Renaissance Global Limited (532923) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Earnings Conference Call of Renaissance Global Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on Renaissance Global Q2 and H1 FY '22 Earnings Conference Call. We have with us today Mr. Sumit Shah, Vice Chairman; and Mr. Hitesh Shah, Managing Director of the company. We would like to begin the call with brief opening remarks from the management, following which we'll have the forum open for an interactive Question-and-Answer Session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the results presentation shared with you earlier. I would now like to invite Sumit to make his openings remarks.

Good afternoon, everyone. On behalf of Renaissance Global, I extend a warm welcome and thank you all for joining us on the Earnings Conference Call for Q2 and H1 FY '22. I will begin the call by providing you a quick overview of the company's operational and business highlights for the period under review. After that, Hitesh will take you through the financial performance, following which we will open the forum for the question-and-answer session. We're pleased to share that we have reported an encouraging performance during the quarter. The growth was primarily driven by improved contribution from our high-margin branded jewelry segment as well as robust growth in the direct-to-consumer business. An upswing in retail consumption and an improved recovery in our key markets of U.S., Europe and Asia, drove demand and consumption, enhancing our performance during the period under review. Our global branded jewelry business is the key focus area for us. Within this segment, we have a growing portfolio of licensed and owned brands, which we distribute through the B2B and B2C platforms. Our win-win partnerships with iconic brands such as Hallmark, Disney and Star Wars have enabled us to establish and expand our branded business model in international markets like the U.S., Canada and U.K. I'm further encouraged to share that we are in advanced discussions to replicate this winning licensing model across other well-known brands. Over the last 3 years, we've improved the contribution from our branded segment from just 2% in financial year '18 to over 20% in Q2 FY '22. Looking forward, our strategic endeavor is to achieve over 50% of sales from the branded jewelry segment in the next 3 to 4 years. Within our branded segment, we're very excited about our high potential direct-to-consumer business. During the quarter, contribution from the direct-to-consumer -- from the D2C segment of the -- to branded segments stood at 22% from 10% in the corresponding period last year. In the last 20 months, we've launched 6 direct-to-consumer websites and are pleased to share that these channels have received excellent consumer response with sales to over 60,000 customers. We're extremely delighted to inform you that we have observed an increasing trend in revenue from repeat customers. The revenue from repeat customers for the period from February '20 to March '21 stood at 6%, which has significantly improved to 19% in H1 of '21. This increase in revenue from repeat customers showcases the high level of customer trust in such a short span of time, and we are confident that these customers will be our brand ambassadors in the future. We will further be augmenting our direct-to-consumer portfolio in the coming months with the launch of additional websites. Overall, the branded segment is a key growth area, and we're undertaking many strategic initiatives to strengthen this model. In one such step, we have recently established a strategic advisory board comprising of 3 renowned executives with diverse industry experience. I'd like to take this opportunity to introduce our strategic advisory board members. Mr. Bijou Kurien is a well-known veteran in the Indian retail industry with over 37 years of experience and branding skills. Mr. Francesco Pesky has an extensive experience in the jewelry and luxury business with a track record of implementing direct-to-consumer and digital strategies. And Mr. John MacEntee has 20 years of experience in leading companies in innovation, e-commerce and marketing. These valuable members will be working closely with our leadership team, offering guidance and direction on our strategic growth initiatives. Given the vast and untapped potential of the global branded jewelry industry, our company will be efficiently steered by the collaborative expertise and knowledge towards the next leg of stronger and sustainable growth. The Board will be involved in key stages of future projects for the company, paving the way for a robust all around performance. In another development during the quarter, we acquired Everyday Elegance Jewelry, which is based in California and specializes in jewelry studded with diamond substitutes, gemstones like cubic zirconia, moissanite, a segment in which we currently have very less presence. It has 200 products on its portfolio and a strong presence on multiple online platforms, primarily amazon.com. Furthermore, on the back of our strong balance sheet position, we're actively looking out for strategic inorganic opportunities which will help us accelerate our presence in the direct-to-consumer space. Overall, we've reported a healthy performance during the period under review. As we establish ourselves as a global branded jewelry player, our intent is to grow our footprint and enhance market position across our key markets. Even on the macro front, globally, the industry is seeing an underlying shift towards e-commerce and omnichannel platforms, which bodes well for players like us. There's a vast opportunity to grow from here on, and we look forward to delivering healthy performance with continued improvement in profitability in the years ahead. I would now like to hand over the call to Mr. Hitesh Shah to discuss our financial performance during the quarter. Over to you, Hitesh.

