Senco Gold Limited ($SENCO)

Ladies and gentlemen, good day, and welcome to the Senco Gold Limited Q4 FY '26 Earnings Conference Call hosted by Asian Market Securities. [Operator Instructions] I now hand the conference over to Mr. Vikrant Kashyap from Asian Markets Securities. Thank you, and over to you, sir.

Thank you. Good morning, everyone. On behalf of Asian Markets Securities, I welcome you all to the quarter 4 FY '26 Earnings Conference Call of Senco Gold Limited. Today on the call, we have Mr. Suvankar Sen, MD; and Mr. Sanjay Banka, Group CFO. I now hand over the call to Mr. Suvankar Sen for his opening remarks. Thank you, and over to you, sir.

Thank you very much. Good morning to all. It is really nice to come, and this is the first conference that we are having the investor call for the new financial year. And we are very pleased to report a strong quarter 4, crossing INR 1,997 crores revenue with EBITDA of INR 274 crores and with a PAT of INR 157 crores for the quarter 4 FY '26. And we are very happy to let all of you know that financial year '25-'26 has been a record-breaking year for Senco Gold & Diamonds from a revenue perspective also, where we have recorded a sale of INR 8,430 crores, which is almost a 33% year-on-year growth, which is a great acceleration over last year. This kind of a performance, yes, there are 2, 3 factors that has led to the great performance in terms of growth in revenue. One is that the gold prices have moved up by almost 60% from the beginning of the year. But in spite of the increase in gold price, our faith and the trust that the customers has posed on us, the new store openings that we have done, the continuous focus that we have done on innovating with new designs and creating jewelry, which will continue to be something that the customers can buy and afford, has been the crux of the matter. We have been continuously focusing on driving efficiencies, optimizing stocks and ensuring that within the resources that we have in this uncertain overall price scenario, we should keep the products that the customer can buy within their budget, and that has led to this amazing performance by the team. From a macro standpoint, if you've seen that especially quarter 4, the gold price and the silver price has been extremely volatile. There was a time in January when the international prices surged to all-time high of $5,600. And again, within a few days, it retracted back to $4,400, $4,500. So it's been an uncertain time overall. And if you look at from an INR point of view, the prices was average about INR 151,000. So it's been itself a quarter with an extreme price volatility. But in that, we have balancing between the various kinds of risk, the risk of price going up or down, the risk of managing liquidity with the pressure on margin calls. We've kept a steady mind and a steady head and kept our hedging ratio at about 40% to 50% to balance between all kinds of risk. Now we have seen that in spite the fact that the gold prices have been volatile, the wedding season was a big trigger, especially for January, February, March, which led to the kind of sales that we have seen. We had the occasion of Valentine's Day or Mother's Day, which drives the diamond jewelry sales for us. And in this high gold price scenario, we have been focusing on 9-carat and 14-carat jewelry, whether it be in gold or in diamonds. I'm happy to let all of you know that Senco was one of the first players in the industry to have launched the 9-carat jewelry the moment government announced their permission for doing hallmarking of 9-carat because we firmly believe that jewelry is something that every consumer should be able to wear. And by making it much more affordable, it will only increase our customer base and make sure that the young generation as well as those who comes from various economic sections of the society will continue to be able to buy gold and silver. In terms of the expansion, we have been expanding into new geographies. We've opened stores in Rajasthan, in Central Maharashtra, in Western UP, whether it be with company-owned, company-operated stores or even franchisees. And that will be the focus area that -- one is that our core strength, East India and Bengal, we have seen that Bengal is going through a very positive change with the current scenario socioeconomically. So we are very positive that Bengal will continue to be an engine of growth. Even in East India, we see that there is a huge potential. There's a lot of growth happening. We're focusing on Tier 2, 3, 4 towns and cities and opening more franchises in the smaller towns. And along with that, our pan-India expansion with a focus on North India and Central, that will be the core focus. So with these 3-pronged planning, we will be able to continue to expand for the future. We have seen that this lightweight design portfolio that we are building up, creating almost more than 1.5 lakh designs for the year, has been one of the factors that has helped our customers who are our old customers, loyal customers keep coming back to the stores. Usually, in this particular financial year, what we have seen is that along with new customer acquisition, one of the reasons for growth has been that our existing customers have kept coming back to us. We have worked on how to make our old dormant customers active through our various schemes, offers, and that has something that had worked us in Q3 also where we had a phenomenal performance for our festive season for Dhanteras, and that was also a buildup that we did towards our Akshaya Tritiya season in the month of April as well. We also are extremely happy to discuss with the Board and propose a final dividend of 20% in addition to the earlier interim dividend of 15% that we had announced. Very important. Currently, if you have seen our honorable Prime Minister, Shri Narendra Modi-ji, talking about how we need to make sure that we promote old gold exchange. We promote ways and means in which the consumption of the import. It's not really the consumption, which is important, but the import of gold into our country should happen in a very rationalized manner. And towards that action, we have been -- last 4, 5 months itself, we've been promoting old gold exchange in a big way, coming up with new campaigns, giving benefit to the customers. And in the last year itself, we have seen that our old gold exchange on the overall transaction has gone up to about 50% of the total revenue. And that is what creates sustainability. There is an ESG aspect to it also that we are promoting recycled gold, and it will indirectly help the economy in reducing their import. We firmly believe that there is a lot of gold already imported in line in the economy, and we just need to ensure that the household gold can be used in a very optimized manner and used for our exchange, and that will also drive our business. So that is the reason why we have been able to have our diamond volume growth also increasing by 9% by ensuring that the consumers can also exchange their old gold to buy diamond. And we've seen about a 32% value growth in the diamond jewelry sales also. So it is not only that people are exchanging old gold with new gold also, but we are also encouraging how they can exchange their old gold to buy diamonds. As far as the future is concerned, Senco Gold & Diamonds has always looked at every scenario and looked at the opportunities. We will continue to remain optimistic, no matter what. I understand that after -- I must tell all of you that in the month of April, we have seen a very strong robust growth compared to last year's April of about close to 40% to 50%. And this particular May, after the announcement, there has been a little bit of a slowdown. But again, at the same time, for the whole year, we will continue to remain positive. This time, it is Adhik Maas going on, which is an inauspicious season to buy gold. So that could be another reason of the current slowdown. But our focus of 18% to 20% growth for the whole year and working on an EBITDA of about 7.5% on an average and a PAT between 4% to 4.5%, that will be the kind of guidance with which we will continue to look at the future. 18 to 20 stores is what we would like to open. And the focus for our team is that how we can offer more and more franchisees because that will enable that our scalability and the penetration into the Tier 2, 3, 4 towns and cities continues to grow. And the other aspect, I think that we've been doing a lot of data analysis. We've been using various tools and ensuring that how do we optimize our stocks. At these high gold price scenario, it is getting the exact weights, exact designs and exact products that the consumers will be buying is the key to success, and that will give us the best return on capital, profitability and the growth. So we will continue to work towards optimization of stocks and focusing on exactly the right thing and the right place at the right time. So with this, I would like to end my introductory speech. And I would like to thank all of you, all the investors, for firmly believing in our company, on our performance, on our thought, on our vision and jewelry making and building the brand is our passion and our love, and we will continue to work hard towards achieving our goals and aims and grow the business. Thank you very much.

