- 9/18/2023
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NewsTranscript
00:00 Hello and welcome to BQ prime, you are watching IPO Addah and the company in focus today is
00:05 Manoj Web of Gems and Jewelers.
00:07 It is a Vizag based company and joining me is Kirtana Gandhi, she is the director and
00:14 CFO of the company and Gontala Rakhal who is the chief operating officer of the company.
00:20 The company is coming out with an IPO which opens on 22nd of September and closes on 26th.
00:25 Price between 204 to 215 rupees, it is a fresh issue of 210 crores and OFS of 60 crores.
00:32 Kirtana, let me start with you.
00:37 You are raising nearly 210 odd crores in fresh issue, what is the purpose of that?
00:42 The purpose of the IPO is to expand into more rural locations in our region.
00:49 So we are opening up 8 more stores in this region in Andhra Pradesh and Telangana put
00:55 together.
00:56 So this is for inventories and the capex.
00:58 Gontala, give me a sense of your business model because you are not too much into the
01:03 metro and tier 1 cities, it is more into tier 2 and tier 3.
01:06 So how does this model work for you?
01:10 So our primary focus is into this micro markets where we call it rural markets or the district
01:15 headquarters.
01:16 So what we feel is there is a lot of demand in those markets.
01:20 So every year if you look at those rural markets, the demand for gold is increasing year by
01:25 year.
01:26 So basically in tier 2, tier 3, they don't look gold as a luxury.
01:30 So they look at it as a necessity on an everyday basis even for the marriages or the location.
01:36 So we have seen good demand in all these markets and we try taking first come around advantage
01:41 in these markets where we try being one of the first organized player in these kind of
01:47 markets and try tapping the maximum market share we can.
01:51 So if you look at our existing stores, 8 of our stores are in these tier 3 markets.
01:58 So we felt there is a lot of potential in those markets and we want to go ahead and
02:01 explore those markets and tap all those unorganized sectors as well.
02:05 Give me a sense of how big the opportunity can be because I was looking at your revenue
02:10 from top 5 or 6 stores.
02:12 I think Vizag was the one which had the highest in terms of revenue, 62% coming from Vizag
02:17 alone and nearly 20% coming from the remaining 4 stores.
02:22 So how scalable are these stores that you are setting up in tier 2 and tier 3?
02:28 So if you look at the Vizag store, it's been close to, when we are in this industry, because
02:33 this being a headquarter, it's been close to 30 years we are here in Vizag.
02:38 So you can see a lot of revenue there because a lot of, around close to 100, 150, 200 kilometers
02:43 is dependent on Vizag.
02:44 I mean people from Orissa, Chhattisgarh.
02:46 Vizag is a main headquarter for all these places because when you look at the geography,
02:50 Bhubaneswar is little far from the bordering Bhubaneswar, other towns.
02:55 So I mean we don't look Vizag, just only the Vizag crowd, you have a lot of people coming
02:59 in for tourism or for jobs and all.
03:02 So that's why you see a lot of numbers over there and if you look at the other 3-4 stores,
03:06 all those 3, we started as a tier 3.
03:09 Now they started growing up to tier 2.
03:11 So that's the potential, I mean every tier 3 in next 4-5 years will become tier 2.
03:16 So as a business we keep growing, as revenues, the district keeps growing.
03:21 So we feel a lot of growth and potential is there in tier 3 to become tier 2 and eventually
03:25 tier 1 down the line.
03:26 So also to add on to the influence of Angapuradesh and Telangana's market, where right now there
03:33 are 26 districts in Angapuradesh, we are available in 6 and also in Telangana there are 33 districts
03:40 and we are available in 2.
03:42 So there is a lot of scope in terms of how we can scale this place in our home ground
03:47 first and then eventually move to other South Indian states.
03:53 You know why I was referring to that was that you had mentioned in your RSV that states
03:59 of AP and Telangana are growing at 18% CAGR.
04:03 Is that the kind of growth that you are going to see as well in your store growth or revenue
04:08 growth or more than that?
04:11 In the past we have surpassed the growth of the markets as well.
04:16 So we have clocked more than 25% of revenue growth each year in the past.
04:23 So we are hoping to see the same.
04:26 So give me a sense of the kind of revenue that can come from a tier 2 jewelry store.
04:38 We cannot compare you with the large format ones which are in big cities because the quantum
04:44 and the size would be different.
04:46 But the revenue potential that can ideally come from a mature tier 2 or tier 3 jewelry
04:52 store, if you can give us a sense of how it is, we can see how it is going forward.
04:58 So in tier 2, tier 3, the product mix is different when you look at the tier 1 and tier, you
05:04 know the suburban type.
05:06 So we definitely see a lot of plain gold moving.
05:09 So when it will, I mean, I won't be able to tell the exact numbers.
05:13 So as it's not mentioned there.
05:14 So what best I can give is like, you know, if you look at these tier 3 cities and tier
05:19 3 towns, you lot of inventory turns, lot of rotation over there when you look at tier
05:23 1 because its goal is, as I mentioned earlier, it's a necessity.
