Renaissance Global Limited (532923) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Renaissance Global Limited discussion on Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sete from Centrum Broking. Thank you, and over to you.

Thank you, Ananda. Good day, everyone, and thank you for joining us on the Renaissance Global Q1 FY '27 Earnings Conference Call. We have with us Mr. Sumit Shah, Chairman and Global CEO; Mr. Darshil Shah, Managing Director; and Mr. Jagdish Bhanderi, Manager, Corporate Strategy. We would like to begin the call with a brief opening remarks from the management, followed by a question-and-answer session. Now I would like to invite Mr. Sumit Shah to make his opening remarks. Over to you, sir.

Thank you very much. Good afternoon, everyone, and thank you for joining us for Renaissance Global's Q1 FY '27 Earnings Call. I'm pleased to share that we have commenced FY '27 with strong business momentum supported by healthy revenue growth, improved profitability and operating leverage. During the quarter, our revenue grew by 30% year-over-year to INR 690 crores, while EBITDA increased by 22% to INR 50 crores. Profit after tax grew sharply at 288% year-over-year to INR 26 crores. This performance reflects disciplined execution across the business and reinforces our confidence in the strategic transformation of Renaissance Global from a traditional jewelry manufacturer into a global, high-margin branded jewelry platform. Our portfolio of 3 differentiated direct-to-consumer brands: Jean Dousset, WithClarity and Enchanted Disney Fine Jewelry, provides us with a strong platform to participate in the large and attractive U.S. luxury, direct-to-consumer market. Jean Dousset continues to be an important growth driver within our branded portfolio, positioned at the luxury end of the lab-grown diamond jewelry market. We are scaling the brand through an integrated digital and physical retail strategy. Following the encouraging response to our New York store and the opening of our San Francisco store location in July 2026, we currently operate 3 Jean Dousset retail stores. And during FY '27, we intend to add 4 more locations. We believe this measured retail expansion will deepen Jean Dousset's presence across important luxury markets in the U.S., enhance customer engagement and over time, increase the contribution of our higher direct-to-consumer margin to revenues, profitability and earnings. WithClarity, our digital first fine jewelry brand also continues to demonstrate strong momentum. The brand is benefiting from its established online platform, expanding customer reach and technology-led operating model. Finally, our licensed brand Enchanted Disney Fine Jewelry is progressing well to supported by a renewed strategic focus and healthy growth across key channels. Together, these 3 brands give us a differentiated value proposition across customer segments and provides multiple avenues for long-term growth. Alongside the expansion of our branded portfolio, working capital optimization and cash flow are key priorities for us in FY '27. The initiatives currently underway are expected to deliver working capital improvements of approximately INR 250 crores in the current financial year and generate cash flow from operations of more than INR 300 crores during the year. We expect these measures to strengthen our balance sheet, improve capital efficiency and drive, meaningful improvement in our return ratios. Looking ahead, our strategic direction remains clear. We remain committed to achieving INR 1,000 crores of direct-to-consumer revenue by FY '29 with an operating margin of at least 15% from this segment. As the contribution from our higher-margin branded business increases, we expect the benefit from structural operating leverage. This should significantly expand our EBITDA and has a potential to drive multifold increase in the company's overall earnings over the coming years. We therefore enter the remainder of FY '27 with confidence. Our growing portfolio of global brands, disciplined retail expansion strategy, focus on profitability and continued emphasis on cash flow enhancement positions Renaissance Global well to deliver sustainable and profitable growth. Our objective remains to build a stronger, more valuable and increasingly brand-led global jewelry business while creating long-term value for all our stakeholders. With that, I'll now hand over the call to Darshil to discuss operational and financial performance in greater detail. Thank you.

Thank you, Sumit, and good afternoon, everyone. I will take you through the key financial and operational highlights for the first quarter of FY '27. We have started the year on a strong note with healthy growth across the business, a sharp improvement in profitability and continued progress on working capital efficiency. Starting with revenue. Our revenue, excluding bullion sales grew by 30% year-on-year to INR 690 crores compared with INR 530 crores in Q1 FY '26. Importantly, the underlying growth was broad-based with healthy contributions from our brand and customer brand businesses. Coming specifically to our owned brand. Revenue increased by 29% year-on-year to reach INR 89 crores from INR 69 crores in the corresponding quarter last year. The continued growth of our owned brand is particularly encouraging as we progressively increase the contribution of our higher margin, direct-to-consumer business to the overall portfolio. Moving to EBITDA. EBITDA increased by 22% year-on-year to reach INR 50 crores, compared with INR 41 crores in Q1 FY '26. EBITDA from owned brands grew to 11.5% from 10% in Q1 FY '26. Profit after tax increased by approximately 280% year-on-year to reach INR 25.6 crores compared with INR 6.6 crores in Q1 FY '26. While the previous year quarter had included a restructuring cost, the current quarter also demonstrates a meaningful improvement in the underlying profitability of the business. Profit before exceptional items grew by 40% year-on-year to INR 29.7 crores, reflecting the strength of the operating performance. Another important area of progress during the quarter has been working capital management. Our working capital efficiency improved meaningfully during the quarter with working capital days reducing to 220 days from 253 days in Q1 FY '26, representing an improvement of 33 days year-on-year. This is an important milestone for us and reflects the initiatives we've been undertaking across inventory, receivables and overall capital efficiency. As Sumit mentioned, working capital optimization and operational cash flow generation remain key priorities for FY '27, and we expect further progress through the course of the year. Overall, Q1 FY '27 reflects a healthy start to the year with 30% revenue growth, strong growth in owned brands, and 47% growth in owned brands EBITDA, a sharp increase in PAT and EPS and meaningful reduction in working capital days. We believe these trends provide a strong foundation as we continue to scale our branded and D2C businesses while maintaining a disciplined focus on profitability, cash flow generation and return ratios. With that, we can now move on to the question-and-answer session.

