Renaissance Global Limited has informed the Exchange regarding Analysts/Institutional Investor Meet/Con. Call UpdatesWith reference to our letter Ref. No RGL/S&L/2019/77 dated May 28, 2019; please fin...
Ref. No.: RGL/S&L/2019/82
June 5, 2019
Bombay Stock Exchange Limited Listing Department Phiroze Jeejeebhoy Towers Dalal Street, Fort, Mumbai – 400 001
National Stock Exchange of India Ltd. Exchange Plaza, Plot no. C/1, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051
Sub.: Transcripts of the Earnings Call
Ref.: Regulation 30 of SEBI (LODR), Regulations, 2015.
Dear Sir
With reference to our letter Ref. No RGL/S&L/2019/77 dated May 28, 2019; please find enclosed
herewith the transcripts of earnings call on Q4 & FY 2019 results, held on Thursday, May 30, 2019.
The aforesaid http://www.renjewellery.com/investor-relations/investor-relations.asp
is also being uploaded on
information
the website of
the Company at
You are requested to take the above on record and disseminate to all concerned.
Thanking you,
Yours faithfully, For Renaissance Jewellery Ltd.
G. M. Walavalkar VP – Legal & Company Secretary
Encl.: As Above
Renaissance Global Limited Q4 FY19 Results Conference Call May 30, 2019
Moderator:
Good morning, ladies and gentlemen. I am Janice, the moderator for this
conference. Welcome to Fourth Quarter FY19 Results Conference Call of
Renaissance Global Limited organized by Dickenson Seagull IR. At this
moment, all participants are in the listen-only mode. Later, we will conduct a
question-and-answer session. At that time if you have a question, please
press ‘*’ and ‘1’ on your telephone keypad. Please note this conference is
being recorded. I would like to hand over the floor to Mr. Aakash Mehta.
Thank you and over to you, sir.
Aakash Mehta:
Good morning everyone. This is Aakash here and I would like to welcome
you all for the Q4 and FY19 performance and earnings con-call for
Renaissance Global. We have with us Mr. Sumit Shah, Vice Chairman and
Mr. Hitesh Shah, the Managing Director to discuss the overall performance
of the company. Over to you, sir.
Sumit Shah:
Good morning everyone. I wanted to take this opportunity to welcome all of
you to the conference call this morning.
Let me begin with a quick introduction of Renaissance Global. Renaissance
Global is a highly differentiated luxury lifestyle products company. We have
been the largest exporter of studded jewellery out of India and we distribute
our products to leading global retailers. Going forward, our company is
focused on growing the licensed brands that currently a company has
current licenses for Enchanted Disney Fine Jewellery and heart of Hallmark.
We have an exclusive license for Enchanted Disney Jewellery for the US, UK
and Canada and have plans to expand it to other geographies including
China and India. The company has had a proven history of successful and
accretive acquisitions. We acquired in August 2018 US based Jay Gems for
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25.62 million. Jay Gems had revenues of 79 million in 2017 and for the
current financial year from August 3rd, 2018 to the end of the financial year
added about $90 million to our revenues.
Our strategy is to evolve our business model to 1) with a majority of the
sales come through our own brands or licensed brands. During this
transition phase, we expect to improve margins and return on equity over
the next few years. We look forward to expanding licensed brands in
existing and new markets globally. We also have firmed up our plans for
entry into the Indian market. We have recently made a strategic investment
in joint venture with BCCL. This joint venture will set up retail stores in India
under the brand name IRASVA. BCCL has committed to 350 crores of
advertising exchange for 49% in this new domestic joint venture that we
have setup. Our goal would be to increase the share of licensed brands and
own brands as a percentage of our revenue to the majority of our business.
With that, I would like to hand over the call to Hitesh Shah to go over the
financials for the quarter and for the financial year.
Hitesh Shah:
Thank you, Sumit. Good morning everyone. Now talking over the financial
performance of the company during the fourth quarter, our sales increased
from 448 crores to Rs. 695 crores, there is a growth of 55% on a year-on-
year basis. EBITDA grew 30% and net profit grew by 54% on a year-on-year
basis. For the full year FY19, sales increased from 1814 crores to 2571 crores
that is a growth of 42% on a year-on-year basis. EBITDA grew by 33% from
Rs. 100 crores to 134 crores and PAT has increased from Rs. 63.8 crores to
84.1 crores, that is a growth of 32% on a year-on-year basis.
Coming to country wise share, the US has delivered 61% to the overall
revenue in Q4 and for full year, it was 57%. Middle East has contributed 34%
for the quarter and 35% for the full year FY19.
Coming to product category, studded jewellery has contributed 75% to the
overall revenue in this quarter and for the full year it is 74%. Balance
revenues are from gold jewellery segment.
