Hi @raghav1836, Great write up! Can you explain what is a Stud Ratio?
Thanks a lot Naman! Apologies, I should have gone through the entire thread before posting the question.
This is my financial model regarding the business
Here is my thesis
Disc: Bought in the last 30 days. No buy or sell recommendation.
Thesis
For FY24, H1 growth has been around 27% which is really great, however i want ti be a bit conservative because of the fact that Q3 base is quite large. Hence, The overall growth I have assumed for the year is around 25%, which sounds great but still could be conservative.
Now for the rest of the years, the company wants to increase the store count by around 25 something each year and reach about 250 stores which seems possible. Current store count is 153 and 10 should be added by FY24 so around 163. With an SSG of double digits, and 15%+ growth in number of stores, even 20% growth in revenue seems very conservative.
Regarding EBITDA,
This FY24 there seems to be inventory losses due to Diamonds, and hence i expect the margins to decline a bit, however we can assume this problem to solve and revert back to mean. Even though the studded ratio is increasing, the company mentioned that it will probably get offset by entering into new markets and more competition, as mentioned in Q1 concall. Another point, the margins were on the higher side last year due to diamond prices and hence we shouldnât expect increasing margins, mostly stable or even around 7% because of franchise additions and growth phases of the company. I have opted for 8% but I think( could be wrong so correct me whenever) 7% too is a reasonable assumption
Interest costs and depreciation
During the H1 balance sheet, lease liabilities increased by around 10% and hence assuming a 10% increase is possible in depreciation and Interest costs. With the own store additions of our 10%. Its safe to assume these two ill increase by the same range.
PBT
I do have a problem with PBT for FY 26-27. The PBT is more than 5% which seems a bit hard to believe because itâs difficult to achieve a PBT of 5%+. Itâs probably possible if operating leverage plays out, which is a thesis pointer.
Valuations
I would not wanna assign the valuations of Titan and Kalyan, since i havenât studied titan i canât say much about it but Kalyan does look overvalued. It should command a higher multiple than now, but it does depend on its ability to become a Pan India player. Secondly, Senco has a very strong presence in the east but not much in other regions and that becomes a big risk. If anything goes wrong in West Bengal, any financial model we make will go for a toss. So thatâs why, I think 1.5x PEG makes some sense to me. However, upon talking to other investors, it does make sense to me that consumption businesses get a 50x PE.
Personal opinion
There is a strong shift from unorganized players to Organized players and hence I do believe that there are strong tailwinds in the sector. I think Senco can deeply penetrate areas due to their lower average ticket size and business model, which just gives me a sense of relief that they have a lot of growth possibilities in new geographies.
However, not a lot of big pan India players have a strong presence in the east and hence it will be interesting to see how Senco tackles the big boys in other regions.
17 Likes
Industry:
- Gold prices surged globally due to geopolitical tensions, increased central bank purchases, and high Fed rates.
- Domestic gold prices hit all-time high, impacting unorganized jewelers but benefiting listed ones.
- Squeezed working capital due to higher margins for Gold Hedging and Gold Metal Loan (GML).
- Optimistic outlook for FY 24-25, boosted by local new years and the upcoming marriage season.
Showroom Expansion:
- 23 new showrooms launched, marking a 17% growth.
- 4 showrooms opened in Q4.
- Focus on East and North markets with strategic SENNEs stores in Kolkata.
Business Performance:
- Achieved 28% YoY revenue growth for full year, 39% YoY growth in Q4.
- Despite rising gold prices, achieved 13% YoY gold volume growth and 19% YoY diamond volume growth.
- Percentage of sales from old gold exchange increased from 29% to 32% YoY, with 65% from non-Senco customers, indicating a shift to organised markets.
- SSSG contributed significantly to retail sales growth, with a 23% contribution in Q4.
- Improved stud ratio to 11.4%, with own showrooms achieving 13.1%.
- Introduced key offers to enhance footfall and sales.
- Retained 2nd Most Trusted Jewellery Brand title and debuted on Deloitteâs luxury goods rankings.
- Became the 1st Indian jewellery brand to join ONDC, supporting âMake in Indiaâ initiative
20 Likes
Itâs a great thread to look at Jewellery business in depth.
Maybe it is no big deal but does anyone think, like me that High investment from China Saif Partners is a big risk?
3 Likes
What do you mean when you say Percentage of sales from old gold exchange increased from 29% to 32% YoY, with 65% from non-Senco customers, indicating a shift to organised markets. .
