Khazanchi Jewellers Limited (543953) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Q3 and 9 Months FY '26 Results Conference Call of Khazanchi Jewellers Limited hosted by Kirin Advisors Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harshil Ghanshyani from Kirin Advisors Private Limited. Thank you, and over to you, sir.

Thank you. On behalf of Kirin Advisors, I welcome you all for the conference call of Khazanchi Jewellers Limited for Q3 and 9 months FY '26. From the management team, we have Mr. Rajesh Mehta, Chairman and Joint Managing Director. We have Mr. Vikas Mehta, Chief Financial Officer. Now I hand over the call to Mr. Rajesh Mehta. Over to you, sir.

Hello, everyone. Rajesh Mehta, Chairman and Joint Managing Director of Khazanchi Jewellers. It's our pleasure to welcome you as we discuss our performance for Q3 and the first 9 months of FY '26. Q3 FY '26 marks another milestone quarter for the company, characterized by strong revenue traction, margin expansion and disciplined execution. The quarter benefits from sustained festival movement and improved product mix and healthy demand across both wholesale and retail channel. Our diversified model once again demonstrate resilience and operating leverage, enabling us to deliver robust growth while maintaining tight control over cost and our inventory cycle. On the B2B front, we continue to expand our partner ecosystem and deepen relationship with jewelry houses, wholesalers and organized retail chains across India. Our ability to execute large volume orders with precision, timely delivery and design differentiation remains a key competitive strength in the wholesale gold segment. Our B2C business also delivered encouraging traction during the quarter, supported by festival demand and improved realization. I am pleased to share that our new 10,000 square feet large format showroom in Chennai was successfully inaugurated on 7th Feb. In the first 10 days since its opening, we recorded a sale of approximately INR 20 crores. This strategic addition significantly strengthened our retail footprint, enhanced the customer experience and positions us strongly in the premium jewelry segment. This new flagship showroom will play a pivot role in driving higher retail contribution and margin expansion going forward. Our expansion into the natural diamond category under our premium brand, Vajra by Khazanchi, continues to gain momentum. The positive response at trade exhibitions and subsequent orders inflows validate our strategic move into higher-value categories, which are expected to meaningfully support profitability and brand premiumization over the medium term. Looking ahead, we have a clear strategic vision. Over the next 2, 3 years, we aim to increase our retail contribution from 10% to 25%. We plan to achieve this by expanding our product portfolio, onboarding new brands and further strengthening our retail presence. As our retail mix improves, it will naturally enhance our margin profile, drive strong profitability and create greater operating leverages in the years ahead. Let me now briefly walk you through our financial performance. 9 months FY '26 financial highlights are as total revenue of INR 1,542.02 crores, a year-on-year growth of 34.04%; EBITDA of INR 89.12 crores, year-on-year growth of 96.91%; EBITDA margin of 5.78%, year-on-year expansion of 185 basis points; PAT of INR 63.82 crores, year-on-year growth of 96.92%; PAT margin of 4.14%, year-on-year expansion of 132 basis points; EPS of INR 25.76 year-on-year growth of 96.64%. Now I will give you the results of Q3 FY '26. The financial highlights are, total revenue of INR 589.26 crores, year-on-year growth of 49.6%; EBITDA of INR 35.34 crores, year-on-year growth of 114.51%; EBITDA margins of 6%, year-on-year expansion of 181 basis points; PAT of INR 25.13 crores, year-on-year growth of 103.02%; PAT margins of 4.26%, year-on-year expansion of 112 basis points; EPS of INR 10.12 year-on-year growth of 102.4%. This performance highlights our improving operating leverage, efficient cost structure and strong product mix. Looking ahead, we remain focused on strengthening our wholesale partnership, accelerating growth in the diamond jewelry segment, scaling our expanded retail footprint, and investing in technology and design innovation. With a strong 9-month performance and an enhanced retail presence, we are confident in sustaining our growth momentum and delivering long-term values for our stakeholders. Finally, I would like to extend a warm invitation to all of you to visit our flagship showroom and experience firsthand the craftmanship collection and elevated retail environment. With these remarks, I now open the floor for your questions. Thank you.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Vinod Shah from VS Ventures.

