Senco Gold Limited (SENCO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Senco Gold Limited Q1 FY '27 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Purohit from Elara Securities. Thank you, and over to you, sir.

Good morning, everyone. On behalf of Elara Securities, we welcome you all for the Q1 FY '27 Conference Call of Senco Gold. I take this opportunity to welcome the management of Senco Gold, represented by Mr. Suvankar Sen, Managing Director and CEO; along with him, Mr. Sanjay Banka ji, Group CFO and Head IR. We will begin the call with a brief overview by the management, followed by Q&A session. I will now hand over the call to the management for opening remarks. Over to you, sir.

Thank you. Thank you very much. A very good morning to all the participants. Ladies and gentlemen, we are very pleased to inform that as we begin the financial year '26-'27 with a very positive mindset, we have been able to have a great performance in quarter 1, achieving record sales and crossing INR 3,000 crores on a single quarter. The momentum that we had achieved in the financial year '25-'26 in terms of the performance continues to remain. And as a focus, as a thought process, we have always believed that as the beginning of the year has to begin with a bang as a growth-oriented company. And we have tried our level best to achieve such a performance as we begin the financial year with a great quarter. If you really look at it in terms of the revenue on a consolidated basis, you've seen that we've grown by almost 67%. And it shows that there has been continued and renewed trust from the customers for the brand. At the retail level, we've grown by more than 50%, which has been a wonderful performance. And especially, we need to keep in mind that this particular quarter had great opportunities and also certain challenges that we had to overcome, especially with almost 65% to 70% of our business coming from the Eastern India and the State of Bengal. This particular quarter, we were faced with the elections, and we had to plan from the previous quarter itself to ensure that we achieve great performance for Poila Boishakh and Akshaya Tritiya. And I'm happy to say and I would like to congratulate my team that the planning and the execution that had started 2, 3 months back before the quarter had begun was greatly executed and performed. We also need to understand that in this particular quarter, there have been certain headwinds in terms of Adhik Maas. There have been headwinds in terms of the weather, the heat wave. But in spite of that, we had a wonderful month of April, where we almost clocked sales of INR 1,500 crores, INR 1,600 crores. And in the month of May and June, we've seen that the -- against all these headwinds, we still continued to have our sales, but the sales did fall to around INR 500 crores, INR 600 crores on an average on each of the months. However, there were certain support in terms of the summer weddings, which were there. And we were continuously coming up with many schemes, discounts, offers to have the customers keep coming into the store. There were certain challenges in terms of footfalls. But with all our innovative schemes and attractive old gold exchange programs that we gave, I would say that it also helped a lot in terms of converting the customers' old gold into the sales of diamond jewelry. And altogether, we had a wonderful quarter ahead. Now, we need to see that along with the overall 50% year-on-year sales that we had in quarter 1, our same-store sales growth -- grew by almost 39%, which means that our existing stores continue to have strong relationship with our customers, engaging with them and trying to make sure that with our innovative designs and new collections, we keep attracting the customers. One observation that I would like to make is that at these high gold prices compared to the last financial year, there has been a shift of the customers moving towards lightweight, more delicate designs, jewelry which is more for the daily wear, gifting items and jewelry which are more design-led rather than normal, simple, standard, old-fashion jewelry. We must mention that the diamond jewelry value, we got sales increase of almost 43%. And in terms of volumes, we could grow by 18% in terms of diamond jewelry, which gives a very strong signal in terms of the design and development and the shift of the consumers and the long-term impact that these trends would have towards our margin in terms of our effort to increase the star ratio. But another aspect is that the lower-ticket-size items were more in demand. There was, I would say, the consumers' inclination to buy jewelry against all the headwinds were there. But what they really wanted is to have jewelry within their budget, and we continuously focused on analyzing the data, analyzing the consumer trends and providing jewelry accordingly. And we kept building up our 9-carat, 14-carat, lower-carat jewelry and lightweight jewelry throughout the quarter. Another aspect that we must keep in mind is the old gold exchange, which was almost 43% of the total sales quantity. And on the appeal of our honorable Prime Minister that we must try our level best to reduce the gold imports into the country, I think that as an industry, we all stood together and we put our best efforts to ensure that we could encourage the consumers to exchange their old gold, and that has also been a great driver in terms of the overall numbers that we could achieve and upgrade -- and help the customers to upgrade their old jewelry. We've seen that the gold price year-on-year has gone up by 61%. And on quarter-on-quarter, it has just gone up by 1%. So, that has been one of the overall drivers also. When we see value growth in terms of sales, it has been largely led by the value of the gold going up as well. In terms of the new stores that we could add in this particular quarter, we've added 3 company-owned company-operated stores. We've added 4 franchisees and 1 Sennes showroom, which is focusing on lab-grown diamonds. The company remains to track and we will make sure that we open 12 to 15 more stores for the remaining of the financial year. They are very much in the pipeline. And I must also mention to all of you that much with our strategy that which we are working towards, the majority of the stores that we shall open shall be franchisees focusing on the East and the Northern Indian markets. So that is one of the strategic focus that we are continuing to do and achieve the results as well. Now, looking ahead into quarter 2, we've seen that in all the overall financial year, quarter 1 is -- usually because of Akshaya Tritiya and the New Years in various zones and the summer weddings, we have a great quarter 1. And quarter 3 and quarter 4 are led by the festives and the weddings. So quarter 2 in terms of overall sales is on the lower side. However, quarter 2 is the particular quarter in which we do our planning, building up of the inventory so that we are gearing up well for the festive season. And another good thing that we are seeing as the market is that the way in -- towards the end of May or June, we had seen the consumer footfalls or the overall sentiments on the lower side. But as we move on to July and August, we are seeing a substantial improvement in terms of the consumer sentiments and the inclination of the consumer towards buying jewelry and building up for their needs and the wedding season as well. And also, one aspect is that Senco has always stood for innovation and coming up with new collections and designs. As I've mentioned before that every year, we come up with more than 150,000 designs. And this particular quarter and this particular year, we shall continue to come up with new designs. One particular thing I would like to really happily announce to all of you that along with the women-focused designs that we are coming up in lightweight jewelry, be it 9-carat, where we were one of the first to launch and coming up with new collections in Everlite, very recently, we have also come up with a new design collection for men's jewelry under Aham, which is titanium jewelry with gold and diamond. And again, I can proudly say that much like the innovation that Senco has always been doing, we were -- we are among the first in the industry to have launched titanium jewelry. And the good part about it is that while there is gold and diamonds incorporated in the jewelry, that shall lead to margins, but with the addition of titanium, overall, the jewelry prices -- the range which we are selling starts from about INR 20,000 and is about INR 20,000 to INR 1 lakh, which is very much affordable by the consumers. One thing as our strategy, as our focus, as what we will drive for the upcoming financial year is that we'll continue to prioritize on the lightweight jewelry collection. We are continuously analyzing the data, optimizing our inventory and ensuring how we can improve our diamond jewelry sales, and the increase of our franchisee stores so that our margins are protected. We continue to be ensuring that, yes, how we can keep on improving our margins and also to ensure that our return on capital is happening on the best optimal manner. We remain focused on achieving 20% plus growth in terms of value for this particular financial year, building the brand Senco across the nation so that we can reach out to more customers and open more stores and franchisees and grow across -- with a geographical focus on East and Northern India with our own stores and our franchisee stores. So with this, I would like to request Mr. Banka to say a few words before we start taking questions from all of you. Thank you very much.

