Kalyan Jewellers India Ltd. (KALYANKJIL) Q4 FY22 Earnings Concall Transcript

Kalyan Jewellers India Ltd. (NSE: KALYANKJIL) Q4 FY22 Earnings Concall dated May. 11, 2022

Corporate Participants:

Aniket Sethi — ICICI Securities — Analyst

Ramesh Kalyanaraman — Executive Director

Sanjay Raghuraman — Chief Executive Officer

Swaminathan Viswanathan — Chief Financial Officer

Abraham George — Head Treasury & Investor Relations

Analysts:

Gaurav Jogani — Axis Capital — Analyst

Deepak Poddar — Sapphire Capital — Analyst

Shirish Pardeshi — Centrum Capital — Analyst

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

Aejas Lakhani — Unifi Capital — Analyst 

Nillai Shah — Moon Capital Management — Analyst 

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Kalyan Jewellers Q4 before FY22 Earnings Conference Call hosted by ICICI Securities Limited.

[Operator Instrusctions] I now hand the conference over to Mr. Aniket Sethi from ICICI Securities. Thank you, and over to you, sir.

Aniket Sethi — ICICI Securities — Analyst

Thanks Neerav. Hi, good afternoon, everyone, and thank you for joining. At ISec, it’s our absolute pleasure to host the Q4 FY22 and Full-year Earnings call for Kalyan Jewelers Limited. From the Management, we have with us Mr. Ramesh Kalyanaraman, Executive Director; Mr. Sanjay Ragurahman, CEO; Mr. V. Swaminathan, CFO; Mr. Sanjay Mehrotra, Head of Strategy and Corporate Affairs; and Mr. Abraham George Head, Treasury and Investor Relations.

With that I will hand it over to Mr. Ramesh for the opening comments, post which we’ll open the floor for the question and answers. Thank you, and over to you, Ramesh, sir.

Ramesh Kalyanaraman — Executive Director

Hi, good evening, everyone. Thank you. FY 2022 was an excellent year with revenue growth of 26% over FY2021, recording the highest revenue in the history of the company so far. This is despite disruptions to business due to COVID second and third waves during Q1 and Q4. We ended the year with a PAT of INR224 crores, however, if you look at the PAT for the last three quarters, our PAT was at INR275 crores.

Now, let me give you an overview the recently concluded quarter and some important decisions taken during the quarter. We announced the Board approval for the appointment of Mr. Vinod Rai as the Chairman and Independent Non-executive Director on the Board of the Company. This appointment underpins our continued focus on not only strengthening the Board, but also our emphasize on corporate governance. Q4 FY 2022 as you are aware, we started with a very high base, we faced disruptions to showroom operations during the first half of the quarter due to Omicron, the quarter also saw volatility in gold prices, driven by the geopolitical situation in Ukraine and its related impact on demand. We ended the quarter with a marginal degrowth, but if you ask me as a team, we are extremely satisfied with the outcome.

2023 financial year Akshaya Tritiya was excellent with significant traction across all regions, including the non-South markets. We witnessed significant growth, not just in terms of value but also footfalls. April and first week of May have been very encouraging, both in India as well as Middle East and it is in line with our plan for the current year. For the current financial year, in India, we target to open 12 to 15 new showrooms. Over and above that, the franchisee owned showrooms which we plan to open during the year will also be there. We have made significant process on our franchisee plans with 6 signed LOAs in place already. We’ll be opening our first franchise store during the first quarter.

Now an update on our Middle East business. We were cautiously optimistic on the region since the disruption of business post COVID, and after seeing the region witness good traction over the last three consecutive quarters, we now plan to restart our calibrated expansion there. The expansion will be we funded by the internal accruals from the region. Further, like in India, we have already received inquiries from potential franchisee partners for the Middle East as well. We plan to launch franchise operations in the region after successful launch of the first set of pilot showrooms in India. Our online platform, Candere, has drawn up plans for its next phase of growth on the back of stellar performance over the last three years. As a part of the plan, Candere will open its first showroom during the first half of the financial year.

Last financial the year saw significant improvement in the share of new customers, driven largely by the shift from the unorganized sector. While we expect this share to grow organically, we are also planning to widen our customer base through the introduction of innovative new product segment for brands and collections. Another area of focus for the current financial year is to further improve the share of gold on lease. Gold on lease, as you are aware, helps us not only save interest, but has a natural hedge embedded in it. We could improve the share of gold on lease to some extent during the last financial year. And given the current level of operations, there is limited scope of further improvement. We have now drawn plans to convert a portion of exchanged gold that we receive from customers also into gold on lease, thereby providing further headroom.

To sum up, with the continued momentum across all markets, with India owned store footprint growing by approximately 10%, franchisee model taking good shape, Middle East showing positive signs and Candere moving into the next phase of growth, we as a team, are very excited about the current financial year.

I think I’ll now hand over to Sanjay to take you through the financial highlights for the quarter as well as for the financial year. Over to you, Sanjay.

Sanjay Raghuraman — Chief Executive Officer

Thank you, Ramesh. Good afternoon, everybody. I’m really happy to be talking to you all after a great financial year performance. I shall share some details now, starting with the just concluded quarter.

In Q4 of FY22, the just conclude financial year, our company reported a consolidated revenue of INR2,857 crores, a marginal degrowth of over 6% compared to the corresponding quarter of the previous year. Consolidated EBITDA came in at INR218 crores versus INR228 crores in the corresponding quarter of the previous year. And consolidated profit after tax, PAT, came in at INR72 crores versus INR74 crores in the corresponding quarter of the previous year.

I shall now give you a breakup of the Q4 performance starting with India numbers. For the just conclude quarter, our India revenue was INR2,399 crores versus INR2,615 crores when compared with the corresponding quarter of the previous year. And our India Q4 EBITDA came in at INR188 crores versus INR194 crores when compared with the corresponding quarter of the previous year. Profit after tax in India for the quarter came in at INR70 crores, compared to INR66 crores in the corresponding quarter of the previous year. During the quarter, we had no wholesale bullion sale and our gold coin sales to retail and corporate customers of about INR59 crores were approximately 2.5% of total revenue.

Moving on now to talk about our Middle East business, revenue came in, in the Middle East at INR425 crores, quite similar to the level in the corresponding quarter of the previous year. EBITDA in the Middle East came in at INR33 crores, versus INR30 crores in the same period of the previous year and profit came in at INR4.3 crores versus INR7 crores in the same period of the previous year.

