Kalyan Jewellers India Ltd
NSE:KALYANKJIL
Earnings Call Analysis
Q2-2024 Analysis
Kalyan Jewellers India Ltd
The company is witnessing remarkable financial progress, with revenue growth reaching approximately 29% in the first half of the current fiscal year, creating a buzz of excitement within the company for ongoing performance. This uptrend continues, as the current quarter witnesses a formidable 35% revenue growth compared to the same period in the previous year.
Strategically, the company is aggressively expanding its presence, with 41 new Kalyan showrooms launched in India to date and plans to open an additional 9 in the near future despite minor delays. The longer-term vision includes opening around 15 more showrooms in Q4, culminating in a total of 65 new showrooms by the end of the year. To augment growth and improve margins, the company is refining its business model, which involves leveraging franchise partners. This new approach has led to the opening of the first franchise showroom in the recently concluded quarter.
The pivot to the franchise model shows promising signs for the company's margin and return ratios, with reduced working capital requirements due to franchisee stores operating with only 20 days of inventory, compared to around 160 days for company-owned stores. Profits in the Middle East business were briefly impacted by INR 3.5 crores due to the one-time sale to a franchisee, but this strategic shift is expected to enhance return ratios overall.
The company's solid financial performance is reflected in its consolidated revenue of INR 4,415 crores, with a consolidated profit after tax (PAT) of INR 135 crores, marking a substantive 27% growth over the previous year. In India, the revenue and PAT grew by roughly 32%, signifying a strong domestic market presence and operational efficiency.
The company is judiciously managing its finances by reducing its debt load by INR 350 crores, with expectations to decrease it further by approximately INR 400 crores to INR 450 crores next year, and INR 550 crores to INR 600 crores the following year. These efforts align with a broader strategy to streamline the balance sheet by liquidating non-core assets and minimizing gold metal loans.
The company is upholding its commitment to shareholder value with a dividend policy of distributing 18% to 20% of the profit. This range is part of a strategic financial roadmap that takes into account the company's growth trajectory and debt reduction plans.
The company is competitive in the high ticket size product category, which sees less competition from the unorganized sector. This distinct market position allows them to capture a better margin share in this segment.
The company is making plans to adjust contracts with franchise partners next year, aiming to increase their margins by roughly 0.25% to 0.5%. The model will focus on franchisees prepaying asset maintenance charges, which will translate into better cash flow for the company and allow for a higher capital expenditure model financed by the franchisees, leading to higher free cash flow (FCF) and accelerated debt repayment.
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Ladies and gentlemen, good day, and welcome to Q2 FY '24 Earnings Conference Call of Kalyan Jewellers India Limited.
This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Mr. Rahul Agarwal. Thank you, and over to you, sir.
Thank you. Good morning, everyone, and thank you for joining us on Kalyan Jewellers India Limited Q2 FY '24 Earnings Conference Call. We have with us Mr. Ramesh Kalyanaraman, Executive Director; Mr. Sanjay Raghuraman, CEO; Mr. V. Swaminathan, CFO; Mr. Sanjay Mehrottra, Head of Strategy and Corporate Affairs; and Mr. Abraham George, Head of Investor Relations and Treasury.
I hope everyone got an opportunity to go through our financial results and investor presentation uploaded on the company's website and stock exchanges. We will begin the call with opening remarks from management, following which we will have the forum open for a question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the earnings presentation shared with you earlier.
I would now like to invite Mr. Ramesh Kalyanaraman, Executive Director of Kalyan Jewellers India Limited, to give his opening remarks. Thank you, and over to you, sir.
Thank you. Good morning, and welcome, everyone, to the call. I hope everybody had a great Diwali. Let me wish everyone an excellent New Year. It has been a fantastic year for us. Both the quarters have been excellent. Revenue growth for the first half of the current financial year is around 29%. We are extremely excited with the way the current quarter has progressed thus far, despite higher number of Shradh days and volatile gold prices.
We have witnessed approximately 35% growth in revenue for the current quarter till 12th of November when compared to the same period during the prior year. This financial year, so far, we have launched 41 Kalyan showrooms in India, and we plan to launch another 9 showrooms in the next 45 days. Actually, these 9 stores were planned to open before Diwali. There has been a delay.
Additionally, we plan to launch around 15 showrooms during Q4 of this financial year, making it 65 showrooms for the current financial year. As we speak, we have 55 franchise Kalyan showrooms in India. And looking at the performance of these showrooms thus far, we are extremely satisfied with the operating momentum on the ground as well as with the return profile, both for us and for our franchisee partners.