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Thank you very much for your kind attention. Now the floor is open for
question and answers.
Moderator:
Thank you very much. Ladies and gentlemen, we will now begin the
question-answer session. We will take the first question from the line of
Akhilesh Sahoo, individual investor. Please go ahead.
Akhilesh Sahoo:
Actually, I have a couple of questions. Firstly, coming to the financials of the
company, can you explain me the sharp rise of other expenses, depreciation
and finance cost in this quarter? What I can see is that there is a sharp rise in
finance cost vis-à-vis Q-on-Q and both on Y-on-Y basis?
Sumit Shah:
Sure. So, the large majority of the increase in all of these heads is primarily
on account of the acquisition. The company that we acquired Jay Gems had
a bank line of $25 million. So, the majority of the increase in finance cost
and depreciation is on account of the acquisition which has been fully in the
current quarter.
Akhilesh Sahoo:
And likewise, for finance cost and depreciation that has sharpened?
Sumit Shah:
Yes. So, the depreciation includes amortization of intangibles as well. So,
depreciation, there is certain amount of goodwill that is being written off
finance cost and other expenses. So, the explanation for all three would be
on account of the acquisition.
Akhilesh Sahoo:
Sir when I see your balance sheet, there is a sharp rise in borrowings for
current liabilities from 34 crores to 65 crores, almost doubling. So, what
explains that?
Sumit Shah:
Are you talking about the bank borrowing or other liabilities?
Akhilesh Sahoo:
It says current liabilities, then borrowings in your credit balance sheet.
Sumit Shah:
The bank borrowings have increased on account of the liabilities of the
company that we acquired and there is some element of the purchased
price consideration which has also been deferred. So, both of those things
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have added to the liabilities of the company and on a going forward basis,
acquisition only occurred in the current financial year. We expect to sort of
deleverage the balance sheet. So, we have always maintained for the last 4-
or 5-years debt equity at 0.5, debt-to-equity currently, we are at about 0.9.
Over the next couple of years as we manage working capital better, we
expect to bring the debt equity ratio back in line to low levels that we had in
earlier years.
Akhilesh Sahoo:
Now coming to your policy issue, you have been paying dividends on a
regularly basis, but last year you went for a buyback instead of paying
dividend. This year, there is no dividend, no buyback. So, can you explain
company’s view policy in that aspect, what investor can expect from
company going forward?
Sumit Shah:
In the current year, the reason to pause the buyback or the dividend relates
to your earlier question. Currently since bank debt has been little bit
elevated, it is prudent since we have just done a large acquisition in the
current financial year to wait for a year to bring the debt equity ratio more
in line with our historical averages before we can commence either a
buyback or a dividend policy going forward.
Akhilesh Sahoo:
Means we can expect in future these things will normalize.
Sumit Shah:
Yes.
Moderator:
Thank you. Next question is from the line of Vipul Shah from Ripple Wave
Equity. Please go ahead.
Vipul Shah:
Coming back to the question of the earlier caller as well, can you just share
what are the major components of the other expenditure which has really
increased sharply Q-on-Q on a consolidated results from 36 crores to 72
crores and also what would be your target for return on equity going ahead?
Sumit Shah:
Sure. Probably we can get back to you with specific reasons for increase in
other expenditure. In terms of targets for return on equity we have
gradually increased our return on equity to about 12.5% this year. Our goal
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would be next to get to between 15% and 17%. So hopefully in the next two
financial years we expect for our return on equity to be above 15%.
Moderator:
Thank you. Next question is from the line of Ankita Jain, an Individual
Investor. Please go ahead.
Ankita Jain:
Sir, my question is regarding, so what is the tenure of your license for Disney
brand?
Sumit Shah:
Currently due to competitive reasons we are not disclosing the specific
tenure of the license. They are generally long term in nature but due to
competitive reasons we have not disclosed the exact tenure of the license.
Ankita Jain:
Okay. And my other question is, what is your business understanding
regarding the Disney license? Are there any fixed payment royalty or it all
depends upon the sales?
Sumit Shah:
So, there are usually the way most licenses work. There are minimum
guarantees and royalties are tied to sales.
Ankita Jain:
And if you could specify what is the royalty amount?
Sumit Shah:
Again, for confidentiality reasons we have not disclosed that, due to
competitive reasons.
Moderator:
Thank you. The next question is from the line of Ninad Sabnis from Sabnis
Financials. Please go ahead.
Ninad Sabnis:
I would like to know what are the sales contribution from brands we have
licensed?
Sumit Shah:
So currently licensed brands which are two, Hallmark and Disney, are
between 18% and 20% of sales.
Ninad Sabnis:
Okay. And over a horizon of the next 3 years where do we see that
percentage rising or falling?
