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Renaissance Global Ltd
Earnings Call Analysis
Summary
Q1-2025
Renaissance Global began FY '25 with stable performance and improved operating margins. The D2C segment saw a 30% revenue increase and a 7.6% EBITDA margin, up by 344 basis points year-over-year. The company has exited its plain gold business in Dubai, reducing inventory by INR 75 crores. Despite a 6% dip in total income to INR 447 crores, EBITDA and profit after tax rose. Strong performance continues in their U.S. brands, while cost-control measures are expected to save INR 20-25 crores annually, starting Q3 FY '25.
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Ladies and gentlemen, good day, and welcome to Renaissance Global Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Jenny Rose from CDR India. Thank you, and over to you, ma'am.
Good afternoon, everyone, and thank you for joining us on Renaissance Global's Q1 FY '25 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 will 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 the disclaimer to this effect has been included in the results presentation shared with you earlier.
I would now like to invite Mr. Sumit to make his opening remarks. Over to you, sir.
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 first quarter ended 30th of June 2024.
I will initiate the call by taking you through a brief overlook 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.
We started the year on a positive note, demonstrating stable performance and improvements on operating margins. Our consolidated EBITDA margins increased by 100 basis points year-over-year, driven by exceptional results in our direct-to-consumer D2C segment.
On a segmental front, our own brands, D2C segment has demonstrated impressive growth with revenue improving 30% year-over-year in Q1 FY '25. The segment remains a key pillar of our growth strategy and we anticipate it will continue to drive future success. We achieved an EBITDA margin of 7.6% in our own brands for Q1, reflecting a 340 basis point improvement year-over-year. We expect this upward trend to continue as we progress into the season.
Even currently, our D2C brands command strong gross margins of 50% to 60%. And as we scale, we plan to enhance EBITDA margins to 15% to 20% over the next few years. Presently, our Licensed Brands segment have partnership with global iconic brands such as Enchanted Disney Fine Jewelry, Hallmark, NFL, Netflix, Star Wars and Disney Treasures.
I'm pleased to report that we have exited the plain gold business based in Dubai, resulting in an overall inventory reduction of INR 75 crores from the peak of February 2024. This transaction closed August 1, of the current year and will be reflected in next quarter's financial results.
The growing interest in Lab Grown Diamonds is reshaping the fine jewelry industry, and our D2C brands are at the forefront of this transformation by seamlessly blending luxury with affordability given our strong emphasis on Lab Grown Diamonds. We've recently introduced a home preview and experience stores, allowing customers to buy before they -- try before they buy, which we believe will strengthen our market position in the next 2 to 3 years. Lab Grown Diamonds now account for 55% of our D2C business and also prominently featured in our own brands and licensed brands.
Rather than entering the increasingly competitive and price-sensitive field of Lab Grown Diamond manufacturing, we're strategically focused on building brands that cater to this demand. Our online platform offers a diverse selection of high-quality lab-grown diamonds from numerous suppliers supporting our goal of providing exceptional value in the luxury market.
Lastly, I'm delighted to share that Mr. Mehendale, Mr. Sathe and Mrs. Pethe has gracefully completed their remarkable 10-year tenure as independent directors on 5th August 2024. We are profoundly grateful for the invaluable contribution at unwavering dedication, which have played a significant role...
Sorry to interrupt, sir. Your voice is breaking. Sumit, sir, your voice is breaking. You're not audible.
Am I audible now?
Yes, sir, you're audible now. Please proceed.
Building on the strong foundation, we are excited to welcome Mr. Deepak Chindarkar, Ms. Rupal Jhaveri and Mr. Rahul Narang as new independent directors. Their extensive experience and valuable insights will greatly enhance our Board and help us refine our corporate strategy going forward.
In conclusion, positive demand trends reinforce our confidence in the long-term growth within the global branded jewelry market. We believe our strategy to capitalize on key partnerships, a strong distribution network and D2C capabilities will drive revenue and profitability in the future.
As we approach this upcoming season, a crucial period for our business, dedicated focus on the branded segment and D2C initiatives ensure that we are well positioned to capitalize on opportunities and achieve continued success.
