RENAISSANCE GLOBAL LTD (NSE: RGL) Q2 2025 Earnings Call dated Nov. 19, 2024
Corporate Participants:
Snehkumar Purohit — Manager – Corporate Strategy & Investor Relations
Sumit Niranjan Shah — non-Executive Chairman and Global Chief Executive Officer
Hitesh Shah — Managing Director
Analysts:
Hardik Gandhi — Analyst
Kashvi Chandgothia — Analyst
Naitik Mutha — Analyst
Unidentified Participant
Shrikant Parakh — Analyst
Nupur Gandhi — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Q2 FY ’25 Earnings Conference Call of Renaissance Global Limited. [Operator Instructions] I now hand the conference over to Mr. Snehkumar Purohit from Renaissance Global Limited. Thank you, and over to you.
Snehkumar Purohit — Manager – Corporate Strategy & Investor Relations
Good afternoon, everyone, and thank you for joining us on Renaissance Global Q2 and H1 FY ’25 earnings conference call. We have with us today Mr. Sumit Shah, Chairman and Global CEO; and Mr. Hitesh Shah, Managing Director of the company. We would like to begin the call with a brief opening remarks from the Management, following which we will have the forum open for an interactive question-and-answer 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 a disclaimer to this effect has been included in the results presentation shared with you earlier.
I would now like to invite Mr. Sumit Shah to make his opening remarks.
Sumit Niranjan Shah — non-Executive Chairman and Global Chief Executive Officer
Thank you, Sneh. Good afternoon, everyone. On behalf of Renaissance Global, I extend a warm welcome and thank you all for joining us on our earnings conference call for the second quarter ended 30th September 2024. I will initiate the call by taking you through a brief overview of the company’s operational and business highlights for the period under review. Post that, Hitesh will give you a rundown of our financial performance.
Building on the momentum from Q1, we achieved stable growth across key segments with quarterly revenue from continuing operations rising 3% year-over-year. Our consolidated EBITDA margin from continuing operations reached 10.3%, enhanced by operational efficiencies and a strategic focus on high-margin segments. Our continued focus on high-quality businesses has meaningfully contributed to the positive impact on gross margins, which are up 434 bps through our margin improvement initiatives.
In owned brands, our revenue grew by 7% year-over-year in Q2, while the EBITDA margin in this segment reached 10.3%, reflecting a substantial year-over-year improvement of 575 basis points. As we approach the holiday season, we expect strong consumer demand in this segment, setting us up for a promising end to the year. We recently launched a new direct-to-consumer fashion jewelry brand, Renaei to be primarily sold on Amazon in the US. The brand is uniquely designed to meet an ever-growing affordable fashion jewelry demand among millennial and Gen Z consumers.
Our focus on branded jewelry continues to drive growth. Recently, we tested the Enchanted Star collection with a major retail partner in the US. This collection is an exciting extension of our Enchanted Disney fine jewelry brand brings lab grown diamonds into our offerings featuring engagement rings and fashion jewelry pieces. Early response has been very encouraging and we believe that this collection holds strong potential to contribute meaningfully to our licensed brand segment in the growing quarters.
In the Consumer Brands division, revenue in Q2 stood at INR293 crores with an EBITDA margin of 9.4%, making an impressive 295 basis point improvement. We have taken a detailed strategic review of this business and have identified significant process reengineering and capacity rationalization measures to boost efficiencies. We’ve launched an extensive cost optimization initiative towards the end of Q2, which will extend into Q3 and is expected to deliver annual savings of INR40 crores to INR50 crores. In line with the same, we incurred a one-time restructuring expense of around INR3.5 crores in this quarter.
Additionally, we expect to see significant reductions in interest rates as we leverage the proceeds from the sale of our gold business and anticipate a more favorable interest rate environment with recent rate cuts announced by the Fed. This combination of actions will position us to achieve substantial savings while reinforcing our commitment to profitability and long-term growth.
While we remain mindful of near-term challenges, our outlook on the long-term potential of our branded business remains exceptionally strong. Our partnerships with iconic global brands, coupled with the expansion of our own distinctive brands with strong focus on lab grown diamonds underscores our commitment to connecting with the next generation of jewelry enthusiasts. Our strong partnership with owned brands, expertise in product innovation, design talent and robust distribution network will continue to drive our growth going forward.