Moving on now to talk about our e-commerce business, Candere posted revenue of INR39 crores in the quarter, versus INR22 crores in the corresponding quarter of the previous year. The business recorded a loss of INR2.7 crores in the quarter versus a profit of INR53 lakhs in the corresponding quarter of the previous year.

Moving now to talk about our full-year performance for the financial year ’21-’22. At a consolidated level, the company’s revenue came in at INR10,818 crores, a growth of 26% over the previous financial year. Consolidated EBITDA came in at INR815 crores versus INR594 crores in the corresponding financial — in the previous financial year. And consolidated profit after tax for the year came in at INR224 crores versus a loss of INR6 crores in the previous financial year.

With this, we are now done with the summary of the financials, and we can take questions. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from the line of Gaurav from Axis Capital. Please go ahead.

Gaurav Jogani — Axis Capital — Analyst

Thank you for the opportunity, sir. Sir, my first question is with regards to the store expansion plan that you have laid out for FY23. Sir, if you can just repeat that again, if I heard it right, it’s 12 to 15 showrooms in India that you will be opening by your own. And in addition to that there would be 6 stores that will be opened on a franchisee basis. So, is that right?

Ramesh Kalyanaraman — Executive Director

Yes, so 12 to 15 showrooms is what we want to open with our own internal accruals and then 6 LOAs, we have already done. So minimum franchisee store which will come in this year will be 6.

Gaurav Jogani — Axis Capital — Analyst

Sure. If you can highlight some — what are the terms of this franchisees, how will this be on a FOCO model, COCO model, if you can give some details here?

Ramesh Kalyanaraman — Executive Director

Yes. Sanjay, do you want to?

Sanjay Raghuraman — Chief Executive Officer

Do you want to so this model is a franchisee owned company operated, model as in F O C O, FOCO. The intent of — the way the model is going to work is we will be selling inventory to the franchisee at a suitable trade discount, franchisee will invest in the inventory, as well as fixed assets in the showroom, and we’ll be responsible for all the operating costs. Our staff will be manning the showroom. So that’s the Company operator side of it.

Gaurav Jogani — Axis Capital — Analyst

Sure. Sir, one clarification here. I mean, so the inventory will be given by the company that will be directly selling to the company — sorry, to the franchisee. And these staff expenses will be in our books, right, on Kalyan Jewellers’ books?

Sanjay Raghuraman — Chief Executive Officer

Yes, yes. We have set up the model such that this should deliver to us PBT very similar levels to what we’re already delivering now in the comparable non-south markets, about 4.75%.

Gaurav Jogani — Axis Capital — Analyst

Okay. And sir, in terms of the store size, if you can give any color on how much the store size will be and what will be the minimum inventory that these — will be initially been sold to this franchises.

Sanjay Raghuraman — Chief Executive Officer

So, you’re asking how much inventory will be held there?

Gaurav Jogani — Axis Capital — Analyst

Yes, exactly. I mean the first lot that will be given to these franchises, the initial part.

Sanjay Raghuraman — Chief Executive Officer

This is mainly going to be in Tier 3, Tier 4 and maybe some Tier 2 markets, in the region of about INR20 crores to INR25 crores is how we’re thinking about it.

Gaurav Jogani — Axis Capital — Analyst

Okay. Okay. And would that understanding be right, I mean the booking for you, the sales would be ex of the franchisee discount? I mean whatever the sales we have done, how will be the accounting for this would happen in our P&L, sir? I mean we will book the sales and the cost — commensurate cost will be taken ex of the franchisee margins?

Sanjay Raghuraman — Chief Executive Officer

Like I said, we will sell this at a trade discount to the price at which consumer buys. We will book revenue when we sell to the franchisee, all of it on cash and carry basis.

Gaurav Jogani — Axis Capital — Analyst

Okay. Sure sir. And sir, just one last question from my end is in terms of the good traction that you’ve mentioned about the April and May month, if you can highlight how the performance is if we compare this to the pre-COVID normalized quarter? If you can give some color vis-a-vis that?

Ramesh Kalyanaraman — Executive Director

Yes. So if you look at — Ramesh, here. So if you look at the tractions, it has been very good because Akshaya Tritiya, as you know, it is coming after two years. Okay. I cannot give any figures because you know, unfortunately, we will not be able to, but we see very substantial growth when you even compare with the pre-COVID levels. If you look at the first 40 days, there is a good growth which we see.

Gaurav Jogani — Axis Capital — Analyst

And sir, is this only a phenomena for the organized players that you see or what is leading to this strong growth, I mean is it again that market share gain or it’s just that the general demand momentum is strong from consumer end?

Ramesh Kalyanaraman — Executive Director

So one thing is very sure, there has been a good shift of unorganized to organized in the last couple of years. And we have already built good customer base, lot our first customers we have gained over the past many quarters. And these people have also started coming in, again, for the second time purchase. So the stickiness in our trade is very high. So, over and above that, this momentum is still high, especially for organized players because organized players have gained a good traction over the past two years when it comes to what do you call, the customer new customer gains, which we have got in the past couple of years. And of course, Akshaya Tritiya, people have not seen for two years, now. So that also has contributed this momentum.

Gaurav Jogani — Axis Capital — Analyst

Sure, sir. One last set of questions from me. If you can just highlight the expansion plans for the Middle East and Candere, that would be it from me.

Ramesh Kalyanaraman — Executive Director

Yes, so Middle East, because if you see — notice, last three quarters Middle East have been consistently performing. It has been in the range of 85% of the pre-COVID levels and you all know that we had reduced our footprint in the range of 10 to 10% to 15% in that area during the first COVID wave, a couple of years before. So it is almost — at SSG level made is almost pre-COVID levels now, more than pre-COVID levels in Middle East. So for the past three quarters. We were continuously monitoring that Middle East market, and now we decided that we will slowly start our expansion. So, we will open a couple of showrooms in Middle East with our own internal accruals, and it will be fully funded by Middle East itself, from the internal accruals which that market makes. And over and above that, franchisee, we are already starting to get some inquiries there without even — you know that we have not advertised, we have not done anything in markets for franchise. It’s all mouth publicity between them and — but we are waiting. We will not launch a franchisee store in Middle East unless and until the pilot in India is completely over and we are satisfied.

Gaurav Jogani — Axis Capital — Analyst

Sure, sir. And Candere, also, we are planning to showrooms, right, this year, for Candere?

