Kalyan Jewellers India Limited (KALYANKJIL) Q2 FY22 Earnings Concall Transcript

Kalyan Jewellers India Limited (NSE:KALYANKJIL) Q2 FY22 Earnings Concall dated Nov. 10, 2022

Corporate Participants:

Rahul Agarwal — Group Account Head

Ramesh Kalyanaraman — Executive Director

Sanjay Mehrottra — Head of Strategy and Corporate Affairs

Analysts:

Shirish Pardeshi — Centrum Broking — Analyst

Manoj Menon — ICICI Securities — Analyst

Ratish Varier — Sundaram Mutual Fund — Analyst

Nillai Shah — Moon Capital — Analyst

Gaurav Jogani — Axis Capital — Analyst

Anurag Dayal — HSBC Securities — Analyst

Rajiv Bharati — DAM Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Kalyan Jewellers Q2 FY ’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Rahul Agarwal. Thank you and over to you, sir.

Rahul Agarwal — Group Account Head

Good evening, everyone, and thank you for joining us on the Kalyan Jewellers India Limited Q2 and H1 FY ’23 earnings conference call. We have with us Mr. Ramesh Kalyanaraman, Executive Director; Mr. Sanjay Raghuraman, who is the COO; Mr. Swaminathan, CFO; Mr. Sanjay Mehrottra, Head of Strategy and Corporate Affairs; and, Mr. Abraham George, Head of Investor Relations and Treasury.

I hope everyone got an opportunity to go through our financial results and investor presentation uploaded on Company’s website and stock exchanges. We will begin the call with opening remarks from management following which we’ll have the forum open for a questions-and-answers 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 disclaimer to this effect has been included in the earnings presentation shared with you earlier.

I would now like to invite Mr. Ramesh Kalyanaraman, Executive Director of Kalyan Jewellers India Limited to give his opening remarks. Thank you and over to you, sir.

Ramesh Kalyanaraman — Executive Director

Thank you. Good evening, everyone. The recently concluded quarter has been very good. It was really exciting for Kalyan Jewellers. We achieved robust momentum in footfalls and revenues across all our markets. And we are continuing to see strong profitability trends and meaningful expansion of our return ratios post COVID.

We recorded consolidated revenue growth of more than 20% in Q2 as compared to the same period in the previous financial year. Moreover, our revenues as a company has meaningfully expanded through COVID with Q2 consolidated revenue having grown at a CAGR of more than 18% over the last three years. If I now step back and look at our business over the last year and aggregate the last four quarters, Kalyan has achieved revenue in excess of INR13,000 crore and PAT in excess of INR420 crores.

Now, let me spend some time on the current quarter. We are extremely excited with the way the quarter has started despite a very high base last year. We track the festive season as Diwali day minus 30 days and in this period, we have witnessed a revenue growth of approximately 25% versus the prior year. This has been driven by very strong customer walk-ins across all the markets. What has also been really encouraging was the share of new customers during the festive period. It is in excess of 35%.

As indicated on the previous call, operating model at the existing five franchise showrooms have stabilized and we are extremely satisfied with the business traction on ground. We are aggressively pursuing the next phase of franchise showroom expansion. As of now, we are at various stages of discussions with 50-odd potential franchisee partners and have signed the next set of six LOIs in India and the first LOI for the Middle East market. While discussing on driving strong day-to-day execution, we have developed a strategy and roadmap to further improve the profitability of the business and build a robust return on capital profile.

First area of focus is to expand the showroom network predominantly through the more capital efficient FOCO model enabling us to utilize a sizable part of the profits earned to pay down the cash credit facilities and to reward shareholders. The second area of focus is to convert some of the existing owned showrooms in South India to franchised showroom and redeploy the capital to grow the higher margin in non-South markets aggressively. Thirdly, we will reduce invested capital in the Middle East and improve its return profile by converting some of the existing owned showrooms to franchised ones and simultaneously expand the showroom network through the franchise model. Our international operations will be predominantly franchisee driven in the next three years.

Finally, divest non-core immobile assets, which will be released due to the reduction in working capital cash credit, and also divesting certain non-core mobile assets, thereby lightening the balance sheet. We will update you on the progress in these matters periodically.

Now, let me hand it over to Sanjay to take you through the financial highlights of the quarter. Thank you.

Sanjay Mehrottra — Head of Strategy and Corporate Affairs

Good evening, everybody and thank you, Ramesh. I’m really happy to be talking to you all after a great quarterly performance. For this just concluded quarter, our company reported consolidated revenues of INR3,473 crores, a 20% growth compared to the corresponding quarter of the previous year. Consolidated EBITDA came in at INR266 crores versus INR228 crores in the corresponding quarter of the previous year, a 54% growth.

I shall now give you the breakup of the Q2 performance, starting with the India numbers. Our India revenue came in at INR2,841 crores for this quarter versus INR2,503 crores when compared to the corresponding quarter of the previous year. And India Q2 EBITDA came in at INR222 crores versus INR201 crores when compared to the corresponding quarter of the previous year. And India PAT came in at INR95 crores compared to INR68 crores in the corresponding quarter of the previous year.

Moving now to talk about our Middle East business. Revenue in the Middle East came in at INR601 crores for the quarter compared to INR360 crores in the corresponding quarter of the previous year. EBITDA for the Middle East business came in at INR47 crores versus INR26 crores in this same period of the previous year. Lastly, Middle East profits came in at INR14 crores in the quarter compared to INR35 lakhs in the corresponding quarter of the previous year.