Hardik Gandhi — Analyst
Thank you, Sumit. Good day, everyone. We have reported a stable performance during the quarter, driven by better performance in our owned brands direct-to-consumer segment. In Q2 of FY ’25, our adjusted total income increased by 3% at INR392 crores as compared to INR380 crores in Q2 of FY ’24. On the profitability front, adjusted EBITDA expanded by 42% at INR40 crores in Q2 of FY ’25 versus INR28 crores in the same period last year with adjusted EBITDA margins of 10.3% versus 7.5% last year. During the period, our margins improved and we expect revenue to trend upwards in the coming quarters. Adjusted profit after tax for Q2 of FY ’25 stood at INR15.7 crores, up by 50% from INR10.5 crores in Q2 of FY ’24. For the H1 of FY ’25, the adjusted profit after tax stood at INR31.4 crores as compared to INR24.7 crores in the same period last year.
Our branded segment reached revenues of INR92 crores during the first half of the financial year versus INR78 crores in the first half of FY ’24, which is up by 19%, demonstrating a resilient business strategy and strong market expansion. Our direct-to-consumer India brand IRASVA, with a total of four stores across Mumbai, Ahmedabad and Hyderabad recorded revenues of INR10 crores in the first half of FY ’25. In Quarter 2 of FY ’25, our licensed brand business maintained stable revenues at INR57 crores on account of healthy flow of orders from our retail partners as well as the direct-to-consumer segment. It had an EBITDA margin of 16.5%. While our customer brand reported an EBITDA of 9.4%, reaching revenues of INR27 crores in Q2 of FY ’25 — sorry, reaching a margin of 9.4% in Q — which is an improvement of 295 basis points.
Given the increasing contribution of our brands to our overall revenue, we anticipate a promising rise in our consolidated EBITDA margins with branded business continuing to be a significant profitability driver.
Lastly, in terms of our balance sheet, our net debt-to-equity ratio stands at a healthy 0.27 as on 30th September ’24 versus 0.31 in June ’24 and 0.29 in September of ’23. Our total net debt stands at INR328 crores against INR370 crores in Q1 of FY ’25. And our cash and bank balances and current investments stand at INR244 crores, which is up by INR58 crores from 30th June ’24.
In conclusion, we are pleased to have maintained steady performance in the face of challenging conditions. Our solid balance sheet gives us confidence in our ability to navigate these challenges and we look forward to stronger results in the upcoming fiscal year.
On that note, I would now request the moderator to open the forum for any questions or suggestions that you may have. Thank you.
Questions and Answers:
Operator
[Operator Instructions] We will take our first question from the line of Kashvi Chandgothia from JRK Stock Broking. Please go ahead. Kashvi?
Kashvi Chandgothia
Hello, am I audible?
Operator
Yes, but your volume is very low, Kashvi. Can you use your handset mode, please?
Kashvi Chandgothia
Yes, I’m using my handset itself. Can you hear me now?
Operator
A little better. Go ahead, please.
Kashvi Chandgothia
First of all, thank you for the opportunity and I congratulate everyone on this great set of numbers. So going forward, can you give a more detailed guidance on how we are expecting the Quarter 3 and the FY ’26?
Sumit Niranjan Shah
So if I understood your question correctly, you wanted a more detailed guidance on Quarter 3 and FY ’26?
Kashvi Chandgothia
Yes, half year, second half and FY ’26.
Sumit Niranjan Shah
Sure, sure. So I think we are seeing sort of a return to growth in all of our segments in Quarter 2. We anticipate this trend to continue or accelerate going forward. I think that for financial year ’26, I think as the penetration of lab grown diamonds increases, we see revenue growth accelerating. And this coupled with the cost cutting measures that we have taken in our Customer Brands segment, we expect strong revenue growth in FY ’26 and even stronger growth in bottom line because of our cost cutting measures.
So I can give you a broad outlook in terms of direction, detailed numbers, we’re not sharing as yet.