[Operator Instructions] The first question is from the line of Ashok Shah from Eclavia Invesco Family Office.

Sir, as first quarter was excellent, would we extrapolate a similar or still growth will come, or more growth will come during the year?

Yes. Thank you for your question. So we've begun the year with very strong revenue and bottom line momentum. We expect to continue this momentum to continue through the course of the year. As previously communicated, we plan to exit certain business verticals and lines which are below cost of capital to optimize inventory. So while revenue growth may not continue at this momentum, we expect bottom line to be equal to or greater than the current momentum that we've experienced after restructuring charges.

Sir, our [ major ] business in export to U.S. So did we get any tariff refund or something like that?

Not yet. We are in the process of applying for tariff refunds and we do expect to get some refunds for tariffs. I think we will have to obviously share some of those refunds with our customers as well. So we will -- I think we should know more in the coming quarter.

So what could be that about, approximately a rough idea?

We don't have that data yet. We are still in the process of getting the application together and putting it through. So we'll be able to provide more details in the coming quarters.

If I ask, approximately, how much tariff was paid during this tariff increase period?

So we are not ready to share the numbers yet. I would request you to wait for one more quarter before we are able to share these numbers.

The next question is from the line of Manpreet Arora from Arora Wealth Advisors.

Sir, the first question is on the initiatives we talked about reducing working capital by INR 250 crores. Now if you can drill down a bit more on the initiatives. I think you mentioned about exiting businesses, optimizing and inventory. If you can provide a little more details.

Yes. So I think the working capital initiatives are focused around 2 areas. One is inventory reduction and sort of receivables as well. I think that over the last 24 months, we've restructured the organization and reduced operating expenses by about INR 45 crores annually. With this reduction in manufacturing capacity to align with the lab-grown diamond realities, we are now in a position to exit certain lines of businesses where consignment days are very high or receivable days are longer. So we made a strategic decision to exit certain customers, which would actually lead to meaningful reduction in working capital. While doing that, we've sort of ensured that this should not have any impact on our bottom line. These would be businesses where the cost of capital would be higher than the EBITDA generated. So these would be low-quality businesses, which we plan to exit. And I think that would largely result in working capital reductions. During the course of FY '27, we expect to fully realize these benefits by the end of the current financial year.

Okay. Great. Good. So just to understand you right, we may not see a lot of revenue growth this year, but we'll probably see margin expansion and good, better cash generation this year, is that right?

Yes, our expectation is to -- that bottom line should grow more than 30% for the year. Revenue growth may be muted because as stated earlier, we are exiting certain unprofitable lines of businesses. And on an annualized basis, this will result in an approximately INR 300 crores to INR 400 crores reduction in revenue. The customers that we are exiting would result in a INR 300 crores to INR 400 crores reduction in revenue. We don't expect this to have a meaningful impact to our bottom line. In fact, we're projecting greater than 30% growth for our bottom line for the current year.

So which segment will this reduction happen in the...

Between the customer brands. Absolutely, yes. The licensed brands and the owned brands are high-margin businesses, the customer brand segments have certain areas where the working capital requirement is very high. So we focused on these specific customers where we would like to reduce exposure and reduce working capital involvement. And I think it's a good time to sort of exit these businesses because raw material prices have gone up. So the exit costs from inventory is also almost negligible or 0, as the value of the inventory would have gone up due to the fact that the price of gold and silver has gone up meaningfully.

Next question is on the licensed brands. Now we have seen that over FY '24, '25, '26, the revenues have come down and also EBITDA, and similarly on the margins. On FY '24, we were 15.5%, then it came down to 14.5% now, 13% in FY '26. And in this quarter, we are now 10.9%. So what is really happening in the licensed brands verticals?

