Renaissance Global Ltd

NSE:RGL

Earnings Call Analysis

Renaissance Global shows stable growth with focus on branded and lab-grown segments.

In Q2 FY '25, Renaissance Global reported a 3% year-over-year revenue increase, reaching INR 392 crores, while adjusted EBITDA surged 42% to INR 40 crores. The company achieved a consolidated EBITDA margin of 10.3%, driven by improved gross margins. Notably, revenue from Owned Brands grew 7%, with an EBITDA margin up 575 basis points. The shift towards lab-grown diamonds is expected to enhance growth in the coming quarters. Cost-cutting measures are projected to save INR 40-50 crores annually, contributing to a favorable outlook. Furthermore, the company aims to reduce net debt from INR 328 crores to around INR 100 crores by FY '26.

Solid Revenue Growth Amid Operational Efficiencies

In the second quarter of FY '25, Renaissance Global Limited experienced a 3% year-over-year increase in revenue from continuing operations, totaling INR 392 crores. This performance is primarily attributed to the company's operational efficiencies and a strategic pivot towards high-margin segments. Notably, the consolidated EBITDA margin from continuing operations climbed to 10.3%, reflecting a significant improvement of 434 basis points due to margin enhancement initiatives.

Key Segments Driving Growth

The Owned Brands segment proved to be a standout, with revenues increasing by 7% year-over-year and an EBITDA margin reaching 10.3%. This segment's robust performance is expected to continue, especially heading into the holiday season, which traditionally sees a surge in consumer demand. Additionally, the Customer Brands division achieved revenues of INR 293 crores and an EBITDA margin enhancement of 295 basis points, signaling effective strategy execution.

Strategic Initiatives and New Product Launches

As part of its growth strategy, Renaissance recently launched a new Direct-to-Consumer fashion jewelry brand named Renaei, targeted mainly at U.S. millennials and Gen Z consumers through platforms like Amazon. The company is also expanding its product line, testing new collections such as the Enchanted Star collection featuring lab-grown diamonds, which is anticipated to drive further growth in its Licensed Brands segment.

Cost Optimization for Future Growth

Renaissance is implementing a comprehensive cost optimization initiative, projected to save between INR 40 crores to INR 50 crores annually. This initiative aims to streamline efficiencies and will contribute positively to the bottom line. The company has also accounted for a one-time restructuring expense of approximately INR 3.5 crores as part of this optimization effort.

Debt Management and Financial Outlook

Renaissance is committed to maintaining a healthy balance sheet. The net debt-to-equity ratio improved to 0.27 as of September 30, 2024, down from 0.31 in June 2024. The total net debt decreased to INR 328 crores, and the cash and bank balances increased to INR 244 crores, an uptick of INR 58 crores. The company expects to reduce net debt to between INR 100 to INR 150 crores by the end of FY '25, with aspirations to achieve a net debt-free status by FY '26.

Future Growth and Market Penetration

The management anticipates returning to a growth trajectory across all segments. They expect double-digit growth in the Licensed Brands segment, driven by an increasing shift toward lab-grown diamonds, which currently have a low market penetration of just 6%. This transition is expected to be a critical growth driver as consumer acceptance of lab-grown products continues to gain momentum.

Robust Long-Term Strategy

The company's long-term strategy hinges on geographic expansion and deepening market penetration, particularly in lab-grown diamonds. With strategic partnerships, including an exclusive deal with Disney, and a strong focus on premium market positioning, Renaissance Global is well-poised to capitalize on upcoming market opportunities. The commitment to maintaining brand integrity and quality while pursuing efficiency highlights a balanced approach to growth.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Q2 FY '25 Earnings Conference Call of Renaissance Global Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Snehkumar Purohit from Renaissance Global Limited. Thank you, and over to you.

[Snehkumar Purohit, executive]

Good afternoon, everyone, and thank you for joining us on Renaissance Global Q2 and H1 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 a 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 a disclaimer to this effect has been included in the results presentation shared with you earlier.

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

[Sumit Shah, executive]

Thank you, Sneh. 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 second quarter ended 30th September 2024. 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.

Building on the momentum from Q1, we achieved stable growth across key segments with quarterly revenue from continuing operations rising 3% year-over-year. Our consolidated EBITDA margin from continuing operations reached 10.3%, enhanced by operational efficiencies and a strategic focus on high-margin segments. Our continued focus on high-quality businesses has meaningfully contributed to the positive impact on gross margins, which are up 434 bps through our margin improvement initiatives.