Kashvi Chandgothia
Okay. And sir, these cost cutting measures won’t like affect the brand quality and the attraction that we see in the Gen Zs and the Millennials, especially for the lab grown segment?
Sumit Niranjan Shah
Yeah. So a lot of the cost cutting measures have actually been capacity rationalizations because as the business moves to more lab grown, we see less labor-intensive product being manufactured, which means that we will be able to produce more value of orders with less manufacturing capacity. So a lot of it is related to reduction in manufacturing capacity and some process engineering. We haven’t done anything to impact our sales or the desirability of our brands. We are very cognizant of the fact that we need to maintain revenue growth, while looking at more efficient ways of doing business. So, yeah, to answer your question, we are very confident that we will be able to maintain a revenue growth trajectory while reducing expenses.
Kashvi Chandgothia
Okay. Thank you so much.
Operator
Thank you. [Operator Instructions] Next question is from the line of Naitik from NV Alpha Fund. Please go ahead.
Naitik Mutha
Hi, sir. My question is, after selling of our plain gold business, you’re expecting some inventory easing from the inventory that was stuck with that business. But however, we don’t see that in the September balance sheet. So could you please help me understand why we don’t see that or when will we see that?
Sumit Niranjan Shah
Yeah, so I think there has been inventory reduction, which is kind of reflected in the increase in the cash balances. However, the absolute inventory number, obviously, this is the start of the season and September usually represents a peak in terms of our inventory numbers because we are usually building inventory for the October, November, December holiday season. So we would expect to see a reduction in inventory subsequently both in December as well as in March.
I think that the inventory increase has been offset by an inventory reduction in the plain gold business, which is reflected in the increase in cash. If you see quarter-over-quarter, cash balances have increased by INR60 crores.
Naitik Mutha
Right. Right, sir. But if I compare your cash versus your March balance sheet, it’s broadly remained the same, while your debt has gone up roughly by INR50 crores, I’m talking about gross debt. So what is the reason for the same? I’m not seeing quarter-over-quarter, but when we compare with the March quarter…
Sumit Niranjan Shah
As of 31st March, our cash balance was INR188 crores, it’s INR244 crores as of 30th September.
Naitik Mutha
All right. Got it. And that is…
Sumit Niranjan Shah
So, it’s up by INR60 crores from 31st March.
Naitik Mutha
Okay, got it. That’s it from my side. Thank you.
Sumit Niranjan Shah
Yeah.
Operator
Thank you. We’ll take our next question from the line of Rajesh Golja, an Individual Investor. Please go ahead. Rajesh, your line is unmuted. Please go ahead with your question.
Unidentified Participant
Okay. Hello?
Operator
Rajesh, can you use your handset mode, please? You’re not clearly audible.
Unidentified Participant
[Foreign Speech] Hello? It is clear?
Operator
Yes, please go ahead.
Unidentified Participant
Sir, I have two questions. First, what are debt level on which we are paying interest? And second, when can I expect any timeline or company to go debt free?
Sumit Niranjan Shah
Yes, so our intention is that we’ve currently obviously done a preferential fundraise of around INR168 crores. So this coupled with cash flow emerging from our business during Q3 and Q4, because as you know, seasonally our largest quarters are Q3 and a lot of the receivables go down afterwards. So we expect a meaningful reduction in debt at the end of FY ’25. Our anticipation is that one year from then, which is at the end of FY ’26, we expect to be zero net debt.
Unidentified Participant
Okay, sir.
Operator
You’re through with your question, Rajesh.?
Unidentified Participant
Yes. Thank you.
Operator
Thank you. [Operator Instructions] Next question is from the line of Shrikant Parakh from Prudent Investments. Please go ahead. Srikant? Please go ahead with your question.
Shrikant Parakh
Am I audible?
Operator
Yes, please go ahead.
Shrikant Parakh
So my question is that the amount which we have got from the preferential allotment, so what the exactly the strategy to utilize those funds? What was the ratio for mainly — the division between the reducing the debt and for more acquisition, as you have mentioned in investor presentation?
