Khazanchi Jewellers Limited (543953) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Khazanchi Jewellers Limited Q2 FY '25 Results Conference Call hosted by Kirin Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Neha Rathod from Kirin Advisors. Thank you, and over to you, ma'am.

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 Mr. Rajesh Kumar, Joint Managing Director; Mr. Vikas Mehta, Chief Financial Officer. Now I'll hand over the call to Mr. Rajesh Kumar. Over to you, sir.

Thank you, Ma'am. Hello, everyone. Good afternoon, and welcome to our H1 FY '25 conference call today. I will provide an overview of Khazanchi Jewellers Limited, highlight recent developments and discuss the impact of recent policy changes before going into our H1 FY '25 performance detail. Headquartered in Chennai, Tamil Nadu, we are known for our dedication to quality, innovation and ethnical practices. We proudly hold the BIS Hallmark Certificate and are an authorized member of IIBX platform, underscoring our reputation as a trusted jeweler. Our primary retail location showroom is in Sowcarpet, Chennai, offers a comprehensive shopping experience across 25-plus products -- categories with a design library of over 5 lakh unique designs. The showroom attracts approximately 120 daily visitors, reflecting its strong market position and customer engagement. I am also pleased to share that we will soon be expanding our retail footprint with a new flagship showroom in NSC Bose Road, Sowcarpet, Chennai, scheduled to open by April 2025. This 10,000 square feet facility will feature an even wider selection of gold, silver, diamond jewelry, elevating the shopping experience for our customers. Our strategy with this showroom is to focus on B2C segment also, enhancing our market position and refining our customer-centric approach. Strategically, we are shifting our focus towards high-value temple jewelry, which aligns with our cultural heritages and offer strong margins. Additionally, we are making significant inroads into the B2B market with our jewelry now available in prominent multi-stores and renewed generational jewelers throughout South India. This expansion strengthens our presence and enables us to serve a broader customer base. Now I highlight the financials of H1 FY '25. Khazanchi Jewellers has demonstrated remarkable financial performance. The company reported total income of INR 756.53 crores, marking a substantial year-on-year growth of 86.27%. EBITDA reached INR 28.8 crores, reflecting an impressive year-on-year increase of 38.79%. PAT stood at INR 20.05 crores, up by 27.54% compared to the previous year. Earnings per share also shows a significant rise, growing to 27.56% to INR 8.10. These results underscores the company's strong financial health and strong growth trajectory. In conclusion, our strong performance in H1 FY '25, along with our strategic expansion and favorable policy changes, sets Khazanchi Jewellers on a path to continued success. I am confident that our strategic initiatives and the new showroom will further enhance our market presence. I appreciate the ongoing support of our shareholders, customers and employees, and I look forward to achieve new milestones together. Thank you for joining us. And now I am excited about the opportunity that lies ahead. With this brief remarks, now I request to open the floor for question and answer. Thank you, everyone.

[Operator Instructions] We have first question from the line of Rachna Sharma from HNI.

Hello, am I audible?

Yes, ma'am.

My question is, could you share more on company's gross margin performance during H1 and plans to maintain or improve it?

Yes. The company has achieved a gross margin of somewhere around 4.5% to 5% and net margin of -- working around 3%.

Okay, sir. Sir, my next question is, were there any significant one-time expenses or savings that impacted the H1 FY '25 results?

What's the question, yes...

Sir, my question is...

Could you repeat the question, please? Yes.

Yes. Were there any significant one-time expenses or savings that impacted the H1 FY '25 results?

No, it is not much of the significant any one payment was made. Things were going on the routine basis, and all the sales and all were improving.

Okay. Okay, sir. And sir, my last question is what challenges were faced in H1 '25 results? And how did the company address them to achieve these results?

That's what -- there's not much of a challenges. Even the opportunities were there in the HY '25 results, and since the management has a wide experience, all the little bit challenges were easily addressed and sort.

We have next question from the line of Palash Kawale from Nuvama Wealth.

Thanks for the opportunity, and...

Sorry for interrupting, sir. Your voice is not audible.

Is it audible now?

Yes, sir, much better.

Congratulations on good set of results. Sir, what was the contribution from gold versus ornaments versus bullion? Could you like...