So thank you very much, sir. And in your brief, I would like to quickly recapitulate that in Q4, we achieved revenue growth of 45% Y-o-Y, EBITDA growth of 116% Y-o-Y and PAT growth of 151% Y-o-Y. In fact, gross margin and EBITDA were higher against our earlier guidance of 7.5% to 7.8% for the quarter as well as for the whole year, which we have explained earlier that this is due to the price rise in gold and silver as well. And a part of it is also due to the improvement in the product mix, premiumization, our movement to North outside Bengal, where our ASP and ATV are very high. So basically, for FY '26, we achieved highest ever top line with 33% Y-o-Y growth and 24% CAGR over [Audio Gap]. And as we've already said earlier, that coin and bullion sales was marginal at 6% only. So balance is entirely jewelry. Similarly, stud ratio was in the range of 11%, while we have achieved the value and volume growth, which are explained in the presentation. But since the entire size itself had moved, that's why the stud ratio has not moved. On the working capital front, our total inventory increased 61% Y-o-Y to INR 5,296 crores. There are 2, 3 reasons for this. One is that the gold price increased. And due to that, the GML and all those things increased. Similarly, there was an increase of inventory for 7 new showrooms launched. The stores have -- then we have increased the inventory at the existing store. But most of them -- in terms of value terms, not on volume terms, our gross margin continues to be among the best in the industry earlier and even now on account of price rise. It is also due to our 75% handmade jewelry and while EBITDA we have reported at 13.7% for the quarter and 11.5% for the whole year, but we are still giving the guidance of 7.5% to 7.8% for the future as well. Inventory days have increased to 186 days. Two reasons can be stated. As you said, our inventory, we always build up during September and March. These are the 2 primary reasons. Extra reason is that for us in East, Poila Baisakh is one of the most important festival. While Akshaya Tritiya is a pan-India phenomena, but Poila Baisakh was one reason. Secondly, considering the elections and possible disruptions in the logistics, we had to build up extra inventory for the month of April, and that is reflected in the performance of April as well. In April, during the Akshaya Tritiya and Poila Baisakh, we grew by 67%. So we achieved a very high sale. I'm saying at the primary level of around INR 1,500 crores. So there was 67% growth in Akshaya Tritiya season. West Bengal was almost 69%, East was 78%, North was 75%, Northeast is 64%, Central 162%. So that explains the reason of the inventory buildup. Moreover, this stellar performance for the year, it has led to substantial improvement in ROE and ROCE to 25% and 22%, but a word of caution that this is for the current year as we are looking at the sustainable EBITDA of 7.5% to 7.8%. So maybe in future, the ROE and ROC may be in the range of around 15.5% to 16% for the whole year. And we remain very optimistic and confident about our target of minimum 20% growth, 7.5% EBITDA, 4% to 4.5% PAT. With that, I think we have given you broad guidance, and we welcome you to ask any question, and it will be our pleasure to respond to you. Thank you.

[Operator Instructions] The first question comes from the line of Siddharth with.

Congrats on a great set of numbers. So I'd just like to get some light on what is your guided mix in the future towards the old jewelry mix that's currently going on. It's been phenomenal that you've been able to drive around 50% of the Q4 revenue from the old gold exchange program. If I could just get a light of how much mix would potentially come up in the future and possibly if there could be a tentative margin for that segment, that would be really helpful.

So thank you very much for the question. I think that old gold exchange of minimum 50% of the overall business to come from that what we are seeing should be something that should be a benchmark and we should work towards getting it. There are possibilities of increasing it maybe further, maybe to from 50% to 55%. But I would say that 50% to 55% is the range. We will closely monitor. We are all trying to create our campaigns, all our schemes, offers, reaching out to our customers with that in mind. And as far as the impact on margin is concerned, I do not see that there will be such a straight direct impact on margins for now. Over a long period of time, yes. Initially, what used to happen is that as an industry, when you used to exchange old gold, there was certain melting losses that we used to charge the customer. But currently, we are not charging any kind of melting losses or the whole cost of procuring the old gold from the customer for exchange purposes. So there are small minor risks of maybe 0.1%, 0.2%. But I guess that in the overall scheme of things, we shall not be seeing much of an impact on the margins because of the exchange of old gold. And also, one has to look at the broader picture. If you look at how the old gold exchange has been behaving over the last 3 years, 4 years, so 3, 4 years back, the old gold exchange had been about 25% to 30%, then it moved up to 35% to 40%. And now it is about 50%. So I guess that it really did not have such an impact in the margin. Yes, as an organization, I think we need to bring in more efficiency in terms of ensuring that the old gold is mobilized in a faster manner as much as possible. so that it can be used up, manufactured and replenished into making jewelry as fast as possible. So that is one aspect we'll all look at, but I do not see much of an impact on the margin.

