Thangamayil Jewellery AR2021 notes
- Manufacturing locations
Madurai (Showroom , Head Office and Manufacturing) , Coimbatore (Manufacturing) and Salem (Silver Manufacturing unit) - The year that went by started very badly for the entire nation more so to the companies that were forced into lockdown due to Covid 19 pandemic. Being in retail trade, due to complete lockdown the company could do a turnover of 12,589.04 lakhs in the first quarter with a reported loss before tax of 855.86 lakhs. However, things improved in the second quarter due to need to satisfy the pent-up demand for jewellery. Due to fear of non-performance of economy among all associated assets classes, a sudden increase in price of gold was seen in the second quarter that enabled us to report a turnover of 46,755.43 lakhs in the first half with a prfiot before tax (PBT) of 6,153.73 lakhs
- The year also witnessed a wide fluctuation in gold price(22ct) a low of 4,165 to high of `5,416 but settled in the lower range of 4,162 per gram. Therefore, with the normal profits that could have been earned but for this year ended in lesser realisation, the performance could have been better. Nevertheless better realisation of gold price in the larger part of the year has enabled the company to declare an all-time high profit before tax ( PBT) of 11,697.15 lakhs.
- It is unfortunate that the year 2021-22 started in a bad environment again affected by the Covid-19 Second Wave lockdown in the state of Tamil Nadu. The lock down continued still thereby significantly affecting operation in the current year 2021-22 both in May and June month.
- The First Quarter of any financial year is the Best for the industry as it carries more number of wedding days and akshaya tritiya function, as we see it from our internal reviews. So far the impact is only due to accompanied fear of the covid and not that of any economic set back. Once, the lock down is lifted, normalcy will be restored. We are confident that as in last year post lifting of complete lock down, pent up demand would re-emerge and there is every possibility that the lost turnover could be recouped in the rest of the year, provided widely expected re-appearance of covid third wave does not repeat
- All the ongoing retail outlets expansion are in place and only a marginal delay is expected in commencement planned as per schedule due to second wave impact.
- New marketing initiatives taken continues to show better “foot fall”and enquiries.
- The change in the “pricing formula” particularly in gold ornaments based on volume off take etc has improved our competitive strength.
- Supply chains and scale up of capacity.
We have developed a brand-based vendor management for ensuring “right in time” supply with the help of successful in-house software developed. Inventory holding cost has come down and a greater confirmation for what goes out is bought back as per merchandise plan is ensured. Our in-house capacity to produce common / traditional/ repetitive items increased that would ensure replacement of sold items from any retail outlets within 24 hours of sale so that more active and supportive inventory management could be strategized. - We are operating in south and western regions of the state of Tamil Nadu. This area is supposed to have larger cake in jewellery retail trade due to historical reasons. We had become a dominant player in a larger part of our retail outlets places. In a shrinking market size we are able to improve our volume effectively. It means that customers have a preference for our company among competitors for many reason including pricing, display, loyalty, varieties, ranges, and sentimental value
- Expanding product portfolio
The company has come a long way from a mere retailer of commercial grade jewellery into an emerging established reputational retail brand deliverer. Apart from normal range of gold ornaments of daily use and gifts, the company created a niche market for wedding ranges, exclusive facility for studded diamond items and a marketer for established other special allied brands. A supremacy is established in making and pricing at the lower end for silver payals, vessels and ornaments. It has also slowly promoted into other precious stones and unique value-added products. In the last 5 years share of other items in the overall turnover has improved from `,635.77 lakhs to currently 16,528.67 lakhs a registering growth of 91.40% and in terms of percentage in total sales increased from 6.65% to 9.09%. - Though a regional player our market share in the places we operate improved a lot steadily. In order to optimise the financial and non-financials resources at our command, the company needed to polarise the business in the areas we are already strong in, like south and western part of the state of Tamil Nadu. All synergies are in place like taste / preference/ ethnic demand/ loyalty/ brand visibility / outlets/services etc. It is imperative to scale up operations by carefully expanding deeper into these known and established territories. All our future expansion plans run around this objective so that operational efficiencies could be maximised.