In Owned Brands, our revenue grew by 7% year-over-year in Q2, while the EBITDA margin in this segment reached 10.3%, reflecting a substantial year-over-year improvement of 575 basis points. As we approach the holiday season, we expect strong consumer demand in this segment setting us up for a promising end to the year.

We recently launched a new Direct-to-Consumer fashion jewelry brand, Renaei, to be primarily sold on Amazon in the U.S. The brand is uniquely designed to meet an ever-growing affordable fashion jewelry demand among millennial and Gen Z consumers.

Our focus on branded jewelry continues to drive growth. Recently, we tested the Enchanted Star collection with a major retail partner in the U.S. This collection, an exciting extension of our Enchanted Disney Fine Jewelry brand, brings lab-grown diamonds into our offerings featuring engagement rings and fashion jewelry pieces. Early response has been very encouraging, and we believe that this collection holds strong potential to contribute meaningfully to our Licensed Brand segment in the growing quarters.

In the Customer Brands division, revenue in Q2 stood at INR 293 crores with an EBITDA margin of 9.4%, making an impressive 295 basis point improvement. We have taken a detailed strategic review of this business and have identified significant process reengineering and capacity rationalization measures to boost efficiencies.

We've launched an extensive cost optimization initiative towards the end of Q2, which will extend into Q3 and is expected to deliver annual savings of INR 40 crores to INR 50 crores. In line with the same, we incurred a onetime restructuring expense of around INR 3.5 crores in this quarter.

Additionally, we expect to see significant reductions in interest rates as we leverage the proceeds from the sale of our gold business and anticipate a more favorable interest rate environment with recent rate cuts announced by the Fed. This combination of actions will position us to achieve substantial savings while reinforcing our commitment to profitability and long-term growth.

While we remain mindful of near-term challenges, our outlook on the long-term potential of our branded business remains exceptionally strong. Our partnerships with iconic global brands, coupled with the expansion of our own distinctive brands with strong focus on lab-grown diamonds, underscores our commitment to connecting with the next generation of jewelry enthusiasts.

Our strong partnership with renowned brands, expertise in product innovation, design talent and robust distribution network will continue to drive our growth going forward.

[Hitesh Shah, executive]

Thank you, Sumit. Good day, everyone. We have reported a stable performance during the quarter, driven by better performance in our Owned Brands Direct-to-Consumer segment. In Q2 of FY '25, our adjusted total income increased by 3% at INR 392 crores as compared to INR 380 crores in Q2 of FY '24.

On the profitability front, adjusted EBITDA expanded by 42% at INR 40 crores in Q2 of FY '25 versus INR 28 crores in the same period last year with adjusted EBITDA margin of 10.3% versus 7.5% last year. During the period, our margins improved, and we expect revenue to trend upwards in the coming quarters.

Adjusted profit after tax for Q2 of FY '25 stood at INR 15.7 crores, up by 50% from INR 10.5 crores in Q2 of FY '24. For H1 of FY '25, the adjusted profit after tax stood at INR 31.4 crores as compared to INR 24.7 crores in the same period last year.

Our Branded segment reached revenues of INR 92 crores during the first half of the financial year versus INR 78 crores in the first half of FY '24, which is up by 19%, demonstrating a resilient business strategy and strong market expansion. Our Direct-to-Consumer India brand, Irasva, with a total of 4 stores across Mumbai, Ahmedabad and Hyderabad, recorded revenues of INR 10 crores in the first half of FY '25.

In quarter 2 of FY '25, our Licensed Brands business maintained stable revenues at INR 57 crores on account of healthy flow of orders from our retail partners as well as Direct-to-Consumer segment. It had an EBITDA margin of 16.5%, while our Customer Brands reported an EBITDA of 9.4%, reaching revenues of INR 27 crores in Q2 of FY '25 -- sorry, reaching a margin of 9.4%, which is an improvement of 295 basis points.

Given the increasing contribution of Our Brands to our overall revenue, we anticipate a promising rise in our consolidated EBITDA margins with Branded business continuing to be a significant profitability driver.