So I mean what's interesting is that the current scaling up that we're doing in this segment would be aligning well with the import restrictions that's being imposed by the government as well. And I wish you the best.

Thank you very much. Thank you.

The next question comes from the line of [ Viraj ] with [ Enigma ].

Sir, my first question is regarding the current inventory. With the customs duty hike that we have seen, what impact will it have on the inventory gain? Because I'm assuming there will be further inventory gains we'll have this quarter because the pricing of the same gold would have gone up. Is that correct understanding? And what would be the quantum of that for us?

Yes. As far as the impact of custom duty it will have, there is an inventory gain that has happened because of the duty impact. But we will keep getting the gain as and when that inventory will be sold. So you will see the gains happening, maybe not in the full first quarter itself, you might see the gain happening in maybe in 2 quarters. But because of the action taken by the government, just like we were -- there was a onetime kind of a loss, you might say that had been taken when the duty was reduced in the previous times. So here again, there should be those kind of gains sitting on the inventory. And with the sales of inventory, we will be able to get some mileage out of it.

Right. And sir, what I wanted to understand is when you are saying you will have only 20% growth for the year, because we've already seen 50%, 60% growth this month, and for the quarter, whatever, 20%, 30-odd percent growth, that would mean that for the rest of the year, we are expecting a very low single-digit growth. A, that is very counterintuitive to what a lot of other jewelry players are talking about in terms of -- we understand the volume degrowth, but the value degrowth we are talking about seems much higher than everyone else. Can you talk about the reason why you feel much less optimistic about the growth this year?

So actually, I'll tell you that we've always taken a conservative approach. Even in the last financial year. we've been guiding the investors on around 20% to 25% growth. And by the end of the year, we have achieved a growth of 35%. So this is something that while others are looking at the trend, and there are logics also that today, the gold prices are already compared to last year average is on the higher side. So in a similar manner, we are guiding you on a very conservative approach of about 20% to 25% growth. But internally, we will all endeavor to overcome and have a higher growth rate. But for you all, I would rather say that a 20% to 25% growth for the business in terms of value. Yes, volumes will get impacted because of the higher gold price. We are seeing the average weight range of the products that are being sold is lighter. So that is there, and I think that's been how the consumers would behave. But from a guidance perspective, we would like to give you a 20% to 25% growth range.

Right. And sir, so you specifically mentioned that post the announcement by the honorable Prime Minister, we have seen subdued demand. Can you quantify in terms like what are the trends you are looking in the sense, is May post -- especially post the announcement, are we seeing a decline in revenue? Or like has the growth tapered down to 15%, 20%? Like just a ballpark understanding of how the impact has been. That's -- I'm not looking for exact number, but I'm trying to understand like how the impact has been on the consumer.

So see, it's been about 7 to 10 days and consumers have taken our honorable Prime Minister's announcement seriously, and they are actually looking at a more wait-and-watch situation. And along with that, the Adhik Maas, inauspicious time to buy, also started. So if you look at it, we've had -- as Banka-ji said, that we had a very good performance in terms of growth in April for Akshaya Tritiya. And if you look at the month of May, YTD, just to give you a perspective that in terms of performance of May of this year versus last year, it is -- growth is almost -- it's the same performance as last year's May. So all in all, YTD, you will still see a growth. But in the last 7, 10 days, the footfalls at the stores have come down. We could also see the heat wave being a great impact in which the consumers are not getting much out of the house and only in the evening, they are out. And they are also thinking that, okay, let us not buy right now if there's no emergency. The wedding season is not right there. In June, July, we will again see the wedding season and the various gifting linked to weddings will start again. So if -- but again, I want to tell all of you that we need to look at the long term. Yes, last 7, 10 days has been a little bit of a slowness in the business, but our planning and our back-end tracking and designing and manufacturing and preparing for the future has not stopped because of that. We need to just make sure that we are ready with the product that the consumers will buy when they will decide to buy. So yes, we need to ensure that in that -- at the high gold price, what is the weight range, what is the product, what is the design that we sell. And we are doing our homework in this time when things are a little slow. But in the long run, again, I want to tell you that in a very optimistic manner, we should be able to see that consumers coming back and business will grow at around 20%, 25%. So that's how I would like to look at it.

Sure. Sure. And sir, my last question is regarding margins. You mentioned that we'll have 25% growth. I'm assuming we are opening only 10 stores, so there will be 5% growth due to stores. But majorly, I would say, 18%, 20% growth will be SSG-led growth. Now in an environment where your SSG is increasing, and I'm assuming your gross margins remain the same. In that scenario, shouldn't a normalized margin range if you take out inventory gains even for last year, our margins would be higher than that. So like in an improving SSG, in a format like yours, we have generally seen margins always uptick. But we are talking about the same margins that we had even when we had almost 40% lower revenue than what we will have this year. So how does that work? Like why will we not have any operating leverage?

