Sky Gold and Diamonds Limited (541967) Earnings Call Transcript & Summary

Good day, and welcome to Sky Gold and Diamonds Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Vidhi Vasa from MUFG Intime. Thank you, and over to you, ma'am.

Thank you, Sumit. On behalf of MUFG Intime, I welcome you all to Sky Gold and Diamonds Limited Q1 FY '27 Earnings Conference Call. From the management side, we have Mr. Mangesh Chauhan, Managing Director; and Mr. Siddharth Sipani, Chief Financial Officer. I hope everyone had an opportunity to go through our investor deck that we have uploaded on exchange and the company's website. I would like to mention a short disclaimer before we begin the call. This call may contain some of the forward-looking statements, which are completely based upon our belief, opinion and expectations as of today. These statements are not a guarantee of our future performance and involve unforeseen risks and uncertainties. With this, now I hand over the call to Mr. Mangesh Chauhan. Over to you, sir.

Thank you so much. Good afternoon, everyone. On behalf of Sky Gold and Diamonds Limited, I extend a warm welcome to all the participants to the Q1 FY '27 financial results earnings call. Along with me is Siddharth Sipani, our CFO. We have uploaded our investor deck and earnings press release on the stock exchanges and the company website. I hope everybody had an opportunity to go through them. Before I begin, I am delighted to share an important development in our leadership journey. We are pleased to welcome Mr. Akash Talesara as the CEO of Sky Gold and Diamonds Limited. Mr. Akash brings over 2 decades of rich experience across the gems and jewelry industry with deep expertise spanning jewelry sales, merchandising, business development and market expansion. Over the course of his career, he has successfully led growth initiatives, strengthened market presence and built high-performing teams across both domestic and international markets. At Sky Gold, we have always believed that credibility is built not through promises, but through consistent delivery. Over the last several years, we have established a track record of setting clear goals and executing against them and returning to our stakeholders with results and results that validate our commitments. When we first outlined our growth road map, it reflected our confidence in the long-term potential of the business and the opportunities we saw ahead. Over the subsequent quarters, our team has consistently delivered on key milestones, reinforcing our confidence in both our strategy and execution capabilities. One of the strongest validation of our execution capabilities has been our ability to consistently increase our long-term targets while remaining on course to achieve them. Our current FY '27 revenue target of INR 8,100 crores is meaningfully higher than the outlook we had communicated 9 months ago. This upward revision reflects the expansion of our capabilities, deeper customer relationships and the significant opportunities we continue to see across the market. Our business today stands at the intersection of 3 powerful capabilities: lightweight jewelry manufacturing, advanced production technology, merchandising excellence. Over the last few years, we have made substantial investment in building differentiated capabilities across 3D printing, laser cutting, stamping and lightweight casted jewelry, jewelry manufacturing. At the same time, we have significantly strengthened our design and merchandising infrastructure by doubling the size of our team and establishing dedicated product development and diamond design studios. More importantly, we increasingly see ourselves as a design-led company rather than just a B2B jewelry manufacturer. Our focus extends beyond manufacturing excellence to create compelling, market-relevant jewelry concepts that help our retail partners differentiate themselves in an increasingly competitive environment. Our combining advanced manufacturing capability with strong design, merchandising and our product development expertise, we are able to deliver innovative collections that drive faster selling through improve inventory productivity and create value for both our customers and end consumers. This evolution has fundamentally transformed the way we engage our customers. Unlike traditional manufacturing partners who primarily offer standard catalogs, Sky Gold increasingly works alongside retailers as a product development partner. We study their product mix, understand their competitive environment, analyze consumer preference, create teams, develop prototypes and collaborate closely until products finally finalize our launch -- for launch. Ultimately, our success is measured not simply by the number of design we showcase, but by the number of designs selected by our customers and more importantly, how quickly those products sell through to consumers. This collaborative model has generated significant benefits for our retail partners. It has helped reduce unsold inventory, improve inventory productivity and strengthen consumer confidence, leading to increase our share of high value-added business. Also, what makes me proud of our team is not merely about ability to achieve revenue targets, but the quality of the growth we have delivered. You will recall that our last few quarters, we have consistently emphasized our focus on building a stronger and more efficient business rather than pursuing growth at any cost. I am pleased to share that we have achieved 17% sales on the Advance Gold model, significantly ahead of our expectation of 15% of the Advance Gold model for FY '27. In addition, majority of our new orders are being booked today carry a considerably shorter receivable cycle, reflecting improving our quality of our customer mix and order book. As a result, we are closing this quarter at approximately 60 days of our net working capital cycle. At that time, many questioned whether reducing working capital below 60 days was achievable. Today, we are demonstrating that it is not only achievable, but also sustainable through disciplined execution and strong operational focus. Further, natural diamonds currently contribute approximately 2% of our overall business, presenting significant headroom for future growth. The company aims to increase this contribution over the coming years while simultaneously expanding its presence in the rapidly growing lab-grown diamond segment, backed by strong long-term demand trends and continued focus on both natural and lab-grown diamond is expected to strengthen the company's position in the diamond jewelry market and drive sustainable revenue growth and margins. The increased share of natural and lab-grown diamonds studded jewelry is expected to enhance the premium product mix, thereby supporting higher gross margin. In parallel, the company is reinforcing its advanced gold business