P N Gadgil Jewellers Limited (PNGJL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to P N Gadgil Jewellers Limited Q2 FY '27 Earnings Conference Call hosted by Nuvama Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aayush Adukia from Nuvama Institutional Equities. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. On behalf of Nuvama, it is a pleasure to welcome you to P N Gadgil Jewellers 2Q FY '27 Earnings Conference Call. From the management today, we have Dr. Saurabh Gadgil, Chairman and MD; and Mr. Deepak Vijay, CFO. I would like to hand over the call to the management for their opening remarks. Over to you, Saurabh.

Thank you, Aayush. Good evening, everyone, and a very warm welcome to the Q2 FY '27 Earnings Conference Call of P N Gadgil Jewellers Limited. I hope you had an opportunity to review our financial results, our investor presentations and press release, which is uploaded on the exchanges and on the company's website. To begin with, I would like to express my sincere gratitude to our customers, employees, franchisee partners, vendor partners and shareholders for their continued trust and support. Their confidence in PNG Jewelers continues to inspire us as we build on legacy and deliver a strong performance in the second quarter and the first half of FY '27. This July to September quarter is traditionally a relatively subdued period for the jewelry industry, largely coinciding with Chaturmas when wedding-related demand tends to be lower. Despite this seasonal moderation, consumer demand remained healthy. With gold prices continuing to remain elevated, customers increasingly graduated towards lightweight designs, studded jewelry and old gold exchange. These evolving preferences continue to create opportunities for trusted organized retailers with established brands and a strong focus on transparency and customer confidence. PNG Jewelers has delivered a revenue of INR 2,666 crores, up 22% Y-o-Y. And EBITDA grew 57% Y-o-Y to INR 224.6 crores, with EBITDA margin expanding 186 bps to 8.4%, while profit after tax grew 53% Y-o-Y to INR 121 crores with a PAT margin of 4.5%. Profit grew well over twice as fast as revenue, reflecting a richer product mix, a higher retail share and a growing operating leverage. For the first half, revenue grew 31% to INR 5,079 crores and PAT grew 52% to INR 226.5 crores. This was also a defining quarter for our brand portfolio. We rebranded LiteStyle and YOOU by PNG, which is lightweight diamond jewelry...

Sorry to interrupt, sir, your voice is breaking.

We rebranded LiteStyle and YOOU by PNG, which is a lightweight diamond jewelry brand for younger style-conscious consumers and the response has been very encouraging with YOOU stud ratio rising to 53.1% from 32.9% last quarter. On 1st October, we completed the 100% acquisition of Silvostyle, a fast-growing silver fashion jewelry brand that grew revenue at 64% CAGR and PAT at 99% CAGR between FY '24 and FY '26 and already operates 18 stores and 68 [indiscernible] network. With [indiscernible] YOOU and Silvostyle, we now have 1 house and 3 brands.

Sir, your voice is breaking. There is cracking sound coming from your line. Sir, I'll just disconnect and reconnect. Ladies and gentlemen, please wait while we reconnect the management. Ladies and gentlemen, thank you for patiently holding. We have the line for the management reconnected. Over to you, sir.

So now with PNG legacy, YOOU and Silvostyle, we now have 1 house and 3 brands that engage with every generation of jewelry buyers. In Q2 of FY '27, we also raised INR 700 crores through QIP, which was over 1.5x. CRISIL also reaffirmed our credit rating at A+ with stable outlook. These developments have further strengthened our financial position and provided a solid foundation for the next phase of our growth. We currently work with over 100 Karagir associations and more than 180 vendor associations, reflecting the strength of our long-standing partnership. We also remain open to exploring any further strategic opportunities for synergies -- for synergistic integration across the value chain wherever they can strengthen our capabilities and support our long-term growth. We closed the quarter with 80 stores, comprising of 79 stores in India and 1 in U.S. These include 7 company-owned stores across Uttar Pradesh, Madhya Pradesh, Bihar and Haryana, reflecting our growing presence in Northern and Central India. Encouragingly, these markets are already showing promising results with our stores in the region recording a stud ratio of 17.4%, well above the company average. This gives us confidence in our expansion strategy and the potential of these markets. We remain on track to open 23 new stores in FY '27, taking our total store count to approximately 103 by the year-end. Expansion will [indiscernible] over the next 2 quarters... [Technical Difficulty]

Sorry to interrupt, sir, your voice is again breaking.

Can you call in mobile please now?

Okay, I'll reconnect you. Ladies and gentlemen, thank you for patiently holding. We have the line for the management reconnected. Over to you, sir.

