Khazanchi Jewellers Limited (543953) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Results Conference Call of Khazanchi Jewellers Limited, hosted by Kirin Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [ Par Kacharia ] from Kirin Advisors. Thank you, and over to you, sir.

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 Mehta, Chairman and Joint Managing Director; Mr. Vikas Mehta, Chief Financial Officer. With that, I now hand over the call to Mr. Rajesh Mehta. Over to you, sir. Thank you.

Hello, everyone. A very happy, good afternoon, and thank you for joining us today. It's our pleasure to welcome you to Khazanchi Jewellers Limited Q1 FY Earning Call. For all those joining us for the first time, Khazanchi Jewellers is a legacy jewelry company with over 5 decades of experience across B2B and B2C segment. Over the years, we have built a strong presence through our design capabilities, traditional craftmanship, strengthened quality standard and dependable execution across gold, diamond and precious stone jewelry. Q1 FY '27 has been a strong start to the financial year with healthy momentum across both our B2B and B2C operation. We are particularly encouraged by the progress following the launch of our flagship showroom and the implementation of dedicated ERP systems. The strong customer response and increasing retail scale reinforced our confidence in Khazanchi's growth strategy. Coming to our Q1 FY '27 financial performance. Revenue increased by 45% year-on-year to INR 586.36 crores versus INR 4.384 crores in Q1 FY '26. EBITDA increased by 89% year-on-year to INR 39.98 crores versus INR 21.15 crores. EBITDA margins improved by 158 basis points to 6.8%. Profit after tax increased by 84% year-on-year to INR 27.83 crores versus INR 15.15 crores. PAT margins improved by 99 basis points to 4.75%. EPS increased by 82.35% year-on-year to 11.16%. The fact that EBITDA and PAT grew considerably faster than revenue during the quarter is particularly encouraging. It reflects an improving business mix, operating leverage and benefits of scale as we continue to expand the business. I'm going to recap growth journey since listing. I am very happy and delighted to share that your company has successfully completed 3 years since its listing on the BSE SME platform in August 2023 and is now progressing towards migration to the main board, including or proposed listing on the main board of both ESP and NSE subject to necessary regulatory approval and fulfillment of all applicable requirements. Over this period of 3 years, our revenue grew mix 5x from INR 481 crores to FY '23 to INR 2,049 crores in FY '26, while our TAD grew 10x from INR 8 crores to INR 89 crores. The progress we have achieved over the past 3 years reflect the continued confidence of our shareholders in the management and strategy of the company. The trust of our customers and business partners and the sustained commitment of our [indiscernible]. We thank all our stakeholders for their support, and we build the next phase of Khazanchi's growth story. Your company is forced to achieve a revenue mark of INR 5,000 crores by 2030. We are targeting annual revenue growth of approximately 25% to 30%, supported by our strong B2B foundation, expanding B2C and digital ecosystem and value creation across every segment of the business. We have always delivered more than our projection. Our growth outlook on our B2B business. Our B2B business continues to provide scale, stability and consistency to the company. Over the years, we have built a strong and enduring relationship with the jewelry houses wholesalers and organized retailers across India. These relationships are supported by our ability to meet large volume requirements offers differentiated designs, maintain stringent quality standards and ensure reliable and timely execution. Going forward, our focus will be on strengthening and broadening our geographical reach while expanding our client base across existing and new markets. We aim to deepen engagement with existing customers by increasing our share of business and product offerings, while also adding new customers across geographies. This will enable us to grow both the breadth of our customer network and the depth of our relationship, reinforcing the long-term scalability and resilience of our B2B business. Now growth outlook for our B2C segment, B2C business will be the key growth driver going forward, and we have a very aggressive plan to launch 8 to 10 stores over the next 3 to 4 years across geographies. This store will be a combination of our flagship store and premium boutique minimal jewelry stores for minimal jewelry and latest lightweight design. Our retail expansion is aimed to accelerating our B2C growth and increasing the B2C contribution to approximately 40% of overall revenue by FY 2030. I would also like to highlight an important development in Khazanchi's capital market journey. At the recently concluded Annual General Meeting, our shareholders approved the resolution for migration through the BSE SME platform to the main board of both the exchanges, BSE and NSE. This remains subject to necessary regulatory approvals and fulfillment of all applicable requirements. The proposed migration comes to an important stage in the company's journey following a significant expansion in scale and profitability since our BSE SME listing in August 2023. Looking ahead, we will continue to strive and deliver beyond our conservative outlook by strengthening our B2B business, expanding our B2C presence and increase the contribution for higher-value categories, particularly natural diamond jewelry, enhance our product and brand portfolio and explore opportunities in silver jewelry category. Overall, our aim is to build Khazanchi into a stronger consumer-facing jewelry brand while retaining the scale, relationship and execution capabilities developed over several decades. We sincerely thank our shareholders for their continued trust, support and confidence in the company. Your encouragement remains central to our commitment to create sustainable long-term value. We will continue to focus on disciplined the execution, responsible growth, strong governance and transplant communication. We look forward to your continued support as we pursue the next phase of our journey. With this remark, I would now like to open the floor for questioning. Thank you so much.

