Key Summary:
For a business like this margins and inventory turn over are key factors to watch for. Unlike Titan, the management at DPAL are concentrating more on inventory turn over rather than margins which is giving them excellent ROEs so far.
The growth prospects are based on - To achieve a same-store sales growth for new stores. Company plans to open 2 showrooms with a potential of 200 crs topline every year; with a 50% utilization in 1st year and 100% utilization in next year onwards. Turnover is expected from 1700 crs to 3000 crs.
Moat being: Natural hedging (covered in detail below), golden locker scheme, focused region and low operating costs. Brand specific moats are quality products, high customer satisfaction, brand recall, etc.
My focus areas (detailed below) are: Inventory turn over & margin analysis, prudent debt allocation, covid disruptions, cash flow from operations, future expansions.
In this post I have not much touched upon the sector dynamics as those are already discussed in other jewellers posts (Thangamayil Jewellery).
Background of company:
DP Jewellers is family driven (now 4th generation) business engaged into the retail of Gold and Diamond Jewellery & Ornaments. The journey began in 1940 from Ratlam a small city of Madhya Pradesh. Today the Company has grown largely in Central India with presence at 8 stores Ratlam, Indore, Udaipur, Bhopal, Ujjain, Bhilwara, Kota and Banswara.
Janam Kundli of company as follows:
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The company got listed in NSE – SME Platform in 2017 with market cap of Rs 62 crs but got shifted to main board with market cap of Rs 867 crs no
*Bio-data of Stores:
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Please note that the store matrix should not be strictly compared with each other because of difference in age of stores.
Products:
Necklaces, Rings, Chains, Bangles, Pendants, Earrings, Armlets, Gajrahs, Nose Rings, Mangal sutra
Collections:
Wedding jewellery, Traditional Jewellery, Valentine Jewellery, Lightweight and trendy jewelry, Flower Collection, Idol Collection, Dohra Collection, Mewar Collection
Styles:
Gold jewellery, Diamond studded jewellery, Precious and semi-precious stone studded jewellery, Plain and diamond studded platinum jewellery, Jadau Jewellery, Jewellery with colored stones in gold and diamond
Inventory Turn over ratio:
Particulars 2018 2019 2020 2021 2022
Inventory Days 81.8 74.8 93.6 82.4 73.86
Inventory Turnover
Ratio 4.5 4.9 3.9 4.4 4.94
Total Asset Turnover
Ratio 3.4 3.8 3.2 3.7 4.19
ROE 19.8 25.1 27.2 28.26 29.29
EBIDTA Margin 3.3 3.4 4.3 4.2 4.34
PAT Margin 1.2 1.5 2.1 2.25 2.34
As seen Inventory Turnovers are best in sector at 4-5. For Thangamayil Jewellery and Titan it is 2 – 3.
The footfall conversion (proxy of inventory turnover) is as follows:
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Margins:
PAT margins slowly but steadily improving but are still at ~ 2%. For Thangamayil Jewellery is it 2% and for Titan it is 7%. Obviously Titan margins cannot be strictly compared with DPAL but still mentioning just for reference.
In one of the concall recordings, I heard management saying that while they are cognizant of low margins but their main focus is footfall conversion and will take adequate steps to increase margins.
Debt:
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Debt has remained double edged sword businesses like this. It takes stringent efforts for promoter driven business maintain financial discipline. While capital intensive business like this will need debt but balance has to be maintained. As can be seen from screenshot above DPAL has significant debt making D/E more than one and this needs to be monitored closely.
In one of the concall a participant was asking whether promoters would be keen explore institutional funding. So I guess they have easy access to funds, its just that I hope they don’t overdo it.
Covid disruptions and comments on H1FY21 result:
In the backdrop of Covid related lockdown, company’s store were almost shut in April and May month, while some recovery was seen from June month onwards with encouraging footfalls. DPAL’s net revenue declined by 37% YoY to Rs 2,137 mn as volume across products declined. Gold jewellery/Diamond jewellery volumes declined by 59%/39% respectively.