Understanding purpose
What is old gold exchange
great to see the company beats the 24% estimate. Excited to see how this story shapes up
3 Likes
Q4 FY24-
Guided for margin expansion from 7.3% to 8%
Guided- Top line-18-20%, Bottomline-15-20%
- Efforts to increase stud ratio by 1-3% annually to mitigate price pressure and improve gross margin and EBITDA.
Company added 23 showrooms in FY24. Total showroom count is 159. Company guided to open 20 showrooms in FY24 and exceeded the guidance.
- Management plans to add between 15 to 20 new stores in the upcoming year.
Stud ration increased from 10.4% to 11.4%(In North- stud ratio is 17.2, higher than average). Stud ratio is less compared to Titan and Kalyan but the trajectory is upwards. Stud ratio is the % of diamonds in a gold ornament. Jewelers get more margins in diamonds. Hence, more the stud ratio better the profit margins.
- Focus on growth will be primarily in Eastern and Northern India, with a mix of West and South.
- Optimum Gold Metal Loan (GML) percentage target is around 75% to minimize borrowing costs.
- Strategic locational advantage in Kolkata helps mitigate pressure on margins compared to competitors.
Revenue grew 40% and PAT grew 24% YoY. Senco grew faster than Titan and Kalyan in Q4. Senco exceeded the sales growth guidance of 20%.
Showroom growth of 17%, SSSG Growth of 19%, sales growth of 29%, EBITDA growth of 18.6% and PAT growth of 14.2% for the full year.
Company achieved 13% volume growth in Gold and 18% in Diamond
The Inventory value increased from 1,885Cr to 2,457Cr in anticipation of Akshaya Tritiya and higher gold price.
Inventory turnover ratio is 2.4x and inventory days is 151 days.
ROE went down from 19% last year to 15.7% due to high showroom roll-out
Key Financial Metrics:
-
Revenue growth of 28.5% in FY24
-
PAT growth of 14.2% in FY24
-
Total revenue of Rs. 5,240 crore in FY24
-
EBITDA margin at 7.3% with a target to increase to 8%
-
Average sale price (ASP) of Rs. 41,000 for the full year
-
Average ticket value (ATV) in the range of Rs. 63,000
-
Gross margin for the current year at around 15.3%
Management Commentary Highlights:
-
Senco Gold had a successful year post listing in FY24, focusing on wealth creation for shareholders and stakeholders.
-
Launched new initiatives like metaverse platform, ONDC enlistment, and tie-up with eBay for global market access.
-
Opened new stores in Central India and expanded product portfolio with 23 new collections.
-
Revenue from operations grew by 28.5% in FY24, with retail business growth at 25%.
-
PAT grew by 14.2% to Rs. 181 crore in FY24.
-
Focus on customer acquisition with 45-50% new customers and 55% repeat buyers.
-
Introduced new brand SENNES for lab-grown diamonds and leather accessories.
-
Emphasized premiumization, customer value chain, and brand positioning for ASP increase.
Insights into Business Verticals:
-
North region stores have a stud ratio of 17.2% and average sale per store of Rs. 27 crore, showing growth potential.
-
Retail growth in North at 22% with SSSG of 19%, indicating a growing business in the region.
-
Export income contributed to higher revenue growth in 4Q, with specific details on export income not provided.
Forward Guidance & Outlook:
- Focus on expanding in East and North regions, with plans to add 15-20 stores in the coming year.
-
Continued efforts to capture market share and stabilize profitability in the face of competition.
-
Opportunities for growth in North region, with a stud ratio of 17.2% and average sale per store of Rs. 27 crore.
-
Export income contributing to revenue growth, with potential for further expansion in the export segment.
Overall, Senco Gold had a successful year in FY24, with strong revenue growth, focus on customer acquisition, and strategic initiatives to drive business expansion. The company remains optimistic about future growth prospects and is committed to delivering value to shareholders.
12 Likes
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 itâs 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 letâs 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 arenât 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
12 Likes
SAIF Partners have exited completely.
2 Likes
Great news. This was an overhang for low PE on the stock Now hopefully, PE will get aligned with that of other Gold stocks.
7 Likes
What is the reason for such thing? Is SAIF not a good investment firm? Or people were waiting for it to book profits?
They are closing down their India fund
Need to understand how its new brand SENNES performs. Good analysis done in this video.
4 Likes
Senco Credit rating
Rise in share of studded Jewellery is also likely to increase Sencoâs margin over the medium term.
Consumer business - Do check Kalyan and Titan - Senco seems like a Rerating candidate
3 Likes