05:27 So they keep buying.
05:29 So at least 1 is to 3 ratio is what you have when you look at a tier 1 and tier 3.
05:34 And you know, operating is more flexible in these areas.
05:37 So we always, you know, wanted to grow in this and tap these kinds of markets.
05:41 And these revenues are always better and easy to achieve, easy to mature when you compare
05:45 to tier 1.
05:47 Like what could be the ideal mature store revenue that could, means you would have some
05:51 of the mature stores in these, what could be the per store revenue for them?
05:55 Per store revenue, we've consolidated, we've given consolidated numbers in our RHP.
06:04 So we won't be able to give you this thing.
06:06 But just to give you a sense, we will, a break even for a store to mature in a tier 3 would
06:12 be 3 to 4 quarters.
06:15 Okay, because for the tier 1, it's roughly 2 to 2, around 2 quarters.
06:21 So that maturity time also takes time in tier 2 or tier 3, right?
06:25 In that sense.
06:26 In that sense, in the 8 stores which we are expanding, we'll have 20 crores of inventory
06:32 and 1.5 crores of capex.
06:33 So that's the size that we're looking at.
06:35 And usually they're a size of about 2,500 square feet showrooms.
06:39 Okay, so 20 crores per store, right, Kirtana?
06:43 Yes, correct.
06:44 Okay, give me a sense of the product mix because plain jewelry margins are much lower.
06:51 And when you go to studded jewelry, the margins go, get higher actually.
06:56 So how is the product mix for you?
06:59 So as a company, we have each and every option available.
07:03 So in tier 1 and tier 2, we try having a lot of this studded jewelry premium, emeralds,
07:08 rubies and all the stone studded stuff.
07:11 So when it comes to tier 3, so the mix is more of a plain gold versus the studded.
07:17 But as a company, what we do is the day, I mean, year, first year when we start the store
07:22 in a particular tier 3 area, so we, first day it will be more of a plain gold.
07:26 So as a business, we feel trust is a main important thing in jewelry.
07:30 So after one year relationship with the town and the district, it starts growing.
07:35 So from second year onwards, we saw that, you know, this growth of premium jewelry,
07:39 even this tier 3, once the family or the customer starts gaining trust, the awareness and the
07:44 education what we give.
07:46 So we've seen the revenues grow even in the premium sector as well after a year or something
07:50 like that.
07:51 Because there'll be generations living together and right now with the increased information,
07:56 the newer generation would also explore like the semi-precious and antique kind of product
08:02 offerings as well.
08:03 So we offer an aspirational range to all our stores so that they can also see the availability
08:09 of the product and we also can quote better margins.
08:17 How easy is it to operate in tier 2 and tier 3 compared to tier 1?
08:23 Are the cost of operations much more lower compared to tier 1 for you?
08:28 Yes, I mean, if you look at the operational, it's, I mean, there's a lot of difference
08:32 between tier 1 and tier 3.
08:34 When you look at the commercials, the rentals part of it, it's much, it's way lower when
08:39 you look at a tier 1 metro city.
08:42 And when you look at the salaries and when you look at the economics, I mean, when you
08:46 look at the lifestyle of person, so that's related to the, you know, how much they earn.
08:53 So keeping all those things in mind and when you look even the interiors or the theme and
08:58 the concept, everything is, I mean, comparatively way cheaper and the manpower is cheaper in
09:03 tier 3 as well.
09:05 So keeping all those things in mind, definitely operations is way cheaper in tier 3.
09:11 I was going through your margins, Keetana, EBITDA of 100 crores in FY23 is marginally
09:20 lower, but EBITDA margins have also at 5% odd.
09:25 What should be the industry average?
09:27 I'm talking core EBITDA margins here.
09:29 So EBITDA margins are 7.1% in FY23 and we've grown to 7.3% in FY24 first quarter.
09:40 So also we've seen a good PAT margin from 2.6% in 2022 FY to 3.8 in this first quarter
09:48 24.
09:49 But the 7% margin seems to be much lower than the industry average, right?
09:55 No, we're almost at the par and we're also targeting these places because in South India
10:03 it's predominantly gold and premium gold.
10:07 So these are the margins that we have and we're almost at the par with the rest of them.
10:11 What is the timeline for setting up or opening the eight stores that you have planned?
10:18 So we are expecting to open all the eight stores somewhere between six to eight quarters
10:23 depending on the location and depending on availability of the building.
10:28 So on an average six to eight quarters is what highest we're looking.
10:32 And you are looking to be centralized in AP and Telangana only, right?
10:38 I mean, we started exploring even other states.
10:40 So what we do before opening a store or before we explore other areas, we try doing at least
10:45 six to 10 exhibitions depending on the area.
10:48 So that we know the traditions, the custom, the culture, the ticket size of each and every
10:53 region.
10:55 So we do a lot of market research and we do simultaneous exhibitions, you know, they generate
10:59 revenue as well.
11:01 So I mean, looking on keeping those factors, we plan exploring to other cities as well.
