Q4 FY24
Financials and Business
- Competition by fellow jewellers to capture the growing market and the new demand is the reason margins are under pressure. Offers and discounts are being given which are driving the margins down
- The inventory increase is because of new stores and gold price increasing, nothing to worry about
- Inventory days stable at 2.41x
- A lot of growth in Q3 came because of extended wedding days, rising gold prices and Akshaya Trittya.
- Average blended sales per store is 35 to 36 crores whereas its 27 in north. There is room for growth.
- Exports last year was 70 and this year 180 crores. This led to fall in margins because the margins are lower in exports around 6-7%( not too big of a difference)
- Out of 1500 crores, 915 crores is gold metal loans which has an interest of 3.2-3.8% and wc funding rate is 9.8% and blended comes to 6-6.5%
- Average Sale price is 41,000 which was 36,000 in the last 3 years. ATV also increased to 63,000 from 57,000 in last 3 years. It is important to note that this is the blended ASP and Gold Jewellery ASP are higher by Rs 9,000- to Rs 10,000.
- Repeat buyers were around 47-53%
- 35% of revenue should be franchise while 60% should be own. Balance from ecommerce etc.
Stores and SSSG
- Store count: 159, 23 were opened and out of which 17 were COCO.
- This year they entered the central market by entering Bhopal and Indore.
- They already had a store in Raipur and now increased another one there.
- The franchisees have been more focused on the Eastern India expansion while our journey of opening new stores, building the brand, getting our awareness levels high across the country has been focused on East, North and Central India.
- We opened one store in the South in Bangalore as well, and one store in Pune.
- the focus of 60% to 70% of your store openings be its own store or franchisee will be Eastern and Northern part of the country and 20% more so, will be on the Southern and Western part of the country. So, 70% to 80% Eastern and North, out of that again 40% to 50% is going to be East only, because we believe that there is still our scope in all the Eastern India states of Bihar, Odisha, Bengal, Assam, Chhattisgarh and further on to penetrate into the tire two, three, four towns and cities or the growing fact of the capital cities of East India also.
Outlook
- The current year margin of 7.2% can become 8% in the future
- 18-20% growth in topline and bottom line grow 15-20%
- Add 10 COCO and 10 franchises in FY25, thats the goal. Its a conservative goal
- Stable profitability in the coming 4-5 years when market share consolidated and organised players have taken over most of it.
- Increase GML loans year on year to save interest costs. Rn it’s at 60% and FY25 the goal is to make it 75%. If this happens, the cost of borrowing can be 4.85%
- Margins will be a cause of concern because the competitive intensity will increase and they said it will be mitigated by increasing stud ratio
- A conservative approach of Margin improvement would be 30 basis points year on year.
- SSSG will be 60/70% of the growth which is what ensures operating leverage.
Gold exchange
- 32% of overall business is gold exchange, it was 25% two years ago.
Diamond and gold prices
- Stud ratio for FY24 grown from 10.4% to 11.4%
- The increase in gold prices is leading to lighter jewelry being worn which has more diamonds.
- There is some inelasticity of demand because customers have to buy for the bride during the wedding irrespective of the price. So that has helped a lot for them and the ATV or average total value of wedding has increased.
- Even though the prices have been on the upward trend has been seen and even if we look at the trend in the last two months with a big jump in the gold prices, it is this wedding Jewellery collection and the wedding Jewellery purchases that is showing a bigger traction compared to the lighter Jewellery sales
- Stud ratio in north is 17.2%
- A 100 basis point plus increase in stud ratio will lead to upward pressure on margins so if they achieve the same number like FY24, all else equal the margins will increase.
My thoughts:
I am quite happy with the results. A concern will be margins going ahead because the competitive intensity is here to stay. However, improving stud ratio is key and that depends on north stores mainly so let’s see how that goes.
Apart from that, a 20% guidance seems good and a little conservative. 20 stores being added+ SSSG can lead to higher growth but I am modeling my expectations with a 20% increase in topline.
the reason I think that COCO stores guidance aren’t as many FY24 is because of the emphasis on capturing TIER 2,3,4 cities which is mainly done by franchises.
Moreover, interest costs are at 2% of total revenue and with the increase of GML loans, I expect them to gradually fall and maybe fall to around 1.5% or so in the next 2-3 years.
Operating leverage aided by SSSG seems intact.
good quarter
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