Yes. Good morning, sir. While sir has given a detailed background, we would like to clarify that the total growth is 67%, while the retail growth is 50%. And this retail growth of 50% has been observed in a secular trend across all the zones. So we have seen very good growth. Even in the newly launched Central region, where we have 7 stores, or in Delhi NCR, we have got a good growth. So overall, we have a very good growth between owned stores and franchisees as well. The ASP has seen almost a 40% Y-o-Y increase versus last year quarter 1. The ATV has seen an increase of 38% Y-o-Y. So when we look at EBITDA at 7% range, while obviously the comparison is against Q1, but every quarter has its own unique characteristics, particularly in jewelry industry. So Q1 last year was covered by a price rise, and we had clarified in Q1 last year that while the result is 10.1%, but look at our sustainable EBITDA between 7.5% to 7.8%. And that's what even with the quarter 1 results, we gave the same guidance. So we -- the 7% EBITDA margin for the quarter is a very good margin, which we feel, at INR 213 crores. And the PAT for the year is INR 101 crores consolidated. It is partly -- the PAT is partly lower against the stand-alone due to the impact of our 2 -- our 3 subsidiaries. Out of our 3 subsidiaries, the factory subsidiary, which is a captive powerhouse for design, captive powerhouse for supplying jewelry that is doing very well, and that is enabling us to launch almost 100 designs per day. However, the Sennes brand, which is in the [indiscernible] start-up and still working towards the lab-grown diamond, perfumer and leather bags. Any new brand takes time. So this is partly impact of Sennes Fashion Limited and the Dubai entity due to which the PAT is lower, but PAT is still at 3.3%. So what we want to reiterate is that the quarter should be seen in a larger perspective. We continue -- we have already optimized our inventory, which has led to improvement in the inventory days. We have already taken various actions to obtain operating leverage. And overall for the year, we continue to remain optimistic to give a guidance of 7.5% to 7.8% EBITDA level. So with that, we can [indiscernible] earnings the call and invite you all to ask your queries.

