Sky Gold and Diamonds Limited (SKYGOLD.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sky Gold and Diamond Limited Q2 and H1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Parth Patel.

Thank you, and over to you. Thank you. On behalf of MUFG Intime, I welcome you all to Sky Gold and Diamonds Limited Q2 and H1 FY '26 Earnings Conference Call. On the management side, we have Mr. Mangesh Chauhan, Managing Director; Mr. Siddharth Sipani, Chief Financial Officer. I hope everyone had an opportunity to go through our investor deck that we have uploaded on exchange and the company's website. I would like to mention a short disclaimer before we begin the call. This call may contains some of the forward-looking statements, which are completely based upon our beliefs, opinion expectations as of today. These statements are not a guarantee of our future performance and involve unforeseen risks and uncertainties. With this, now I hand over the call to Mr. Mangesh Chauhan. Over to you, sir.

Thank you, Parth. Good evening, everyone. Thank you for joining us today as we discuss our Q2 FY '26 quarterly performance. In the current quarter, the company recorded its highest ever quarterly revenues and PAT showing refinancing strength. Revenue for the quarter stood at INR 1,484 crores, registering a growth of 93.1% year-on-year, PAT stood at INR 67 crores, where you're seeing a remark growth of 82% year-on-year. Volumes have been increased to 544 kgs per month for this quarter, raising a 20% growth versus Q1 FY '26. Despite the elevated good prices, Indian consumer has been reselling and continues to stand strong in the festive season. The demand for gold is not dampened, instead, people are adjusting budgets by excluding lightweight designs, lower carat gold like 9 carat for [indiscernible] or diamond [ state ] pieces. This was reflecting on our quarterly performance as well as now 18-carat business [indiscernible] 7%. [ Service ] business has been now doubled to 1.5% of total revenue. Traditionally, this missed as a poor investment. Lower carat gold is now being seen as a practical and stylish size for deliver. The mindset among young buyers is clear, jewelries mean to be worn, not locked away. Still 22-carat continues to be favorite of the Indian consumers. Also, we can simultaneously [ ship ] from unorganized sector to organized sector, as organized players are becoming innovative, providing convenient installment or gold exchange schemes. Lightweight machine made jewelry tapping into e-commerce and expansion of stores into untapped market in Tier 2, Tier 3, Tier 4 areas, thus ensuring higher than industry growth. Today, jewelry is not just a cultural enabler but also a fashion statement reflecting individuality and style. As Sky Gold and Diamond Limited, we remain committed to blending this timeless heritage with contemporary design and conferences. Our business model operating on B2B platform enable us to serve a vast network of leading jewelry retailers and [indiscernible] brands, making our products available in over 2,000 showrooms across India. The growth is a testament of our operational efficiency, customer trust and ability to adapt the evolving market needs. Discussing our performance this quarter. Currently, our advanced gold model stands at 7% in Q2 FY '26. We have also improved our working capital days cycle by 7 days in September '25 compared to March '25. On the back of the better inventory management, Q2 FY '26 compared to last year. This quarter, we have successfully completed the final transition for Speed Bangle Private Limited. This business will adopt 100% advance gold business, which is expected to strengthen our working capital cycle. Also, this company has tax incentive benefits under Section 115BAB, resulting in improved PAT margins. To further expand our customer portfolio and deepening market penetration in the high-growth traditional jewelry segment, we have entered to a nonbinding term sheet to acquire a majority stake in [indiscernible], a recruited Mumbai-based jewelry form. This acquisition marks as a significant step in Sky Gold and Diamond strategy to establish India's largest and most trusted [indiscernible] focus enterprise as the [ recent world ] known for a strong presence in the [indiscernible] segment brings with it rich client base that include one of the largest [indiscernible]. And this client relationship will be strategically onboarded by [indiscernible] subsidiary of Sky Gold and Diamond. To expand our international footprint, we have established a new B2B sales of this Sky Souk Jewellery Trading LLC, Dubai UAE. This move is aimed at strengthening our foothold in the Middle East. A region identify for its robust demand for premium jewelry, particularly in UAE. The strategic presence in Dubai position us closer to key markets and enhance our responsiveness to the regional demand. I am pleased to say that our exports had doubled this quarter reaching around INR 150 crores, reflecting the early success of this initiative and reinforcing our confidence in continued global growth. To support our growth, we have strengthened our team by promoting Mr. Siddharth Sipani, as a the CFO, who previously headed the finance department as a group finance controller and brings over 16 year experience of [ expensing ] finance and accounts. Global fund raising, new diligence compliance auditing across diverse industry sectors. This will help me to focus on strategic business initiatives. Also, in order to send out our brand, we onboarded Mr. Virupakshi Kolla as independent director who added Gems & Jewelry segment for Kotak Mahindra Bank. He brings with him 36 years of extensive banking expertise across different banking verticals. During the quarter, we initiated our GML program. The program is taking longer time than [ NCP ] due to dealers in documentation supply concerns. Going forward, this initiative marks a significant step in optimizing our financial [ section ]. As GML offers a lower cost of alternative to traditional working capital facilities. Our target is to scale up GML utilization going forward, reinforcing our commitment to prudent finance management and operational eligibility. During the quarter, we realigned the accounting policy for depreciation across Sky Gold. The same as we realigned with [indiscernible] as to better match the revision expenses with the expected [indiscernible] of usage of assets. This change has resulted into currently half year PAT to be higher by 0.00808%. Now I will discuss our Q2 H1 FY '26 financial performance. The consolidated revenue for the quarter stood at INR 1,484 crores versus INR 768 crores thus registering a growth of 93% year-on-year. The gross margin was 8.2% as compared to 6.5% on Q2 FY '25. EBITDA for the quarter was INR 99 crores compared to INR 38 crores, showing a growth of 157%. EBITDA margin for the quarter stood at 6.7% as compared to 5.1% of Q2 FY '25 improved to 163-point basis on a year-on-year basis. PAT for the quarter stood at INR 167 crores as compared to INR 36 crores in Q2 FY '25. PAT margins for the quarter stood at 4.5% as compared to 4.8% in Q2 FY '25. Hence, reducing 2.26 basis on the year-end quarter. The consolidated revenue -- moving to the FY financial performance, the consolidated revenue of H1 '26 stood at INR 2,615 crore versus INR 1,491 crore in H1 FY '25, thus reducing a growth of 75% year-on-year basis. The gross margin is 8.1% as compared to 6.4% on H1 FY '25. The EBITDA for H1 FY '26 was INR 171 crores compared to INR 76 crores in H1 FY '25, showing a growth of 125%. EBITDA margin for H1 FY '26 stood at 6.5% as compared to 5.1% in H1 FY '25, improving to 145-point basis on a year-over-year basis. PAT margins for H1 FY '26 stood at INR 110 crores as compared to INR 57 crore in H1 FY '25. PAT margin for H1 FY '26 stood at 4.2% as compared to 3.9% in H1 FY '25, hence, improving 24 basis on a year-on-year basis. We have delivered a strong performance for H1 FY '26 and we are on track to achieve our target revenue of INR 5,400 crores by '26 driven by new client operation efficiencies enhance management capabilities. Now I request the moderator to open the floor for questions.