as a strategic growth pillar, leveraging its asset-light and capital-efficient operating model. The approach is expected to improve return on capital employed and while enabling scalable profitability and long-term business growth. The continued expansion of our premium product portfolio, coupled with our capital-efficient growth strategy reinforces our confidence in delivering sustainable and profitable growth with strong tailwind across natural diamonds, lab-grown diamonds and Advance Gold. We remain firmly on track to achieve our aspiration of INR 8,100 crores by FY '27 and INR 18,000 crores to INR 19,000 crores by FY '30. Returning to profitability. Over the past few quarters, I have spoken out factors driving our gross margin improvement. At that time, I had also emphasized that our profitability is not dependent on movements in gold prices because we follow strict back-to-back hedging policy. In recent quarters, heightened volatility in gross prices has created margin pressures across various retailers and manufacturers within the jewelry industry. Despite these challenges, Sky Gold has successfully maintained its margin profile, demonstrating the strength of our operating model. This performance validates our disciplined approach to risk management. We are not into the business of speculating on gold prices, nor do we depend on gold price appreciation to drive profitability. Instead, our focus remains on factors that are within our control: enhancing operational efficiency, expanding our portfolio of value-added products, driving product innovation, strengthening manufacturing excellence and delivering great value to our customers. The consistency of our margin during this period of significant commodity price volatility reinforces our confidence in the sustainability of our business model and the effectiveness of the systems and processes we have built over the years. Another important commitment we made to investors was that future growth would be funded predominantly through internally generated cash flows. At the time we had guided Q4 FY '26, we would be close to cash flow neutral that we expected to begin generating cash flow operating -- positive cash flow operating flows towards last quarter of FY '27. I am pleased to report that during quarter, the company has generated approximately INR 30 crores of operating cash flow, marking an important milestone in our journey towards building a stronger and more self-sufficient business model. I would also like to reiterate a commitment that I have previously made to our investors. If the sale process were not completed within the stipulated timeframe, the promoters themselves would purchase this property. That commitment remains fully intact. A notable highlight during the quarter was the continued strength of our international business, reflecting the success of our efforts to diversify revenue streams and expand our global footprint. As a part of this strategic focus, we participated in the Asiana U.K. India Jewellery Expo in London, where we showcased our diversified product portfolio to the broad base of international buyers. The response was highly encouraging, resulting in strong initial interest and helping us to build a prospective order pipeline of approximately INR 30 crores to INR 45 crores across the U.K. and European markets. While these opportunities are currently at different stages of conversion, they provide meaningful validation of our product offerings, manufacturing capability and growing acceptance in international geographies. The momentum witnessed in our export business reinforces our confidence in the long-term potential of international markets as a key growth driver for the company. Building on this early traction, we remain focused on strengthening strategic partnerships, enhancing market penetration and expanding our distribution channels across priority regions. These initiatives, supported our differentiated product portfolio and operational capabilities, are expected to further accelerate export growth and diversify our revenue mix. We believe that our international expansion strategy will progressively become a significant contributor to sustainable growth and value creation over the coming years. Equally important is our continued commitment to the highest standard of corporate governance and strong alignment with shareholder interests. Beginning with financial year, the company's financial statements are being audited by MSKA & Associates LLP, which is BDO in India. Being one of the largest global accounting firms, this represented significant milestone in our ongoing journey to further strengthen governance, transparency and financial oversight across the organization. The appointment underscores our commitment to adopting global best practices in financial reporting, compliances, risk management and corporate governance. As we continue to scale the business, we remain focused on building a robust institutional framework that enhances accountability, strengthens stakeholder confidence and supports sustainable long-term value creation. As promoters, we are also taking a significant step to further strengthen the alignment between management and shareholder interests. Beginning FY '27, we will adopt a zero-salary promoter compensation model. Going forward, promoter remuneration will be linked entirely to dividends, and dividends will be declared only from operating cash flow generated by the business. This reflects a simple philosophy: promoter rewards should grow only when shareholder value is created. At the same time, we remain committed to prudent capital allocation of our priority. At the same time we remain committed to our prudent capital allocation. Our first priority will always be debt reduction and balance sheet strengthening. Dividend distribution will follow only after these objectives have been appropriately addressed. Now, as we look ahead, I would like to briefly discuss our long-term strategic road map, which we refer to as Vision 2030 or Sky Gold 3.0. This vision is not about aggressively chasing large numbers. Rather, it is about building a business that is fundamentally stronger and more disciplined. By 2030, our aspiration is to build a company that is net debt-free, operations with a highly efficient balance sheet, maintains industry-leading working capital metrics and consistently converts a significant portion of its earnings into sustainable operating cash flows. Further, we would like to implement world-class ERP platforms and digital systems across both front-end and back-end operations. These initiatives will strengthen operational controls, improve visibility, enhance scalability and support the next phase of the company's growth journey. Moving to the financials of Q1 FY '27, I will ask our CFO, Mr. Siddharth Sipani, to run down through the financials for the quarter. Over to Siddharth.