See, Siddharthji, while we are certainly looking for operating leverage, but if you look at the competition, the organized as well as unorganized both, the organized players of South and West are entering into West, we are entering into West. Then there are local players put on to hedging, right? So if you look at the competition, go to any market, go to Borivali market, go to any Delhi Garden market. The local -- there's one player in Delhi who is offering huge discounts. So we have to work within the constraints of market. And hence, we have to balance. So prima facie, we are not looking at any substantial -- I will say, substantial improvement in margin year-on-year despite operating leverage at full play. And let's say, 10 to 15 bps max, we are looking at as the competition will continue to intensify.

So this statement that we need to balance between growth and profitability, right? So yes, while what you are saying is a very logical way where things will move ahead for a profitable growth. But at the same time, in the market forces scenario, we need to ensure that we keep acquiring new customers. We make sure that our customers keep coming back to us with not only new design offers, we provide value for money offerings to the customers. So balance between growth and profitability, it is a good thing to have a sustainable EBITDA and a sustainable profit and keep investing for the future and keep growing. So that's how one has to look at it.

Right. So essentially, I'll just end this conversation, you are saying we'll do anywhere between INR 10,000 crores to INR 10,500 crores revenue, and we're looking at 4.5% PAT margin. That's roughly where we'll end. And we'll grow post that 20%, 25% next year. We'll see how it happens. Is that a fair understanding after all this conversation?

Yes, absolutely. That is what is our guidance. While internally, we'll continue to target for more. But I think conservative -- these are the conservative estimate.

The next question comes from the line of Amish Khanani with Nonvise Investment Manager.

Congrats on a good set of numbers. Sir, growing within West Bengal in Tier 3, Tier 2 -- Tier 4 towns, as you mentioned, versus growing beyond West Bengal, how do you see opportunities? And how do you -- what are the priorities? Do you see deep within West Bengal given the kind of political environment has been? Do you see that as a more opportunity, say, on a 12 to 18 months basis? Or do you see diversifying business beyond West Bengal would be more important in terms of building a very strong and stable franchise, which you said North and Central?

So I think we need to understand where our strength lies, and we need to understand that where is the opportunity for future growth. So for being in Bengal and Eastern part of India for more than 80, 85 years, there is a strong loyalty and there is a strong emotional connect with the consumers here. And as a brand emerging out of this part of the country, we should continue to work towards how we can keep on penetrating into the smaller towns. And I must tell you that considering the changing scenario and I would say, the positive growing scenario in Bengal and East India, our one whole focus will be to continue to focus on growing in the eastern part of the country and play to our strength. So that will be one area. And I would give it a weightage of almost 60%, 50% to 60%. And a weightage of 30% to 40%, I shall be giving towards the North and Central because we all know that the market size, the future growth opportunities, the growth and development in those consumer bases will be there. Our endeavor to increase our diamond jewelry sales and increasing our stud ratio shall also be achieved through a very strong brand presence and growth in those regions as well. So our -- one is to take the low-hanging fruits of where we are already strong. And one is to look a little into the future and grow for there. So I would say a 60-40 weightage ratio is the optimum way to grow and put our energy towards.

And just to complement what MD has said, we have grown last year into the newer markets. We have gone into Rajasthan through the franchisee route. So that's opened immense opportunity. In Bikaner, we've launched. In Madhya Pradesh we have franchisee. In Maharashtra, we have Nagpur, we've launched. So those opportunities we continue to explore. But we have a pretty strong pipeline for FY '27, which is skewed towards Bihar and UP.

Okay, sir. Okay. That's very heartening to note. And sir, normally, this wedding and festive season, as you mentioned about Akshaya Tritiya and all. So the question is, sir, this year vis-a-vis last year, any trends in terms of overall wedding dates come festive season activity on a one annual basis? And if at all, there are some variations that we need to keep in mind on a quarterly basis, which should impact either on the positive or negative side for us in the revenue growth outlook? And are we more heavy for wedding versus the festival and -- wedding plus festival put together versus normal business? Any things that we should know which gives us a better appreciation of a quarterly trend of the numbers, sir?

Yes. So see, as you said, Akshaya Tritiya was extremely good for us. And despite the readiness for election, we achieved around 66% growth. So -- and the growth across all the zones. So let's say, West Bengal, East, North, even Central has grown. We did not find any major variance in the trend, while we have launched 9-carat, but 9-carat continues to get traction. Obviously, there is a growing skewness towards the lightweight jewelry and a major part of our jewelry are anyway lightweight. Our diamond jewelry growth has been happening. So we did not find any major change other than the movement towards the old gold. And as you said, that as the custom duty has increased, as appeal for PM has -- for the old gold, I think that momentum of old gold is only going to increase along with the 9-carat and lightweight jewelry.

And just to define that lightweight jewelry would not only mean jewelry that you see people wearing every day office or casual wear. Even when it comes to buying jewelry for traditional occasions and wedding, consumers are looking at how they can reduce the overall weightage or they reduce the purity of the product from 22-carat hallmark to 18-carat hallmark and make it within their budget. So lower purity, making the weight light for the -- even the heavier-looking product. And we, at Senco, since we are working with the very closely, our effort is that how do we keep on making the product look heavy but very light. So there is all ways that in which we are trying to provide the products and making the design.

Sure, sir. One just as a follow-up, sir. Is there any trend in the ticket size where we should -- so there's a lot of debate between price rise of 40%, but volume degrowth and all. should we be looking at a ticket size per customer or per footfall, which we convert as a good proxy of growth, one, in terms of value growth? And second, within that, one, the expansion of stores as an additional kind of growth? So if you can give us some sense there as a follow-up, that will be helpful.

So our ATV, if you look at it, our average ticket size has grown by almost 30%. So consumers using either the money that they have or the old gold that they have, they are buying the jewelry based on their budget. But the average ticket size has increased by 30%. So that's the way to look at it. And see, we are talking of now, we have seen it over 25, 30, 40 years that the gold prices were much lower, then also people were buying jewelry. Now at these high levels, people will buy. But obviously, the quantities will differ. And that's the way the volume has to be looked at, right?