[Operator Instructions] The first question comes from the line of Chandan Mishra.

Congratulations on very good set of numbers. Sir, my first question related to revenue sales from after acquisition of Ganna Gold. How much contribution did Ganna Gold have in our revenues here?

So we acquired -- we renamed it as Speed Bangle, and we completed acquiring August mid so we got 25, 30 days to work. So we got 41 kgs from pre-sales in this quarter and next quarter, it will be 50 kg per month.

Next question, sir, related to volume. Current volume of export order after [indiscernible] UAE office.

So we already -- the official opening was 7, 8 November, we opened last month on October. So this quarter will be flat share will come. But again, we reached INR 150 crores sales this quarter by numbers -- by exports.

And sir, current run rate of volume, sir?

Volume totally -- so we have done a 554 kgs of volume per month basis versus 454 kgs last quarter. So we have grown by 20% in volume.

So are we on track to achieve 650 to 700 guided for FY '26?

Yes, we are on track. So in the second quarter, Speed Bangle 50 kg per month will also be added. So we are on track to reach 600 kg next quarter.

The next question comes from the line of Deep Shah from Equirus Securities.

Congratulations on a strong set of numbers. A couple of questions from my side. First is on the festive shift side. This time around [indiscernible] and Diwali early and when I see your export revenues on a sequential basis, it was largely flattish, which means the growth was largely domestic business driven. Should we consider this time around, there was some performance in terms of revenue booking? And third quarter around, we should -- on a sequential basis, should we see some moderation in terms of revenue? And additional question attached to it is around inventory. So did the inventory days has improved? Is it again because of the preponement of festival or something over?