As we speak, we are finalizing terms with potential franchisee partners for FY 2025. For the next set of franchisee showrooms, we have brought in changes in the model with the objective of improving our share of margin and the return profile. For the next financial year, we have drawn up plans to launch around 80 Kalyan showrooms across India.
In the Middle East, we opened the first franchise showroom during the recently concluded quarter. In addition, we have signed another 5 LOIs, 2 for new showrooms and 3 conversions. The launch and conversions of these showrooms will happen during Q4 of this financial year.
Regarding the debt reduction plan, we are well on track for the current financial year, having already achieved 1/3 of the total reduction plan for the year. Non-GML working capital loan in India has been reduced by INR 157 crores, and we have successfully increased the GML by around INR 40 crores. Overall, we reduced working capital loans by INR 116 crores in India.
In the Middle East, with the conversion of the existing 3 showrooms in the region, we are embarking on a debt reduction journey there as well. We expect to garner around INR 100 crores from the conversions of 3 existing showrooms before the end of the current financial year, which will be fully utilized to reduce the debt in the region. We are upbeat about the upcoming new showroom launches and are gearing up with fresh collections and campaigns for the ongoing wedding season across the country.
Now I will invite Sanjay to take you through the financial highlights of the quarter, and over to Sanjay.
Thank you, Ramesh. Good afternoon, everybody. We are really happy to be talking to you all after a very satisfying quarter. We had a couple of days between putting out our results and today. I assume you might have all gone through the numbers and the investor presentation that's up on our website. Hence, I will just highlight the major points now, so we have more time for questions.
For this quarter just ended, we reported a consolidated revenue of INR 4,415 crores, a growth of over 27% over the corresponding quarter of the previous year. And consolidated PAT came in at INR 135 crores versus INR 106 crores during the corresponding quarter of the previous year, a growth of 27%.
In our India business, growth in revenue as well as PAT was about 32%. As we had indicated in previous interaction, people costs are getting front-ended as we continue to invest ahead of our outlets beginning to earn revenue. Adjusted for this, PBT would have been higher by about INR 5.5 crores.
In our Middle East business, we opened our first franchisee store as per our planned rollout. Profits in the Middle East business are lower by about INR 3.5 crores on account of the onetime sale to the franchisee. I'm calling this out specifically since it's the first time we are seeing this in our Middle East business. As we scale up on our franchisee model, we expect return ratios to improve like we're already seeing in India.
Talking now about the first half of this year. The consolidated revenue came in at INR 8,790 crores, a growth of 29% compared to the corresponding first half in the previous year. And consolidated PAT came in at INR 278 crores, a 30% growth compared to H1 of the previous year.
During the just concluded quarter, we opened 15 stores, 13 in India, 1 in the Middle East, and 1 in our omnichannel Candere format.
With this, I'm done with the summary of the financials. We can now open the floor for questions. Thank you.
[Operator Instructions] First question is from the line of Gaurav Jogani from Axis Capital.
Congratulations on a good set of numbers. Sir, my first question is with regards to the store expansion. Now given that we have also upped our guidance in terms of the store expansion to 80 stores in the next year. So if you can highlight which regions are we getting these stores open? And the related question is, what is the potential number that we expect to reach in terms of these stores in the next 5 years? And the third related to this is, these franchisee partners that we're opening the stores with, are these existing franchise partners or we are also adding the new franchise partners?
Yes. So 3 questions. One around the 80 showrooms which we are opening for the next financial year. Mostly, it will be in non-South markets. 5 to 8 showrooms will be in the southern part of the country as we speak. And the second question was around whether the franchisee partners are old or new. It is a mix, mostly new franchisee partners. But yes, there are old partners who are taking extra showrooms for the next year expansion as well. Third was what...
Yes, the third was with regards to the store potential. So we are already reaching, with these 80-odd stores, we will be crossing the 250-odd mark number in India itself. So I just wanted to understand the potential in terms of stores in the next 5 years for you?
The potential, you know that we are now -- meaning, in the non-South markets, there are a lot of markets where Kalyan is still not there. So for our projection, maybe 20% growth in footprint over the next 3, 4 years, that should be the target.
Okay. Okay. Sure. And sir, my next question is with regards to the working capital requirement. Now given that we are growing at a very strong pace, so it's not only through the franchisee stores, but the existing stores are also growing at a very strong pace. Now in that context, one, how should we look at the inventory days? And by inventory days, I mean, for example, in FY '23, we closed with around 180 days of sales as an inventory days. Now with the franchise proportion increasing and probably the franchisee stores will be higher in the next year versus our own stores. So in that light, how should one look at the inventory days or the overall working capital?