The next question comes from the line of Kaushik Poddar with KB Capital Markets.

Can you give a sense of how Sennes is doing? I mean, with artificial diamond, that's a different vector altogether. So can you give a sense as to what was your initial aim for Sennes? And how is it progressing on the goal you must have set for having a completely new brand and new setup?

Right. Thank you. Thank you very much. So see, Sennes was a brand that was created keeping the lifestyle changes of the consumer. And it was also one of our strategy that how do we connect with the young consumer. So while we are sitting on our strong loyal customer base, our constant endeavor is that how do we keep on innovating ourselves and create new lines, new products to connect with the new generation consumer with the changing lifestyle. So it is something that along with Senco compared to Senco, the volumes and the value is much lower. It is still in a state of getting invested and we are building the brand. We all know that while diamond and increasing the stud ratio is one of the strategy that the jewelry industry has to work towards and increasing the stud ratio will not only happen by increasing the share of diamond sales, but also other gemstones and lab-grown diamonds. It is -- we are putting our energy, effort. We've got now 11 to 12 stores right now. We are in the awareness levels of the consumer with regards to lab-grown diamonds and lifestyle products. The base is still very low. There is not much to talk about except the fact that we believe that in the future, this along with the other kind of jewelry that we sell. So from a Senco perspective, we are selling gold, diamonds, platinum, we are also selling silver and fashion jewelry. So along with that, this will be another line of business of selling lab-grown diamonds and also the fact that consumers will look at other products complementing jewelry. And as a result, we have launched perfumes and leather bags and leather accessories. And we will continue to work on building that base for the future. That's how I would like to kind of share my thoughts with you.

Just to complement. So while we have 11, 12 exclusive Sennes stores, we are also selling Sennes product from Senco stores, excluding the lab-grown diamond. If I look at the Sennes business as a whole, it is -- at EBITDA level, it is positive. So broadly, that's a great news because when you build a great brand, one can invest in brand up to anything up to INR 50 crores to INR 100 crores. And within the second year itself, Sennes business as a whole is EBITDA positive. So there may be some impact for 1 or 2 years, but we are in a long-term journey in this Sennes brand as a house of [indiscernible].

Okay. Okay. And see, the point is in order to grow the market, the 9-carat and 18-carat, those -- how much percent of your sales comes from such kind of lower than 22-carat gold?

As on today, I would say that, though it won't be the exact figure, but I would say anything between 15% to 20%, 15% for sure, which will be lower. If you look at diamond jewelry and gold and everything put together, it will be around 13%, 15% approximately.

That's not in-subsequent. That's quite a significant number. So are you doing something to promote that kind of thing? Because I don't see awareness being built up that this kind of jewelry is available. Are you doing something -- I mean, what are the steps you have taken towards that end?

So I can only let you know that in all the various communication campaigns, on our advertisement medium and digitally, we are continuously sharing to the consumers that 9-carat jewelry is available because even for traditional jewelry designs, people are looking at 18-carat option and not just 22-carat options. So maybe we can take a point out of your suggestion that maybe we are doing and maybe we need to do more or make sure that people are more aware of it. But the reality is that most of the diamond jewelry that we are selling and even gradually the lightweight gold jewelry that we are selling, we are putting in 9-carat, 14-carat and 18-carat jewelry. But we might need to do a lot more, and we'll take your point and we'll keep that in mind.

And my last question. See, Titan, I mean, the leader in your business, is operating, say, 11%, 10%, 12% margin. And you are operating at 7.5% to 7.8%, as you said. Why this difference? I mean can you -- I mean, what will make you bridge that gap?

So one of the biggest reasons for it is that their share of diamond and studded jewelry. That is what has been almost -- you can analyze the data, it wouldn't be right from my side to say what it is. But that is the biggest difference. And we are working towards increasing our sales of diamond jewelry. We are creating a lot of innovative designs in lightweight or even for party wear cocktails and trying to give the most value for money proposition to our customers. And sitting in Calcutta, we have the strength of karigar, of artisanship of creating those designs. So we are working towards it. And I guess that, see, they have been leaders, and they have been established in the market for a long period of time. And we are also very respectful of the same, and we want to get inspiration and do the best that we can to keep on growing the way they have done.

I also happen to be from Kolkata. So I wish you all the best.

The next question comes from the line of Pallavi Deshpande with Sameeksha.

Sir just wanted to understand in the 9 months, we had said about the hedging gains contributing to 2.5% of the margin giving a boost. How much would it be for the 12 months? And second question would be GML reduced. Also any particular reason for that?

Pallavi-ji, thank you for asking this question. So if you look at the number, I think -- and the guidance which we are giving, it is partly self-explanatory. So if you look at the gross EBITDA margin of 13.7% for the quarter and 11.5% for the whole year, and when I'm saying that my margin guidance is 7.5% to 7.8%. So broadly, at least in the range of 2.5% to 3% is due to the price rise gain. And it is also -- so while it cannot be exactly extrapolated because it is simple to explain, but this is broadly in this range, there's weighted average cost impact, right? Then there is silver also has increased. Premiumization, you are seeing, that the ASP and ATV has increased versus last year almost. So this is an impact of that, but you can broadly take 2.5% to 3% for the whole year.

Right, sir. So then that extra 1% is because of our better product, more handmade and all that. So that should continue, right? So my point is this margin guidance seems conservative because 11.5% minus 3% will give me 8.5%.

This is -- see, why we are still guiding because it's a very dynamic market. And market to market, we have to see the competition and how they will behave in the next quarter, how the market will take up the PM's appeal, old gold. That's why it is so dynamic. It is fair for us not to give an aggressive. So we are -- that's why we are still retaining at 7.5%. While we will -- as we said, we will certainly aspire to increase the margin to bring in more operating leverage. So there's a balance between the brand building, serving the customer and still taking the market share.

