RBZ Jewellers Limited (RBZJEWEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the earnings conference call of RBZ Jewellers Limited for Q3 and 9 months FY '24. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance, and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. We have with us from the company, Mr. Harit Zaveri, Joint Managing Director; and Mr. Harshvardhan Bhardwaj, CFO, from the company. I now hand the conference over to Mr. Harit Zaveri, Joint Managing Director. Thank you, and over to you, sir.

Yes. Good afternoon, investors. So this is the first earnings call of RBZ Jewellers Limited. And let me brief you about the industry and how the back end, that is the manufacturing section of the jewelry industry, works. We are an organized manufacturer, and the -- we supply our goods to organized retailers. So generally, on the whole sum, in the 4 quarters that we see, quarter 3 are the best for the retail people and wholesale people. Wholesale retail -- the people who do have -- the people who supply to the retailers, independent retailers. As far as organized retailers are concerned, they generally do their purchasing bill in advance and before Diwali or the festive season begins. So quarter 3, as we are also into the wholesale segment and the retail segments that we are servicing to the organized retailers, as far as quarter 3 is seen, it's a promising figure of around -- from last year that we have around 92.60 Cr. This year, we have done around 115 Cr. And there has been an increase in employee expenses from about INR 1.59 crores to INR 2.18 crores. We were already going for an IPO, and we had started building the infrastructure. So the reason of a very heavy increase of around 30% plus in the employee cost is because the infrastructure was already ready to be. It is not that once we get the money, it was not possible that after that, we start to deploy the resources. It was done well in advance. And another rise that we have seen is the finance cost that has risen. That is the result that we had bought a retail property and the long-term loan of INR 19 crores accumulates to the interest of around INR 1.36 crores. And that was one of the reasons that both the costs had gone up. Still, we have done a profit before tax of around INR 9.14 crores from the last year, which was INR 7.88 crores. And I think the PAT are INR 5.94 crores from last year, December '22 to this year's INR 6.81 crores. Generally, from RBZ Jewellers Limited, the quarter 2 remains strong in terms of organized retailers getting supplies in advance. And quarter 3 also remains very good in terms of the retail and the wholesale that happens. So I'm looking forward for all the questions that investors might have and what might they want to understand.

[Operator Instructions] The first question is from the line of [ Saranj Sethi ] from [ Summer Wealth ].

Hello. Am I audible?

Yes, you are audible.

Sir, as I can see that retail share revenue has increased to 41% from 23% in FY '21. Do you have any further plans to increase your current retail market?

I'm sorry, your voice is a little blurred. Can you repeat the question again?

I wanted to know, do you have any plans to increase your current retail market as I can see the retail share in revenue has increased to 41% from 23% in FY '21.

See, I must first make you understand about the business model. The business model is job work. We have wholesale and we have retail. So with this perspective, let's say, if the revenue has increased from, let's say, X, to, let's say, Y, we need to really understand what the volumes have increased. So in FY '21, we might have done great volumes in terms of, let's say, job work services. And in FY '22 might have done a great -- a good performance in terms of retail and wholesale and also had a decent growth in job work. So on an accumulated level, let's say, if you see the -- to directly answer your question, yes, the revenue will increase. And we are looking for -- certainly, we are looking for a substantial and significant rise in terms of the volumes that we had done in previous years that was 1,059 kg. We are looking forward for a 1,200 kg volume this year. And considering this 9-month performance, I think we are on track with whatever we have said. But this year, certainly, we have -- because the funds are just coming on the end of almost the December end, so the utilization will -- in industry, the season begins from month of July onwards. So month of July onwards, I think you'll see -- we are expecting that due to the increase in variety and inventory, there can be a sharp price in terms of sales figures. And yes, in the coming 2 years, we are 100%. We are sure that we will expand to whatever we have committed on any of the media or to any of the investors. But certainly, we are expecting a significant growth in the company for another, at least 2 years for the funds to -- by raising these funds and also the debt that we'll be raising in the future.

And sir, do you have any plans on expanding your showroom count?