[Operator Instructions] Your first question comes from the line of [ Raji Mera ] an individual investor.

So first of all, congrats on the strong Q1 performance. My first question is where are we currently in the [indiscernible] migration process? And can we expect the listing in the next month or 3 months?

Yes. We are into the [indiscernible] process of the application and all the [indiscernible] part, and we are going to submit the documentation very shortly. Thirdly, the migration process will be completed [indiscernible].

Okay. And the last question that you just mentioned of 5,000 targets. So what will drive us to that still? And when we expect to achieve it?

That's what you also know that we are -- we were able to achieve INR 2,000-plus crores this financial year, and we have been into the expansion part of both our [indiscernible] B2B and B2C. We have been seeing a constant growth of 25% to 30% on both these segments. And on the expansion plan, we have already decided that we are coming up with a few more showrooms by FY '23. So all these expansion plans and all these growth strategies will help us to achieve our top line of INR 5,000 crores.

The next question comes from the line of [ Keval Meta ] from Meta Securities.

Congrats on a good set of numbers. Sir, Q1 FY '27 revenues grew by 45% Y-o-Y to INR 5 to INR 6 crores. What was the underlying growth in [indiscernible] volumes or ramps sold during the quarter?

So the growth in the quantum was around 15%.

Okay. Yes. Yes. But can you also tell me that what was the underlying growth in generic volumes like or [indiscernible] how much you sold, how much grams of [indiscernible] have sold during the quarter?

The quantum numbers, if you want, I can share you or later at [indiscernible].

Yes, sure. And transfer of Q1 was the first full quarter of new flagship [indiscernible] to revenue and store level EBITDA did showroom generate?

That's what we are in -- what we say last the target, we have already decided that the showroom is going to [indiscernible] revenue of around INR 500 crores and somewhere around 80% to 85% of that we have been working, and we are achieving that.

Okay. And where does the current monthly revenue run rate [indiscernible]

I couldn't get you, sir.

New showroom, which is your new flagship showroom, right? So what the current monthly revenue or [indiscernible] time?

Sir, it is around monthly [indiscernible] we did approximately around INR 30 crores to INR 35 crores.

And after delivering about 45% revenue growth in Q1 versus earlier FY '27 guidance of 25% to 30%, so what growth range are you now targeting for the full year?

So we are going to at the top line [indiscernible] grows at the same pace and we are very confident of achieving the already defined the figures with our retail sales and 25% growth we are expecting in our B2B segment also. In that case, yes, that overall the today's top line, if you consider, we would be able to achieve 30% growth.

The next question comes from the line of Rohit with [indiscernible] Capital.

You have given a guidance of about 25% to 30% growth and on an absolute basis, you said INR 5,000 crores. So if I take 30% growth, then it can -- it comes to about INR 5,800 crores. Just trying to understand, right, the growth here, earlier you had given a split of target of taking your retail share to about 20%, 25%. So would that change with the target that have in our mind? Because earlier you said that you expect both verticals to grow equally?