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Sumit Shah:
So, our goal would be that over the next 3 years our expectations would be
that between the licensed brands and our own brands which we just
invested in for it to be greater than 50% of our overall sales.
Ninad Sabnis:
So, your own brands to be the major contributor?
Sumit Shah:
No, we expect significant growth from licensed brands as well. Currently the
licensed brands are being sold only in the US, UK and Canada. We have
signed licensing arrangements to expand it to other geographies as well.
Ninad Sabnis:
Which geographies would that be?
Sumit Shah:
China, India, Middle East and certain East Asian countries.
Ninad Sabnis:
Okay. 50% from license and 50% from your own brands, that is what?
Sumit Shah:
50% of the sales would come from licensed and own brands and the
remaining 50% would be B2B where designing product and supplying
jewellery to retailers worldwide. Currently it is 80:20.
Ninad Sabnis:
Yes, exactly. From 20% it will go up to almost 50%. So, which means it will
double over the next year?
Sumit Shah:
That would be our expectation.
Ninad Sabnis:
And I am guessing there would be higher realization when the brands are
sold more, right?
Sumit Shah:
Yes. In general the margins on licensed brands and own brands would be
higher. So, we would expect margins to improve over the next 3 years.
Ninad Sabnis:
Right. And what will be the strategy to drive those brands? So, you will have
to invest heavily in the stores and marketing wise what would be the play
over there?
Sumit Shah:
You know, licensed brands are sold through retailers. We don’t invest in our
own stores for licensed brands. However, we do spend some money on
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marketing in order to promote the licensed brands. So, there would be some
investments in terms of marketing. But they would not be disproportionate
to what we would have spent in the current year. Our joint venture with
BCCL which we plan to sell products in India will require building some
stores and some investments in the retail business. However, we expect that
to be a much smaller contributor and we are going to be cautious about
growing that business based on profitability and return ratios. According to
me, the licensed brands businesses are much more scaled up business and
something that we have far more experience in terms of the return metrics.
The new joint venture with BCCL is something that we are going to be
cautious about for the next 18 months to 24 months. Look at the
profitability carefully and then scale that up.
Ninad Sabnis:
Okay. So just a follow up as to what was your budget for marketing this year
and how is it stated for FY20?
Sumit Shah:
For the licensed brands, the budget for marketing would be between 2% and
3% of sales.
Ninad Sabnis:
Okay. Going forward this will be the same will it increase?
Sumit Shah:
It will stay in the same range.
Ninad Sabnis:
And any plans to get brand ambassadors or known faces to promote the
brands?
Sumit Shah:
On the licensed brands…
Ninad Sabnis:
No, not on the licensed. On our own brands?
Sumit Shah:
It is a little bit early to make that determination. We is going to watch how
sales are for since the store just started. We are going to watch how sales
are for one quarter or so and I think that maybe closer to Diwali and festive
season we may decide to plan larger marketing activities. As of right now,
little bit too early to make that determination.
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Moderator:
Thank you. We take the next question from the line of Ankit Gupta from
IndiaNivesh. Please go ahead.
Ankit Gupta:
Sir, I just want to ask the difference in the basic business model between
contract manufacturing, licensed brand and our own brands. I know that the
margin profile is completely different, but what is the basic business model
and differentiating factors in these 3 business models to get a feel of what
are we pursuing?
Sumit Shah:
So, I think Hitesh can answer that question.
Hitesh Shah:
We really don’t have contract manufacturing. Even the generic product sold
by us is indeed designed and developed by us. But it is sold as the brand of
the retailer. That means the margin differential between generic products to
a licensed brand would be a couple of percentage points. I mean in terms of
obviously our own brand, the margins would be far higher but so are the
cost of operating it and only at a certain scale there be a significant margin
accretion.
Ankit Gupta:
In the licensed brands, the only thing is that it is sold by the same retailers or
it is sold in a different sales channel?
Hitesh Shah:
It is sold by the same retailers.
Ankit Gupta:
So, do we have some design patents or something?
Hitesh Shah:
So, the entire intellectual property rights for the designs are owned by us. I
mean, we are the exclusive licensee for the brand and therefore that
product can only be sourced by us and whether that is a lack of competition
to that aspect as long as the licensed brand is selling well at retail we are the
exclusive suppliers for that category. For a generic product the retail does
have an option of sourcing from different vendors.
Ankit Gupta:
And in terms of market opportunity, what is the market opportunity for
branded jewellery, because in India it is quite low this year or branded
jewellery is quite low. But in the markets where we operate, like US, UK,
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Canada and we are planning to go into China and other countries. So, what
kind of opportunity do we see in the branded Jewellery segment?
Hitesh Shah:
I mean, essentially in Jewellery brands are becoming increasingly important
to attract consumers. Since, De Beers have stopped marketing diamond
Jewellery as much in the western markets, I mean essentially the key drivers
for sales has been the pull of a brand and therefore we have seen a
significant growth in branded sales for all our retailers versus generic
product and there is lot of potential for growth going forward too.