And what would be the target for marketing expenses, now 1.9% of revenue? Are we planning to increase that by 50, 100 bps next year?

No, I think that the marketing expense 1.8% to 2.2%, depending on the -- we will continue at that kind of thing that we will invest for the future. 1.8% is something that will be needed for the future growth. And I think that is how we will keep on growing. The new brands are coming up. We will keep focusing on the new brands, the lightweight jewelry, the various categories. But yes, 1.8% is what we would like to look at.

And lastly was about the GML portion, why we see a decline this year?

So GML, Pallavi-ji, declined because of the huge gold price rise, which happened in the month of March. You are aware in the month of March, the peak went up to almost 180,000, right? At that moment of time, there was a cash flow mismatch and a lot of positions had to be squared up due to the hedging position taken through GML, the MCF had to be squared off, the GML had to be squared off, then the payment has to be done. So that's why it has come down, and that is one of the reasons for increase of the borrowing cost for the Q4 and maybe in Q1 also. But obviously, we intend to increase the GML portion to 50% plus. We are short-term with the dynamics, that's why we have to understand them. But intent remains to increase the GML because my borrowing cost on the GML is 3% to 3.5%. One good thing which I must highlight is that our rating has been upgraded 1 notch by and the rating renewal is pending with ICRA. And with the improved financials and improved interest coverage ratio of 4.5% and the return on equity of 20% northwards, plus 20%, I think we are expecting an improvement in the credit rating, which would reflect in the borrowing cost.

The next question comes from the line of Anushka Vora with Vimana Capital.

So you said that around 50% of the sales in Q4 came from old gold exchange. So I just wanted to understand how your order relationship with the manufacturers has been changing. So do you have more of advanced gold now in respect to the traditional way of placing orders where they themselves buy the inventory, but has your portion of advanced gold to them has been increasing?

Right. No. So with the manufacturers, there are 2 parts, almost 70% to 75% of our work is done through job workers for our factories and the manufacturing production is mostly finished goods purchase. Now what we are also seeing is that diamond jewelry, where we are -- we used to do a lot of finished good purchase, we are utilizing these kind of good advances. And this has started in the last, I would say, 1 or 2 months where we are giving them certain of the gold in advance for their manufacturing process. So that's -- it's more gradual. It's not a very drastic situation right now. But see, gold is equal to working capital in that manner. And we are utilizing this opportunity to give certain of that to the manufacturers. And against that, we'll also get some minor benefit in terms of getting better pricing also whenever we are doing it. So it's a very gradual process. It's not been a very drastic process yet.

Right. That's fair. So how much of your overall production or volumes would you say was through advanced gold?

We don't have the exact numbers right now. It is -- but we will analyze and we'll get back on that. It won't be something very large number, but we'll get back to you. And I think that it will -- you will not see the impact much happening in the previous financial year, but maybe in this current financial year, that could be one of the aspects that one has to look at.

The next question comes from the line of Subhanu with 3 Head Capital.

Can you tell me what kind of volume we currently -- gold volume we currently keep?

See, I could not get you. Kindly repeat.

What gold volume we currently keep in your gold inventory?

See, I think gold volume, I think we should refer to the published number. We are saying my inventory days is 188 days. So effectively, the inventory days -- and what inventory days we are saying the blended. So gold volume approximately sell is around 6 tonnes. So you can extrapolate from that how much is inventory. Yes. 6 tonnes is total gold sales by us. You can extrapolate the number accordingly.

Okay. Understand. And as you mentioned, we procured the gold due to political uncertainty in West Bengal. That time, what was the procurement cost?

No, no, no, sorry. What we said is that we built up the inventory ahead of elections, right? The model was same. So as we explained to the previous gentle lady, we procured 50% from old gold, 20% from the ready-made jewelry, balance from the traders. So this is the mode of procurement of the gold Second thinking is how we get it manufactured. So 20% is ready-made jewelry, which I explained, and balance, the old gold or the GML which we procure from the bank, that is given to karigar. So 20% traders, 70%, 75% is karigar and balance 4% to 5% is our own factory, which will increase in future. We want to take the factory manufacturing to 10%. So let's say, if I'm selling -- if today, if it is 5% of INR 8,000 crores, that is INR 400 crores. When it becomes INR 20,000 crores, 10%, it will become INR 2,000 crores. So from INR 400 crores to INR 2,000 crores, the size will increase, but percentage will be below in the range of 8% to 9% of total manufacturing.

Understood. And as you mentioned, we will be maintain around 50% plus hedging. That means going forward, if gold price increase further from here on, then we automatically gain margin from this inventory?

See, what MD has said that our policy is hedge up to 80%, right? So in the current scenario, while currently it is 50% to 60%, it will be in this range. It can go up to 80% also. So if the hedging increases, it is a good risk mitigation technique. So if the hedging increases, your sustainable margin will come and the non-sustainable onetime gains will not come. But as we have always said, the intent of the company is focused on sustainable margin, risk protection while managing the cash flow mismatch. So the hedging percentage is linked to the cash flow mismatch.

The next question comes from the line of Raj Saraf with Finvestors.

So just wanted to understand inventory must be repriced as the duty is hiked to 15% now. So how much effect we are going to have this year apart from the guided EBITDA? Are there any ballpark number if you can give?

Sir, if you can just again rephrase the question, then I will attempt to answer you.

The inventory must be repriced as the duty is hiked from 6% to 15%. So how much effect are we going to have this year apart from the guided EBITDA or PAT or any ballpark number if you can give, sir?