11:05 So if you look at it, we started exploring in Orissa, bordering of Vishakhapatnam, Andhra
11:09 Pradesh and we started exploring Karnataka, which is bordering Telangana as well.
11:14 So we are definitely looking at other states, but primarily at this gesture, we are looking
11:21 for these eight stores and expanding in Andhra and Telangana.
11:23 Eventually our plan is to grow to other states as well.
11:26 You have two franchisees stores.
11:29 Is that a model that you want to go forward with to keep it light at your end?
11:35 Yes, I mean, we are looking at that option as well.
11:38 We just started two years back.
11:39 It's working out well.
11:40 So we are looking for good families, good partners who can be associated for us with
11:46 the company and with the family for quite some time.
11:49 So simultaneously, we're looking that option as well.
11:52 Whenever we get it, we'll definitely take it and go ahead.
11:55 The eight stores which we are going to be company.
11:59 Okay.
12:00 And how do you know what kind of margins and what kind of growth rates that you see in
12:07 the franchising model?
12:08 Because in the industry we have seen either people go for company owned.
12:12 There's some in from the Eastern Indian market where they have a franchisee model.
12:19 How's margins for you in the franchisee model?
12:24 So these are franchisee owned and company managed stores.
12:27 We'll be able to give you only a little information about this because there's not much in the
12:33 RHP.
12:34 So obviously, because they're franchises, we have to give them.
12:37 Or is the margins higher than your core margins or is lower than core margins?
12:43 Again, it depends on the area where the franchise is.
12:46 But end of the day, company is making money through that channel as well.
12:49 That's for sure.
12:51 And how does the model work?
12:52 The franchisee has to have the inventory or you manage inventory for them?
12:57 No, we are working as a franchisee owned company managed thing so that when it comes to a customer,
13:04 no one gets to know which is a franchisee, which is a company owned because we want to
13:08 give that kind of experience so that there's no differentiation in between the stock or
13:14 the treatment or the service to the customers.
13:17 Give me a sense of the average revenue per store that you're getting as of today.
13:23 So we have a consolidated thing.
13:25 So we won't be...
13:26 Consolidated average revenue?
13:29 So total, I mean, 2000 plus crores for FI23 for 13 stores is what we have done.
13:36 And per store, you don't track sales per sales, same store growth per quarter or a monthly
13:45 basis?
13:46 Yeah, so same store growth has been 22% in FI23 and 24 to 25% in FI23 as well.
13:56 So 22 was 22 and 23 was 25%.
14:01 And that's the kind of growth that you expect in this industry as of today?
14:06 I mean, I can't comment for the future but...
14:09 Our past trends have been in line or more with the growth of the market.
14:14 So we hope and pray it stays the same and we are working towards it.
14:20 And so when you say that you need three to four quarters for any store to mature, what
14:26 is the level of...
14:27 When do you consider a store matured?
14:31 In what sense?
14:32 When it's making operating profit?
14:34 Yes.
14:38 So it takes four quarters for a store to start making operating profit there.
14:43 Give me a sense of why have you limited yourself in AP and Telangana only because Southern
14:50 Markets is a huge market for jewelries and gems.
14:56 You said that you're looking at Orissa, parts of Orissa and Karnataka, but you have a large
15:01 history of being present in this industry.
15:05 So why have you only limited yourself in AP and Telangana?
15:10 If you look at the...
15:11 I mean, AP put together as a united Andhra Pradesh or the divided Andhra Pradesh as of
15:16 now, only in Andhra Pradesh after the division, there's close to 26 districts now.
15:22 So we are just present in seven to eight districts and throughout Andhra and Telangana, we are
15:27 quite familiar as a brand and we have good brand loyalty as well.
15:31 So our target is to...
15:32 We want to capture that trust from the customers and we want to give the service and once we
15:37 finish up something, we get good chunk in the entire Andhra and Telangana, then we want
15:41 to move eventually rather than going somewhere and again coming back to Andhra.
15:45 So we want to do this thing simultaneously, look at other areas as well.
15:49 Kirshna, what is the kind of debt you have on your books and how much of the debt...
15:55 I mean, you're not going to pay off any debts because you're going to use it for your store
15:59 expansion, but what is the total debt and how do you plan to bring it down as well?
16:05 So for the CC loans, we have around 360 crores and the rest would be the GEC loans.
16:11 Those are for term loans.
16:12 So they keep...
16:13 So at the moment, our debt equity ratio stands at 1.27%, but the IPO proceeds at the moment
16:19 are strategically used to expand the stores.
16:23 And do you need a higher working capital requirement as well as you increase the stores?
16:30 At the moment we're comfortable, we would be running in the same fashion and obviously
16:36 in the jewelry industry and women being part majority, we would always love to have more
16:43 choice.
16:44 So we want to operate at the minimum level where the business grows and also satisfy
16:50 our customer base as well.
16:53 Okay.
16:54 Thank you very much for joining us today.
16:56 Our IPO is opening on 22nd and closes on 26th priced between 204 to 215.
17:02 Thank you for watching IPOdda.
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