Senco Gold — Q2 FY25 earnings call

Call held 14 Nov 2024

Management summary

Senco Gold reported strong Q2 and H1 FY25 results, driven by a post-budget gold duty cut and robust festive demand, particularly in October. Despite gold price volatility and a one-time duty impact on margins, the company achieved significant top-line and bottom-line growth. Strategic initiatives include expanding the Sennes brand and focusing on capital for continued store expansion and working capital needs, with a bullish outlook for the upcoming wedding season.

Highlights

  • Q2 retail growth registered 27%, with gold value growth at 30% and diamond at 9%.

  • Gold volumes grew 7% in Q2, while diamond volumes declined 3%.

  • H1 FY25 consolidated top line increased by 18.5% to INR 2,904 crore, from INR 2,452 crore last year.

  • H1 FY25 consolidated EBITDA grew 50% to INR 160.7 crore, from INR 106.7 crore last year.

  • H1 FY25 consolidated PAT improved 60% to INR 63.4 crore, from INR 39.6 crore last year.

  • October 2024 sales surpassed INR 1,000 crore, marking the best-ever sales in Senco's history.

  • A one-time custom duty impact of approximately INR 29.83 crore was recognized in Q2, with a total expected impact of INR 58-60 crore for the year.

  • H1 FY25 gross margin was 14.7% (net of duty impact), effectively 15.7%.

Key financials

3 periods

Headline

  • Consolidated Revenue
    ₹2,904 Cr
    YoY +18.5%
  • Consolidated EBITDA
    ₹160.7 Cr
    YoY +50%
  • Consolidated PAT
    ₹63.4 Cr
    YoY +60%

Q2

  • Retail Growth
    27%
  • Gold Volume Growth
    7%

H1

  • Gross Margin
    14.7%

What they filed

Q1 FY27: revenue up 64.8%, net profit up 9.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,459 2,023 1,362 1,825 1,554 +7%3,032 +50%1,963 +44%3,007 +65%
EBITDA56 79 126 182 108 +93%404 +411%271 +115%223 +23%
Net profit17 33 62 104 53 +212%267 +709%158 +155%114 +10%
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

Revenue

  • Overall Growth Revenue · year-on-year · Medium confidence 18%
    we are looking at around approximately an 18% growth year-on-year.

    — Suvankar Sen, Managing Director and Chief Executive Officer

  • Growth Revenue · end of Q3 for 9 months · High confidence 18% to 20%
    So, at the end of Q3, you will again see 18% to 20%.

    — Sanjay Banka, Chief Financial Officer

Profitability

  • Bottom Line Growth Profitability · year-on-year · Medium confidence 15% to 18%
    In terms of bottom line our endeavour from the very beginning was to grow about 15% to 18%

    — Suvankar Sen, Managing Director and Chief Executive Officer

Margin

  • Full Year Gross Margin Margin · full year · High confidence 16% to 17%
    Overall, in the year, we take a gross margin of 16% to 17%.

    — Suvankar Sen, Managing Director and Chief Executive Officer

  • Normalized Full Year Gross Margin Margin · full year · High confidence 15% to 16%
    one should assume a normalized 15% to 16% margin for the full year and the second half could also be on that side.

    — Deepak Lalwani, Analyst

Store Expansion

  • Store Additions Store Expansion · by end of the year · Medium confidence 15 or 14

    Previously 18 to 20 → 15 or 14

    I think that 18 to 20, maybe at the end of the year, we will end up doing 15 or 14, but in our mind, we have to manifest 18 to 20 minimum that we want to grow with.

    — Suvankar Sen, Managing Director and Chief Executive Officer

  • Sennes Stores Store Expansion · by end of the year · High confidence 8 to 10
    So, by the end of the year, we will have 8 to 10. I think that is what we are looking at.

    — Sanjay Banka, Chief Financial Officer

Market Share

  • Stud Ratio Market Share · future · Medium confidence 15%

    From 10% today

    Our endeavour is to take this stud ratio towards 15%.

    — Suvankar Sen, Managing Director and Chief Executive Officer

Risks & concerns

  • Gold price volatility

    medium

    Price volatilities acted as hindrances, requiring additional gold loans and funds for festive season stock.

    Management acknowledged

  • Muted diamond sales across the industry

    medium

    Diamond sales across the industry are muted, though Senco has slightly improved its stud ratio.

    Management acknowledged

  • Competitive intensity in the jewellery market

    medium

    Competitive pressure will remain for the next 1-2 years as organizations pursue growth strategies.