Lastly, in terms of our balance sheet, our net debt-to-equity ratio stands at a healthy 0.27 as on 30th September '24 versus 0.31 in June '24 and 0.29 in September of '23. Our total net debt stands at INR 328 crores against INR 370 crores in Q1 of FY '25. And our cash and bank balances and current investments stand at INR 244 crores, which is up by INR 58 crores from 30th June '24.

In conclusion, we are pleased to have maintained steady performance in the face 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]

[Operator Instructions] We'll take our first question from the line of Kashvi Chandgothia from JRK Stock Broking.

[Kashvi Chandgothia, analyst]

Am I audible?

[Operator]

Yes, but your volume is very low, Kashvi. Can you use your handset mode, please?

[Kashvi Chandgothia, analyst]

Yes, I'm using my handset. Can you hear me now?

[Operator]

Little better. Go ahead, please.

[Kashvi Chandgothia, analyst]

I congratulate everyone on the great set of numbers. So going forward, can you give a more detailed guidance on how we are expecting the quarter 2 (sic) [ quarter 3 ] and the FY '26?

[Sumit Shah, executive]

Sorry, if I understood your question correctly, you wanted a more detailed guidance on quarter 3 and FY '26?

[Kashvi Chandgothia, analyst]

Yes. So half year second half and FY '26.

[Sumit Shah, executive]

Sure, sure. So I think we are seeing sort of a return to growth in all of our segments in quarter 2. We anticipate this trend to continue or accelerate going forward. I think that for financial year '26, I think as the penetration of lab-grown diamonds increases, we see revenue growth accelerating.

And this, coupled with the cost-cutting measures that we have taken in our Customer Brands segment, we expect strong revenue growth in FY '26 and even stronger growth in bottom line because of our cost-cutting measures. So I can give you a broad outlook in terms of direction. Detailed numbers, we're not sharing as yet.

[Kashvi Chandgothia, analyst]

Okay. And sir, these cost-cutting measures won't like affect the brand quality and the attraction that we've see with the Gen Zs and the Millennials, especially for the lab-grown?

[Sumit Shah, executive]

Yes. So a lot of the cost-cutting measures have actually been capacity rationalizations because as the business moves to more lab-grown, we see a less labor-intensive product being manufactured, which means that we will be able to produce more value of orders with less manufacturing capacity. So a lot of it is related to reduction in manufacturing capacity and some process engineering.

We haven't done anything to impact our sales or the desirability of our brands. We are very cognizant of the fact that we need to maintain revenue growth while looking at more efficient ways of doing business. So yes, to answer your question, we are very confident that we will be able to maintain a revenue growth trajectory while reducing expenses.

[Operator]

[Operator Instructions] Next question is from the line of Naitik from NV Alpha Fund.

[Naitik Mutha, analyst]

My question is after selling off our plain gold business, you are expecting some inventory easing from the inventory that was stuck with that business. But however, we don't see that in the September balance sheet. So could you please help me understand why we don't see that or when will we see that?

[Sumit Shah, executive]

Yes. So I think there has been inventory reduction, which is kind of reflected in the increase in the cash balances. However, the absolute inventory number, obviously this is the start of the season and September usually represents a peak in terms of our inventory numbers because we are usually building inventory for the October, November, December holiday season. So we would expect to see a reduction in inventory subsequently both in December as well as in March.

I think that the inventory increase has been offset by an inventory reduction in the plain gold business, which is reflected in the increase in cash. If you see quarter-over-quarter, our cash balances have increased by INR 60 crores.

[Naitik Mutha, analyst]

Right, sir. Sir, but if I compare your cash versus your March balance sheet, it's broadly remained the same while your debt has gone up roughly by INR 50 crores, I'm talking about gross debt. So what is the reason for the same? I'm not saying quarter-over-quarter, but when we compare it with the March quarter...

[Sumit Shah, executive]

So as of 31st March, our cash balance was INR 188 crores. It's INR 244 crores as of 30th September. So it's up by INR 60 crores from 31st March.

[Operator]

We'll take our next question from the line of [ Rajesh Golcha ], an individual investor.

[Unknown Attendee]

Sir, I have two questions. First, what are debt level on which we are paying interest? And second, when can I expect any timeline our company to go debt-free?

[Sumit Shah, executive]

Yes. So our intention is that we've currently obviously done a preferential fund raise of around INR 168 crores. So this, coupled with cash flow emerging from our business during Q3 and Q4, because, as you know, seasonally, our largest quarters are Q3 and a lot of the receivables go down afterwards. So we expect a meaningful reduction in debt at the end of FY '25. Our anticipation is that 1 year from then, which is at the end of FY '26, we expect to be 0 net debt.