Yes, the inventory days stock turn will surely go up because franchisee stores come with only 20 days of inventory, okay? For our own store, it is around 160 days. So stock turn should ideally go up. Over and above that, for our own stores also, the stock turn is surely increasing because the revenue growth is higher than the inventory which we are adding in certain stores where we renovate the stores and add inventory to take market share.
So any number that you would like to guide in terms of the inventory days? How should we project the inventory days, given the fact that the franchisee numbers is also increasing. And you said that only 20 days is required for the inventory in that kind of stores. So any number that you would like to highlight?
So now as we speak, in Q3, okay, 20% of the revenue approximately comes from franchise, okay? Over the next 2 years, it should ideally be 50-50. So 50% of the revenue comes with 20 days of stock -- from inventory days and the rest 50% will be any way better than 160 days because there is an SSG, which is happening at the store level. And we are not adding that much inventory, meaning if the revenue growth is, say, 10%, we are not adding inventory in the stores for 10%. So that is how we should take it forward.
Okay. Got it. And sir, my last question is with regards to the CapEx that we incur for the store franchise. So I understand while the CapEx has been incurred by us, but we also receive a onetime fee every year from the franchise partners for the same. So just wanted to understand which line item this number gets booked? And what is the time it is recognized?
Yes. One second. Sanjay, do you want to take it?
It gets booked on a monthly basis. And it's there in other income, I think so. We will just clarify by the end of this call if it is in other income or -- it should be like in other operating anyway.
Next question is from the line of Shirish Pardeshi from Centrum Broking.
Congratulations for a good set of numbers. I think in the beginning, I just wanted to understand, for our stores, what is the same-store sales growth, if you can specify? And in the stores which we have opened last year, say, first set of stores of those 12 stores, what is the SSG we have seen in Y-o-Y in the franchise stores?
Yes. So SSG for Q2 overall is in the range of 10%, and 8% is in South India, 15% is in the non-South markets.
Okay. That's really heartening. Second, again, on the inventory side, just to extend the thoughts. You said that 160 days directionally will go up. But I'm a little afraid because I don't think we are opening our stores at the speed at which we are adding the franchise stores. So why that number is going up? Are we taking a bigger number of -- bigger size stores? Or how we should look at it?
And the other question is that on a year-on-year basis for the next set of stores which we are opening under franchise stores in FY '25, are you resizing the store size?
Yes. So 2 questions. One is, I think you are talking about the inventory addition which you have seen over the last 6 months, meaning INR 350 crores, right? That is why -- so all these INR 350 crores is not for our additional stores. Okay? I will just deconstruct that for you so that things are easier. Part of inventory required for showrooms we launched during the month of October would also reflect in the end September inventory that we are talking about. We have launched a dozen showrooms during the Navratri period. And around 1/3 of this inventory would have been already there in our books in September, okay? That is number one. Number two, like you said, we've refurbished or relocated 20-odd showrooms during the last 6 to 8 months. Cases like Jayanagar in Bangalore, Coimbatore, our own, what you call, old [indiscernible], Karol Bagh in Delhi, we relocated the store. So these kind of stores, when we relocate or renovate, we add some inventory to gain market share there, okay? And the third is that one more point where I would like to highlight here. During October, we opened 3 own showrooms also. This inventory and all were in the first week of October. This inventory also would have shown up in the overall inventory figure. And, of course, 2 out of these will be converted to franchise ones over the course of quarter.
The third 1 is an example wherein Pitampura in Delhi, as a part of relocation of the existing showroom, we launched a new showroom. We normally keep the old showroom live for a few weeks even after the relocation. Surprisingly, both the showrooms are doing well now. And therefore, we have decided to maintain 2 showrooms in Pitampura as we speak. That might not be converted very soon because that was a, what you call, positive surprise for us. So we had not tied up any franchisee partner for the same.
And one follow up...
You want a breakup number for your comfort? I would have that...
If you can help that.
Yes, yes. So again, you know pipeline inventory is needed for the 40-odd operational franchisee showrooms which we have. That can quantify around INR 80 crores to INR 90 crores out of the INR 350 crores. Inventory that we would have carried for the showrooms launched during Navratri period would be in the range of about INR 60 crores to INR 70 crores. Inventory into the renovated or relocated stores will be in the range of INR 80 crores to INR 100 crores. Three own showrooms, that would have been in the range of INR 80 crores. I'm talking about approximate numbers.
