Q1 Review: Kalyan Jewellers' Net Profit Jumps 33% Year-on-Year

NDTV Profit

Watch Q1 Review: Kalyan Jewellers' Net Profit Jumps 33% Year-on-Year - NDTV Profit on Dailymotion

Transcript

00:00 Hello, welcome to BQ Prime.

00:01 You're watching Q1 with BQ.

00:03 And my company in focus today is Kalyan Jewelers.

00:07 It's a South-based jewelry company

00:09 with the Pan India presence.

00:11 And joining me is Ramesh Kalyanaraman.

00:13 He's the executive director at the company.

00:15 Ramesh, thank you very much for joining us on BQ Prime.

00:20 To begin with, Ramesh, how has the first quarter revenues?

00:26 Yes, Q1 was extremely good.

00:28 The revenue grew by 34% in India.

00:31 On a console, it grew by around 31%.

00:34 Strong momentum across all geographies,

00:36 including India, Middle East.

00:39 It was continuing throughout the quarter,

00:41 right from April 1st week, Akshathriya and way forward.

00:45 The patch has grown more than the revenue.

00:49 The revenue growth was around 31% console,

00:51 and the patch grew more than 33%.

00:53 So doing the expansion plan is also on track,

00:57 and all doing well.

00:58 I understand that Q1 was positively impacted

01:04 by the Eid being there, and that would

01:08 have bumped up the revenues.

01:10 But do you see the similar kind of revenue growth

01:12 coming into Q2?

01:15 Yes, Eid, the revenue which would have returned in Q1

01:19 is majorly Middle East, because Middle East Eid is one week,

01:22 almost a week of holiday.

01:25 And that got absorbed in Q1.

01:27 But India, the momentum was strong even without the Eid.

01:33 The Eid is not the major factor why the India revenue grew.

01:36 OK.

01:37 What about the expansion strategy?

01:38 Because you've taken an aggressive expansion strategy

01:43 as far as franchise opening is concerned.

01:46 Can you take us through that strategy for us?

01:49 So this year, we had announced 52 new showrooms,

01:52 and all in the non-South markets.

01:55 And now as we speak, we have already opened 14 showrooms

02:01 now, and we will be opening 10 more showrooms

02:04 in the month of August.

02:06 We will be opening most of the 52 before Diwali.

02:09 That's our plan, because we get two major seasons after that.

02:12 And this is only Kalyan Jewelers India,

02:15 and we have expansion plan for Candier, our digital platform.

02:19 Now we have only two physical stores,

02:21 but we want to end at least 30 showrooms

02:23 before the end of the financial year.

02:25 The expansion will start from the month of August on Candier.

02:29 Middle East, we are opening our first franchise

02:32 showroom in this quarter.

02:35 And once that settles down, we will come back to you

02:38 with a Middle East expansion start.

02:42 So franchise model work in terms of bringing

02:45 in margins and revenue?

02:46 You mean the existing franchisees?

02:51 Existing and new franchises, how does it work?

02:53 What is the business model there for you?

02:55 What kind of margins that you get compared

02:57 to your own store margins?

02:59 Yeah, so it's a FOCO model, wherein

03:02 we share a part of gross margins with them.

03:05 The gross margins, of course, will have lesser gross margin

03:09 when compared to our own store, because we share

03:11 a good percentage of gross margin

03:13 with the franchisee partner.

03:15 Franchisee invests on inventory, and the ROCE

03:19 for all additional new showrooms are in the range of 75% plus.

03:24 So there will be growth in PBT as a percentage.

03:29 There will be substantial growth in ROCE.

03:32 But there will be a degrowth in the gross margin

03:34 as well as EBITDA margins, because there

03:36 is a gross margin share, which we do with the franchisee part.

03:40 What is going to be the mix of own stores and franchisee

03:44 stores going forward?

03:44 And what could be the stabilizing gross margins

03:48 that you will be working on?

03:49 Because as franchisee increases, your gross margins

03:53 will come down.

03:54 So what is the level of gross margins

03:56 that you will be more comfortable with

03:58 and the mix of franchisee and the own stores?

04:03 Yeah, so this year, all the stores' opening plan

04:06 is with the franchisee.

04:08 And so there will be pressure on the gross margin.

04:11 So we should estimate a 1/2% gross margin

04:14 degrowth every quarter going forward,

04:16 because all the expansion planned is based on FOCO model.