Thank you, Sumit. Good afternoon, everyone. Renaissance reported a resilient performance attributable to strong demand in our branded jewelry segment and a healthy contribution from our direct-to-consumer business. For Q2 of FY '22, our total income stood at INR 478 crores compared to INR 532 crores in Q2 of FY '21, while for H1 of FY '22, total income grew by 24.4% to INR 897 crores compared to INR 722 crores in H1 of FY '21. An uptick in retail consumption and a better recovery in our key markets aided healthy demand and consumption, boosting growth during the period under review. I would like to highlight here that revenues from our plain gold segment dropped by 69% and 51% year-over-year in Q2 and H1 of FY '22, respectively, whereas the volumes for the same period improved significantly by 172% and 299%. This is primarily attributable to the renegotiated terms with most of our clients in the plain gold division as a result of which we are now reporting only the making charges as revenue for that business. While this adjustment may reduce revenues of our gold division as well as overall reported revenues this year, it will have no impact on our margin and will, in fact, improve our margin profile. Adjusted for this on a like-to-like basis, revenue growth stood at 6% and 42% in Q2 and H1 of FY '22 respectively. On the profitability front, EBITDA came in at INR 54 crores in Q2 FY '22. And in H1 FY '22, it stood at INR 95 crores, translating into EBITDA margins of 11.3% and 10.6%, respectively. Profitability was aided by improved contribution from our high-margin areas of branded jewelry and direct-to-consumer business. Branded jewelry business reported 17.1% EBITDA margins, recording a year-over-year growth of 222 bps, and the D2C business registered 20% EBITDA margins, higher by 215 bps on a year-over-year basis. In Q2 of FY '22, profit after tax improved to INR 28 crores versus INR 23 crores in the corresponding period last year, while in H1 of FY '22, profit after tax came in at INR 52 crores against INR 5 crores in H1 of FY '21. On a trailing 12-month basis, we have reported notable improvement in return on equities, which stood at 11.1% as against 10.9% for the year ended June '21. Our branded business typically enjoys a return on equity in the range of 22% to 25%, while the D2C business has the highest ROEs at 60% to 65%. So as the contribution from the branded segment increases, we anticipate ROEs to increase notably going forward. In terms of geographical distribution of sales, in Q2 FY '22, contribution from North America stood at 75%, followed by Middle East at 6% and other geographies came in at 19%. In H1 of FY '22, contribution from North America stood at 74%, followed by Middle East at 7%, and the balance came in from other geographies. Moving on to our segmental performance. In Q2 of FY '22 and H1 of FY '22, revenue share of studded jewelry stood at 94%. Of total studded jewelry revenues in Q2 FY '22, branded jewelry business contributed 21.1%. And in H1, the contribution was 22.4%. In Q2 of FY '22, B2B segment contributed 79% to studded branded jewelry, while direct-to-consumer contributed a healthy 21%. During Q2 FY '22, our direct-to-consumer business posted revenues of INR 20.4 crores compared to INR 8.9 crores in Q2 FY '21, delivering a growth of 129%. Q2 FY '22 revenue was moderated on a sequential basis, as Mother's Day holidays fell during Q1 FY '22, and there were no major sales opportunities in Q2 FY '22. Based on our estimates of a quarter's contribution to annual sales, our annual run rate is at INR 122.5 crores in H1 FY '22 versus actual FY '21 revenues of INR 64.9 crores. Lastly, in terms of our balance sheet, our net debt-to-equity ratio improved to 0.36 in September 2021 as against 0.51 in September 2020. Our total debt stands at INR 532 crores, with the cost of borrowing lower than 5%. We have a healthy cash position with our cash and bank balances and current investments standing at INR 208.8 crores. Overall, we are one of the leading industry players with a solid balance sheet profile. On that note, I would now request the moderator to open the forum for any questions or suggestions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Kaustubh Pawaskar from Sharekhan.

