KALYANKJILNSEQ4 FY2022May 13, 2022

Kalyan Jewellers India Limited

9,328words

107turns

8analyst exchanges

6executives

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Management on call

Aniket Sethi

ICICI SECURITIES LIMITED

Ramesh Kalyanaraman

EXECUTIVE

Sanjay Raghuraman

CEO – KALYAN JEWELLERS LIMITED

V Swaminathan

CFO – KALYAN JEWELLERS LIMITED

Sanjay Mehrotra

HEAD STRATEGY AND

Abraham George

HEAD TREASURY AND

Key numbers — 40 extracted

26%

araman: Hi! Good evening everyone. Thank you. FY2022 was an excellent year with revenue growth of 26% over FY2021 recording the highest revenue in the history of the company so far. This is despite d

224 Crore

to business due to COVID second and third wave during Q1 and Q4. We ended the year with a PAT of 224 Crores however if you look at the PAT for the last three quarters, our PAT was at 275 Crores. Now let

rs,

e ended the year with a PAT of 224 Crores however if you look at the PAT for the last three quarters, our PAT was at 275 Crores. Now let me give you an overview of the recently concluded quarter and s

275 Crore

th a PAT of 224 Crores however if you look at the PAT for the last three quarters, our PAT was at 275 Crores. Now let me give you an overview of the recently concluded quarter and some important decision

10%

the continued momentum across all markets with India own store footprint growing by approximately 10%, franchisee model taking good shape, Middle East showing positive signs and Candere moving into t

2857 Crore

he just conclude financial year, our company reported a consolidated revenue of 2857 Crores a marginal de-growth of about 6% compared to the corresponding quarter of the previous year. Con

ny reported a consolidated revenue of 2857 Crores a marginal de-growth of about 6% compared to the corresponding quarter of the previous year. Consolidated EBITDA came in at 218 Cr

218 Crore

out 6% compared to the corresponding quarter of the previous year. Consolidated EBITDA came in at 218 Crores versus 228 Crores in the corresponding quarter of the previous year and consolidated profit af

228 Crore

he corresponding quarter of the previous year. Consolidated EBITDA came in at 218 Crores versus 228 Crores in the corresponding quarter of the previous year and consolidated profit after tax, PAT came in

72 Crore

the corresponding quarter of the previous year and consolidated profit after tax, PAT came in at 72 Crores versus 74 Crores in the corresponding quarter of the previous year. I shall now give you a break

74 Crore

g quarter of the previous year and consolidated profit after tax, PAT came in at 72 Crores versus 74 Crores in the corresponding quarter of the previous year. I shall now give you a breakup of the Q4 perf

2399 Crore

performance starting with India numbers. For the just concluded quarter, our India revenue was 2399 Crores versus 2615 Crores when compared with the corresponding quarter of the previous year and our Ind

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Guidance — 20 items

Aniket Sethi

opening

“For the current financial year in India we target to open 12 to 15 new showrooms.”

Aniket Sethi

opening

“Over and above that the franchisee owned showrooms which we plan to open during the year will also be there.”

Aniket Sethi

opening

“We will be opening our first franchise store during the first quarter.”

Aniket Sethi

opening

“We were cautiously optimistic on the region since resumption of business post COVID and after seeing the region witness good traction over the last three consecutive quarters, we now plan to restart our calibrated expansion there.”

Aniket Sethi

opening

“The expansion will be fully funded by the internal accruals from the region.”

Aniket Sethi

opening

“We plan to launch franchise operations in the region after successful launch of the first set of pilot showrooms in India.”

Aniket Sethi

opening

“While we expect this share to grow organically we are also planning to widen our customer base through the introduction of innovative new product segments for brands and collection.”

Gaurav Jogani

“So if you can just repeat that again if I heard it right it is 12 to 15 showrooms in India that you will be opening by your own and in addition to that there will be six stores that will be opened on a franchisee basis.”

Gaurav Jogani

“Ramesh Kalyanaraman: Yes, so 12 to 15 showrooms is what we want to open with our own internal accruals and then six LOAs we have already done so minimum franchisee store which will come in this year will be six.”

Sanjay Raghuraman

“The way the model is going to work is we will be selling inventory to the franchisee at a suitable trade discount, franchisee will invest in the inventory as well as the fixed assets in the showroom and will be responsible for all the operating costs.”

Risks & concerns — 2 flagged

Lastly Ramesh Sir, just wanted to hear your thoughts that given gold prices seen some decline in the last two, three months.

— Aniket Sethi

There was a hesitation when the price was very volatile, but that hesitation is almost settled down at least for the past 30, 40 days but of course if the geopolitical issue again worsens and if the price gets more volatile then it is a different issue but as we speak today it has settled down.