Yes, that's what -- for the FY '21 (sic) [ '25 ] somewhere around 75% of the sales were from gold ornaments and 25% -- nearing 25% were bullion.

So sir, so this must be the reason for margins going down, right, from...

Yes, to a certain extent, yes.

Yes. And sir, where do you see for the...

But even since only last -- what they say, last half yearly, even the ornament sales have improved very much.

So, sir, what was the contribution last year, if you could give that number, that would be really helpful?

Sorry, currently, I don't have the data in my hand. I will share you in a later date.

Okay. Okay. That's fine. And sir, your operating cash flows have turned positive. So do you foresee like cash flows being positive for the whole year or going forward? If you give some color on that, that would be helpful.

Obviously, since the -- what you say, management has always involved their funds in the system only in the business. So it is going to be positive only for the whole year.

And sir, for next year, when you open the retail store, will it affect? Or do you expect that cash flows would be positive for next year also?

Yes. Subsequently, as the management has decided to, what they say, source the new store with the current capital. So in that case, it is -- it will be positive only.

Yes. And sir, what kind of demand like momentum are you seeing in demand? Like can we expect a similar number in H2 also?

Yes, sir. Yes, sir. Since the management has been working on the various activities and working hard on progress and growth of top line and bottom line also. So the numbers will surely somewhere -- to that proportion, it will be...

Okay. And sir, in terms of next year's opening of new showroom, what kind of revenue it can generate in the first year?

That's what we are expecting an addition of somewhere around, what they say, it would be an addition of INR 150 crores in the retail segment.

Okay. Okay. And sir, do you expect that the ornament versus bullion ratio to be same as H1 for the whole year or the ornament sales would be more?

Ornament sales will be gradually improving, sir. Next, for the whole year, that whole proportion would be reducing to somewhere around 20% bullion sales.

[Operator Instructions] We have a question from Utkarsh Jain from D-Street Broking.

Yes, my questions have been answered. I'll join back the queue.

We will take next question from the line of Priya from Green Capital.

Hello?

Yes, Ma'am, your line is unmuted.

Sir, my question is, could you discuss how demand patterns evolved during the first half? And if any [ seasonal trends ] observed?

Could you repeat the question?

Yes, yes. So my question is, could you please discuss how demand patterns evolved during the first half? And if any seasonal trends were observed?

So here in South India, most of the demands are uniformly spread for the whole year. Only the few days as, what they say, Shradh and all days were quite slow. But overall, the HY was good. As the custom duty was reduced, the demand was even higher at the -- during budget period.

Okay, sir. I have one more question. Is there any specific marketing or promotional activities that had a notable impact on H1 sales?

Yes, that's what we have approached all our B2B clients. We did door-to-door marketing. We understand their demand requirements and produce the products accordingly and things going on that way.

Okay. So just one more question from my side. How did fluctuation in the Indian rupees affected import costs and overall profitability in H1?

There was not much impact on the margin. Only the reduction of price was very short period. Say, when the budget was announced, the price reduced, the duty reduced by 9%. And within a short span of time, 20 days around, once again the price appreciated, and it was easily digested in the market, and there was not much impact on the margin.

We have next question from Pradip J. from investor.

Sir, my question is that there -- I understand there's a 5 legal heirs of the founder. Now is there any succession plan on the table or how is it?

I couldn't understand your question, sir.

I understand that there are 5 legal heirs of the founder of the founder. Of the company, there are 5 legal heirs. Is there succession plan on the table presently or how is it?

No, it has been working with -- all the legal heirs are along with the company and working good. So nothing has been planned on that till date.

So there's no succession plan as such?

Yes.

Okay. Good. Okay. So second question is that as per the MCA master data, it shows that there are properties charged to the extent of INR 33 crores from this thing -- from HDFC Bank. So basically, how much loan do we have in our books? Long-term borrowings or anything?

That's what the company holds the loan of around INR 40 crores CC limit. This is from HDFC Bank, yes.

From HDFC Bank. So there are quite a few -- there are 4 charges on HDFC Bank. There's one on Indian bank and one State Bank and 2 HDFC Bank. So the INR 40 crores which -- odd which has been long-term borrowings, right? Or what is it?

