Renaissance Global Limited (532923) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Renaissance Global Limited's Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Jenny Rose from CDR India. Thank you, and over to you, ma'am.

Good afternoon, everyone, and thank you for joining us on Renaissance Global's Q3, 9M FY '24 Earnings Conference Call. We have with us today Mr. Sumit Shah, Chairman and Global CEO; 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 will 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 Mr. Sumit Shah to make his opening remarks. Over to you, sir.

Good afternoon, everyone. Thank you all for joining us on our earnings conference call for Q3 and 9 months FY '24. I'd like to begin by providing 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'll open the forum for question and answers. Our strong financial performance in this quarter was driven by notable improvements in our margins. This quarter, we saw a 7.6% year-over-year increase in absolute EBITDA and 129 basis point increase in the EBITDA margins to 8.2%. Along with this, we also saw expansion in our profit before tax and profit after tax levels of 56 and 33 basis points, respectively. With these improved margins and coupled with a robust order book and outlook for our branded business in the quarters to come, we expect significant growth in our revenues and profits in the coming quarters and for the entirety of FY '25. The expansion of our Branded segment revenue has been instrumental in steering us through these difficult times encountered in our key markets, exhibiting a year-over-year growth of 16% in Q3 and 12% on a 9-month basis. Furthermore, the launch of Wonder Fine Jewelry, which is our umbrella brand for Marvel, Disney Jewels and Star Wars, with one of our big retail partners has shown early signs of success. We expect to launch this collection with other retail partners too, along with our own Wonder Fine Jewelry website. These launches are anticipated to contribute notably to the revenue generated from this segment, further strengthening our financial position and enhancing our market presence. Our Direct-to-Consumer vertical is experiencing strong growth and remains a central focus for our expansion strategy moving forward. In the third quarter, we saw a steady year-over-year improvement of 8% and over a 9-month period, around 18%. We are placing greater emphasis on nurturing the expansion of our D2C vertical, recognizing its pivotal role in our future growth plans. The sustained engagement and loyalty of our customers underscores the strategic importance of this segment for our long-term objectives. An emerging trend in the jewelry industry, which is the widespread adoption of lab-grown diamonds on a global scale, particularly in the realm of engagement rings and solitaire jewelry. At present, LGD makes up around 50% of our Direct-to-Consumer sales, highlighting the growing popularity among consumers. The surge in demand can be attributed in part to the significant price difference between lab-grown diamonds and traditional diamonds, making them an attractive option for budget-conscious customers. To capitalize on this rapidly increasing market in a challenging environment, we have taken proactive steps over the last 9 to 12 months to offer customizable options through our D2C channels, catering to an increasing desire among consumers for personalized and one-of-a-kind jewelry pieces. Our strategic approach to this segment not only leverages the potential of lab-grown diamonds, but also aligns with our commitment for innovation and customer centricity in the high-end jewelry market. Looking forward, our focus will be to continue on harnessing our strong partnerships with renowned brands, leveraging our extensive experience in product conceptualization and utilizing our design skills. Coupled with a robust distribution network, these factors are expected to be the key drivers of future growth. With U.S. inflation being at the fag end and having tested the markets with our higher margins, we expect our revenue trajectory to be upward and onward in the coming quarters and hence in FY '25. I'd now like to hand the call over to Hitesh to discuss our financial performance during the year. Over to you, Hitesh.