Despite sharp de-growth in top-line, DPAL managed to salvage margins led by lower cost of sales. Gross margin of the company increased sharply from 8.3% in H1FY20 to 13.9% in H1FY21. Material cost as a percentage of sales decreased to 86% from 92% YoY. EBITDA during H1FY21 grew by 31% YoY to Rs 186 mn while EBITDA margin expanded sharply by 451 bps YoY to 8.7%. Profit during H1FY21 grew by 53% YoY to Rs 103 mn largely due to better operating profit growth.
Cashflow from operations (kyuki bhaiya sabse bada rupaiya):
CFOs are erratic and the only reason I could attritute is: (1) Covid lockdown and (2) Lot of inventory is tied up in new stores whose operating leverage is yet to kick in.
GROWTH PROSPECTS:
• The Company expects to achieve a same-store sales growth of around 22% for the upcoming years on the basis of past performance and future growth. Company plans to open 2 showrooms with a potential of 200 crs topline every year; with a 50% utilization in 1st year and 100% utilization in next year onwards
• Stores would be opened from internal accrual and gold obtained under the various Schemes as well as external debt when required. The Company envisages an outlay of around 25-30 crs per store for CAPEX and inventory
• The Company plans to deepen its roots in Central India by entering into the states of Chhattisgarh and Gujarat and expanding its feet in M.P. and Rajasthan that would drive economies of scale
• The Company’s stores enjoy faster breakeven of around 4-6 months; because of faster inventory turns of the Company and low CAPEX, as well as low marketing cost
• Since Offices & showrooms are located in tier 2 & 3 cities, staff cost is low, and optimum utilization of resources is done, Company plans to run on same model in future.
• 2025 Targets: From 8 to 13 stores and Turnover from 1700 crs to 3000 crs.
MOAT: WHAT MAKES D.P. ABHUSHAN DIFFERENT
NATURAL HEDGING: The Company has got natural benefits of Hedging because it follows a weighted average cost method i.e. buy-equivalent quantity of goods sold at the day of the sale itself. The Company is following this method since inception so its cost of inventory is remains lower than the current market price.
There was detailed discussion on this in one of the concall wherein the promoters explained why their hedging process is different and beneficial than hedging of large players like Titan.
GOLDEN LOCKER SCHEME: The Company has implemented a old gold locker scheme policy where it replaces customers old inventory with new inventory after 11 months without or with concessional making charges which is a unique proposition across Central India
FOCUSED REGION: The Company is more focused on gold jewellery as the Central Indian market is more inclined to gold Jewellery. Moreover, the promoters have knack of understanding customer behaviors in their target markets leading to higher conversion ratio.
LOWER OPERATING COST: The Company operates in tier 2 & tier 3 cities hence its making and operating expenses are lower. Also the logistics movement of Inventory is easy and economical among these cities.
Strengths:
• High brand recall being in existence for more than 80 years
• The Company is following BIS criteria since the inception of DP
Weakness:
• Any regulatory change in government policy that can affect the business
Opportunity:
• Plans to enter into Chhattisgarh and Gujarat and to expand in existing States by opening 2-3 Stores every year
• Shifting of Jewellery Business from unorganized to organized Sector with an implementation of mandatory hallmarking.
Threats:
• The Company doesn’t see any potential threat that exists, as it is very good at its craft, however, increased competition from other players can cause a threat.
Related party transactions:
Just like typical SME we have unfortunately loans to/from promoters to deep dive into. I had sent an email about detailed terms and conditions for this but have not got any reply yet.
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Some extra gyaan:
Wind Power
The Co. had 5 wind turbine generators of 750 KW each in the village Bagia & Naveli, Ratlam, Madhya Pradesh. During FY21, the co. sold the business of Windmill to M/s D.P. Power against the consideration of Rs. 5.1 crores along with all assets and liabilities thereto on a slump sale basis.
Subsidiary
D.P.Jewelline (formerly Gatha Trendz) has been incorporated as a wholly-owned subsidiary of the Company for carrying out the business of jewellery on e-commerce platforms to cater for the small ticket size of jewellery and gift products made out of gold, diamond and silver. In FY22, the Company sold its entire holding to related parties. Management avoided question on this in concall.
Volume metrics analysis for any Soniji here:
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Disc: Not a registered analyst. Invested and biased.
11 Likes amitnarad 2@Patel_Bhai Good analysis, business is looking interesting. At what valuation price you have entered in this business?.