Sir, I will say inventory is not repriced. See, it is inventory is valued at cost or net realizable which is lower. So inventory is always valued at the cost. Cost means weighted average cost. Now weighted average cost is usually lower than the market cost. And in the weighted average cost, hedging losses, the realized and unrealized losses as well as the mark-to-market impact for the gold metal and MCX, both are added, I can only confirm to you -- I'm reconfirming to you that inventory valuation is as per Ind AS 109. It is audited by the auditors thoroughly. They check the valuation and inventory valuation, which includes the realized and unrealized losses to the extent of inventory unsold, which will realize in future, it is lower than the net realizable value. So if you are looking at a value of INR 5,200 crores of inventory, which is approximately INR 4,500 crores of gold and INR 500 crores of diamond and platinum and silver, the realization price is more in the month of April and May. Now if the realization prices -- if again, gold prices go up, which it has gone up in April and May and June, then the gain will come.

So sir, just want to understand as a layman, when the duty was reduced from 14%, 15% to 6%, we have an impact of INR 57-odd crores in our balance sheet or our P&L. So right now, the scenario has been reversed. So definitely, if you are not fully hedged, we are going to have an inventory gain. So at that time, sir, we are having lesser inventory. Now we are having more inventory. So what is the quantum of gain that is -- what you say is realized gain or anything, we will have this year?

We have understood. See, I don't want to give a ballpark number. I'm trying to tell you that this 9% gain, very simple. 6% to 15% is 9%. 9% on the gold value of INR 4,500 crores, you can assume INR 450 crores or INR 400 crores, but it is not that simple. So from a rough out-of-envelope calculation, it will be 9% of INR 4,500 crores. But whatever is the gain because it goes into weighted average cost on a daily basis. So the inventory is getting repriced on a daily basis till 30th June until 30th September. So this inventory will get sold in quarter 1 and quarter 2, but it should be in the range of -- effectively, it should be at least 6% to 7% but we don't know what is going to happen in the future. It will also depend upon how the market is giving discount on the gold price. We understand if I am selling gold at a certain price and if in the market, the nearby market, my competition is giving at less, then I can't take that much gain. So the gain will get reflected in quarter 1 and quarter 2, and we'll disclose what gain has come due to custom duty impact.

Sir, that we clearly understand, sir. When the competition kicks in, when the gain is so much, that I clearly understand. Just wanted to highlight this, sir. Now sir, we have seen in the past that the negative result of duty reduction, which will eventually come next year, as I guess. And then we have a negative duty impact of INR 57 crores, I think, in FY '25. So how are we preparing for next year? If the duty is reduced from 15% to 6% and 5% in next year, are we going to hedge our inventory more? Or how to mitigate these kind of scenarios going forward, sir, because that is eventually going to affect us negatively in coming year?

So you asked a wonderful question. What has come as a one-off gain, now we have to be more cautious, not only for us for the entire industry to be cautious and whichever time it happens, it will be sudden. So at that moment of time, the gain will convert into loss if the hedging is not done. Now hedging can only be done through the MCX. So last year also, the price fell, the price fall, the impact could not be mitigated. Impact would have been mitigated only to the extend if the 100% of the position was covered through MCX, slightly complex subject because you would read that the hedging is done through GML and MCX. So in the GML even in the current year, we will continue to pay custom duty at 15%. That means that risk is uncovered. So if my 100 kg of inventory is there and if I have purchased 50% through GML, I would have paid the custom duty, which means that I have to take 150% hedging to cover the risk of gold price rise. So thank you for raising this question. You can ask me one-to-one. We are cognizant of that. But I don't think that it will be possible to cover the entire hedging position through MCX because now MCX margin has increased to almost 25%, 26%, that is becoming a challenge. We'll issue more details on this during quarter 1 as to what actions we are taking for possible reduction in future.

That's exactly my point was, sir. The inventory hedging is now very important because, sir, eventually, we are going to grow more in the coming year also. So naturally, this INR 5,200 crores inventory is going to increase in coming years also. So that time, having inventory hedged at an amount of 50% will cost us more in our balance sheet and our P&L going forward. So that's my concern is.

No, rightly raised, sir. We are certainly thankful to you, but we are aware about this risk, and we will take adequate measures so that the repeat of the previous custom duty fall does not happen. Fortunately, we have the gain, onetime gain. I think that a part of it will certainly have to be sacrificed if I'm very plain and blunt.

Okay, sir. Sir, how is the trend now in coins and gifting jewelry right now? Because some of your peers has also mentioned that now the government has taken a duty hike. So the gold coins and any investment purpose buying is now being discouraged. So I wanted to know the trends going forward? In last 10 days also when the honorable Prime Minister announced that call out. And even the going forward trend you have seen in the past with your experience?

So see, coins and bars is around 5% to 6% of our overall business only, right? And previously, it was about 2% to 3%. It has gone up to 5% to 6%. So I think that we will see some amount of slowdown in coins and bars and people will not invest as much. But again, our -- from our business perspective, selling more coins and bars doesn't add much of margins to the business. So this is more of a customer service that all the jewelers do and not really a margin adding situation. So we'll see, and we will be guided by the -- what the government takes and the policies that are taken. Our focus is to drive more and more jewelry and designs and how do we fulfill that need of the customer, and we will focus more on that. And so that was your thing on the question on the impact of the current situation on coins and bars. And as far as gifting is concerned, I think we need to look at the lower caratage jewelry, 9-carat, 14-carat so that consumers can use it for gifting to their loved ones and make things within the budget. So that is something that we'll keep looking at and keep creating new designs in that segment as well.

My last question is, sir. Sorry, I'm stretching...

Sorry to interrupt Mr. Raj Saraf, I would request you to please come back in the queue for further questions. The next question comes from the line of Arvind Dhureja, an individual investor.