Talking now about our e-commerce business. Candere posted revenues of INR37 crores in the quarter versus INR32 crores in the corresponding quarter of the previous year. The quarter recorded a loss of INR3 crores versus a profit of INR54 lakhs in the corresponding quarter of the previous year. During the just concluded quarter, we had no bullion sale and gold coins sale to retail and corporate customers came in at about INR13 crores, about 0.5% of total revenues. We opened five new outlets in the quarter, four in Kalyan Jewellers and the first offline outlet in Candere during this quarter taking the total stores opened during the first half of the current financial year to nine.

With this, I’m now done with the summary of the financials and we can now open the floor for questions. Thank you.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.

Shirish Pardeshi — Centrum Broking — Analyst

Yeah. Hi. Good evening, team. Good evening, Ramesh. Thanks for the opportunity and congratulations for good set of numbers. I think I’ve got couple of questions and need some clarification. We have opened five new franchise stores in India.

Ramesh Kalyanaraman — Executive Director

Yeah.

Shirish Pardeshi — Centrum Broking — Analyst

So, at various points of time it would have done its sales, but maybe if you can highlight what is the contribution in the current quarter we have got of this five franchises?

Ramesh Kalyanaraman — Executive Director

Yeah. So it is very minimal, so hard to share the number because it’s a very competitive information.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Okay. Got it. Second on again some data points. In that 20% growth what we have reported in the quarter, what is the absolute grammage growth we have experienced?

Ramesh Kalyanaraman — Executive Director

So the revenue growth will be higher than the volume growth because you know that the gold prices have moved by 5% to 6%.

Shirish Pardeshi — Centrum Broking — Analyst

Yeah.

Ramesh Kalyanaraman — Executive Director

So it should be in that level.

Shirish Pardeshi — Centrum Broking — Analyst

So if it is 20%, maybe two-third is volume?

Ramesh Kalyanaraman — Executive Director

But you should reduce the tether quotient where the volume has gone up meaning the revenue has gone up, so that will also help.

Shirish Pardeshi — Centrum Broking — Analyst

Maybe if you have handy, what is the gold tonnage growth we have experienced in this quarter?

Ramesh Kalyanaraman — Executive Director

So it will be in the range of 5% to 7%.

Shirish Pardeshi — Centrum Broking — Analyst

5% to 7%.

Ramesh Kalyanaraman — Executive Director

Yeah.

Shirish Pardeshi — Centrum Broking — Analyst

And just you touched upon the studded portion would have been close to about 28%, 29% now?

Ramesh Kalyanaraman — Executive Director

The ratio you mean?

Shirish Pardeshi — Centrum Broking — Analyst

Yeah.

Ramesh Kalyanaraman — Executive Director

So studded ratio for Q2 will be in the range of what, 26%.

Shirish Pardeshi — Centrum Broking — Analyst

26%. So it’s moved from 24% last quarter to 26%?

Ramesh Kalyanaraman — Executive Director

Yeah. Yeah. 25.6% meaning if you want to be accurate.

Shirish Pardeshi — Centrum Broking — Analyst

25.?

Ramesh Kalyanaraman — Executive Director

25.6%, this is studded ratio.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. That’s really helpful. My larger question is that in this quarter, I mean the quarter 3, we have seen a very strong wedding season and there are various numbers which are floating out, but it comes to a higher number which is 41 days muhurat, which is there for wedding.

Ramesh Kalyanaraman — Executive Director

Yeah.

Shirish Pardeshi — Centrum Broking — Analyst

So how do you see this demand on ground, and per se where I’m more interested is that where do you see the interaction with the client? And maybe if you can offer what kind of footfall or advance interest which we have seen in terms of the client retraction?

Ramesh Kalyanaraman — Executive Director

So here, of course, yes. There is going to be a lot of weddings in November-December, but most are — we would have absorbed a lot of wedding demand in October as well. It should be there, but November-December I think the momentum is still there as we speak. As I have mentioned, we have actually a revenue growth of around 25% if you look at Diwali minus 30 days, that’s how we look at it, and that is partially because of this wedding demand.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. No. The reason why I’m asking because this muhurat is still going to be till say, around 17th, 18th of December.

Ramesh Kalyanaraman — Executive Director

Yeah.

Shirish Pardeshi — Centrum Broking — Analyst

So there is some demand which is coming. And just one observation, since we’ve been tracking the industry, all these big bank weddings, which are supposed to happen in Jan, Feb, March which got some postponed in the month of April and May, but the larger portion is going to come now.

Ramesh Kalyanaraman — Executive Director

Yeah.

Shirish Pardeshi — Centrum Broking — Analyst

So in terms of your consumer interaction, do you really see the high-ticket wedding jewelry whether it is studded or even in gold which is getting picked up?

Ramesh Kalyanaraman — Executive Director

So if you look at the high-ticket wedding, there is a natural growth for the high-ticket products majorly because the unorganized segment are not now focusing too much on the higher-ticket products because during the COVID, they had liquidity tissues, etc. where they had to reduce their inventory levels. So they basically reduced inventory levels in the non-staple products like high-ticket size. So there is a demand or there is higher growth in those kind of products in general.

Shirish Pardeshi — Centrum Broking — Analyst

Yeah. So that’s what we found, so I just wanted to recap on that.

