Tribhovandas Bhimji Zaveri Ltd (TBZ) Q4 FY23 Earnings Concall Transcript

Tribhovandas Bhimji Zaveri Ltd (NSE:TBZ) Q4 FY23 Earnings Concall dated May. 26, 2023

Corporate Participants:

Binaisha Zaveri — Whole-time Director

Mukesh Sharma — Chief Financial Officer

Analysts:

Unidentified Participant — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Tribhovandas Bhimji Zaveri Limited Q4 FY ’23 Earnings Conference Call. [Operator Instructions] This conference call is being recorded.

I now hand the conference over to Mr. Mukesh Sharma, CFO; and Ms. Binaisha Zaveri, Whole-Time Director. Thank you, and over to you, ma’am.

Binaisha Zaveri — Whole-Time Director

Ladies and gentlemen, good afternoon, and welcome to the TBZ Limited earnings call for the fourth quarter and fiscal year 2023. At TBZ, we take great pride in our commitment to operational efficiency and our ability to create exceptional jewelry designs.

These four principles have not only contributed to our financial group, but have also earned the trust and loyalty of our valued customers for over 157 years. During the fourth quarter of FY ’23, the launch of our various collections like HUES, Svara, Navya, Kavya received an overwhelming response with over 50,000 plants working.

During the fiscal year 2023, we witnessed a significant year-on-year growth of approximately 25%, totaling over 2.5 lakh walk-in. These numbers reflect legacy reputation of TBZ and our ability to create jewelry that resonates deeply with our customers.

Looking ahead, we remain dedicated to driving innovation, ensuring customer satisfaction and achieving robust financial growth. Our continuous focus on delivering exceptional jewelry designs further enhancing our operational efficiency and maintaining our established market position will enable us to seize future opportunities and provide customers with unparalleled products and experiences.

Thank you for your continued support. I’d now like to hand over the call to our CFO, Mr. Mukesh Sharma to share some financial highlights for Q4 and FY ’23.

Mukesh Sharma — Chief Financial Officer

Thank you, Binaisha. Good afternoon, everyone. It’s a pleasure to welcome you to TBZ Limited’s earnings call for quarter four and FY ’23. I am pleased to present our audited financial results for quarter four and FY ’23.

To start with the financial performance front, we are delighted to announce quarter and year end demonstrating sustainable growth. For quarter four FY ’23, our total revenue increased by 7.7% Y-o-Y to INR464 crores. EBITDA grew by 96% to INR30.3 crore with EBITDA margin of 6.5%. PBT grown by 368% to INR13.3 crores with a PBT margin of 2.9%. PAT rose by 363% to INR11.3 crores with a PAT margin of 2.42%.

Moving on to performance for FY ’23. Our revenue grew by 30% Y-o-Y to INR2,394 crores. EBITDA grew by 58.9% to INR115 crores with EBITDA margin of 4.8%. PBT increased by 125% to INR51 crores with a PBT margin of 2.2%. PAT rose by 132% to INR40 crores with a PAT margin of 1.7%. In addition, our operational efficiency has improved, resulting in sales growth across all categories. We achieved a Y-o-Y revenue growth of 30% for FY ’23.

In Q4 FY ’23 alone, we achieved a 3.8% margin growth. Our unique manufacturing designs have resonated well with customers, seeking craftsmanship and quality. Furthermore, we experienced growth in both the gold and diamond segments, demonstrating our strength and diversification. Our focus on optimizing sales and margins has shown progress with notable improvements in quarter four margin.

Maintaining reasonable inventory levels has been a key focus supporting our growth objectives. We remain committed to driving innovation, customer satisfaction and sustainable financial growth. We will continue delivering exceptional jewelry design, enhancing operational efficiency, and optimizing margin opportunities.

Thank you for your continued support. I am now ready to take your questions.

Questions and Answers:

Operator

Thank you very much sir. [Operator Instructions] We take our first question from the line of Neha Sharma, who is an investor. Please go ahead.

Unidentified Participant — — Analyst

Good afternoon, everyone. Thank you for letting us join the investor call. As a fellow investor, I had a question regarding TBZ’s current situation and future prospects, particularly in relation to the high debt levels and interest rate costs. Over the last five years, TBZ has been experiencing some growth. Could you please provide some insight into the factors that have hindered the company’s growth during this period?

Mukesh Sharma — Chief Financial Officer

Ma’am, can you repeat your question, please?

Unidentified Participant — — Analyst

Yes. So I was — I wanted to ask over the last five years, TBZ has been experiencing some growth. Could you please provide some insight into the factor that has hindered the company’s growth during this period?