- Becoming a retail brand instead of a jewellery retailer. By opting to market other brand jewellery the company started to harvest its brand loyalty and became a retail brand instead of jewellery retailer.
- The FY 21 ended in a positive note even though the second wave of Covid-19 pandemic started hitting some parts of the country from mid / late March 2021but this did not materially impact the Company’s performance. From the 2nd week of April 2021, one by one the State Governments have started announcing lockdowns to control the spread of the second wave of Covid-19 pandemic. There was no major impact to the sales in April and all the showrooms were opened following the Covid-19 protocols announced by the respective State Governments. But by early May 2021 almost all States Governments have imposed lockdowns of varying degrees to control the spread of the second wave of Covid-19. This complete closure does have an impact on the planned sales for the months of May and June 2021.
- The increased volume of Diamond sales & silver jewellery MRP items along with the existing silver articles incrementally contributed to better return on the working capital investment. The area of concern for growth remains with the gold ornaments. In recognition of this fact, your management has taken certain operational initiatives to improve the ROI on gold inventory in the days to come. Going forward, we may have to improve the stock rotation aspect with the help of new technology (goldratt platform) in the given pricing model either by contracting the size of the Balance Sheet or by profitability exploring avenues to build up outlets to increase the turnover and other related strategies for sustained growth
- The industry suffers from the introduction of sovereign gold bond and also by the penetration of “E-commerce” activity in the trade
- Inventories including company’s stock held with gold smiths are valued at lower of cost or net realizable value. The cost of raw material inventories is computed on a FIFO basis. The cost of nished goods and work in progress includes cost of conversion and other cost incurred in bringing the Inventories to their present location and condition.
- Financials
- EBITDA margin increased by 38% to 8.21% as compared to 19-20. It is also partly due to better realisation of closing stock of earlier years.
- Revenue has improved by 7.48 % to 1,81,861.88 lakhs as compared to 19-20 in spite of Covid shut down for 92 days in 20-21. Improved product mix enhanced the company’s market share shrinking industry.
- Continuous better gold price realisation at the point of sales except in the last quarter.
- Due to corona we missed the “Akshaya Thirithiyai”sales along with lots of wedding days lost (muhurtham) that fell in rst quarter of both the years.
- The company has got a well-defined operative “Hedging” mechanism in place. The company availed more loan under “metal loan” category of finance from banks at concessional rate of interest besides ensuring a natural hedge on such procurement. It is 63% (previous year 73%) as against the internal set target of 75:25 due to stoppage of operation and relatively on lesser inventory level. Based on our experience and the current gold price movement trend we are of the opinion that the ratio at the most can go upto 75:25 in the overall operational interest of the company.
- During the year, we capitalized 561 Lakhs to our gross block comprising 479 lakhs for Plant & Machinery and Furniture & Fittings and other assets and balance of 82 lakhs for Computer Equipment including Software. The capital work in progress amount outstanding as on 31st March 2021is 228 lakhs (previous year `202 lakhs). This comprises interiors and other assets still to be put in use and are yet to be capitalised.
- Utilisation of own manufacturing facilities including on job work basis is around 96% as against 95% of the earlier years. The overall cost of production has come down due to attainment of scale of economics in the manufacturing facilities. It is expected to improve the own manufacturing capacity utilisation in forthcoming years. On a need basis, at short notice, handmade items capacity could be enlarged.
- Gold Metal Loan carries interest @ 1.90% to 3.25% p.a. Out of total loan of Rs. 305cr, Gold Metal loan is Rs. 138 cr.
- Advances from customers includes an amount of Rs.124.27 cr (As on 31st March 2020 Rs.186.97 cr) received towards sale of jewellery products under various sale initiatives / retail customer schemes.
Company has a Hedging Profit of Rs. 6.02 cr in FY21 against a Hedging Loss of Rs. 18.87 cr in FY20. hedging expenses represents Mark to Market (MTM ) difference for gold price hedging mechanism outstanding as on date as losses in accordance with generally applied the treatment for Hedging Accounting.