D. P. Abhushan Limited — Q2 FY25 earnings call

Call held 30 Oct 2024

Management summary

D.P. Abhushan reported a stellar quarter, with revenue and profit growing 84% and 89% YoY respectively, driven by strong pent-up demand following a slow election period in Q1 and favorable government policies. While QoQ EBITDA margins appeared to decline, management clarified this was a normalization from an exceptionally high Q1 that benefited from gold price increases. The company is executing a clear growth strategy focused on expanding its retail footprint in Tier 2/3 cities and shifting its product mix towards higher-margin studded jewellery, supported by a conservative capital allocation policy.

Highlights

  • Total revenue for Q2 FY25 surged by 84% YoY to ₹1,005 crores from ₹546 crores.

  • EBITDA grew by 74% YoY to ₹38 crores, though the EBITDA margin was flat QoQ despite a doubling of revenue.

  • Profit After Tax (PAT) increased by 89% YoY to ₹25 crores from ₹13 crores.

  • The company's flagship Ratlam store recorded a 56% YoY growth in H1 FY25 with revenue of ₹486 crores.

  • A new showroom was inaugurated in Ajmer, Rajasthan, which generated ₹4 crores in revenue in its first month (September).

  • Management issued strong guidance to expand the store network from 8 to 20 by FY28, primarily funded by internal accruals.

  • The company aims to increase the revenue share of higher-margin diamond-studded jewellery from the current 6-7% to 12% over the next three years.

  • Gold sales volume for Q2 stood at 1,335 kg, a 36% YoY increase.

Key financials

  1. Total Revenue ₹1,005 Cr +84%YoY
  2. EBITDA ₹38 Cr +74%YoY
  3. PAT ₹25 Cr +89%YoY
  4. EBITDA Margin 3.8%
  5. Gold Sales Volume 1,335 kg +36%YoY

What they filed

Q4 FY26: revenue up 86.2%, net profit up 104.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ1 FY25Q2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26
Revenue505 1,005 1,084 717 540 +7%968 −4%1,222 +13%1,335 +86%
EBITDA38 38 55 42 54 +42%76 +100%106 +93%69 +64%
Net profit25 25 37 25 36 +44%51 +104%73 +97%51 +104%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Ratlam Flagship Store
    ₹486 Cr H1FY25 Revenue56% H1FY25 YoY Growth
  • Ajmer New Store
    ₹4 Cr September 2024 Revenue

Guidance & targets

Store Expansion

  • Total Store Count Store Expansion · by FY28 · High confidence 20

    From 8 today

    We are targeting to increase our total store from 8 in FY25 to 20 by FY28.

    — Vikas Kataria, Promoter

  • New Stores in FY25 Store Expansion · FY25 · High confidence 3
    Our current plan for FY25 includes three more showrooms and we already opened one store in Ajmer.

    — Vikas Kataria, Promoter

Product Mix

  • Studded Jewellery Revenue Share Product Mix · next 3 years · High confidence 12%

    From 6% today

    We are planning for our margins and overall total sales to reach approximately 6% to 12% of studded jewellery sales in the next three years.

    — Vikas Kataria, Promoter

Margin

  • Annual EBITDA Margin Margin · Annual · High confidence 5.5% to 7%
    On an average basis EBITDA margin will range in between 5.5% to 7%

    — Vikas Kataria, Promoter

  • Annual PAT Margin Margin · Annual · High confidence 3% to 5%
    & Average PAT margin will be in the range of 3% to 5%.

    — Vikas Kataria, Promoter

Capex

  • Capex per new store Capex · Per Store · High confidence ₹2.5 to 3 crores
    The capital expenditure (Capex) is estimated to be around INR 2.5 crores to INR 3 crores for building a new store.

    — Vikas Kataria, Promoter

  • Inventory per new store Capex · Per Store · High confidence ₹35 to 40 crores
    Due to the high gold prices, we are planning an inventory investment of approximately INR 35 crores to INR 40 crores for the store.

    — Vikas Kataria, Promoter

Risks & concerns

  • Margin Volatility

    medium

    A sharp QoQ drop in EBITDA margin (from a reported 7.6% to 3.8%) raised concerns about profitability. Management clarified Q1 was exceptional due to gold price gains.

    Analyst acknowledged

  • Intense Competition

    medium

    The company faces competition from both large national chains (Tanishq, Malabar) and strong local jewellers in its key markets.

