Release Date: August 01, 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 around 27% and stand-alone India revenue grew by around 29%.
- The company witnessed robust operating performance across all markets in India and the Middle East despite extreme volatility in gold prices.
- The share of new customers increased to over 35% for the recently concluded quarter.
- Gross margins at the showroom level improved marginally, driven largely by a higher share of studded jewelry.
- The digital-first jewelry platform, Candere, recorded robust revenue growth and is on track to become a wholly-owned subsidiary.
Negative Points
- Advertisement spends were higher to mitigate the impact of volatile gold prices, affecting overall profitability.
- The revenue per showroom in India has decreased due to the opening of smaller franchise stores.
- Interest costs have increased marginally despite a reduction in debt, primarily due to lease interest from new showrooms.
- The Middle East business reported a lower PAT growth of 11% compared to revenue growth of 16%, indicating margin pressures.
- The impact of the recent customs duty cut on gold is expected to be around INR120-130 crores, affecting profitability in the short term.
Q & A Highlights
Q: Congrats on a good set of numbers. Sir, my first question is actually a clarification. You said you opened five Kalyan stores in the month of July and you expect to open 35 more showrooms before the quarter end. Did I hear that right?
A: Before Diwali, I meant.
Q: 35 before Diwali, okay. Candere, how many have you opened in July and how many more are expected going ahead?
A: So Candere, July, we opened, as we speak, 2, and we will open 20 more before Diwali.
Q: Okay, 20 more before Diwali. And sir, with regards to this custom duty cut, I actually have two questions. One, how much of this has given you an advantage in terms of the footfalls? So for example, post July 23, how much of an increase have you seen in footfall in our showrooms? And second question, related to custom duty is, what is the impact that you will see on your own inventory that is on gold on lease because of this custom duty cut?
A: First coming to footfalls, July itself started off very well. The first 2, 2.5 weeks was good. SSSGs were very similar to what it was in Q1. But post the duty cut, again, when the price comes down by 7%, 8% customers who were waiting would have come in immediately. So the last 10 days have been very good, especially weekends. And it is stronger than Q1 in terms of SSG. Approximately, we have -- it will be in the range of INR120 crores, INR130 crores.
Q: Overall impact. Okay. But sir, this would be at your level impact, right? I mean your -- even the stocks that will be lying at the franchisee level also. I mean, that impact will not be accounted in this one, right?
A: No, that does not come because we have already sold it, no? And the pricing. So that will be only for them. And they are basically hedging their cash flow. So it's not an impact for us.
Q: Got it, sir. Sir, and my second question also is with regards to -- if you look at the revenue per showroom in the India business, I mean the revenue per showroom has actually gone down to around -- for the quarter, I am saying, is around INR22 crores-odd versus INR23.8 crores-odd in the base quarter. Now I understand that because we're opening a lot more franchising the showrooms, and that has been a smaller size that will be impacting this. But any other reason that you can help us to quantify this? And how should we look at the revenue cost for going ahead? If anything you can help us out with that?
A: Yeah. You yourself told the answer. Our own showrooms are at INR90 crores plus when it comes to per showroom revenue. But when you come to franchisee new stores, the revenue will be only in the range of INR50 crores. So the more number of new showrooms you open, the revenue per showroom will come down. It will keep coming down.
Q: Sure. So it's expected to impact at least for this year, I think because in the next year onwards, you will have a decent size of franchise stores already in the base and so that should not impact going ahead. Is that the right understanding?
A: So once you have a good number of own showrooms where your revenue per showroom is INR90 crores. All the additional new showrooms are coming at INR50 crores. So since that own store level is at INR90 crores, the more number of showrooms you open, the per showroom revenue will keep coming down. Even if you add a number of showrooms, that own stores is at INR90 crores, no? So that will be still there.
Q: Sure. And sir, third is -- the last question is with regard to the interest cost. So if you look at the interest cost, both at the stand-alone and the consolidated level, it seems to have gone up marginally. Ideally because your debt is coming down, we were expecting this number to come down. So any reason for this to increase?
A: Yes. Swaminathan?
Q: Hello. So with regard to interest cost, the number includes lease interest, which definitely will go up as we increase number of showrooms which will renew lease interest, you can say Q1 has come down by INR3 crores to INR4 crores. And year-on-year, it has come down by INR11 crores. We mean to say that the interest on the (technical difficulty) debt, basically largely because of the --
A: Increase in number of showroom and the impact of Ind AS 116. So notional interest, it is not bank loan interest.
Q: Yeah. But sir, because you are opening stores on franchise, but because and the lease is here and that is why it is coming here, right? Is that the right understanding?
A: Yeah. So own showrooms -- I mean, franchisee showrooms also coming under Ind AS 116. And there will be some setup because of franchisee owning the shop. But net to net, there will be increase in Ind AS 116 impact.
Q: And sir, the last question actually is with regards to the newest showroom that you're going to open a franchise basis. I think in those showrooms, you will be -- the CapEx will also be incurred by the franchise partner only. Also, is there any change in the terms of the margin or revenue that will be accruing to you because of this new arrangement?
A: Yeah. So out of the 80 showrooms which we are opening for the financial year, the first 30, 35 showrooms will be in our old model wherein the CapEx will be put by Kalyan. The rest of the showrooms, the franchisee partners will put the CapEx fit out also. So that is the plan. And margin, as I indicated in the past, there will be an increment of, say, 0.25% on the gross level.
Q: On the gross level?
A: (multiple speakers) So 0.25% margin growth will be there.
Q: Great performance, must say, in whichever context we look at it
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