Ramesh Kalyanaraman — Executive Director

Yeah. You are correct. You are correct. Yeah.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Second on the gold metal loans, where do we stand now and what is the aspiration which we want to close it by March?

Sanjay Mehrottra — Head of Strategy and Corporate Affairs

Earlier we had actually guided towards INR1,800 crore levels. We have achieved that. As of now, we have INR1,819 crore — as on 30th September, we have INR1,819 crores of gold metal loan. Probably at the current level of sanction limits, we should be settling at these levels, maybe another 50 kilo higher. That’s it.

Shirish Pardeshi — Centrum Broking — Analyst

Okay.

Sanjay Mehrottra — Head of Strategy and Corporate Affairs

INR50 crore higher, sorry.

Shirish Pardeshi — Centrum Broking — Analyst

Okay, okay. And my last question on the margin. I think directionally we have seen the market leader is also expanding its studded ratio and we are also gaining a lot of traction and momentum in the non-South market. Of course, the franchise operation will tell us where we want to head, but in the medium to long-term, say, can we achieve say March or maybe next four quarters should be excess of 8.5% to 9%? I mean, I’m not asking for the guidance, but directionally, do you think we should be achieving that target?

Ramesh Kalyanaraman — Executive Director

Okay. So first, if I tell about Q2, okay, the gross level — actually at the gross level the margins have improved year-on-year, okay. And even with the high competitive intensity for winning the market. And the EBITDA margin, there is a drop when compared to the last year and it is majorly driven because of some lower ad spend in the base year because we were just coming out of the COVID wave, okay. And in this quarter, we also have a one-time provision, which has been done. And if these two are negated, actually the margins would have been — the EBITDA margins would have been in the range of 8.1% to 8.2%.

I think you should look at it that way because very hard for me to give guidance. So I wanted to tell you that the EBITDA margins in this quarter or the quarter which just ended would have been in the range of 8.1% to 8.2% if these two things were negated. So that is the clarity which I want to give.

Shirish Pardeshi — Centrum Broking — Analyst

No. You touched upon the same thing. In fact, if I’ve seen your number and the observation is that as a company level, our ad spends has gone up by 43% while domestic expense has gone up by 46%, and when I look at the sales promotion expenses, which has gone up by 13.8% while in the domestic market, it is 7.7%. So I just wanted to understand is this ad spend is because of the season and we are seeing the strong current and of course that will help the franchise also to get the confidence, was that the necessity or it will continue in the quarter 3 and quarter 4 also?

Ramesh Kalyanaraman — Executive Director

So Q2 the ad expenses were high because we launched the campaigns in India and Middle East a bit early because Diwali was coming a bit early this time. So September by around second week itself we started our campaigns.

Shirish Pardeshi — Centrum Broking — Analyst

But is it going to be recurring?

Ramesh Kalyanaraman — Executive Director

It should be in the range of what — 1.8% to 2% is what we generally look for on ad spent.

Shirish Pardeshi — Centrum Broking — Analyst

Sure. Okay. All right. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Manoj Menon from ICICI Securities. Please go ahead.

Manoj Menon — ICICI Securities — Analyst

Hi, team. A few questions from my side. Ramesh, the one thing about demand of, let’s say, for the second half, normally I don’t get into too much of quarterly and short term stuff, but it’s a very peculiar situation. So when I look at the gold prices, let’s say, exit September 30th and I think about that, I’d say it stays where it is for the next six months on a Y-o-Y basis it looks like there is no gold inflation. So just wanted your top-down view on consumer behavior that, let’s say, in a scenario of no gold inflation, just the volumes can make it — make up let’s say and get to a teens or sort of a good sort of a double-digit growth?

Ramesh Kalyanaraman — Executive Director

Yes. So if you look at our Diwali minus 30 days, Manoj, we have grown by around 25%, right. And majorly it is volume driven, right, because the price has not been moving when compared to last Diwali. And the footfalls are very high…

Manoj Menon — ICICI Securities — Analyst

Understood. So…

Ramesh Kalyanaraman — Executive Director

And the footfalls are high. Diwali was like mad wherein — I would also tell you that we should not expect that Q3 ends up in 25% because Diwali has been like urban shopping. The market has been very vibrant during Diwali time and we are happy that we could actually grab the revenue, okay. But even otherwise, we are very confident about Q3. And like I always say, when prices actually are lesser, the volume increases and vice versa because people come with a budget.

Manoj Menon — ICICI Securities — Analyst

Fair point. Stability driving volumes, understood. And also you mentioned about — understood. Understood. Very heartening to hear. Now second on the franchising bit. Just one qualitative comment for the record would be helpful. What is the sort of color of franchisees which you’re having? What I mean by what sort of background they come with, and what are the selection criteria you use? Are they existing jewellers, are they auto dealers, or — are they — do they come from, let’s say, apparel retail? I don’t know. I’m just trying to understand what sort of, let’s say, criteria you use when you select a franchisee. And the current ones what you have or maybe you can talk qualitatively the pipeline which you have, what sort of background they come from?

Ramesh Kalyanaraman — Executive Director

Yeah. Sanjay, you want to take it?

Sanjay Mehrottra — Head of Strategy and Corporate Affairs

So as we’ve shared before, we’ve worked with one of the top four consultants to kind of set up a template to help us shortlist franchisees. And like you said, from our experience, we’ve found that the kind of people who are having like affiliation to do this from the retail background either from the auto business or from the two-wheeler business or from existing franchisees of textile brands, etc. So it’s an assortment of all of that.