Thank you, Sumit. Good afternoon, everyone. Renaissance has given a strong performance despite facing challenges in our key market. While our total income during the quarter under review stood at INR 658 crores compared to INR 725 crores in Q3 of FY '23, for the 9 months of FY '24, our total income came in at INR 1,577 crores as compared to INR 1,741 crores in the 9 months of FY '23. On the profitability front, EBITDA came in at INR 53.9 crores for Q3 FY '24, exhibiting a year-over-year growth of 7.6% in absolute terms and translating to a margin of 8.2%, which is an improvement of 129 basis points year-over-year. For 9 months ended December '23, the EBITDA stood at INR 122.4 crores, translating into an EBITDA margin of 7.8%, which is an improvement of 29 basis points. Further, our D2C business registered a 14% EBITDA margin in Q3 of FY '24, which is up 244 basis points year-over-year, whereas this number for the 9-month period stood at 13.7%, which is up 131 basis points year-over-year. Our Direct-to-Consumer business is a high EBITDA margin business and with the growing share of Direct-to-Consumer revenues to total revenues, Renaissance is confident of its EBITDA margins growing further, showing further improvement going forward. In Q3 of FY '24, our profit after tax stood at INR 27.9 crores versus INR 28.3 crores in the corresponding period last year. While for the 9 months ended December '23, the profit after tax came in at INR 52.6 crores against INR 68.1 crores in the same period of FY '23. Moving on to our segmental performance. In Q3 and 9 months of FY '24, the revenue share of studded jewelry stood at 92% and 88%, respectively. Of the total studded jewelry revenues, in Q3 of FY '24, branded business contributed 45%. And for the 9 months of FY '24, the Branded Jewelry segment contribution was 37%. In Q3 of FY '24, B2B segment contributed 65% to studded branded jewelry, while the Direct-to-Consumer business contributed 35%. During Q3 of FY '24, the Direct-to-Consumer business posted revenues of INR 94.9 crores as compared to INR 88.2 crores in Q3 of FY '23, up by 7.5%. For the 9 months of FY '24, the Direct-to-Consumer business revenue was up 18.4% to INR 204 crores. Further, based on our projection of the quarter's contribution to annual sales, the annual revenue run rate for the Direct-to-Consumer business is estimated at INR 270 crores for FY '24. This is versus an actual revenue of INR 239 crores in FY '23. Lastly, in terms of our balance sheet, our net debt-to-equity ratio improved to 0.28 in December '23 as against 0.30 in December '22. Our total debt stands at INR 565 crores, along with a healthy cash position with our cash and bank balances and current investment standing at INR 253 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 Darshit from RoboCapital.

Yes. So I'd like to ask a couple of questions. First one is when -- I mean, it's been like 2, 3 quarters and the demand, especially the growth that we imagined for D2C business, it's rather slower than what we expected. When do you think we'd be reaching the INR 2,500 crores top line mark back?

So I think the 2 questions, specifically one related to Direct-to-Consumer and then total revenue for the company. So specifically with related to Direct-to-Consumer, Q3 was a little bit slower because we focused on improving margins in this quarter. We've taken significant price increases in this quarter to improve margins, which impacted revenues for the quarter. These price increases have now stabilized, and we are seeing revenue acceleration in the current quarter. So we're not worried about the growth in Direct-to-Consumer returning. And our expectation is that we will see very meaningful growth based on the conversations and the order book that we have in FY '25. So without giving a specific number, I think that our expectation is to have very significant and meaningful growth in FY '25.

So like -- it's okay if we do not have a specific number, but would we have a range wherein we are seeing B2B and D2C, the entire Branded Jewelry segment growing at a certain rate?

Yes. So I would expect that from the current base, our expectation would be sort of high teens kind of growth for next year for the entire business.

For the next year?

Yes.

And after that, post that, for like 2, 3 years kind of segment?

I would expect that growth momentum to continue. Our general expectation and growth cadence has been that for the B2B Customer Brands segment to grow in high single digits and for the Branded segment to grow in double digits. So there is nothing to suggest that this is -- this should not continue for the foreseeable future.

Okay, okay. And we have like multiple businesses, and you see that plain gold and customer brands kind of pulled down valuations. So are we having any plans of demerging business into like 2, 3 segments -- into 2, 3 different entities?

We've discussed this with the Board. No final decision has been made about any demerger. We're evaluating all strategic options for all of our businesses. But I have nothing specific to announce at this moment.

Okay. And finally, we used to -- in the PPT, we used to have the disclosure of ROEs that we are going to follow for like the D2C business. So do we currently have any targets of -- or like internal benchmarks of certain ROEs that we are looking for in the D2C business?