Thank you, Mangesh bhai. I would like to begin by highlighting that Q1 FY '27 has been a very strong quarter for Sky Gold with healthy growth across both our top line and profitability. Importantly, this growth has been accomplished by a meaningful improvement in margins driven by the continued shift towards Advance Gold and a higher contribution from value-added products. Before discussing the detailed financial performance, I would like to highlight 3 key takeaways for the quarter. First, our consolidated revenue for Q1 FY '27 stood at INR 2,013 crores, registering a strong 78% year-on-year growth. On an annualized basis, this translates into a revenue run rate of approximately INR 8,050 crores, which is already very close to our FY '27 revenue guidance of INR 8,100 crores. Second, we are seeing a clear improvement in the quality of our revenue and profitability. Our consolidated gross margin increased to 9.3% in Q1 FY '27 versus 9.1% in Q4 FY '26, an improvement of 27 basis points. This improvement has been primarily driven on account of 2 major factors. First, the share of non-22 KT jewelry has increased from 10.5% to 14% in Q1 FY '27 due to structural shift in customer preference towards lower KT jewelry. The share of studded jewelry has also increased from 1.65% in Q4 '26 to 2.1% in Q1 '27, on account of management's focus on better-margin products. This gross margin expansion is translating strongly into the bottom line. EBITDA increased to INR 157 crores, to 7.8% for the quarter. Operating PAT for the quarter crossed the INR 100 crore mark for the first time. We are getting a lot of Q&A on the gross margins. So, I would like to spend some time giving the breakup of our 9.3% gross margin. First, the Advance Gold contributes close to 90 to 100 bps in revenue and gross margin, since the Advance Gold revenue flows into the gross profit. Secondly, non-22 KT products. Lower KT products like 18 KT, 14 KT, 9 KT have been gaining market share due to gold price appreciation. They now contribute close to 14% of volume and has gross margin contribution of close to 1.4% to 1.5%. Third, studded jewelry. Natural and lab-grown studded jewelry is currently at 2% of revenues, and it contributes close to 0.3% in gross margins. Finally, if we look at 22 KT gross margins, it comes to close to 6% to 6.5%. Even here, we have 70% of our products being CZ-studded jewelry, while the balance, close to 30%, is the plain gold jewelry products having a gross margin of 5% to 5.5%. Due to the above, we are confident that the margin improvement seen in Q1 is not a one-off, but a reflection of the underlying transformation in our business mix. At the same time, we are seeing a meaningful improvement in our cash flow generation. Our cash flows from operations turned positive at close to INR 30 crores in Q1 FY '27 compared to negative operating cash flows till the end of '26. This improvement is particularly encouraging given the strong growth in our business during the quarter. As the contribution from Advance Gold continues to increase, we expect working capital intensity of our business to moderate further, supporting stronger operating cash flow generation. Together with the significant improvement in profitability, this gives us greater confidence in our ability to progressively reduce debt and interest costs. Our objective of moving towards a net debt-free balance sheet remains firmly on track, which should provide an additional structural tailwind to our PAT margins going forward. Importantly, we remain focused on ensuring that our growth is supported by disciplined working capital management, continued deleveraging and a higher contribution from Advance Gold and value-added products. With our Q1 performance already putting us close to our FY '27 revenue guidance on an annualized basis, we remain confident in our ability to deliver sustainable growth while continuing to improve the quality and profitability of our business. Now, I request the moderator to open the floor for Q&A.