On that note, I'd like to hand over the call to Mr. Hitesh Shah to discuss our financial performance during the quarter. Over to you, Hitesh.
Thank you, Sumit. Good day, everyone. We have reported a healthy performance during the quarter, driven by better performance in the direct-to-consumer segment. In Q1 of FY '25, our total income decreased by 6% at INR 447 crores compared to INR 476 crores in the Q1 of FY '24.
On the profitability front, EBITDA expanded by 6.1% to INR 39 crores in Q1 of FY '25 versus INR 37 crores in Q1 of FY '24. This translates into margins of 8.8% versus 7.7% respectively. Profit after tax in Q1 of FY '25 stood at INR 15.4 crores, up from INR 14.2 crores in the same period last year, with enhanced contributions from our own brands, the direct-to-consumer business.
Our U.S. brands, a high-growth segment, reached revenues of INR 46 crores during the quarter demonstrating a resilient business strategy and strong market expansion. While our direct-to-consumer India brand, IRASVA, totaled 4 stores in Mumbai, Ahmedabad and Hyderabad, recorded revenues of INR 4 crores in Q1 of FY '25. In Q1 of FY '25...
We have lost the connection for Mr. Hitesh Shah. Please stay connected while we reconnect them to the conference. Thank you.
Ladies and gentlemen, thank you for patiently holding. We have the line for Mr. Hitesh Shah connected. Over to you, sir.
Thank you. In Q1 of FY '25, our Licensed Brands business had revenues of INR 86 crores with an EBITDA margin of 16.2%. While our own brands direct-to-consumer business saw a revenue increase of 30%, reaching INR 50 crores in Q1, with EBITDA margins of 7.6%, an improvement of 344 basis points.
During the period, our studded jewelry accounted for 84% of revenue with branded jewelry contributing 37% of the total studded jewelry revenue.
Lastly, in terms of our balance sheet, our net debt-to-equity ratio stands at 0.31 in June versus 0.28 in March '24 and 0.22 in June '23. Our total net debt stands at INR 370 crores against INR 233 crores in Q1 FY '24. And our cash and bank balance and current investments stand at INR 186 crores. Presently, inventory levels are elevated due to a strong order book, positioning us for revenue growth in FY '25.
In conclusion, we are pleased to have maintained a steady performance in the phase of challenging conditions. Our solid balance sheet gives us confidence in our ability to navigate these challenges and look forward to stronger results in the upcoming fiscal year.
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 Instructions] First question is from the line of [indiscernible] from Paras Investments.
If I see last 4, 5 years, our revenues have been more or less in the range of INR 2,000 and over. In fact, it has gone down from INR 2,500 crores in FY '19, '20 to INR 2,100 crores in FY '24. Sir, wanted to know the reason for the same? And now what measures are we taking to improve our revenue and bottom line for this financial year? And how much growth can we expect in terms of bottom line for this financial year?
Thank you for your question. So I think that the reason for the revenue growth not reflecting is a change in accounting policy in the current -- in the company. Prior to FY '21, we were reporting revenue for the gold business on a gross basis, which was adding around INR 800 crores to the top line, which we started resulting -- reporting on a net basis.
So some of the revenue growth not showing up is due to a change in accounting policy and with the exit of the plain gold business, the reported revenue number will be lower. However, we are focusing on high ROE, ROCE businesses, which actually enhance the return on capital employed and focusing on better quality businesses, which improve profitability.
While we are optimistic about revenue growth going forward, we've also undertaken cost control measures, which will result in an annual savings of INR 20 crores to INR 25 crores on an annualized basis starting Q3 of this financial year. So we are taking multiple measures focusing on high-quality businesses, which are our direct-to-consumer businesses and branded businesses to improve margins and also focusing on cost control by reducing overhead in the company to get to our goal of double-digit margins.
So I mean, can we expect 15% to 20% growth in bottom line for this financial year?
I think it's a little bit early to say. That's our endeavor that we -- our goal would be to grow in double digits. I think that we have low visibility on the season so far, we should be able to give much better guidance in the following quarter, as the Christmas season is a crucial part of our profitability for the year.
