Khazanchi Jewellers Limited (543953) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Khazanchi Jewellers Limited Q1 FY '25 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 Badwal from Kirin Advisors. 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 team, we have Rajesh Mehta, Chief Operating Officer. Over to you, sir.

Hello, everyone. Welcome to Q1 of Khazanchi Limited FY '25 conference call. Let me provide an overview of Khazanchi Jewellers Limited, discuss recent developments and explore the implications of recent policy changes before diving into the specifics of our Q1 FY '25 performance. Since our founding by Mr. Tarachand Mehta in 1971 and incorporation in 1996, Khazanchi Jewellers Limited has built a distinguished presence in the jewelry industry. Based in Chennai, Tamil Nadu, we are known for our commitment to quality, innovation and ethical practices. We proudly hold a BIS hallmarking certificate and are authorized on the IIBX platform, which underscores our reputation as a trusted jewelers. Currently, our operational showroom in South, Chennai serves as our sole retail location. This showroom spans 1,200 square feet and offer a comprehensive shopping experience with a diverse range of products. It includes over 25 distinct product categories and boost a design library of more than 5 lakh unique design. We are approximately 120 daily footfalls at this location, reflecting our strong market presence and high level of customer engagement. I am also delighted to announce that we will soon be opening a new showroom, flagship showroom in South Carpet, which is a wholesale hub of South India. As you have Kalbadevi Mumbai scheduled to open later this year. This 10,000 square feet facility will expand our retail footprint and provide an even more extensive selection of gold, silver and diamond jewelry, all aimed at delivering an exceptional shopping experience. We will be recalibrating our revenue distribution, focusing entirely on to the B2C segment in our new showroom to enhance our market position and better serve our customers. Our strategic focus is shifting towards high-value temple jewelry, which reflects our rich heritage and offer attractive margins. We are also making significant strides in our B2B segment with our jewelry now reaching major multi-stores and renewed generational jewelers throughout South India. This expansion will strengthen our market presence and allow us to cater to a broader customer base. Additionally, the recent Union budget 2024-'25 has introduced a significant reduction in custom duties on precious metal. Duties on gold and silver has been reduced from 15% to 6% and on platinum from 12.5% to 6.4%. This change is expected to lower procurement cost, making precious metal more affordable and drive growth within the jewelry industry. This revised duty structure aligns perfectly with our growth strategies and support our ongoing commitment to deliver exceptional values to our customers. Now we come to the financial highlights of our quarter results of FY '25. Our company has demonstrated remarkable financial performance. The company reported total income of INR 381.19 crores, marking a substantial year-on-year growth of 103.88%. EBITDA reached INR 13.48 crores, reflecting an impressive year-on-year increase of 108.98% with an EBITDA margin of 3.54%, up by 9 basis points. PAT stood at INR 9.21 crores, up by 232.26% compared to previous year, and PAT percentage improved to 2.42%, an increase of 93 basis points. EPS also saw a significant rise, growing by 140% to INR 3.72. These results underscores the company's strong financial health and strong growth trajectory. In conclusion, our strong performance in Q1 FY '25, along with our strategic expansion and favorable policy changes set Khazanchi Jewellers Limited on a path to continued success. I'm confident that our strategic initiatives and the new showroom will further enhance our market presence. I appreciate the ongoing support of our shareholders, customers, employees, and I look forward to achieve new milestones together. Thank you for joining us today, and I am excited about the opportunity that lies ahead. With this brief remarks, now I request to open the floor for question and answers. Thank you.

The first question is from the line of Jayraj Jain from EBC Capital.

So my first question is like how much inventory does the company keep with themselves?

Quantum wise, if you say the company holds an inventory of approximately 400 kgs gold.

Okay. And what about your finished goods?

Most of the goods what we hold in our stocks are finished goods only. 10% of the stocks, are in the pipeline of production.

Okay. What do we expect from the new store opening?

The new store is going to open, which is our current showroom. From there, it is a very big size, it is in multiple of 6x to 7x bigger than the current store. And we are expecting revenue growth of at least 30% from the new store. And that B2C segment, which is going to provide a higher margin. In the B2B segment, we have a margin of around 4%. And in the B2C segment will be around 8% to 9%. So since we are expanding on to B2C segment, so the margins are going to be higher, and the growth ratio would be around 20% to 30% extra.