Ramesh Kalyanaraman — Executive Director

Yes, for Candere, if you have seen we have a very good revenue growth in Candere. And just if you notice, we — all the revenue growth is from online space itself for us because we have not opened any physical store till today. So now, because we want to go to the next phase of expansion in Candere, we are slowly starting to expand in physical space also because it gives better conversion to the online space et cetera is you have a physical store. And the first store, we want to open before the end of the Q2, this year. We have already identified the space and the internal — the interiors jobs et cetera have begun.

Gaurav Jogani — Axis Capital — Analyst

Sure, sir. Thanks. Thank you, sir. That’s all from me.

Operator

Thank you. The next question is from the line of Aniket. Please go ahead.

Aniket Sethi — ICICI Securities — Analyst

Hi, Ramesh. So on the quarter, on a y-o-y basis, non-South revenues has grown while south had a degrowth. Why the divergent trends for this quarter?

Ramesh Kalyanaraman — Executive Director

Okay. So if you remember last year Q4, our South revenue growth was higher than the non-South. So South had grown by 70% in Q4 last year and non-south had grown in the range of 40% in the last year because — I had told you the reason where we saw a lot of migration happening, people from the non-South markets also they started migrating to their own hometown and we got that revenue in South. So the base was already high at Pan India level but in South the base was extremely high. So that is why the revenue has a degrowth in South India more than in North this time.

Aniket Sethi — ICICI Securities — Analyst

Understood. Second, on the asset side in the standalone balance sheet, there is a 100 — one month INR3 crores of loans and advances, which was not there last year. What does this really pertain to you?

Ramesh Kalyanaraman — Executive Director

Swaminathan, you want to take it?

Swaminathan Viswanathan — Chief Financial Officer

[Technical Issues] during this call. Hello?

Aniket Sethi — ICICI Securities — Analyst

Sir, sorry?

Swaminathan Viswanathan — Chief Financial Officer

Yeah, we’ll come back to you during this call.

Aniket Sethi — ICICI Securities — Analyst

Okay. Okay. Sure, sure. The next — studded has seen a good increase, 200 bps, and — but you have also kind of articulated that some of it is coming from the low value studded. So if you could just split and how much is the margin differential in low value studded versus the actual studded business which you.

Ramesh Kalyanaraman — Executive Director

So the low value and the usual studded, there is a difference of 10% in the gross margin level.

Aniket Sethi — ICICI Securities — Analyst

And this 200 bps increase, how much would be on back of the low-value studded?

Ramesh Kalyanaraman — Executive Director

So that particular percentage of low-value studded, it is a very competitive information. So I think…

Aniket Sethi — ICICI Securities — Analyst

Okay. Lastly, Ramesh, sir, just wanted to hear your thoughts that given gold prices seeing some decline in the last two, three months, so how is the consumer behavior during this time?

Ramesh Kalyanaraman — Executive Director

More [Technical Issues] the volatile he has reduced a bit over the past 30, 40 days. So when there is extreme volatility in gold prices, people just take a pause for it to settle down at some level, so that was the major issue rather than the gold price going up steeply. There was a hesitation when the price was very volatile, but that hesitation has almost settled down at least for the next, for the past 30, 40 days. But of course if the geopolitical issue again worsens and if the price gets more volatile than it’s a different issue, but as we speak today it has settled now.

Aniket Sethi — ICICI Securities — Analyst

Got it. I have a couple of questions. I’ll come back in the queue, sir. Thank you.

Ramesh Kalyanaraman — Executive Director

Yeah, sure.

Operator

Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead.

Deepak Poddar — Sapphire Capital — Analyst

Yeah. Thank you very much, sir, for the opportunity. Sir. I just was trying to understand now, you spoke about the store expansion as well as the franchisee route. So that effectively means about 18 to 20 stores, we are looking to open in this particular financial year. Now, which effectively means about 12%, 13% — 12% to 14% increase in our total retail footprint as we speak, now, right?

Ramesh Kalyanaraman — Executive Director

Yes.

Deepak Poddar — Sapphire Capital — Analyst

So overall — so that’s the trend that we are looking to continue over next two to three years, little on the medium term. Basis about 12% to 15% kind of a store growth.

Ramesh Kalyanaraman — Executive Director

Okay, so there are two things here. One is, yes, as you rightly said, 12 o 15 new showrooms we will put in our own internal accruals in India, and 6 LOAs franchise we have already signed. So that is the minimum number of franchise stores, which we will do this year. And the pilot will be for 3 franchise and if the pilot works out very well, it might go beyond 6 also. If there there is a correction needed, then we will limit at 6, that’s the plans for this year.

Next years, the franchise model — and one thing what I want to tell you, of course all the stores cannot be compared with the existing stores today because franchise comes with a lesser bucket, lesser bucket means lesser revenue. So if the footprint expands by 12% to 15%, this does not mean that revenue will increase by 12% to 15%. That of course, I know that you know that, but I just wanted to highlight the point. But over the next few years, the franchise plan if it is laid well, the number of stores, which we might open will be — it can go beyond 18 stores.

Deepak Poddar — Sapphire Capital — Analyst

Correct, correct. Yeah, fair enough. That’s okay. So in the past as well, we have spoken about doubling our revenue to INR20,000 crores, maybe in three years by 2025, right? That’s the vision we had given out earlier. So that factored in — does that factors the franchise plan as well, and to what extent?

Ramesh Kalyanaraman — Executive Director

The franchise actually has helped us to accelerate the plan otherwise, we would have opened only 12 to 15 showrooms every years because that was our plan. And now franchise can help us to achieve it more faster, and the number of franchisee stores can again be more than what it is for this year.

Deepak Poddar — Sapphire Capital — Analyst

Correct.

Ramesh Kalyanaraman — Executive Director

So our objective is to reach that benchmark.

Deepak Poddar — Sapphire Capital — Analyst

Okay. Okay. And to achieve that you need at least 20% CAGR revenue right over next three years. So that’s what we’re kind of looking at?

Ramesh Kalyanaraman — Executive Director

Yeah.

Deepak Poddar — Sapphire Capital — Analyst

Okay. And in terms of margins, I think we have spoken earlier as well improvement — steady improvement in margins, right? So, currently, I think we are at about 8%, 8.5%, right? So about next two, three years how the margin trajectory could look like? If you can provide comment on that, that would be very helpful.

Ramesh Kalyanaraman — Executive Director

So first thing is that predominantly all the new showrooms, that 12 to 15 showrooms, which we mentioned will be non-South markets. All franchisee stores will be in non-South markets. So this will surely help us to improve our margins, because as you all know, we have a 10% margin difference between South and non-South and if the number of stores outside South India goes up and if the revenue outside South India share improve, it is going to improve our margins and that is our primary intention. So 2% margin growth improvement over the next two, three years is what we are looking for.