See, we have already -- we have a showroom of around 11,000 square feet. We are expanding 3,300 square feet. The utilization was only 6,600 square feet. We are again, utilizing the unutilized area of the showroom was 3,300 square foot, and we are utilizing it now. So I think by October or August, we should be ready with the additional space. And the showroom has got itself a capacity of around INR 400 crores to INR 500 crores, touching the top line of INR 400 crores INR 500 crores. So for another 2, 3 years, I think that we are in the right infrastructure and space that we have. And I think the retail is going to expand as well as the wholesale is going to expand at the same pace. So operationally, the showroom -- if -- once the infrastructure is already ready, why should we look at another location as of now?

Okay, sir. And sir, secondly, I want to know about your hedging policy?

So generally -- so there are -- when we say that there are 3 different business segments in job work, we get gold in advance, and we generally do the services. So around 60% of the business or 50% of the business, which is of job work services, you can say that we get the gold directly from outside and then we -- whatever we save by manufacturing, we keep it in the closing stock and the rest goes to the client. So -- and talking about the 40%, whatever we generally sell in terms of gold volumes, we generally purchase at the same day. So this is a general policy of gold that we hedge. And our accounting hedge is done on the basis of our average inventory. So the current market size of inventory, let's say, it is, let's say, 65,000. The average -- in the accounting things, because it is on the weighted average method, the inventory would be at quite a lesser value. So in that way, we play safe in terms of -- because of the weighted average method, we generally play safe with the disparity between the market -- current market price and the weighted average of the account -- the book inventory value.

[Operator Instructions] The next question is from the line of Rajesh Singla from VTG Capital Services LLP.

Am I audible?

Yes, Rajesh. You are audible.

So I just wanted to reconfirm from you. So the previous question -- the remarks you had said that your retail showroom is capable of generating INR 400 crores to INR 500 crores kind of revenue. So is that correct? Or did I hear properly?

Yes, it is correct.

So that one retail store can generate INR 400 crores to INR 500 crores kind of revenue?

Yes, Rajesh bhai. See, in general, also, if you check any of the stores from wherever you look at it, the benchmark stores that you have in your city, let's say, in Bombay or anywhere, I'm not telling anything which is coming from just -- it's in the industry itself, if there is an established retail showroom of 10,000 square feet, it is easily capable of generating the volume of INR 400 crores, INR 500 crores. Generally, if you have a lot of stores, let's say, there are smaller stores, there are bigger stores combined and then the average gets lesser because there are some stores who are yet to mature, some stores who are not in the growth phase, some stores are facing different kind of challenges. But here we are in this city, we are strong, we are established. The brand is there. So operational efficiency is there. So what I'm talking -- I mean we will be able to deliver this INR 400 crores, INR 500 crores of retail sales. And as far as I'm seeing, the numbers that I've quoted with the square feet that we have, I think it's 100% achievable. And it's already happening in the industry.

How much are we generating right now from this retail store? And this INR 400 crores, INR 500 crores, can we expect it by FY '26?

INR 400 crores, INR 500 crores, I think by FY '26, '27, by FY '27, we should be able to do it. But yes, year-on-year, we should be able to see a growth of around 30%, 35%. And I think within a matter of 3 years, we should be able to double it from this year onwards. Let's say -- and last year, we had sales of around INR 138 crores.

Okay. And one more thing, sir, more question on that. So you recently raised INR 100 crores from the IPO. And I was going through one of your video on YouTube. So, there you mentioned that you probably will raise INR 100 crores of debt as well. So that gives you fund capacity of around INR 200 crores, which is like substantially -- which is like -- which will cover, at least, double your sales from the current level. If I look at your working capital numbers, so you need probably INR 156 crores kind of working capital, the INR 200 crore additional funding should more than double your current sales. So when can we expect the full utilization codes which you would be having -- which you currently have? And can you expect the FY '26 or to be like 100% -- to show the results of 100% utilization of the funding which we have raised recently?

Correct. I think the equity fund should be 100% utilized by the second quarter of this next financial year. And the debt fund should be, again, utilized once it -- once we get to limit sanctioned and when it is approved. I think the fueling -- in any -- this industry, the whole industry starts from the month of July to -- till February 15 or February end. Then it slowly diminishes that at least in the North, East, and West region, the South has Akshaya Tritiya in it. And -- but generally, yes, so the whole -- we'll be able to see the spike in the sales from the start of the season, I think, in the month of July, and 100% equity will be utilized by the quarter 2 of this -- the next financial, that is FY '25.