So again, about the first question that this quarter, the value was earlier, so we enjoyed the sales in September and all. So this quarter, we are having a good orders of wedding season is going on for January, February and all. This quarter, waiting orders are very nice placed by the customer. So this quarter also is really good by volume also and revenue also. Again, the export side, we stopped the October month, we stopped direct export to the customers. And we told them that you can [ precur ] from the office. So this was a transitional period of 15 days. Now for November month, they are taking directly from our office, the dispatches and all. So you can see in this quarter, exports will be very good. So we direct export stop in October for 15, 20 days. And again, inventory days is the normal leasing days, which we -- it is not about the pre dispatch or something. This will continue in next quarter and coming quarters as inventory days will be adjusted run rate only because we have -- because of the ERP system, and we have done better in the inventories aligning and all. So you can see revenue for next quarter marriage season is very good, and export, you will see the officially started for October, then we have officially opened on 7th. We have kept the opening there and our time -- all the bosses of the corporates also visited our [indiscernible] given the testing model also for us. To November, this quarter, the export sales will be very good.

Okay. So on a sequential basis this quarter around with the INR 300 crores of top line on a consolidated basis. Next quarter onwards, third quarter onwards, should we see sequential growth in this INR 1,500 crores revenue base as well? And one more thing to it. Any update on revenue guidance because we have seen a very strong first half of the year. What will be the guidance for '26 and '27, both on top line and margin?

So we do not talk on the numbers perfectly. We're not allowed to talk, but we are very good, and we are expecting Q3 to be the best of the quarter this quarter on the revenue side and the volume also. And again export, you can expect 10% to 12% of the overall sales from next quarter onwards and again, going ahead to 15%, 20% by 2026 in March.

Okay. Any update on guidance, sir, '26 and '27 top line and margin guidance?

Already, we have given the guidance of INR 5,400 crores and INR 7,600 crores and a PAT margin of 4.25%, 4.25%, we will consolidating.

The next question comes from the line of Palash Kawale from Nuvama Wealth.

Congratulations on very good set of numbers. Sir, my first question is on margins. What was the driver of such a good margin expansion? And is this sustainable?

So you can see we have improved our gross margin by 0.20 basis. So our advanced old business has improved from 5% to 7%. And our studded national diamond jewelry has gone up from 0.7% to 1.5% double the sale in this quarter. That's why our gross margin has gone up.

Okay, sir. And sir, again, on PAT, if I look at your PAT margins for this quarter, PAT margins are already at 4.5%. And the gold metal loan has not started kicking in. So do you expect the margins to go up going forward again because the contribution from advanced gold and studded business will also increase.

So we have implemented the 8% to 10% advance gold business. Little bit impact is there in GML in this 8% to 10% loan is shifted to gold material. And again, the depreciation permit has been changed. That's why 0.10 basis was a format impact because we have came from [indiscernible] system. So again, some GML benefit is yet to come. 60%, 70% is going to shift in 2 quarters or something because that process is going slowly because there is some availability concerns and accommodation for [indiscernible]. But other than that, you can assume we can be at 0.425 points that 74.3% and GML benefits is still yet to come a little bit.

And sir, will we see more acquisitions coming in because there might be more consolidation happening in the industry as the shift from unorganized to organized. So are you looking at more acquisitions going forward?

So right now, there is no need for any acquisition in the company for coming forward 2 to 3, 4 years because already, we have all the products on board. We are into 80% product, which is holding the retail so. We don't want to be 20%, 25%, which are very heavy, which are guidance with [indiscernible], which is not over MD, which are 5 lakhs, 10 lakhs, 50 lakhs inventory. And again, we were lacking [indiscernible]. That's why we have small acquisition small company because to onboard the largest [ metal ] of the industry, this company holds. So I don't think there is any acquisition plan in future for 2, 3 years.

Okay, sir. And sir, again, on the gold realization, if I consider your Q2 realization and just calculate on the basis of 900 kg per month that you guided for next year. Your revenue looks very big. That is very big from your guidance. And even if I consider some advance gold business, the contribution going up. Still 7,600 looks lower than because of the gold price rise. So how should we look at this?