Mukesh Sharma — Chief Financial Officer

See, I will not be able to comment on the last five years. But looking at the current year performance of FY ’23, you can see the sales revenue side of INR2,400 crore is a very reasonable revenue level, which has grown 30% on a Y-o-Y basis.

Unidentified Participant — — Analyst

All right. Thank you so much.

Operator

Thank you. [Operator Instructions] We’ll take our next question from the line of Rahil Shah, who is an investor. Please go ahead.

Unidentified Participant — — Analyst

Hi, sir. Good afternoon. Congratulations on the results. So my question is pretty simple on the outlook. So what kind of top line and margins now you see likely to achieve in FY ’24, given the business dynamics, the demand scenario and everything put together.

Mukesh Sharma — Chief Financial Officer

Thank you so much, Rahil. The — we are very positive to maintain our sales growth momentum. We foresee approximately 20% sale growth in FY ’24 on the current levels. The margin side, which is — we have already clocked 11.1% margin in FY ’23, and we believe that there is a scope of further growth in the margins level. And we are committed in working towards it. Hopefully, we should see some growth at the margin level as well.

Unidentified Participant — — Analyst

For both gross and EBITDA?

Mukesh Sharma — Chief Financial Officer

Yes.

Unidentified Participant — — Analyst

Okay. And any [Technical Issues] you are posting for FY ’24? And if so, any challenges which you expect?

Mukesh Sharma — Chief Financial Officer

The only risk which is existing business is a fluctuation for the gold prices, yes. So any downside, huge fluctuation may impact, but a normal fluctuation 5%, 10%, 15% may not impact our growth.

Unidentified Participant — — Analyst

Right. And just last one would be the time like key focus going forward FY ’24 which will help you achieve good growth.

Mukesh Sharma — Chief Financial Officer

Yes. So our key focus is to optimize our inventory level. Our key focus is to increase the turns to consistently work on the margin side, increasing the operating efficiency across company level in production of the new brands, new products, new design, which is an ongoing effort, and these are our key focus areas.

Unidentified Participant — — Analyst

Okay, sir. Sounds good, and I’ll get back if I have more. Thank you and all the best.

Mukesh Sharma — Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] We’ll take our next question from the line of Neha Sharma, who is an investor. Please go ahead.

Unidentified Participant — — Analyst

Yes, hi. I’m sorry, I have to join again. I just had one more question from my end. In light of the high debt levels and interest rate cost, what measure is TBZ Limited taking to reduce the interest burden on its debt? Are there any initiatives to improve the margins and optimize the cost of finance?

Mukesh Sharma — Chief Financial Officer

See ma’am, debt is not high. If you see our leverage ratio, it has actually rationalized further, as leverage is 0.95% [Phonetic] used to be a year earlier, now it is 0.86% [Phonetic] debt-to-equity ratio. So our data is well within the limits. I believe there is a further scope for utilizing the dates more in GML [Phonetic] facilities and all. Those scopes are existing in current operating scenarios. As far as the cost is concerned, finance cost is concerned, there is a huge increase in the interest cost in recent last one year, which has resulted in higher finance costs.

We believe that in FY ’24, we will start seeing easing in the interest rate, which will bring down our finance cost. So because of the increase in the volume, obviously, there’ll be a more utilization of the working capital benefits. And because of this, there is an — increase in finance cost is evident in outlooks, which has also because of higher interest rate, which may not be comparable exactly with the previous year has resulted in more finance cost. But we are working very consciously to use more GML facility than the CC, [Phonetic] which will bring down our overall weighted average finance cost.

Unidentified Participant — — Analyst

Thank you so much. Thank you so much for the clarity.

Mukesh Sharma — Chief Financial Officer

Thanks.

Operator

Thank you. [Operator Instructions] We take our next question from the line of Ankit Shah, an investor. Please go ahead.

Unidentified Participant — — Analyst

Hello?

Operator

Yes. Please go ahead.

Unidentified Participant — — Analyst

Yes. So yes, my question is in terms of the gold prices, what is the percentage of inventory, which is [Indecipherable] policy of hedging in terms of — so I think inventory is INR100 and that percent of PAT is hedged.

Mukesh Sharma — Chief Financial Officer

So Ankit, we work on natural hedging principal, so the day we say, therefore, quantities bought at the same rate, which gives us the natural having in our gold business. As far as the inventory concern is around 50% inventory paid inventory and 50% works on a — GML basis, which is open to fluctuations. It gives us the balance in terms of — if there is a huge fluctuation, my margin will not go in line with the U.S. fluctuations. So that’s how we hedge our gold inventory.