04:21 And this year and the next year also,

04:23 we plan for FOCO model franchise.

04:25 And our focus is on PAT and ROCE and not

04:30 gross margin and EBITDA, because that's anyway

04:32 going to degrow because of the franchisee model coming.

04:35 So what will be the level of gross margins?

04:37 Because you had a gross margin of 15.1%.

04:41 And your own store gross margin was around 16% or so.

04:45 So what is the level at which the gross margin

04:48 will stabilize?

04:50 Because franchisee gross margin is in the range of 8.5%.

04:55 And our own store gross margin is at 16% as we speak.

04:59 So when the franchisee store's number go up,

05:04 the gross margin as a percentage will surely come down.

05:07 So we estimate that at least a 1/2% gross margin

05:10 degrowth in every quarter going forward,

05:13 because franchisee stores increase that way.

05:17 Give me a sense of what's happening

05:19 in the non-stock market.

05:21 And also, we understand that this year,

05:24 the plain gold jewelry--

05:27 this quarter, plain gold jewelry growth

05:29 was much more than studded.

05:33 So that would have also contributed

05:35 to some kind of pressure on the margins, right?

05:38 No, no, no.

05:39 Studded growth was much higher than the gold.

05:41 And there is no pressure on gross margin

05:43 at all on a retail level.

05:44 The pressure which you see on the gross margin

05:46 is only because of the franchisee revenue coming.

05:49 And of course, yes, gold had better demand in the Middle

05:54 East because of the Eid one-week sale.

05:56 That week, gold demand was higher.

05:59 And that is why there is a degrowth in margin

06:01 in Middle East.

06:02 But India, we don't have any pressure in margin.

06:05 And we have only improved YOY in our retail stores.

06:10 The margin degrowth which you see

06:12 is only because of the franchise revenue coming.

06:15 How do you see same-store sales growth

06:17 going into FY24?

06:20 Will it be as good as what you saw in the first quarter?

06:24 Or are you going to be some muted coming in?

06:27 No, Q1, the SSG was very strong.

06:30 It was a range of 15%.

06:32 But always, we should estimate a 5% to 7% SSG.

06:35 That's the way we should look at it.

06:37 But whatever comes beyond that is good for the brand

06:41 and good for everyone.

06:43 How are you looking at the GML limit increase?

06:46 Because gold loan or what you call GML

06:52 has been an issue with REIT.

06:54 The limit has not been able to go up.

06:56 So how are we looking at that?

06:59 For the gold loan, we are at the 1,800, 1,850 range.

07:04 Our objective for this year and the next year

07:08 is not to increase the gold loan portion,

07:11 but to reduce the CC limit so that the percentage of gold

07:15 loan over the total exposure goes up.

07:18 Because we go with the FOCOM model expansion,

07:21 and there are going to be a lot of cash in the book

07:23 because our expansion is completely

07:25 taken care of by franchise.

07:27 And we will reduce at least 15% of our gross debt.

07:33 That would be--

07:34 How much actually?

07:35 15%?

07:35 It will be in the range of 400, 300 crore.

07:38 OK.

07:39 And what will that lead to in the cash credit limit

07:42 that you are looking to increase?

07:45 No, cash credit we don't increase, we reduce.

07:48 So gold loan as a percentage of the total exposure goes up.

07:52 Goes up.

07:53 OK.

07:53 So how does it work out for you?

07:57 I mean, if it goes out, will you be

07:59 able to push more products out or take more imports in?

08:07 How is it actually?

08:09 You mean, we do not--

08:12 what do you call--

08:13 you're talking about export?

08:15 What did you--

08:15 I'm talking about if GML limit goes up

08:19 because you're going to reduce your cash credit,

08:22 how will it impact your business?

08:25 Nothing gets impacted.

08:26 [INTERPOSING VOICES]

08:28 How does it-- what kind of reflection

08:31 that will be there in the operations?

08:33 The interest cost comes down because we

08:35 are reducing the exposure of CC, which

08:39 is at a higher interest rate than the gold loan.

08:42 So interest cost comes down, and again, ratings go up.

08:46 And we can take out certain non-core assets, which

08:50 is there, which has been mortgaged with banks because

08:53 of the CC limit that comes out, which can be, again,

08:56 liquidated and brought into the system, which, again,

09:00 lightens our balance sheet.

09:01 So that is the way we should look forward.