So no, we are -- since we have plans of improving our bottom line to a greater strength and we have been working on the growth of both the segments. And we have been focusing on expanding our retail leg also. So in that case, our bottom line will be very much better and we would be able to give a PAT margins. And ultimately, we are [indiscernible]

Sorry, 25% to 30% CAGR was for PAT and INR 5,000 crores revenue was for -- this was that CAGR was not for revenue, right? Just to understand?

Yes, it was both [indiscernible] at the same pace, 25% to 30%. We are trying to achieve it. We are already defining it at a constrained basis.

Now sir, let's say, within these 2 segments, B2B, let me just take us B2B. Do you expect the growth to come from the existing clients that we have, we have somewhere around 1,000 clients, right? But we are able to actively build only [indiscernible]. So are you expecting more of the revenues or more of this growth from -- coming from wallet share gains from existing ones? Or do you have -- have you taken any steps to drive the growth from the clients, which they're not able to build? Or have you hired more people that we have been continuously doing it?

In the business cycle, we do not have clients which have been leading with us for every -- there is a possibility that say 20% of the client came on. And once again, they will join, and we are into the process of adding up new clients also in that whole process, we are adding a [indiscernible] . So that growth strategy can be achieved.

So just trying to understand, have you like hired more people in your team? Therefore, it gives you the confidence that we will be able to drive more growth even on the B2B side, which probably was subdued earlier.

Yes. Already, we are on the increasing our staff strength and all the approaching all on our product line and marketing strategies to add up more clients.

Okay. And regarding our retail strategy, you said that you still hold this target of about taking the retail share to 20%, 25% which would mean at INR 5,000 crores, about INR 1,250 crores when you are INR 1,200-odd crores revenue from retail stores, right? Your current store -- this flagship store will do somewhere around INR 500 crores peak revenue. The INR 200 crores of revenue obviously will come from the new stores that you're targeting. So for that, again, have you hired retail and merchandising team or regarding your experience from the current [indiscernible] what you can take to your newer stores, right? Do you want to open the store only in Tamil Nadu or you want to expand in other geographies as well?

So initially, we have plans of opening up stores in Tamil Nadu. And since we have defined that in a period of 3 to 4 years period, and based on that, initially, we are planning to open up in Tamil Nadu alone. And later on, as per the management decision and as per the expansion plans, we can even have stores in some other states also. So that is our base plan.

Okay. And what has been the experience from the implementation of the ERP that we did, I think, a couple of [indiscernible]

We have been having a great experience with regards to the ERP implementation in our [indiscernible], we are able to understand which product is moving fast, what is the average customers' demand based on that demand, we are modifying our product requirements, reordering levels and everything. We are making a concrete TRP system so that it can be replaced on a replica basis for the upcoming showrooms.

Understood. And that's what gives you the confidence that to scale other stores -- new stores up, it will not take as much time as this one because the past earnings will get added over there. And just last 1 or 2 questions, sir. You -- on this growth at 25% to 30%, how much of the growth do you expect to come from volume and how much you expect from actualization? And obviously, price utilization can come from the mix change you have like this virtual diamond and those kind of things like [indiscernible].

[indiscernible] is actually already digested in the minds of the clients or customers that when there is a growth of, say, novel 10% to 15%, they try to invest into the same type of quantum or they can even increase their quantum requirement. But if the prices are very high, there is a price increase of 25% to 30%, then there is a correction in the volume conduct. In that case, we'll be able to achieve volume, I believe, and later on as per the price movements, we can decide things.

Okay. And on this volume and price realization, any idea you have any ballpark figure you have in mind that approximately how much would come from volume growth and how much from the variation?

No. When we are into the expansion plan, and we are adding a [indiscernible] as we are surely the -- we have confidence that we are going to give -- if the prices are on the same stand, then the growth would be around, say, 25% to 30% in a quantum basis also. If there is a certain increase in the prices, and we are trying to achieve on both the sides, volume-wise also and [indiscernible] the same growth.

