Senco Gold Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Q3 margins optically crushed by accounting, not operations: Adjusted EBITDA margin fell to 6.2% from 7.1% YoY, but Rs.55 Cr of the gap is Ind AS hedging timing and customs duty loss, not underlying deterioration.
• Diamond jewellery finally turning: After a weak first half, diamond sales grew 59% YoY in the last three months, though the full-year stud ratio still declined to 10.5% from 11.6%.
• Gold price surge creating a Q4 tug-of-war: January grew 19-22% but the recent price spike pushed consumers into wait-and-watch mode; management still expects 18-20% minimum Q4 value growth, betting weddings override hesitation.
• Hedging strategy under scrutiny: Competitors report stable margins through the same gold volatility, but Senco insists its hedging protected the position and the damage is purely Ind AS timing, not economic loss.
• What to watch next quarter: Whether the diamond recovery sustains and lifts the stud ratio toward the 14-15% target, whether Q4 EBITDA actually prints at 7-7.5% as promised, and whether the gold loan interest spike proves temporary or persists into FY26.

The Margin Story: Accounting Noise vs. Operating Reality

• Adjusted EBITDA gap quantified: 90 bps decline on ~Rs.4,900 Cr revenue equals ~Rs.45 Cr. Lower diamond sales contributed Rs.15-16 Cr, higher exports Rs.5-6 Cr, and product mix shift toward lightweight and lower-diamond-percentage jewellery accounted for the rest.
• Hedging timing is not management's call: Rs.52 Cr gain in Q1, Rs.17 Cr loss in Q2, Rs.55 Cr loss in Q3. The swing is dictated by Ind AS and the statutory auditor, not by the company, and optically distorts gross margin without being a cash flow impact.
• Customs duty cut was a genuine hit: Inventory purchased at Rs.115 sold at Rs.106 after the duty reduction, costing Rs.57 Cr YTD including Rs.27 Cr in Q3 alone. Management calls it a short-term phenomenon and positive for the economy long term.
• Making charge stability: Making charge income from retail sales held at about 10.5% for nine months, so discounts and offers did not erode the core revenue driver.
• Gross margin guidance intact: Over 3-4 quarters, management expects 14-15% gross margin and 7-8% EBITDA margin, with improvement coming from operating leverage and diamond mix, not gross margin percentage expansion.

Sanjay Banka: "I want to use the word optically. This may not be a cash flow impact. With statutorily, we are not required to provide the cash flow. But for the full year, when we provide the accounts, we will provide a quarterly cash flow also to inspire confidence and trust."

Diamond Jewellery: The Margin Lever That Sputtered, Then Sparked

• Stud ratio declined when it needed to rise: Diamond jewellery's share of total sales fell to 10.5% for nine months from 11.6% a year ago, because absolute diamond sales were flat while overall revenue grew.
• The solitaire confidence shock: Prices of 1-carat-plus solitaires fell 25-30%, destroying consumer faith in diamonds as a store of value just as gold's safe-haven appeal surged. Customers stopped getting convinced to buy diamonds.
• The pivot point arrived late in Q3: Post-Dhanteras, December, January and February saw diamond sales growth of 59% YoY, with volume growth turning positive at 2-3%. The trigger: gold prices went so high that 14-carat and 18-carat diamond jewellery became the affordable alternative.
• Diamond margin compression within the category: Even when diamond jewellery sells, the gold component's value has risen, so the percentage share of diamond in each piece is lower, compressing the margin on that piece versus when gold prices were lower.
• Stud ratio ambition: Own-store stud ratio is 10.5% overall but 14% in company-operated stores and 17% in Delhi NCR. Management intends to lift the natural diamond share toward 14-15%, which would directly lift EBITDA.

Suvankar Sen: "Buying natural diamonds as a store of value is mostly done for the purpose through solitaire, 1 carat and above. What we have seen in the last 1 year is that the prices of solitaires have come down to a large extent, falling almost 25% to 30%, if not more, that is what is impacting the consumer and their faith on diamond solitaire as a store of value has gone down for the short-term, while their faith on gold as a store of value and an asset has gone up to a certain extent."

