The company’s third-quarter result on 13 February was a shocker for its shareholders. Senco’s gross margin fell 7.4% year-on-year (YoY) to 11.3%, leading to a 69% decline in profit to ₹33 crores despite revenue growing 27% to ₹2,103 crores.
Consequently, the management tried to pacify the market but the share crashed 32% to a 52-week low of ₹305 in the subsequent two trading sessions. It has been down 60% since October. Senco shares are up 4% today on bargain buying or buying at lower levels.
Organised player with a rich legacy
Senco has a rich brand legacy that spans over eight decades and is the largest organised jewellery retailer in eastern India. It caters to tier-3 and tier-4 cities and is the second most trusted jewellery brand, per the TRA report.
It has 171 showrooms (as of Q3FY25) across 17 states, with a dominant focus on West Bengal, where it has 95 showrooms. The northern region, including Delhi, has 24 showrooms, while another 24 are in eastern India. It also has one store in Dubai.
Like other retailers, the company operates stores on franchise-owned and company-owned models. Around 59% (or 101) of its showrooms are company-owned, contributing 63% to its total revenue. Around 41% (or 70) are franchise-owned, contributing 32% to its revenue, as of December 2024.
The company offers a diverse range of products, with an average ticket price ranging between ₹36,400 and 83,300. Senco’s expertise in selling lightweight jewellery enables it to target a diverse customer base, especially Gen Z and millennials.
Mixed December quarter
Senco has seen a revenue growth of 16% compounded annual growth rate (CAGR) between FY20 and FY24. The growth has been in line with its target.
Its revenue grew 27% YoY to ₹2,103 crores in the third quarter driven by 21% growth in its gold jewellery segment, and 35% in silver jewellery. Diamond jewellery grew only 9%.
The third quarter generates the highest revenue for jewellers due to higher demand owing to festivals. The other three quarters typically pale in comparison.
The shocker for Senco came from its Ebitda margin which dropped 7.2% YoY to 3.9%, missing consensus estimates.
Senco said the government’s decision to cut import duty on gold from 15% to 6% in budget last year led to an inventory loss of about ₹60 crore and a margin impact of 0.8% in the September and December quarters.
Of this, Senco booked ₹30 crore impact in Q2FY25, while ₹28 crore inventory loss was taken in Q3FY25. Senco has mostly booked the loss from the import duty cut, and there will likely be no impact in the January quarter.
Senco is not the only company facing margin pressure. Titan’s jewellery business margin also dipped 2.4% YoY in Q3FY25, while Kalyan’s margin dipped 1.1%.
Senco’s margin, though, saw a sharper fall for other reasons as well, including higher export sales (which fetch lower margins) and a lower stud ratio. A lower stud ratio means a lower share of high-margin diamonds against gold.
However, the most significant impact came from hedging loss. Senco maintained a hedge ratio of over 80% during the quarter. This is a double-edged sword, as higher gold prices can adversely impact financials while lower prices benefit them. Thus, hedging costs of ₹58 crore from rising gold prices affected margins.
The management maintained that gold price volatility on a quarter-on-quarter basis, coupled with its hedging practices/levels and the difference due to IND-AS, or Indian accounting standards, could lead to Ebitda margin volatility.
However, the management said margin will remain range bound between 7% and 8% going forward. It said, amid the current volatility, investors should look at year-to-date (YTD) margins for a clearer picture.
Notably, after adjusting for custom duty impact, its year-to-date (9MFY25) adjusted margin stood at 6.2%, just 0.9% lower than the year-ago period.
Margins to recover from Q4 onwards
Senco has guided for a strong revenue growth of around 18-20% in FY26 and a 7-8% margin going forward.
Though higher gold prices could impact volumes, Senco has maintained its revenue guidance of around ₹6,300 crores for FY25 with 14% revenue growth in Q4FY25.
Strong demand during the wedding season and on Akshaya Trithiya in April are expected to keep jewellery sales robust going ahead despite higher prices. A healthy expansion of 18-20 stores every fiscal year in its dominant market in eastern India and northern India will also help it drive growth.
The company has reported an increase in demand for diamond sales beginning this quarter. This surge is expected to enhance its stud ratio, revenue, and, ultimately, profit margins. Additionally, exceptional losses related to inventory and import duties will no longer be a factor, which will further contribute to improving these margins.
However, the company sees interest rates on gold metal loans rising to 6% due to US tariffs on gold imports, which may impact Senco.
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Diversifying into non-gold jewellery
The company is also diversifying into the non-jewellery business, which includes lifestyle products such as leather bags and fragrances.
It is also betting big on the high-growth lab-grown diamond segment under the ‘SENNES’ brand, which has five outlets and two multi-brand outlets. The company is now looking at a pan-India presence.
The ramp-up of this segment holds significant potential for Senco amid the rising preference for lightweight jewellery and fashion accessories.
In terms of valuation, the company is trading at P/E multiple of 38, which aligns with its two-year median. However, relative to Kalyan and Titan, the company trades at an over 50% discount to their P/E of 75x and 88x, respectively.
Kalyan and Titan have a strong nationwide presence. In comparison, Senco has a limited presence but aims to expand across India. The valuation discount is big, and a considerable gap to fill. The market will closely track its margin growth after the Q3 shocker.
For more such analysis, read Profit Pulse.
Note: Throughout this article, we have relied on data from www.Screener.in and Tijorifinance. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only. Views are personal and do not represent the stand of this publication.
Madhvendra has been a passionate follower of the equity market for over seven years. He is a seasoned financial content writer. He loves reading and sharing his honest opinion about publicly listed Indian companies and macroeconomics.
Disclosure: The writer does hold the stocks discussed in this article.