[Operator Instructions] The first question is from the line of Viraj Mehta from Enigma Investment.

Very good performance. Sir, my first question is regarding the guidance that you gave for the year. We are still sticking with 20% growth for the year, which will mean that for the rest of the year, we will not grow at all. So like what am I missing here? Like you have had a spectacular Q1 in spite of whatever headwinds that we had. Now that we -- Adhik Maas and election is behind us, why are we so negative for the rest -- growth for the rest of the year?

No, I totally appreciate your question. And if you've seen our overall performance over the past 2, 3 years, we have always been a little conservative in terms of giving the guidance. And our range that we usually give to all of you is a growth of 20%, 25%. We've had a wonderful first quarter, and I'm sure that this performance of quarter 2, quarter 3, quarter 4 will continue to remain. But we believe that after the end of quarter 3, we will be giving you any kind of revised performance. But yes, if you really look at it from a 20% plus guidance that we give you, maybe we'll say 25% plus guidance, yes, for the rest of the year and whatever it averages out. You're totally logically saying whatever you are saying. But for the whole year, from last year's performance of INR 8,400 crores, we can comfortably say that we should be crossing INR 10,000 crores for sure. And our internal team endeavor is to have higher numbers as well. So this is just something that you please appreciate that we'll be conservatively guiding. And as the year-end, we will keep updating you with our performance.

Sure. And sir, you said April, we had a spectacular month, but obviously, May and June -- because of various reasons, plus also a little global uncertainties and Prime Minister also being a little conservative on gold, we saw a decline in sales both in May and June. Can you give us like -- but you said that July and August were very good in terms of footfalls. So just -- I'm not asking for an absolute number. But like have we gone back from 500,000 a month or 600,000, 700,000 a month to close to 800,000 a month in July, August or at least July?

So I would say that as a breakup of the quarterly numbers of Q1, we had almost 55% of the contribution of the total quarter coming in month of April and the remaining 45% coming in the month of May and June. So, that is how the overall quarter looked like. And I would say that from the month of July, we are seeing that July, the footfalls were there. The consumer sentiments improved. So compared to June, we've seen a stronger traction in July and August. But again, I would say, from July, August, we are up by 8% to 10% right now, and this will continue to be in this trend. And again, the buildup would again happen greatly in the month of October and November. That's how the seasonal trend looks like.

So July -- just to be sure, July, you're saying 8% to 10% growth over last year's July?

No, last year's July, no. I'm talking about July having an 8% to 10% growth over May, June. In comparison to -- just to update you guys on compared to where we stand previously. Last year, we are about 25% growth also. So this is something that...

Okay. So July was still 25% growth. Okay. Okay. And sir, as far as -- and please break this up for me, Banka ji. Last year, when we did 10% margin, I'm assuming a reasonable portion also came from inventory gains in Q1 of last year. So we -- if I have to think about just operational -- and this quarter, obviously, there was no inventory gain because the price Q-o-Q was like 1%, so it doesn't really matter. So if I have to think about operational profit, would it be fair to say that probably INR 70 crores, INR 75 crores of PAT last year is now INR 100 crores of profit, which purely came from operations Y-o-Y?

Yes, exactly. So if you see the earnings call last year, we said that at least 1.5% to 2% can be ascribed to the inventory gain, right?

Absolutely.