Good afternoon, sir.

Very good afternoon.

Congrats on good set of numbers. How does order visibility look for like Q4 and early FY '27?

Could you repeat the question, louder please?

Yes, sir. So how does order visibility look for Q4 and early FY '27?

The overall segment of gem and jewelry looks good only as the prices are increasing. There is a slowdown for a shorter period of time. But overall, the prospective is very good. The whole industry is going to grow at the pace of 30%, 35%, I believe.

Okay, sir. And sir, what is your current working capital cycle? And how is it moving on a quarter-on-quarter basis?

That's what, current working capital is -- that's what our stock rolling cycle is somewhere around 50 days.

Okay. And so do you see any change in inventory levels due to the fluctuation in gold prices? So how is the inventory levels right now?

There are fluctuations in gold prices, but the demand is not impacted much. So I believe that the working cycles and the stock rolling cycle would be nearly same only. Maybe here and there, there is a variation possibility of 10%.

Sir, are you witnessing any competition from organize and unorganized players? How is competition over there?

No, that is an improvement into the whole gem and jewelry segment now when there is a shifting of business from unorganized sector to organized sector as a quality prospective and resale value prospective, all the consumers are believing to buy a right product at the right price. So it all depends upon the design. And gradually, things are improving. And based on designs, the margins are also improving.

Okay. And sir, what is the revenue contribution from our top 5 clients in the B2B segment?

That's what, on a broader side, if you see to it, the maximum top 5 clients would be contributing somewhere around 15% to 20% of the total revenue.

Okay. And going forward, what do you think -- how will that mix look like?

Since we have been progressing on all the various parameters of our various verticals of our business, we are expanding into B2B segment, B2C segment and everything. So on a constant basis, we are defining that we are going to grow at a pace of 30% in all verticals. And since we have come up with a new showroom and our retail spread is going to give a bigger share in the upcoming years.

Okay. And what is the area of the new showroom?

Yes, the new showroom, total build up area is 10,000 square feet.

Okay. And on the geographic front, so what is the geographical breakdown of our revenue? Like how diversified it is?

Since we have been in primary phase in South India, most of the revenues are from Tamil Nadu and some upper parts of Andhra and a few parts of Karnataka. Primarily, our presence is in South India.

So sir, the gold prices are quite volatile. So are we using any changing mechanism to manage this gold price volatility?

Yes, we have been using that regular natural mechanism as we have been operating with the refilling strategy. Whatever we sell, we buy it back. And if there is any extra orders, we buy it and we hedge it into the exchanges also when we follow that regular natural mechanism.

And they have been effective in protecting our margins, right?

Yes, obviously, correct. There is no impact in fluctuation as far as our margins are concerned. Margins are intact for us.

Okay. And so what was the volume of gold sold in Q3?

Exact quantums, I cannot define now currently. I will share you later.

[Operator Instructions] The next question is from the line of Anil Parekh, an Individual Investor.

Am I audible?

Yes, sir.

Okay. I guess my question was a slightly general question. It's a reasonable expectation that the current circumstances, the global circumstances, particularly the war might end soon. So if that were to happen and if gold prices were to correct by, say, 15% or whatever, to what extent do you think that this would be good for demand because at such high prices currently, a lot of the growth by jewelry retailers and wholesalers are coming from just a value growth as opposed to a massive volume growth. So do you think that there might be a huge upsurge in volume offtake if gold prices were to correct by 15%?

Yes, in the near-term scenario, we do not see that there is a huge correction of 50% is anywhere possible. But even then when there is a correction, the volumes are gradually very high. And this has been happening in a very long period of time. Whenever we say a steep correction in the prices, the demand goes up. Sometimes it has even reached dual. So the demand will surely improve if the prices come down.

And can you kindly opine on the growth that you've shown this particular quarter? Unless, of course, you've already mentioned in your opening remarks, which I may have missed, sorry. What percentage of this close to 50% growth has been on account of volume versus value?

