Senco Gold Ltd Q4 FY2025 Concall Summary

Key Takeaways

• Gold price surge reshaped demand, not destroyed it: Gold jewellery volume fell 6% YoY in Q4 as a ~30% gold price rise pushed consumers toward lighter-weight, lower-carat jewellery and old-gold exchange, which hit ~39-40% of sales.
• Stud ratio and diamond volumes are the margin lever: Stud ratio reached 10.9% at year-end, and diamond volume grew 21% in Q4, lifting Q4 gross margin from 7.7% to 9.2% YoY. Full-year diamond volume growth of only 2% shows the lever is still building.
• Old-gold exchange is accelerating the unorganized-to-organized shift: Over 60% of old gold received is non-Senco gold, confirming consumers are trading up to branded jewellery even under budget pressure.
• Gold Metal Loan cost spike is a near-term margin headwind: The blended GML rate rose from 5.9% to ~7% in Q4 due to a supply scarcity; management expects rates to ease but remain ~100 bps above earlier levels.
• What to watch next quarter: Whether the 18-19% growth run-rate as of May holds through the monsoon and festive season, the trajectory of the GML rate, and any update on the Melorra master franchisee due diligence.

Demand & Consumer Behaviour

• Volume sacrificed to price: Gold jewellery volume declined 6% in Q4 and 4% for FY25 because gold prices rose ~30% over the year, pushing consumers toward lighter-weight jewellery and lower-purity options, with 22-carat shifting to 14-carat or 18-carat diamond or plain gold.
• Old-gold exchange became the affordability valve: Old gold exchanges rose to ~39-40% of sales from 25% two to three years ago because high gold prices made consumers feel budget-constrained; over 60% of old gold received is non-Senco gold, indicating a shift from unorganized to organized brands.
• Weddings and love season drove the quarter: Wedding sales drove business from January through mid-March, plus early April-May weddings; Valentine's Day, birthdays, and anniversaries boosted diamond sales; Women's Day in March helped connect with women customers.
• ATV rose but not as fast as gold: ATV rose 15% to INR 73,000, but gold prices rose more than that, confirming lighter-weight jewellery purchases.
• Footfalls grew strongly even as invoice growth lagged: Number of invoices grew 5-6% but footfalls grew 21%; same-store sales growth was around 14-15% in value; silver category grew 20%+ in volume as a low-ticket option.
• Solitaire buying emerged as an opportunistic trade: Solitaire sales above 0.20 carats grew ~26% because solitaire prices declined, consumers saw a buying opportunity, and diamond prices are now starting to rise as the war is about to be over.

Suvankar Sen: "So I don't see it as a worry. We just need to solve the problem of the customer, of creating jewellery, which is within their ticket size and budget."

Diamond & Stud Ratio Strategy

• Stud ratio improved but full-year diamond volumes disappointed: Stud ratio rose from 10.5% at nine months to 10.9% at year-end, driven by new collections launched in January and February; full-year diamond volume growth was only 2%, against management's 15-20% aspiration.
• H2 diamond recovery was real: H2 of the year was much stronger than H1 for diamond jewellery sales; volume growth was seen in Q3, Q4, and May, driven by high gold prices making consumers look at 18-carat and 14-carat diamond jewellery as an option.
• Diamond price fall did not hurt Senco's core inventory: 85% to 90% of Senco's diamonds are below 0.10 to 0.12 carats (Star and Melle category), where the price fall did not happen; the fall occurred in higher-end solitaire categories.
• Stud ratio ambition is 15% in three to four years: Management is hopeful and confident of achieving 15% stud ratio in three to four years, with new collections and the Everlite format (50-60% diamond-studded mix) as enablers.
• Melorra master franchisee is a diamond-stud-ratio play: Senco entered a short-term master franchisee agreement with Melorra to manage stores, targeting Gen Z and millennial customers and aiming to increase the diamond stud ratio; due diligence is ongoing and future decisions on shareholding or further investment will be taken after analysis.

Suvankar Sen: "But that shift and that sale that we are seeing is for 2 reasons. One is that the high gold prices making the consumers look at 18-carat and 14-carat jewellery with diamond as an option to buy."