Yes. Congrats for a good performance at the operating level. I have a couple of questions. First, on your branded jewelry business. So the B2B business has seen a decline of around 10% during this quarter. So is there any particular reason for it? Was there anything exceptional last quarter -- sorry, corresponding quarter last year, where revenue was around 23%?

Sure. So let me take that one. So in Q2 of the last year, there was a onetime rollout of Disney Jewels to a large customer. So there was some account of onetime sales last year and due to the lockdown in Q1 last year, there was some shift in sales as well. So if we were to look at the branded segment on a 2-year basis, the growth is still a healthy 35%. I think that the impact from 1 year ago is largely due to onetime sales in Q2 last year as well as some shift in sales from Q1 to Q2 because of the lockdown in North America in Q1 last year.

Right. So now since most of the markets are opening -- opened up and things are reviving in most of the international market, how do you expect this business to grow, B2B part? Like should we expect a low double-digit or kind of a growth because this particular space is expected to grow at around 10% to 12%? So considering that, will you be growing in this -- how the industry will be growing or your growth would be much better than what the industry growth?

Yes. So our expectation would be that we should be able to grow the branded B2B business in double digits. However, due to the nature of the B2B business, it does tend to be lumpy from quarter to quarter. So I would expect that on an annualized basis, we should definitely see double-digit growth in the B2B segment, primarily on account of growth in existing licenses as well as new licenses that we're currently expecting to sign up. So I would say that on annualized basis, we should see healthy growth going forward, but there may be some volatility in quarterly numbers as we go along.

And last one, since you are targeting that by over the next 3 to 4 years, the branded jewelry business should contribute on 50% of the revenues on the current 20%. So can you elaborate what will be the key drivers and how the strategic advisory board will help you to achieve this target?

Sorry, could you repeat the question as you weren't very clear, so if you could just repeat, I heard till 50% of sales. I couldn't hear you after that.

Sorry, we lost this line. [Operator Instructions] The next question is from the line of Chirag Vakharia from Adani Finance Limited.

Just wanted to understand, with this acquisition of Everyday Elegance, have you acquired any brand?

Yes. So Everyday Elegance itself is the front-end brand that exists. They are primarily a seller on Amazon. The reason why we did the acquisition really was to expand our product profile into diamond simulants such as cubic zirconia, and moissanite. So yes, Everyday Elegance is a brand. Currently, most of the sales are sold through Amazon. We plan to create a stronger direct online presence for Everyday Elegance as well to help us grow in this segment where we're currently not present.

If you can share the top line of this company?

So I think they were in the $1.5 million to $2 million range. So it's a relatively small company. The annual sales are between $1.5 million and $2 million.

Okay. And sir, any update on China business that you want to share?

Yes. So I think on the China front, so far what we've heard from our partners in China is that sales have been encouraging. However, I think the expansion in China is going to take some time as they're thinking through what is working well and what is not working well. So we don't expect a significant ramp-up in China. They're happy with the sales, but we haven't heard any news yet on expansion from the current 100-door test to any further test yet. So these are all the updates that we have so far on China.

The next question is from the line of [ Kalpesh Parekh from JSN Financials ].

Yes. First of all, congratulations on a good set of numbers. I have a couple of questions. One on this Everyday Elegance. Sir, this acquisition, what we have done, do you think the...

Sorry to interrupt you, Mr. Parekh. Your audio is not very clear. May I request you to come on the handset mode please?

Sure.

If you are on the speaker, please come on the handset.

Yes, can you...

