity of around 5 lakh designs.

Okay. But as you see, right now, gold market is on boom. So how would you tackle to it like it is on the -- like what are your future strategies to improve and improve your sales for it?

Also, sales has been quantum wise and value wise, both ways, the sale has been increasing only. And the demand for gold will always be there if people, it has been a very safe investment and reliable investment. And even the prices move up, the demand will continue to grow.

Okay. Okay. And my last question is like, what is our working capital requirement right now?

Working capital requirement for the new showroom you are talking about?

Yes, yes.

Yes, the management is thinking of investing around some more additional of -- just a minute.

Sir, management will not increase any extra debt. They will shift off the stock from the existing showroom. From existing showroom, they will be shifting some of the working capital to the new showroom.

The next question is from the line of Ajay Bhatt, an individual investor.

So first of all, congratulations for your good set of numbers.

Thank you. Thank you so much.

So, actually, you said about the new facility, right? So, can you just share more insights about it? Like, how much it costs and?

You are talking about the new showroom construction ongoing?

Sorry.

You're are talking about new showroom?

Yes, sir.

Yes. The new showroom work is ongoing. We have already completed RTC construction for ground floor, first floor, second floor and third floor. We are about to reach 10,000 square feet. And now interior works will be going on and by 2025, we will be opening it.

Okay, sir. And what are the -- what kind of growth you expect in the coming future?

The gradual growth for the industry and for our company, it will be around 30 to 35 percentage year-on-year.

Okay, sir. So I just wanted to know, are we into contract manufacturing for big clients or if yes then whom do we associated with?

Major of our clients are taking from our ready stocks. We give it to our manufacturers in the bulk and we keep the ready stock of different items and our clients select from our ready stock itself. That is our specialty because in other markets they have to place the order such as now the Akshaya Tritiya or other seasonable they have to place the orders to the manufacturers, but now here we are getting it ready and keeping it as a stock backup for the season coming up.

They can select the designs from what they want.

So that they can select the design from what they want and a huge variety will be there.

The next question is from the line of Saloni from SK Analyst.

So my question is what is our growth sales and what is the growth in volume?

You're talking about the growth in sales. That was last year, it was around INR 405 crores. Now the company has achieved around INR 820 crores this year.

We have the next question from the line of Simar, an individual investor.

First of all, let me commend you and the management for efficiently steering the company to such high revenues and plugging such high profits. I have a couple of questions. A couple of them have been already answered by you. In terms of you entering new geographies, what sort of a model do you have with you? Do you have a hub-and-spoke model where you'll have a company-operated showroom and then leveraging it into branching out to new franchisees in the Tier 2, Tier 3 location?

That's what we are trying to work on both the models. The company-operated showrooms mainly, currently, we are thinking of that. On a later stage, we will be going for a franchisee model also.

Okay. And what sort of risks do you foresee with so many private back players entering the offline market recently. How confident are you in achieving higher sales growth?

Since we are in the field from past 50 years, our management has a very vast experience. So all the risk segments has been already filtered by the management with that experience. And each and every time, if some signs of difficulties come, the management will take up the decisions accordingly. And as of now, since we have been working so long, we don't find any much difficulties or any risk sector in this.

Sure. Sir, a small feedback if I may in your future presentations when you present, can you just give a bifurcation between the gold and the diamond product? I certainly understand in the bullion segment or the ornament segment gold would be contributing much higher, but I believe diamonds have much better gross margins?

Yes my diamonds -- have much turnover of diamonds compared to gold. The proportion currently since we are not into B2B distribution of diamonds till now and the current proportion of diamond sales is nearly 2% of the total sales.

Okay. Got it. When you mentioned about your contract manufacturing to certain leading jewelry brands. Can you also mention that in your presentation in the top 3 how much are they contributing if yes, you can take it offline as well that's not a problem.

Currently, that data, I am not holding it in my hand. If you require, I can provide you, sir, please.

The next question from the line of Tara Kaur from EY.

This is Tara from EY Capital. So my question is -- my question is do you plan to regional diversification in current year or maybe in the next 2 years?

What question you're saying?

Do you plan to regional diversification in current year or maybe in next 2 years?

We are making a regional diversification in next 2 years. Current year, we have an operation of opening the showroom, new showroom.

Next question is, can we see INR 1,000 crore revenue milestone for financial year '25?

Obviously, we are thinking of at least 25% to 30% growth since we have achieved around [ INR 820 crores ], if we add up 30%, it will surely reach INR 1,000 crores.