So Q3 would be a good time to sort of -- end of Q2 would be a good time for us to give visibility on the year. Right now, because of the U.S. macroeconomic situation, the visibility is a little bit limited. Our endeavor is to definitely grow in double digits, if not through revenue growth by cost control measures and reducing expenses.
Okay. And sir, wanted your thoughts, why do we have multiple websites for different licensed brands? I mean, can we not have just a common [indiscernible] all the brands on the same site, so that we can see a lot of advertising and SEO spends. because to promote so many websites and to rent them on Google takes a lot of time and as well as spend. So just wanted your thoughts?
So we are working on this initiative. We plan to launch a consolidated website with all of our licensed brands called Wonder Fine Jewelry, which would be a brand owned by us in November of this year.
So we are aware of this fact, and we agree with your sort of observation. And it's obviously permissions from the various license holders were constricting interest. So we've managed to work through all of this. Our tech team is currently hard at work getting this done, and we plan to launch this in Q3 of this fiscal year.
Yes, because that should save a lot of savings in the main terms of SEO spends and everything.
That's right.
Yes. And sir, my final question, do we have presence in online D2C business in India?
We do not. Currently, our India retail business is driven through our physical stores, which is IRASVA. We don't have an e-commerce business in India at the moment.
And any plans to add?
So we -- our plans are to promote with clarity globally. Currently with clarity is only in the U.S., and we plan to launch U.K. and India in the coming quarters. So we do plan to -- the website is currently ready. We haven't started spend yet but our lab-grown business will be promoted in addition to the U.S., in other markets as well.
All the best for the future quarters.
[Operator Instructions] Next question is from the line of Pavan Kumar from RatnaTraya.
Sir, regarding the lab-grown diamond business, what do we -- what is the current demand scenario in our key markets? And also how do we use particular business [indiscernible] throw some light on that?
Sorry, your voice is muffled. Could you please repeat the question?
Sir, I wanted to understand about the lab-grown diamond market. How is the business scaling up and downward. But what are the key markets we are looking at going to get this business into. I just wanted an idea on the lab-grown diamond business.
So the lab-grown diamond business is growing rapidly and seeing increased acceptance by the customer primarily in the U.S. markets. If you see the lab-grown penetration of our direct-to-consumer business is already at 55% of the total and is likely to increase even further.
It's a smaller component of our B2B business, but the contribution has increased by 50% year-over-year. So I think that we see increased penetration and acceptance by customers of lab-grown diamonds, and we see this trajectory continuing for the next 4 to 5 years.
Okay. And in B2B also, do we expect a significant amount of change in terms of it moving towards lab-grown diamonds?
Yes, we are seeing that. I think that it's going to be a slow transition because a large component of our sales comes from existing SKUs, which are already in lab-grown diamonds. A lot of the new introductions that we are doing with our key partners are in lab-grown diamonds. So it would be a gradual process. The changeover to lab-grown diamonds is not going to happen in 1 or 2 quarters. But slowly -- but surely, we are seeing an increased penetration of lab-grown diamonds with all of our key partners worldwide.
And are we going to group any of our brands, something like in IRASVA to [indiscernible]?
We are already selling lab-grown diamonds through the 4 IRASVA stores we've launched one month ago, and we even have more feedback to share in the coming quarters on the success of lab-grown diamonds in India.
Okay. And can you just give us an idea on how is the overall demand scenario, sir. You just mentioned like you are not sure right now, but the U.S. and European markets, how are they right now and were you overall feel about it specifically?
Yes, what we've noticed is slightly shorter lead times. I think because of the uncertainty, customers are placing orders closer to delivery time. So currently, we don't have full visibility for Christmas for October, November, December time frame. I think that in the next 30 days or so, there should be a lot more visibility.
Our current order book at the factory is extremely strong for -- July was a strong month. August was a strong month. But we don't have too much visibility beyond September at the moment because customers are in the process of finalizing their holiday and Christmas orders. And within the next 30 days, there should be a lot more visibility.