Yes. Yes. Got it. That's really helpful. And any thought on the resizing of stores? Are you trying to resize the stores for the next set of franchise coming in FY '25?
No, no, franchise, we don't intend to -- even now, all the franchise are not of similar, what you call, investment or similar size. We are telling you INR 20 crores as an example for us. So it is an average. So there are stores which have a INR 30 crore inventory, there are stores which have a INR 17 crore inventory. So even now, the size is not same or constant for all the showrooms which we have opened. So it will remain like that for the rest of the year as well as the next years also.
Okay. No, I was just looking for the explanation. In the opening remarks, you said that for the next set of franchise, we have negotiated better terms. So maybe if you can quantify what is that?
Yes. So Sanjay, you want to take it?
So broadly, we have 2 drivers, right? One is -- actually, 1 driver, just gross margins that we work with on the franchise front. Now we will action plans that we have to improve this and deliver something that is better for us, at the same time, doesn't interfere with the franchisee expectations. We have found some solutions. We will, of course, only be able to implement that from the second wave of the stores that we do next year.
I don't think I want to share more at this point because it is sensitive information in that aspect. We'll probably get between 25 bps to 50 bps thereabouts. And the cash flows on the capital expenditure that we put out on the shops that are going to move from our balance sheet to the franchisee balance sheet as I think Ramesh mentioned previously. So that's anyway going to be a huge thing for us next year.
That's helpful, Sanjay. I just wanted to check, are we moving to a franchise-owned, franchise-operated model for next year?
No, no, no. It is a FOCO model. Two major changes. One, CapEx, store fit-out, we are doing the store fit-out now for this year. Next year, it will be done by the franchisee partner. Second is margin will improve for us, and it has been decided that. Franchisee partners will also be happy, because we know the performance of the existing stores and we thought that there is a merit of improvement.
Okay. That's helpful. My second question on the gold metal loan, maybe you can spell out end of September what is the gold metal loan? And a related question, what is the status on the noncore asset, which we have spoken about divestment?
So noncore asset, everything is done. So we are just waiting for the final NOC from banks, and that is it. So maybe, hopefully, it should be done in the next, what, 3 or 4 weeks. So in this quarter, we should surely expect that. And regarding gold metal loan, it's at the similar level, right?
Yes, we added about INR 40 crores in India.
Yes, we added about INR 30 crores, INR 40 crores in India. Otherwise, it is consistent.
So what is the number?
India gold metal loan is now INR 1,132 crores, and consolidated gold metal loan is INR 1,856 crores.
My third and last question, there is an incremental noise around the lab grown diamond. In your lens, in your thought, in your exchange of discussion, what is it that? Is it going to be disruptive in nature for us and for the industry? Or it's wait and watch. The consumer is still not picking up the trend?
Yes. So lab-grown diamond, it is still very nascent stage for lab-grown diamonds in India. Too early for us to comment on the impact. Internationally as well, meaning only for the engagement rings, for a solitaire, it has been popular, as we speak. So as we speak now, at our store level, there is 0 demand. But of course, we are cautiously looking whether there is some demand which will come in, et cetera, which will be taken care at that point in time. But as of now, it is 0 demand.
Next question is from the line of Ashish from Citi.
Congratulations on good set of numbers. So the first question was on the franchisee stores, right? So if I look at the 15 stores which we are present at the end of FY '23, they are -- I mean, in some ways, they have seen almost more than 6 months of business. So can you talk a bit about their revenue trajectory, the gross margins which those stores have seen? And also the inventory turn those 15 stores have seen, because they might have seen a bit of a maturity in some way.
Yes. So most of the stores are doing what we wanted in terms of stock turn, in terms of margin. And that is why we are reworking on the franchise partner share also for the next year. And of course, there are minor tweaks which we do in certain showrooms where inventory has been added in certain stores, inventory has been reduced in certain stores. So that is a part of the business now, so which we do for [Technical Difficulty].
Ramesh, just to kind of dig into that. Have you seen a similar 20% kind of a gross margin in those stores at a showroom level and 2.5x inventory turn. Have you seen that?
Yes.
Sure. And second thing is in terms of the delay in store opening, can you just talk about that, that what led to the delay in the store opening?
So majorly, that was because of certain markets where elections were around, wherein we did not want to create -- our noise level cannot be disturbed with their noise level. And again, there are certain markets where there were some restrictions in the interior decoration work, et cetera, because of some pollution issues. So actually, those kind of issues were making us to delay the store openings. Otherwise, it was planned to be done before Diwali.