Sorry, can you say again? Your voice was broke actually.

Yes. Is it okay now?

Yes, this is better.

Sir, I have this question. First of all, congratulations on a very good set of numbers. I have a couple of questions. One on this Everyday Elegance thing, do you think the size of acquisition will be good enough for us at this juncture? Or probably we should have -- we could have done much more bigger or probably are we scouting for some more acquisitions in this space?

Yes. So yes, I think that this acquisition was obviously a very small one, but we felt it added some strategic value in terms of vendor relationships and customer relationships in the new product area. We are definitely in continuous discussions for bigger acquisitions as well. And we're looking to deploy the cash on the balance sheet towards strategic acquisitions in the future, which will be larger than Everyday Elegance. I mean, this was kind of a bolt-on acquisition that was relatively easy to do because there was not much integration or not too many employees involved. To answer your question, though, it is a small acquisition. However, we are and we continue to look for more meaningful opportunities, which will help us grow our direct-to-consumer business at a much faster rate in organic.

Sure. Sure. Sir, then probably the sister acquisition from our side will be in this direction only on the branded jewelry space and particularly in the U.S. market only? Or we are open for other markets as well, particularly Europe or something like Asia or something?

So because we are focused currently to grow our branded segment, we are open to an acquisition either in Europe or in North America, depending on where the opportunity presents itself. So we continue to have meaningful dialogues with multiple people. And no, we are open to anything that makes sense financially and fits our strategic objectives.

Sure. Sir, we have seen some good improvement coming in on the ROE front and ROCE front, particularly from 6% to 11%, we have made improvements. I think to some extent, it is attributed to increasing branded jewelry business contribution. So I think plus also, I think we are deploying this cash, which is sitting on the books as on today. So with further acquisition, probably, are we eyeing for further better ROE and ROCE over a period of time?

Yes. I'll let Hitesh answer that question. Hitesh, over to you.

Yes. So definitely, I mean, we are looking at improving ROEs and ROCEs. I mean, it will be due to higher contribution from the branded and the D2C segments as you can see the EBITDAs on those are significantly higher. And the D2C is especially a very capital-light business, and hence, can generate significantly high ROCEs. So as the mix of branded and the direct-to-consumer businesses continues to improve, we will see a upside to the ROEs and ROCEs of the company.

Sure. Sure. And sir, my third question will be on this Irasva brand, particularly in India. How has been the response? Because we don't talk much on this Indian market and all that thing. I know our focus is always on the U.S. and European market. Is Indian market gaining grounds or probably a long way to go?

So I think we -- it's very initial days for us in the Indian market because we started our operations only 6 to 9 months prior to the pandemic and since the pandemic, the recovery has been a little bit slow because we are not an established brand already. However, we've brought on board a new CEO who's had experience in diamond jewelry retail in India and especially Bijou Kurien obviously comes with experience from Tanishq and he is a retail veteran. So they are working closely together to formulate a strategy for our India business. And it's clearly an opportunity area, but it will take some time for the business to grow and become meaningful. We continue to sort of strategize and do plan to grow the business. But once it reaches unit level economics, which are profitable, only then will there be any significant expansion. It's definitely on the radar for us, and we plan to continue to improve the product mix and the branding in order to help the stores reach profitability.

Yes. Only last question I have, particularly on the balance sheet side. On the net debt and net working capital, which I was seeing, there has been some increase, which has taken place on both the front. My interpretation is this is because of the expected good quarterly -- or not a quarterly, but a good season for you, that would be the Q3. So is it because of that? Or is something else.

Yes, it is absolutely due to that. I mean, the Q3 is a very large quarter for our business due to seasonality and the higher debt and working capital is due to the inventory buildup that has happened in WIP as well as finished goods, anticipating the seasonal sales.

Sure. Sure. So this should normalize in the coming quarters, right?

Yes. So the inventory will normalize in the coming quarter and the receivables before March 22.

[Operator Instructions] The next question is from the line of Yash Kothari from Citrus Advisors.