Sir, last thing on the margin side, retail stores generally have higher margins. B2B is about, let's say, 5% and 6%, our retail stores are north of 10%, right? So as the rental contribution goes up, do you expect the margins to interrupt significant -- not significantly, let's say, even from 6% to 7%, 7.5% over the next 2 years? Or because of the investments that you are undertaking, do you expect the margins to remain at these levels for the next 2 years, but then can sharply pick up thereafter?

The overall share of the retail is going to increase to 40%, we are targeting to reach at least 40% of the retail sales by FY 2030. So in that case, the share of retail increases, then our margins of what they say retail sales will be -- our margins -- retail margins will be high, that our bottom line will also improve. In that case, overall, our EBITDA in part margins will improve.

Okay. So we are expecting retail to go up to 40% 25%, right? Not 20%, you said 40%.

Going to 40% share by 2030. That's what.

Understood. Yes, by [indiscernible].

Yes.

Congratulations for the good quarter.

Your next question comes from the line of [ Miten Shah ], an individual investor.

Congratulations on posting good set of numbers. My first question would be regarding this working capital days -- what was the blended working capital days? And also, if you can give a split of working capital days in wholesale and retail separately as well?

Yes, it is a -- what they say in wholesale, the average working cycle is around 40 to 45 days. And in the retail segment, it is nearly 100 to 120 days.

Okay. Okay. So my question is like if you see the cash flow last year looks to be negative as such. So do you see any improvement in the cash flow generating positive cash in the current fiscal and subsequent fiscal assets?

Yes, that's what -- obviously, we think we have an expansion plan. We have added additional inventory stock inventory for the new retail store. That's what the cash was there. And it is converted in the form of stock. But the cash flow has been negative, but we will be improving the cash flow and it would be as per the requirements, you will be able to generate cash.

Yes, yes. Because the reason I understand because we are in the expansion of retail showrooms and our aspiration is also to increase the retail showrooms by [indiscernible] so in that case, the inventories will always keep on rising. And hence, my concern is again the same, would it still be able to generate positive cash flow because as the plan is to increase the retail footprint.

Yes, definitely. This year, we will be having a good cash -- positive cash flow because we have a, what they say, correct fund plans with regards to how we are going to operate with for the fulfill the stock requirement of the upcoming stores.

Got it. Got it. So recently, saying in the last 1 month or especially last [indiscernible], we see high surge in the gold price again. So is there any -- what was a slowdown in the traction in the business per se regarding the increase in the growth because of this increase in the gold price?

That's what the movement in the gold price has been there for a very long period of time. And every time when there is a steep raising the prices, yes, there is a certain slowdown of say for [indiscernible] 2 weeks. Then price get digested. And once again, the upcoming seasons are coming up [indiscernible] are the festival seasons are there. So we are seeing a very good demand in the very upcoming near future. So this price range will be easily digested.

Got it, okay. And since we want to increase retail footprint still contributing somewhere around 40% [indiscernible] So is there any -- I mean, obviously, CapEx would be required for that. So is there a plan to further increase? I mean, to borrow money or to -- how would that be planned out -- I mean [indiscernible]

We are planning a retail development of 40.2 reach there. We have our internal earnings, we will be utilizing it for expansion and certain cases, as and when required by the -- required the management will be deciding as and when we will be raised by debt [indiscernible]

Got it. Got it. So as of now, what is the debt on the company in long term or short term separately?

So the company is having a total bank limit of INR 100 crores intake.

Yes, yes. I'm talking about any long term?

[indiscernible] that is only the limit.

Except for the working capital?

No, no, no. That is the working capital we are using from the bank.

And we have around 1,000 customers in B2B. So what was the contribution from top 10 clients in terms of percentage from B2B?

So as we have a diversified portfolio of clients, we have been dealing with all the clients who have been there nearly decades and having 2 showroom, 3 showroom on all the district headquarters of all Tamil Nadu and some parts of South India. So we are dealing with all the clients. So none of the clients shares more than 5% to 6% of the total revenue.