Manoj Menon — ICICI Securities — Analyst

Fair point, Sanjay. Do you already have, let’s say, someone with jewellery background, etc. or no?

Sanjay Mehrottra — Head of Strategy and Corporate Affairs

One minute.

Ramesh Kalyanaraman — Executive Director

Yeah. So first of all, Manoj, Ramesh here. Let me highlight that existing jeweller franchise does not bring in any additional benefit as we are working on a FOCO model. You know that, okay.

Manoj Menon — ICICI Securities — Analyst

Sure. Sure.

Ramesh Kalyanaraman — Executive Director

And I know where you’re coming from. If you are checking whether the same franchisee is working for KJ and its peer group, both of us are right in saying yes and no. Reason being no partner will work with the same competition brand in the same entity, right. But yes we are working with associates of franchisees of our peers.

Manoj Menon — ICICI Securities — Analyst

Loud and clear, sir. I will not push this envelope up anymore. I understood that.

Ramesh Kalyanaraman — Executive Director

Yeah.

Manoj Menon — ICICI Securities — Analyst

And Ramesh, third, I’m sorry if I missed that. When I go back — 30 days back on the quarterly announcement you put it on exchanges in the first week of October…

Ramesh Kalyanaraman — Executive Director

Yeah.

Manoj Menon — ICICI Securities — Analyst

There is one line which spoke about — which specifically called out gross margin pressure during the September quarter, essentially to do with the customs duty pass through, which — so you get that the drift, right? So is there a quantification which you have? That’s point number one. Let’s say, for example, you have to give X percentage or X quantum higher discounts because of this substantial gain which unhedged players would have got one-off. Point number two, a general comment about competitive intensity, otherwise?

Ramesh Kalyanaraman — Executive Director

Yes. So first thing, Manoj, competitive intensity has increased, okay. The gold rate meaning the bore rate continued to remain under pressure throughout the quarter. The bore rate is decided by the local associations everywhere across the country and there has been pressure in the bore rate itself, okay. That is majorly because of the customs duty one-time advantage, which the other organized one-store, two-store kind of jewelers would have got. So they were completely passing it over to the customer and we also had to do that. So there is no one-time advantage because of that and the continued competition intensity was there throughout the quarter.

Manoj Menon — ICICI Securities — Analyst

I’m sorry, sir. Actually, understood. I got the answer for the second one. But the first one what I was asking was because of the custom duty increase, somebody who was, let’s say, unhedged would have got a one-time inventory gain, which that particular competitor may have chosen to use it as a discounting tool. Now obviously, you being a hedge player didn’t have that luxury, it has to come from your P&L, so I was just trying to understand, is there some sort of quantification you have that you have to give this extra discounts maybe that’s — because that is a one-time which happened only in September quarter. So just trying to understand that, so that I don’t have to assume that this will recur in the next 12 months, 24 months?

Ramesh Kalyanaraman — Executive Director

Yeah. So Manoj, what is happening, how is the — how is an organized meaning or unorganized or a regional player giving that one-timer to the customer? He is actually bringing down the gold rate, bore rate which he displays, okay.

Manoj Menon — ICICI Securities — Analyst

Got it. Got it.

Ramesh Kalyanaraman — Executive Director

That is done through associations. So we also had to follow the same bore rate in the markets. In short, we also had to give away that as a discount. So it will not come as a discount. Customer will not even know that he has been discounted, but it is actually given away to the customers.

Manoj Menon — ICICI Securities — Analyst

So is it not counter-intuitive because if I am that X, Y, Z player who is unhedged and I got a gain…

Ramesh Kalyanaraman — Executive Director

Yeah.

Manoj Menon — ICICI Securities — Analyst

I would have loved to tell the consumer that I’m giving you, let’s say, lower making charges or something else so that it’s also a customer recruitment tool for me.

Ramesh Kalyanaraman — Executive Director

Yes. You are right. So what happens is that players — not all players do like what we’re doing wherein they don’t reduce the bore rate to the so-called payer, right. There are players who keep premium on gold rate. Of course, the premium has come down drastically, but there are players who keep a premium on that so-called gold rate, right. So that is actually a competition win for them, but when they compare to Kalyan Jewellers, it’s not a win because we also sell it at the same bore rate of theirs.

Manoj Menon — ICICI Securities — Analyst

Understood, understood, understood. And one last thing. I found in your investor presentation on the slide about strategy ROC, there is one comment, if I remember correctly, it’s I think the last line, which talks about and you also mentioned briefly in your opening remark about the divestment of some non-core assets movable and — movable as well as immovable. Could you elaborate a bit on it because there is also a comment about which is on the presentation about corporate aircraft divestment possibility.

Ramesh Kalyanaraman — Executive Director

Yeah. So we have signed a mandate to an agency to sell the aircrafts. And our longer term plan is, as I’ve mentioned in the presentation, our expansion will be majorly driven by franchisee. It is a FOCO model, very asset light, capital light. And this will actually bring in lot of cash in the books and that will be again used for reducing our cash credit, which will take out the assets which we have mortgaged, the collateral, and which can again be liquidated to further improve return ratios. And moreover, you know that there are lot of indirect benefits in you going and reducing your cash credit facilities. Your — it is not that we claim to be a debt-free company, okay. It is actually to bring in more negotiations on table in terms of cash credit facilities, better bank facilities. You can improve your gold loan facility. You can reduce your collateral, which you are given. Your ratings are going to improve. So there are lot of indirect benefits as well. And of course, your ROCs will also get better. Meaning your return on capital will also be better and we will also start rewarding the stakeholders.

