Senco Gold Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Resilient quarter despite headwinds: Q1 faced elections, heatwaves, and volatile gold prices, yet Akshaya Tritiya sales value grew 20-21% and the company remains on track for 18-20% full-year top-line growth.
• Duty cut creates a ~₹50 crores headwind: The 9% import duty reduction will impact P&L by ~₹50 crores (₹30-40 crores PAT), spread over Q2 and Q3; management is optimistic a large part will be mitigated through discount rationalization and mix improvement.
• Mix shift toward higher-value items: Wedding and necklace sales held up while smaller ticket sizes (rings, earrings) fell ~10%, and the studded ratio dipped to ~9.6-9.7% from the 11.5% average as diamond purchases were postponed.
• Hedging strategy protected inventory but created P&L drag: Hedging above 90% (up to 96%) generated realized losses that offset gains on gold procured earlier, a deliberate risk-management choice management stands by.
• What to watch next quarter: Whether the 25-30% Q2 growth run-rate sustains through the festive season, how much of the ₹50 crores duty impact is actually recovered, and if the studded ratio rebounds toward the 12% target.

Demand & Sales Trends

• Akshaya Tritiya was strong, then demand slowed: The first 41 days of Q1 saw 20-21% sales value growth, but post-Akshaya Tritiya the market became progressively slower as gold prices stayed elevated and footfalls declined.
• Wedding segment held up, everyday jewellery softened: Bigger ticket-size items (wedding jewellery, necklaces) sold more, while smaller ticket-size items (rings, earrings, pendants) were down about 10%, as wedding customers proved less price-sensitive.
• Tier 3/4 demand recovering: Higher growth in franchisee stores year-on-year signals demand returning in smaller towns, driven by a good monsoon, post-election economic stabilization, and pro-farmer government policy.
• Gold exchange rising as a funding mechanism: Higher gold prices are pushing customers to bring old gold to fund purchases, and trust-driven movement from unorganized to organized retail is accelerating; a major portion of exchanged gold is non-Senco gold.
• Post-duty-cut green shoots: In the 15-20 days after the duty cut, management observed a change in lower entry-level ticket sizes, and consumers are being made aware of potential international gold price increases, prompting advance bookings for coming seasons.

Sanjay Banka: "For us, old gold is just a good currency. I will say old gold for us is a green currency. It's our commitment to ESG and it is saving of the precious foreign exchange for India. So, it's a good social service."

Duty Cut: Impact & Mitigation

• The math: The government reduced import duty on gold from 15% to 6%, a ~9% cut. For inventory already purchased through gold metal loans (where duty was already paid), the market value decline creates an estimated ₹50 crores financial impact, translating to ₹30-40 crores of likely PAT impact.
• Spread over two quarters: The impact will be recognized across Q2 and Q3, not concentrated in a single quarter.
• Mitigation levers: Management plans to offset through increased diamond jewellery sales (higher-margin), rationalizing the aggressive discounting seen in the market, and other cost-cutting measures.
• Gold metal loan strategy shift: The company wants to increase GML as a percentage of total borrowing to 75% to lower blended interest cost, but acknowledges GML does not hedge against future duty cuts and must be balanced accordingly.
• Unorganized players more exposed: Organized players hedge and take gold on loan; unorganized players do less hedging, so they would absorb a larger financial impact from the duty cut, potentially accelerating market share shift.

Suvankar Sen: "I'm very optimistic that if not the full part, but a large part will be managed and adjusted."

Margins & Hedging

• Gross margin improved despite headwinds: Better opex control, calibrated marketing, pricing strategy corrections for franchisees, and inventory valuation improvements all contributed. In a rising gold price environment, making charges as a percentage of sales yield higher absolute gross margin even if the percentage appears unchanged.
• Hedging losses were a deliberate choice: The company maintained hedging above 80% (reaching 96%) despite knowing gold prices would rise, because it is committed to its risk management strategy. Realized gains on gold procured in Q3/Q4 were mitigated or negated by hedging losses.
• Opex spike is not the run-rate: Other expenses increased 25-27% QoQ due to volume variance from 18 new stores (vs only 3 in Q1 last year) and higher spending in the slower second part of Q1. Management says this is not the going-forward run-rate.
• Q1 margin pressure from competition: High competitive intensity with significant discounting and price-cutting put pressure on margins, alongside stock optimization where the company sold more but did not buy to the extent sold because of rising gold prices.
• Q2 margin dynamics: Q2 carries the dual impact of the customs duty cut and a fall in gold prices, with the duty impact being the larger factor; the gold price decline is also getting averaged out.

Sanjay Banka: "So, which clearly means that we are not concerned about the price movement of gold. And even though we knew that the gold price will rise, still we maintained above 80% and reached up to 96%, which led a loss on the hedging position. Because as a company, we are committed to the risk management strategy."

Product Mix & Category Trends

• Diamond sales de-grew 3-4%: When gold prices rise, consumer sentiment weakens, footfalls decline, and consumers postpone diamond purchases. The studded ratio fell to ~9.6-9.7% from the average of 11.5%.
• Studded ratio target intact: Management remains confident of increasing the studded ratio by at least 100 basis points, targeting 12.5-13% this year and committed to touching 12%. The Q1 dip is viewed as a one-or-two-quarter deviation, not a trend change.
• Diamond inventory impact limited: Bigger-size diamonds (above 50 cents) have corrected more in value, but 80% of inventory and sales are smaller-size diamonds where the correction has been very limited, so the impact on books is not material.
• Lab-grown diamond pilot underway: A sub-brand has been created with a pilot in 3-4 stores, taking a balanced approach to protect natural diamond sales. Management sees a future for lab-grown but does not believe it will completely take over the segment: smaller natural diamonds retain modernity and aspiration appeal, while lab-grown may play a role in fashion, impulsive, and destination-wedding purchases.
• Coloured gemstones gaining traction: Coloured gemstones combined with diamonds are trending, and coming-season designs will feature more of this combination.

Sanjay Banka: "It is only one or two quarters, as you said, do not decide the journey. The journey very clearly remains a confident journey."

Expansion & New Initiatives

• Store opening pace: 6 stores opened in Q1; the plan is to open 18-20 stores for the full financial year.
• Dubai entry: One store opened in Dubai as the beginning of establishing a global presence, promoting Calcutta Jewellery's handcrafted products. International expansion will be calibrated and methodical, focused first on building the brand and establishing products and services, with no big plans for many stores.
• Wedding collection launch: The Gathbandhan collection (necklaces, bangles) was launched to cater to targeted wedding customers.
• Sennes segment small: The Sennes segment contribution is not likely to exceed ₹100 crores in FY25 and is not a very important part of the strategy.
• Lab-grown diamond economics: Breakeven has not been reached yet; the initiative is in early stages. Management declined to share sales-per-store targets.

Suvankar Sen: "there has been a lot of curiosity and increased curiosity and more acceptance. I think these are the words that should be noted that, is happening in the industry."

Guidance & Commitments

Key Metrics