— Aniket Sethi

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Q&A — 8 exchanges

Thank you for the opportunity Sir. My first question is with regards to the store expansion plan that you have laid out for FY2023. So if you can just repeat that again if I heard it right it is 12 to 15 showrooms in India that you will be opening by your own and in addition to that there will be six stores that will be opened on a franchisee basis. So is that right. Ramesh Kalyanaraman: Yes, so 12 to 15 showrooms is what we want to open with our own internal accruals and then six LOAs we have already done so minimum franchisee store which will come in this year will be six.

Gaurav Jogani

If you can highlight what are the terms of this franchisees how will this be on a FOCO model, COCO model if you can give some details here. This model is a franchisee owned company operated model as in FOCO. The way the model is going to work is we will be selling inventory to the franchisee at a suitable trade discount, franchisee will invest in the inventory as well as the fixed assets in the showroom and will be responsible for all the operating costs. Our staff will be managing the showroom so that is the company operator side of it. One clarification here. I mean, so the inventory will be

Sir, on the quarter on a Y-o-Y basis the non-south revenues has grown while south had a degrowth why the divergent trends for this quarter. Ramesh Kalyanaraman: If you remember last year Q4 our south revenue growth was higher than the non-south. So South had grown by 70% in Q4 last year and non-south had grown in the range of 40% in the last year because I had told you the reason where we saw a lot of migration happening, people from the non-south markets also they started migrating to their own hometown and we got that revenue in south so the base was already high at a Pan India level but sou

Aniket Sethi

Second on the asset side in the standalone balance sheet there is a 113 Crores of loans and advances which was not there last year what does this really pertain to. We will come back to you during this call. Next, studded has seen a good increase 200 bps but you have also kind of articulated that some of it is coming from the low value studded. So if you could just split and how much is the margin differential in low value studded versus the actual studded business which you do. Ramesh Kalyanaraman: So the low value and the usual studded there is a difference of 10% in the gross margin level.

Thank you very much Sir for the opportunity. I just was trying to understand now you spoke about the store expansion as well as the franchisee store. So that effectively means about 18 to 20 stores we are looking to open in this particular financial year which effectively means about 12% to 14% increase in our total retail footprint as we seek now. Ramesh Kalyanaraman: Yes.

Deepak Poddar

So overall that is the trend that we are looking to continue over next two to three years a little on the medium-term basis about 12% to 15% kind of a store growth. Ramesh Kalyanaraman: So there are two things here one is yes as you rightly said 12 to 15 new showrooms we will put in our own internal accruals in India and six LOAs franchise we have already signed so that is the minimum number of franchise store which we will do this year and the pilot will be for three franchise and if the pilot works out very well it might go beyond six also and there is a correction needed then we will limit

Hi! Ramesh Sir, Sanjay Sir good evening and thanks for the opportunity. Three questions, I am referring to slide #31 and in that slide if way forward FY2025 you have mentioned that we will reach to 10% EBITDA margin so my question is on EBITDA margin, you touched upon the gross margin but then the larger question is that how would you plan to achieve and of course gold metal loan is one of the thing which is there but what are the low hanging fruits if you can fast track the margin growth. Ramesh Kalyanaraman: First of all the EBITDA growth will be actually done in two ways, one is that the gr

Shirish Pardeshi

But operationally what I think that we will definitely have the inventory gains on the studded portion. Ramesh Kalyanaraman: So studded if you see we as a player we have competition with unorganized as well as regional players. We have only a few markets where we compete only with the listed player so where if you are referring to the 190 Crores the inventory gain which I heard in a recent call for us we have actually not increased our diamond rates in almost any markets except for a very few markets where we compete only with the listed players. So in short we do not have any inventory gain a

Sir my questions are what was your gross margin this quarter on studded and gold. That is my first question. Second question is for this quarter what was your gold on lease percentage and exchange percentage and third is would you like to comment on your inventory days this quarter, I mean, what is expected and going forward what is it that you are expecting. Ramesh Kalyanaraman: First thing gold versus studded margins we usually do not give because it is a very competitive information, so that I am very sorry, but if you look at exchange. Exchange has come up by 3% quarter-to-quarter and year

Gautami Desai

What did you say sir. Ramesh Kalyanaraman: 3% more exchange. So that makes it how much of total. Ramesh Kalyanaraman: It is 30.5% was the exchange old gold in Q4 it is 3% more than Q3 and 3% more than last Q4. And how about gold on lease. Ramesh Kalyanaraman: The gold on lease is approximately 1500 Crores versus 1400 Crores in the last quarter. So exact number is 1496 Crores now versus 1418 Crores last quarter. And how about inventory you said like you were operating at like your whole year was not looking 2.4, 2.5 times but you said your current inventory turn when we spoke last time was that