Okay. So can you please tell me like what will be our working capital requirement?

Currently, for this first showroom, the company may not require much of a working capital. And it is going to be open on say, in the starting of FY '26 maybe anywhere between January to April. So the company is going to manage with the current working capital, and it is going to expand the first showroom and further expansion, it will be decided by the management on a later scale.

Okay. Great. So do we plan to add any new design portfolio?

Yes, obviously, since we have been in the field from past 5 decades, all our management have a vast experience, and we have an experienced team, and we have artisans all over India who are working on the patterns and designs of jewelry, which is the main aspect of what they say, growth in the jewelry sector. So we have been -- on a regular basis, we have been creating new designs and adding as per the market requirement. And since the gold prices have been appreciating, everybody prefer to buy a lightweight jewelry, a budgeted jewelry. So we have been manufacturing that too. And we are on a daily basis, making researchers to make products more attractive and more reachable.

Okay. Great. So can you please tell me like how many artisans do the company have? And do they -- like have any plan to add any more further?

That's what -- We have artisans all over India actually. It is diversified all over India. We get goods manufactured from various places. Since -- once again, I tell you that management has in 5 decades of experience. So all the good groups are good artisans who have been working all over India are along with the company, and we are getting our goods manufactured from them.

Okay. So is the company on track for like 20% to 30% revenue growth guidance?

Yes, sure. As the additional policies of the government has been making a strong backbone for the progress of organized sector. And for this year, current year, the duty has also been reduced. And from past 5 years, if you say that the gem and jewelry sector has been transferring from unorganized sector to organized sector in a very fast pace. If you take data-wise, if you say it was around 17% was with the organized sector in 2019. Now it has been improved to 34%. And after the reduction of duty, it is going to be a very plus point for the organized sector, and the pace of its growth is going to increase much higher than what we are expecting.

Okay. Great, sir. And sir, my question is like the budget has been -- budget has been announced. So there were several policies and benefits to the gold segment. So what opportunities does the company see in the next quarter or in the next year from the budget?

That's what -- This budget has provided a very good opportunity for the jewelers. Since there was a big difference of pricing between the organized sector and unorganized sector, they have been sourcing or unorganized sector sourcing gold from various unethical routes, which has become a very big competition for the organized segment. Now since the duty has been reduced, they cannot compete with the organized segment that much, since the prices are going to be equal for both the sectors. So it is going to add a boost to the current organized sector.

The next question is from the line of Abhishek Yadav from Trans Union.

So my question is, what is the planned CapEx for FY '25 and next 3 years?

I couldn't get your question, sir, please?

What is planned CapEx for FY '25 and next 3 years?

The current CapEx is whatever the company is holding, it is going to work with the current CapEx for the next coming showroom. And the further requirement of capital would be decided by the management on a later stage.

And my another question is what is your volume sales -- and what is -- my next question is, what is your volume sales and what is the growth in volume?

That's for the FY -- last quarter, we have given the results of sales revenue operation is around INR 381 crores and which has been at the growth rate.

The next question is from the line of Avdhi Gajgiye from KRE Consultancy.

And my question is export plans of the company. What is your export plans?

Export?

Yes.

Yes, the company has been -- currently, we do not engage in exports, but the company has further plans of making -- we are working on going expansion towards the export market.

Okay, sir. And my next question is, do you plan to business diversification in current year or maybe in the next 2 years?

Next 2 years, we do have an expansion plan. Initially, our flagship showroom would be opening in, say, another 9 to 12 months. And further from there for the coming 2 years, we have an expansion plan of geographical expansion here around 5 to 6 showrooms in the coming years.

Okay, sir. And I have another question. Do we have online presence, what is the contribution from this vertical?

We have been working on online platform. It will be launched very shortly. Currently, we have been working on the portal system, and it will be launched shortly.

The next question is from the line of Dinesh Saney from Invest4Edu.

