Renaissance Global Ltd

NSE:RGL

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Renaissance Global Limited Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you.

[Anoop Poojari]

Thank you. Good afternoon, everyone, and thank you for joining us on Renaissance Global's Q1 FY '24 Earnings Conference Call. We have with us today Mr. Sumit Shah, Chairman and Global CEO, and Mr. Hitesh Shah, Managing Director of the company. We would like to begin the call with brief opening remarks from the management, following which we'll have the forum open for an interactive question-and-answer session.

Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the results presentation shared with you earlier.

I would now like to invite Sumit to make his opening remarks.

[Sumit Shah, executive]

Good afternoon, everyone. On behalf of Renaissance Global, I extend a warm welcome and thank you all for joining us on our earnings conference call for the quarter ended 30th June 2023. I will initiate the call by taking you through a brief overview of the company's operational and business highlights for the period under review. Post that, Hitesh will give you a rundown of our financial performance. following which, we will open the forum to the question-and-answer session.

Over the last few quarters, our financial performance has been impacted by challenging market conditions, mainly characterized by subdued demand. Despite these challenges, our quarterly consolidated EBITDA margin grew quarter-on-quarter and year-on-year, thanks to strong contribution from our Direct-to-Consumer branded segment.

During the quarter, our total income stood at INR 476 crores, a decrease of 17% and while our EBITDA margin came in at 7.7% compared to 7.6% in Q4 FY '23 in Q4 FY '23 and 7.3% in Q1 FY '23. We believe our performance has been resilient with positive contribution from our core branded jewelry business.

While the economic landscape has posed challenges, our Direct-to-Consumer branded segment has not only held our financial performance steady, but we believe will also pave way for future growth. The segment has delivered an impressive 69% compounded annual growth over the last 3 years, and we project its revenue to reach INR 310 crores in FY '24. With such promising results, we are excited about its potential and remain positive on increasing its share of revenue to 50% in the next 2 to 3 years.

In our key development, we are pleased to announce the appointment of Mr. Bijou Kurien as Independent Director, adding valuable expertise to our Board. Mr. Kurien brings with him an impressive professional background, including 35 years of experience in the Indian retail industry and various leadership roles across several prominent organizations. As Chairman of the Retailers Association of India and a member of the esteemed World Retail Congress Advisory Board, he has been instrumental in shaping the future of the retail industry. His exceptional branding skills and board experience promised to be an invaluable asset to our corporate strategy and Direct-to-Consumer business vertical, aligning perfectly with Renaissance Global's goal on focusing on strengthening governance practices and driving growth and success.

To conclude, despite temporary setbacks in the global landscape, we see bright prospects in the medium to long-term horizon. With positive economic data coming from the U.S. and with some signs of respite on the inflation front, without significantly killing demand. We believe that the demand sentiment should improve and show positive signs towards holiday season for FY '24.

We are confident in our ability to capitalize on growth prospects in the global branded jewelry sector with a strong focus on expanding our Direct-to-Consumer business, a strategy we firmly believe will create substantial value for all stakeholders in the foreseeable future. On this note, I'd like to hand over the call to Mr. Hitesh to discuss our financial performance during the quarter. Over to you, Hitesh.

[Hitesh Shah, executive]

Thank you, Sumit. Good afternoon, everyone. We registered a stable performance, primarily on the back of steady contribution from Direct-to-Consumer business in Q4 of FY '24. Our total income stood at INR 476 crores compared to INR 575 crores in Q1 of FY '22 -- sorry, FY '23, declining by 17%. Our branded jewelry sales stood at INR 132 crores, of which our B2B segment came in at INR 77 crores, and our Direct-to-Consumer business posted revenues of INR 55 crores. This is as compared to Q1 of FY '23 revenues of INR 41 crores, growing 36% year-over-year.

Our annual revenue run rate for the Direct-to-Consumer business based on Q1 of FY '24 sales is estimated at INR 310 crores compared to actual FY '22 revenues of INR 239 crores. During the quarter, the revenue share of studded jewelry stood at 85%. Of the total studded jewelry revenues, branded jewelry contributed 33% in Q1 of FY '24. Of the branded sales, the B2B segment contributed 58%, while Direct-to-Consumer contributed 42%.

I would like to highlight that the revenues from our Plain Gold segment came in at INR 70 crores and in Q1 of FY '24 versus INR 58 crores in Q1 of FY '23, adding positively to our overall performance during the period. On the profitability front, EBITDA stood at INR 36.7 crores in Q1 FY '24. Despite the continued challenging macro environment, we managed to deliver an EBITDA margin of 7.7% in the current quarter versus 7.3% in Q1 of FY '23 and 7.6% in Q4 of FY '23.