That's what, it is an CC limit sanction for the company.

CC limit. Okay. So these INR 40 crores are entirely from HDFC or split?

It's entirely from HDFC only.

Because the State Bank and Indian Bank also have charges to the extent of INR 30 crores...

No. Previously, that limit was from State Bank of India. Now it has been shifted to HDFC.

Okay. So any charge of property which still remains with the State Bank of India?

No. It has been already transferred to HDFC.

Okay. Okay. In Khazanchi Silver, what is the update on the silver front because silver prices have been on record high? So what is the update on that front, Khazanchi Silver? Where do we have the -- any showroom is there? Or how is it?

Yes. Khazanchi Silver is a concern. That is they have a showroom here and it is our promoter group company. And Khazanchi Jewellers Limited is the -- entering into silver segment very shortly. We have plans to enter to it.

Any update on the last quarter on the sales aspect as to how much we made in the last quarter?

Regarding what?

The sales, the sales topline -- the sales [indiscernible] with Khazanchi...

You're talking about the what, Khazanchi Jewellers?

No, silver, silver. And the thing is -- particularly on the subsidiary listing?

Subsidiary? That data I do not hold actually. And we will share with you on a later date.

Okay. Okay. And the new showroom, which is coming up...

It is not subsidiary, it is a promoter group company.

It's a promoter group. It's not a subsidiary of Khazanchi Jewellers?

No, it's not a subsidiary of Khazanchi Jewellers.

Okay. Then it does not pertain to the listed company?

Yes, yes.

So just one more question. So when is the new showroom coming and when is it likely to open?

New showroom is coming on NSC Bose Road, sir. It is a very prominent area. As you know, the Kalbadevi area in Mumbai. It is the most familiar and most widely known area here. So it is coming up in NSC Bose Road, and it is of 10,000 square feet. And it would be coming by somewhere around April or May of this 2025.

We have next question from the line of Jayraj Jain from EY Capital.

Congratulations for a very good set of numbers. So sir, I can see that your PAT grew by -- like profit after tax grew by 27% on a Y-on-Y basis. So can you please elaborate on which specific sectors that drove this like profitability increase?

That's what mainly, we are focusing on the -- 90% of the sales is on B2B segment and 10% is on retail segment. And the growth of profits bottom line is from both the segments proportionately.

So is there any plan to increase from B2C in the next upcoming years or quarters?

That's what we are -- we have an expansion plan of 10,000 square feet coming up in April 2025. Big showroom for the B2C segment, which is an higher margin segment where we are making an expansion.

Okay. And I have seen that there was a 86% growth in total income. So who are the key contributors in your -- like for this growth? And can we expect to be continued into H2 FY '25 also?

Yes, sir. It is -- that's what I told you. It is a proportionate contribution from B2B and both the segments. And it is not from the, what they say, some few clients, it is a proportionate -- we have a wide customer database, and it is jointly, and we have added new clients also. So it has been from all them. And what was the next part you said?

Like how can we -- like do we expect the same into -- to continue the same in HY '22 (sic) [ HY '25 ] -- like next half year?

Yes, yes. We would be having a very good growth in the coming H2, and we are working on it to achieve the higher numbers better than this.

Okay. So my last question is like can you provide more insight on how did you manage your cost management practices, which supported your EBITDA growth of 38%? Like how did you manage to achieve 38% EBITDA growth with your like cost management practices?

That's what we have a better higher margin products we have introduced and that day-to-day marketing and our stock rolling period, we have improved very much from past year, so. The EBITDA margin has improved.

We have a question from Palash Kawale from Nuvama Wealth.

Sir, could you give the margin breakup between B2B versus B2C?

B2C, we have a gross margin of [ 3.5% to 4% ], B2B, and B2C, we have margin of somewhere around 9% to 10%.

[Operator Instructions] We have a question from Tara Kaur from VY Capital.

My question is that we see that there is 80% Y-on-Y growth in the total income. So I just wanted to know the breakdown of the revenue growth by category. So how much gold was able to get into the business, diamond and other metals?