That's what the value growth is around -- as for the revenue of last Q3, if you check, then it has been around 49.6% year-on-year for this quarter and overall value growth of 34.04% for the 9 months. And since we are into various verticals of business, and we have some lower-margin verticals, we have good lower turnover and higher-margin verticals, we have improved a lot. That has added up to improve our EBITDA margins and PAT margins.

Right. And my final question, sir, is that you're giving a guidance of about 30% going forward. Is that a conservative guidance? Because it seems like where you are geographically in the southern part of India, it seems like you're right where there's a lot of demand for gold and gold jewelry.

Yes. Obviously, we always define in a constrained basis only. We always try to define constraintly and prove better. So that has been our style of working. And we feel that, yes, we are going to achieve much better than that, but we are defining a growth of 30%.

The next question is from the line of Vidhi Purohit from H&I.

Hello?

Yes.

So sir, I just wanted to understand your current debt position. And as you look at the expansion over the next few years, do you plan to fund it largely through internal accruals? Or should we expect incremental borrowings?

Now as per the current requirements, all the fulfillment of working capital requirement has been filled by the internal segment. For the future date, if any expansion is planned on a bigger level, then if any funds is required, that may be planned accordingly then and then the management decides about it.

Okay. So as the retail mix increases, how should we think about revenue growth and margin trajectory over the next 2, 3 years? Any broad guidance or directional targets that investors can anchor to?

That's what overall, since we have been in lesser participation previously into the retail segment, now we are planning to expand on the retail legs, and we are -- in upcoming 2 years, we are planning that at least 25% of the total volume will be shared by the retail B2C sales. So in that case, our bottom line is also going to improve, and we are going to have an additional revenue from B2C.

Okay. So on the B2C side, could you elaborate on how you are leveraging technology, whether in design -- I mean, whether in design automation, CRM or analytics to improve the customer acquisition and repeat the business?

Yes, obviously, we have been working on various ERP systems for making our designing easy, recognition of requirements, the customers' demand, market scenario, everything has been analyzed. And based on that analytical data, we are trying to get those products which are selling very fast. That is the primary reason that our working cycle is running fast, and we have been working with the various technologies for improving much more on that.

Okay. So given increasing competition from organized and natural jewelry players, what do you believe differentiates your value proposition, whether in pricing, design innovation or customer loyalty?

That's what since we have been in the industry for more than 5 decades, we have a very wide design library. And our designs are widely accepted among both the segments, B2B and B2C. And we have been always working on the technologies and the client requirement understanding and designing products in such a fashion that it does not fall very heavy on the pockets of the clients also because the prices are increasing. So we have been always considering about -- considering the requirement of our clients and preparing the designs accordingly. So in that case, we have our own design library, which has been widely accepted. That acts as -- what they say, that represents Khazanchi as a very different among the other peer competitors.

Okay. So my last question is in Q3 FY '26 revenue growth was strong at around 49.6%. So could you help us understand like how much of that was the volume driven versus realization led and considering gold price movements during the quarter.

That's what we have grown on the volume base. If you take up, we have grown around 7% to 10% in between. But overall, the margins have been improved so much because we are working on the various verticals. On the various verticals -- so some other verticals where the margins are less, we have reduced our margins, we have reduced our volumes there. And on other verticals where our margins are high, we have improved on that. That has improved our EBITDA margins and PAT margins.

The next question is from the line of Mahesh Seth from VY Capital.

Can you hear me?

Yes, sir.

So sir, our EBITDA margin has expanded to 6% in this current quarter. So how much of this improvement is sustainable, like versus festival-led operating levels?

Yes, that's what I told you since we have been working on various different type of projects, higher value addition varieties, and we have also introduced various brands for selling of our premium jewelry, that have added up additional margins of EBITDA. And we have been constantly working on that, and we are going to -- our EBITDA margins are going to improve much higher as the share of B2C segment is also going to improve at a higher pace as our showrooms have opened.

Okay. And like with our PAT nearly doubling year-on-year, so should we expect this similar earnings growth in FY '27? Or like will it get moderated going further?

So as the demand for our designer products has been increasing, and we have been working on the better higher-margin products, our EBITDA margins and PAT margins are going to improve at a same pace, we believe.

Okay. And can you also break down your revenue mix between plain gold jewelry, studded jewelry and diamonds, like how this mix is evolving?