    Analyst acknowledged

  • Potential Macro Slowdown

    low

    An analyst noted market chatter about weaker-than-expected Diwali demand, but management stated they are seeing strong, increasing demand at their stores.

    Analyst downplayed

Areas of evasion (1)

  • Specific QoQ volume growth data for gold.

Q&A highlights

3 direct
Decline in EBITDA margin despite doubling of revenue QoQ Direct
In our Q1 call also, we have told that our margins, PAT margins will be between 3% to 5% and our EBITDA margin will be around 6-7% on the yearly basis. Q1 is generally a profit booking year... almost 1-1.5% of EBITDA margin was coming because of the price increase in gold jewellery.

This clarifies that the sharp QoQ margin drop was due to one-off gains in Q1, setting realistic expectations for sustainable full-year margins.

Asked by Devanshu Bansal

Strategy for studded jewellery and competition with national brands Direct
When you compare us with Malabar or Kalyan or Tanishq, the margins will be relatively lower because they are national brand, and we are an established regional brand. So, our focus is very customer centric. We have one to one relation with the customers, and we believe in growing up our sales in terms of volume and not in terms of margin.

This reveals the company's core competitive strategy: focusing on volume growth and customer relationships with a lower margin profile compared to larger national players.

Asked by Vikrant Kashyap

Capital allocation for expansion (Debt vs. Equity/Internal Accruals) Direct
The company is generating approximately INR 100 crores of free reserves and free cash flow every year. Therefore, opening 3 to 4 stores annually won't be a problem, even with a mix of 20% debt and 80% equity. This expansion can be funded through internal accruals alone.

This highlights the company's strong internal cash generation and conservative, self-funded approach to its aggressive expansion plans, reducing financial risk.

Asked by Devanshu Bansal

2 min read 6 chapters

Detailed narrative

Stellar Q2 Performance Driven by Pent-up Demand

D.P. Abhushan reported a remarkable Q2 FY25, with total revenue surging 84% YoY to ₹1,005 crores and PAT growing 89% YoY to ₹25 crores. Management attributed this exceptional growth to a combination of factors, including a government reduction in import duties that spurred consumer excitement, and a significant shift of demand from a slower Q1, which was impacted by the nationwide elections. The strong performance was broad-based, with the flagship Ratlam store alone clocking ₹486 crores in H1, a 56% YoY increase.

Margin Normalization and Clear Full-Year Guidance

A key point of discussion was the QoQ EBITDA performance, which remained flat at ₹38 crores despite revenue doubling. This led to a margin contraction from 7.6% in Q1 to 3.8% in Q2. Management directly addressed this, explaining that Q1's margin was exceptionally high due to a 1-1.5% benefit from gold price appreciation. They clarified that Q2 reflects a more normalized margin profile and provided clear full-year guidance for an EBITDA margin between 5.5% and 7% and a PAT margin of 3% to 5%.

Aggressive and Focused Expansion Strategy

The company outlined an aggressive yet focused expansion plan, aiming to more than double its store count from 8 to 20 by FY28. The strategy is centered on penetrating high-potential Tier 2 and Tier 3 cities in Madhya Pradesh, Rajasthan, Chhattisgarh, and Gujarat. For FY25, the company plans to open three new stores, with one already operational in Ajmer. Each new store requires a capex of ₹2.5-3 crores and an inventory investment of ₹35-40 crores.

Strategic Shift Towards High-Margin Studded Jewellery

To enhance profitability, management is actively working to change its product mix. The company aims to increase the revenue contribution from diamond-studded jewellery from the current 6-7% to 12% over the next three years. A key initiative to drive this is the 'shop-in-shop' model for wedding customers, offering a premium experience and a wider range of high-value diamond sets, which command higher making charges.

Conservative Capital Allocation to Fuel Growth

Despite the ambitious expansion plans, the company maintains a conservative financial strategy. Management stated that the company generates approximately ₹100 crores in free cash flow annually, which is sufficient to fund the opening of 3-4 new stores per year primarily through internal accruals. They prefer this self-funded model over leveraging debt, and only plan to use Gold Metal Loans (GML) opportunistically for 10-20% of their inventory in the future if required for accelerated expansion.

Bullish Outlook on Festive Season Demand

Management expressed strong confidence in the ongoing festive and wedding season. They reported that the company has consistently set new sales records during auspicious days like Pushya Nakshatra and Dhanteras. This optimism is supported by strong Q2 volume growth, where gold sales reached 1,335 kg, a 36% increase year-over-year, indicating robust underlying consumer demand heading into the peak season.

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