Sanjay Banka, CFO, Senco Gold, says “the next two quarters will not be better than the first half. If we look at the past trends, the major sales happen up to Dhanteras. We have already seen around 26-27% year-on-year growth till today. The next quarters are likely to take the blended growth up to 25%. Secondly, as far as the growth across all the zones is concerned, we are very happy that we are growing across all the zones in India, particularly in the Eastern zone where the growth is around 22%.”
Have you witnessed a strong festive demand? Also, what is the expectation for the upcoming wedding season?
We are very much delighted with the festive demand. While the World Gold Council has said that around 9% growth has happened in the first nine months of the current calendar year, we have grown by almost 26% year-on-year versus last year. And we have seen a similar trend during the Dhanteras festival, a 25% increase. So we are very much delighted. It clearly shows the faith and trust of the consumers. We are looking for a similar trend for the rest of the year in the wedding season because in the wedding season, we are talking about around 30 lakh weddings and Rs 4.5 lakh crore expenditure, a major part of that is likely to come to the jewellery industry.
Coming back to your business, about 70% is in West Bengal, which you are aiming to take down and expand to the West and the rest of North India. The mega wedding season is about to start from here on. Will you be able to capture the entire wedding season in North India over the next 6 months? Are you awaiting a big volume push for the next two quarters?
The rest two quarters will not be better. If we look at the past trends, the major sales happen up to Dhanteras. So we have already seen around 26-27% year-on-year growth till today. The next quarters are likely to take a blended up to 25%. Secondly, as far as the growth across all the zones is concerned, we are very happy that we are growing across all the zones in India, particularly in the Eastern zone where the growth is around 22%. But in the West and South, the growth is much higher, more than 30% because our base there is slightly lower and we have much more to do. So the North region is growing. We have talked about the highest stud ratio in the North at around 19%. In Chandigarh, it is 22% against the industry top rank of around 25%. We clearly see growth coming in the North from diamond jewellery.
As we are expanding our store number, we have 10 stores in UP and 10 in Delhi NCR and with 20, we have got a sizable presence and are able to touch the customers close to their heart.
Talk to us about the stud ratio because for the rest of the peers. I think it is between 25-30%. What is your target stud mix ratio that you want to achieve?
We have said the stud ratio will increase by 100 basis points every year. So let us say it was around 10.5% last year. This year we will close it with around 11.5% to 12%. And this stud ratio is a mix of own store and franchisee stores. So from the own store, the ratio is around 14% while in the franchisee because the franchisee are in tier-2 and tier-3 towns where the penchant is more for gold. So that trend and habits need to be built up which we are working on. But we will close the year with around 12-12.5% stud ratio.
What ticket size average purchasing is happening most because there are opinions in the market that only the affluent buyer is out there who is unaffected by inflation and the incomes are growing well. The value buyer is absent. What is the truth, at least in your business?
We say in industry gold which is banking, which is investment and which is joy and everybody, particularly the value buyers, are more interested in protecting their future and as we are experts in lightweight jewellery, while we talk about our average sale price of around Rs 45,000 and average transaction price of Rs 65,000, we have seen growth in both of them. We have seen all the customer classes coming, particularly the value buyers, and that is our key strength.
When we talk about Bengal karigari and our major market, the value buyers who have been coming to us for more than four generations, they keep coming. I was talking to small unorganised jewellers and they say that they are impacted by the price rise. But as far as Senco is concerned, we have not been impacted. We have grown more than 25% in Q1 and Q2 and we are seeing a similar trend, which clearly shows the brand is established.
The brand value, we promise the purity of diamond, we give buyback on diamond and even polki and even on the astrological gems, customers can exchange gold anywhere. We have talked about more than 35% old gold. 35% of other jewellers and out of the 35%, almost 80% is non-Senco, which means that non-organised players are coming to Senco and we are their first choice as far as the Bengal and East market is concerned. We are delighted with the growth which we are achieving as of now.
But you are also getting into an expansion mode. You are opening a lot more stores in Northern India, Southern India, etc, as well. Won’t that dilute your ROCEs in a big way because you have right now managed a 40% ROCE business at least in the Eastern stores.
Yes, so as far as the savvy investors are concerned, they are fully aware that from my existing stores, I will continue to make a return on net worth and ROCE of more than 19% to 20% and obviously as new and new stores are being rolled out – 25 to 28 new stores – they will optically dilute the ROCE but they will not reduce the performance of existing stores.
So, existing stores blended together will continue to give you performance of 20% ROE and around 17% ROCE. The new stores usually take three-years to mature. By the third year, for any growth company, this will continue to be a cycle that the old store will mature. They will give you higher ROCE. So if the growth is disproportionate, which means that if I add more stores, optically it will look diluted but the inherent strength of business will become stronger.