Firstly, very good results, congratulations on that. And I just wanted to know any acquisitions in the branding segment that you could probably tell us about like that might be coming? Or will there be a future press release like we have Disney, we have Star Wars, so any other exciting acquisition.

Yes. So yes, thank you for the question. So we are working on growth really on 2 fronts. The license division, licensed brands division is really more about signing agreements with other owners of brands where we can license the brand from. So there is at least 2 new brands that we're in serious discussions with at final stages of negotiation, which we are likely to announce all within the next 2 quarters. And in addition to that, we are also looking at inorganic growth opportunities to acquire businesses which own their own brands. So the growth here would be on multiple fronts. One is on the licensing side, with agreements with new licensing partners? And also on the acquisition side, we're working towards opportunities that we may see. But nothing to announce yet. I think once we sort of have agreements in terms of other acquisitions or licensing arrangements we'll definitely announce it through our press release.

The next question is from the line of Kaustubh Pawaskar from Sharekhan.

Yes. Sorry, my call got disconnected.

Mr. Pawaskar, I would request you to please come on the handset mode so we can hear you better.

Is it better now?

Yes. This is better. Thank you.

Sir, my question was more on the branded business. In your initial comment, you mentioned that you're targeting a branded business contribution to go up to around 50% over the next 3 to 4 years. So I just wanted to understand that what would be the 3 drivers for this like for increase in the contribution. And secondly, how the strategic advisory board will help you in achieving this plan.

Sure, sure. So I can take that one. So in terms of drivers for growth for the branded business, I think there are multiple levers and multiple vectors in which we are working to increase the contribution of this division. So with sort of area #1 is taking the existing licenses that we do have and we're currently selling expand distribution and expand sales of those. If we look at the life cycle of the current brands that we currently sell, Enchanted is probably in its fifth year and relatively mature and contributes a significant percentage of our overall revenues of the branded jewelry segment. We've got Star Wars and Disney Jewels, which are about 1 year -- residual is about 1 year into sales and Star Wars is just under 9 months when we first started selling Star Wars. So I think that the existing brands will sort of mature over time. In addition to the newer brands, which are extremely small now growing, there is also newer brands that will sign licensing agreements with. The third vector of growth would really be a strategic acquisition in the direct-to-consumer space. And lastly, we're also looking very closely at the India business and achieving unit level economics there. We've had a very encouraging Diwali for the IRASVA brand. And if during this quarter, we are able to achieve unit level economics, we'll probably look at some expansion with IRASVA as well. So we've got existing licenses, which are not fully exploited, new licenses, acquisitions and IRASVA. So really, there's multiple vectors of growth. Not all of them may play out, but we're sort of focusing on all of these areas to see how we can make this into a much more meaningful business from what it is today.

Right, sir. And what would be the role of strategic advisory board in all this, like how they will help us to achieve our target?

So we've really selected the strategic advisory board very strategically. We've got sort of somebody with very good retail background, who's Mr. Bijou Kurien, Mr. Francesco Pesky comes from luxury retail and branding experience, he ran a Danish company as the CEO, which was about $200 million in sales. And John comes from a digital marketing background. So our strategy is that the strategic advisory board, obviously, has quarterly review meetings to review the business in general. But each of them have sort of a review twice a month with the various business heads specifically to discuss business issues, opportunities and really mentoring the business heads of each of the divisions in order to help grow their individual business. So it's -- in addition to a quarterly review meeting, they're working on a quarterly -- or on a bimonthly basis, closely with the business heads in order to mentor them on specific issues with regard to their business.

Right. And one more question on this season, as you were answering to one of the earlier participants. The season has already begun. So we are in the month of November. So how things are panning out for you, a better sales compared to what it was last year?

Yes. So currently, I think across the board, the macro tailwinds are strong, and sales are as anticipated, and we definitely expect a strong quarter in Q3.

The next question is from the line of [ Gaurav from Sharath Capital ].