So from that perspective, while we are not able to declare adjusted EBITDA impact every quarter, but we can very comfortably assume that the adjusted PAT for last year's Q1 was around INR 70 crores, INR 75 crores. And INR 100 crores for this quarter should be seen from this perspective. So while this PAT is 7% -- but once again, this adjusted PAT has to be computed and there are certain factors -- sorry, the EBITDA -- reported EBITDA is 7%, but adjusted EBITDA will be a factor of the hedging factor, the discounting and other competitive factors, custom duty gain as well. So that's how we have to see. So effectively, we should look at 7.5% to 7.8% as a sustainable EBITDA, which will occur -- which will accrue over 2 to 3 quarters normalized.

Right. And sir, so just last thing on margins is, when you say 7.5%, but in your -- one of your leanest quarters, you have done 7%. Obviously, December quarter is going to be double digit, just operationally EBITDA margin. So why are -- like on top line also, you are conservative. On margins also, you are conservative. Like I mean, something is not adding up, right? Because with such sales growth, your cost is not going up in the same region. shouldn't your margins be higher?

See, as MD sir just said, we are usually conservative in giving our guidance this being first quarter. And even last year, the same trend was observed. We were giving a lower guidance, but actual top line as well as bottom line was higher. So since this is beginning of the year and since we have done a detailed planning, we look at sustainable EBITDA margin of 7.5% to 7.8% only. And if anything more happens, it will be partly due to the other dynamics, so price rise, discounting, improvement in stud ratio. But sustainable, let's look at 7.5% to 7.8% only.

The next question is from the line of Abhijeet from Antique Stockbroking.

Sir, my first question was on your other expense. Essentially, it has been in the region of INR 123 crores, INR 124 crores generally, and it has suddenly gone up to INR 229 crores. So why has -- and if I have to just take the other expense normal run rate, then you could have achieved a far higher margin. I mean, I can understand the gross margin impacted by, I mean, the decrease in stock in trade, I mean, the decrease in inventory, that has an impact. But when I look at your overall margin, this has made a big difference. So what is the reason behind it?

So thank you very much for the question. So in terms of other expenses, I would attribute it towards the effort that we have put in terms of increasing our businesses. So there could be marketing-related expenses. There are a lot of expenses in terms of renovation of our stores that we did because it was a lean season. And there are also certain efforts we've done in terms of our customer offers and schemes. And because of that effort, there are certain expenses that have been booked to mitigate certain risks. So I would say that, yes, in terms of your other expenses, it has looked higher. And if we could control it more, then our margins would look much better. But again, I would say that let us look at the whole year, and I'm sure that these kind of other expenses will not be happening every quarter, and that would be one of the reasons why our margins would also look better as the year progresses.

Okay. So we should not take this kind of other -- because I was also looking at your marketing expenditure from the PPT. It has not seen a -- it has seen a growth, but the main driver has been other -- I mean, on the other expenditure, ex the marketing expenditure. So we should see a subsiding. I mean, it was more particular to the quarter, and going ahead, we should see other expenditure subside or normalize. Is that -- that's what the reason?

And we tend to update like the way for our men's jewelry brand. We've had one of our brand ambassadors, and then we have launched a new collection. We've taken new brand ambassadors, spending money to build the traction and attract the new generation customer. Similarly, for the youth-oriented and young generation everyday-wear jewelry, we will continue to have those kinds of efforts to have more younger consumer segments coming to our stores.

Yes. So my question is that whether this other expenditure, ex of the marketing cost -- because marketing costs, when I see the PPT, it has declined by 19%, whereas -- from about INR 43 crores, it has come down to INR 35 crores. Here, it has grown from INR 80 crores to INR 195 crores. So would this run rate continue or would it kind of subside, right? It would be more about the quarter?

Correct. Correct. Exactly. So this kind of a run rate would not continue, and it would be subsiding in the upcoming quarters.

Okay. My second question was on the finance cost, where there was a lack of availability of GML, and then that led to the increase in cost. So what -- I mean, what was the reason for the lack of availability of GML? And what is the scenario currently?

