Release Date: May 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kalyan Jewellers India Ltd (BOM:543278, Financial) recorded a consolidated revenue growth of approximately 34% and a PBT growth of approximately 44% for Q4 FY24.
- The company successfully launched 58 new Kalyan showrooms in India through the capital-efficient FOCO model during the last financial year.
- Kalyan Jewellers India Ltd (BOM:543278) reduced its non-GML loans in India by INR435 crore and secured additional GML limits of INR170 crore.
- The Board of Directors recommended a dividend payout of approximately INR120 crore, more than doubling the dividend paid for FY 2023.
- The company plans to add 130 showrooms in India and six showrooms overseas during the current financial year, indicating strong future growth prospects.
Negative Points
- There was a delay in the rollout of the first set of Candere showrooms, with only 11 offline showrooms launched during the last year.
- Despite the revenue growth, the net debt reduction was lower than planned, with a reduction of only around INR260 crore against the target of INR300 crore.
- The company experienced an increase in inventory levels by around INR1,000 crore in India, partly due to the rise in gold prices and the need to maintain pipeline inventory for new showrooms.
- The EBITDA margin for Q4 FY24 saw a decline, partly due to increased advertising expenses to maintain market share against local competitors.
- The transition to the franchise model has led to a decrease in gross margins, as franchisee stores typically have lower margins compared to company-owned stores.
Q & A Highlights
Highlights of Kalyan Jewellers India Ltd (BOM:543278) Q4 FY24 Earnings Call
Q: Can you explain the lower debt reduction despite receiving proceeds from asset sales?
A: Ramesh Kalyanaraman, Whole-time Director: The plan was to reduce around INR300 crore, but we ended up reducing INR260 crore. We reduced INR435 crore in non-GML loans and secured an additional INR170 crore in GML limits. The franchise model we adopted required less CapEx from Kalyan, focusing on inventory. The remaining proceeds from asset sales will be reflected in the next quarter.
Q: Given the franchise model, why has the absolute inventory increased significantly YoY?
A: Ramesh Kalyanaraman, Whole-time Director: Inventory levels increased by around INR1,000 crore due to opening 58 new showrooms, a 14% rise in gold prices, and maintaining strong SSSG levels. Additional inventory was also required for revamped stores to capture market share.
Q: What are the CapEx and debt reduction targets for the next couple of years?
A: Ramesh Kalyanaraman, Whole-time Director: Next year, CapEx will be around INR250 crore, with INR100 crore for 30 stores and INR150 crore for asset maintenance. The following year, CapEx will be around INR150 crore. We aim to reduce debt by INR350 crore to INR400 crore next year and INR400 crore to INR500 crore the year after.
Q: How is the competitive landscape affecting margins, especially in the South?
A: Ramesh Kalyanaraman, Whole-time Director: We haven't seen significant changes in pricing competition over the past few quarters. Our margins have remained stable, and we continue to compete effectively with local and regional players through our hyper-local strategy and regionalized inventory.
Q: What is the outlook for the Middle East and other international markets?
A: Ramesh Kalyanaraman, Whole-time Director: We plan to open six new showrooms annually in the Middle East and convert existing stores to franchise models to reduce invested capital. We are also exploring opportunities in Singapore, UK, Canada, and Australia, with a focus on entering the US market, where the first store will be owned.
Q: How does the franchise model impact overall margins and profitability?
A: Ramesh Kalyanaraman, Whole-time Director: Franchise stores operate at a lower gross margin (around 8%) compared to owned stores (20%), but they contribute positively to PBT margins (5% for franchise vs. 4.6% for owned). This shift will result in lower EBITDA margins but higher PBT margins and ROCE.
Q: What is the impact of gold price volatility on revenue and demand?
A: Ramesh Kalyanaraman, Whole-time Director: Gold price volatility can shift revenue between quarters, but it doesn't affect long-term demand. Higher prices may reduce volume but increase value, while lower prices boost volume. Wedding-related purchases are less affected by price changes.
Q: What are the plans for the Candere brand's expansion and profitability?
A: Sanjay Raghuraman, CEO: We plan to open 50 new Candere stores this year, with 10 already operational. We are strengthening management and laying the foundation for offline expansion. We aim to provide financial projections by Q1 next year.
Q: How does the company manage its hedging policy and gold metal loan rates?
A: Ramesh Kalyanaraman, Whole-time Director: We are 98% hedged to avoid price risk. The average rate on gold metal loans in India is 3.75%.
Q: What is the dividend policy and its impact on shareholder returns?
A: Ramesh Kalyanaraman, Whole-time Director: Our dividend policy is to pay out 15% to 30% of net profit. This year, we announced a dividend of approximately INR120 crore, representing 20% of net profit.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