Okay. And any plan to have one more retail store in the next couple of years, like by when you are expecting to add another retail store of the similar size?

So we are 100% focused on the manufacturing side because right now, there are -- that 40% of the retail in India is organized and only 15% of the retail manufacturing is organized. So right now, the demand that we are seeing from the organized retailer is quite strong. I think these are the low-hanging fruits, and we are aiming to become the player -- the top most player in the occasion segment of the jewelry industry. So in which right now also 80% of the volumes that we do are in the manufacturing side, and we are sure shot focused on that. And with these funds coming in, with the debt funds coming in, we are going to expand that thing. And the disparity is very heavy. There is only 15% who are catering to 40% of the organized retailers, and I think we are the player in that category. So we are focused in the manufacturing segment also. While the expansion in retail has now -- has to go on continuously, I think we are at the right pace right now. Let us understand the top line of -- let us reach the top line in whatever years that we have planned. And I think we should be able to continue with the same ratio of 20:80. But this is the time when manufacturing is really focused upon, can deliver strong results.

Rajesh, does it answer your question?

Can you hear me?

Yes. Rajesh, I can hear you.

Yes. Okay. So maybe just last question to summarize. So based on the numbers which we have spoken so far, so it looks like -- so INR 400 crores INR 500 crores of kind of retail revenue by FY '27 and probably INR 300 crores kind of revenue, maybe INR 400 crores kind of revenue from the rest of the business, driven by the IPO money and maybe one more fundraising until FY '27. So FY '27 could be kind of INR 800 crores type of revenue we can expect?

Yes, yes, yes. That is what we are expecting.

In terms of margins, so should we expect the further improvement in margins given the change in product mix? Or you think that the product mix will remain the same, the segment mix remain the same as we move forward? Despite the fact that you are focusing more on the manufacturing side. So should we see that you would be able to maintain 13%, 14% kind of EBITDA margin going forward? Or we can expect further improvement from here on?

I think the figure to -- see the business in which we are in, there can be various products or various kind in which we sell the products. It can be in terms of services, it can be in retail, it can be in wholesale. But as a company, what we really look at is -- what we are sensitive in is if we are getting INR 100, are we able to generate INR 20, INR 25 from that? So return on equity or return on capital employed is what we are sensitive. And if you are asking about the return on equity and capital employed, I think we should be able to maintain the track record that we have.

[Operator Instructions] We have the next question from the line of [ Prateek Bhandari ] from [ Aart Ventures ].

Yes. Am I audible?

Yes. You are audible, Prateek bhai. It's slightly blurry, but it's fine.

Okay. Okay. Okay. So just a couple of questions from my side. As you stated that you are focusing on manufacturing and the retail would simultaneously grow as well. So like out of your total revenues, how much is the contribution coming from manufacturing in terms of revenue?

See, in terms of revenue, things can differ, but revenue, see, when you understand our balance sheet, the component of volume is more critical because service is only the labor part gets actually on the top line of the balance sheet. So generally, let's say, we have done 600 kg last year in terms of services, the labor income might be just, let's say, INR 10 crores and whatever the top line might indicate just INR 10 crores. But that is a very huge component and that actually does not make us a company who is producing, let's say, a top line of INR 280 crores or odd, but it actually -- if you see it from the right perspective, we are a company which does the business of INR 550 crores, INR 600 crores because the service thing is not getting accumulated on the top line. So now to answer your question, we are 100% focused in manufacturing. See, the value is entire, right? From retail to manufacturing is what we are actually having. But because of the disparity in the market, that is 40% of the retailers are organized and 15% of manufacturing is organized. We have -- I think these are the low-hanging fruits and we should really try and get that thing as fast as we can. So I think 80%, we are into manufacturing, 20%, we are in to retail and the proportion will continue in the same manner.

Okay. Okay. And so where do you see your -- the top line at the end of this year and for the next year?

