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Goldiam International Limited — Q2 FY25 earnings call

Call held 7 Nov 2024

Management summary

Goldiam International reported strong H1 FY25 results, driven by growth in lab-grown diamond jewellery, despite Q2 consolidated revenue being marginally impacted by shipment delays. The company is aggressively expanding its new ORIGEM retail venture in India, with plans for 10-12 new stores in the next six months. While gross margins improved due to strategic procurement and inventory revaluation, management's misstatement of the inventory gain during the call was a notable red flag, later corrected by the company.

Highlights

H1 FY25 Consolidated Revenue increased by 19% YoY.
H1 FY25 Consolidated EBITDA grew by 21% YoY, with a stable margin of 22.1%.
H1 FY25 Consolidated PAT increased by 8% YoY.
Q2 FY25 Standalone Revenue grew by 34% YoY, and Standalone PAT rose by 74% YoY.
Lab-grown diamond jewellery contributed 77% to Q2 revenue, with 21% from online channels.
Order book at the end of Q2 stood at approximately INR 270 crores.
Cash and cash equivalents (including investments) were INR 276 crores as of September 30.
First ORIGEM store in Borivali achieved approximately INR 25 lakhs in sales in its first 10-12 days.
Inventory appreciation gain for Q2 FY25 was corrected to INR 1.5 Crores (15 Million), not INR 15 Crores as stated during the call.

Concerns

Inventory Appreciation Misstatement

Key financials

3 periods

Headline

Consolidated Revenue
—
YoY +19%
Consolidated EBITDA Growth
—
YoY +21%
Consolidated EBITDA Margin
22.1%
Consolidated PAT Growth
—
YoY +8%
Cash & Cash Equivalents (Sep 30)
₹276 Cr

Q2

Standalone Revenue Growth
—
YoY +34%
Standalone PAT Growth
—
YoY +74%
Inventory Appreciation Gain
₹1.5 Cr

end Q2

Order Book
₹270 Cr

What they filed

Q1 FY27: revenue up 12.4%, net profit down 34.5% against the same quarter last year.

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	143	204	159	133	105 −27%	141 −31%	151 −5%	149 +12%
Expenses	122	182	142	118	90	128	133	138
EBITDA	21	22	17	15	15 −29%	13 −41%	19 +8%	11 −25%
Margin	15%	11%	11%	11%	15%	9%	12%	7%
Other income	10	4	2	2	4	6	9	6
Interest	0	0	1	0	0	2	1	2
Depreciation	1	1	2	1	1	5	4	4
Profit before tax	31	26	16	16	19 −39%	12 −52%	23 +42%	11 −30%
Tax rate	23%	28%	45%	27%	29%	28%	25%	32%
Net profit	24	18	9	11	13 −44%	9 −52%	17 +93%	7 −35%
EPS	1.66	1.29	0.63	0.80	0.87	0.58	1.15	0.49

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.

Guidance & targets

Distribution

New Stores Distribution · next six months · High confidence additional 10 to 12 new stores

plan to roll out additional 10 to 12 new stores across key locations in the next six months to strengthen our market presence in retail.

— Rashesh Bhansali

Profitability

Consolidated EBITDA Margin Profitability · maintain · Medium confidence 18% to 22%

maintain that the company strives to work anywhere between 18% to 22% EBITDA and we hope to maintain that.

— Rashesh Bhansali
Consolidated EBITDA Margin Profitability · for the full year · Medium confidence above 18%

we I think we'll still be above 18%.

— Rashesh Bhansali

Revenue

Q3 Revenue Revenue · Q3 · Medium confidence >INR250 crores

if I take that INR270 crores to be executed over the next 3 months to 4 months and our online sale, which is also very, very heavy this quarter, it looks like we'll do more than INR250 crores this quarter.

— Amish Kanani
Sales Growth Revenue · FY25 · Medium confidence >20%

And if I take a very normal growth for the fourth quarter, it looks like we'll do more like 20% sales growth next year.

— Amish Kanani
B2B Sales Growth Revenue · over the long term · Medium confidence 10 to 12%

But over the longer term, we see there are no reason why we can't do a double-digit sales growth from our B2B business in the range of 10 to 12%.

— Anmol Bhansali

Disclosure

B2C India Financials Disclosure · next quarter · High confidence sharing data

So I think let me take that, Mr. Amish, we'll start sharing data on that in terms of revenue and expenditure from next quarter in our corporate decks.

— Anmol Bhansali

Marketing

Marketing Spend Marketing · until the next six months · High confidence INR5 crores to INR6 crores

It's about we are looking to spend about INR5 crores to INR6 crores from now until the next six months post that we will re-evaluate and look at our budgeting for FY '26.

— Anmol Bhansali

Risks & concerns

Inventory Appreciation Misstatement
high

The Executive Chairman erroneously stated an inventory appreciation of INR 15 Crores during the call, which was later corrected by the company to INR 1.5 Crores (15 Million), potentially misleading investors about Q2 profitability.

Management acknowledged
Q2 Revenue Shipment Delays
medium

Consolidated revenue for Q2 was marginally impacted by INR 40-45 crores of sales shifting to Q3 due to Air India flight alterations and cancellations to the US, though these were not lost sales.