So I think the Direct-to-Consumer business obviously is a significantly high return on equity business. I think that it would be in the high 20s or mid-30s. I think some of the other businesses that pull it down. I think the D2C business is obviously very low working capital intensity, which results in high return on equity. We can provide disclosures specifically by businesses going forward on the ROE.

Okay. That would be great, actually.

The next question is from the line of H. Shah from Dalal & Broacha.

Yes. I have a question regarding Signet Group's total purchases in terms of...

Your voice is very muffled. Could you -- we're not able to hear you very well.

Am I audible now?

Yes.

Sir, I wanted to have an understanding regarding what percentage of the total procurement of Signet Group is done?

I think Signet Group is a $7 billion to $8 billion company. So we would be a very small number in terms of their total procurement purchases. I mean, even with a 50%, 60% gross margin, their annual buying would be in the region of about $3 billion. So we would be a very insignificant part. They have a diversified vendor base, and we would be a very insignificant single-digit number of their procurement.

Sir, 1 more question.

Yes. Go head.

Sir, Sterling King if we see the revenues, I mean, there is a drop down considerably, it was around INR 400 crores in FY '22. This dropped down to about INR 200 crores in FY '23. So any particular reason for that?

Sorry, I didn't understand your question. Our sales to them or what are you...

Correct, correct. Our sales to them.

We don't disclose this. I'm not sure where you're getting these numbers...

I got it from the financials wherein we disclose sales that are more than 10% of the total revenue.

I haven't reviewed these numbers. I think Signet Group is essentially Sterling. We can come back to you if you may be contact kind of with sort of a breakup of whatever we have done. So I don't have the numbers off hand, but we can come back to you with those numbers.

Okay. And sir, any guidance on the number of IRASVA stores that we'll open in FY '25, '26?

So as of right now, we are opening 1 store in the next quarter or so. We're currently discussing, which will open in Q4 or maybe early Q1 of FY '25. Any further plans of IRASVA, we're actually just discussing with the management team and with the Board. So we should be able to make a decision soon. We have 1 store which is opening in the next 2 to 3 months. The plans after that are not yet firmed up and will probably announce the store opening cadence in the next quarterly call.

And sir, one last final question. What is the ROCE of the Branded business in U.S.?

Again, I don't have that number off hand for the current year. And obviously, our ROCEs are a little bit depressed now because of lower sales numbers, but we'll be happy to share those numbers with you, along with the Signet Group at a later date. I can ask Kanav from IR to get back to you with those numbers.

The next question is from the line of [ Ashish Shah ] from Centrum PMS.

Sumit, just a few things. Can you share some more color on the trend in terms of growth that you are seeking for the next financial year, slightly more segment-wise? Because, again, this quarter, we saw our B2B business, again, had a sharp drop Y-o-Y. Last quarter, it had stabilized. So like how is that looking out for the next financial year?

Sure. So I think that for the next financial year, our expectation would be for the Direct-to-Consumer business to grow in the mid-30s. That's our current expectation, based on the plan that we've made. I think that this quarter, specifically, the drop-off in the growth rate was, as I mentioned earlier, due to significant price increases that we've taken in order to improve profitability of that division. So our expectation would be to go to the mid-30s growth rate for the Direct-to-Consumer business for the next financial year. And at an overall level, I mean, I think that our plan is to grow in high double digits -- sorry, high mid-teens for the entire business with the B2B branded as well as Customer Brands segment growing for FY '25. So largely, I think the challenges over the last 4 to 6 quarters were linked to, one, U.S. inflation; and two, the transition to lab-grown diamonds. I think with U.S. inflation easing, we are seeing a pickup in consumer demand. And I think some of it is reflected in our current order book. I mean if you look at our inventory levels, they are significantly higher year-over-year because of a higher order book. So we would expect for FY '25 high-teens growth for the entire business, each of the segments and mid-30s growth for the Direct-to-Consumer business?

That's very helpful. So just a little color on this D2C, like what -- where do you draw so much of optimism that we will be able to continue this another 30% plus growth rate for next financial year? Like what do you have in pipeline to kind of see that through?

