Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Renaissance Global Ltd (BOM:532923, Financial) reported a 100 basis point increase in consolidated EBITDA margins year over year.
- The direct-to-consumer (D2C) segment saw a 30% revenue growth year over year in Q1 FY25.
- The company achieved an EBITDA margin of 7.6% in its own brands for Q1, reflecting a 340-basis-point improvement year over year.
- Lab-grown diamonds now account for 55% of the D2C business, indicating strong market acceptance.
- The company has exited the plain gold business in Dubai, resulting in an inventory reduction of INR75 crores.
Negative Points
- Total income decreased by 6% to INR447 crores in Q1 FY25 compared to INR476 crores in Q1 FY24.
- Net debt to equity ratio increased to 0.31 in June from 0.28 in March '24 and 0.22 in June '23.
- The India retail business is not yet profitable and continues to be a drag on overall margins.
- Visibility for the crucial Christmas season remains limited due to macroeconomic uncertainties in the US.
- Inventory levels are elevated due to a strong order book, which could pose a risk if demand does not materialize as expected.
Q & A Highlights
Q: Our revenues have been stagnant over the past few years. What measures are we taking to improve our revenue and bottom line for this financial year?
A: Sumit Shah, Non-Executive Chairman of the Board: The revenue growth has not been reflected due to a change in accounting policy and the exit from the plain gold business. We are focusing on high ROE, ROCE businesses to enhance profitability. We have also undertaken cost control measures, expecting annual savings of INR20-25 crores starting Q3 FY25. Our goal is to grow in double digits, focusing on high-quality businesses and cost control.
Q: Why do we have multiple websites for different licensed brands? Can we consolidate them to save on advertising and SEO spends?
A: Sumit Shah, Non-Executive Chairman of the Board: We plan to launch a consolidated website called Wonder Fine Jewelry in November this year. This initiative will help us save on SEO and advertising costs.
Q: What is the current demand scenario for lab-grown diamonds in our key markets?
A: Sumit Shah, Non-Executive Chairman of the Board: The lab-grown diamond business is growing rapidly, especially in the US. It accounts for 55% of our direct-to-consumer business and is likely to increase further. We are seeing increased penetration and acceptance by customers, and this trend is expected to continue for the next four to five years.
Q: How is the overall demand scenario in the US and European markets?
A: Sumit Shah, Non-Executive Chairman of the Board: US discretionary spends are under pressure due to high inflation. However, our factory order book for July and August remains strong. We don't have full visibility for the Christmas season yet, but we expect more clarity in the next 30 days.
Q: Can you provide insights into the growth, gross margins, and acquisition costs for your online D2C business?
A: Sumit Shah, Non-Executive Chairman of the Board: The gross margin for D2C is between 50% to 60%. Our e-commerce businesses are profitable, with a growth rate of about 30% this quarter. We expect this growth to continue in the 20% to 30% range for the year.
Q: How has the response been to the new Warner Brothers and Disney jewelry collections?
A: Sumit Shah, Non-Executive Chairman of the Board: The Disney princesses collection has seen a lot of success. However, the Barbie collection and other newer licenses have seen moderate success. Our strategy is to focus on successful brands like Disney princesses, Disney Treasures, Hallmark, and Star Wars to improve margins.
Q: What is the impact of exiting the plain gold business on revenue and EBITDA?
A: Sumit Shah, Non-Executive Chairman of the Board: The revenue from the plain gold business, which was INR73 crores this quarter, will not be there from next quarter. This will have a INR2-3 crores impact on quarterly EBITDA. However, the business's return on capital employed was close to the cost of capital, so the impact on the bottom line will be minimal.
Q: What is the current split between lab-grown and natural diamonds in your stores?
A: Sumit Shah, Non-Executive Chairman of the Board: In India, we launched lab-grown diamonds last month, so the current split is virtually zero. However, we expect this to grow as we promote lab-grown diamonds in our Irasva business.
Q: What is the focus area for growth, and why?
A: Sumit Shah, Non-Executive Chairman of the Board: Our focus is on growing the licensing and direct-to-consumer businesses, which have higher margins and better capital efficiency. We are moving away from low ROE, ROCE businesses like the plain gold business to improve profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