Sure. And then on the deleveraging of balance sheet. So I understand you will get almost INR 100 crores from the sale of aircraft net of tax, and that will lead to a repayment. But from a next 2 years' perspective, right, FY '25 and FY '26, can you please -- given that now you are tweaking a franchisee model, so that your CapEx kind of reduces. So what are the plans for the next 2 years in terms of reducing the debt levels and also on the sale of land parcel?
Yes. So land parcel sales, let us keep aside now, because it is going to come once we -- for example, this year, we are planning to reduce our debt by around INR 350 crores, right? So once we do that, then only we are communicating with the banks to take out the asset, because the land parcels are not very small. So at least we should get INR 100 crore land parcel and for which at least we need to reduce INR 350 crores. So that is a process which has to be followed. So even if you keep aside the land parcel liquidation, which will happen, which we did not budget for immediately, because I don't want to make your budgeting complex, okay? But otherwise, easily next year, INR 400 crores to INR 450 crores, and the year next, again, INR 550 crores to INR 600 crores. That should be the plan. So within a couple of years after the financial year, I think there will be -- and it's the worst scenario, there will be only the gold loan in our books in India. The cash credit will be completely moving out.
Sure. This is very helpful. And lastly, I think in the opening remarks, I think you guys talked about that Middle East profit was lower due to onetime sale of franchisee business. Can you please elaborate a bit on that?
Yes. So we opened our first franchisee showroom in the Middle East in the last quarter, which comes with a lesser gross margin, as you know, because it's also a FOCO model, okay? So if you keep that aside, our own store gross margins were same. The EBITDA margins were also the same. But you still see PBT margin coming down. That is because there was an increase in the rate of interest from banks there, and that is why the PBT margins are lesser.
Next question is from the line of Naresh from Sameeksha Capital.
Firstly, congratulations on good set of numbers. So sir, first question, what was the contribution from the franchisee stores this quarter?
Approximately 20%.
20% of the India business, right?
Yes. Yes, India business. I'm talking about India.
Okay. Okay. Got it. Second, on the PBT margin front. So earlier, I think we had said that we would be around 5% PBT margins for the full year -- on a full year basis. So first half, we have maintained the last year's margin. So to reach to 5%, we have to better the last year's margin in the second half. So what would be the drivers for that if we have to reach 5% this year? And if not, then in the next year, maybe next 2, 3 years, what would be the guidance which you would like to give as far as PBT margins are concerned?
Yes. So the first thing what I want to say is that PBT growth will be surely higher than our revenue growth. For Q2, the PBT growth and revenue growth were similar. So as Sanjay mentioned, during Q2, we had some -- mainly one front-ended employee expense of around INR 5 crores, INR 5.5 crores. That was because we had to launch 20-plus stores for the [indiscernible]. So if you adjust that INR 5.5 crores, PBT growth would have been higher than the revenue growth in Q2 also, like in Q1. I would like to highlight that in Q1, again, our PBT growth was higher than the revenue growth, as I said now.
So for what you asked, going forward, the impact of this front-ended employee expenses will keep coming down, right? Because as the footprint addition as a percentage in FY '25, when compared to FY '24, will be surely lower. And additionally, like what Sanjay said, we are improving on the margin for the new set of franchisee stores which we are opening for the next year as well. And that is how we should look at it for the next couple of years.
Sure. So I got your point. So 1 last question. So you said that the non-GML loan will be completely paid off. So in what time frame are we anticipating that?
Next 2, 3 years. And that also I will tell you, it is a base scenario, wherein you know that we are doing this mainly to take the noncore assets, right? Because there are a lot of assets sitting in the book, the balance sheet is heavy. Our intention is to repay these debts, take out these assets. Again, liquidate debt and bring it back to the system, so that the balance sheet is lighter. So in case, once we do this or once we start this process, if we are getting a better solution for our exposure, then we will come back to you and say that we have got a better solution and then that will be the plan. So what I told you is the base scenario wherein this will be anyway seen if nothing happened from the other side also. In any case, non-GML will come down.
Sure. And one last question. So now given that we are generating very strong cash flows. I know that you have a debt reduction plan as well. But any update on the dividend policy, like how do you plan to reward the shareholders over the next 2, 3 years as we generate these cash flows?
Yes. So we have a dividend policy now. The dividend will be, what, 18% to 20% of the profit which we make. So it will be mainly ranging between about 15% to 30%. That is the policy which we have decided to do for dividend.
Between 15% to 30%, you said, of the PAT?
Yes.
Next question is from the line of Dhruv from AUM Fund Advisors.
All my questions have been answered.
Next question is from the line of Rucheeta from iwealth.