[Operator]

[Operator Instructions] Next question is from the line of Shrikant Parakh from Prudent Investments.

[Shrikant Parakh, analyst]

Am I audible?

[Operator]

Yes, please go ahead.

[Shrikant Parakh, analyst]

Sir, my question [Foreign Language] the amount which we have got from the preferential allotment, so what exactly the strategy to utilize those funds? What was the ratio for mainly the division between the reducing the debt and for more acquisitions, as you have mentioned in investor presentation?

[Sumit Shah, executive]

Yes. So we obviously have -- we are on the lookout for an acquisition, and we have not identified any acquisition immediately. So once the fund raise is done, debt reduction will happen immediately.

And I think subject to us being able to find an appropriate acquisition opportunity which is accretive and fits into the various criteria, the Board will evaluate acquisition opportunities. So there is no immediate acquisition target which has been immediately identified. And we will be obviously thoughtful and methodical with the acquisition framework.

There is, however, some amount of upgradation of infrastructure that will take place, which we've allocated, I think, around INR 30 crores for. Other than that, the remainder of the money will go towards debt reduction. And then when an acquisition opportunity comes about and the Board feels comfortable, at that point, the acquisition will be undertaken.

[Shrikant Parakh, analyst]

And sir, just a heads up. I think you might have said in the previous participant's question, any timeline where we are expecting a reduction in the debt, is sort of a debt-free company?

[Sumit Shah, executive]

As I mentioned earlier, we expect to be significantly lower by about INR 150 crores to INR 180 crores by the end of this year. So the net debt, which is currently at INR 328 crores, should be closer to INR 100 crores of net debt. And subsequently, by FY '26, the plan would be to be 0 net debt.

[Operator]

[Operator Instructions] Next question is from the line of Hardik Gandhi from HPMG Shares & Securities Private Limited.

[Hardik Gandhi, analyst]

Am I audible?

[Operator]

Yes, please go ahead.

[Hardik Gandhi, analyst]

Sir, so I'm fairly new to your company, so pardon me for question -- for answers and questions which might be repetitive in nature. But what are the key drivers as a company in the AD -- what are the key drivers which you are seeing right now which will help the growth in the coming quarters and year as well? What are the things going your way?

[Sumit Shah, executive]

Yes, yes. So I think that we've segregated the business into three segments. And the three segments of the company are Our Brands, which are our Direct-to-Consumer brands. There is a Licensed Brands and the Customer Brands. In Our Brands segment, we are fairly new. It's a INR 200 crore kind of business, and it was 0 up until a couple of years ago.

I think that there is a tailwind of lab-grown diamonds in Our Brands segment, which is gaining acceptance in the U.S., which is causing the business to grow. And there is also international expansion within Our Brands that we've planned. Currently, a large part of Our Brands is in the U.S. We plan to launch in February in the U.K., and there will be some geographic expansion, which will lead to growth.

In the Licensed Brands segment, the penetration of lab-grown diamonds is currently fairly low. In one of our largest brands, we just tested lab-grown diamonds and we've seen great initial success with the brand. So I think the growth in the Licensed Brands as well as the Customer Brands segment will come from the transition to lab-grown diamonds.

And in terms of the bottom line, as I mentioned in my opening remarks, we've undertaken this cost reduction and capacity rationalization expenses -- of expenses. And you'll see the expense run rate go down by around INR 40 crores to INR 50 crores annually starting next quarter.

So I think the drivers of growth really are in Our Brands, to summarize, geographic expansion and deeper penetration in our existing markets and penetration of lab-grown diamonds, which is currently fairly low in the Licensed Brands and the Customer Brands segment.

[Hardik Gandhi, analyst]

Understood. So that's really helpful. But going forward, I know a lot of people are entering into lab-grown diamond business. So I just wanted to know what are the key barriers to entry. And is there something which is niche to us? Or is it just that anyone with good capital can start making diamonds and then they just need to tap the market? Like how difficult it is for someone to get into? Because I think Titan -- not Titan, but Tata is getting into this by one of their subsidiaries.

