In conversation with Mangesh Chauhan, MD and CFO of Sky Gold Ltd

The widespread appeal of the yellow metal, coupled with the current bullish momentum, presents a favourable opportunity to stay invested in gold as a long-term strategy, states Mangesh Chauhan, MD & CFO of Sky Gold Ltd

In Q2FY24, the company experienced a remarkable 30 per cent year-on-year growth in revenue. Simultaneously, the net profit skyrocketed from Rs 0.89 crore in the corresponding quarter of the last year to Rs 7.27 crore. What factors can be attributed to this impressive success?

Over the past half-decade, our strategic focus has been on revenue generation and cultivating new customer relationships, which is why we ventured into the manufacturing of margin-accretive jewellery products characterized by unique and contemporary designs, which sparked a substantial surge in our production volumes.

Additionally, during the recent quarter, we expanded our manufacturing footprint from 18,000 sq ft to 81,000 sq ft. This expansion was accompanied by the incorporation of the finest German and Italian machinery with the capability to process 750 to 800 kgs gold per month. This upgraded facility stands as Maharashtra's largest jewellery manufacturing hub, with a capacity of 5000 crores. Beyond sheer size, it opened avenues for improving margins, featuring state-of-the-art filtration equipment designed to minimize gold loss during the production process.

Along with the technological advantage we also focused on creating an unparalleled team of skilled designers hailing from every corner of India and internationally acclaimed hubs such as Dubai, Singapore, and Turkey. We have meticulously curated a vast design repository, offering a nuanced and diversified portfolio that caters to the unique preferences of our customers based on their region, demographic and personal tastes.

The combined advantage of technology and craftsmanship has led to an increase in orders from our existing customers and also the onboarding of new customers, realizations have surged by over 25 per cent year-on-year during FY23 and H1FY24. The onboarding of more and more reputed gold jewellery retailers offered us better profitability when compared to other distributors.

Can you shed some light on the segment-wise performance of the company's product portfolio, including Plain Gold Jewellery, Studded Jewellery, and Turkish Jewellery?

Certainly, in Q2FY24, we observed a notable performance across different segments of our product portfolio. Breaking down the contribution, Turkish jewellery accounted for 20 per cent, while Studded and Plain Gold jewellery constituted 40 per cent each. We anticipate a significant expansion in the share of Turkish jewellery from 20 to 40 per cent soon, since it is a newly launched segment which is being backed by both domestic and export demand.

Within these segments we want to meet the preferences of our target demographic, predominantly the younger age group, for which we have adopted a proactive approach in product design and inventory management. Understanding the psychological buying behaviour of our younger customers, we recognize the inclination towards lower-priced but modern lightweight jewellery, considering it a recurring and more accessible purchase. Our commitment lies in creating unique designs tailored to their preferences, aligning with the trend of acquiring multiple modern pieces within a reasonable price range.

Could you provide insights into the company's expansion plans as it endeavours to enter new global and Indian markets? Additionally, what efforts is the company undertaking to boost its export activities?

There is a rising demand for lightweight jewellery in India and abroad. Our corporate clients who are a major contributor to our revenue have substantially expanded their presence as India shifts from unorganized jewellery retailers to organized players. Malabar Gold announced 85 stores in this quarter, Joyalukkas announced 40 stores and Kalyan Jewellers opened 60 stores in the last two months. Domestically, our presence is well-established in Karnataka, Kerala, Tamil Nadu, and Andhra Pradesh and our primary focus will revolve around acquiring new clients and maintaining a robust presence in the South Indian market.

In terms of exports, we have specifically designed and launched products for the UAE, Malaysia and Singapore markets. To facilitate engagement, our Indian marketing team actively visits these regions for launches and order collection. Going forward we are planning to further explore and open offices in Dubai and Malaysia.

During the year we set up Maharashtra’s largest jewellery facility to ramp up our production for both domestic and export sales along with infusing equity of approximately Rs 206 crore to fund our rising working capital requirements, reduce debt and explore growth opportunities to support the exponential growth in our topline.

What are the top three strategic priorities currently being focused by the company?

Strategically, our foremost priority is the onboarding of new clients in India. We actively participate in corporate shows and exhibitions engaging with clients from diverse states in India and different countries where our quality products garner significant attention. As we navigate a dynamic market environment, the shift from unorganized jewellery retailers to organized players in India presents a favourable landscape. With vast market opportunities, we are positioned to capture this shift.

Our second priority is exploring different markets and geographies. In the past year, we transitioned towards producing monopoly products, introducing unique offerings not available in the market. We also designed products specifically catered to the European,

American and Middle Eastern markets. Our expansion into the export segment over the next 2-3 years aims to capitalize on the growing demand for lightweight jewellery internationally.

Last but not least we want to undertake continuous research and development to ensure that we hit the mark when it comes to precision and relevance in meeting our clients' needs. Embracing change, we are not afraid to reinvent ourselves, understanding that the only path to sustainable growth is through continuous innovation.

What is your perspective on the outlook for the diamond and jewellery industry in India?

There are limited investment options that guarantee returns for investors over a three to five-year period. Gold, with an annualized return ranging from 9 to 12 per cent per annum, is not just a luxury item or status symbol but also a prudent investment choice. Despite ongoing geopolitical tensions, a significant correction in US treasury yields, and the Federal Reserve's interest rate hikes, gold has displayed optimism, leading to prices reaching an all-time high. However, the recent price performance and macroeconomic factors do not suggest any immediate pullback.

In India, gold has consistently earned the trust of buyers and remained resilient during crises, such as the pandemic. During this period, India's gold jewellery purchases surpassed those in America, Europe, and the Middle East combined. The widespread appeal of the yellow metal, coupled with the current bullish momentum, presents a favourable opportunity to stay invested in gold as a long-term strategy. Anticipating a 25-30 per cent return in the next two years is reasonable under these circumstances.