[Operator Instructions] Thank you. The first question is from the line of Deep Shah from Equirus Securities.

Congratulations on a good set of numbers and really good to see the positive operating cash flows. So, great work. Sir, just a couple of things from my side. First of all, sir, on the guidance side, we have been guiding INR 8,100 crores of top line this year, along with some 7.5% of EBITDA margin. But when I see the first quarter run rate, I think we -- I easily see Sky Gold surpassing that number. So, don't you think there is a significant upside risk? And don't you think it's prudent -- it's good to, say, revise the guidance? Any color on this, sir?

So, we will revise our target after Diwali. We'll analyze one more quarter, and we will give our new guidance post Diwali. That's our plan.

Okay. Okay. Secondly, sir, just wanted to check, inventory days have increased compared to the fourth quarter. Anything over here, anything -- any specific reason over here?

So, on the working capital days, which was 59 days as of March, is at 60 days as of June per se. So, from an overall strategy side, we are focusing on increased Advance Gold, plus the export business has also increased if you look at it from a quarter-on-quarter perspective. In the previous quarter, the exports were close to 14.5%, which now is at close to 18% odd. Plus, our focus is now on focusing on the higher-margin products, which is mainly on the studded side. So, the cash flow generation which the business is having, we are deploying some part of it into the studded business as well, which has a higher margin so that our margins and profitability could improve on a long-term basis. Further, as we have told in the Sky Gold 3.0 vision, that we are trying to balance all 3: sales growth, profitability growth as well as positive operational cash flow. And we are working with this in our mind.

Again, to add to that, we will upgrade our revenue guidance only if we get a greater share of studded and Advance Gold business.

Okay. Sir, I get it on the working capital side. I just wanted to check on the inventory because when I see that on a sequential basis, inventory days have gone up. Is it for the festive season? I just wanted to check any specific reason over here or all that.

So, basically, as I informed that, we are going from a negative cash flow -- operating cash flow zone to a positive cash flow zone. Further, our free cash flow, even after we exclude the CapEx, that is also at a plus. So, we are utilizing the funds which the gold business is generating into the studded business, so since the studded business has a higher margin and a better ROCE, but it needs a slightly higher working capital as well. So, the current strategy is to put some -- the funds generated from the gold business into the studded business and have better overall margins per se.