Management acknowledged
B2C Business Initial Losses
medium

The new ORIGEM B2C retail business is expected to operate at a negative EBITDA margin for at least a couple of years, which will dilute consolidated margins in the short to medium term.

Management acknowledged
Sustainability of Gross Margins
medium

Improved gross margins are partly due to opportunistic buying of discounted diamonds and inventory revaluation, and their sustainability is dependent on the stability of lab-grown diamond prices.

Management acknowledged

Areas of evasion (2)

Accounting treatment of inventory gain (P&L vs Balance Sheet)
Exact breakdown of retail fixed expenses

Q&A highlights

1 direct, 1 evasive

Inventory Appreciation Value and Accounting Evasive

So just sort of trying to understand is that our PBT on a consolidated basis was say about INR33 crores, of which INr15 crores came from a gain in inventory. Is that correct? ... The INR15 crores came from gain in inventory. Yes, the INR15 crores did come from gain in inventory. ... Sure, Mr. Dixit, I'll have to get back to you on this tomorrow.

Management confirmed an inventory gain of INR 15 crores, which was later corrected by the company to INR 1.5 crores, significantly altering the perceived impact on profitability. The refusal to clarify the accounting treatment (P&L vs. Balance Sheet) further raised concerns.

Asked by Akshay J, Dixit Doshi

Sustainability of Gross Margin Improvement Partial

The gross margin improvement that you saw in this quarter, yes, I do believe it could be more sustainable if the diamond prices stay where we are and where it is valued at. Absolutely. ... Well, we are hopeful if the diamond inventory pricing stays to the way we've priced it at, then, yes, it should last.

Analysts questioned if the improved gross margins were sustainable. Management linked sustainability to stable diamond prices, indicating external market dependency rather than purely structural improvements.

Asked by Riken, Vinamra Hirawat

B2C Business Profitability and Future Disclosures Direct

So, with the expenses associated in your B2C business, you know, you should be running at a negative EBITDA margin in the B2C business for at least a couple of years. ... we'll start sharing data on that in terms of revenue and expenditure from next quarter in our corporate decks.

Management confirmed the new B2C retail venture is expected to be loss-making initially, impacting consolidated margins, but committed to providing specific financial data for this segment from the next quarter.

Asked by Vinamra Hirawat, Amish Kanani

2 min read 6 chapters

Detailed narrative

Strong H1 FY25 Performance with Q2 Shipment Delays

Goldiam International reported a robust H1 FY25, with consolidated revenue increasing by 19%, EBITDA growing by 21% (maintaining a 22.1% margin), and PAT rising by 8%. However, Q2 consolidated revenue saw only a marginal increase due to INR 40-45 crores of sales being delayed to Q3 because of flight cancellations to the US. Excluding these delays, Q2 revenue growth would have been a significant 38%, with standalone Q2 revenue up 34% and PAT up 74%.

Lab-Grown Diamond Dominance and Margin Expansion

Lab-grown diamond jewellery now constitutes a dominant 77% of Q2 revenue, with 21% generated from online channels, reflecting a strategic shift. Gross margins improved by 8 percentage points, attributed to opportunistic buying of discounted diamonds and an inventory appreciation gain. Management stated the inventory appreciation was INR 1.5 crores (corrected from INR 15 crores mentioned during the call), and expressed hope for margin sustainability if diamond prices remain stable.

Ambitious Retail Expansion with ORIGEM

The company launched its first ORIGEM store in Borivali, achieving INR 25 lakhs in sales within its first 10-12 days. Goldiam plans to roll out an additional 10-12 new stores across key locations in Mumbai, NCR, and Bangalore within the next six months. These stores will test different price points, with Kharghar focusing on lower ASPs (700-800 sq ft) and Turner Road on higher ASPs (1300-1400 sq ft). The retail venture is expected to operate at a negative EBITDA margin for the initial years, with a marketing spend of INR 5-6 crores over the next six months.

Robust Order Book and Cash Position

Goldiam ended Q2 FY25 with a strong order book of approximately INR 270 crores, which excludes the INR 40-45 crores of delayed Q2 shipments already fulfilled in October. The company also maintains a healthy cash and cash equivalent position, including investments, totaling INR 276 crores as of September 30. This financial strength supports its growth outlook and retail expansion plans, with capex per store estimated at INR 55-65 lakhs and inventory at INR 2.2-2.6 crores.

B2B Growth and Market Outlook

Despite a decline in LGD realizations from $821 to $660 due to a focus on half-carat and one-carat centers for special promotions, management emphasized strong margins. They anticipate 10-12% double-digit sales growth in the B2B segment over the long term, with 2-3 years of growth remaining with existing US retail clients. The company has also expanded into new geographies, with over $1 million in sales already shipped to Australia, expecting reorders from January.

Operational Costs and Future Disclosures

Other expenses rose by 58% in Q2, primarily due to increased retail team expenses, a higher CEO salary in the US, and hiring contract manufacturing workers. Management aims to maintain consolidated EBITDA margins within the 18-22% range, even with the initial losses from the B2C business. They committed to sharing specific revenue and expenditure data for the B2C India operations from the next quarter in their corporate decks, enhancing transparency for the new venture.

This is an AI-generated summary of a publicly available earnings call transcript.

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