    Analyst acknowledged

  • New Sennes brand in investment stage

    low

    The Sennes brand requires initial investment and is expected to become profitable in 2-3 years.

    Management acknowledged

Q&A highlights

3 direct
Impact of custom duty cut on EBITDA/PAT and conservative full-year growth guidance Direct
So, our total impact is likely to be around INR 58 crore to INR 60 crore. So now that INR 29.83 crore has come in quarter 2, balance amount impact will come in quarter 3 that is H2. ... So, I think it's fair and to take an 18% approach and then keep working towards trying to achieve more.

Clarifies the one-time financial impact of the duty cut and management's rationale for the full-year growth guidance despite strong festive sales.

Asked by Raj Sarraf

Rationale for QIP of INR 500 crores and usage of funds Direct
what is stopping us from growing more is the availability of capital. ... this QIP is purely in order to maintain the business at the same level and that is why we are raising this fund primarily for the working capital.

Explains the strategic need for capital to support growth, inventory, and hedging amidst rising gold prices.

Asked by Deepak Lalwani

Focus on unit economics and per-store metrics for Sennes brand and existing business Direct
Our focus on unit economics continues to remain... when you launch a new brand, a new product, obviously, you will have to invest a little bit with full optimism that over the next 2 years to 3 years, this will become a profitable brand. So, initially it is at an investment stage.

Provides insight into the profitability strategy for the new Sennes brand and the overall expansion approach, acknowledging initial investment phase.

Asked by Gaurav Gandhi

2 min read 7 chapters

Detailed narrative

Q2 & H1 FY25 Performance Overview

Senco Gold delivered robust financial performance in Q2 and H1 FY25. Q2 retail growth was 27%, with gold value increasing 30% and diamond 9%. Gold volumes grew 7% in Q2, while diamond volumes saw a 3% decline. For H1 FY25, consolidated revenue rose 18.5% to INR 2,904 crore, EBITDA surged 50% to INR 160.7 crore, and PAT improved 60% to INR 63.4 crore, reflecting strong operational execution.

Impact of Gold Price Volatility & Duty Cut

The quarter was significantly influenced by a government initiative to reduce custom duty on gold by 9-10% in late July, which positively impacted sales. However, gold prices moved towards all-time highs in September, creating volatility that necessitated arranging additional funds and stock. A one-time custom duty impact of INR 29.83 crore was recognized in Q2, with a total expected impact of INR 58-60 crore for the full year, primarily affecting Q2 and Q3 margins.

Strategic Initiatives & Brand Expansion

Senco Gold is actively pursuing strategic initiatives, including launching new wedding and men's jewellery collections, with Kartik Aaryan as the new brand ambassador for men's jewellery. The Sennes brand, focusing on lab-grown diamonds and lifestyle accessories, is expanding with a target of 8-10 stores by year-end. The company aims to increase its stud ratio towards 15% from the current 10%, indicating a focus on higher-value diamond products.

Gross Margin Dynamics & Outlook

H1 FY25 gross margin was reported at 14.7% (net of duty impact), effectively 15.7% when considering the duty cut. Management expects a normalized gross margin of 15-16% for the full year, with a range of 16-17%. The historical trend of higher gross margins in the second half of the year, driven by festive and wedding seasons, is anticipated to continue, contributing to overall profitability.

Capital Raising (QIP) Rationale

Senco Gold is undertaking a QIP of approximately INR 500 crore to address capital availability, which management identified as a constraint to growth. The funds are primarily intended for working capital, to maintain inventory levels amidst rising gold prices (which increased 25% since April 2023), and to support future store expansion and hedging requirements, ensuring business continuity and growth.

Store Expansion & Unit Economics Focus

The company plans to add 15-20 new stores in FY25, with 65-70% of new stores strategically located in East India to leverage its regional strength. While the Sennes brand is acknowledged to be in an investment stage, expected to become profitable in 2-3 years, the overall focus remains on strong unit economics and sustainable profitability across the expanding network, balancing growth with financial prudence.

Exceptional October Sales & Outlook

October 2024 marked Senco's best-ever sales month, surpassing INR 1,000 crore, driven by the Navratri, Diwali, and Dhanteras festive period. Management is bullish on the upcoming wedding season, which is expected to act as a full trigger for demand. The company projects an 18-20% growth for the 9 months ending Q3 FY25, indicating strong confidence in sustained performance.

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