No. So if you remember, during the month of March and April, while there were certain issues, which we also discussed during that particular quarter calls that banks were not being able to provide with -- the gold imports were stuck, and there were a lot of discussions happening around that. And there was a panic because it was -- anyway, the season was peak season, and we would have Akshaya Tritiya sales around, and we need to make sure that the raw materials were available. So, that was a situation that happened during the month of April. And with the duty changes that were supposed to happen, there was a lot of uncertainty from the bank side also, all triggered by the fact that this geopolitical scenario was leading to any kind of effort towards reducing import of gold into the country. So, that is the reason why the gold metal loan was not as freely available during those first 2 months, and we had to depend on procuring gold from the local markets. And that's the -- in order to mitigate that risk, we had to reduce the metal gold loan at that point of time. And now that things are stabilizing -- I think we're all praying that the geopolitical uncertainty and whatever risk is happening moves towards a solution. And with the crude oil price coming down, hopefully, the pressure on the economy will also come down and importing gold shall not be such a big problem for our nation at that point of time. Now it is much easier available, and we will start building up the metal gold loan portfolio once again.

[Operator Instructions] The next question is from the line of Saurabh Beria from Sameeksha Capital.

Yes. So 2 questions. The first one is, what is the current hedging ratio? Second one, on the inventory side, have the supply chain issues been resolved? And what is our current inventory position and also the weighted average cost of that inventory.?

Yes. See, so what we have explained that while the supply chain issue was for GML unavailability, but gold was available. So let's say, if you look at -- the old gold was available from the customers. While it is 43% blended for owned and franchisee stores, from the own store, it was more than around 55%. And then, we buy ready-made jewelry -- traded jewelry. That is around 20%. Balance, either we take from GML or from the bullion vendors. It's only a matter of -- it's only a function of the finance cost, but that unavailability was not a concern as far as availability is concerned. So we have been looking at our inventory days and inventory turnover versus the peer in the industry, and it's really an opportunity for us to improve the -- we have implemented a gold rate-based software, which we are evaluating the store performance. And based upon that performance of store one by one, we have reduced the inventory in terms of kg and value both, and that's how it has led to improvement in the inventory days. And we will continue to improve the inventory efficiency in line with the industry benchmarks.

And what is the current [indiscernible]? I might have missed on that part.

Currently, it is coming to around 152 days. I think that is stated in the presentation as well, 152 days. And we'll continue to improve it further.

Perfect. And [Technical Difficulty]. Why is retail and reported sales diverge by 19%?

Can you repeat?

[Technical Difficulty]

Sorry, somehow -- is it our connection? If someone can please clarify what was the question, we could be...

It is not clearly audible, sir.

Am I audible now?

Yes.

So first is, on the part of how has been the demand in the quarter so far? And secondly, a bookkeeping question it is. Why did the retail and the reported sales diverge by 19%?

From reported sales or something 19%.

I think you are talking about the business update, right?

Yes.

If you are referring to business update, there, I think we have reported 62% and actual is 67%. So, as we have said, when we do the reporting, we are slightly conservative in reporting the number. That's why -- and at that point of time, certain adjustments are pending, the sales, right to return, all the accounting adjustments are pending. So that's how there's a gap between reported of -- business update of 62% versus 67% of now. These are the -- present numbers are limited review numbers. So what we give in the business update is a closure number. That can always vary upward or downward slightly.

Right. And to add to your current quarter's performance...

Sorry to interrupt, Saurabh, rejoin the queue for follow-up questions.

Yes. And your current quarter performance is about 25% growth year-on-year. So, that was the answer to your other question.

The next question is from the line of from Yash from [indiscernible] Investments.

So my question was regarding the operational thing. So when the management -- when you guide for 7.5% to 7.8% EBITDA margin and around 4% of PAT margin, so like is the hedging part also included? Or only the operational margins will be those?

So 7.5% to 7.8% assumes a perfect situation that there is no gold price rise, there is no gold price fall, and everything is properly hedged, right? So let's assume that there's no price rise or price fall and everything is perfect. So now, depending upon the percentage of hedging, 50% or 80% or 100%, the results can slightly vary. And that exactly is our intent that based upon our present hedging level, how can we ensure and deliver 7.5% to 7.8%. We have delivered that in the past also.

So 7.5% to 7.8% will be only operational, right?

Only operational, correct. Absolutely.

Okay. Second was on the inventory hedging only. Like how do you decide what levels of hedging will you do for the quarter? Because the margin swing has been like quite wide, right? It was 10% for the Q1 FY '26. It has come down to 7%. So like what factors do you consider for this hedging?