Congratulations for a good set of numbers. Sir, most of my question are answered. There are just a few that I still have a doubt on. So [indiscernible] quarter, if you see, your absolute sales growth has come a bit lower than your store addition growth. So how do we look at it going ahead? Because I believe as you add new stores, this number should further start coming down only. So what is your take on that?
So you are looking at how many percentage of showrooms opened and how many revenue increased. That's what you are asking for, right?
Yes. Yes.
So it comes with a different bucket size. The newer stores come with, what you call, the target itself is like average INR 20 crore inventory and revenue for the first year, INR 50 crores. But our own store average per showroom is around INR 85 crores to INR 90 crores. So new ones are INR 50 crores and the old ones are INR 85 crores, INR 90 crores. So the percentage of store footprint cannot be directly -- meaning, it cannot be same as the revenue growth going forward as well.
Okay, sir. Okay. And sir, this year, how many Candere stores are we going to add? Like one has already been launched. And I think you were planning around 22. So are they in line with that?
Yes. So we have 4 operational as of now, which are company operated. Actually, 4 operational as of 30 September. We opened 2 more earlier this week. Our plan is to end the FY with about 25 to 30 outlets in India itself. As we stated earlier, we'll be coming out -- when I said earlier, I mean earlier meetings or interactions, we'll be coming out with a detailed 3- to 5-year kind of plan for that business by the end of the current financial year, by which time we would have about 30 outlets operational.
Next question is from the line of Anurag Dayal from HSBC.
Congratulations Ramesh and team for excellent results. Regarding the expansion plans, earlier you had mentioned that existing company's operational capacity supports around 60-odd showrooms. Now when you're planning to target 80 showrooms and higher, so could you highlight some of the steps internally which you are taking apart from staff recruitment in terms of -- to ensure that there is smooth execution of [indiscernible] roll out. I mean, are you going for more recruitment centers or more internal hirings on the management levels. Just how you're going to digest higher number of stores.
Yes. So we have been able to improve the bandwidth over the year because we also understand that expansion is happening. So again, bandwidth does not mean only staff. As you rightly said. Right from contract manufacturers, right from the internal professional team, right from the mid-level management, training online, offline. So there are a lot of things which we parallelly do to cater for the expansion plan which we have. And it has been successfully done and executed.
Okay. Great. And second thing is about the gross margin. So this quarter, basically, the gross margin was similar in Y-o-Y terms. But if you see, even the studded ratio has improved, share of revenue from higher-margin [indiscernible] of markets have increased, but the gross margin is still lower. I mean, it's not improving. So is it because of some competitive intensity which is higher to give more discounts or making charges reduction. So what answers this gap?
Yes. So studded improvement is shown, yes. But you know that the new showrooms have contributed for that mostly, right, because all the new stores were in the non-South markets. And predominantly, all the new stores were franchisee FOCO model, which comes with a lesser gross margin. So even if the studded ratio is more, the margins cannot improve because that has come through a FOCO model. Only for the existing showrooms, the revenue growth, again, Studded sales were similar and South also grew, non-South also were growing. So that is why your margin point is not taken care of there.
No, I am asking at the store level, it's mentioned that margin was flattish.
Yes. So store level studded ratio, because gold also the revenue was going up and studded also revenue was going up, and it was almost flat. So the studded revenue growth which you see is majorly because of the new store additions and it came through the FOCO model of franchisee. But now, because you asked, Q3, we are, at the moment, seeing some margin improvement, which, of course, it's only 45 days and it cannot be, what you call, taken for the full year or for the coming years. But as we speak, competition intensity has come down, predominantly because we are getting revenue share from the organized segment as well. And there competition becomes easy because it is high ticket size products where that does not compete or that does not compete with unorganized segment. So there, we are seeing some improvement in the margin on the ground level for own stores as well as franchisee stores.
Next question is from the line of Nihal Jham from Nuvama.
A couple of questions. First was on the demand bit of it. As you highlighted, post the quarter, at least based on what we were picking up, given the recent spike in gold prices that had happened, demand had stalled. While there was footfall, demand was obviously not getting converted because prices increased. Our growth is obviously pretty strong at 30% plus. So is this, in your opinion, a case where wedding demand has got activated, which is slightly price insensitive and more time sensitive. Just your comments on that?
Yes. So you are right. There was a bit of pause in between wherein gold price suddenly had huge fluctuation. But momentum for Diwali, Dhanteras was very strong. Wedding revenue has also started to come in. Post Diwali is also good as we speak. Momentum is still strong at the store as we speak. And even with more number of Shradh days, we have been able to get a 35% revenue growth on a consol, India being better. Of course, there is revenue which has come with the 12-odd franchisee showrooms which we opened in the first 45 days, that revenue would have been added for. But even without that, the revenue growth was strong.
