Senco Gold share price crashes 19% to hit 9-month low after Q3 numbers. Do you own?

Shares of Senco Gold, a leading jewellery retailer in India, tumbled 19% in early morning trade today, February 14, reaching a 9-month low of ₹363.75 apiece, after investors reacted negatively to the company's December quarter numbers.

The company, on Thursday, reported a 70% drop in its consolidated net profit to ₹33 crore, compared to a net profit of ₹109 crore in the same period last year. This decline was impacted by a one-time effect of the customs duty reduction. The revenue from operations during the quarter stood at ₹2,103 crore, marking the highest-ever quarterly revenue for the company.

In the same period last year, the company reported a revenue of ₹1,652 crore, while in the preceding September quarter, the revenue stood at ₹1,500 crore.

On the operational front, EBITDA for the quarter stood at ₹79.9 crore, while year-to-date (YTD) EBITDA was ₹240.6 crore. However, considering the adverse impact of customs duty in Q2 and Q3, amounting to ₹29.8 crore and ₹27.6 crore, respectively, the adjusted EBITDA for the 9-month period stands at ₹298.0 crore with an adjusted EBITDA margin of 6.0%, as per company's Q3 earnings report. 

Similarly, the adjusted PAT for the quarter stood at ₹53.8 crore, while the YTD PAT for the 9-month period was ₹96.9 crore, with an adjusted PAT of ₹138.8 crore. The company noted that the impact of lab-grown diamonds temporarily affected its stud ratio, impacting the profitability of diamond jewellery.

Higher export sales, which typically have lower margins compared to domestic sales, also contributed to the decline in profitability. However, Senco Gold expects EBITDA margins to normalize to 7%-8% in Q4 as the impact of customs duty stabilizes. The company remains optimistic about strong demand and improved margins going forward.

"We remain confident that, given the long-term prospects of the Indian gems and jewellery industry, which is presently worth $85-$90 billion, we will achieve 7%-8% EBITDA margins on an annualized basis, excluding any one-off events. The lower EBITDA and PAT margins in the current quarter were due to the customs duty impact, while the adjusted 9-month EBITDA margin stood at 6.0%. We expect to achieve 7%-8% EBITDA margins in Q4 and beyond, based on our brand positioning and operating leverage. Additionally, we aim to boost sales through innovative offerings and premium pricing as the second-most trusted brand in the jewellery domain," said Sanjay Banka (CFO), Senco Gold.

He further emphasised, “We assess gross margin and EBITDA on a YTD basis and have always maintained that due to gold price volatility on a quarter-to-quarter basis, coupled with hedging practices, IND AS 109 accounting standards, and other factors, quarterly EBITDA percentages may fluctuate. However, actual margins remain range-bound within 50-100 basis points (i.e., 7%-8%). Margins may also vary due to factors such as product mix, geographical sales mix, stud ratio, and channel sales mix.”

Expansion Strategy

In terms of expansion, the company showroom portfolio has grown to 171, including 70 franchisee showrooms. Over the past nine months, it has launched 12 new showrooms, 7 of which are company-owned. "Looking ahead, we remain on track to open 8-10 new showrooms in Q4 FY25, including 5-7 franchise outlets, in line with our earlier outlook. The short-term impact of lab-grown diamonds has temporarily affected the stud ratio; however, we remain confident that the diamond jewellery segment in which we primarily operate will rebound to lead us to a 15% stud ratio," said Suvankar Sen, Managing Director & CEO, Senco Gold.

"We are pleased to announce the incorporation of our wholly owned subsidiary, Sennes Fashion Limited, which will cater to the consumer lifestyle segment. This strategic initiative will cover premium leather accessories, lab-grown diamond jewellery, and perfumes, allowing us to expand our customer reach and remain at the forefront of evolving market trends," he added.

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