We remain on track to open around 23 new stores in FY '27, taking our total store count to approximately 103 by the year-end. Expansion will gather pace over the next 2 quarters, driven primarily by the franchisee-led model across both legacy and YOOU formats. Our Ayodhya store is already operational, while the Prayagraj store is scheduled to open on 4th of November 2026. Of the planned addition, 8 to 10 openings are targeted in Q3, while the remaining openings are planned for Q4 FY '27, supported steady progress towards the expansion targets. We have also strengthened our risk management framework, raising the hedge coverage to approximately 80%, making our earnings more resilient to gold price swings. Backed by a 195-year-old legacy, a sharper brand portfolio and a strong balance sheet, we remain confident of delivering sustainable profitable growth throughout the year of FY 2027. With this, I'll hand over the call to our Chief Financial Officer, Mr. Deepak Vijay.

Thank you, Dr. Gadgil, and good evening, everyone. Let me take you through our financial performance for the quarter ended September 30, 2026. Consolidated revenue from operations grew 22% year-on-year to INR 2,660 crores (sic) [ INR 2,666 ], driven by strong retail performance. Retail revenue increased 31% year-on-year to INR 2,061 crores, supported by a healthy SSSG growth of 25.5%. Franchisee revenue also recorded a strong growth of 35% year-on-year, whereas e-com reduced 84% year-on-year, primarily due to strategic recalibrations of the product mix as we deliberately reduced the share of low-margin coin sales and shifted focus towards higher-margin jewelry products to enhance the quality and profitability of the channel. Retail now contributes 77% of our total revenue compared with 72% in the corresponding quarter last year, reinforcing its growing contribution to our business and margin expansion. Also, the share of retail revenue from Northern and Central regions increased to 2.7% in Q2 FY '27 from 0.7% in Q2 FY '26. Our gross profit grew 32% year-on-year to INR 339.8 crores with gross margin expanding by 89 bps to 12.7%. Our EBITDA increased 57% to INR 224.6 crores with a margin expanding 186 bps to 8.4%. Excluding an unhedged inventory gain of INR 5 crores, adjusted EBITDA grew 60% to INR 209.6 crores with an adjusted EBITDA margin improving to 8.2% from 6.3% a year ago. This reflects the strength of underlying operations and demonstrates that our margin expansion has been driven by operational improvements rather than gold price movements. Profit after tax grew 53% year-on-year to INR 121.1 crores with a PAT margin at 4.5%, while adjusted PAT increased 57% to INR 117.4 crores with the adjusted PAT margin improving to 4.4% from 3.3%. Basic earnings per share stood at INR 8.7 compared to INR 5.8 in quarter 2 FY '26. Our premiumization strategy continues to deliver encouraging results. The retail stud ratio improved to 11.9% compared with 9% in quarter 2 FY '26 and 10.96% in the previous quarter. Diamond jewelry recorded growth of 21% in value and 11% in volume, reflecting healthy demand in this category. The Gold jewelry grew by 47% in value and 4% in volume. Gold Bar and coins reduced by 24% in value and 48% in volume. Gold Bar and coins now account for 15.8% of retail revenue, down from approximately 22% in the previous quarter. 68% of the Gold Bar and coins purchases are converted into jewelry purchases this quarter compared with 53% in the previous quarter. Customer engagement remained strong with footfalls exceeding 1.78 lakhs, a conversion rate of 88.6% and an average transaction value of INR 1.22 lakh. Together, these trends reflect our continued focus on improving product mix, driving jewelry-led sales and enhancing the quality of our retail revenue. As we enter the seasonally stronger second half, capital allocation will remain focused on high-return store expansion, festive and wedding season inventory, the integration of Silvostyle, digital investments and a steadily higher hedge coverage. With a net worth of INR 2,865 crores as of September 30, we are well capitalized to fund this growth. With that, we conclude our opening remarks and would now be happy to take your questions. Thank you.

[Operator Instructions] First question is from the line of Yash Sonthaliya from Edelweiss Public Alternatives.

Congratulation on a good set of numbers. So 3 questions. Number one, I wanted to understand basically, we have -- I'm audible, right?

Yes, you're audible. Please go ahead.

Yes. So first question is basically why we have seen a good expansion on gross margin Y-o-Y and some decline Q-o-Q based on how mix has changed. But do you think there was any impact of the festive shift on our gross margin? And also, what is the impact of the festive shift?

So I'm -- on the gross margins, you have picked up right that we have increased our gross margins on a year-on-year basis. And there is some dip on a Q-on-Q basis, primarily driven by the franchisee share increased to 17% from 12% in the Q-on-Q number. So that's the reason why the gross margin has reduced by 50 bps on quarter-to-quarter. On the festive shift on gross margin, we are not very clear what exactly is your question. But concerning the sale part of the festive mix, the Navaratri season has shifted into Q3 this year, which was in the last quarter 2 in the previous year. So that's the shift which has happened on the sales, but I'm not really understood your question on what you wanted to understand on the gross margin bit.