Sumit Niranjan Shah
Yeah, yeah. So we obviously have — we are on the lookout for an acquisition and we have not identified any acquisition immediately. So once a fundraise is done, debt reduction will happen immediately. And I think subject to us being able to find an appropriate acquisition opportunity, which is accretive and fits into the various criteria, the Board will evaluate acquisition opportunities. So there is no immediate acquisition target, which has been immediately identified and we will be obviously thoughtful and methodical with the acquisition framework.
There is however, some amount of upgradation of infrastructure that will take place, which we’ve allocated I think around INR30 crores for. Other than that, the remainder of the money will go towards debt reduction. And then when an acquisition opportunity comes about and the Board feels comfortable, at that point the acquisition will be undertaken.
Shrikant Parakh
And sir, just a heads-up, I think you might have said in the previous participant questions, any timeline where we are expecting a reduction in our debt — sort of a debt-free company?
Sumit Niranjan Shah
Yeah, so as of now…
Shrikant Parakh
Net debt…
Sumit Niranjan Shah
As I mentioned earlier, we expect to be significantly lower by about INR150 crores to INR180 crores by the end of this year. So the net debt, which is currently at INR328 crores should be closer to INR100 crores of net debt. And subsequently, by FY ’26, the plan would be to be zero net debt.
Shrikant Parakh
Okay. Thank you, sir.
Operator
Thank you. [Operator Instructions] Next question is from the line of Hardik Gandhi from HPMG Shares and Securities Private Limited. Please go ahead.
Hardik Gandhi
Hello. Am I audible?
Operator
Yes, please go ahead.
Hardik Gandhi
Hello, sir. So I’m fairly new to your company so pardon me for a question — for answers and questions which might be repetitive in nature. But what are the key drivers as a company in the AD — what are the key drivers which you are seeing right now, which will help the growth in the coming quarters and here as well? What are the things going your way?
Sumit Niranjan Shah
Yeah, yeah. So I think that we segregated the business into three segments and the three segments of the company are our brands, which are our direct-to-consumer brands. There is the licensed brands and the customer brands. In our brand segment, we are fairly new. It’s a INR200 crores kind of business and it was zero up until a couple of years ago. I think that there is a tailwind of lab grown diamonds in our brand segment, which is graining acceptance in the US, which is causing the business to grow. And there is also international expansion within our brands that we’ve planned. Currently, a large part of our brands is in the US. We plan to launch in February in the UK and there will be some geographic expansion, which will lead to growth.
In the licensed brand segment, our — the penetration of lab grown diamonds is currently fairly low. In one of our largest brands, we just tested lab grown diamonds and we’ve seen a great initial success with the brand. So I think the growth in the licensed brands as well as the customer brand segment will come from the transition to lab grown diamonds. And in terms of the bottom line, as I mentioned in my opening remarks, we’ve undertaken this cost reduction and capacity rationalization expenses. And you’ll see the expense run rate go down by around INR40 crores to INR50 crores annually starting next quarter.
So I think the drivers of growth really are, in our brands, to summarize, geographic expansion and deeper penetration in our existing markets and penetration of lab grown diamonds, which is currently fairly low in the licensed brands and the customer brand segment.
Hardik Gandhi
Understood, sir. That’s really helpful. But going forward, I know a lot of people are entering into lab grown diamond business. So I just wanted to know what are the key entry — barriers to entry and are there — is there something which is niche to us or is it just that anyone with good capital can start making diamonds and then just — they just need to tap the market or like how difficult it is for someone to get into that because I think Titan — not Titan, but Tata is getting into this by one of their subsidiaries.
Sumit Niranjan Shah
Yeah, so our approach to lab grown diamonds is one, we are not growing lab grown diamonds. We are in the business of designing and branding jewelry and selling jewelry in global market. So all of our sales, a large majority of our sales are in the Western markets. Our brand in the US is a relatively attractive one and we’re going to focus on building our brand. We’ve got a robust direct-to-consumer platform that has grown about 5x in the last couple of years since we made the acquisition.
And then in the licensed brand segment, we have an exclusive licensing arrangement with Disney, which gives us a moat and helps us sort of protect the business because Disney is a sort of very well-recognized brand in the markets in which we operate. So our brand, which has been sort of growing well as well as having access — exclusive access to the Disney brand name gives us a little bit of a moat in the branded jewelry segment.
