Renaissance Global Ltd Q4 FY22 Earnings Conference Call Insights

Key highlights from Renaissance Global Ltd (RGL) Q4 FY22 Earnings Concall

 

Q&A Highlights:

Hitesh Chauhan – H2 Investment – Analyst

• China operation update?

Sumit Shah – Chairman

• RGL tested Enchanted Disney Fine Jewellery program with a key retailer in China.
  • The product did not perform up to expectations and is not moving forward currently.
  • Not optimistic about the opportunity in China due to the program not performing up to expectations.

 

Bhavya Jain – Sarath Capital – Analyst

• RGL’s thinking behind setting up a large headquarters and fulfillment center in New York?

Sumit Shah – Chairman

• Current location of RGL’s headquarter and fulfillment center at Manhattan of 20,000 sq. ft. is relatively expensive to do significant e-commerce fulfillment.
• RGL is moving to 50,000-55,000 sq. ft. facility in New York.
  • This will allow to grow the fulfillment capabilities for e-commerce in a meaningful way.
• The rental expenses remain the same.

 

Aakash Javeri – Perpetual Investment – Analyst

• Operating EBITDA margins in the lab grown diamond jewelry segment?

Sumit Shah – Chairman

• It’s a small business and at the time of acquisition the gross margin was in the mid 30s.
• Now it’s at mid 40s.
• Long term goal is to have gross margins close to 50% and operating margin in the 15% range.

 

Kruttika Mishra – Sharekhan – Analyst

• Reason for margins being flat at 5.6% in 4Q22 and EBITDA margin outlook for the next two years?

Hitesh Shah – Managing Director

• Had a lot of input cost pressure with diamond prices rising.
• Going forward, as the costs are passed to the customer, RGL expects EBITDA margins to come back to the 9-10% range.
• In the next 2-3 years, as the divisional mix changes more towards the direct to consumer, the margins should reach the early double digits.

 

Kruttika Mishra – Sharekhan – Analyst

• Revenue outlook?

Sumit Shah – Chairman

• The goal would be to split the overall business 50:50 between customer brands and branded jewelry in the next 3-4 years.
• And in branded jewelry, the goal will be to have a 50:50 split between B2B and D2C.

 

Kruttika Mishra – Sharekhan – Analyst

• Capex for FY23?

Sumit Shah – Chairman

• A significant amount of capex of around INR30 crores is ongoing currently for the setup of RGL’s fulfillment center and sales office at New York.
• Other than this, there might be some minor capex to upgrade manufacturing facility.

 

Kruttika Mishra – Sharekhan – Analyst

• Demand outlook in the US and other RGL’s operating regions?

Sumit Shah – Chairman

• Saw some softness in March and April in retail sales on a YoY basis.
• In May, YoY comparisons look better.
• Seeing lean inventory across all of RGL’s retail customers.
• Despite sales being weaker, at retail level, seeing healthy demand for RGL products.

 

Kalpesh Parekh – JMS Advisory Service – Analyst

• Working capital expectation?

Sumit Shah – Chairman

• Expectation would be to go below 189 days going forward.
  • Growing businesses require less than 5 months of inventory.

  

Hiten Boricha – Joindre Capital – Analyst

• Any plans to reduce debt?

Sumit Shah – Chairman

• Will see reduction in net debt meaningfully over the next 2-3 years.
• From FY24, RGL also expects reduction in absolute debt number.

 

Hiten Boricha – Joindre Capital – Analyst

• Savings from the new New York facility?

Sumit Shah – Chairman

• The question is not for savings but the ability to growth RGL’s e-commerce business.
• The new facility is for investing in fulfillment capabilities to meet the sales targets.