Manoj Menon — ICICI Securities — Analyst

Understood sir. And also sir, as I recall, few months back there was again an exchange release about likely refinancing options which you are considering, could you just update on where are we at this point?

Ramesh Kalyanaraman — Executive Director

So the international bond you mean, right?

Manoj Menon — ICICI Securities — Analyst

Yes, yes, yes.

Ramesh Kalyanaraman — Executive Director

Yes. So that is still on. We’re in the market now is — meaning we will not be able to do it right now, but it is still on. And it really now sinks to the long-term plan also meaning the three-year plan which we have put in the presentation because anyway we are going to retire the debts. And if bond comes in, that retirement for the banking purpose will happen very swiftly, meaning immediately so that the collateral all comes out and we can go in liquidating the assets etc. So the bond is still on, but we are waiting for the market to get settled.

Manoj Menon — ICICI Securities — Analyst

Okay. Fair point. Thank you. Good performance. Good luck, sir. Thank you.

Ramesh Kalyanaraman — Executive Director

Thank you. Thank you.

Operator

Thank you. The next question is from the line of Ratish Varier from Sundaram Mutual Fund. Please go ahead.

Ratish Varier — Sundaram Mutual Fund — Analyst

Yeah. Thanks for the opportunity. Just want a clarification, sir. This…

Ramesh Kalyanaraman — Executive Director

Yeah.

Ratish Varier — Sundaram Mutual Fund — Analyst

One of the participant asked you about margins where you mentioned a couple of one-offs for the quarter, and you mentioned if you exclude all that, we are looking at 8% and 8.5% margin. Just to understand it better, are we trying to say that as you get into the second half because upfronting has happened in terms of our spending, we will move towards 8% and 8.5% margins? Thanks.

Ramesh Kalyanaraman — Executive Director

Yeah. So I don’t want to give a forward-looking statement, but yes, if the — without adjustment relating to the advertisement and promotion, the EBITDA margins would have been in the range of 8.1% to 8.2% in the quarter which just ended.

Ratish Varier — Sundaram Mutual Fund — Analyst

So are we trying to say that we have upfronted these expenditures?

Ramesh Kalyanaraman — Executive Director

No, only the ad…

Ratish Varier — Sundaram Mutual Fund — Analyst

Because you also mentioned Diwali is ahead, so we would have done upfront spending?

Ramesh Kalyanaraman — Executive Director

Some of the ad expenses, yes, but relating to promotions, no, because it’s a one-time.

Ratish Varier — Sundaram Mutual Fund — Analyst

Yeah. Ad expenses for the full year, we should consider between 1.8% to 2% as you have been mentioning earlier as well, right?

Ramesh Kalyanaraman — Executive Director

Yes. That’s the — that is the target for the brand.

Ratish Varier — Sundaram Mutual Fund — Analyst

Just I had add one more clarification when earlier participant Manoj asked you about know the gold price you mentioned, right, the unorganized or smaller players have reduced the gold price and they have sold, and we also in parallel had to do that somewhere. So we are — from a Kalyan brand per see where the positioning comes in here when we also have to follow what our competitors do. I just wanted to understand where the branding comes into play then in that per se?

Ramesh Kalyanaraman — Executive Director

So it is actually — we charge a premium in terms of making charge, etc., okay. That is all a very hidden kind of charges wherein customer really looks at the product design, the product portfolio which we offer etc., okay. But when it comes to a gold rate itself, it is very hard for a consumer to say that, okay, the product is better and we pay a gold rate better than our competition because we are competing with regional players who have a good brand value in the specific market. So to some extent, actually we have negated the impact of the bore rate pressure because of the charge of premium in making charges we had.

Ratish Varier — Sundaram Mutual Fund — Analyst

Okay. Thanks.

Operator

Thank you. The next question is from the line of Nillai Shah from Moon Capital. Please go ahead.

Nillai Shah — Moon Capital — Analyst

Thank you, Rameshji. So the question that I had essentially is, first of all, you spoke about festive to festive 35, 36 days growth being 25%. That is obviously much higher than what we have seen in the past and what you have kind of guided for or alluded to in the past also, this leads to operating leverage obviously. So you expect this stronger good to drive margins much stronger over the next two quarters or will some of it be taken away by higher ad spends?

Ramesh Kalyanaraman — Executive Director

So first of all, it is — just to correct, of course, it is Diwali minus 30 days. It is not 35, 36 days, okay. So that is the way we see the festive. And yes, the growth has been in the range of 25% and already starting from a higher base. And Diwali it was like revenge shopping. The market was extremely vibrant and growth has been there for all — mostly all the large players in this festive season, okay. And we as a brand started our campaign well in advance. We managed to do a good job, okay, but this 25% is a very bullish number. We should not keep that as a Q3 or a Q4 target. And — but of course, the quarter has begun very well and we should see a good — a strong double-digit growth is what we see. And regarding the operating leverage which will step in, yes, of course, when your revenue grows, operating leverage will step in, but there has been pressure in the gross margin itself by way of gold rate. Competition has been intense and that also has to be considered. And…

Nillai Shah — Moon Capital — Analyst

Okay. Got it.