Patel_Bhai 3I started buying since last month and have been accumulating on dips. My average buy is at 389. It is consolidating at this level since long so let’s see if it is able to break out from this level.
3 Likes utkarshgupta 6I talked to my friend who lives in Banswara and she told me that brand image is very good locally and she also buys her jwellery from there only. Reviews on Google maps are excellent and their inventory turnover is also best in class for a jwellery business. Co is too small to correctly identify quality of promoters. Disc: Holding a tracking position.
2 Likes mohit1795 7Thanks for starting the thread. Initial view looks good. Need to dig deeper into management competence as the MD of the company is recently appointed (though part of the family).
Also did some initial analysis cash flow statement needs to be looked in more detail(leverage might be a bit scary as you pointed out).
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Was looking into some notes and majority of sales is reported as traded goods and not manufactured goods. Can someone throw more light on this, I don’t understand what is traded goods.
harsh.beria93 8Disclosure: Not invested (no transactions in last-30 days)
2 Likes Patel_Bhai 11India's wedding season is back and how! As per CAIT, over 3.5 lakh weddings are expected to take place in the current season in Delhi itself, which is likely to generate a business of about ₹1 lakh crore.
Pheonix 121pany is projecting Revenue to be 3000 cr from existing 2000 cr level
2.No of stores to be increased from 8 to 13
3. Plans to enter Chhattisgarh and Gujarat and to expand in existing States by opening 2-3Stores every year.
4.Planned to open new new stores at Ratlam and Neemuch City as per october notification.
5.Company has very strong word of mouth ,Has approximate 85 percent walk ins to conversion rate.
Company expansion plans so far | Management Commentary
singhi08 14“This year, we have planned the opening of three new showrooms. One in Ratlam, spanning approximately 12,000 sq. ft., another in Ajmer, around 6,000 sq. ft., and the third in Neemuch, approximately 7,700 sq. ft. We are adding nearly 25,000 sq. ft. of retail space to our existing 41,000 sq. ft., increasing our total showroom area to approximately 66,000 sq. ft.”
The company is increasing its retail space by around 60% and opening three new stores. This is a good sign company is in expansion mode. these stores will have to turn profitable but given the brand name of DP Abhushan in MP getting traction should not be a major issue.
3 Likes alokinvestor 15Concall Notes - Nov 2024
Financial Performance:
Total revenue for Q2 FY25 reached ₹1,005 crores, an 84% increase YoY from ₹546 crores.
EBITDA for the quarter was ₹38 crores, a 74% increase from ₹22 crores in Q2 FY24.
Profit surged by 89% to ₹25 crores compared to ₹13 crores in the previous year.
Ratlam flagship store reported a 56% YoY growth with revenue of ₹486 crores in H1 FY25.
New Ajmer showroom launched in September generated ₹4 crores in revenue for its first month.
Market Dynamics:
Robust demand for gold and diamond jewellery driven by rising consumer purchasing power and preferences in Central Indian markets.
Government’s reduction of import duties significantly boosted demand, particularly in June and July.
Anticipation of strong sales during the festive season, with expectations of celebrating multiple Diwalis due to high consumer enthusiasm.
Expansion Strategy:
Plans to expand retail footprint from 8 stores in FY25 to 20 by FY28, targeting emerging markets in Madhya Pradesh, Rajasthan, Chhattisgarh, and Gujarat.
Current FY25 plan includes opening three more showrooms, following the successful launch in Ajmer.
Focus on enhancing product mix, aiming to increase revenue share from diamond-studded jewellery from 6% to 15%.
Operational Insights:
EBITDA margins are expected to stabilize between 5.5% to 7% and PAT margins between 3% to 5%.
The management acknowledged a stable EBITDA margin in Q2 despite revenue doubling, attributing it to increased inventory levels and strategic operational decisions.
Market share in Ratlam is approximately 25% to 30%, with plans to open another store by January FY25.
Challenges and Competitive Landscape:
Competition exists from both national players (e.g., Malabar, Tanishq) and local jewellers.
Management highlighted that lab-grown diamonds are perceived as less desirable compared to natural diamonds, with a 10% growth in the natural diamond segment.