During the quarter, profit after tax before discontinued operations stood at INR 14.2 crores versus INR 24.2 crores in the corresponding period last year. This was primarily on account of higher interest costs and higher tax expenses as compared to Q1 of last year, which we expect to normalize over the course of the year.

Lastly, in terms of our balance sheet, our net debt-to-equity ratio stands healthy at 0.22 as of June '24 (sic) [ '23 ]. Our total net debt stands at INR 233 crores and our cash and bank balances and current investments stand at a healthy INR 235 crores.

To conclude, we have reported a steady and resilient all-round performance during the quarter ended June 2023. As we look ahead, our growth initiatives will help support accelerated growth in the medium to long term.

On that note, I would now request the moderator to open the forum for any questions or suggestions that you may have. Thank you.

[Operator]

[Operator Instructions] First question is from the line of [ Ashish Shah ] from [ Business Match ].

[Unknown Analyst]

Sumit, a few things. How is the outlook looking for the 4 segments for the rest of the year? If you can talk a little bit about each of them.

[Sumit Shah, executive]

Sure. So I think that what we are seeing is inflation moderating in the U.S., and we did have the high base effect in quarter 4 and quarter 1. We do see the year-over-year numbers improving and we are seeing some stabilization in demand on the B2B segment. The customer -- the branded segment, both the B2B as well as D2C segment are also seeing sort of normalization in terms of sales at D2C, as you've noted, has been relatively strong, and we continue to see momentum there.

The Gold division, I think, again, because it's a Middle East focused business, has had a good quarter, and I think we continue to see strong demand there. So I think that during the course of this year, we are seeing some stabilization of demand and the year-over-year numbers will start to look better because of these effect.

[Unknown Analyst]

And too early to call or do you think that the B2B business has bottomed out in terms of growth?

[Sumit Shah, executive]

Yes. I mean I think it's a little bit early to say, but definitely, the worst is behind us in terms of the year-over-year declines due to the high base effect. I think that we are seeing encouraging signs in terms of customer orders for the holiday season. So I think that -- the bottoming out seems like it's happening now and we should start to see growth if not in the next quarter, the quarter after that.

[Unknown Analyst]

Sure. And just a little color of this target that we have in terms of 50% share from the branded business. Like how is that shaping up as you look like, let's say, 2, 3 years out?

[Sumit Shah, executive]

Yes, yes. So I think currently, about 1/3 of our studded business is coming from the branded segment, and I think that we're definitely on course to get to 50% in the next 2 to 3 years. As you know, the Direct-to-Consumer business is growing well. And we are very encouraged with the performance of Irasva as well, and we've got plans to open 2 new stores in the coming quarters for Irasva as well.

So with the performance of the e-commerce business in the U.S. as well as Irasva going forward, I think where we've continuously increase the share of the branded space from the single digits to 33% today. And I think looking at getting to 50% within the next 2 to 3 years.

[Unknown Analyst]

Right. And the other thing on margins, you've seen some improvement this quarter. Again, on margins, you think they have bottomed out? We are headed higher, maybe, let's say, 2 years out as well?

[Sumit Shah, executive]

Yes. So I think on -- the margins have really been challenged on the Customer Brands front because of deleverage. I think we've seen customers sort of cut back on inventory, whereas our sales to the retailers have declined significantly. The retail sales haven't declined to that extent. So as sales momentum at our end picks up, we should see some normalization in margins because a lot of the drop in margins is on the Customer Brands segment, which is kind of suffering from the deleverage effect. I think that on the Branded side, the margins are at 13%, 14%, we expect them to improve. But I think the main challenge has been on the Customer Brands segment, which should improve as sales recover.

[Unknown Analyst]

And do you see the D2C margins at least taking off this year as well?

[Sumit Shah, executive]

Yes. I think they've improved this year. And I think they'll continue to improve over the coming quarters.

[Unknown Analyst]

Okay. Just last couple of questions kind of related. The interest cost obviously has gone up this quarter, even last quarter. So any thoughts on capital allocation for the year ahead?

[Sumit Shah, executive]

Yes. So I think you'll see us repay down debt meaningfully. I think we've continued to kind of pay down debt. We've reduced debt year-over-year by about INR 80 crores or INR 90 crores, and we'll continue to pay down debt as the year goes along with interest costs where they are, I think that it makes sense to pay down debt and reduce that meaningfully. I think in the past 12 months, we've had some capital expenditure in terms of setting up our office in the U.S., which was INR 40 crore to INR 50 crore investment. And we had some notes payable from our acquisition which we've paid out as well.

So we've used the free cash flow from operations, which are approximately INR 120 crores in the last 12 months and INR 160 crores for the year ended 31st March FY '23 for a combination of capital expenditure and paying down debt. And I think that as we generate cash flows going forward, we plan to reduce that meaningfully going forward as well.