Ramesh Kalyanaraman — Executive Director

You know that when the revenue comes in, our primary focus is to grab new customers. We cannot leave them. They are going to give us better quality revenue in the future and we have been seeing very high good contribution from new customer in the range of 35% plus. So market share increase is what we will focus as a primary vision, but of course, margins will be better because opex will be surely taking a role.

Nillai Shah — Moon Capital — Analyst

Got it. The second question is you spoke about your collateral being freed up by potential sale of non-core assets. I’m aware of a piece of land which you have mortgaged to get some collateral for your metal gold loans, is there anything else that you are alluding to or that is that piece of land itself that you are speaking about?

Ramesh Kalyanaraman — Executive Director

Okay. So I will just give you a view…

Nillai Shah — Moon Capital — Analyst

Apart from the aircrafts.

Ramesh Kalyanaraman — Executive Director

Yeah. So aircraft is separate. Aircraft as I told you it’s a movable asset, which we are already signed with an agency to liquidity it, okay. Apart from that, all our credit sanction facilities, it comes with a 35% collateral which we have given to the banks be it via GML…

Nillai Shah — Moon Capital — Analyst

Okay.

Ramesh Kalyanaraman — Executive Director

Be it via a usual working capital limit, okay. So when we retire the debts, 35% of it will come out.

Nillai Shah — Moon Capital — Analyst

Got it. And that gives you a better bargaining power for future metal gold loans…

Ramesh Kalyanaraman — Executive Director

Yeah, so there are lot of advantages…

Nillai Shah — Moon Capital — Analyst

That you were talking about?

Ramesh Kalyanaraman — Executive Director

Yeah. So there are a lot of advantages. Once we start retiring that debt, banks will surely come out with better negotiation — better interest rates, better deals, okay. Your balance sheet becomes lighter. Again your rating improves, okay. Because strengthened balance sheet surely comes with better negotiations. All put together, it is not that we will be a debt-free company, okay. That’s not the target because that should not be the way where we do it. But of course, primarily we will focus to retire the debt, take out the collaterals, again liquidate it, put it back to the company in terms of improving our return ratios. And if the future negotiations come with a lighter collateral engagement with a better interest rate, we might again go for an exposure, but not at this rate, not with 35%. We’ll optimize it.

Operator

The lines of the current participant has got disconnected. We’ll move on to the next question that is from the line of Gaurav Jogani from Axis Capital. Please go ahead.

Gaurav Jogani — Axis Capital — Analyst

Thank you for the opportunity, sir. I am sorry if my questions are repeated because I joined a bit late. Sir, my question is with regards to the performance in the Middle East. So the — while the top line performance there has been tracking well ahead and largely as you have mentioned in the PPT also, that it’s largely SSD driven, so what is the outlook in terms of store opening there, one? And second how should one look at the margins there because margins there have been tracking a bit lower, but good growths have been seen. So how should one look at the EBITDA margin given that would be the operating leverage that fixes them?

Ramesh Kalyanaraman — Executive Director

So Middle East, if you look at the revenue, there has been a substantial growth in revenue in Q2 and that is not the way we should look at it because Q2 actually in the last year, the market was just starting to become vibrant, okay. So from Q3, Middle East was back in form in last year. So as we speak, Diwali has been good in Middle East also. The revenue growth has been very similar to that of India. And even now the market is vibrant. So regarding expansion for Middle East, will again be more of franchisee based which we will look for. We have signed the first LOI for our Middle East franchise business, which we will be launching this year.

Gaurav Jogani — Axis Capital — Analyst

Sure. Sure. And sir, my next question is with regards to your experience with the set of franchisees that have been opened more in the last couple of quarters. How has been the experience there with both you and the partner? What have been the early learnings in this process? And what confidence does it give you in opening future franchisees going ahead?

Ramesh Kalyanaraman — Executive Director

So it has been extremely satisfying. The revenue is on target. The operating model is on target. And the kind of momentum which we are getting from the — new franchisee partners whom we are going to — trying to tie up is also very positive. As we speak, we are in talks with more than 50 franchisee partners and existing partners are again seeking more showrooms with us. So it has been very positive as we speak.

Gaurav Jogani — Axis Capital — Analyst

Sure. Sure, sir. And sir, my next question is with regards to — earlier you have mentioned all the divestments of the non-core assets and the aircraft being the asset you’re speaking about, so is there a targeted debt number that we are looking to maybe at the end of say, not ’23 but ’24 debt number that you are targeting. And because we also see a good increase in the share of the gold metal loans now, so how should we — one look at the overall interest costs going ahead in the next couple of years?

Ramesh Kalyanaraman — Executive Director

So our target actually for the next three years will be to retire most of the cash credit facilities which we have in India. That is our primary target. But once we start repairing it, if we get bank facilities with better options like leaner security, leaner collateral, again, more of gold loan quotient, etc., we might go for that. So it is not a target of making your company debt free, okay. But we will be heading to INR1,200 crore cash credit which we have in India, we will be making it — we will be predominantly reducing it in the next three years.

Gaurav Jogani — Axis Capital — Analyst

Sorry. The last part I didn’t get it. So right now you said that the cash credit facility is around INR1,200 crores in India, right?

Ramesh Kalyanaraman — Executive Director

Yeah.

Gaurav Jogani — Axis Capital — Analyst

And that you are looking to reduce too. So is there a number that you would like to…

Ramesh Kalyanaraman — Executive Director

That will be mostly reduced. Meaning I’m not using the word zero, but that will be the mostly — meaning that’s the focus area.