Deepak Poddar — Sapphire Capital — Analyst

2% margin — like, to — about 10% to 11% from currently — if I see second half, first half was impacted due Omicron, second —

Ramesh Kalyanaraman — Executive Director

You are talking about EBITDA?

Deepak Poddar — Sapphire Capital — Analyst

Yes, EBITDA.

Ramesh Kalyanaraman — Executive Director

But EBITDA, I will tell you when franchise comes in, the EBITDA numbers may change. So that’s why I’m not talking about EBITDA margin levels, but I’m talking about the gross margin — gross profit margin level. It will be increasing by 2%.

Deepak Poddar — Sapphire Capital — Analyst

2% improvement over the next three years.

Ramesh Kalyanaraman — Executive Director

We target for the next three.

Deepak Poddar — Sapphire Capital — Analyst

Okay.

Ramesh Kalyanaraman — Executive Director

And one more thing I want to highlight here is that gross margin also when you check, franchisee you know that we are going to sell at a trade discount. So margins will not be like a retail. So for all of you to understand better, we will give you numbers in detail so that you exactly know what is happening.

Deepak Poddar — Sapphire Capital — Analyst

Yeah. But our investment in franchisee route would be much lesser, right?

Ramesh Kalyanaraman — Executive Director

Investment is zero.

Deepak Poddar — Sapphire Capital — Analyst

Yeah. So the return on capital…

Ramesh Kalyanaraman — Executive Director

Return ratios will be very high, meaning improvement will be very much better because we don’t invest anything there but revenue comes in at PBT level of what it is in Q3, Q4.

Deepak Poddar — Sapphire Capital — Analyst

Yeah I understood. Yeah, that’s about it from my side. All the very best. Thank you.

Operator

Thank you. The next question is from the line of Shirish Pardeshi from Centrum Capital. Please go ahead.

Shirish Pardeshi — Centrum Capital — Analyst

Yeah, hi, Ramesh, sir, good evening. Thanks for the…

Ramesh Kalyanaraman — Executive Director

Hi.

Shirish Pardeshi — Centrum Capital — Analyst

Three questions. I’m referring to Slide 31, and in that slide, it’s way forward FY25, you have mentioned that we will reach to 10% EBITDA margin. So my question is on EBITDA margin. You touched upon, gross margin, but then the larger question is that, how would you plan to achieve and of course gold metal loan is one of the thing which is there, but what are the low hanging fruits, if we can fast track the margin growth?

Ramesh Kalyanaraman — Executive Director

So first of all in — the EBITDA growth will be actually done in two ways. One is that the gross margins itself will improve because the South and non-South revenue mix is going to change, studded ratio is going to improve. Over and above that, there will be an organic growth in studded ratio, which will help us to improve our gross margin. That is one lever to improve our EBITDA margin.

Shirish Pardeshi — Centrum Capital — Analyst

Sure.

Ramesh Kalyanaraman — Executive Director

The second lever to improve our EBITDA margin will be the operating leverage because all the extra revenue which comes in, it comes at a lower cost, because the corporate expenses are already taken care by my existing showrooms. So both these applied together, our intention is to move the needle up by 2%. We are approximately at 8% now, which we want to move it up by 2%.

Shirish Pardeshi — Centrum Capital — Analyst

But operationally, I mean what I think, there you will definitely have the inventory gains on the studded portion?

Ramesh Kalyanaraman — Executive Director

So studded, if you see, we as a player, we have competition with unorganized, as well as regional players. We have only a few markets where we compete only with the listed players. So, where — if you referring to the INR190 crores which — what we call the inventory gain, which I heard in a recent call, for us, we have actually not increased our diamond rates in almost any markets except for a very few markets where we compete only with the listed players.

Shirish Pardeshi — Centrum Capital — Analyst

Okay.

Ramesh Kalyanaraman — Executive Director

So in short, we don’t have any inventory gain as of now.

Shirish Pardeshi — Centrum Capital — Analyst

Okay. My second question is that on the Candere business, that business, I mean, pure play online business is showing a very good traction and now you mentioned, I heard that you are doing one pilot for opening up a physical store. Now, two questions there, is it going to be a pilot like franchise or we are putting our own? And what is the thought process. I mean, where do we want to grow this business. I mean in our medium to long term, maybe another year or so. What kind of network we are trying to build?

Ramesh Kalyanaraman — Executive Director

Yeah, so here for it is not a franchisee, it is our own store, which we are going to do, because you know that the capex for online showroom is in the range of only INR2 crores to INR2.5 crores. And it is — for ourselves, it is a pilot, wherein we really want to look at the math, how the showroom operates, how the conversion rates are, what the stock rotation, stock term et cetera are. So yes there is a possibility of franchise in the future, but as we speak at least for the next first set of showrooms, we would not look at the franchise on a physical store for Candere. And that is how we are looking for Candere.

So if you look at the growth, we have been growing at a very, very good pace for the past three years. And it will continues is what we feel. With the physical stores also coming in, I think the conversion rates are also going to be better and Candere is going to see the next phase of expansion is what, we feel.

Shirish Pardeshi — Centrum Capital — Analyst

So what I understand, you’re essentially talking about an omnichannel attempt.

Ramesh Kalyanaraman — Executive Director

Yes, so the omnichannel works in two ways. Omnichannel work for Kalyan Jewellers, wherein lot of people do online research on the products which they want, and they end up shopping offline. That happens in Kalyan Jewellers even now.

Shirish Pardeshi — Centrum Capital — Analyst

Okay.

Ramesh Kalyanaraman — Executive Director

But Candere offline stores, actually more than the omnichannel, it gives us better conversion rates wherein many people want to have a physical touch and feel of the product where this so-called Candere store will enable them to have the touch and feel of the product, even though some inventory is not the pure gold. It is only a dummy product which they can see physically. It will look very similar to gold, but they will be able to see the exact feel of the product and order it first. So that is how Candere physical store helps more than the omnichannel network.

Shirish Pardeshi — Centrum Capital — Analyst

So, Ramesh, let me dwell on a little more. So can we essentially say that this will be on a physical store will be much smaller size of its mix. Correct. And that will more often lead generation than selling physical item? Or no?

Ramesh Kalyanaraman — Executive Director

So it — yes, yes. Yes. So it will be more of a conversion rate increase rather than selling it physically.