Within India, we are going to sort of focus on the premium segment in lab grown because we feel that at the entry level price point, it’s going to be — going to lead to commoditization. So the brand that we operate in the US is sort of in the premium space, which we plan to expand geographically from the US to the UK and in India.
Hardik Gandhi
Understood, sir. And just to understand what — when you mean it’s in a premium segment, what is the factor that determines it’s in the premium segment? Sorry, I’m not aware of the things.
Sumit Niranjan Shah
So, I think just like any luxury brand, I mean it’s about the marketing, right? I mean, I think that whether you take the luxury space in handbags or in jewelry, it’s about what the positioning of the brand is and what the marketing is. So I think that if you go to our brands’ website, you’ll understand how the positioning is, it’s premium, and how we are focusing on an average order value of around INR2.50 lakh, which is where we’ve been successful. So we are going after the slightly premium customer with premium positioning.
Hardik Gandhi
Understood, sir. Understood. And the last question, if I can squeeze in, that even according to what I’ve read and everything, going forward, a lot of people are still getting into lab grown diamonds. So — and from what I’ve heard, after a point, it will just be a pricing — price war which will go. So do you think that is a — that is possible in the future where just like people mass produce lab grown diamonds and then the customization and then it just gets into a price war?
Sumit Niranjan Shah
Yeah, so I think in any commodity, I mean whether it is apparel or handbags or any consumer product, I mean, I think that finally the determinant of success in a consumer brand is your brand and your branding, right? It’s not just about the commodity and a price war, right? It depends on where you choose to compete and what your brand represents and what are your brand values.
So our positioning in the US and here has been to build a brand in the premium space and not to get into sort of a commoditization and price competition. So clearly, if more and more people enter, I mean, there will be commoditization at some end, but there is various segments in any consumer market. There is the bottom end which is commoditized and then there is a premium end and the luxury end, which tends to get — have its pricing power because of its positioning.
Hardik Gandhi
Understood, sir. Understood. That’s quite helpful. Thank you from me.
Sumit Niranjan Shah
All the best.
Operator
Thank you. We’ll take our next question from the line of Nupur Gandhi from Sequent Investments. Please go ahead.
Nupur Gandhi
Hi, sir. Hello?
Sumit Niranjan Shah
Yes, go ahead.
Operator
Nupur, can you ask in your handset mode, please? Your audio is not very…
Nupur Gandhi
Hello? Yeah, sir. I wanted to ask you that in your B2C — B2B segment in your licensed brands and your customer brand, how much growth are we expecting or seeing in the next quarter — next half year and the next year, financial year?
Sumit Niranjan Shah
Yeah, so I think at this point, I think we are seeing revenue growth accelerating. I think that — I don’t have a specific number for you, but we’ve been through a two year period where inflation in the US was extremely high and consumer demand was very subdued. I think we’re seeing a lot of those pressures abating and going away. So our cadence has been to try and grow in double-digits in our licensed brand segment and which we expect sort of in the coming quarters.
Again, without sort of coming up with a specific number and a guidance, I think a lot of the pressures related to inflation are now behind us and I think that we should see a growth in acceleration in revenue growth going forward.
Nupur Gandhi
Got it, sir. And also, sir, one more question. You said that in your licensed brands, your growth will come from transitioning to lab grown. So right now, we have a percentage of say, 94% natural and 6% lab grown. So going forward, what percentage are we looking at? Like, how do we plan to increase the lab grown?
Sumit Niranjan Shah
So the 94% that you refer to is in our brands, not in the licensed brands.
Nupur Gandhi
Okay.
Sumit Niranjan Shah
The licensed brands and customer brands, currently the penetration is only 6%, which we expect to grow meaningfully in the coming quarters and the years to come.
Nupur Gandhi
Okay, sir, got it. Thank you.
Operator
Thank you. [Operator Instructions] As there are no further questions, I now hand the conference over to Management for closing comments. Over to you.
Sumit Niranjan Shah
Thank you, everyone, for joining us on our Q2 and H1 results. We hope to see you guys on the next conference call. Thank you very much.
Hitesh Shah
Thank you.
Operator
[Operator Closing Remarks]