Gaurav Jogani — Axis Capital — Analyst

Okay.

Ramesh Kalyanaraman — Executive Director

It will be mostly reduced.

Gaurav Jogani — Axis Capital — Analyst

Got it. Got it, sir. Thank you, sir, and best of luck.

Ramesh Kalyanaraman — Executive Director

Thank you.

Operator

Thank you. The next question is from the line of Anurag Dayal from HSBC. Please go ahead.

Anurag Dayal — HSBC Securities — Analyst

Yeah. Hi. Thank you, sir, for taking my question.

Ramesh Kalyanaraman — Executive Director

Hi.

Anurag Dayal — HSBC Securities — Analyst

Yeah. Hi. Sir, my first question is I wanted to understand the throughput difference between South and non-South stores because if you look at per store basis, the non-South revenue is lower and we don’t have break up of sales per square feet. But assuming that the studded ratio and all is higher in non-South market, so I wanted to understand — I mean, is my reading is correct that non-South should be higher throughput or it’s currently low for you, and you expect it to improve in the coming quarters?

Ramesh Kalyanaraman — Executive Director

Yeah. So you are asking about first of all revenue growth in South and non-South, right, if I heard you right?

Anurag Dayal — HSBC Securities — Analyst

Yeah. Not more to revenue growth, it’s more about per square feet sales.

Ramesh Kalyanaraman — Executive Director

Yeah. So revenue per showroom will be surely higher in South than in non-South.

Anurag Dayal — HSBC Securities — Analyst

And so that will continue you believe or it will — I mean or…

Ramesh Kalyanaraman — Executive Director

So revenue…

Anurag Dayal — HSBC Securities — Analyst

Perhaps it’s narrow?

Ramesh Kalyanaraman — Executive Director

So revenue per store in South India will be higher than in non-South. That is because first of all in South India, we are there in — the number of showrooms if you see, we are there in almost all the tier 1 and metros, okay, in South India. In non-South area, we are only starting to expand. So if you look at the tier 1 stores in the non-South, that is actually similar to the revenue per store in South India, okay. So that’s a different way to look at it.

Anurag Dayal — HSBC Securities — Analyst

Yeah. Got it, sir.

Ramesh Kalyanaraman — Executive Director

Because now if you see, one thing we need to actually keep in mind, okay, newer showrooms are smaller in size when compared to the existing ones, okay. The capex which we are investing in newer showrooms are also lesser when compared to the South showrooms where the capex was higher. So it all depends upon the stock turn, right. So when you go with a leaner investment per store, the stock will be lesser and the stock turn will be higher, but the revenue per store will be surely lesser than in South India.

Anurag Dayal — HSBC Securities — Analyst

Got it, sir. Thank you so much. And the second question is basically, you are looking for a franchisee expansion version or some stores in south into franchisee stores, but what I understand that the gross margin is quite low in South stores.

Ramesh Kalyanaraman — Executive Director

Yeah.

Anurag Dayal — HSBC Securities — Analyst

So how the economics will work while the franchisee will come? So have they shown some interest or you have some other kind of economic packages you are offering to them which is different than the non-South stores?

Ramesh Kalyanaraman — Executive Director

Yeah. So we are working on a package which is different from the non-South, okay, and we will be — because there are lot of franchisee inquiries which is coming from the South India where they don’t want to do franchisee outside of India. So they are okay to take the package which we are actually offering to them which is a bit different than in the non-South markets and that is why we are exploring that.

Anurag Dayal — HSBC Securities — Analyst

Okay. But the — basically the ROEs for you will be similar, right, for you?

Ramesh Kalyanaraman — Executive Director

Yes.

Anurag Dayal — HSBC Securities — Analyst

What I calculated in the 60s or franchisee stores in non-South could be 56%, 5% right for you because you’ve hardly put any investment. It should be similar to South as well or it could be slightly lower?

Ramesh Kalyanaraman — Executive Director

It will be similar if you look at approximately.

Anurag Dayal — HSBC Securities — Analyst

Okay. Thank you so much, sir.

Ramesh Kalyanaraman — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.

Shirish Pardeshi — Centrum Broking — Analyst

Yeah. Hi.

Ramesh Kalyanaraman — Executive Director

Hi.

Shirish Pardeshi — Centrum Broking — Analyst

Thanks for the opportunity. I have few questions. Some clarification if you can provide on the movable and immovable property. So what is the quantum of that and if — I’m not saying — you did mention that it will happen in two years, but is this has further charged within the other group companies or it’s purely on the balance sheet of Kalyan?

Ramesh Kalyanaraman — Executive Director

We have only one company, no. Meaning Kalyan Jewellers owns the land and the charge is only for Kalyan Jewellers.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Okay. So you mean to say that this INR1,200 odd crore will get retired in next say, 18 to 24 months?

Ramesh Kalyanaraman — Executive Director

Three years.

Shirish Pardeshi — Centrum Broking — Analyst

Three years. Yeah. Okay. My second question on the franchise. I did remember that there was a full page ad for franchise inquiry which was done in a business daily in Mumbai.

Ramesh Kalyanaraman — Executive Director

Yeah.

Shirish Pardeshi — Centrum Broking — Analyst

So obviously, your pipelines look very strong, but if my interaction goes back a quarter before, you did mention that we want to stabilize this five, six franchise and get a good learning and then expand.

