Not a big fan of inventory gains as the price rise is beneficial for gold lenders. The SSG seems to be at par/little above management guidance for Q3’25. Q4 would be crucial to check for the continuous momentum for Jewellery players. Extensive growth in base metals can hurt as the light jewellery segment is still picking up for all the players and still not the volume driver for most.
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A small correction in management interview here. Total revenues are up by 51% in Q3 and volumes have degrown by 8%, which makes the value growth 64%. Same is validated by management commentary that gold prices are up 64% YOY for Q3.
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Senco Gold has almost never returned positive free cash flow in past few years. I think that’s the way retail jewellery business operates where inventory eats up cash. But their cash flow from operations keeps worsening every year as well.
What is the rationale behind investing in a business which never generated cash flow for the owners? The shareholders are basically paying for the expansion of the company since every new store demands significant cash outflow in form of inventory. Can anyone explain?
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One metric that needs to be tracked in Senco gold is inventory growth vs Revenue growth
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If inventory grows slower than revenue for a few consecutive quarters, it’s a strong signal that cash conversion is improving.
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If inventory continues growing much faster than revenue, negative operating cash flow is likely to persist.
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PE is looking temporarily low because of inventory gains. Management is guiding for 7-8% EBITDA in that case on the lower end of guidance keeping current interest cost, depreciation and 25% tax rate in constant net profit will be around 300 crores. Even in that case pe of 18 is not very high.
I think here we don’t have much to loose but upside potential is good as PE ratio and EPS both can expand at good rates.
Almost every jeweller is riding high on inventory gains. After normalizing senco is still less than half the others valuation.
Cash flows are deep negative which is only reason of not getting valuation.