That's what we are majorly into gold business. Our diamond proportion is very less. We are expanding on diamond proportion now, and we are going to start up in B2B distribution in diamonds also very shortly. So the major proportion is gold only, gold ornament.

So the majority is coming from gold only, right?

Yes. And 90% is of B2B and 10% is of B2C. Now since we are expanding on B2C segment, so B2C segment is going to improve at a very fast pace.

Okay, sir. B2C is a fully store base or any online we are doing, online sales?

Yes, yes. At the type of opening the new showroom, we will be introducing an online app for online purchasing.

And how much revenue we are getting from online app?

No till now -- on the opening of new showroom, we will introduce that.

Okay. Okay. And my next question is that what are the factors that contributed EBITDA increase? We are seeing a healthy EBITDA of 38.79%. So what was the factor like operating income, operating expenses?

Yes, operating income only. As the introduction of various fast-moving products, marketing strategies, introduction of fusion jewelry and decreasing of our stock rolling cycle, all these factors have improved.

Okay, sir. That's all from my side. Congratulations on great set of numbers, and all the best.

Thank you.

We have a question from Aditi Roy from Patel Advisors Private Limited.

Congratulations, sir. My question is, how is the company balancing growth and profitability? And what priorities are set for the second half of FY '25?

Yes. As for the top line is growing, the same way the profitability is increasing. And since we are focusing on the higher margin products, the profitability will be better in the coming years. And yes, the company is working on -- for better numbers for the coming half.

Okay, sir. And my next question is, can you share insights into new product launches or collections introduced in H1 and their contribution to revenue?

That's what the regular products whatever is required, we are introducing it on a day-to-day basis and focusing on the designs always. And we have introduced fusion jewelry, lightweight jewelry. Since the prices of gold has increased, we are creating the same product within a low budget. So all these things, we are working on it, and we are introducing various fusion jewelers where the base products are -- [ accessories ] are collected from various states all over pan India, and it is assembled in one particular segment. And all that is taken place for the betterment of EBITDA.

Okay, sir. And my last question is, what are the primary areas of focus on sustaining growth in H2 FY '25 based on H1 results?

That's what the growth segments are same only. We are focusing on the products which are widely demanded all over our customer base, and we are expanding our customer range. B2B expansion also we are progressing. And then after opening of the new showroom, even the expansion of B2C is going to take place, which is going to add an additional margin. So overall, the growth is going to be at the same pace for the coming half.

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

Hello, can you hear me?

Yes, sir.

Yes.

And my first question is, how has the rising or fluctuating raw material costs affected our EBITDA margin?

See, fluctuation does not cause much of our margin as we are working on an daily refilling cycle. What our requirement is there, we purchase daily. Or whatever we sell, we refill it daily. On daily basis, we make that. So that fluctuation does not make a much impact on our EBITDA margin.

Okay. Sir, due to that daily trade, we -- the fluctuation doesn't impact, right?

Yes, yes.

Okay. And can you also elaborate on how the Indian International Bullion Exchange platform has influenced cost management?

Yes. As -- when we input gold from that exchange, there is an additional benefit for qualified jewelers. And since we are qualified jewelers, we are getting bullion at a lower rate of 1%.

Okay. And does that have any impact on our income growth during this half?

That's what the cost of procurement of material helps us in making an additional margin of 1%.

Okay. Got it. And can you also provide more insight on the performance of our retail versus wholesale sales channel?

That's what currently I told you as previously. 90% of sales are from B2B segment and 10% are coming from B2C. And now we are expanding on the B2C segment and after opening of the new showroom for a period of another 2 years, it will -- the proportion of B2C will improve somewhere around 20% to 25%.

Okay. So after the inauguration of new store, our B2C performance will improve, right?

Yes. B2C performance will surely improve. And overall, it would be somewhere around 20% of the total sales.

[Operator Instructions] The next question is from the line of Priya Gupta from HNI Investor.

Hello?

Ma'am, please go ahead with your question.

Yes, yes. Okay. My question is, could you explain margin performance in H1 FY '25 and any changes in pricing strategy to sustain it?

That's what margins are intact in H1 FY '25 as top line has increased and even accordingly, the margins have improved. And it is going to sustain for the coming years, and we are working on different types of products, which are highly acceptable in the market, which has a fast rolling cycle and which provides us higher margin.