So on the licensed brand segment, we were operating a very wide portfolio of brands and even within this portfolio, what we've done is we've rationalized some of the licenses and the focus going forward is going to be primarily on the Disney relationship, and the Disney license. So there are obviously some exit costs here where we should have already taken about a year or so ago. From this point, we expect the revenue to grow because of the focus on is -- which was our largest licensing partnership. We expect this business to grow from here from this space. And also improve back in profitability, back to the 14%, 15% that we were seeing earlier. So I think there has been a process of elimination of unprofitable licenses that we no longer sell. I think as emphasized in my opening remarks, I think that while the company is growing at a healthy pace, I think the focus now is also on profitable growth and improving the bottom line margin. So as a conscious decision, we decided to exit certain licenses and focus really on a few key licenses, which has resulted in muted growth. However, we are seeing strong momentum now. And sales should pick up in the licensed brand segment going forward.

All right. Great. So just to summarize that, so we had licenses from Disney, Marvel, and NFL, et cetera. And now that we are rationalizing that and primarily Disney will be our major license?

Yes. I mean Disney is sort of encompasses multiple licenses, Starwars and Disney, but we are no longer sort of pursuing NFL and Netflix and Harry Potter, and all those licenses. It's going to be primarily focused around the House of Disney and their brands.

Okay. Great. And sir, if you can call out on our D2C brands, our owned brands, we had in our older presentation, we had a lot of brands mentioned there including WithClarity, Jewelili and then Hallmark and then [RENA]. But some of these, if I go to, for example, if I go to Hallmark, everything's almost sold out and [ RENA ] also most of that. So which are the most active brands that we are pursuing?

Hallmark is not an owned brand. Hallmark was a license -- is a licensing relationship, and it's one of the ones that we've rationalized. Even within the owned brands. We are focusing on 2 major brands, Jean Dousset, and WithClarity, which comprise the bulk of our revenue. I mean we still own Jewelili as well as Everyday Elegance, but they are much smaller. The 2 growth brands, I think part of the efficiency drive that we've really focused on is zero-in on the brands that are meaningful and as again highlighted in my opening remarks, the 3 brands that will be most meaningful will be Jean Dousset, WithClarity and in the licensing segment, Disney. And these and the renewed strategic focus on these brands will allow us to expand profitability and grow profitability going forward. So the focus really will be on these 3 power brands, which comprise a bulk of our revenue in any case.

Okay. Sir, and on the next question is on the Jean Dousset investment. I think we have a 38.7% stake. Now in FY -- in one of our earlier presentation, we mentioned that in FY '24, Jean Dousset had INR 85 crores of revenue, while the flagship store, Hollywood, I think, has INR 25 crores of revenue out of that. So the assumption is the remaining was Jean Dousset's other revenue coming from...

Online.

So can -- is it possible to share the number of the revenues or the Jean Dousset's revenues for FY '25 and '26? How much?

So for FY '26, I think the brand after acquisition grew about 30%. And I think we've sort of clearly laid out in our presentation that each store as we add should add between INR 25 crores and INR 35 crores of sales. Currently, we have 3 operational stores. The last store opened in San Francisco at the end of July, and there is 4 more expected to be opened during the course of the year. So as the stores ramp up, so will the revenue increase. And there is a corresponding impact of increase in e-commerce sales as stores open because as awareness and visibility increases in a certain geographic area, so does the sales.

Okay. So this INR 25 crores to INR 30 crores of store sales is the store level economics, like our share of [indiscernible] 38.7%?

No. We currently own 65% of Jean Dousset. We had initially made an investment to buy 38%, and we had an option to increase it to 65%, which we exercise. So currently, we are consolidating the entire -- since it's a sort of controlled subsidiary the revenues are recognized in full. And the share that we don't own is sort of passed through minority interest in the P&L.

Thank you for the correction. I was under the incorrect impression of the stake. And on the brand side, sir, the Disney brand, are we the exclusive licensee for [indiscernible] So is that the share?

For fine jewelry.

The next question is from the line of Patrik Shah from Lumara Capital.

I just had a couple of questions. Sir, first is around the consolidated margins that we have. So we've observed that there was a reduction in margins, gross profit margin, EBITDA margin. Is this on account of buillion sales? And if yes, will this continue to go forward?

So yes, I think that -- in the near future, the bullion sales will continue, I think, because of the tariff mitigation strategies were subcontracting some of our manufacturing in the U.S. and in the Middle East. So the bullion sales, I mean, once you exclude the bullion sales, the margins once normalized have seen a little bit of a dip. I think some of this is obviously attributed to a little bit of exit cost as indicated in some of our businesses. So I think there may be a minor dip during the year, but our margins year-over-year are down from 7.7% to 7.2%. And I think this would be comparable. And like-for-like this reduction is on account of the strategic choices that we've made to exit certain businesses which we've communicated earlier.

Got it. And the second question is also related to that. So if I understand correctly, our strategy is to reduce the B2B business, that is our customers' business and increase more towards B2C. Now this year, if you look at FY' 26, there was an increase and even on quarter 1, there is an increase of 34% Y-o-Y in this segment. So do we -- or are you looking at reducing it from next quarter onwards? Or where do we see this degrowth would start from?