09:03 It's a two to three year mission where

09:05 we will lighten our balance sheet because of all

09:08 these actions which we take.

09:10 What is the kind of free cash flow

09:11 that you will be able to generate during that period?

09:15 As you move away from your own stores to franchise model,

09:21 there will be additional free cash flows that will come in.

09:24 What kind of free cash flows can we see coming in every year?

09:29 So it should be in the range of 400 core plus.

09:32 And that would be the one which--

09:35 how will you use that cash flow, whether for more

09:38 aggressive expansions or CAPEX, or is it

09:41 going to be to deliver your balance sheet more?

09:45 So yeah, so as I told you before, most of that

09:51 will be for repayment of debt.

09:53 But again, we have to increase our inventory levels

09:57 because we have to keep 10 to 15 days of inventory

10:00 for our franchise operations as well.

10:03 There will be some investment onto the CAPEX

10:05 because we take the CAPEX for the franchisees' stores.

10:08 So total cash generation, around, what, 40%

10:13 we will use for debt reduction.

10:15 So total cash generation will be in the range of 300 core,

10:18 out of which maybe 300 core will go on to reduction of debts.

10:22 And you know that we have declared dividend as well.

10:24 So a portion of money has to go in for repaying our--

10:28 paying back our investors as well.

10:29 OK.

10:30 Give me a sense of expansion in Candia

10:33 because you're talking about some 30-odd stores,

10:36 if I'm not wrong, expansion.

10:39 But Candia is also losing money in terms of--

10:43 it's a loss-making.

10:44 So how do you plan to ramp up Candia as well as bringing

10:47 profitability there?

10:50 Yes, so Candia, as you have seen,

10:52 we acquired Candia in the year 2017.

10:55 OK, right from that time, it has been an average CAGR growth

10:59 of around 60% on revenue.

11:01 It became profitable.

11:03 And then now it's taking a next transition phase,

11:07 wherein we have to add physical stores.

11:09 We have to, again, invest on technology.

11:13 And this transition phase, I think,

11:15 will get settled down by the end of this financial year.

11:17 And from next year, you should see surplus in Candia again.

11:22 So it should turn profitable next year almost?

11:25 That's what you're saying?

11:26 Yeah, yes.

11:27 OK.

11:28 Give me a sense--

11:29 my understanding is that you're also

11:31 looking at importing gold under the SIPA agreement.

11:35 What's happening there?

11:36 And by when will you be able to do that?

11:40 We are also working on SIPA.

11:43 I think maybe by Q3, we'll be able to take

11:47 the first lot of SIPA.

11:48 That's what we are targeting for.

11:51 We have the location in place.

11:53 And everything in place-- so how does--

11:56 will that benefit you in any way?

11:59 How does it benefit you--

12:00 the benefits flowing for you, actually,

12:03 when you go through SIPA?

12:06 The 1% import duty exemption is there for SIPA gold.

12:10 That is our major benefit.

12:11 OK.

12:14 Ramesh, my final sense is that your entire expansion strategy

12:18 is based on franchisee now.

12:22 Have you abandoned own store growth as well?

12:26 Or how is it, actually?

12:30 Like I told you before, we have a two- to three-year mission

12:33 where we want to lighten our balance sheet a bit.

12:35 OK?

12:35 And that is why we are not allocating our cash

12:39 into expansion.

12:40 We don't want to sacrifice growth.

12:43 And growth will come up through franchisee partners.

12:46 And the free cash flow will go on to reduction of debt,

12:51 which will take out our non-core assets from the book.

12:54 We can liquidate it and bring it back

12:57 to the system, which will again lighten our balance sheet.

13:00 So that is a two- to three-year mission.

13:02 Post that, of course, we have to open our own stores as well,

13:05 because again, the balance sheet will be heavier if we don't

13:08 allocate that cash in.

13:10 OK.

13:10 So for the next two years, at least

13:12 you are going for a franchisee model.

13:13 And then you may re-look at the store strategy going forward.

13:18 Yes.

13:19 Yeah.

13:20 Ramesh, it was a pleasure talking to you today.

13:21 Thank you very much for joining us on B2B.

13:23 Thank you.

13:24 Thank you.

13:24 Thank you, Edmund.

13:25 Bye.

13:27 [MUSIC PLAYING]

13:30 (dramatic music)

13:33 [BLANK_AUDIO]

Category

Transcript

Recommended