Generally on the factory floor, how much in advance to the -- I mean, how many months advance orders to be have [indiscernible]?
It's usually 6 weeks.
Two months broadly.
Yes. Yes. I mean 6 to 8 weeks. We are seeing a trend more towards 6 weeks currently. It used to be 8 to 10 weeks, but I think that customers are placing orders closer to the time they want. So the lead times generally are now 6 weeks. So we have a very clear visibility for September. Beyond September, the visibility is a little bit limited because customers haven't yet placed orders for the key holiday season.
But this could be a normal scenario, right, sir? So every year, maybe before 2 months, 3 months, you would not know the orders, right? Or is it like you are saying, we should have known orders for September by now, but we are not able to yet can gauge that. Is that what you are saying?
I think it's a normal course of business. I think that usually between 15th August and 15th September is when a lot of the key holiday orders are placed. However, we have seen maybe a 1 or 2 week delay compared to historical standards because of the uncertainty that customers are feeling. However, it is normal course of business to place key orders between August and September.
Okay. And can you give us an idea of what is your U.S. as a market's overall contribution compared to other regions?
So currently, for us, U.S. would be between 65% and 70% of our overall sales. And the proportion would increase after the exit of the gold manufacturing business in Dubai. So it will be probably closer to 75% or so once -- the breakup will be 75% U.S., 25% other markets. As of August 1, we've signed an agreement to sell our gold business in Dubai, which was low ROE, ROCE business. So I think with the exit and sale of that business, our proportion of U.S. to non-U.S. markets would be approximately 75%, 25%.
[Operator Instructions] Next question is from the line of Ritesh Gandhi from Discovery Capital.
I just wanted to understand if you could just throw some light on the growth, the gross margins, the acquisition costs and some of the other metrics related to your online look actually -- I mean it's in a little bit clarity business? That was the trending -- the gross margin in last few quarters, yes.
The gross margin on D2C in general is between 50% to 60%. I think that customer acquisition costs and all of those are relatively confidential pieces of information that we haven't shared. But for the -- our e-commerce businesses are profitable. I think a drag on our branded segment is currently our India retail business, which is not yet profitable.
I think ex of that, we are very focused on sort of making money on our first order on our e-commerce businesses, which we've always done from day 1. And I think that we maintain a healthy profitability ratio on our e-commerce business.
And how has the growth been in terms of over the last few quarters?
Yes. So I think we've maintained a growth of about 30% this quarter, and our expectation would be a growth for this year in the 20% to 30% range for our brands in the U.S.
Got it. And then what you're indicating is that even a stand-alone e-commerce businesses are profitable and just dragging down the profitability mainly?
Yes, that's right. I think we've -- in our Slide -- on Slide 9, we've sort of disclosed the EBITDA margins were about 9% margin on our brands, which are in our U.S. owned brands, and we expect that to be in the 15% to 20% range over a 2- to 3-year time frame. So our brands are sort of subscale right now as we get operating leverage, we expect the margins to go up.
Got it. And we expect the growth to kind of continue given our small piece of the market share we have right now?
That's right. That would be our current view that there is a long runway for growth for these businesses in the U.S.
Got it. So even in the event of an economic slowdown or whatever, you don't see too much of an impact here, because our market share is quite low?
That's right.
Got it. And is there any -- actually the light you can throw on the India business, how the initial traction has been effectively or the existing losses, which we are making right now and the overall strategy?
Yes. So I think we've sort of highlighted the India business. It's grown well from INR 7 crores annual run rate to a INR 22 crore revenue last year. we expect that to be between INR 30 crores to INR 32 crores in the current year. I think that as we cross around INR 40 crores of revenue, the business would kind of breakeven and be profitable. Our expectation would be for the business to breakeven and be profitable in FY '26. In the current year, at a INR 30 crore revenue, we will still continue to lose some money.
But I think we're seeing very positive momentum and positive same-store sales growth. So we are optimistic about the India retail business and also the introduction of lab-grown, I think will add an impetus for the business to grow. The gross margins on the lab-grown business in India also are healthier than the natural diamond business, which will help improve profitability of the India business going forward.