Currently, I don't have the handy data. I can give you. You can drop in your question in the mail or with the Kirin Advisory so that I can answer it in detail to you.

Okay. Sure. I'll connect with Kirin.

Okay.

And like what is the current same-store sales growth for your retail business? Like how should we think about this trajectory over the next few quarters?

So there, we have opened up our new showroom here on 7th of Feb. From there in the last few days alone, we have made a turnover of nearly INR 20 crores here. So as projected, we are planning that, yes, the store is at least going to fetch us a revenue of nearly INR 500 crores. And in the upcoming years, we are going to add up a few more showrooms and things are going to improve on a retail basis, which are going to improve our PAT and EBITDA.

Okay. Got it. And one more thing. As we see a lot of peers in the industry are expanding aggressively by opening more showrooms and increasing their geographical presence. So how does the company view this trend? And like as you already told that we'll be planning this more showrooms, right, going forward? So like how....

Yes. Since we have started up with our flagship showroom now, we are going to have a very, what they say, right type of managed system, understanding that clearly. And later on, we will think of expanding on aggression.

[Operator Instructions] The next question is from the line of Bhaskar Kandar from 3F Capital.

Am I audible?

Yes.

First of all, congrats on a good set of numbers, sir. Sir, my question is, can you provide Q3 revenue mix, each segment, B2B contribution and B2C, and each segment margin?

That's what I told you. Till last year, we have been contributing -- our B2B has been primarily 90% and 10% was our B2C participation. As our B2C bigger showroom, flagship showroom has come up only this, so the impact of this B2B expansion would be seen into the Q4. And as for the margins are concerned, our B2B margins are -- EBITDA margins, if you define, would be somewhere around 6%. And for the retail segment, these margins are around 10% to 11%.

Sir, my second question is in the next year, FY '27, how store expansion plan, how much -- how many stores we are adding, any plan?

We cannot define now, the management is under the discussion of how the things are going to operate in the upcoming year. That would be defined as and when it has been decided.

Okay, sir. Sir, my last question is, sir, this year, this quarter, any inventory gain in this quarter?

Inventory gain you are talking about?

Yes.

Generally, the overall contribution, if you take there are inventory gains of around 1.5% there. It differs, it is not fixed. It differs somewhere around 1% to 1.5%.

The next question is from the line of Raj Shah from Shah Ventures.

I have some couple of questions. So sir, can you tell me what is your average ticket size in retail versus wholesale? Like how does customer behavior differ across segments?

It all depends upon the client's requirement. As per the B2B is concerned, we have clients who have been taking ornaments from us, they buy it in, what they say, on a lower category clients also we have who are operating with a small showroom, and we have bigger clients also who have been working on multiple branches also. So in that case, it is a diversion. So it cannot be defined as per the ticket size. So some jewelers, which are having, what they say, many branches spread over, they are buying much higher than us, say, one single client, they have some 5% of our total volume that -- and there are clients of the lower denominations also.

Okay. I also want to know about the working capital. How much incremental working capital will be required to support the targeted increase in retail consumption?

That's what, for the new showroom, we have planned that we are going to take up an inventory of somewhere around INR 150 crores in that, and we have started operating that. So based on that inventory requirements, we would be able to achieve what we have defined.

Okay. And sir, are you seeing any shifts in consumer demand like towards a lightweight or lower carat jewelry? If you see, there is very much of increasing gold prices as well. So do you see any shift?

Yes, there is a shift in the, what you say, lighter-weight jewelry for the marriage purposes. There is a reduction of, say, 20%, 25% in the weight range of the same product. So we have been catering and we have been working on those designs that we can reduce the quantum of gold and give the output of same size. And that has been happening, and we have been catering much better for all the demands of that client. And yes, lower caratage demand also, for the minimal jewelries, people prefer to buy lower caratage, and we have been manufacturing lower caratage jewelry also. So as far as the South is concerned, up to 18 and 22 carats are on the mark, but there is a demand for 14 carats and lower carats are way low.

Okay. Sir, I also want to know about your business expansion. What is your strategy to build brand, what you call, nationally, especially outside your core geography?