Hello, Sumit. Good to speak with you again, congratulations on a good set of numbers. I had a couple of questions. What explains the buoyancy in the gold segment, there's quite a strong volume growth there?

Yes. So I'll take that one. So I think that the gold segment last year was, specifically, our gold business is primarily in the Middle East. The manufacturing facility is in Dubai, and the sales are primarily in the Middle East. I think this region depends significantly on tourism for a large part of its sales. And last year, Q1 and Q2, I think pretty much the world was not traveling and tourism was completely off. I think that, that has specifically resumed very strongly, and we see very strong momentum across the Middle East because, as I said, tourism is a key driver to growth here as people travel to the Middle East to buy gold jewelry. And that, I would say, is the primary driver for growth within the gold jewelry segment.

And as far as your D2C segment is concerned, it's quite a young business. Any reason why on a Q-on-Q basis since it's on such a low base, why should a single holiday lead to a flat sort of a quarter? I mean, given that a lot of your brands that you have off late logs have not even been monetized in a good manner. Like you mentioned that Mother's Day fell in the previous quarter, and there was nothing -- no reason for celebration in this quarter. Any reason for that?

Yes. So I think that in general, if you look at sales of jewelry through the calendar year, it's very focused around Christmas, Mother's Day and Valentine's Day. And one does expect to see seasonality. Having said that, I think that the business in Q3 also, we would expect to grow significantly and meaningfully over -- on a year-over-year basis. One of the other issues that one also does have to keep in mind that in April, May and June, there was some impact from U.S. government stimulus checks that were given out, and the world was still closed down. So I think a combination of the 2, we've seen a flattish or a slight degrowth in Q2 over Q1. Having said that, I think we believe we are firmly on track to hit our INR 120 crores to INR 125 crores annual number for the D2C segment for the current financial year.

Okay. And I assume that the last quarter, you did not -- you did the gold revenue adjustment. So that's the same this quarter as well. So what's leading to the buoyancy in margins when I compare Q-on-Q basis because you -- we came in at around 8%, if I'm not wrong, last quarter, 11% this quarter. And is it right that your branded segment did -- was sort of at the same level of 20% of your entire business compared to...

Yes. So I think the plain gold business, obviously, in quarter 2 is impacted due to Diwali. I think a lot of our sales in the Middle East are to Indian ex-pats or to the Indian community traveling to the Middle East to buy gold jewelry since it's a large part of the audience for the gold jewelry segment is the Indian community. So there is some amount of seasonality due to buoyancy in sales, there is some margin increase in quarter 2.

So can we assume the margins that we have -- that we got in this quarter, which is at around 11%, that could be assumed as a steady state? Or we could still see some level of up and down in the next few quarters?

Yes. I mean I would tell you that I think that H1 would be a better indicator to take sort of that between 10% and 11% would be a good indicator. I think there may be some shift in expenses and some general buoyancy margin because of deferment of expenses or good sales. I would say that probably between 10% and 11% is a good indicator. Obviously, if it does better, we would look to try and improve the performance, but I would say that between 10% and 11% is a good indicator of EBITDA margins.

Okay. One final question. We were able to understand that you're spending almost 30% of your gross margins in the D2C segment towards marketing, digital marketing. And since you said that the intensity of sales is quite higher in Q3 and Q4 vis-a-vis Q1 and Q2. So does the spends on marketing also, do you taper that down, which would mean that the profitability is not sort of compromised because you are playing with the marketing expenses depending on the festivals and when they fall?

So I would tell you that we generally would tie to -- currently, what we're doing is we are spending about 30% of sales of direct-to-consumer sales on marketing on an ongoing basis. And our intention in Q3 would also not be to taper that off in order to kind of maximize sales and continue to gain customers. We are relatively early in the evolution of our direct-to-consumer business. And really the long-term objective would be to make this a much larger and more meaningful business for us. We've seen our repeat customer rate go from almost 0% to about 20% now. I think once we have customers and the ability to remarket to them, that's when the marketing spend as a percentage of sales can go down meaningfully. I think right now, we're early in the game, and I think it makes sense to invest that money into growing the customer base and thus leading to a larger profit pool 2, 3 years down the road.