Unidentified Participant — — Analyst

No, your gold — GML is automatically hedged, right, because you are borrowing in terms of gold, right? So this volumes are exposure on that, right, [Indecipherable] the impacted on your — but on your own inventory you are not hedged?

Mukesh Sharma — Chief Financial Officer

Correct.

Unidentified Participant — — Analyst

So tell me something gold prices have gone up so much, right? And when I look at your financials, right, over the last seven, eight years, actually your own inventory or the amount of gains that one should have made just on your own inventory should be huge, right, because the prices in the last 10 years have gone up multi-fold. But why is that not visible in the increase in net worth or the profits of the company?

Mukesh Sharma — Chief Financial Officer

So if you have followed the company, you must have noticed, there is a huge junk of profit in FY 2021.

Unidentified Participant — — Analyst

Sorry, I’m seeing historical. So if you look at last eight, nine years profit, right, then if you see — if you are not hedging your own portion also, which is say roughly INR600 crores that today — as of March, right, your own inventory funded by your own net worth. Then why is that not visible in the profits, right?

Mukesh Sharma — Chief Financial Officer

Okay. So let me clarify you conceptually that GML is not a hedging, okay? GML is a way of buying, which has a very, very lesser cost of fund, okay? GML is a rising interest — rising rate scenario, you actually — whatever you bought on a GML is open to a market fluctuation. So in case of rising rate scenario, it hits your P&L, in case of falling rate scenario, it adds to our P&L, yes. So that’s how GML works.

When it comes to the paid inventory, it works exactly opposite to the GML concept. So in case of paid inventory, then the rising rate scenario gives you a profit? And when falling rate scenario, it gives you a loss. So as I said, that we balance our GML as well as our per inventory ratio, which allowed us not to choose jump in profit or choose loss in the profit, when there is a huge rate fluctuations. So that’s the concept of P&L as well as inventory.

Unidentified Participant — — Analyst

Yes. Sorry, I understand the concept of GML, I think my question was really that for example in GFC, you have a — say on a INR3,000 crore-odd revenues, you have a INR1,200 crore inventory, right? So you are — basically your inventory is also getting sold, right? So in case of GML what happens is, you don’t have that much of a price exposure, because while you’re — you have a mark-to-market on your GML, but you’re also getting a higher realization on the inventory, right? So that’s what I meant in terms of your margins in a way it is hedged, right? So that’s what I was trying to understand, just at a very broad level.

Mukesh Sharma — Chief Financial Officer

Yes.

Unidentified Participant — — Analyst

In terms of that — just on the gains that even if there was no making charges that you made, but just on the pure increase in the price of your inventory over a period of time, that should have ideally increased, right, in terms of the net worth. But when I look at the net worth or even the total profitability over the last eight, 10 years, that has not happened, right? Like your network was around INR210 crores in FY ’13, and today, its INR560 crores. So that quantum jump has not happened and which is why I was just — that why is that translation of higher rates of gold not translated into profits or increase in your net worth?

Mukesh Sharma — Chief Financial Officer

Sure. I understand your point. See, Rahil, what happens is — sorry, Ankit, what happens is you keep buying and selling, right. So what happens is your buying cost, weighted average cost of the inventory keeps changing over a period, yes? So we are not — in fact, if you see — we have not been selling the inventory, which we had bought in 2013, ’14. Just for example, the inventory keeps replacing. When — in fact, the older designs also we’ll go and melt it back and then we again create a new design. So it’s a continuous process of buying and studying of the inventory. So the buying happens on a GML basis, we keep buying and we keep being mark-to-market which bring to hit our COGS, cost of sales.

Now all this — the margins which is reflecting is a combination of GML as well as paid inventory which keeps getting bought and keeps getting sold. So that’s why the fluctuation may not be of the all previous year has been reflect into the P&L of current date. As I said, the operating levels were different in ’13, ’14, the operating levels are business in current FY ’23. And cost of sales also has changed in line with our current good rates, which are currently going on. So it’s all combination, it’s very difficult to point it out exactly how much has come on the paid inventory, how much is coming from the payment quantity, it would be very difficult to pin point on that.

