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Better margin delivery in tough quarter

* SENCO’s consolidated revenue grew 8% YoY to INR14,039m (est. INR15,469m) in 1QFY25. SSSG decelerated to 4% (vs. 23% in 4QFY24, 19% in FY24), impacted by heatwaves, general elections, fewer wedding days and gold inflation. The management noted that demand has bounced back after the reduction in customs duty. Demand for both wedding and nonwedding jewelry saw a spike. The share of studded jewelry was lower at 10% compared to 11% in 1QFY24. Studded revenue declined ~3% YoY.

* Gross margin expanded by 480bp YoY and 20bp QoQ to 17.3%, due to better performance from franchised stores, lower discounting and higher sales of high-end jewelry. EBITDA margin improved to 7.7% vs. 5.1% in 1QFY24. The reduction in customs duty is expected to impact inventory valuation by INR500m and, consequently, affect gross margin and EBITDA over the next 2 to 3 quarters. The management has lowered its profitability guidance to 15-18% from the previous range of 18-20%.

* The company added 6 stores (4 owned out of which 1 in Dubai and 2 franchisees), bringing the total count to 165 stores. The company remains on track with its plan to open 18-20 stores in FY25.

* SENCO is strategically expanding its presence in eastern markets and other regions. The company aims to grow its consumer base by focusing on lightweight jewelry and capitalizing on the trend of studded jewelry, thereby expanding into more geographical areas. We reiterate our BUY rating on the stock with a TP of INR1,350 (based on 35x Jun’26 P/E).

Beat on margin despite weak sales performance

* Weak sales performance with mid-single digit SSSG: Consolidated revenue grew 8% YoY to INR14,039m (est. INR15,469m) vs. INR13,054m in 1QFY24. Standalone revenue rose 9% YoY, with an 11% increase in retail revenue. SSSG decelerated sharply to 4% YoY.

* Improvement in margins: Consolidated gross margin expanded 480bp YoY/ 20bp QoQ to 17%. (est. 13%), despite fewer wedding days and competitive pressure. As a percentage of sales, staff costs rose 50bp YoY and other expenses grew 170bpYoY. EBITDA margin expanded 260bp YoY to 7.7% (est. 5.1%) vs. 7.7% in 4QFY24.

* Healthy double-digit growth: EBITDA/PBT/adj. PAT grew 62%/89%/84% YoY to INR1,087m/INR708m/INR513m (est. INR809m/INR487m/ INR365m).

* Store Expansion: SENCO opened 6 stores (4 owned and 2 franchisees), taking the total count to 165. It opened its first international companyowned store in Dubai.

* Recycled Gold Sales Surge: Average transaction value increased by 12% to INR73,900, and average selling price (ASP) grew 13% to INR49,000, driven by events. The percentage of sales from recycled gold (old gold from customers) increased from 32% to 35%, with ~43,000 customers benefiting from this offer during 1Q.

* Entry into LGD: The company has also launched lab-grown diamonds (LGD) under the Sennes Brand and its a margin-accretive segment.

Key takeaways from the management commentary

* The revenue performance was impacted by various factors, including elections, heatwaves and fluctuation in gold prices. During Akshaya Tritiya, sales over the 41-day period increased by 21% in terms of sales value.

* Hedging involves selling on MCX or taking gold loans, which hedge international price movements but not duty cuts. The management estimates a financial impact of around INR500m due to inventory loss (paid customs duties). It will be spread over 2Q and 3Q.

* SSSG improved significantly, particularly in franchisee stores, contributing to the company's overall growth.

* The company aims for 18-20% revenue growth in FY25, with 12-13% expected from SSSG and the rest from new store openings.

* The guidance of 18-20% growth in profit may be moderated by the duty impact (expected to be 15-18%).

* SENCO plans to open 18 to 20 stores in FY25.

Valuation and view

* We maintain our FY25 and FY26 EPS estimates.

* SENCO is one of the most promising players in the organized retail jewelry market. The company has a pan-India presence with a strong network in the east region (store/revenue mix of 75%/ 80%). SENCO operated a total of 165 stores across India, with 97 company-owned stores and 68 franchise stores as of Jun’24. SENCO holds ~4% market share in the eastern region, predominately in West Bengal, where 75% of its eastern region stores are located.

* The company is further expanding its footprint in eastern markets and scaling up its network in other regions. SENCO aims to expand its consumer base (presence in 16 states and 109 towns & cities) by focusing on light-weight jewelry and capturing the consumer trend of studded (250bp gain in studded ratio in the last three years to 11.4%). In line with the formalization in the jewelry market, we continue to see store expansion-led growth for SENCO (estimate addition of 34 stores during FY24-26E, taking the total to 193 stores).

* We estimate a CAGR of 18%/22%/27% in revenue/EBITDA/adj. PAT over FY24- 26. The stock is currently trading at 30x FY26E EPS, with RoE/RoIC of 17%/13% in FY26E. We reiterate our BUY rating with a TP of INR1,350 (based on 35x Jun’26 P/E).

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