[Operator]

[Operator Instructions] The next question is from the line of Drasti Shah from Blue lotus Capital Advisors.

We are finding you distant, can I request you to come closer to the mic?

[Drasti Shah, analyst]

Am I audible?

[Operator]

It's on the speaker. Can u please use the handset, madam?

[Drasti Shah, analyst]

Yes. I just wanted to understand the performance of Irasva, especially when we have opened 2 new outlets in Hyderabad and Ahmedabad also. So how has the performance of Irasva outlets being in India?

[Sumit Shah, executive]

Yes. So we are -- we've -- I think in the last 12 months, we've opened 2 stores, 1 in Ahmedabad and 1 in Hyderabad. And the performance -- Ahmedabad has been open for about a year now, and it's achieved very healthy levels of unit economics and store level profitability. And Ahmedabad store is now only -- Hyderabad store is only 3 months old and is also sort of profitable at store level.

We plan to open 2 more stores in the next 6 months. And I would say that broadly, on an average, each store is at a run rate of about INR 10 crores a store on an annual basis. And based on the margins in diamond jewelry, we're optimistic about the performance of the stores because at this level, the return ratios are quite healthy.

So we plan to now increase the rate of store opening for Irasva and are quite hopeful that over the next 3 to 4 years, Irasva will become a meaningful part of the overall business.

[Drasti Shah, analyst]

So even in the Mumbai outlet and the Hyderabad and Ahmedabad, all the outlets are doing on an average INR 10 crores per month, annually, sorry?

[Sumit Shah, executive]

Yes. So the Mumbai outlet is a little bit lower than that. We sort of -- the newly opened stores, Ahmedabad and Hyderabad are at that run rate. And we plan to open 2 more stores in Mumbai in the next 6 months or so. So we'll have more updates for you over the coming quarters as to how they're performing. But the Hyderabad and Ahmedabad stores are at the level that I indicated.

[Drasti Shah, analyst]

And what kind of product categories do we have in Irasva in all the outlets? Like, have we customized as per the location or considering India as a region? Or is it standard as per your other branded and your...

[Sumit Shah, executive]

No, no. It's absolutely completely different product, completely tailor-made for the Indian market because what we sell in Western markets is not at all compatible to what would be sold here. So it's been customized for the location. We have a CEO who runs a business who's had a long-standing experience in the Indian retail jewelry industry and obviously, with Mr. Bijou Kurien being on the Board, it lends a lot of expertise to us in terms of product and product market fit. So it's obviously, tailor-made to the Indian market with average price point of about INR 2 lakh, which is much higher than what we sell in international markets.

And we've had a couple of years now since stores have reopened to refine our product. And we're very encouraged by the customer acceptance of the product and the products that we changed. It's primarily diamond jewelry. I mean we don't sell gold jewelry, which is why the revenue per store is lower than retailers who would be selling gold jewelry as well.

[Drasti Shah, analyst]

Okay. And -- as the stores like -- do you have it broken even -- I mean, breakeven of all the stores? Or are we still yet to, I mean...

[Sumit Shah, executive]

All the stores are profitable at store level -- all of them...

[Drasti Shah, analyst]

Even the Mumbai stores?

[Sumit Shah, executive]

That's right.

[Operator]

[Operator Instructions] The next question is from the line of Aakash Samir Javeri from PIA.

[Aakash Javeri, analyst]

My question is regarding the lab-grown diamond segment. How do you see -- how do you see the demand on outlook for lab-grown diamonds going forward in the next, say, 2 to 3 years?

[Sumit Shah, executive]

Sure. So I think that it's -- the consumer internationally has really accepted lab-grown diamonds as sort of an accepted product for -- especially in engagement rings and solitaire jewelry, as the price difference between natural diamonds and lab-grown diamonds in larger stones is pretty significant.

I've read reports where anywhere from 20% to 30% of engagement rings sold now are with lab-grown diamonds. So it's been -- there's been a significant increase in the acceptance of lab-grown diamonds. And I think that lab-grown diamonds over time will continue to increase in penetration and the percentage share of lab-grown diamonds should continue to go up over the next few years.

[Operator]

[Operator Instructions] Thank you. Ladies and gentlemen, as there are no further questions from the participants. I will now hand the conference back to the management for their closing remarks. Thank you, and over to you.

[Sumit Shah, executive]

Thank you, everyone, for joining us on the quarterly conference call. We look forward to seeing you for the Q2 results. Thank you.

[Hitesh Shah, executive]

Thank you.

[Operator]

Thank you very much. Ladies and gentlemen, on behalf of Renaissance Global Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.