Sky is not the limit: Scoring gold on all parameters
• Revenue grew 92% YoY to INR723cr (est. INR577) on higher volumes (up 75% YoY and 16% QoQ to 349kg/month) and higher gold prices.
• Gross profit surged by 95% YoY to INR46cr on higher sales. Gross margin expanded by ~10bp YoY to 6.4% on the back of a favourable product mix.
• EBITDA grew 2x YoY to INR37cr (est. INR26cr) on higher revenue, cost controls, and operating leverage. Operating margin expanded by ~20bp to 5.2%
• PAT grew 2x YoY to INR21cr (est. INR17cr) on higher EBITDA.
• We reiterate ‘BUY’ with a revised TP of INR3,600 at 35x FY26E earnings (0.4PEG ratio).
Robust demand during Akshay Tritiya and higher capacity boosts volume
SKYGOLD shifted to its new facility in FY24 which expanded its monthly capacity to 750kg/month from 200kg/month. It is working towards boosting utilisation (~47% in Q1FY25) with client additions and wallet share gains from existing customers. It has seen incremental volume growth since the last four quarters. Demand surged on Akshay Tritiya. Blended realisation grew 10% YoY on higher gold prices. The focus is on raising the contribution of value-added products which is aiding realisations. It expects to continue this growth trajectory and end FY25 at 360– 370kg/month. The company is reaping the benefits of a shift to organised from unorganised players. We have factored in 360kg/month (4.3 tons) for FY25. We expect subsidiaries to clock in 960kg volumes for FY25. Recent duty cut announcements have led to a surge in footfalls at the retailers’ end and should accelerate the shift from unorganised to organised market. The duty cuts will lead to lower capital requirements and management plans to focus on design and production to drive margin higher. Exports stood at INR80cr in Q1FY25 versus INR105cr in entire FY24. Contribution from exports in Q1FY25 stood at 11% vis-à-vis 6% in FY24. Surge in exports drove overall revenue higher. The company has added clients in the export segment and aims to add more in upcoming quarters. We expect exports to settle at 10% in FY25 and be one of the foremost drivers of volume in the medium to long term.
Announces fund raising; new capacities to scale up
SKYGOLD acquired Sparkling Chains and Starmangalsutra for a consideration of INR88cr in Q1FY25 (FY24 PAT of INR7.5cr). Through these acquisitions, its addressable market has risen to 70% from 35%. Both entities posted a PAT of INR7.5cr in FY24. The management expects to scale these entities and targets sales of INR500–600cr in FY25, with a PAT of INR15cr. It plans to raise INR270cr for capacity enhancements at new entities and to meet the working capital needs of the consolidated entity. It is focusing on the 18-carat gold category and diamond jewellery which can yield a higher margin. The management is targeting a revenue of INR6,300cr, with over 3% PAT margin and 25% RoCE by FY27. We see it comfortably achieving its target on higher capacities, recent acquisitions, higher contribution from exports, and market share gains. GML stood at 10% and is expected to rise to 100% by December. This will lead to an expansion in PAT margin. This can lead to the company achieving a margin that is better than our estimates.
Valuation and view
Factoring in its recent blockbuster performance, we have upgraded our estimates slightly. We expect revenue/EBITDA/PAT to grow 53%/56%/70% over FY24–27. Its recent fund raising will result in a slight dilution in EPS which we expect to grow at 63% CAGR. SKYGOLD can be a longterm compounding story. Given its record of overachieving its targets in the past; aggressive growth for FY24-27 and execution capabilities of management, we think that SKYGOLD can be a long-term growth story. We maintain ‘BUY’ with revised TP of INR3,600 (35x FY26E earnings). We expect its EPS to grow at 84% over FY24-26E. Despite of such a high growth, the company should be able to grow at a healthy rate in upcoming years. This gives us comfort on our target multiple. Our EPS growth and target multiple imply a PEG ratio of 0.4 which leaves enough margin of safety for investors and room for further upgrade in P/Ex multiple as the company executes its strategy
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