Okay. Got it, sir. Sir, one last thing from my side. If you can just highlight the volume performance for this quarter and also the CapEx plans for the years to come? Because last quarter, I think so we are sitting with some 50%, 55% sort of utilization. What will be the CapEx plan? What will be the CapEx outlay for the coming years?

So, as we have informed in our speech, that we continue to be on the asset-light model. Currently, the capacity utilization is close to 55%, 57-odd percent. And so we have current -- looking at the current projection numbers, we are good till 2028. And post that, we may look at a new facility, but that we will continue on the leased model per se, and CapEx will not be very big. It will be close to INR 80 crores to INR 100 crores, which will be just 20% to 25% of the PAT that we will generate at that point of time, since we have already built a world-class facility and we have already invested in the capacity and infrastructure. So, we are -- so, now the major focus is that how to balance all 3 levers for us in the Sky Gold 3.0 version.

So, again, we are at 60% utilization right now, and we have room of 40%.

The next question is from the line of Palash Kawale from Nuvama Wealth. Congratulations for a very good set of results.

First question is on -- sir, is there any reason for rising payable days? And is this sustainable going forward?

Payable days. Since -- yes, so from the last quarter onwards, we have started to give the breakup of the working capital table. So -- but from an overall business, what you are asking is right. From an overall business, we look at the total working capital which has been deployed in the business. But since a lot of analysts and investors look at our business from a net working capital days, that's why we have given the breakup of the working capital cycle as well as the net working capital days that we have for the respective period.

So -- but sir, will it be sustainable going forward, the payable days that been rising?

Yes, since we are looking at increasing our higher-margin products. So, in gold, the credit available is virtually nil -- while in the diamond segment and all, we are getting, or it is a market practice to get the credit. And that's why the number that you are seeing on the creditors is a sustainable number. But overall, in terms of the working capital days, we are at close to 60 days. And in terms of strategy, we are looking at reducing or improving on the working capital days by 2 days year-on-year per se, with an overall target to reach 52 days by 2030 in the Sky Gold Vision 2030 that we are looking at.

Okay, sir. Okay. And sir, what is the potential from U.K. market? And I mean, how big can it be for us?

So, we have just entered into the market. We have done the first exhibition, and we have got a first initial order of 25 to 30 kg. So, the U.K. is about total studded and more of a margin-based business. So, we are looking forward, and we have got a good response in the exhibition for our products. So, we are expecting good sales export as we have guided that we will go to 20% exports in coming years. So, we are in that direction. We want to diversify the export. Right now, we are diversified: 6% is coming from the UAE, 2% from Singapore, 2% from Malaysia. So, we are expecting 3% to 4% of sales coming from Europe market, and we have already started getting the orders. Let's see how it is convertible. And it's more about studded and a mix of gold and studded.

Perfect. And one thing that I would just like to highlight or just put across or explain it to you that even 1-day improvement in our operating cycle leads to close to INR 95 crore of impact in the operating cash flow cycle. So, that is why our vision and our approach is balancing both: balancing growth, the working capital days as well as being in the positive zone in the operating cash flow cycle.

Just last question, what is the gross debt level after the end of the quarter?

Gross debt level for this quarter is INR 540 crores.

The next question is from the line of [ Vinit Agarwal ] from Bajaj Alternate.

Congratulations on a great numbers. So, just a couple of questions from my side. One is like Quarter 1 typically benefits from Akshaya Tritiya and also wedding season. So, how much of this quarter's strength is seasonal vis-à-vis a structural step-up in demand? And what should we expect for the seasonally softer Q2? Second is, with the appointment of Mr. Akash as CEO, what specific priorities have you set for him where he will be focusing on and drive over the next 12 to 18 months?