Absolutely. Because I'm assuming the first 15 days, given Shradh got shifted into October, the performance would have been much weaker versus last year. So it's basically after Shradh got over until now that we must have seen a robust performance to deliver this 35% kind of a growth?
Yes.
That's helpful. The second question was that on our franchise model, have we got any sense of if we can take this model forward into South India, or have we had an opportunity to take? And another related question was that in case we are able to find a model which is ideal for South India, would we want to franchise majority of the existing network, if that is possible, but for owning some of the key stores and some of the key markets? Just your thoughts on that.
Yes. So now we have signed up 6 franchisee stores for the South. It is a pilot stage. We have worked upon a model where it suits them as well as us. So we will open 2 or 3 showrooms in the financial year in the southern part of the country. And again, South is not uniform across -- South itself comes with different margins in different states. So we are actually piloting it now, and we will be able to guide you more, once this pilot stage is over, regarding conversions or regarding expansion within the South, et cetera. We'll come back to you with a solid plan once the 6 stores get stabilized.
Point taken. But in case the pilot works out well, so is there maybe a long-term thought that majority of the existing network you would want to franchise or you may want to take it one step at a time? Just your thoughts at this point in time.
If you ask me now, of course, it's too early for me to comment. But more than converting the South stores, we would go into expanding in the southern markets as well, because there are markets like Bangalore or Hyderabad wherein we still have lesser number of stores compared to certain competitors, wherein we would like to gain market share in those markets.
[Operator Instructions] Next question is from the line of Sunish, Individual Investor.
First of all, congratulations for the excellent show. And my question is a continuation of the question just asked. Do we have a clear strategy on franchisee model going forward? Like in Metros, we'll be opening stores ourselves and other places franchisee, some sort of a strategy like that? Secondly, are the franchisees basically happy? This is not a quantitative question. Are the franchisees basically happy? Are we getting references from the franchisees? Any franchisees who have left after joining? Basically, these are my questions.
Yes. So next 3 years, basically, our growth will be completely fueled by franchisee partners, because we have -- as I earlier mentioned, we have other missions like lightening our balance sheet, reducing our debt, improving ROCEs, improving the return ratios, et cetera. So the next 2, 3 years, it will be completely fueled by franchisee partners.
And for your question, whether they are happy? Yes, they are. And we have done a working, we have done a math, and that is why we are going for new model wherein we as Kalyan will get more benefit on margin side. And again, investment also, we are making them do the CapEx as well, so that it comes with a minimal investment from Kalyan side. In fact, actually, we are restricting the number of showrooms taken by one single person because we have adequate demand for taking up showrooms by new people.
Next question is from the line of Shirish from Centrum Broking.
Sir, I have 3 questions. First, to Sanjay, what's happening on Candere? I mean, I know we are looking for offline stores. We are a little behind. But why the decline is happening? I mean, it has declined in quarter 1, it has declined in quarter 2 also. So when do you stabilize this business? And when do you see the growth will come back?
Like we've said earlier, that business is in a stage where we are only rolling out our offline outlets. Until we build a network of these outlets, we will have a situation where we are only growing the store count. So it is not at all of any worry for us to kind of see where those numbers are declining because those are fairly inconsequential numbers at the present moment. What we want to do is to build out the network and then come back and talk about it. So you will see us coming back to you in about 6 to 9 months' time on this.
Okay. My second question is on the revenue growth momentum until 12th of November, what Ramesh has mentioned in the beginning, saying that 35% growth. Just 1 data point here, because last quarter we have seen Middle East businesses decline, and understandably, we had the Eid movement, which has happened, but then is that -- Middle East is also firing well. And maybe if you can give some quantitative number or maybe some growth parameter in the Middle East business, especially till 12th of November.
So Middle East is doing well. SSG is healthy. And again, Middle East is very sensitive with gold rates also because their gold rate impact is much higher than in India, because it does not have the dollar, what you call, picked. So the gold price impact is completely absorbed immediately in that market. So there has been volatility. But the momentum is strong. SSG is healthy. But again, I will tell you, always SSG, when you budget for, 5% to 7% is a healthy SSG according to me. And that should be budgeted for the market is what I -- of course, on the ground, it is much higher. But on a budgeting, 5% to 7% is healthy.
