Post strong Q2, see margin improvement in H2FY15: TBZ

Below is the verbatim transcript of Prem Hinduja’s interview to CNBC-TV18’s Ekta Batra and Reema Tendulkar.

Reema: Your sales growth has been strong this quarter at 32 percent. Can you break that up in terms of what the sales were in the gold segment as well as in diamonds and also if you could give us the same store sales growth in both these two verticals?

A: The sales growth has been fantastic on a year-on-year basis. It is 32 percent up as compared to last year at Rs 426 crore versus Rs 322 crore last year. Gold sales have been up by 32 percent year-on-year basis and the diamond sales up by 70 percent on year-on-year basis.

Basically the sales mix has also improved dramatically more in favour of diamond which is around 29 percent of the total sales for the quarter as compared to our year-to-date figure of 25 percent for diamond and 75 percent for gold. So this does helps in a very big way and this company is determined and pushing forward on increasing the share of the studded portion.

Ekta: What has really disappointed is your margins. Though your margins are not that elevated as a whole if you compare it in Q2 FY14 which stood at 5.3 percent, it has come down to 2.8 percent this quarter. Your total expenditure has risen 35 percent. What resulted in the rise in total expenditure of 35 percent and what is your margin outlook in the coming quarters?

A: Basically the expenditure has risen by 35 percent year-on-year basis for a simple reason because there are two more showrooms whose expenses are reflected during this quarter which was not there in the corresponding quarter of last year.

But if you compare our figures on a trading quarter basis, they are more or less the same because showroom was there. One of the two showrooms was already there although one has come in and so we have kept our expenditure well under control.

As far as margins are concerned yes we were focusing on the topline and therefore we went very strong on the tactical. The gold margins were under pressure because of the volatility in the price of gold and in diamond we went very heavy on tactical schemes with the result we are seeing that our share in the studded portion has grown to 29 percent against our average of 25 percent of the sales. Going forward the outlook is that yes the margins will keep on improving over a period of time and it will be a slow and steady and sustained growth, we are quite hopeful about it.

Reema: Can you give us the margin picture at least in Q3 as well as in Q4, will it continue to stay around the 2.8 percent that you clocked in this quarter on a consolidated basis or can we start seeing the improvement even in the second half of the year?

A: We will definitely see some improvement in the second half of the year for the simple reason that we had a very good run during this festive season, we has double digit growth both in Diwali and in Dhanteras compared to last year. The reason was very simple because there was huge pent-up demand which got unleashed and secondly there is a gold price correction which happened and it is even happening at present. Very soon we are going to enter the wedding season which is going to go upto June next year. So we are quite hopeful of a higher turnover with the result that we do expect an improvement in the margin positively.

Ekta: Why is studded jewellery seeing so much more of traction as opposed to gold jewellery for the company?

A: For the simple reason if you see earlier it was diamond jewellery which is a discretionary purchase. There was an economic downturn but now with a stable government being in place, the consumer sentiment having improved, the demand coming out so the attraction of the consumer to the diamond jewellery section which is more or less a discretionary purchase improving and that is why we are seeing the traction more in favour of diamond or studded portion of the jewellery.