My question is that -- so you are going to open a showroom in the next 8 to 9 months, right, of 10,000 square feet. So what exactly is the debt portion in this particular showroom?

What is the amount of stock we are going to put in that showroom, that is the point you are asking?

So overall, how have you funded this expansion? -- currently...

Currently, the current stocks and the current working capital will be enough sufficient for the opening of this initial flagship showroom. On a later scale, when there are further expansions, the management will be deciding on getting the source of funds for expansion.

Okay. And what is the current debt position overall debt to equity, you can say?

Overall, all the ratios has been in the present. So the current debt is around holding and company's holding and loan liability of INR 38 crores.

Okay. And as you mentioned currently that you will be focusing on online business as well?

I'm sorry. It is a limit is a limit that is sanctioned for INR 38 crores, but the company has been last quarterly utilizing it to the extent of INR 17 crores to INR 18 crores.

Okay. Got it, sir. My second question is regarding your online business, which you just mentioned in previous question. So what exactly is your vision to grow this segment, sir?

We are expanding in portal system and online segment so that we can showcase our existing stock along with all the other lightweight jewelry also. And we are going to expand that portal and promote that portal so that the company gets a good reputation for that and good sales out of it.

Okay. All right. One last question is that recently in budget, so there is a reduction in custom duty from 15% to almost 6.5%. So is this -- can we think that your input cost would be reduced? And can we think that you would be able to pass on this reduction to the final customers?

Yes, obviously, since the price, it is amended immediately from the time of its amendment, the prices of the gold and silver has been reduced. And from the same period, it has been transferred to the clients. because the prices immediately changes and it gets effected into the market immediately.

Okay. And last question from my end, sir. So since you are expecting almost 25% to 30% growth in the current financial year, so what exactly the margin profile you are looking at in terms of EBITDA margins?

The current EBITDA margin is around [ 5.5% ]. And it is since we are expanding into the retail segment for the coming years, the margin would be surely increasing because the difference between the B2B and B2C segment, the margins are around -- for B2B segment, it is around 4% and for B2C, it is around 8% to 9%.

The next question is from the line of Tainya Jain from Finway.

Sir, I wanted to know what is the pilferage ratio?

What is this?

pilferage ratio.

are you talking about the cost of manufacturing or what is the spillage of gold when we are manufacturing goods? Is it that?

Yes.

It is around, say, 0.8% to 2%.

So, can B2C increase margins? If yes, then how much?

That's what B2C is obviously going to increase the margin. And I have already specified that the margin for B2B is around 4% and B2C, it will be around 8% to 9%. And since we are going to add all the premium products along with the diamond jewelry and poultry jewelry and the new showroom, so the margins are going to be higher.

Okay. So then what are the plans for future growth in Diamond segment?

Now we are also thinking of making an expansion in the diamond segment. We are working on taking expansion for the production of diamond jewelry for B2B segment also and for the new showroom B2C also, the proportion of profit margin is diamond is higher. So overall, the profit margin for the whole company would be increasing.

The next question is from the line of Jay Mehta from Jay Advisory.

So my question is what kind of growth you expect in footfall in new premises?

We are expecting currently, we are having footfall of around 120 to 150 customers per day. It will grow at least double in the new showroom.

Okay. And my second question is with the commitment of our new showroom, how much rise in retail sales is expected by the company?

That's overall proportion, whatever the company achieves financial top line among that 25% of the top line would be in retail in the coming years after the opening offshore.

The next question is from the line of Pooja, an individual investor. We'll move on to the next question. It is from the line of Ritika Jain, an individual investor.

So my question is how many showrooms you intend to open in next 3 years?

After opening of our flagship showroom, another 2 years from there, 2 to 3 years, we are -- the management has been planning to open 5 to 6 showrooms in coming 2 years.

5 to 6. Okay. And any split or bonus for the investors?

I couldn't get you, what you said?

Are you planning any split or bonus for investors?

That management has to decide. till now, nothing of that sort has been decided. Later on, anything which we decided will be surely posted.

Okay. Fair enough. The company primarily caters to customers who buy a high gold and not to gold. So with gold price on rise, do you see any issue?