Ankit Gupta:
And what kind of premiumization can we expect from branded products as
vis-à-vis generic products?
Hitesh Shah:
As I mentioned earlier, there would be a few percentage points increase in
margin of a branded product. I mean at retail obviously the premium is
much higher because there is also a royalty element that is to be paid to the
brand.
Ankit Gupta:
But you don’t get into retailing in those markets?
Hitesh Shah:
No, we do not intend to retail in those markets.
Ankit Gupta:
For distribution and retailing you will depend up on the third-party channels
only.
Hitesh Shah:
Yes, our existing or future, those retailers existing in those markets, yes.
Ankit Gupta:
Sir, one last accounting part, I just want to touch up on. So, our inventory
levels are typically very high. So, is this the nature of the business or was it
something exceptional this year?
Hitesh Shah:
So, due to the acquisition of Jay Gems, the inventories have shot up
significantly because they have been carrying a lot of inventory on their
books and I think overall, next few years, it will be our endeavor to bring the
inventory levels down and in line with the ratio that we have been
maintaining in the past.
Page 9 of 12
Ankit Gupta:
Okay. And second question was in terms of receivables. So, what is the
normal working capital cycle in the business?
Hitesh Shah:
Our typical receivable days would be below 90 days, that would be between
60 days to 90 days would be our average receivable days.
Ankit Gupta:
And the risk of our stock with the retailer. So, I mean is it a kind of SOR kind
of arrangement or it is an outright sale to be precise?
Hitesh Shah:
Whatever is on consignment is showing as inventory on our books. What has
been sold is already in outright. So, the receivables are an outright sale.
Whatever is lying on SOR is already showing as inventory on our books.
Ankit Gupta:
Okay. So SOR is basically a part of the inventory and receivable is the part of
outright sales?
Hitesh Shah:
That is correct.
Moderator:
Thank you. We will take the next question from the line of Hema Mehta, an
Individual Investor. Please go ahead.
Hema Mehta:
I have few questions. In the presentation you have mentioned that you are
planning to open 25 stores in India. So, what could be the expected CAPEX
and what would be sources of fund?
Sumit Shah:
So, we expect to open 25 stores over a 5-year period. That is the extent of
our agreement with BCCL. So, it is a joint venture with BCCL and the extent
of this is going to be over a 5-year period. So, we expect that there will be
somewhere for a store, capital expenditure would be between 1 crore to 2
crores per store. But this would be spread out over a 5-year period.
Hema Mehta:
Okay. And in which cities are you targeting to open the IRASVA stores?
Sumit Shah:
So currently the first one that we have opened is in Mumbai. And I think that
the first few stores would be in the current financial year in Mumbai only.
Going forward based on some research we will firm up our plans, specifically
which cities we are planning on opening on.
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Hema Mehta:
Okay. And one last question. So how do you see these synthetic diamonds
affecting your business?
Sumit Shah:
Lab grown diamonds obviously have similar chemical composition as natural
diamond. And that there is especially among the millennial customer in the
west, there is some interest in lab grown diamonds. Currently we sell
studded Jewellery with various different stones. We sell gemstones,
synthetic gemstones, CZ, diamond jewellery, I think this should be one of the
other raw materials that we would use. I mean we have done a test program
with a retailer for Mother’s Day this year with lab grown diamonds with
some success and we plan to sort of grow the share of lab grown diamonds
within our portfolio of products. It is something that would become popular
over the years and we expect that to attract different kind of customer who
is a younger customer, who is more concerned with sort of green mining
and environmentally friendly diamonds. We expect that to be something
that would become a part of the larger portfolio of our products that we
sell.
Moderator:
Thank you. The next question is from the line of Prem Thakur from Prudence
Equity. Please go ahead.
Prem Thakur:
My question is, Jay Gems is profitable in terms of EBIT, in terms of PBT?
Sumit Shah:
Yes. It had a positive contribution in terms of EBIT and PBT for the current
year.
Prem Thakur:
How much the percent is that?
Sumit Shah:
See, I don’t have the breakup of the exact profitability off hand. Hitesh
would you have that available.
Hitesh Shah:
Yes. The profit after tax from the Jay Gems would be around Rs. 11 crores.
Moderator:
Thank you. There are no further questions. I would now like to hand the
floor over to Mr. Sumit Shah for closing comments. Over to you sir.
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Sumit Shah:
So, thank you everyone for joining us on this morning’s conference call and
look forward to seeing you guys on the next call after the next quarter.
Thank you.
Moderator:
Thank you very much. Ladies and gentlemen, with that we conclude today’s
conference call. You can all disconnect your lines now. Thank you.
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