Unidentified Participant — — Analyst

So net — so the last quarter also the gold prices have gone up quite a bit, right? So how do you — like how does one look at sustainable margins going forward, right. Like if I were to look at say next — just on a broad basis, like what is the range of margins, excluding the impact of gold prime views, right, so…

Mukesh Sharma — Chief Financial Officer

Yes. So the controllable in our hand is operating efficiency. The non-controllable is rates of gold, right. So as the gold rate increases, obviously, there is a positive impact on the margin side, maybe only 50% kind of inventory, 50% we have to absorb the higher cost of gold at current rate because we are paying off our GML [Indecipherable] sale as well. So the controllable side, we are working hard on encouraging in the product mix, increasing the stock term. So we are working consistently on that, and we believe that this is going to yield better results in near and long-term. It’s very difficult to pin point a particular margin percentage, which we foresee in FY ’25, but yes, we are…

Unidentified Participant — — Analyst

Not FY — no, so I’m not saying FY ’24, but in general, like internally also, you must be working with certain level of margin, right? Is that okay, we have to — on an ongoing basis, we have to generate business margin, right? So right now, say, for example, you are at 5% for last two year, that is last quarter was 7%. And it has been improving. But what is the — like they would like — if I were to — and that’s why I’m saying if I were to adjust the impact of gold, right, because that’s not in your control, but what is in your control is that adjusted for PAT, what is the margin that one can deliver, because that’s what I’m trying to understand.

Mukesh Sharma — Chief Financial Officer

So Q4 has also because the either, we would have jumped in the gold prices in quarter four. Actually bottomed out somewhere near Diwali and has — has increased quite a bit. Now would you say yearly profit of 4.8%, around 5% EBITDA. This is achievable because this is a combination of the gold bottom rate also, so [Indecipherable] where we have a huge business and higher returns in quarter four. So that’s a weighted average percentage of EBITDA margin. And we believe that we should be able to achieve some growth in the EBITDA margin from those percentages. But as may not be exactly quarter four, it will keep rising, obviously, the margin will be much higher.

Unidentified Participant — — Analyst

Okay. And sorry, just one last question. I can see from the shareholding pattern that Malabar Gold has been buying continuously for the last three, four quarters. So is there any — I mean is it a — is there some understanding or they are just buying it from an investment perspective? Because I’m sure you guys must also have discussed this, right?

Mukesh Sharma — Chief Financial Officer

No, we don’t comment on this. We have — I just want to clarify that there is no understanding. There is no discussion with Malabar, they are buying as a normal investment right from the market. From a company side, there’s no discussion whatever level, absolutely.

Unidentified Participant — — Analyst

Okay, thank you.

Operator

Thank you. [Operator Instructions] We take next question from the line of Bhushan Wankhede, an investor. Please go ahead. Bhushan Wankhede, your line is unmuted. Please go and ask your question. Mr. Bhushan Wankhede, please unmute yourself on your device and ask your question. You line has been unmuted.

Unidentified Participant — — Analyst

Am I audible?

Operator

Yes, you are. Sir, please go ahead.

Unidentified Participant — — Analyst

I just wanted to know regarding the expansive strategy. Can you provide me some details on whether the company plans to open new stores or just it’s focused on improving the performance of existing stores?

Mukesh Sharma — Chief Financial Officer

Bhushan, we are working on few proposals on the franchise model. And we are hopeful that we should be able to open couple of stores in quarter two and quarter three of FY ’23.

Unidentified Participant — — Analyst

Okay.

Operator

Thank you. [Operator Instructions] We take the next question from the line of Rahil Shah, an investor. Please go ahead.

Unidentified Participant — — Analyst

Yes. You just mentioned you’re planning to open a couple of stores, what kind of investment does that require? And how long does it take to break even if you can provide a timeline.

Mukesh Sharma — Chief Financial Officer

Yes, Rahil, so we work in the model of franchisee efficiencies open for discussion. We work in both model — all kind of model were in investment, 50-50 and then margin distribution of orderly are franchisee invest 100% inventory and we invest in the capex. 100% capex whereas 100% investments are franchisee. So there are different, different kind of model, which we are going to operate, obviously, the margin sharing will be a different percentage in all different scenarios.

So all these are open for discussions. As of we see that with a minimal investment from the company side, we foresee that majority investment in the working capital will be from our franchisee partner. And we foresee that will be positive EBITDA without further investment on the working capital from the company side. So all kind of model are open for discussion, but largely in the line that working capital investment will be from franchisee.

Unidentified Participant — — Analyst

Do you have any positive prospects so far?

Mukesh Sharma — Chief Financial Officer

Yes, we have a couple of strong prospects in our hand as of now.

Unidentified Participant — — Analyst

Okay. Thank you.

Operator

Thank you. [Operator Instructions] As there are no further questions from the participants, I now like to hand the conference back over to Mr. Mukesh Sharma for closing comments. Over to you, sir.

Mukesh Sharma — Chief Financial Officer

Hi, thank you, everyone, for joining us on this call. Please contact Dickenson World or us directly should you have any other further queries. I wish you all a great evening. Stay safe, and we can close the call now. Thank you so much.

Operator

[Operator Closing Remarks]