Thanks team for the opportunity and congratulations on a good set of numbers. Couple of questions. My first question is that in the Middle East you have now sort of stated that it will be a calibrated expansion that too with the capital that is generated for the Middle East operations. So the first query on that is that, that business employs give or take 1800 to 2000 Crores of capital and does not sort of generate significant return ratios for us and that drags down the entire company level return ratio so could you speak a little bit more about your optimism for the Middle East business. Ram

Aejas Lakhani

Given that the Middle East has their own cycles because it is linked to oil and crude. So you see the cycle playing out for the next couple of years where there is entire stability in that region or do you see any further volatility in that region. Ramesh Kalyanaraman: If you look at the market now for the past three quarters that is why we were cautiously waiting for that market if you look at three quarters it has been consistently performing, the gross margin has organically improved because of the consolidation of the market, Opex is under total control, EBITDA margins are at the range of

I have two questions while looking at the standalone for FY2022 I think since the time the IPO happened the ad spend is one of the key criteria for you and I see that we have spent almost 193 Crores as a percentage of sales is about 2% so in the next two to three years when your store expansion is going to be very strong what kind of ad spent if you can give me a absolute number or maybe as a percentage sale that would be very helpful to model. Ramesh Kalyanaraman: So if you look at this financial year also we actually opened 18 showrooms and this ad spend of around 2% is coming even after the

Shirish Pardeshi

And if I may ask just it is a curiosity who is your creative agency. The reason why I am saying this because I recently came across the Marathi version for enticing the consumer and it was very impressive so that is why out of curiosity I am asking who is your creative agency you follow. Ramesh Kalyanaraman: Thank you for the compliment but what we usually do is that we work with multiple creative agencies from every region because this hyper local flavor never comes from one particular creative agency. So we have tie-ups with lot of hyper local creative agencies across India and we utilize th

Thank you. Ramesh ji my question is on the metal gold loan you mentioned it has gone up to 1500 Crores now and in the past on the calls you had mentioned there is scope to take it up to about 1800 plus Crores so what is stopping us from getting to that number. Ramesh Kalyanaraman: Yes, so 1800 Crores is what we target and actually it had to be happening in Q4 itself, but we had a technical issue with a certain bank where, Abraham you want to add.

Abraham George

So as of now for the quarter we have increased it by approximately 80 Crores from Q3 like Ramesh was mentioning there was a technical issue with one of the banks with the gold metal loan limit. So that has been sorted and we are just starting to pick up gold metal loan from the beginning of next week. So we can take it up to approximately 1800. So we stand by that 1800 this bank limit will take it. But Abraham 1800 is excluding what you are trying to do now with the exchange gold right. I think it was supposed to be on an average basis. Yes, this 1800 like I was mentioning to Aejas a little ea

Speaking time

Shirish Pardeshi

Moderator

Gaurav Jogani

Aejas Lakhani

Deepak Poddar

Abraham George

Gautami Desai

Aniket Sethi

Nillai Shah

Sanjay Raghuraman

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Opening remarks

Aniket Sethi

Thanks Neerav. Good afternoon everyone, thank you for joining. At ICICI it is our absolute pleasure to host the Q4 FY2022 and Full Year Earnings Call for Kalyan Jewellers Limited. From the management we have with us Mr. Ramesh Kalyanaraman - Executive Director; Mr. Sanjay Raghuraman – CEO; Mr. V Swaminathan – CFO; Mr. Sanjay Mehrotra – Head Strategy and Corporate Affairs and Mr. Abraham George - Head Treasury and Investor Relation. With that I will hand it over to Mr. Ramesh for the opening comments post which we will open the flow for the question and answer. Thank you and over to you Ramesh Sir. Ramesh Kalyanaraman: Hi! Good evening everyone. Thank you. FY2022 was an excellent year with revenue growth of 26% over FY2021 recording the highest revenue in the history of the company so far. This is despite disruptions to business due to COVID second and third wave during Q1 and Q4. We ended the year with a PAT of 224 Crores however if you look at the PAT for the last three quarters, our

Sanjay Raghuraman

Thank you Ramesh. Good afternoon everybody. I am really happy to be talking to you all after a great financial year performance. I shall share some details now starting with the just concluded quarter. In Q4 of FY2022, the just conclude financial year, our company reported a consolidated revenue of 2857 Crores a marginal de-growth of about 6% compared to the corresponding quarter of the previous year. Consolidated EBITDA came in at 218 Crores versus 228 Crores in the corresponding quarter of the previous year and consolidated profit after tax, PAT came in at 72 Crores versus 74 Crores in the corresponding quarter of the previous year. I shall now give you a breakup of the Q4 performance starting with India numbers. For the just concluded quarter, our India revenue was 2399 Crores versus 2615 Crores when compared with the corresponding quarter of the previous year and our India Q4 EBITDA came in at 188 Crores versus 194 Crores when compared with the corresponding quarter of the previous

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