Senco Gold (₹700) released their number for the second quarter of the financial year 2023-24 on Friday. Reacting to the results, the stock is up 2.4 per cent today.

The consolidated revenue grew 26 per cent to ₹1,147 crore versus ₹911 crore in the same quarter last year. Net profit for the quarter improved 36 per cent to ₹11.9 crore as against ₹8.8 crore in the corresponding period of the previous fiscal. The company reports that this is its highest-ever Q2 revenue.

The net profit margin was at 1 per cent in Q2FY24, the same as that for Q2FY23. In H1FY24, the margin stood at 1.6 per cent. the same as in H1FY23.

The revenue growth was aided by higher footfall, leading to same-store sales growth of 21 per cent in H1FY24. Higher wedding sales, the launch of new designs and higher old gold exchange also helped.

Another key driver for sales growth was a drop in gold prices. The prices were lower by around 3 per cent in the second quarter compared to the previous quarter.

Concerning volume, the gold and diamond segments saw growth of 11 and 33 per cent, respectively. Higher growth in diamonds led to increased stud ratio (diamond jewellery as a per cent of total turnover).

The blended (own showroom and franchisee operated stores) stud ratio improved to 11.4 per cent in the first half of the current financial year versus 9.8 per cent in the same period of last year. Steady improvement in the stud ratio in the coming quarters can have a positive impact on profitability since margins in diamond jewellery are higher when compared with gold jewellery.

The company expanded its presence by opening three new stores – two company-owned stores and onefranchisee showroom. As of September 30, the total number of showrooms stood at 145 out of which 83 are company-owned.

The management prioritises  penetrating deeper into the eastern part of India, where they are the dominant company now. Yet, there are plans to open a few stores in North, South and West markets. Around 64 per cent of the customers are existing ones, showing that the company commands good brand value.

Investor perspective

Senco Gold was listed on the bourses on July 14 at ₹430, a premium of 36 per cent compared to the issue price of ₹317. Given cheap valuation (trailing PE of 15), regulatory developments like hallmarking and their leadership position in the East and Northeast region, we recommended subscribing to the IPO (Initial Public Offering) despite low margin-high competition business.

Given that the stock price has more than doubled from the IPO price, and valuations have also moved to 33 times PE, we recommend investors book partial profits in the stock of Senco. Although its valuation is at the lower end of the peer range, given its smaller size and valuation not cheap on an absolute level, taking some gains is prudent.

Other jewellers like Titan, Kalyan Jewellers, and Thangamayil Jewellery are trading at 88, 72 and 33 times their respective earnings.

Despite the fluctuation in gold prices, the company continues to post steady growth in revenue. The festive season ahead means that the company can maintain their growth in the third quarter. The management guidance is positive as they expect the revenue to expand by 18-20 per cent, their annualised sales growth over the last five years.