Shirish Pardeshi — Centrum Capital — Analyst

Okay. So your inventory or your merchandise which you are going to sell through Candere store, which will be completely different and it will complement your online Candere channels.

Ramesh Kalyanaraman — Executive Director

Correct, because the products which are showcased in that Candere store is what is already displayed in Candere. So the digital catalog, which is already there in the Candere platform, that same catalog is going to be there in the physical store as well as original products and dummy products will be displayed in the Candere physical store, which will improve the conversion rate.

Shirish Pardeshi — Centrum Capital — Analyst

Okay. And you just mentioned that you need about INR2 crores, INR2.5 crores capex.

Ramesh Kalyanaraman — Executive Director

Yeah.

Shirish Pardeshi — Centrum Capital — Analyst

So essentially it would be roughly about 3,000, 4,000 square feet?

Ramesh Kalyanaraman — Executive Director

No, no, no, it’s not about the square feet. So it’s only 1,000 square feet showroom, but you will have to give a lot of experience in that store where, again, the digital catalog itself will be displayed there where they can see products online there, they’ll be able to see that same product at a physical space there. So more than the square feet, the ambiance, the product placements, the digital experience, which we will give, everything will count. So that is how we are looking.

Shirish Pardeshi — Centrum Capital — Analyst

Okay. My next question is on the pilot what you are saying. You essentially said that you are looking for non-South for franchise or company-operated stores. So would you be able to share what kind of size you want to experiment or you will still go with the current size of your stores of 14,000, 15,000 square feet.

Ramesh Kalyanaraman — Executive Director

So the size will be, if you look at Kalyan Jewellers now, we have showrooms feature of a bigger size in Tier 1 markets. Tier 2 markets come with the smaller size, Tier 3 markets, we already have that comes with lesser size. Even showrooms which we opened recently, for example, we opened in Bombay itself, in Matunga, that comes with an average of 4,000, 5,000 square feet. So that is the space which we are looking for on the non-South markets where we are going to bring in franchise.

Shirish Pardeshi — Centrum Capital — Analyst

Okay. So one related question, this franchise will be in the Tier 1 existing store location or you are trying to look at the different geographies.

Ramesh Kalyanaraman — Executive Director

No. So it will be in non-South markets and it will be in towns where we don’t have showrooms and it will be basically Tier 3 and Tier 4 cities basically, and a few Tier 2 cities.

Shirish Pardeshi — Centrum Capital — Analyst

Okay. My last question is, FY22, what is the studded component, and if you can help me where do you want to settle now in next two years, because things are normalizing very quickly.

Ramesh Kalyanaraman — Executive Director

So studded is already at 24% plus now, on India basis. On a consol, it is at a range of 22% now.

Shirish Pardeshi — Centrum Capital — Analyst

Okay. And it was — it is almost in a pre-COVID level today in India, but of course with the additional — meaning the new set of studded is also inside this 24%. So way forward also, if the SSG is going to be 6% to 7% which usually used to be pre-COVID, the conversion rates might be better for customers upselling might happen properly and there will be an organic growth for studded jewelry. Over and above this, the major driver for improvement in studded jewelry is going to be our expansion in non-South markets. Okay, so essentially you’re saying that you will see that expansion will take you to 25% plus.

Ramesh Kalyanaraman — Executive Director

Yes, you are talking about consol India?

Shirish Pardeshi — Centrum Capital — Analyst

India

Ramesh Kalyanaraman — Executive Director

Yeah, it’s already at 24.8%

Shirish Pardeshi — Centrum Capital — Analyst

Okay.

Ramesh Kalyanaraman — Executive Director

24.6% or 24.8% is what Q4 recorded.

Shirish Pardeshi — Centrum Capital — Analyst

So that’s what…

Ramesh Kalyanaraman — Executive Director

Yeah.

Shirish Pardeshi — Centrum Capital — Analyst

So, my question was 24.3% which is saying on Slide 35.

Ramesh Kalyanaraman — Executive Director

Okay.

Shirish Pardeshi — Centrum Capital — Analyst

But you said that pre-COVID…

Ramesh Kalyanaraman — Executive Director

Yeah, so it should be upside of what 25%, and year-on-year, it will keep on increasing and in the next two, three years, I think it should be near 28% to 30% because our non-South expansion is going to be very rapid.

Shirish Pardeshi — Centrum Capital — Analyst

No, I’m only referring because sometime previous call you said that once studded reaches 30%, definitely we will go beyond 10% EBITDA margin. So I think I’m just trying to correlate…

Ramesh Kalyanaraman — Executive Director

So it is the similar level. You said is right.

Shirish Pardeshi — Centrum Capital — Analyst

Yes. Yeah. Okay, sir. Thank you and all the best to you, I have more questions, I’ll come back in queue.

Ramesh Kalyanaraman — Executive Director

Yeah, sure, sure.

Operator

Thank you. Next question is from the line of Gautami Desai from Chanakya Capital. Please go ahead.

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

Yeah, sir, my question are, what was your gross margin this quarter on studded and gold. So that’s my first question. Second question is, for this quarter, what was your gold on lease percentage and exchange percentage? And third is, would you like to comment on your inventory days this quarter. I mean what you expected and going forward, what is it that you are expecting?

Ramesh Kalyanaraman — Executive Director

Okay. So first thing, gold versus studded margins we usually don’t give you because it’s a very competitive information. So that – I’m really sorry.

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

Okay. Makes sense.

Ramesh Kalyanaraman — Executive Director

But if you look at exchange, exchange has come up by 3% quarter-to-quarter and year-on-year, exchange of gold.

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

How much — what did you say, sir?

Ramesh Kalyanaraman — Executive Director

3% growth. 3% as — 3% more exchange.

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

So that makes it how in total?

Ramesh Kalyanaraman — Executive Director

It is 30.0% odd percentage — 30.5% percentage was the exchange old gold in Q4. It is 3% more than Q3 and 3% more than last Q4.

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

Okay. And how about gold on lease, sir?

Ramesh Kalyanaraman — Executive Director

The gold on lease was approximately 1,500 kilos versus 1,400 kilos — INR1,500 crores versus INR1,400 crores in the last quarter. So exact numbers INR1,496 crores, now versus INR1,418 crores last quarter.

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

Okay. And how are inventories, sir? You said like you were operating at 2 points — like your whole year wasn’t looking to 2.4, 2.5 But, so you said your current inventory turn, when we spoke last time, was that too much. So then, are you in line and can you — would we like to talk something about your inventory days?