So basically, on Y-o-Y base, while our gross margin has improved a lot, but if I adjust for other segments and how the mix has changed, and also basically, the hedge profit has been -- unhedged profit has been very much similar. So I wanted to understand with the stud ratio increasing from 9% to where we are, I thought the gross margin could have improved more and festive have somewhere impacted the margins.

But festive will happen in next quarter.

To an extent the festive sales, which would have happened last year in Q2 has this year pushed to Q3. So from that perspective, it is right of saying that festive margins -- festive sales will be shown in the quarter -- in the third quarter this year. But otherwise, the only mix -- the only change has been the franchisee where we have seen our franchisee grow to 21% -- 17% from 12%. So that explains the 50 bps difference in gross margin.

Got it. Got it, sir. And basically, other festive [Foreign Language] quarter, how would have our revenue growth would be adjusted for festive, some broad numbers?

Yes, around -- if you look at the entire season of the 10 days of Navaratri, around INR 200 crores would have been the revenue from those 10 days. So that revenue has been pushed to Q3.

Got it. Got it. Sir, my second question is more on capital allocation, like what we are seeing, basically, we are trying to grow more on the franchisee model going ahead. And now we are also entering different brands and different segments of the jewelry business. So how should we think about how our internal capital will go into all these businesses, where we will go more in a COCO format and how the capital will flow into the business?

See, like we had mentioned in our investor call -- last investor call so that the company had done the COCO stores primarily in Q4 of last year to establish presence in UP, so Q3 and Q4. So we had done 4 stores in UP, Lucknow, Kanpur, Gorakhpur and Banaras. We also had done a company store in Patna and also one in Indore. This was to really establish the brand there to have -- to build confidence there. And then the plan was to further expand by the FOCO route. So that is what we are following this year. So this year, it's going to be more FOCO led in Q3 and Q4. But going ahead, next year -- from next year onwards, we plan to do a 50-50 allocation between COCO and FOCO. And that too also in the legacy and the YOOU by PNG format, it will be 50-50. So what we're talking of adding around 30, 35 stores, out of which 17 to 18 stores would be legacy, half the balance would be YOOU by PNG. And again, in this, it would be half COCO and half FOCO. So what we're trying to say from all this is that our internal accruals should be more than enough to fund the COCO expansion, and we'll not be required to raise any further debt. And by 2030, we are expecting that this debt should come down by 20%, 25%.

Got it. Got it. Very clear, sir. And sir, my last question is on our expansion towards UP and other states. So basically, while you already mentioned the stud ratio is over 17% over there. So can you just help me understand how has been the asset turn or inventory turn in those parts of the region, all the stores which are the most mature over there? And what are the margins or broadly stud ratio in those stores?

See, roughly the stores around -- average age would be around a year, 11 to 12 months. And on average, the stock turn there would be at 1. So like we had projected there that each store should be doing around INR 50 crores, INR 55 crores of revenue, and that is where we are. So our planning is on track, and we are -- in fact, we are a little higher. We are at around 1.1 stock turns, so it's around INR 60 crores. But this is what we had expected there. Stud ratio, we had projected 15%. We are upwards of 17%. Margins are same like the margin anyway solid gross of around 25%.

Got it. Got it. Sir, just a follow-up. So basically, that the region and all the economics is very different from what we do in Maharashtra. So how to -- how you are internally benchmarking what would be the numbers you are envisaging once the stores mature over there, what will be the turnover and the stud ratios you are expecting?

The turn again should be the same. We are looking at 2.5 to 3 stock turn per store. And then after the year -- after year 4, we should look at reaching 3.5 to 4 stock turn. So that would translate into around INR 200 crores once the store is fully mature. And I think the stud ratio which we are projecting there should be in the range of around 22% to 25%. And this is where we are right now, we also have 17% I think that's clearly achievable. Also on the stock turn wise, we are already 1.1 stock turn. So I think we are on track to be able to achieve the numbers which we are aiming for.

[Operator Instructions] Next question is from the line of Prince Choudhary from PINC Wealth.

Am I audible?

Yes, please go ahead.

Congratulations, sir, for the great set of numbers. My question is on the YOOU brand. So just wanted to understand that currently, we have an inventory turnover of 0.8x. So what will be the peak inventory turnover we can expect from the YOOU brand?

I think YOOU, like we know, is more diamond focused. It's got around 70% diamond and 30% gold and the composition of the entire inventory should be maturing at I think around 1.8 to 2 stock turns.

