SENCO - Senco Gold Limited Share Price

The management of Senco Gold Limited provided a positive outlook during the Q4 & FY25 earnings call. They reported a strong performance, with total sales growth of approximately 21% in Q4, driven by a 20% value growth in gold jewelry. However, volume sales of gold jewelry units declined by 6% due to rising gold prices. Notably, the diamond jewelry segment experienced significant growth, with a 38% value increase and a 21% volume growth. The adjusted PAT for the standalone numbers reached INR 207 crore, with an unadjusted PAT of INR 165 crore for Q4.

Looking forward, management expects a top-line growth of 18-20% for FY26, despite the high gold prices. They aim to achieve an EBITDA margin between 6.8% to 7.2% and a PAT margin of 3.5% to 3.7%. The plan includes opening approximately 18 to 20 new stores, with at least 10 being franchisee-operated. The management anticipates sustained growth from the increasing stud ratio, which improved from 10.5% to 10.9%.

An encouraging statistic highlighted was the 39% increase in old gold exchanges, now accounting for nearly 40% of overall sales, indicating a growing trend among consumers to exchange old gold for new purchases. Management also emphasized the importance of lightweight jewelry and maintaining consumer engagement, particularly in the wedding segment, which constitutes about 35-40% of sales.

Overall, the management expressed confidence in navigating market challenges, leveraging customer preferences, and fostering growth through strategic store openings and enhanced product offerings.

Q&A Session Summary from the Earnings Transcript

Question: What led to the 25% or 27% increase in employee spend, alongside a 13% decline in other operating expenses for the quarter?
Answer: Our turnover was INR 1,362 crore, a record for Q4, up from INR 1,130 crore the previous year. The new stores opened over the year incurred additional costs, which raised employee spending as we incentivized and trained our staff amidst competitive market conditions. The decline in other operating expenses comes from strategic budget efficiency based on past demands; we controlled spending by adjusting marketing efforts aligned with our sales performance.

Question: Can you elaborate on the increase in inventory days from 170 in FY24 to 190 in FY25?
Answer: The increase in inventory days reflects our expansion and strategy. As new stores opened, our inventory needs grew, especially in non-East regions. Additionally, fluctuations in gold prices played a role; we needed to keep enough inventory to cater to varying consumer demands over time. This approach keeps us prepared for seasons of high demand while aligning with industry standards.

Question: By when do you expect ROCE levels to return to 18-20%?
Answer: We anticipate reaching ROCE levels of 16-17% in the next 3 to 4 years. As we invest in growth and develop our portfolio, we expect returns to stabilize, aligning with historical performance where our new projects generate higher returns over time.

Question: What initiatives are being taken to improve organic growth in the non-East region?
Answer: We are enhancing brand awareness through targeted marketing, local design adaptations, and strategic partnerships. Our focus is on franchise models that will bring us into Tier 2 to 4 towns. We've reported a 23% sales growth in the non-East region, indicating that our efforts are yielding results as we engage more consumers.

Question: What are the current rates for Gold Metal Loans (GML)?
Answer: The blended interest rate for GML is currently around 7%, higher than earlier at 5.9%. Rates spiked to about 6.6% recently but are starting to stabilize. We anticipate rates may decrease further, adding that this won't significantly impact our financials.

Question: Are diamond prices recovering after the recent dip?
Answer: Yes, we've witnessed a recovery in diamond prices, with solitaires increasing about 4-5% recently. This rebound aligns with a growing consumer interest and sales in our diamond segment. We project continued growth despite typical price volatility.

Question: Can you explain the growth projections of 18-20% given the raised gold prices and store openings?
Answer: We're committed to this growth range despite gold price challenges. Last year's revenue was around INR 5,300-5,400 crore, and we reached INR 6,300 crore. Though gold prices are high, our focus on lighter-weight, budget-friendly jewellery helps maintain consumer engagement and sales.

Question: Given the stretched balance sheet, will you prefer debt or internal funding for store expansion?
Answer: We aim for a balance between company-owned stores and franchise models, ideally adding at least 10 new franchise stores. While debt remains an option, our focus is on internal accruals alongside optimizing stock to manage growth without burdening our balance sheet unnecessarily.

Question: What percentage of your inventory is sourced from third-party manufacturing?
Answer: Approximately 20-21% of our inventory comes from third-party manufacturers. We maintain this relationship to ensure diverse design offerings while leveraging our in-house strengths for unique craftsmanship.

Question: Will the new Everlite stores be included in the total store count, and what are your targets for these stores?
Answer: Yes, Everlite stores are included in our count; we have about 5 operational. For FY26, while we don't have distinct revenue targets for Everlite yet, they will form part of our strategy to attract younger consumers focusing on lightweight jewellery. We'll monitor their growth and market response closely.

This summary captures the essence of the discussion from the Q&A section of the earnings call, addressing major concerns from analysts and investors along with the management's detailed responses.