Ramesh Kalyanaraman — Executive Director

So if you look at inventory turns, first of all, we would like to take it maximum 2 to 3 times plus because then only you able to substantiate your margins, et cetera. You will not be only a player who look at stock turn meaning, then it will be a pure local kind of player. So stock turn we will be looking to be in the range of 3, and stock turn will also improve year-on-year because now if you look at Kalyan Jewellers showroom, there are showrooms which have lesser stock turn that, especially in the flagship stores which we have, because we don’t go only where stock turn in those showrooms because that’s the flagship store of that particular state or region and — but if you look at the small showrooms which we are opening and opened in the last financial year, the stock turn will be more than what it is on an annualized basis for the existing showrooms averaged out. So our intention is to take the stock turn to 3 plus, not more than that. And if you look at annualized, our stock turn today at 2.3 even after Q1 getting affected.

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

Okay, so annualized is 2.3.

Ramesh Kalyanaraman — Executive Director

Annualized is 2.3 but annualized numbers can be misleading for you because Q1 was not there, almost.

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

Right, right, right. So, sir, would you like to say something on the current going rate of your — because let me assure you the day you reach this 3 times plus inventory turn your valuations will be at a different level.

Ramesh Kalyanaraman — Executive Director

No, we don’t go on valuations but on performance we surely go with you. This is a cycle which every brand will go. It’s a natural progress where your stock turn should be or will be lower in the flagship stores because you will need to invite customers, people have to see the experience and we will have some buffer stock because we might go wrong when we go to newer markets.

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

Right.

Ramesh Kalyanaraman — Executive Director

Then post that when you come to Tier 2, your stock turn will be better, Tier 3, stock turn will be better, new showrooms stock turn will be better, and that is a natural progression which every retailer will have and that is where we will also go.

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

So sir, your current run rate would be like, say 2.4, 2.5?

Ramesh Kalyanaraman — Executive Director

Current run rate, if you look at the last three quarters, yes, it should be. It should be.

Gautami Desai — Chanakya Capital Services Pvt. Ltd — Analyst

Okay, fine, sir. Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aejas Lakhani from Unifi Capital. Please go ahead.

Aejas Lakhani — Unifi Capital — Analyst

Yeah, hi. Thanks, team for the opportunity and congratulations on a good set of numbers. So a couple of questions, the first being that the other — Middle East business as…

Operator

Aejas, sorry to interrupt you, your voice is not very clear. May I request you speak through the handset?

Aejas Lakhani — Unifi Capital — Analyst

Just a second. Is this better?

Operator

Much better.

Aejas Lakhani — Unifi Capital — Analyst

Thanks. So my first question is that in the Middle East you have now sort of stated that it will be a calibrated expansion, that too with the capital that is generated from Middle East operations. So, sir, the first, again, query on that is that that business employees, give or take INR1,800 crores to INR2,000 crores of capital and does not sort of generate significant return ratios for us, and that drags down the entire company level return ratio. So could you speak a little bit more about your optimism for the Middle East business?

Ramesh Kalyanaraman — Executive Director

Yeah. So Middle East, you have to first of all see that market. We have created a base in that market, we are the Number 3 player player in terms of market share in that market. And if you look at Middle East, now the extra revenue which we make from that market will surely help us to improve our margins, EBITDA margins, everything. We are almost in that area where we have at least stabilized in that big market in the universe. So if you look at, now people are starting to expand in that region where we have already completed our expansion in the four big countries in Middle East and we have a good market share in those areas. And if you look at the EBITDA margins for the past couple of quarters, it has been in the range of — very similar to India now. And all additional new showrooms which we are going to put there and all additional revenue which is going to come from that market and will surely improve our ratios. So we’ll have to have some patients there. And imagine a situation where we get franchisee options also there, bringing in additional revenue on the top level. It is completely going to change the color of that business, which I think we have to wait and watch for the next couple of years.

Aejas Lakhani — Unifi Capital — Analyst

Got it. And sir, given that you know that Middle East has their own cycles because it’s linked to oil and crude, so do you see the cycle playing out for the next couple of years whether as entire stability in that region, or do you see any further volatility in that region?

Ramesh Kalyanaraman — Executive Director

So if you look at market now for the past three quarters, that is why we were cautiously waiting for that market. If you look at three quarters, it has been consistently performing. The gross margin has organically improved because of the consolidation of the market. Opex was under topical controlled, EBITDA margins are at the range of India. And now if you see, the market is very stable, according to us. That is why we have decided to expand a couple of showrooms there, and we will also try out franchisee options after the India pilot is over. So if both applies properly, wherein the franchisee also starts in Middle East, that we’re going to see. It’s a totally different color for which I think — will take a couple of years. But as we speak, we don’t have any ambiguity in that market and we are very positive now because no other player has built a platform like we did. That is our major advantage.

Aejas Lakhani — Unifi Capital — Analyst

Got it. That’s helpful. And sir, if you look at the average revenue that — I’m talking about the domestic business here, that the average revenue that we earn from our stores is, give or take INR70 crores. So I just wanted to understand that as you are opening these 12 to 15 showrooms, which are, as I understand, likely to be smaller and the franchisees are also going to be in Tier 2, Tier 3 towns, what do you think will be the revenues from these slightly more compressed showrooms.

Operator

Participants please stay connected to the line for the management. Ladies and…

Ramesh Kalyanaraman — Executive Director

We got disconnected.

Aejas Lakhani — Unifi Capital — Analyst

Yeah. So could you hear my question?

Ramesh Kalyanaraman — Executive Director

Yes. So I get you. The average revenue per store is in the INR70 crores level even after the affected Q1. On an annualized basis. I think it will be more than what, INR85 crores, INR90 crores. I’m talking about the existing showroom level.

Aejas Lakhani — Unifi Capital — Analyst

Okay. Okay.

Ramesh Kalyanaraman — Executive Director

So for the new stores, the per store revenue might be lesser than that because all stores are not into, what we call, in the bigger towns. So I think for the new showrooms, which should keep level of INR70 crores.

Aejas Lakhani — Unifi Capital — Analyst

Okay, sir. So did I get it right when you said that the existing, more mature stores have now reached the run rate of INR80 crores to INR85 crores on a store level?

Ramesh Kalyanaraman — Executive Director

Yeah, INR85 crores to INR90 crores is the level for all the stores put together if you look at it on an annualized normalized basis, because now we’re just at INR73 crores because Q1, was no revenue.