Okay. And finally on the disclosures, will it be possible for us to disclose how we are doing, at least in the D2C front on each of these brands that we have done the sites for - we know how successful you've been able to monetize each of these plans?

Sorry, was your question that you want disclosure around how each of these brands are doing?

Yes. Basically, what's the traction in each of these plans? So we could get a sense of with time, how are they doing individually. You're giving a -- so you do a D2C disclosure every quarter. Shall we get a breakup of that for each of the brands?

Sure. We can definitely take a note of that and hopefully look at providing some color around the traction around each of the brands.

Yes. And another thing was, if you could in every -- since the whole purpose of your attention is also on the branded side, if you could do at least for the last 8 quarters, you mentioned the percentages or percentage of how the -- maybe in a classical representation or something, just how the share of branded business has increased, it will give us confidence as to how we are going about transitioning to that 50% mark that you are aiming for?

Yes. Sure.

The next question is from the line of [ Nikhil Jain from Galaxy International ].

No, my questions have been answered.

[Operator Instructions] The next question is from the line of [ Kalpesh Parekh from JSN Financials ].

Yes, sir. Sir, some of your peers are -- or probably people are entering into this lab grown diamond jewelry business. So in this context, do you think there is a big opportunity for us also in this space? Or are we already there in this space?

Yes. So you're absolutely right. Lab grown diamonds are becoming more accepted by the consumers in the West. And I think there is definitely an opportunity for us to be more meaningful in this area. It is today a very small percentage of our business, and it's definitely a focus area of growth for us going forward.

Sure. But sir, are you seeing more acceptability from the customers, particularly U.S. customers for this business? I mean, for this product?

Yes, absolutely. I think that the U.S. consumer is definitely looking at lab grown diamonds. And interestingly, what we are seeing in the marketplace is we are using lab grown diamonds to actually trade up in size and value. So if a consumer wants to spend $3,000 on an engagement ring, while they would end up buying a half carat or a one carat diamond in natural diamonds, they're trading up and still spending $3,000 on a lab grown diamond. So the penetration of lab grown diamonds, I would say, has definitely increased and will continue to go up in the years to come.

Okay. And the margins, I believe, are quite much more better than even the normal diamond set, right? Is it true? Because cost structure-wise, it is very, very low.

Yes. So I think the margins, because it's a newer business, would tend to be higher in lab grown diamonds than in natural diamonds.

So is there any acquisition opportunity in this space?

I think we're evaluating all acquisition opportunities. I think something meaningful has to come up for us to look at and acquire, but we are open to acquisitions in anything which is strategically important for us.

The next question is from the line of Anshul Mittal from Care PMS.

I just had one question. So the brand licensing agreement, which we have with global brands like Disney and Hallmark, so are these agreements exclusive to us? Or these are geographic-based like license has been selected towards the Asia region or something?

Yes. So I think it's -- the answer is that it's country-specific. It's -- for the fine jewelry space is currently exclusive in U.S., Canada and U.K. in other markets where some of the brands had licenses already. They are not exclusive, but in all key focus markets, they are exclusive.

Okay. Understood. So we don't have that potential or we don't have that scope to go beyond registered market or there is a scope to expand in different geographies as well?

There is a scope to expand in other geographies, but in some other geographies, it may be nonexclusive. Like in China, we are not the exclusive licensee because the license already exists. So there is scope in other markets, however, maybe on a nonexclusive basis.

Okay. Okay. Understood. And secondly, I wanted to ask on the CBD front. So even DeBeers and other players are entering into carbon replace diamonds. So I just wanted to know that is the potential really strong on that trend? Or is it both sort of jewelries can sort of coincide?