Demand & Volume: Gold Price as Friend and Foe

• Volume held up remarkably: Only a 1% volume decline in gold YTD despite record prices, with invoice count up 4.5%, average transaction value up 14.5%, and average selling price up 15.5%.
• The Q3 paradox: Q3 is normally the strongest quarter, but this year Q1 and Q2 were more robust because the duty cut and price movement pulled demand forward, while diamond weakness held Q3 back.
• January strength, February wobble: January grew 19-22% YoY, but the sudden gold price spike in the last 7-10 days caused a "little hit" as consumers paused. Management expects buying to resume when prices stabilize, noting weddings cannot be postponed.
• Same-store sales growth: 13-14% within overall growth of 19-20%, indicating the store network is still maturing productively.
• Old gold exchange: Running at 38-39%, with 62% being non-Senco gold, providing a natural hedge against sticker shock for customers trading up.

Suvankar Sen: "But let me assure you that this 19% to 20% growth for the whole year and in Q4, while we say that, at the lower end, there will be the 7% to 8% growth, but at a higher end, we will all expect that the 20% growth will continue to happen."

Hedging: The Strategy and the Scrutiny

• Philosophy is conservative: Senco hedges more than 80% of its position, forgoing the upside on gold price rises that unhedged competitors capture. Management calls this a "concerted call" to be a responsible jewellery company, not a gold speculator.
• The accounting mismatch: Hedging is done by keeping gold metal loans unfixed and taking offsetting positions on MCX futures. Under Ind AS, realized and unrealized gains, mark-to-market movements and cash flow hedge designations create timing mismatches that make quarterly margins volatile even though the economic position is protected.
• Peer comparison pressure: An analyst noted that P N Gadgil, Titan and Kalyan all maintain normalized gross margins through the same gold price volatility. Management responded that each company talks about hedging differently and declined to discuss competitors, pointing investors to read the financial statements.
• No economic loss claimed: Management states gains on inventory dilution and losses on hedging have neutralized each other overall, just not in perfect quarterly order.

Sanjay Banka: "Being a responsible jewellery company, we could have made decent money by not hedging our position, but we have taken a very concerted call to keep our position hedged."

Costs, Competition & the Lab-Grown Question

• Gold loan interest spike: Metal gold loan rates moved from ~3% to 6-7% in February-March, adding Rs.7-8 Cr of higher funding cost. Management will watch whether this is temporary or persists into FY26, and may compensate through making charges or higher stud ratio.
• Marketing spend was Q3-loaded: Festive season drove higher branding and marketing investment in Q3; Q4 percentage expenditure will be lower, providing operating leverage to the bottom line.
• Competitive intensity rising: Competitors are offering large discounts on gold price, forcing Senco to sometimes earn zero margin on gold metal. The company is investing in marketing, IT and people for the long term, citing its 85-year history and "vision for the next 200 to 300 years."
• Lab-grown diamonds as a managed risk: Lab-grown diamonds are in the risk register and expected to gain traction in fashion jewellery, not as investment. Senco is creating a separate identity (Sennes Fashion), separate stores and a separate entity to hedge the risk, offering both natural and lab-grown options. Lab-grown is expected to gradually take 2-3% of overall sales.
• Sennes brand launched: Four stores opened in Calcutta under the Sennes brand, with plans for 3-4 more covering lab-grown diamonds, leather bags and perfumes.

Sanjay Banka: "We are an 85-year-old company. We have a vision for the next 200 to 300 years for the company."

Store Expansion & Geographic Mix

• FY25 store target on track: 18-20 new stores planned, with 5-6 in the pipeline for February-March, split between 2-3 company-operated and 2-3 franchise locations.
• FY26 cadence maintained: Plan to open about 20 stores next year, 8-10 COCO and 8-10 franchise.
• East remains the fortress: 60-70% of new stores will continue to focus on East India, roughly 20% on North India, and the remaining 10% on West and South.
• Delhi NCR shows the stud ratio potential: At 17% stud ratio versus the company average of 10.5%, the northern market demonstrates what is possible as the brand matures in newer geographies.

Guidance & Commitments

Key Metrics