Aejas Lakhani — Unifi Capital — Analyst

Right, okay. Okay, got it, got it. And sir, just could you speak a brief about the opex, because you would have had some rental savings for the year as well. So going forward, is there — will the opex be in this current range and will the advertising spend also been the current range, or we should expect some higher numbers here?

Ramesh Kalyanaraman — Executive Director

It is under perfect control, so opex should be in the similar lines how it is as of now. So if you look at Q2, Q3, Q4, we have not got any savings from COVID, no? So it is going to be under the same level.

Aejas Lakhani — Unifi Capital — Analyst

Got it. So I’ll take — I’ll extrapolate the 3Q, 4Q numbers. Got it. And sir, lastly, you mentioned at the start about how the exchange that you get, which you said is give or take, 30.5%, you mentioned about that you are going to move to the gold on lease. So I have not understood how that benefits us. So if you could expand on that a little bit?

Ramesh Kalyanaraman — Executive Director

Yeah, Abraham, you want to take it?

Abraham George — Head Treasury & Investor Relations

Hi.

Aejas Lakhani — Unifi Capital — Analyst

Hi.

Abraham George — Head Treasury & Investor Relations

So this is something which we are exploring right now. So the way we can do it is by selling our own gold which comes into our system through a bullion sale and then convert that that money into gold metal loan. But we’re still looking at that option. We are evaluating all plus and minus of that because of course it has the advantage of taking our gold on lease percentage up, but we are looking at all options. We have instruments in MCX where we can sell these metal through MCX, and even some of the industry leaders have also started doing this practice. We are also evaluating that.

Aejas Lakhani — Unifi Capital — Analyst

Okay. And like, could you quantify how this can help us in terms of — how is this benefit to us? I mean I know of course that gold owners, in terms of the rates are lower, but what is the…

Abraham George — Head Treasury & Investor Relations

No, with this option, we are not aiming at increasing the — or reducing the interest rate. In fact, with this option we are trying to — gold gives two advantages. One, it reduces the interest rate. Secondly, it also acts as a hedging instrument. So with this, we are trying to increase the gold on lease, which will help us hedging percentage. So we don’t need to create contracts for it, for hedging.

Aejas Lakhani — Unifi Capital — Analyst

Okay. I’ll probably…

Abraham George — Head Treasury & Investor Relations

Yeah, yeah, we can — the details of this, we can make and take.

Aejas Lakhani — Unifi Capital — Analyst

Yeah, sure. Right.

Abraham George — Head Treasury & Investor Relations

But effectively, in a nutshell, the old gold that comes into our system, we will have to find a way to sell that and create cash and using that cash we will have to create gold metal loan.

Aejas Lakhani — Unifi Capital — Analyst

Got it. And sir, could you also just speak about the competitive intensity you face in the non-South market. I mean is it more regional, because I understand a lot of the gold players are still more South-centric. So, who is the large competition you face in the non-South markets, except for the listed leader?

Ramesh Kalyanaraman — Executive Director

The competition actually comes — Ramesh here, so competition come from regional players, unorganized segment. There will be players in that particular market. So each micro market we will have competitors. That is how we see competition, and not with only one player or two player, because we are a heavy hyperlocal player as you know and we don’t only compete with national players. So the competition intensity of course have been there in many pockets even within the organized space.

Aejas Lakhani — Unifi Capital — Analyst

Okay. Okay. And sir, just one thing is that, are you — in the non-South markets where you’re expanding the 12 to 15 stores, is it that — the plan is that where you already have a presence in a particular city you’re adding a store there or adding a new geography in terms of a new city in that state?

Ramesh Kalyanaraman — Executive Director

So let me tell you, in almost all the states in this country, except for the small states in the northeastern part, we have stores and we have good market shares in almost all the states. So the showrooms which we opening that’s not new geographies, but of course, new towns in states we are already present. And again, there’ll be some showrooms, which is adding stores in some metros, a few metro markets where we are already there, like a Bombay, Delhi, Calcutta.

Aejas Lakhani — Unifi Capital — Analyst

Got it. Thanks a ton. All the best.

Sanjay Raghuraman — Chief Executive Officer

And Swaminathan — should we answer the question with Swaminathan wanted to come back, so that it does not misses out, that advance or something? One second.

Swaminathan Viswanathan — Chief Financial Officer

Hello? Yeah, this is Swaminathan. The questions regarding advanced seats, majority due to reclassification. Last year it was in current and this has moved to non-current and the remaining amount of about INR30 crores is to loan to Candere.

Operator

Sir, shall we move to the next question?

Abraham George — Head Treasury & Investor Relations

Aniket, I think you had that question, no? Hope Swaminathan answered you.

Aniket Sethi — ICICI Securities — Analyst

Yes, yes, Abraham. Sure, thanks.

Operator

Thank you. The next question is from the line of Shirish Pardeshi from Centrum Capital. Please go ahead.

Shirish Pardeshi — Centrum Capital — Analyst

Yeah, hi, Ramesh.

Ramesh Kalyanaraman — Executive Director

Hi.

Shirish Pardeshi — Centrum Capital — Analyst

Thanks for the opportunity. I have two questions. While looking at these standalone for FY22, I think since the time the IPO happened, the ad spend is one of the key criteria for you, and I see that we have spent almost INR193 crore, as a percentage of sales is about 2%. So in the next two to three years when your store expansion is going to be very strong, what kind of ad spend — I mean, if you can give me a absolute number or maybe as a percentage of sales that would be very helpful to model.

Ramesh Kalyanaraman — Executive Director

So if you look at this financial year also, we actually opened 18 showrooms. And this ad spend of around 2% is coming even after the expansion. So while we are expanding into markets, the ad expenses is not going up steeply. It’s because we are not going out of our core markets, we are there. We are expanding only in the markets where we are already having showrooms because we already have showrooms in almost all the states of this country. So ad — the phase where we had to invest a lot of money on advertisements have actually gone, and on a medium-term, I think the ad spend will come down to the range of 1.8%. That is our target — medium-term target.

Shirish Pardeshi — Centrum Capital — Analyst

Okay. And if I may ask, I mean just — it’s a curiosity, having worked in the industry, who is your creative agency? I mean, the reason why I’m saying this is because I recently came across the Marathi version for enticing the consumers, and it was very impressive. So that’s why out of curiosity, I’m asking who’s the creative agency you follow?

Ramesh Kalyanaraman — Executive Director

Yes. So thank you for the compliment. But what we usually do is that we work with multiple creative agencies from every region because this hyperlocal flavor never comes from one particular creative agency. So we have tie-ups with lot of hyperlocal creative agencies across India, and we utilize them to create ads for that region so that it has a pukka local flavor.

