SENCO - Senco Gold Limited Share Price

Senco Gold Management provided an optimistic outlook for the company, highlighting strong performance metrics despite challenging market conditions. In Q1 FY26, the company reported a significant increase in revenue and profitability, with overall revenue up by 30% year-on-year and a staggering 104% growth in profit after tax (PAT) exceeding INR 100 crore. The same-store sales growth reached 19%, indicating robust consumer loyalty, alongside a 28% increase in retail revenue.

Key forward-looking points include:

1. Growth Guidance: Management aims for an 18% to 20% growth for the entire financial year, projecting similar growth in Q2, possibly influenced by reduced demand due to last year's duty cuts on gold.

2. EBITDA Margin: Initially forecasted at 6.8% to 7.2%, the management now anticipates a more conservative margin of about 7% due to various factors, including increased making charges and improved pricing on products.

3. Store Expansion: The company plans to open a total of 20 stores for FY26, having already opened 10 in Q1, with particular emphasis on expanding franchisee locations. The expectation is to potentially exceed the planned number.

4. Market Dynamics: The increase in diamond jewelry sales was notable, achieving a 35% year-on-year growth in volume due to a consumer trend towards everyday wear of diamonds amidst higher gold prices.

5. Hedging Strategy: The management maintained a hedging ratio of 55%-60% to ensure liquidity while navigating volatile gold prices, down from previous levels of 75%-80%.

6. Consumer Trends: There's a conscious move towards lightweight jewelry offerings, including 9-carat and 14-carat gold, aimed at younger consumers as part of a strategy to cater to changing purchasing behaviors.

Overall, the management's insights demonstrate confidence in their proactive strategies to mitigate potential pressures while seizing growth opportunities across various segments.

Question 1: Mihir Shah from Nomura: "How should one think about the impact of revenue if the contribution of lightweight Jewellery goes up, and what percentage of sales are now coming from lightweight for you?"

Answer: We perceive that lightweight Jewellery, which constitutes about 60% to 70% of our products, won't negatively impact revenue. Our average ticket size remains around INR70,000 to INR72,000. Even with lower purity options, our customer budget has adapted due to rising gold prices. Lightweight options cater to younger consumers, ensuring sales stability across our product range.

Question 2: Devanshu Bansal from Emkay Global: "Can we expect higher than 20 additions with a higher mix of franchisees?"

Answer: We're targeting 20 new stores"”10 owned and 10 franchisees"”this fiscal year. Currently, we've opened 6 stores, with a goal to increase franchisee openings. We have a strong pipeline for franchisees and aim for 11 to 12 by year-end. We'll evaluate and update our guidance post Q3.

Question 3: Videesha Sheth from Ambit Capital: "Which levers drove the recent margin expansion, and how sustainable are these?"

Answer: Major contributors to our margin expansion include increased making charges, better realization on diamonds due to inventory strategies, and reduced hedging activities. We target an EBITDA margin of 6.8% to 7.3%, with sustainability being our core focus despite quarterly fluctuations.

Question 4: Aashaka Shah from Sameeksha Capital: "What is the share of gains due to higher gold prices in gross margins, and what is the inventory value as of June 30?"

Answer: Our June 30 inventory was around INR3,558 crores compared to INR3,299 crores previously. Gains from higher gold prices will impact gross margins, but the exact share can vary. We follow the weighted average cost method for inventory valuation, ensuring transparency in reporting.

Question 5: Rupesh Tatiya from Shriram Managers: "How is Q3 looking in terms of festive season demand?"

Answer: Q3 is expected to be robust with significant wedding dates. Our preparations are underway to ensure we have the right inventory for the festive season. While Q2 might be softer due to lower auspicious days, we anticipate strong demand in Q3 driven by weddings and festivals.

These questions reflect key topics discussed during the earnings call, focusing on the company's strategies, market performance, and financial outlook. Each management response showcases their approach in maintaining profitability and preparing for growth in the coming quarters.