So this year, I think a reasonable top line of around INR 340 crores, INR 350 crores. I think that is something that we are -- that we should be achieving. And by next year or next to next year, I think the 2 years, I think -- see, the top line can vary according to product offerings. I might produce products which are high-margin products or which are low-margin products. That is different. But let's talk about that in the next 2 years, we are planning that we should be able to double the balance sheet. I think from the PAT of INR 22 crores that we had in the fiscal '23, we should be able to make a PAT of around INR 40 crores INR 50 crores -- [ INR 40 crores ] in terms of -- in FY '26 or so on. So return on capital employed and return on equity should be, I think, consistently seen. And the industry season starts from the second quarter of every year. So I think the spike should come from the second quarter should be very critical in third quarter -- quarter 2 and quarter 3 last -- of fiscal '25 is actually critical, sir. So that will actually say that if we are in line because this year, I can say that yes, we are in line with whatever we have said. Around INR 350 crore or INR 340 crores, INR 350 crores of turnover. And I think the PAT also should go on the same trend. So -- but next to next year, I think '26%, we should be able to completely utilize the balance sheet size, raising the debt and everything. So balance sheet of INR 200 crores, let's say if it is generating INR 22 crores PAT, balance sheet of INR 400 crores, that's INR 100 crores of equity plus INR 100 crores of debt, should be able to generate a similar level as the trends continue.

Okay. So you mean to say that by FY '26, the PAT would be somewhere between INR 42 crores to INR 44 crores, right?

Correct, correct, correct. So that is what we are expecting, sir.

So -- and what kind of price we are expecting by the end of this financial year?

Sir, I think that is something -- but we will have the same trend, sir. I think the trend will continue, let's say, we are having that INR 18 crores or INR 19 crores of PAT in 9 months, I think you can easily understand the trend, what is going to happen in the coming 3 months.

All right. All right. And do you have any CapEx plans for the upcoming 2 years?

See, right now, currently, we have enough capacity as far as the equity right now with what is getting funded or the debt which is getting funded. But we certainly want to scale ourselves because the opportunity is there to scale. We are looking for scale, and we are looking for the right time to get ourselves invested in the CapEx things. So yes, I think we are looking forward for having a handsome facility of around 6 to 10 tons. And -- but again, that requires the correct timing, that requires a right kind of -- because that would again require a very heavy working capital. So as of now, whatever we have raised plus the debt we have raised, we have got an infrastructure to generate returns from that. But as far as the vision of company grows, it was 100%, we are in for scaling. So in that perspective, yes, the CapEx might happen, but I cannot exactly tell you pinpoint and tell you when, but it is in the mind of the management.

Right. And I could see from your balance sheet that the borrowings have -- certainly if I compare from March 2021 to somewhere at the present moment, it has ranged from INR 60 crores to more than INR 100 crores. So what kind of the finance cost in terms of percentage, what is your finance cost since the interest has also climbed up?

Yes, sir, the interest is -- see, there are short-term borrowings and there are long-term borrowings. The retail unit that we had, we had taken a long-term borrowing, purchase that unit, we have taken a long-term borrower of INR 19.5 Cr. The company -- the property is in the name of company only. So both the properties are owned by company. The registered office also is in the company name and the retail showroom is also in the company name. So that is one of the reasons. Otherwise, if you minus separate that thing, it will be from INR 60 crores to INR 80 crores. And if you see the 3-year or 4-year recorded was INR 50 crores when the gold rate was INR 30,000 and it has just increased to another INR 30 crores. That actually says that in terms of kgs, we have not increased the debt to the level that the gold price has increased. That actually -- we were having a good opportunity in the market to grab the market. And also bankers have their opinion that, okay, we can increase only 20%, 25%. The bankers go quite conservative in terms of increasing debt. I think the company should have -- given this kind of figures or given the business that we have and the opportunity we have, we should be able to -- we should have been able to raise more debt. But okay, around -- finance cost has remained the same. Yes, we have got an impact of INR 1.36 crores this year because of the long-term debt that we have increased and no equity funds coming in. I think the equity funds are in resources of employees have been already pulled. I think you can easily see that there's a 37% rise in the employee cost. That is because of new and good employees getting in the company for the future expansion to happen. Easily, the balance sheet, we'll be able to show you that all the infrastructure and the costs that are being built up next year or next 2, 3 years, you'll get in the result of it. Yes, I think the debt, I have already told you the reasons. I think from -- if you consider INR 50 crores also, 150 kg was my debt according to the rate of INR 30,000. If you just rate -- double the rate at INR 60,000, my debt has actually reduced in terms of kgs.