Sure, sure. So I think that -- yes, in the current quarter, I mean, we're basing it on some of the revenue run rates that we are seeing in the current quarter as well. I think that after the sort of Q4 performance, I think January, February numbers obviously suggest a much more meaningful pickup in revenue acceleration. And I think that just in terms of -- a lot of this is also relating to performance marketing. And we've -- at the beginning of January, we sort of moved over to a new agency based in the U.S., and they see a lot of room for optimization in our campaigns. And after them, managing the account for 6 weeks or so, they've been able to make significant improvements. And we've seen tangible improvements in the optimization that they've been able to manage. So based on a few factors in terms of the current run rate that we've seen and a few changes that we've made in the business and the significant product improvement launches that we have planned for the year, I feel very confident that we should be able to grow it -- grow the business. I think there is also the other tailwind of the secular shift to lab-grown diamonds. Our Direct-to-Consumer business is significantly exposed to the lab grown diamond space. And in general, in the U.S., the lab-grown space is growing very high double digits. So I think that in addition to us being positioned competitively, new product launches as well as the secular tailwind that we have in lab-grown diamonds, we feel very confident that we'll be able to achieve significant growth in the Direct-to-Consumer segment in financial year '25.

That's helpful. This price increase that you've taken, could you be able to share like what has been the price increase on the D2C piece, Sumit? Just a band or the range or anything?

So we took price increases, specifically in -- on the Direct-to-Consumer segment to the tune of 20% to 25%.

Okay. Wow.

Yes.

Okay. Okay. Okay. And hence, like as we look forward, Sumit, for next year, do you think like we could be benefited by both? I mean you've taken a sharp price increases, plus the growth outlook is looking fairly constructive. And hence, the operating profit growth could be far higher in that sense?

Yes, yes. Yes, I think that's really what the goal was. The goal was that profitability growth, if you've seen in the last year or so, our margins have declined significantly. And I think that with the operating leverage coming through and the price increases that we've taken, we should see very meaningful increases in operating profit, much higher than revenue growth.

Okay. That's very encouraging. One small bookkeeping question from me. This quarter, again, we saw the interest cost actually spiking up and I think the breakup shows that there was a spike in interest cost on lease or something. Is there any one-off over there? Or is that a trend or -- maybe I can take it offline...

Specifically -- yes. Yes. I mean I think that the interest on leases for the year seems relatively flat. I'm not sure if there is a one-off impact here. The finance cost, obviously, is due to interest rates being higher. The interest on leases, one, for this quarter is obviously meaningfully higher, but on a 9-month basis, it's up 3%. So I would think that there isn't anything meaningful or significant. I think there's probably some one-off accounting impact on the interest on leases in the previous quarter last year.

Okay. And just one lastly, on working capital cycle, you mentioned that you've actually had a slightly higher inventory because the order book is actually looking up for next year. So you will see some bit of it getting rationalized over the next quarter or 2, right?

Yes. I mean I think historically, working capital does normalize in the next quarter. And a lot of it will flow through in terms of sales as well. So our factory booking and current capacity is meaningfully higher this year compared to last year. Not all of it will translate into sales immediately because there is a lot of new tests and new projects going on, which may take some time for the sales to materialize. But as we can confirm, the current factory order book is significantly higher, due to which the inventory numbers are higher, and this should obviously, over the next 2 quarters, normalize back down as we ship some of this stuff to customers.

Okay. Okay. Okay, Sumit, sounds very exciting. Thank you and all the best.

Thank you.

[Operator Instructions] Next question is from Darshit from RoboCapital.

I just had 1 question. Can we specify the amount or the range of the order book that we are carrying currently?

So we haven't quantified it, and we haven't disclosed it. But I would say that the order book is currently 20% or so higher than what it was 1 year ago. I don't remember the number off hand, but it's meaningfully higher than what it was 1 year ago.

[Operator Instructions] Well, as there are no further questions, I would like to hand the conference back to the management team for closing comments.

Thank you, everyone, for joining our call today. I hope we've been able to answer all your questions. And in case there is any further queries, please feel free to reach out to Investor Relations or to CDR. I look forward to seeing you next -- on the next call. Thank you.

Thank you.

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