Margins & Cost Structure

• Q4 gross margin improved on stud mix: Q4 gross margin improved from 7.7% to 9.2% YoY, driven by the increased diamond stud ratio.
• Employee cost rose 25-27% YoY in Q4: Employee spend rose because top line grew ~20% and new stores opened at different points in time, making the cost base not exactly symmetrical.
• Advertisement spend was consciously pulled back in Q4: Advertisement expenses fell from INR 31 crore to INR 17 crore in Q4 because brand building was already done in Q3, which had Navratri, festivals, and weddings; Q4 brought more efficiency and automatic traction from consumers in January and February.
• Gold Metal Loan rate spike is a margin headwind: The GML rate increased from 3.6% to 6.6% in February-March due to very short supply of gold in the market; the blended rate rose from 5.9% to ~7%; the rate came down 100 bps in April and is expected to ease further but may still be ~100 bps above the earlier rate.
• Customs duty anomaly has stabilized: The only anomaly in Q2 and Q3 EBITDA margin was due to customs duty impact; that has become stable in the current quarter.
• Hedging is on gold only, not diamonds: Management does not call hedging impact a loss; when gold price rises, there is a realization gain and an adverse hedging impact; hedging is done only on gold.

Sanjay Banka: "There may be a very one-off impact, let's say, the diamond sale is lower or if there is one season where you have to offer a bigger discount. So that's all. But 7% to 7.5% EBITDA margin, one can very comfortably build in the model. That's our understanding."

Store Expansion & Formats

• FY25 saw 16 new stores: Six franchisees in smaller towns, one Sennes store in a metro city, and the remaining eight to nine in East India, Kolkata, Delhi NCR, and Pune, including Gwalior and Varanasi Bhelupur.
• FY26 plan is 18 to 20 stores with a franchisee tilt: Minimum 10 franchisees and about eight to ten COCO stores; if franchisee count reaches 12, then fewer company-owned stores; strategically better to open more franchisees than company-owned stores.
• Geographic focus is North and East: 70% to 80% of new stores will be in North and East India; the remaining 20% in West and South; focus on penetrating deeper into Tier 2, 3, and 4 towns and cities of the East, with North as the next core focus area through owned stores and franchisees.
• Everlite is the lightweight, diamond-heavy format: Designed for everyday wear and lightweight jewellery, catering to the INR 20,000 to INR 50,000 price range, with a 50-60% diamond-studded jewellery mix; four to five Everlite stores opened in FY25, including Ranchi and Andheri Metro Station; pricing will stay more competitive than CaratLane and BlueStone.
• Franchisee inquiries are increasing: Inquiries and leads for franchisees in Tier 2, 3, and 4 towns and cities of the non-East segment are increasing; the company is analyzing locations.
• Silver shop-in-shops are being explored: Senco is exploring opportunities to have shop-in-shops in various departmental stores for the silver jewellery segment.

Balance Sheet & Working Capital

• Inventory days rose on growth and gold price: Inventory days increased from ~170 in FY24 to ~190 in FY25 because the company is growing and adding stores; diamond inventory days increase as diamond sales grow; hyperlocal expansion outside the East adds 20% spread; gold price rise of 30-40% limits the ability to reduce store inventory while needing to cater to demand; March numbers are always higher as readiness for Akshaya Tritiya.
• Return ratios are optically lower due to investment phase: ROE and ROCE appear to have a downward trend because new investments take time to yield returns; the existing portfolio gives a 20% blended return, but the new portfolio will give a high return over time; management targets 16-17% ROCE in the next three to four years.
• Additional working capital requirement of INR 300-400 crore: The company needs approximately INR 300 to INR 400 crore in additional working capital.
• Debt-to-equity target is 1:1 to 1.2: A debt-to-equity ratio in the range of 1:1 to 1.2 is considered comfortable, subject to fluctuations in market prices.
• Gold Metal Loan reclassified to operating cash flow: The Gold Metal Loan, previously appearing in financing activity, has been reclassified as part of operating cash flow following discussion with the statutory auditor and industry patterns.

Sanjay Banka: "Whenever you grow, the ROE, the equity will not yield you the 20% or 21% return in the same year. So, we look at our return ratios in a long-term fashion. We are a growing company, while my existing portfolio will give me 20% blended return, but the new portfolio will give me high return."

Manufacturing & Sourcing

• In-house manufacturing capped at 5%: Senco uses third-party manufacturers for 20-21% and karigars for 70-75% of production; in-house manufacturing is limited to 5% maximum due to B2B trade receivable risk, citing another player where 80% of net worth is stuck in trade receivables, and cash flow considerations.
• Third-party sourcing is a design and variety strategy: Each manufacturer has strong USPs in design, style, and category; the company needs variety and designs from them.

Sanjay Banka: "So a B2B business is at risk of trade receivable, okay? So if you look at the one other such player, 80% of their net worth is stuck in trade receivable, 80% of net worth, okay? So that is one."

Guidance & Commitments

Key Metrics