And then right now, how much would be the split of a lab-grown as opposed to a natural in your stores?
In India, we just launched lab-grown diamonds last month, so virtually 0. So it's -- we launched lab-grown diamonds in our IRASVA business less than 30 days ago.
Next question is from the line of Yogesh Bhatia from Sequent Investments.
Sir, actually, I'm fairly lead to the company. So of the total INR 445 crores sales that you have done in this quarter, INR 73 crores is towards gold. And the remaining is jewelry and diamonds. So in these, what is the breakup for lab-grown? I think mainly lab-grown is being sold in customer and licensed brands. So what is the break of how much percentage is lab-grown diamonds is?
I think it's been disclosed in our presentation, around 15% of our studded jewelry business is lab-grown.
So studded jewelry, 15% of studded jewelry, that means should I add customer licensed brand and U.S. owned websites?
Yes. Yes, all of it. Yes, that's right.
All 3, so 15% of that? So that is around INR 50 crores, INR 55 crores quarterly lab-grown diamonds is there?
That's right.
Okay. And this is sold via your different -- basically either D2C or B2B or customer brands?
Both. Yes. That's right.
Now with clarity is going to be your own brand?
That's right.
And that we are going to sell in the U.S., it is a D2C brand or it is a B2B or how does that work?
It is currently D2C, and it's classified in our earnings presentation in our U.S. owned websites.
Okay. So it's a D2C brand. And right now, there is no sales asset that we have started with that -- in that brand right now?
So that brand is already in the INR 46 crores in -- we've acquired it 2 years ago, and it's an ongoing basis.
Okay. So how much would be sales of with clarity in the INR 46 crores?
We haven't disclosed that because we've got 3 brands in the U.S. So we haven't disclosed that, and I think we'd like to keep that confidential for...
No problem. So sir, where do you see the traction coming? Do you plan to sell to the big U.S. retailers? Or do you plan to go with your own brand with clarity and focus more on that and sell it through our website and through our channels?
Currently, we've got both businesses, right? So our diamond jewelry business, which is around INR 370 crores is a combination of our own brands, licensed brands as well as sales to large retailers. So our focus really is licensing and concentrating on our retail partners, large retailers in the U.S. as well as selling it direct to consumer. So we do both, and we continue to plan to focus on both.
Okay. The reason I'm asking is because the margin that you make in a licensed brand is different from what you make in your customer brands. So as a investor, if you sell INR 235 crore customer brands, you will make half the margin as in licensed brand you make double of that. So that could add on to look at which is the focus area. And why do you think that should grow? Because I'm sure the market is crowded by other players also.
Yes. So the customer brand segment has sort of remained stagnant for a number of years. It's not a growth area of the business and the business is a low ROE, ROCE business for the company. We've grown the licensing business and the direct-to-consumer business. And clearly, from our actions that we are taking in terms of exiting the plain gold business, which is a commoditized business, our endeavor is really to move more towards a differentiated branded and licensed brands business.
I think that it's a journey that we've got to embark on by not shifting things too rapidly. But clearly, the focus of the company is on improving margins and moving to a more capital-efficient structure, which we plan to do over a number of years.
Next question is from the line of Chirag Vakharia from Budhrani Finance.
Yes. Sir just wanted to understand, of the -- if I take the total Jewelry sales of say INR 370 crores, excluding your plain gold, of this 15% is lab-grown diamond, correct?
Yes, that's right.
Okay. No sir, I just wanted to understand how are the margins in lab-grown diamond and natural diamond, sir?
So lab-grown diamond margins are slightly higher than natural diamond margins from a gross margin perspective. However, it does come with an increased inventory risk as lab-grown diamond prices have been going down. I think that with the increased penetration of lab grown, margins should go up over time. And I think that a key driver of increasing margins for our company is also cost optimization.
So we are cognizant of the fact that our cost structure is a little bit on the higher side. And with a INR 1,600 crores, INR 1,700 crores diamond jewelry business, our margins should be in the double-digit range. So I think that structural shift more towards lab grown diamonds and coming more efficient on a cost side. For us as a company, a combination of the two things should help us grow margins, not just the shift towards lab-grown diamonds.
