Targeting retail expansion of 25% YoY: TBZ

Prem Hinduja, CEO, Tribhovandas Bhimji Zaveri (TBZ) said the company is planning retail expansion of around 25 percent year on year and about sixty percent in the next three years through combination of franchisee and company run stores. So, the company is not looking to tap equity markets for further capex, he added.He is positive on the growth outlook for the company on back of receding headwinds and tailwinds gathering speed. With discretionary portion of consumer sentiment on an uptick, demand reviving and revival of government gold schemes the prospect for the business look bright, he added.The company is also taking all efforts by introducing new designs, new gold jewellery collections, he said.According to him there would be margin improvement from third quarter onwards.

Below is the transcript of Prem Hinduja’s interview with Reema Tendulkar and Sumaira Abidi on CNBC-TV18.Reema: It does appear that the jewellery business is under some pressure. Your revenue growth is only 4 percent this quarter, much lower than the 18 percent that you had in the prior quarter and 32 percent revenue growth that you saw in Q2. We understand that those we were seasonally strong quarters but even then a 4 percent revenue growth seems a bit sluggish. What is the outlook on the growth front for FY16? A: The outlook seems to be pretty strong because we have seen that most of the headwinds which were previously there are now withering away. Like in terms of the demand, we are seeing it is reviving. The government conditions in case of gold loan scheme, has been revived; the 80:20 scheme and the discretionary portion of the consumer sentiment is also improving. Moreover, there is a drop in inflation, there is a drop in oil prices and the company is also making its own efforts, through innovative designs, new diamond collection, and gold jewellery collection. So, going forward we are seeing that the headwinds are withering away and the tailwinds are gathering momentum which will help us in reviving the demand. So, we see that although our quarter-on-quarter (QoQ) sales growth is only 4 percent, our profit growth is 58 percent from Rs 11.7 crore to Rs 18.49 crore for this quarter as compared to the previous corresponding quarter. The company has also taken a lot of its own initiatives in terms of new designs, new collections and plus it is also on the growth trajectory for the next few years.Sumaira: Even your bottomline does have an exceptional gain of Rs 8.7 crore but nevertheless in your EBITDA margins you have done about 5.4 percent this time around which is better than the 3-4 percent range that we had been seeing for the last three quarters but even till a year ago you were doing upwards of 7 percent. When might one see the return of the high single digits in terms of your margins? A: I think second half of FY16 should see us reaching that level on back of demand revival. Earlier there was pressure on the margins because we had to do some bit of tactical discounting to attract the customers, which over QoQ is reducing. As we see the demand revival and all the tailwinds gathering momentum, we are quite hopeful of reaching that level maybe in the second half that means the third quarter of FY16 onwards.

Reema: You are saying by H2FY16 margins would be 7-8 percent or even higher? A: It could be at least that much but it could be even higher. We are making all our efforts to do that but even focusing on new collections etc all which give us higher margin. Reema: What are the company’s targets with respect to store expansion in FY16 and the capex? A: We have taken a next three-year business plan where we are planning to grow above 60 percent from the present retail space of about 91,000 square feet which means around approximately on an average about 20,000 square feet or about 25 percent will be added every year for the next three years. So, that is the company’s target. There is a slight change in the model - so far the company had only company owned and managed stores but going forward it will be a combination of franchisee stores and company owned stores. Franchisee stores because that is asset like model where the inventory will lie on the books of the franchisee and it will help us grow faster without putting much pressure on the working capital of the company. Sumaira: The making charges on plain gold jewellery has gone down to 8 percent now from the 12 percent earlier. Some of your peers are also to aggressively target customers are cutting down the price premium on plain gold jewellery. Could there be a change in strategy in store for you as well, is that something you might consider?A: Not really because I think these peers I would not like to comment about why they are doing that but they are selling more as yellow gold. However, we are focused on design. So, when design comes into the picture and in addition to that the customer service we render and the strong brand image we have, I think we are not in favour of following that path. We will maintain our current path and attract our customers with unique collections and better designs. I am pretty confident that that will not force us to put any pressure on our margins by higher discounting.Reema: Your net debt went up by about Rs 55 crore in FY15 and it currently stands at about Rs 550 crore. Any plans for the company to reduce debt or raise some equities because you do have some capex also which you have outlined for the next three years?A: Basically there was a reason for the slight increase in debt. Let me clarify that the debt portion you are talking about which also includes the gold metal loan. So, more than half of it is gold metal loan, so, if I include the gold metal loan my current debt to equity ratio is about 1.2:1. However, after removing the gold metal loan it is just 0.6:1. However, all said and done we had Kalpavruksha Plan (KP), our advance installment scheme which was stopped by the new Companies Act and thereby last year there was a lot of redemptions which had taken place which put pressure on the working capital. However, this year now we have revived that plan in the new avtar taking into account all the new regulations and requirements. We are hopeful that that will also give us impetus, a lot of cash inflow, plus additional business which will come by that and thereby which will keep on reducing the pressure on working capital and bring our debt levels to a comfortable level which we had done earlier. Reema: What about the net debt, have you come out with an internal target?A: As I mentioned, predominantly growth will be in the form of a franchisee where the inventory will be on them. So, basically the addition to our capex will not be there because all the expenditure will be taken care of by the franchisee. The pressure on us will be very minimal which can be taken care of by the internal accruals of the company that the company will have in the next three years. So, I don’t foresee that the company may have to tap the equity market or to add to the debt to take care of this growth or expansion.