Shirish Pardeshi — Centrum Capital — Analyst

No, I really compliment because the flavor and the and people who have seen has really impressed.

Ramesh Kalyanaraman — Executive Director

Thank you.

Shirish Pardeshi — Centrum Capital — Analyst

And getting that local flavor, I was pretty excited.

Ramesh Kalyanaraman — Executive Director

Thanks.

Shirish Pardeshi — Centrum Capital — Analyst

My last question is on the BIS hallmarking. I mean, since the time we have been interacting, we have been talking about formalization, but do you really see on ground things are changing quicker, faster? Maybe if you can give me some example which markets, whether it is previously seen, because South was, I would say that it was more formalized, while North and Central was little — there is a lot of scope. So do you tangibly see these things are taking shape and size?

Ramesh Kalyanaraman — Executive Director

So. So if you look at the Q4, we have seen markets where the inspection from those departments have started. And the intensity, of course, the expectations from each person is different. So the intensity has been mined, but inspection et cetera has been started. We think that it will surely improve over time. I mean the intensity because it is the government’s vision to bring in 100% hallmarking and also HUID code. Their objective is very clear. So we still have scope for the shift from unorganized to organized post the implementation of hallmarking, and the stickiness which the government departments will bring in.

Shirish Pardeshi — Centrum Capital — Analyst

But then formalization, do you think will have some role to play in a full speed in FY23 second half?

Ramesh Kalyanaraman — Executive Director

So very hard for us to comment on the actions which the department has to do, but technically speaking, yes.

Shirish Pardeshi — Centrum Capital — Analyst

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

Ramesh Kalyanaraman — Executive Director

Thank you, thank you.

Operator

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

Nillai Shah — Moon Capital Management — Analyst

Thank you. Ramesh, my question is on the metal gold loan. You mentioned it’s about INR1,500 crores now, and in the past on the calls, you had mentioned there a scope to take it up to about INR1,800 crores plus. So what’s stopping us from getting to that number?

Ramesh Kalyanaraman — Executive Director

Yes. So INR1,800 crores is what we target, and it has to actually — it had to be happening in Q4 itself, but we had a technical issue with a certain bank where — Abraham, you want to.

Abraham George — Head Treasury & Investor Relations

Yeah, Nillai, hi.

Nillai Shah — Moon Capital Management — Analyst

Hi.

Abraham George — Head Treasury & Investor Relations

So as of now, for the quarter, we have increased it by approximately INR80 crores from Q3. Like Ramesh was mentioning, there was a technical issue with one of the banks with the gold metal loan limit. So that has been sorted and we are just starting to pickup gold metal loan from the beginning of next week. So we can take it up to approximately INR1,800 crores. So we stand by that INR1,800 crores. This bank limited will take it…

Nillai Shah — Moon Capital Management — Analyst

But Abraham, INR1,800 crores is excluding the — what we’re trying to do now with the exchange gold, right? INR1,800 crores was supposed to be on an as is basis.

Abraham George — Head Treasury & Investor Relations

Yeah. This INR1,800 crores, like I was mentioning to Aejas a little earlier, this INR1,800 will be gold medal loan without the new model that we are trying to explore. The new model…

Nillai Shah — Moon Capital Management — Analyst

Correct.

Abraham George — Head Treasury & Investor Relations

Will not give us any interest rate benefit. That will only be to create a hedging instrument.

Nillai Shah — Moon Capital Management — Analyst

And that was my second question, why is that the case? The way I see this is that basically given Titan is doing it now every quarter, wherein the reporting the…

Abraham George — Head Treasury & Investor Relations

Exactly.

Nillai Shah — Moon Capital Management — Analyst

Bullion sales. So you will be doing it the same way. You’ll be reporting bullion sales, and then whatever you have as your metal gold loan, that’s substitutes the interest, your term loans basically. And I’m assuming your term loan’s kind of about maybe 10% and metal gold loan is at about 4%, 5%. So there is a clear 5 percentage point sort of interest savings, if I can put it that way, which accrues to your bottom line. So, why did you say that there is no interest benefit out here?

Abraham George — Head Treasury & Investor Relations

No, but — I’ll — this old gold, the metal, we have to fund it somewhere, right? Because that’s the metal that we only purchased. That purchase happened with our own cash.

Nillai Shah — Moon Capital Management — Analyst

Yes. But you are doing a back-to-back transaction to sell it the same day, I’m assuming, right?

Abraham George — Head Treasury & Investor Relations

No, this gold loan will be a cash-funded gold metal loan because we will be keeping cash to that extent. And then taking metal. This is not out of the bank funded kind of credit.

Nillai Shah — Moon Capital Management — Analyst

Oh, okay.

Abraham George — Head Treasury & Investor Relations

Because first, we have to fund the purchase of this metal from customer, then we are trying to replace that old gold into gold metal alone. So when we take that gold metal loan after that, it will have to be funded with cash.

Nillai Shah — Moon Capital Management — Analyst

Okay, so, last bit out here. The customer has actually paid cash for his old gold, or is it that he gets to pay lesser in exchange for his old gold?

Abraham George — Head Treasury & Investor Relations

If it is an exchange, it will be — it will lead up to, say, best, his purchase. But our own customers, there’s a — we give a facility for customers to come and sell gold also to us, if that’s — in extreme cases.

Nillai Shah — Moon Capital Management — Analyst

Okay. Of 30% which is exchange — gold exchange for sales, how much of that is customers just coming and giving back their own without taking anything else, and how much of it is actual exchange?

Abraham George — Head Treasury & Investor Relations

Very insignificant portion that the customer will give us for cash.

Nillai Shah — Moon Capital Management — Analyst

Right. So then it should be an interest benefit, right, Abraham? I mean, if I’m not clear, then I’ll probably take this offline. I’m just not clear as to how this is not going to be interest accretive or PBT accretive?

Abraham George — Head Treasury & Investor Relations

Yeah, we can take this offline because there is — we will have bank limits as well, which will be restated when we go this path.

Nillai Shah — Moon Capital Management — Analyst

Okay. I’ll take it offline with you, Abraham. Thanks so much, bye.

Operator

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

Ramesh Kalyanaraman — Executive Director

Thank you very much for the patience. I think this quarter is also going to be very good, and the financial year also, we are looking forward. Any questions over and above this, please reach out to our IR team. Thank you.

Operator

[Operator Closing Remarks]