Senco Gold Stock Loses Sheen: What's Weighing Investor Sentiment
Margin pressure, declining profitability and slower store expansions are some challenges weighing on Senco Gold's performance.
Senco Gold Ltd., one of India's prominent jewellery retailers, has seen its stock hit an 18-month low, trading nearly 70% below its October 2023 peak of Rs 772. The question is whether an upside is the offing?
The company’s stock is at its lowest level since September 2023, reflecting mounting challenges since its stock market debut on July 14, 2023.
Senco Gold’s performance has been weighed down by several factors; margins are under pressure due to lower demand amid high gold prices, declining profitability, slower store expansions, and a decline in same-store-sales-growth, compared to peers. Other issues include volatile hedging strategies, rising inventory days (now at 150), and the lowest Return on Capital Employed in three years, at just 3.7%.
The company has also reported its lowest earnings per share in four years, standing at Rs 8.91 for the trailing 12 months.
Profitability Hit, Margins Under Pressure
Profitability continued to decline, as Ebitda margins dropped to 6% for the nine months ended FY25, falling below the company’s guidance of 7-8%. This marks a significant drop from the 8% margins reported in FY24 and FY23. Key factors affecting margins include reducing stud ratios, higher export sales, and increased operating expenses.
Senco Gold’s profitability has seen substantial fluctuations. In the third quarter, profits declined by a staggering 69% YoY to Rs 45 crore. While second quarter saw modest growth of 1.5%, and first quarter reported an 82% increase. Losses in hedging gold metal loans, along with the one-time impact of custom duties, have further dented earnings.
Growing prevalence of lab-grown diamonds has also impacted the studded jewellery segment, leading to reduced diamond jewellery margins.
Slower Store Additions
Store expansion, one of the company's key strategies, has also slowed. Senco Gold added only 12 stores in the first nine months of FY25, compared to 23 stores in FY24. The company’s SSSG growth of 14% in the third quarter lagged behind peers, such as Titan Co. (22%) and Kalyan Jewellers India Ltd. (24%).
Shifting Shareholding Patterns
The company's promoter and foreign institutional investor holdings have also seen a decline. Promoter holdings dropped from 68.48% in September 2023 to 64.10% by December 2024, while FII holdings fell from 14.45% to 8.88% during the same period.
Declining EPS, Rising Inventory, Low ROCE
Senco Gold's financial metrics paint a challenging picture, as key indicators reflect a steady decline. The company's earnings per share have hit their lowest point in four years, dropping from Rs 12.23 in FY22 and Rs 14.41 in FY23 to just Rs 8.91 for the trailing 12 months.
Simultaneously, inventory days have risen sharply, climbing from 126 in FY22 to 151 in FY24, with 150 recorded as of the first nine months of FY25. Additionally, the Return on Capital Employed has plunged to a concerning 3.7% for 9MFY25, down from 15.7% in FY24 and nearly 19% in FY22 and FY23.
These figures underscore increasing pressures on the company’s operational efficiency and profitability.
Senco Gold: What Lies Ahead?
Can Senco Gold meet its FY25 guidance, normalise Ebitda margins to the projected 7-7.5% in Q4 FY25, and achieve the expected 18-20% growth? These are some questions the management faces as it navigates these challenges.
Additionally, plans to open 8-10 stores in Q4 will be closely watched amid weak demand.
While the company’s resilience will be tested, overcoming these hurdles will be crucial for restoring investor confidence and stabilising profitability.
