Neutral Senco Gold Ltd for the Target Rs. 375 by Motilal Oswal Financial Services Ltd
Sharp dip in same store growth; margins remain volatile
* Senco Gold (SENCO) delivered a consolidated revenue growth of 2% YoY, witnessing a sharp deceleration after clocking 30% growth in 1Q. The retail revenue growth was 6%, with same store sales declining 4%. The performance was quite tepid, as most other listed jewelry companies reported double-digit same store sales growth in 2Q. According to management, footfalls were weak due to high gold price inflation and extended rains.
* Management remains optimistic about a strong 2H performance, led by robust demand during festivals and sustained momentum expected during the wedding season. The company expects revenue growth of 18-20% in FY26, driven by a strong focus on expansion in East and North India.
* The company opened six stores (+16% YoY) during the quarter, bringing the total store count to 192 (111 COCO, 79 FOCO, and 2 Dubai). It is on track to launch additional 6-8 showrooms in 2HFY26.
* Consolidated GM expanded 390bp YoY to 17% (est. 15.7%), backed by an improved studded mix, making charges, and inventory gains. Employee expenses surged 26% YoY, and other expenses rose 37% YoY, while marketing expenses rose 47% YoY. EBITDA margin expanded 150bp YoY to 6.9% (est. 6.5%). Studded jewelry sales grew 12% YoY in 2Q, and the stud ratio improved from 11.1% to 12.1% YoY, leading to better margins. Management has guided to increase the studded jewelry mix to 13-13.5% by FY27 and gradually increase it to 15% over time.
* The sharp deceleration in growth metrics in 2Q is a cause of concern for the outlook, particularly if similar trends have not been observed among other industry players. Management is hopeful for a recovery and has maintained 18-20% growth guidance for FY26. SENCO’s gross margins have historically been volatile, reflecting the company’s low level of hedging and resultant inventory gains. The company expects ~8% EBITDA margin for FY26, while long-term margin guidance is maintained at 7.2%-7.5%. Given the inconsistencies in operating performance and low hedging ratios, we remain cautious on SENCO’s operating margin performance going ahead. We reiterate our Neutral rating with a TP of INR375.
Weak revenue growth; healthy margin expansion
* Muted sales growth: Consolidated revenue grew only 2% YoY to INR15.4b (est. INR18.0b), witnessing a sharp deceleration after clocking 30% growth in 1QFY26. The retail revenue growth was at 6%, impacted by gold price inflation, high base, and extended rains. SSSG declined 4% in 2Q. SENCO’s sales growth was subpar compared to that of its peers. Titan (Jewelry standalone, ex-bullion), Kalyan, and P N Gadgil (retail) delivered revenue growth of 19%, 31%, and 29% in 2Q. Stud jewelry growth stood at 12.0- 12.1%, supported by a 31% increase in demand for diamond jewelry. The company has opened six stores, bringing the total count to 192 (111 COCO, 79 FOCO, and 2 Dubai). Old gold exchange stood at 42% of sales vs 39% in 1QFY26.
* Healthy margins expansion: Consolidated GM expanded 390bp YoY to 17%. (est. 15.7%, 19.1% in 1QFY26). On a quarterly basis, gross margins remained volatile. Employee expenses jumped 26% YoY, and other expenses rose 37% YoY, while marketing expenses rose 47% YoY. EBITDA margin expanded 150bp YoY to 6.9% (est. 6.5%; 10.1% in 1QFY26), primarily backed by a sharp rise in gross margins.
* Strong improvement in profitability: EBITDA grew 30% YoY to INR1.1b (est. 1.2b). APAT grew 41% to INR488m (est. INR509m).
* In 1HFY26, net sales, EBITDA, and APAT grew 16%, 52%, and 79%.
Key takeaways from the management commentary
* 2QFY26 was marked by the highest-ever gold prices, reaching INR11,650/gm in Sept’25, along with significant headwinds such as the Shraddh period, heavy rainfall and floods in the Eastern region, and global uncertainties.
* 1H recorded SSSG of 7.5%, while 2QFY26 recorded a 4% declined. The stud ratio segment also rose to 12%, supported by a 31% increase in demand for diamond jewelry.
* West Bengal & East contributed ~81% to the total revenue, while the Franchisee Business contributed 34% in 1HFY26. Non-East stores delivered performance in the range of 25-30%.
* GML reduced from 67% in FY25 to 51% in 1HFY26, reflecting volatility in gold prices, with SENCO perceiving potential margin call risks. As of October, the GML level stands at ~54%.
* Currently, the company’s inventory is hedged at 65-70%, impacting margins by ~40-50bp. On the sales front, the company is 90-100% hedged.
* Revenue is expected to grow 18-20% in FY26, with a strong focus on expanding in East and North India.
* The company is expecting an EBITDA margin of 7.2-7.4% for FY26.
Valuation and view
* With the beat in gross margin, we increase our EPS estimates by 3% for FY26 while maintaining estimates for FY27/FY28.
* Given the inconsistencies in operating performance and low hedging ratios, we remain cautious on SENCO’s operating margin performance going ahead. We reiterate our Neutral rating with a TP of INR375.
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