Yes, sir. So what I wanted to understand is incrementally say people want to shift to lab grown diamonds then the margins, you still think can go to double digit, even by the shifting.
That's right.
Next question is from the line of Rohit Shah from Ladderup Wealth Management.
I had a couple of questions. One is that in quarter 2 now that you've done with 2 months. So what is the kind of demand environment that you're seeing, especially in the U.S. for jewelry buying and discretionary spending that [indiscernible]? That is question number one.
Yes. So there is no question that discretionary spends are under pressure in the U.S. I think that if you look across any single category, whether it's luxury or any kind of discretionary spend. So to answer your question that U.S. discretionary spends are under pressure because of high inflation over the last couple of years.
However, in our business, in particular, we've seen relatively strong factory order book for July, August and partially into September. We don't have too much visibility for the season. So hard to comment on what the Christmas season will look like due to a little bit of uncertainty.
Our endeavor, obviously, is to focus really on the growth areas, which is the direct-to-consumer where we have a small market share, and we will continue to grow and as well as penetrating deeper into lab-grown diamonds, again, a new categories where customers are gravitating towards those segments.
So macro picture, U.S. demand is definitely subdued at a macro level. At a company-specific level, I think the first quarter has been a little bit subdued. However, the order book does continue to remain healthy for the short period of time. However, a little bit early to have visibility on the Christmas quarter because we don't have full visibility yet.
Okay, sir. My second question is that how has been the response to the new one of you new brand Disney, one of your new brand DC Jewelry collection that I think, launched last quarter or something? And secondly, we are also testing some Barbie collection licensed brand. So I mean, how is it being rolled out and how has been the response to that as well?
So I think that so far, we've seen a lot of success primarily with the Disney Princess, and that remains the mainstay of the business. I think that we've seen very moderate success with the Barbie collection or with some of the other newer licenses. So I think that the strategy of the company going forward is really going to be to focus on what's working and grow that because the addressable market for the brands that are working and successful is much larger than what it is.
So I think our strategy in order to improve margins is to really focus on the brands that are working and not expand the universe of brands too much. So the focus is really going to be on Disney Princesses, Disney Treasures, Hallmark and Star Wars. These are all brands that are doing well, which focus will continue to grow.
Some of the other marginal brands are going to sort of not be focused on, as our endeavor is really to take our margins from the 15%, 16% to even higher levels by focus on a few successful brands and make them into power brands.
[Operator Instructions] Next follow-up question is from the line of Saumil Shah from Paras Investments.
You just mentioned that we exited plain gold business. This quarter, we have done about INR 73 crores of revenue. So are you saying that for next quarter, it won't be there? Is my understanding correct?
That's right. Yes. That's correct. We will have revenue in the month of July. August 1 onwards, the revenue will not be there. And correspondingly, it will have a INR 2 crores to INR 3 crores impact on the quarterly EBITDA. However, the business is return on capital employed was very close to cost of capital and cost of debt. So the impact on the bottom line should be minimal to almost 0, and this additional INR 70 crores to INR 80 crores of liquidity that we would get would be used in lowering debt levels of the company going forward.
But to answer your question, the revenue of INR 70 crores will go away next quarter, and you will see a decline in revenue due to the exit of the plain gold business.
And what is our D2C online business? You mentioned U.S. old brands is somewhere INR 45 crores -- sorry, INR 50 crores?
That's right. INR 46 crores this quarter.
U.S. owned site for online sales and licensed brands D2C is how much?
We've not given the breakup. I don't have the numbers available off the top of my head, but I can -- we can have the IR team submit it to you.
Okay. And even that is growing at the rate of 20%, 25%?
That's right. That's growing at a slower rate because they are more matured businesses, but they are growing, yes.
[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for the closing comments.
Thank you, everyone, for joining us on our quarterly conference call. Look forward to seeing you again on the Q2 FY '25 call. Thank you, and have a great day.
Thank you.
Thank you very much. On behalf of Renaissance Global Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.