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.