So, again, you can see in Q1, Akshaya Tritiya is a major season of the jewelry industry, but 0.5% goes in March month also , the delivery, in April month also, the Akshaya Tritiya delivery is done in March and April also. So, you can see from Q1, Q2 is better because Navratri-Diwali orders are in Q2, and Q3 is better than that because the marriage season fall is Q3. So, we follow Q2 is better than Q1, and then Q3 is better. And again, the fourth quarter, March is better than that because Akshaya Tritiya's major delivery goes in March, and Akshaya Tritiya falls approximately between 20 April to 15 May. So that, again, question on Akash, we have set up a new target to develop the market. Advance Gold business much from the 4 large corporates we have onboarded. We have achieved 18% Advance Gold business, and we have given him the target for this year to be average of 15%, next year 20%, and the third year of 25%. In 2030, we will achieve 30% of the Advance Gold business, which we have given him set the target. And again, we have given him the target of Europe market to expand with lab-grown diamond, and Europe is more about lab-grown and studded of natural diamond jewelry. So, we have now tell him to focus on diversifying our export business, and have given him a target of 3% to 5% from the U.K. market. So, again, the Advance Gold business is a priority given to him, and expand more about studded of diamond and lab-grown diamond jewelry.

The next question is from the line of Netra Deshpande from Mirae Asset Sharekhan.

Congratulations, sir, for the solid set of numbers and shining numbers, especially the export-driven growth and the cash flow. To start with the first question, I just would like to understand about, as you said, there would be a remaining 9 months, there would be a target rate of almost more than INR 8,100 crores would be the guidance that already about to surpass the 25% on growth guidance you achieved earlier. So, if possible, can you give me the guidance for -- at least give us a guidance for FY '28, if possible? Because this Q1 has given a very promisingly and almost met the estimates more that earlier expected around INR 5,000 crores to INR 8,100 crores. So, is it possible if you can give a growth guidance of FY '28, if possible?

So, basically, in the Sky Gold 3.0 vision, our strategy is to balance all three: the sales, profitability and being positive OCF. Considering these, and my ROCE is close to 35%, 36%, we expect that we will go to 30% to 35% in terms of the sales increase. And we will continue to monitor our sales performance, and post-September, we plan to give an estimate that what we would expect in FY '27 and FY '28 further. But our plan is that, overall, we are now targeting to have operating cash flow to PAT conversion of close to 20%, that we have also provided in our IP as well. And our overall PAT margin will be close to 5% approximate per se.

Okay. And sir, about -- as you said, Q1 growth is the volume rate, not the gold price, as gold prices are not linked with this as we are already doing our hedging. So, can you share the tonnage volume growth, if possible, separately to identify and understand about that -- specifically about...

Yes, I can understand your question. But previously, Sky Gold was predominantly a 22 KT company. But now, with the market trend and the customer preference and gold prices going up, the 18 KT, 14 KT and 9 KT studded and hall as is also increasing. That's why in the last quarter of FY '26 March, we have indicated that the volume guidance that we used to give will not be the right number to be provided. But overall, I can say that we have grown by 7% to 9% in the volumes in this quarter.

Okay. Got it. So, very soon, I mean, we can expect there would be a tonnage and the volume can be decided and to the numbers and units for the -- specifically with every carat that we can get the segregation, if possible.

Sure. We will see it and we try to look up. Thanks.

Okay. Okay. So, the current utilization rate for Q1 FY '27. Can you also brief us the realization, what is the per unit that you consider for Q1?

If the -- since the volume number is not being provided, so I think from a -- so the resultant realization number will also not be available.

Okay. Okay. So current utilization rate for Q1, which must be around any -- or guidance for the Q2, if you can share about -- the capacity utilization any expansion...

Okay, you are saying from the capacity -- okay. Sorry, I understood something else. Okay. So, the current capacity utilization is close to 60-odd percent per se. And we expect that the capacity utilization should improve by 7% to 8% Q-on-Q per se every time. As the volume will increases, that's why the overall capacity utilization will also increase.