I couldn't get your question. What did you say?

Sir, I'm saying that customers who buy high gold gram not to gold. So with gold price on the rise, do you see any -- is there any issue?

No, no issue at all. On the -- since the prices have been increasing, and it is providing a better return opportunity for all the investors who have invested in gold in regular interval. So everybody is optimistic about gold on the near future also and the longer-term run, the gold has been appreciating. And everybody is interested in making additional investment in gold.

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

Sir my question is how much growth in top line is anticipated in next 3 years?

Top line growth since there has been lots of positive factors which have added too much for the increase in top line of jewelry sector. If you want to know then the company will grow at a pace of, say, 30% to 40% in the per annum in the next coming 3 years.

The next question is from the line of Mansi, From Qatari Investors. I'm sorry to interrupt, ma'am. Your voice is coming very low. Could you speak a bit louder?

Am I audible now?

Yes, ma'am.

So my question is generally in the jewelry segment, the craftmen, your jewellers who design the portfolio are very important. So just want to know how long do you have your craftmen with you?

That's what I'm telling you since our management has been in the jewelry segment for, say, 5 decades. from 1971, the management has been in the jewelry sector, and we're working with Indian all over India, pan-India best artisan. So we have been working with artisans who are along with us from last 40 years, 30 years, 25 years who are working with the company and providing us the best quality craftsmanship for the company and for its customers.

Okay. And I just want to know any unique feature about your designing.

So we are specialist in manufacturing of traditional jewelry here in South India, lots of traditional jewel are there. For marriages and all, they have purchased some traditional stone jewelry and necklaces, haram sets, and thali chains, all specialization we have here, we are manufacturing with the what they say, most efficient craftsmen.

Okay. And if I go by your design or about your portfolio, so just want to know at what ratio you -- like do you just refresh your jewelry, like those who are working in the market or those who are outdated? So at what period you just refresh it?

No, whatever that was in -- if you're talking about the rolling of stock since we are dealing with both B2B and B2C segment, our stock is getting rolled in every 80 days cycle.

Okay. And about the design portfolio?

Design portfolio on recurring basis, most of the designs we manufacture are sold out. say, 1% or 2% of the designs we are not so, we modify it. We made few changes into it so that it can be up to the mark of customers' requirement.

The next question is from the line of Neeta Deshmuk from Satgiri Advisors.

So my question is what is our important component in total raw material processing?

Gold. Fine gold. Yes. The prime ingredient is fine gold.

Okay. Is there any client addition in the B2B segment?

What do you want to ask?

Is there any client addition in B2B segment?

Yes, obviously, we are working with all the major jewelers who are famous and who are operating in multi-stores, those players who are having a familiar name pan-India and a few traditional jewelers who are having a very famous and who have been working with us from past 4 decades, 5 decades who are, what they say, generational jewelers here who are operating with 2, 3 showrooms, very well-known names in South India, we are working with them all.

Okay. One more question. Please explain the impact of the latest project announcement of reduction in duties on gold and silver in our important process. And whether we are able to pass on the same to end consumer?

Yes. Comparatively...

And whether we will be able to pass on the same to end consumers?

Yes. It has been a very positive impact for the whole jewelry segment, the reduction of duty. Price-wise in the price has been very steeply increasing in the international market also. And this price -- this duty reduction added as -- what they say as a positive aspect for the consumer. There was a reduction in price also. And one aspect is that it is a very healthy move by the government. So all unorganized channels through which the gold has been imported to India will be curbed and everybody, those who are working with the organized segment will have a better business and have good growth. And you talk about the transferring of that benefit to the consumer from the -- it is from immediate impact when the budget was announced and it has been immediately impacted on the current market price and the prices has been reduced and all the benefits has been transferred to the end user.

As there are no further questions from the participants, I would now like to hand the conference over to Ms. Preeti Bhardwaj from Kirin Advisors for their closing comments.

Thank you, everyone, for joining the conference call of Khazanchi Jewellers Limited. If you have any queries, you can write us at [email protected]. Once again, thank you, everyone, for joining the conference call. Thank you.

Thank you so much. Thank you.

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