The company is strategically focused on volume growth rather than margin maximization, with an emphasis on customer relationships and service.
Capital Raising and Funding:
Recently raised approximately ₹70 crores through the issuance of preferential shares and warrants to close associates.
Future expansion plans are expected to be funded through internal accruals, with an annual free cash flow of around ₹100 crores.
Management is cautious about leveraging debt, preferring equity financing to ensure store profitability within six months of opening.
Product Development:
Implementation of a shop-in-shop model for wedding customers to enhance customer experience and increase sales of high-margin diamond-studded jewellery.
Current sales composition includes approximately 92% gold jewellery, with plans to shift focus towards increasing the share of studded jewellery over the next three years.
Overall Outlook:
Management expresses strong confidence in the growth potential of the jewellery industry and the company’s strategic initiatives.
Ongoing assessment of market opportunities and customer preferences to adapt and thrive in a competitive landscape.
Disc Invested
Noticed that the inventory levels has increased by 66% in 6 months from March to Sept. The inventory increased in 12 months from mar23 to mar24 was 33%.
Is this a built up in anticipation of increased demand? Or is the distribution channel getting choked?
Rise in inventory had brought the CFO down to 0 in mar24.
Increase in inventory during the stated period is below 10% of their reported cumulative sales. The company is opening new stores so it seems a normal phenomena in my vie
3 Likes Arka 18image1195×1230 231 KB
Fund Raising of ₹6000 million.
Mohanlate 19Changing gears from a conservative growth through internal accruals, to a rapid expansion strategy. This should expedite their plans to expand footprint into T-II and T-III cities and double their store count to 20 by FY28.
They generate approximately ₹100 crores of free reserves and free cash flow annually. This allows them to fund expansions through internal accruals alone. They said they prefer funding through internal accruals and may consider a mix of 20% debt and 80% equity. But with such a large fund raise, that will change.
Overall, possibly a further boost to investor confidence.
Disclaimer: Invested and biased views.
2 Likes garade 20i took part in today’s concall. and also listened to the previous one online.
in both i made same observations.
Their numbers look good, but the content of the concall doesn’t give me confidence.
Is this common among such small businesses operating in smaller towns?
I have heard other business concall which too mostly operate in tier2/3 cities/towns, but there the quality of the answers and preparedness is much better.
2 Likes singhi08 21I heard the concall today, and had a similar feeling that management was not prepared and some of the questions were not answered properly. Some of it I felt was due to the language barrier as well, management is more comfortable with Hindhi which I don’t think is an issue.
The biggest risk I see is that management is not thinking about how to hedge the risk against gold prices going down (if they go down). I feel if gold prices keep rising this will add to the profitability but the company might not do that well if gold starts declining. I also felt they should have a better plan on how are they going to use 600 Cr.
1 Like garade 22right. but if the language issue is really troubling them, then i think it would be better if they just communicate in a language they are comfortable with instead of not able to communicate their thoughts clearly. clear information with preparedness will help build trust.
another thing is that their margins are too low compared to listed competitors, but not sure about their local competitors. and they said dont plan on increasing margins either, they want to focus on increasing top line. reason for not increasing margin they told is that they have “one to one relation” with customer. so i am guessing they keep margin low to not loose customers.
while this could make some sense in their established stores where they have been since decades, i expect them to get more margins from their newer shops in new cities/towns where they are expanding. of course this depends on what price point their competitors are selling. another thing is if they make better products (designs etc.) they that could also increase margins.
singhi08 23 garade:they said dont plan on increasing margins either, they want to focus on increasing top line. reason for not increasing margin they told is that they have “one to one relation” with customer. so i am guessing they keep margin low to not loose customers.
This actually helps them to retain their customers. DP is the preferred location for my mom and she cites similar reasons that their prices are relatively lo But yeah margin expansion will help the investors. I was counting on their expansion story and did not know their account methodology for gold before listening to the con-call. Now I am rethinking my decision to remain invested.
2 Likes garade 24why does data on screener have consolidated vs standalone data for this company? that too in such weird way, as in consolidated data is for march 2020 till march 2022, but in standalone data is from march 2017 till date (TTM). is this an error at screener.in side? Because from what i saw company looks like standalone company only, not a group one.