[Sumit Shah, executive]

Our approach to lab-grown diamonds is, one, we're not growing lab-grown diamonds. We're in the business of designing and branding jewelry and selling jewelry in global markets. So all of our sales -- a large majority of our sales are in the Western markets. Our Brands in the U.S. is relatively attractive one, and we're going to focus on building Our Brands. We've got a robust Direct-to-Consumer platform that has grown about 5x in the last couple of years since we made the acquisition.

And then in the Licensed Brands segment, we have an exclusive licensing arrangement with Disney, which gives us a moat and helps us sort of protect the business because Disney is sort of very well-recognized brand in the markets in which we operate. So Our Brands, which has been sort of growing well, as well as having access -- exclusive access to the Disney brand name gives us a little bit of a moat in the branded jewelry segment.

Within India, we are going to sort of focus on the premium segment in lab-grown. Because we feel that at the entry-level price point, it's going to be -- going to lead to commoditization. So the brand that we operate in the U.S. is sort of in the premium space, which we plan to expand geographically from the U.S. to the U.K. and in India.

[Hardik Gandhi, analyst]

Understood, sir. Sir, and just to understand what -- when you mean it's in the premium segment, what is the factor that determines it's in the premium segment? Sorry, I'm not aware of the things.

[Sumit Shah, executive]

So I think just like any luxury brand, I mean, it's about the marketing, right? I mean, I think that whether you take the luxury space in handbags or in jewelry, it's about what the positioning of the brand is and what the marketing is. So I think that if you go to Our Brands website, you'll understand how the positioning is, is premium and how we are focusing on an average order value of around INR 2.5 lakh, which is where we've been successful. So we're going after the slightly premium customer with premium positioning.

[Hardik Gandhi, analyst]

Understood, sir. Understood. And the last question, if I can squeeze in. According to what I've read and everything, going forward, a lot of people are still getting into lab-grown diamonds. So -- and from what I've heard, after a point, it will just be a pricing -- price war, which will go. So do you think that is possible in the future, where just like people mass produce lab-grown diamonds and then the customization and then it just gets into a price war?

[Sumit Shah, executive]

So I think in any commodity, right, I mean, whether it is apparel or handbags or any consumer product, I mean, I think that finally the determinant of success in a consumer brand is your brand and your branding, right? It's not just about the commodity and the price war, right? It depends on where you choose to compete and what your brand represents and what are your brand values.

So our positioning in the U.S. and here has been to build a brand in the premium space and not to get into sort of commoditization and price competition. So clearly, if more and more people enter, I mean, there will be commoditization at some end. But there is various segments in any consumer market. There is the bottom end, which is commoditized, and then there is a premium end and the luxury end, which tends to get -- have its pricing power because of its positioning.

[Operator]

We'll take our next question from the line of [ Nupur Gandhi ] from Sequent Investments.

[Unknown Analyst]

Sir, I wanted to ask you that in your B2B segment in your Licensed Brands and your Customer Brands, how much growth are we expecting or seeing in the next quarter, next half year and the next year -- financial year?

[Sumit Shah, executive]

Yes. So I think at this point, I think we are seeing revenue growth accelerating. I think that -- I don't have a specific number for you, but we've been through a 2-year period, where inflation in the U.S. was extremely high and consumer demand was very subdued. I think we're seeing a lot of those pressures abating and going away.

So our cadence has been to try and grow in double digits in our Licensed Brands segment and which we expect sort of in the coming quarters, again, without sort of coming up with a specific number and a guidance, I think a lot of the pressures related to inflation are now behind us and I think that we should see growth in -- acceleration in revenue growth going forward.

[Unknown Analyst]

Got it, sir. And also, sir, one more question. You said that in your Licensed Brands, your growth will come from transition to lab-grown. So right now, we have a percentage of 94% natural and 6% lab-grown. So going forward, what percentage are we looking at? Like how do we plan to increase the lab-grown?

[Sumit Shah, executive]

So the 94% that you refer to is in Our Brands, not in the Licensed Brands. The Licensed Brands and Customer Brands, currently, the penetration is only 6%, which we expect to grow meaningfully in the coming quarters and the years to come.

[Operator]

[Operator Instructions] As there are no further questions, I now hand the conference over to management for closing comments. Over to you.

[Sumit Shah, executive]

Thank you, everyone, for joining us on our Q2 and H1 results. We hope to see you guys on the next conference call. Thank you very much.

[Hitesh Shah, executive]

Thank you.

[Operator]

Thank you. On behalf of Renaissance Global Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.