And as you stated that retail showroom of approximately 10,000 square feet size is capable of generating a revenue of INR 400 crores to INR 500 crores in between that range. And from other businesses, you will also be generating revenue, which will be in the range of INR 300 crores. So do you mean to say that by financial year '27, your revenue would be ranging somewhere between INR 800 crores?

Correct, sir.

Okay. Okay. And just a last question from my side. What kind of margins you are expecting for this year and the next year?

So the margins are quite -- I'll tell you, quite subjective. You should actually -- the right question could have been -- No, that what are the volumes that you are looking for. So if the volumes are, let's say, consistent with the same product category, I think the margins is just a derivation. Return on capital employed or return on equity is what we are actually aiming for. Generally, we don't aim for the top line also. We can sell a low-margin product and get the top line. We can sell anything. But return on [Foreign Language] general philosophy. So we -- with the same product category and all, yes, the top line can go to the levels that we have actually spoken. And I think the services business will grow at its own good pace. The retail and the wholesale business will grow quite strongly. The wholesale business will grow much more faster in the coming 2 financial years. So I think those 3 things combined, we should be able to deliver that whatever we have said, sir. Fundamentally, the company should be able to generate the same capital -- return on capital employed, ROCE and ROE and I think, in fiscal '26 or so.

So the figure that is taken for your volumes last year was approximately 1,060 kgs, right?

Correct, sir.

So where do you see this to be growing in the next year?

So the next year, it should be in the range of 1,600 kg, sir, 1,600 kgs to 1,650 kgs, let's say.

[Operator Instructions] The next question is from the line of Rajesh Singla from VTG Capital Services LLP.

So regarding this ROCE and ROE, whatever you are talking about, so in this, should we think about -- you currently have a significant amount of unused capacity. So if your manufacturing capacity is already operating at 35%, 40% and your retail showroom is also having significant amount of earnings capacity, shouldn't we think about that this ROCE will also expand as we move forward to a larger number of revenue growth, because to INR 400 crores to INR 500 crores from the same store, which you currently have, that should also boost your ROCE going forward as compared to 21% 23% what we had in the last couple of years?

So this could have been right if the major investment of the business would have been in the asset class of it. But because in our case, we are into a high working capital company. So the ROCE, the whole capital, the huge deployment of capital is there in the working capital zone that is stock and inventory. So the infrastructure to facilitate this growth is 100% there. But just because of the unutilization of the infrastructure being present would -- it is difficult to understand, that will it lead to an increase in ROCE. ROCE, sir, generally, I can say that if you talk about the asset turnover, the asset turnover surely will be better going forward because it will be the same kind of, let's say, investment and with the same kind of retail store, we are able to generate much more kind of revenue. So asset turnover can improve or ROCE to improve, I think inventory has to be looked upon, sir, because we are heavily -- we have invested into inventory, and that is where we actually get our returns from.

[Operator Instructions] We have no further questions, ladies and gentlemen. I would now like to hand the conference over to Mr. Harit Zaveri for closing comments. Over to you, sir.

So thanks, investors, for asking questions. And as the words have been stable. Whatever I have committed, whatever the company has committed, I think we are looking forward for that kind of growth in the coming couple of years, and hence followed. We are -- what I think the market has given us faith and with that kind of results coming in, I think I can, on one short note, I can say that whatever has been said and whatever has been committed will be delivered, and we are upon it. Earnings call and the annual results are the right way that management can get in a conversation with the investors or who are the interested people. But apart from any of this, I think there has been a lot of words said and spoken in and across media and to the investors already. And these are the same words, these are the same results. So yes, we are on our words, and the company will show results in the coming 2 fiscal years or so. And thanks a lot for the interest. And if anyone has got any other queries, they can 100% mail to the company for any further queries that they have. Thank you.

On behalf of RBZ Jewellers Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.