Got it. Second, related on the 35% growth, our wedding share has always been very strong. So maybe in the first half, what is the wedding share we have in the plain gold jewelry. And it has moved significantly Y-o-Y?
So you are talking about the first 45 days?
No, no, first half.
So not meaningfully different. We are always in the range of, what, 55% to 60% wedding share, which has been constant over the years, except for 1 quarter immediately after the COVID, wherein wedding demand was the only demand at that point in time because casual customers were not there. They were not coming out of their homes. Otherwise, it has been the same.
I was basically checking on your commentary. You said that margin expansion will happen. So maybe studded portion is going up. That is one part. But if wedding is also coming down, also, we'll be able to get and improve our margin profile. That's what the thought I had.
No. But higher ticket size product competition actually on ground is lesser, wherein very high ticket size products, unorganized segment might not cater. So there we have a lesser competition. There, of course, studded conversion also is higher on that category. There competition is also lesser because competition is majorly with the organized players. There we get a better margin share. And that is what we saw in the first 45 days as we speak during Diwali. Of course, competition is still there. It is intense competition. But now for the first 45 -- October to November, we have seen an improvement in the margin.
Okay. And just last question. You mentioned that we have converted our store in South and the franchise operation. So I'm sure now you would have some good understanding. So how that store is faring, what are the learnings, if you can share? I'm not saying about the strategy, but have you been able to garner the newer customers or the growth? Or maybe some parameters you can say that what is it that our learning is?
No, no, no, I think I -- we have not converted any store in the South. We have only signed 6 LOIs for South. And we have not opened that as well. We will be opening a couple of showrooms in the financial year. South, we have not done anything. We have only signed LOIs.
Okay. So that's a misunderstanding. So you're saying that the 6 LOIs will get executed before March '24.
Yes. Yes. So, so far, conversion for our information is only which got opened temporarily as owned. Like, for example, we would have opened a showroom in Q1 as owned, which we will convert in Q2. Otherwise, we have not done anything major.
Next question is from the line of Rajiv from DAM Capital Advisors.
Sir, with regard to your comment on reworking some the franchisee partner negotiations in terms of the contract. So earlier, from a counter sale of, let's say, INR 100, you were getting INR 8, are you saying that this will go up by 50 bps, in the sense it will become 8.5% is what you're shooting for the next year?
So I don't want to give an exact number, but yes, you can budget for around 0.25% to 0.5%.
And is there a chance that you will also try to sell the existing franchisees, the 40 or 60 numbers, which will take the asset back to the franchisee partners because it is already clocking, let's say, 20% plus kind of store level gross margins?
No, we will not get into it now because it's all -- meaning, don't budget for that, we might or might not. But as we speak, please don't budget for that.
And are they clocking already 20% plus kind of on a run rate basis and that kind of gross margin, let's say, the stores which are 6 months old or before?
Yes, yes.
Next question is from the line of Gaurav Jogani from Axis Capital.
Sir, my question was with regards to that you mentioned that from next year onwards, the franchisee CapEx model would again be tweaked and that CapEx will be now shifted from our balance sheet to the franchisees' balance sheet. So in that case, we would be left with higher FCF. So is that understanding right?
Yes. So first thing where I want to correct is that, what you call, the CapEx will still be in our books, but the money will flow from them. That is the model because, as you know, it's a FOCO model. The premise is actually signed by us and the asset cannot be owned by them. So asset will be still owned by us, but they will prepay the asset maintenance charge to compensate the CapEx which we do. So in the books, it will be there, but the money we would have taken from them.
Yes. So in terms of cash flow, basically, they will fund the CapEx, right, in that case? So cash flows would be much higher in that case. I mean what we are actually baking right now, because right now we are also incurring the CapEx on our books. So in that case, don't you think that the debt repayment should be higher in '25, '26, given that we'll be making much higher FCF in that case?
Yes. So what I am always saying is that if we budget for this, if we do more, it's good, meaning, that's why I said we will be able to overachieve the next year debt repayment target.
Sure. Sure. Sure. Yes. And sir, just last question on the other expenses side. So even the other expenses this quarter around was a bit higher. So anything on that front? And should that be a normalized run rate going ahead?
So no major change. Only the -- basically, the salary cost will keep on moving up, because you know that the staff are on our books and it has to go up. Otherwise, it should remain, meaning, the usual, what you call, the 5%, 6% expenses growth will be there. Otherwise, it should remain constant.
As there are no further questions, I will now hand the conference over to the management for closing comments.
So thank you very much. Thanks a lot. It has been good talking to you after a good quarter. Thank you very much.
Thank you very much. On behalf of Kalyan Jewellers India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.