Yes. I think our view is that the customer has a choice, and choice is always good. And I think that both of them will coexist. The trend that we are seeing now, as I mentioned earlier, is for consumers to trade up when they're going to lab grown diamonds. So I think as a percentage of overall diamond jewelry sales, I think lab grown diamonds are probably in single digits now. Our expectation would be that they would go into double digits. And there are reports that suggest that probably 20% of diamond jewelry sales could be lab grown diamonds. So it is a very meaningful opportunity and definitely a growth area for the industry.

The next question is from the line of [ Nikhil Jain from Galaxy International ].

Yes. Sir, a couple of questions. First of all about the Chinese joint venture that we had with one of the retailers. So is there any update on that? How is the traction going over there. And is it impacted because of the COVID situation in China and the other steps that the government is taking?

No.

I have another...

Yes, go ahead.

Please, sir, yes.

Sure. So on the China front, I think that the feedback that we've received from our partner in China is that they're encouraged by the sales. However, we don't have any news on increased distribution -- increased distribution as yet. We are working towards setting up our own online platform on Tmall to try and sell direct-to-consumer in China as well. I think that China is probably going to take a while before it becomes meaningful to our overall sales numbers. So don't have too much to report except that initial sales have been good. However, don't have too much news about plans for expansion yet with our partner.

Okay. Okay. My second question is that currently, we are having 6 brands -- or 6 websites through which we are promoting our product, right, the direct-to-consumer thing. And we have now done some acquisition also, which will add up. And then we are also saying that we will have maybe some more brands. We are looking for some more acquisitions. So maybe we are talking about, let's say, 10 to 12 different kind of entities or websites or brands through which we will be doing our sales for direct-to-consumers. So would it be -- my question was that would it become a little more difficult to manage, let's say, 10, 12 different brands and businesses separately for the customer, right? And from a customer perspective and from our own efficiency perspective and other things, if I look at, let's say, FMCD, then companies are actually investing in their power brands and trying to grow them bigger rather than, let's say, pushing so many small brands. So what is your take on that?

Yes. So I think our eventual goal would be to try and create a platform where the multiple brands can be sold under one website. I think currently individual storytelling is also very important to have individual -- individual brands because you do lose part of the experience of a particular brand when it's sold on a multi-brand website. There will be a multi-brand platform at some point in the future once there is a network of -- network of brands that is a complete portfolio. So it's definitely challenging to operate too many websites. However, we feel that from a storytelling perspective, it's very important to represent the brand correctly on a particular website. Having said that, we are not averse to having one platform where all of the brands could be sold as sort of a house of brands that would be common to multiple licenses that we will own.

The next question is from the line of Amit Doshi from Care PMS.

Yes. In the opening remarks, you mentioned that you are probably growing your licensing business and probably doing some sort of acquisition, et cetera, in that space. So just wanted to understand, would this be acquisition in the sense the company having that license? Or we would directly reach out to the brand and make a royalty agreement with that? And apologies because I -- in case this is a repeat question, because I dropped out in between.

Yes. Sure. So we're -- to answer your question, it's -- we're looking at both opportunities. We are looking at signing new licensing agreements, and that would not be an acquisition, that would just be a new licensing arrangement with a brand where a royalty is paid on the rate of sale as well as looking at acquisition opportunities of companies that actually own their own brands and probably have a direct relationship with the consumer. So we're looking at both opportunities for growth.

Okay. Okay. Okay. So which one do you think is more better or easier to grow because the one which already has a brand and probably they have the distribution points or branding activity done, is it more easier to grow or direct having a license from the brand is easier?

So in terms of a new license that takes time to nurture and grow, right, I mean, it's a long process. One has to sort of create the marketing, create the brand being established distribution, establish a website and sell. However, it takes a couple of years to -- actually for the brand to become meaningful after signing a licensing deal. In terms of an acquisition, it could be meaningful from day 1. So there is a short-term angle to this and a long-term angle to this, right? So both are important. Both have obviously...

Valuation probably would be the key thing.

Yes. Yes. Yes. Correct.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Thank you, everyone, for participating in our Q2 and H1 Earnings Conference Call. Look forward to seeing you guys on the next conference call. Thank you.

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