Ramesh Kalyanaraman — Executive Director

Yeah.

Shirish Pardeshi — Centrum Broking — Analyst

So do you have in that journey, you have got enough understanding and now you are fast forwarding the appointment of franchisees? And the related question on that, by March, what number you are having in mind?

Ramesh Kalyanaraman — Executive Director

Okay. So first of all, I told you, we are — we were going slow because we wanted to actually do the pilot phase properly. We have existing five franchisees. We are extremely happy it has been stabilized and that is why we have signed six more LOIs, okay. And regarding the 50 prospective franchisee partners, we are engaging with them and we are — already we think that we have covered the learning curve, but we can do minor corrections even before signing those 50, okay. So six LOIs we have signed now. Again, we have done minute corrections from the six which we have earlier done, okay, the first six LOIs which we did and the first five showrooms which we opened. So that is about the learning curve and the experience which we have had with the five franchisees which we opened.

And if you are asking for before March how many more stores, we would say that if you — as we speak actually, we have opened seven owned showrooms and five franchise showrooms in Kalyan Jewellers. One owned showroom in the Middle East, one owned showroom in Candere. So totally, 14 showrooms we have opened as we speak. So the plan for the — the plan till March is to open six more immediately because LOI has been signed and again six more before March. That’ll be the plan for Kalyan Jewellers for this year. And we will be opening two more Candere stores and we will be opening one more showroom in Middle East that will be a franchise. So total, 24 Kalyan Jewellers, two in the Middle East, three Candere. 29 showrooms this year is our target.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Just one clarification on that. Even Candere is also — will have a mix of owned and franchise or Candere will have only franchise?

Ramesh Kalyanaraman — Executive Director

So this year we will limit it with our owned stores because owned store itself is a new experience for us in Candere. We opened only the first showroom last month. So this year, we will actually do only one store in Candere. We already have franchisees who are inquiring for Candere and we are actually interacting with them, but we will wait for stabilization of the owned store at Candere and then we will be looking for franchise there.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. And just last question on the tax rate. What — now, these all things which are happening in — given the benefit of franchise operation and — versus our owned store, what will be the tax rate one can assume for ’23?

Ramesh Kalyanaraman — Executive Director

Tax rate is 25%. Yeah. Franchise will not [Technical Issues] tax rate.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. All right. Thank you and all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rajiv from DAM Capital. Please go ahead.

Rajiv Bharati — DAM Capital — Analyst

Yeah. Thanks for the opportunity. Sir, on the balance sheet side, so there is — on the current liabilities which is increase of INR243 crores on the consol, can you explain what exactly is that?

Ramesh Kalyanaraman — Executive Director

You mean the creditors, right?

Rajiv Bharati — DAM Capital — Analyst

Yeah.

Ramesh Kalyanaraman — Executive Director

Yeah. So that is supplier credit increase because it is, what you call, preparing for the festive. So the inventory would have increased and creditors would have gone up. The normal pre-festival buildup inventory.

Rajiv Bharati — DAM Capital — Analyst

All right. And on the Middle East gross margin, so we have seen close to 200 bps drop there and which is slightly different from the Indian piece, what is the differential because of?

Ramesh Kalyanaraman — Executive Director

So Middle East margins have been in the range of 15%, no. It is almost steady.

Rajiv Bharati — DAM Capital — Analyst

It used to be 17.5%…

Ramesh Kalyanaraman — Executive Director

It used to be 16% to 17%. Because now with tourists are back, customer sentiment is very positive, lot of traffic, so now you know that the competition will also behave and people will demand for plain gold, staple products again. So even Q1 was in the similar range, 15%. So Middle East should be looked at this range because the momentum in revenue is very high.

Rajiv Bharati — DAM Capital — Analyst

Right. And similarly on the Candere part, so we have stepped up investments there, right? What is the — for example, the opex rate going forward there on the Candere portfolio? I know it’s still early days.

Ramesh Kalyanaraman — Executive Director

Well, you are talking about the physical store?

Rajiv Bharati — DAM Capital — Analyst

No, no. So the loss in Candere is INR3 crores, right, as compared to…

Ramesh Kalyanaraman — Executive Director

Yeah.

Rajiv Bharati — DAM Capital — Analyst

I just want to know what is the burn which we are shooting for on a annual there?

Ramesh Kalyanaraman — Executive Director

Sanjay, you want to take it?

Sanjay Mehrottra — Head of Strategy and Corporate Affairs

So this year we are making investments — coming back to investment mode in this business in the current year. Essentially we are undergoing a major upgradation in our tech platform and have made some investments in technology as well as people, so staff costs and technology costs have got front-ended. And I expect that because we are in investment mode, we will have a marginal kind of loss this year in that business.

Rajiv Bharati — DAM Capital — Analyst

Okay, and you — so you alluded to some provision in this quarter, right. Can you spell out what exactly is that? And you said that adjusted for that we would have been 8.1% EBITDA margin?

Ramesh Kalyanaraman — Executive Director

The provision is predominantly for the bond issue which we were planning, and it pertains to that. On a conservative way, we have put a provision for the bond expenses. Not fully, but marginally.

Rajiv Bharati — DAM Capital — Analyst

That’s all. Thanks a lot.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.

Ramesh Kalyanaraman — Executive Director

So thank you very much and looking forward for a good quarter and hope to see you again soon. Thank you.

Operator

[Operator Closing Remarks]