Sir, my concern is related to the inventory buildup. If I look at your inventory turns, it has gone down from 2.6 or 2.7, I think, to now less than 2. So what would be the steady-state target for inventory turns? Because if the inventory keeps on inching up and if there are no inventory gains, then our ROCE will keep on declining. And there is also market skepticism because of the past accidents in the jewelry sectors. I'm not implying that this is the case with us, but this is something that makes the investor worried.

So see, if you look at the inventory days in the previous year, it was around 166 days. And this year, since we had to build up the inventory for the festive season of April, it's looking a little on the higher side, plus the gold prices that has moved up so much has made us look at what is the exact kind of inventory that is selling and gradually changing from a heavier weight to lighter weight to make sure that the consumers can continue to buy. So these have been the cases. So if you look at benchmark inventory days, I would think that anything around 150 to 160 days is a great inventory days and inventory turns that will look good and is good for the business. And as far as working towards that is concerned, I think that we all need to look at how the market stabilizes, the gold price stabilizes, the consumers also get more comfort with stable gold prices and not so much volatility. And our effort towards -- we are anyway doing a lot of data analysis and producing products, making it lightweight, selling what exactly the consumers want. And together, I think from our side and consumer side, we'll be able to move towards a lower inventory days and make it more efficient. But again, I want to assure you that gold is something that is very much fungible and easily can be manufactured back. The only risk is your manufacturing cost, which is a very low single-digit manufacturing cost on an average. So on the broader perspective, unlike other materials, which is not that it will remain -- it will lose its value that way. But again, at the same time, we don't want to lose sales. So for the purpose of sales, we need to make sure that the designs are correct and as per the budget of the consumer. So we are working towards the same. And the last point I would like to make is just to get the inventory days right as a brand, as we are building the brand for the long run, we are also a little conscious of the fact that we don't want to discount ourselves too much to kind of dilute the brand strength just to make the sales happen. So it's a lot of balancing that we need to do and ultimately work towards the 150 to 160 days inventory.

So can we expect this to be the bottom? I mean, it will not go beyond what you have already reported and ultimately, it's going to improve from here on?

Yes, that's -- obviously, that should be our effort and endeavor. We are -- while we know that we are focusing on building diamond jewelry, increasing the sales of that, but this should be on the higher side, and we don't want to increase it more than that. So this is how we can let you know for now. We don't want to do it more.

Arvind-ji, if I complement it, if I do the benchmarking within the industry, it goes up to 220 days also, so that the high. And at a lower value it is at 160 days. So our intent would be to keep it between 160 to 180. Some specific actions, we have closed some stores, right? So one is that we are using technology. We are shifting the inventory from intra to intra-zone, interzone owned to franchisees, franchisees to all those things we are doing. But yes, we'll explore all possible options to ensure that inventory days is in the range of 165 to 180.

So 165 to 180?

Yes.

Okay. And sir, you said that the sustainable PAT margin is 4% to 4.5%, right, in the presentation and also the press release. However, if I look at the past 3, 4 financial years, you have never touched the target. So what gives you the confidence that the margin at 4% is sustainable without any inventory gains?

No, because 4% margin will happen as we keep on increasing our diamond sales. And we are charging whatever making charges that we are charging to the customer for the designs and the lightweight jewelry that we are selling. So I would suggest that this 4% to 4.5% margin, this year, our margins are looking higher because of the inventory gains. But in general, it's been in the range of 3.5% to 4%. So I'm confident that with the gold prices going up, there will be more increase of sales of 9-carat, 14-carat jewelry. And with the gold prices going up, there will be more sales happening of jewelry with stones to make it much more affordable for the customers at lower purity. So with that thought in mind, I'm being a little confident that we should be able to achieve the 4% margin.

Okay. And my final question is, what is the sustainable ROE and ROCE targets?

Even earlier, we have said that it should be north of 16%, right? So what you are seeing for the current year is in the -- primarily the price rise. But if the price rise does not happen, incidentally, once again, this year, custom duty impact will come. And if the custom duty impact is not negated or if the risk is not mitigated, it may still be high. But I think that we have earlier guided it should be -- we will try to reach to 20% over 2, 3 years. So north of 16%, 17% is a good target.

Without any inventory gains?

Without any inventory gain, of course.

Okay. And sir, final question, sorry, but final question. I mean, I understand that free cash flows have been negative because of the inventory buildup and the rise in gold prices. But any guidance because some of the peers are very close to positive cash flows, but U.S. is, of course, significantly negative.

No, I'm not able to give comment on this. So we have debated a lot on this and the numbers are there. So to me, it does not seem to be easy. That's all I can say. While we are cognizant and when we see the free cash flow of others at least for -- we are not able to give a guidance on this that it will become positive in the next 1 or 2 years. See, the dynamics of the price rise is impacting things hugely. Even without disclosing the number, if I say that my inventory per kg at a store has come down, the front-end inventory, the back-end inventory, what you look at is the financial total inventory. We'll try to work on it. We are aware about this issue for 3, 4 years.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Suvankar for closing comments.

Yes. No, thank you very much. It's been wonderful talking to all of you and answering to all your queries. We want to -- on behalf of the team Senco, would like to assure you that we shall keep working towards growing our business, working on ensuring that we work towards increasing the profitability and getting the best return on capital that we would be employing in our business. We know that the world is in a little bit of an uncertain situation. There are a lot of events happening. But again, as long as we can keep on continuing and focusing on the fundamental aspects of the business in terms of design and in terms of customers I'm sure that as a brand, we will keep growing and increasing the business and the brand in the long run. So with that aspect, we want to thank all of you and look forward to interacting with all of you again in the future. Thank you.

Thank you, everybody. Thank you very much.

Thank you. On behalf of Asian Markets Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.