Detailed Narrative
P N Gadgil Jewellers reported a robust performance for Q2 FY25, building on a strong first half. For H1 FY25 (half year ended September), the company achieved a top line of INR3,600 crores, with EBITDA at INR130 crores and PAT at INR70 crores. On a year-on-year basis for Q2 FY25, revenue grew by almost 40%, EBITDA saw a significant increase of 41.92%, and PAT surged by 59.28%. The company also noted a 0.5% improvement in the cost of goods sold compared to the previous H1. Key operational metrics highlighted included revenue per square feet upward of INR6 lakh and revenue per store upward of INR95 crores for H1 FY25, demonstrating strong efficiency and market penetration. The stud ratio for Q2 FY25 stood at around 11%, with a target to reach 15% in the next two years. The festive season (Diwali) showed healthy demand, with volume growth of 7-8% and value growth of 35-40% for existing stores. Gold volume in Q2 FY25 was 1,360 kg, up 19.12% YoY, and diamond volume was 4,400 carats, up 11% YoY. The company also disclosed a custom duty reduction impact of INR18.5 crores on Q2 profit, with a net impact of INR3.31 crores. Other income included INR3.8 crores from a tax refund interest. Current inventory post-festival is INR1200 crores, with hedging at 50-55%, and an expected INR19 crores inventory gain from Q2 to be recognized in Q3. Retail store gross margins are 11-13% with 7% EBITDA, while franchisee gross margins are 3%.
Strategically, P N Gadgil Jewellers is on an aggressive expansion path. Post-IPO, the company successfully opened 9 new stores, bringing the total to 48. Management aims to become the number one player in Maharashtra, both in terms of store count and top line, by next year. This involves adding another 5-6 stores in Q3 and Q4 FY25, followed by 10 more stores in FY25-26, targeting a total of 65 stores by the end of the next financial year. New stores are expected to break even within 12-15 months if opened before festivals, or 15-18 months otherwise, targeting a 1.5 stock turn by Q1 FY26, which translates to INR60-65 crores in revenue per new store. Matured stores are projected to achieve INR120-130 crores in revenue. The company is also focused on improving profitability, targeting a gross margin of 10-12% in the next 2-3 quarters, and reducing its cost of debt from 9% to 5-5.5% through gold metal loans. Top-line guidance is set at INR8,000 crores for FY25 and INR9,500 crores for FY26.
During the Q&A session, analysts raised important questions regarding the company's financial reporting and market strategy. A key discussion point was the recognition of inventory gains from gold price hikes, with management clarifying that INR19 crores from Q2 would be recognized in Q3 due to their hedging strategy. Concerns about a Q1 FY25 bottom line decline were addressed by explaining the seasonal nature of the business (Gudi Padwa and Akshaya Tritiya in early Q1) and the company's focus on IPO activities during that period. Management also clarified its differentiation strategy in Maharashtra, emphasizing its unique brand identity, customer relationships, and store experience, particularly in light of another entity sharing a similar name.
Risks and concerns discussed included gold price volatility and potential inventory losses if hedging is insufficient, to which management acknowledged the risk and outlined plans to increase hedging to 70% by March 2025. Competition and discounting pressures were addressed by management reiterating their focus on trust and fair value over discounts. The company also stated it has no current plans to enter the lab-grown diamond market, as there is no significant net demand from their consumers, but remains open to exploring options if market conditions change. Overall, the management's tone was bullish, demonstrating high confidence in their strategic direction, expansion plans, and ability to achieve ambitious financial targets, supported by detailed data and transparent responses to analyst queries.