Okay. And sir, for our legacy, we have seen that our inventory turnover has come to 3.7x. So can you specify the reason that why the inventory turnover has dipped if we see the following quarters?

I think we have always given this that the inventory stock turn primarily as we expand, would somewhere rationalize at these levels. The average industry stock turn is around 2 to 2.5. We are well above that. And I think our focus also is to go more on jewelry to go less on the bars and coins. And that also is ensuring that our jewelry -- the product mix is focusing more towards jewelry. And I think at industry -- at a store level, company level 3.7 to 4 is a very good stock turn, which I think in the industry should be one of the best.

Got it, sir. But sir, just wanted to know that as we -- are this inventory turnover sustainable or going forward, since we are in an expansion mode, we'll see reduction in inventory turnover also? So what -- what can be sustainable number?

This is sustainable because as we have seen the stores also maturing the store, which we expanded 2 years ago, will head towards maturity and new stores will start coming up. So when we had said during the early IPO days that the 5.6, 6 stock turns will somewhere mature at 3.5 to 4. And that is what we are seeing. So this stock turn is sustainable as we go ahead.

Okay, sir. And sir, how we are seeing the demand in the festive season? Like Navaratri, you mentioned about, but what is your expect towards Diwali and the wedding season?

Navaratri has been good, and so the season looks positive as we speak. Prices have remained soft, and that has been also tempting of people to enter the market. So we are positive that Diwali should be -- Diwali season, the entire 1st November, first 15 days should be good. The indications are there are a lot of bookings, a lot of interest from people to make the purchases. So I think we are all confident that Diwali and the wedding season look to be good.

So sir, we will see more of volume growth now when we see the SSSG growth in the coming time? Because the prices have softened also.

See, we always maintain -- I mean, when prices come down, you'll see more volume. When private prices go up, you'll see more value. So by that logic, yes.

And sir, the last question that we have raised the fund recently. We have done the QIP. So like how we are going to deploy that fund? And can you just share the time line for that expansion?

Yes, I'll just take that. So what we have done on the QIP, we have deployed some funds into the working capital, which is to take the care of the festive inventory-led demand on cash. And the balance, we -- from the accruals, which we'll do over the next couple of years, our 170-odd stores, which we have given a guidance earlier by FY '29 is completely led by the accruals which we generate from the profits. So we are well pretty much into the shape and to achieve that, we don't see any deviations on that right now.

So currently money is parked in bank FDs.

So around INR 600 crores in bank FDs right now as we speak. Also, if you will see quarter-on-quarter, my FDs -- the balance in my FDs last quarter, it was INR 554 crores. This is around about INR 1,191 crores in FY -- in quarter 2 end. So we have increased our FDs also by INR 637 crores in -- between 2 quarters now.

Next question is from the line of [ Piyush ] from Smart Sync Services.

Am I audible?

Yes.

Okay. So my question is regarding the geographic expansion. So nearly 90% of company stores are still in consolidating in Maharashtra and Goa, while expansion into Northern and Central India is becoming the key growth driver. So how do sales productivity, operating margin and inventory requirement in this newer market compared with the mature Maharashtra stores? Also, you are moving towards the franchisee lead expansion and how much the improvement in capital efficiency and store level returns can we expect?

From the inventory point of view, we don't foresee any major changes in terms of the investment. The only difference will be because these -- the newer markets are primarily led on the stud side. So the investment will be a little lesser in terms of the gold kind of volume, which will be put into these new stores. So that will be a little lower, let's say, 10% of what we do in the Maharashtra stores. That is the impact on the investment side on the inventory per se. On the impact of the newer geographies into our business, as you have said, right now, we are -- Maharashtra contributes around about 91% of our total sales. That will change to around about -- the newer geographies will be around about 30% to 35% by FY '30. That's the internal projection we have had. And the stud ratio, which is in the 11.9% at a company level right now, will increase to 17% to 18% at a company level. And at the Northern India and the central regions, it is in the range of 25% is what we have forecasted. So that's how we see. So the margin expansion will happen from the stud and into the newer geographies. Right now, the share of the Northern and Central region, as I have already said in my commentary, around about 2.7% of retail. Now this 2.7% of retail doesn't move too much into the numbers at a total level right now. But once the northern region is in the range of 30% to 35%, this will show in the margin expansion and the EBITDA expansion.

Okay, sir. My second question is regarding the INR 700 crore QIP. So you have raised the INR 700 crores through QIP and consolidated borrowings have increased by approximately INR 385 crores since March. So while quarterly finance costs have also rising significantly. So can you explain how the QIP profits and incremental borrowing are being deployed?