Detailed Narrative
Global Headwinds Impact Watch Component Business
The company's core watch component segment faced severe challenges in Q2 FY25 and H1 FY25, with management expecting these to continue through H2 FY25. This was primarily due to a global slowdown🌐, persistent inflation, and geopolitical uncertainties. Swiss watch exports to China plummeted by an unprecedented🌐 49% year-on-year, and to Hong Kong by over 30%, contributing to an overall 10% decline in Swiss watch export volumes from January to September 2024. Consequently, KDDL anticipates no growth in its watch component business for the current fiscal year.
Precision Engineering (Eigen) Drives Growth
In contrast to the watch component segment, the Precision Engineering division, Eigen, demonstrated strong momentum. It reported a robust 46% increase in revenue, reaching INR 66 crores in H1 FY25. This growth was fueled by healthy order inflows and rapid execution rates, with management reaffirming a 20-25% growth target for Eigen this fiscal year. The company expects Eigen's share to grow significantly, potentially becoming 40-50% of KDDL's total manufacturing revenue over the years, driven by demand from EV and energy storage systems.
Strategic Expansion in Bracelet Manufacturing
KDDL commenced commercial production at its new bracelet manufacturing unit in October 2024, following an investment of INR 44 crores. This unit has a capacity of 75,000 bracelets per annum, primarily for export to Swiss brands. Management is highly optimistic, projecting close to 100% capacity utilization by the next fiscal year (FY26) and planning further expansions of 30-40% capacity. Over the next 3-5 years, after several expansion rounds, this division is expected to generate INR 80-100 crores in revenue.
Dual-Pronged Expansion for Eigen Capacity
To support Eigen's rapid growth and address factory space bottlenecks, KDDL is implementing a dual-pronged expansion strategy. A new 30,000 sq ft production facility has been secured on lease in Bangalore, expected to be operational by early next calendar year (FY26) to meet immediate demand. Concurrently, the company plans to construct a new factory building on its existing land for a third round of expansion by FY27, ensuring sustained long-term growth.
Favre Leuba Revival and Packaging Business Launch
The Favre Leuba brand, acquired by Silvercity Brands (a KDDL subsidiary), had a positive global media launch in August 2024, with new collections available internationally from January 2025. KDDL aims for Favre Leuba to become one of the top 20 Swiss brands within 5-10 years, targeting 100,000 units globally in the medium to long term. Additionally, the new packaging unit in Panchkula, established with an INR 5 crores investment, also began commercial production in October 2024, with a capacity of 100,000 boxes per month for premium products.
Estima's Turnaround Efforts Amidst Losses
The Swiss subsidiary, Estima, continues to incur losses, attributed to the market slowdown🌐 and delayed product launches by Swiss brands. Despite the challenges, management remains optimistic, outlining a systematic plan to achieve profitability from FY26 onwards. This involves cutting expenses and enhancing technology and specialization in areas like lasers, solid gold hands, and diamond cutting, positioning Estima as a gateway to high-end Swiss markets.
Financial Performance and Capex
KDDL reported consolidated revenue of INR 410 crores for Q2 FY25 and INR 780 crores for H1 FY25. Consolidated EBITDA stood at INR 76.8 crores (19.4% margin) for Q2 FY25 and INR 141.9 crores (18.8% margin) for H1 FY25. PAT for Q2 FY25 was INR 35.6 crores. Standalone capex for H1 FY25 was approximately INR 11 crores, with an additional INR 15 crores expected in H2 FY25, excluding investments in Ethos.