Okay. Okay. And my next question is, were there any changes in sourcing cost due to import and export dynamics? And how did this affect margins?

That's what sourcing cost since we have been -- and qualified jewelers in IIBX, we are getting gold at a better price compared to the market since it has been provided 1% at 1% discount to us.

[Operator Instructions] We have a question from Dheeraj Yadav from Raj Industries.

What -- my question is, what is the contribution of B2B business or contract manufacturing to overall revenue?

That's what as we do manufacturing by -- we do manufacturing from all over the artisans from pan India various factories as per the requirement. And overall contribution wise, what we say is B2B sales is of 90% and 10% is of the B2C sales. And procurement-wise, 75% of the product we manufacture, around 15% we source it from any certified dealers of various factories.

Okay. And any new B2B client is added?

Yes, lots of B2B clients added, Dheeraj. Here all over South India, we have diversified clients because we don't -- we have all clients diversified and spread all over South India. Here -- hello?

Yes, yes. I am audile. Okay. And my...

Yes, sir. All over [ prominent ] jewelers in all over South India, we have been adding and lots of clients have been added. Hello?

I believe the line for Mr. Dheeraj has been disconnected. We will proceed with the next question, which is from the line of Babu George from Investor.

Hello?

Yes, sir.

Sir, my question is, can you throw some light what was the demand during this first half of FY '25 for gold and other precious stones like diamonds?

That's what the demand for gold ornaments was very good. And since the proportion in which we deal in diamond is very less since we are going to expand it now only. So the overall -- out of our overall contribution, 2% was around our diamond demand.

Okay. Sir, my next question is, for improving the EBITDA and PAT margins, are we having any improvement of process by which we are doing this?

Yes, that's what we have been focusing on the various designs, which are of lightweight, fusion jewelry and widely demanded products, which improves our rolling cycle, all these have added to our EBITDA margin.

Okay. Sir, my next question is, what percentage of total revenue came from bullion items compared to previous quarters?

Yes, the total revenue was around 20% to 25% was from bullion and 75% from ornament sales.

[Operator Instructions] We have a question from Sandesh, who is an individual investor.

Congratulations for good set of numbers. Sir, rather than talking about the business, I have just one main question regarding where do we see ourselves in next like 5 years with like Kalyan Jewellers at top and Titan at the top? Do we consider ourselves capable enough to grow in that line of scale or be less to that level in future? And what could be the possible time line? I want to know the vision rather than the numbers, if you can please.

Yes, sir. Since -- I tell you since our management has a very vast experience, has been in the field for more than 5 decades nearly, we are -- yes, we are making progress, sir, that we could also open up various stores. We have appointed our CFO, Mr. Vikas Mehta, to identify the strategical locations for the expansion of B2B and B2C segments. And surely, in coming 5 years, you will see at a very -- year-on-year, there would be a growth of around 25%. And as showroom adds on, even the progress will be high.

Right, sir. Sir, right now, we have a clear visibility of revenue coming from our upcoming showroom. And then thereafter, since you have mentioned, we are planning to open 3, 4 showrooms also. Sir, what about our geographical expansion into North like we are mostly into South right now? But what about our expansion, our plans regarding expanding in North or maybe the fundraise required for that in future, any plans?

That's what, sir. Since initially, we are in South and we are really [ well placed ] in south, we are going to expand in South initially. And later on, we will think of expansion on, what they say, other geographical areas. Since the demand of overall gold jewelry is 40%, we find a wide potential here in South India.

Right, right. Sir, one last question. Since in our previous presentations, we have mentioned that because of seasonality in the business, the current results should have not been that good, which are -- I mean, very good in the seasonally weak quarter. So what were the reasons for delivering above the guidance in current H1?

That's what current H1 was pretty well because even the duties were reduced, prices were reduced, so demand was very high. Hardly for the, what they say, last month, 15 days Shradh was there. Except that, all quarter was very good.

[Operator Instructions] As there are no further questions, I would like to hand the conference over to Neha Rathod for closing comments.

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

Thank you so much. Thank you, everyone.

Thank you, one and all. Thank you.

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