This is the last quarter exit quantity, we have told 650 or something kgs. And exiting in the March quarter, so we have taken an average rate of 9,000, 9,5000 based on the -- let's see how the rates go, but we have taken a considerate number and we'll see to that. And let's see how the record rate goes, but we have taken a conservative number and 650 is our exit number for March quarter.

Sir, I'm talking about next year. Next year, you have guided from 900 kg, right?

Yes, yes. So, yes. So we have taken the average rate of 9,000, 9,500, if trade goes up and stand to 1 lakh 20,000, 25,000 and then the numbers will go up, but we how the gold is good has come down or whatever where the stability come, but we every time take the conservative number, and we will stick on to 7,600.

Okay, okay. And sir, any data on number of [ PC ships ]? Because as your product mix changes, I think amount of gold required would be lesser for lower caratage ornaments, but the number of [ ship ] must have grown higher than the gold volume. Is that assumption right?

So I have a number of what are you telling? So lower carats is very low, you can see India, 80% is 22 carats and 15% is 18 carats and this 9 carats, 14 carats is below 1%. So it will take time to grow 5 to 10 years to come up at 4%, 5% of the sales. So right now, we are at 14%, 15% or 18% [indiscernible] this 9 and 40 carat volumes are very low, it's growing up. It will take 5 years to grow. Yes. So again, 22 carats are major leaders in India.

Okay. Okay. And sir, last question. How do you see gold prices in the next 1 year?

So I think we are saying for the last 20 years, we have seen a huge amount of investment by route of [ ETF ] and sovereign gold one, which was not there prior 10 years back, ETF was not dead so much. So ETF is buying like 150, 200 tonne courier and central banks are buying. So I think gold is -- I think will appreciate it. I'm seeing in the next 3 to 4 years, gold appreciating by 20%, 25% a yearly basis.

The next question comes from the line of Sunil Jain from Nirmal Bang Securities.

Congrats on good result. Definitely, we are seeing some improvement in the inventory but still the working capital, this operating cash flow continued to remain negative with over INR 100 crores. So can you give any indication when it is likely to neutralize or come into positive?

We will be cash flow positive after '27 March. Will be short in INR 27 INR 70 crores, INR 80 crores, INR 100 crores that we have already raised the debt for debt we'll be surely cash flow positive after '27 March whenever PAT will be above INR 300 crores and above.

So you want to say '26 will be negative and '27 will also.

After '27 will be 40% to 100%.

Okay. Okay. Fine. And so this metal loan, is this likely to help it to improve this negative cash flow and how much it can improve?

Gold metal loans just a change from CCL limits to cash limits to gold metal, it will not change the cash flow structure, but it will help us to reduce our -- the interest cost and borrowing costs.

Okay. Okay. Okay. And the advanced metal that is that [indiscernible] basically job charges, not the full revenue?

Yes, already jobs charges that will again help us to improve our working days cycle and cash flow positive. That's why we are telling that we are targeting to be at 10% to 12% by '27 for advance gold business and that will again help us to reduce our working cycle and will be a cash flow positive at '27 March. And again, export business of letters, less credit and that will also help us to improve our working cycle. So in advance gold business, only the making charge is done by the billing, and that will only add from revenue that will help us to our gross margin and EBITDA. That's why our gross margin this quarter also was better because of advance business size.

And just to clarify, this Ganna, Bangle was 41 kg per month in the second quarter, and this will increase to 50 kg per month?

Already, we got 25, 30 days to work after liquidation. So we have done 41 kgs in '25 to '27, but average will be -- so next quarter, 150 kg will be added.

Okay. So we had only 21 days consolidation in this?

25 days, yes. Consolidation was 2 months, but we got 25, 30 days where we are in a transition period or not.

The next question comes from the line of Smita Gala from RSP Ventures.

Congratulations on a good set of numbers. I just wanted to understand more about the gold metal loan. How does it work? What sort of margins does it require? And what sort of limits do we get? And what is the maximum that we can get on the leverage that the balance sheet will provide us?

So we are at a net rate of INR 430 crores. So we can go up to 70%, 75% or 80% of EBIT that is INR 850 crores. So then gold metal is available about 3%, 3.5% of interest cost. And other expenses have come up to 4% versus 9.5% for the CC limits. So we'll save 5.5% of interest going ahead on the borrowing cost. So we can go up to 75%, 80% of the limit of gold metal loan we have to keep a 10% margin for that to -- from the CC limit we have. So we can -- if we have about INR 350 crores of limit of gold metal loan we can use up to INR 320 crores of gold metal loan. So again, we can improve 0.25 or 2.2 basis PAt margins when we already, we have about 8% of gold metal loan in this quarter. This was a little bit the margin has improved, but coming quarters, we will be availing the other. We are seeing it from a long time, I think. But in this point, we are a little bit delayed because of the availability and documents and all and there is a process and sometimes availability scarcity there. So we have to go again to the CC limits and all. But slowly, slowly, we'll go up to GML by 50%.

Just I missed it, just to reconfirm, what will be the total debt which you can take with gold loan and other debt which we can take on our balance sheet?

I will refrain from -- if our debt is INR 450 crores, we can go to 80% of INR 450 crore to gold metal loan, which will be approximately INR 330 crores or INR 350 crores.

Total debt, with gold metal loan, I think other debt also, at the moment, 450 is a net debt. So where this INR 450 number can go maximum?

So 80% we can avail gold metal loan, 20% banks keep a gap of CC limits. I hope you understand 80% of the limit can be -- we can convert into gold metal loan. Whatever we enjoy 80%, we can shift it to gold metal loan.

Yes, I'm talking about the limit, what is the limiting [indiscernible]?

Yes. So I will add. So at this point of time, we have got INR 170 crores of sanctioned GML facility. We are negotiating with other bankers as well to sanction the GML facility. We expect that this INR 170 crore considering the current set of bankers can go up to INR 350 crores but that change in the banking terms takes some time, but the talks with the bank is ongoing. I hope I have answered what you were trying to ask.

Next question is, how is the progress on the new facility that we are developing going on?

so we are planning to start the construction of the facility in April from April 2026 and it will take 3 years to make the facility and 2028, we are planning to open end of the 2028 when our 1.2 ton of facility will be exhausted. And based on our planning process, we are taking the quotation and all, it will take 4, 5 months to plan, and we are planning to start making the facility from April 2026.

So to manage the funding, et cetera, for the construction, are we on track for the -- so what are the plans for funding for the same?

So we'll need INR 150 crores for a construction basis and INR 100 crores for furniture fixture and machinery, which will be needed in 2028. So in 3 years, we will put Inr 50 crores, INR 50 crores from internal accruals and we are expecting extra INR 50 crores for each year because some of the acquisitions we have done and again, new products we have started. So we are expecting -- we have onboarded as onboard also and which is also an advance gold business, Speed Bangle also. What we have given guidance, we are expecting 50 gold extra [indiscernible] each year. From this, we'll fund our construction part. In 3 years, every year, we'll remove INR 50 crore and invest in that. And after -- in 2028, we will need INR 100 crores or furniture fixture and machinery. Trances where we'll open up to the INR 18 crores we opened INR 9 crores first and -- in 4 years, we open remaining INR 9 crores. So we'll take term loan for that furniture fixture and machineries. That interest cost will be able to mention, but our sales will be 115 to [indiscernible].

One final question from my side. We have enabled a higher borrowing resolution in the Board meeting. So what was the rationale behind it?

So it has more to do with the operational part of it because as per the ad, we need to have the approval of the shareholders per se, and that so we have gone for a higher value per se because this is more from a long-term perspective.

The next question comes from the line of Ankush Agrawal from Search Capital.

Sir, can you give us a split of the volume that we have done during the quarter between stand-alone export, star and sparkling and [indiscernible] you told that you have done 41?

Yes. In terms of volume, we have totally done 54 out of that, in the Sky, it is 400-odd in star and sparkling, it is 55 each.

Okay. And out of this total, how much would be exports volume?

In terms of export since export is 10%. I don't have that number, but broadly, it should be close to INR 40 kgs per se.

The next question comes from the line of Agata Dave from CAO Capital.

Excellent execution, sir, your numbers have been very, very good. Sir, I had a question on CapEx, which you have answered. So the only other question that I have is when the results came out last quarter, there was a lot of selling from the promoters and it was executed in a very disruptive manner. I mean, it was done very aggressively, and it completely decimated the stock price for a few months. I just wanted to say, it's your shares, I don't have any say in that. But is there any other plan or the round of selling from the promoter side? Or are we done for the time being?