Thangamayil Jewellery Ltd witnessed a significant decline in its stock price following the release of its second-quarter financial results for FY25. The company reported a substantial year-on-year (YoY) decline in profitability, with rising costs and inventory losses severely impacting its bottom line. As of 1:58 pm, shares were trading 4.44% lower at ₹2,147.20 on the NSE, reflecting investor concerns over the weak performance.
Revenue Performance Shows Growth Amid Challenges
For the quarter ending September 2024, Thangamayil Jewellery recorded a total revenue of ₹1,178 crore, marking a 19% YoY increase from ₹992 crore in Q2 FY24. This growth in revenue was primarily driven by a rise in retail sales, which grew 18% to ₹1,131 crore from ₹955 crore in the same quarter last year. Wholesale sales also saw a boost, increasing by 27% to ₹47 crore, highlighting solid demand within the market.
On a quarter-on-quarter (QoQ) basis, revenue was down slightly from ₹1,220 crore in Q1 FY25. This marginal decline indicates some seasonal fluctuations, but the YoY increase suggests resilience in sales volume despite rising costs.
Profitability Under Pressure Due to High Inventory Losses and Hedging Costs
Despite the increase in sales, Thangamayil’s profitability was severely impacted. The company reported an adjusted EBITDA of ₹54 crore for Q2 FY25, a 32% increase YoY from ₹41 crore in Q2 FY24. However, this improvement was offset by significant inventory losses and hedging expenses. Reported EBITDA stood at a loss of ₹7 crore, compared to a profit of ₹24 crore in the same quarter last year, marking a 130% decline. This was largely due to a 194% YoY increase in inventory loss to ₹53 crore, along with an 8-crore hedging loss.
The company’s adjusted gross profit margin also saw a modest improvement, increasing by 116 basis points to 9.01% from 7.85% in Q2 FY24, thanks to its focus on non-gold products, which contributed to 7.87% of total retail sales. However, the gains in gross profit were insufficient to overcome the steep expenses in other areas.
Net Profit Declines Sharply, Reflecting Operational Struggles
Thangamayil reported a net loss of ₹17 crore for Q2 FY25, a stark contrast to the profit of ₹8 crore in the same period last year, marking a 313% YoY decline. This decline reflects the adverse impact of rising expenses and inventory adjustments on the company’s financials. On a QoQ basis, net profit also fell from ₹5 crore in Q1 FY25, indicating ongoing challenges in sustaining profitability.
Operational Highlights and Market Performance
In terms of product volume, the company sold 1,487 kg of gold ornaments and 4,582 kg of silver products, marking a slight decline in gold volume but stability in silver sales. Diamond sales, on the other hand, saw robust growth with a 21% YoY increase in volume, reflecting rising demand for diversified offerings.
The company’s inventory turnover ratio improved to 3.27 from 3.61 YoY, indicating efficient management of inventory despite the higher costs associated with stock adjustments.
Outlook and Investor Sentiment
With the poor Q2 performance, Thangamayil Jewellery will need to focus on cost management and operational efficiencies to improve profitability in the coming quarters. The market reaction has been swift, with the stock price dropping over 5% in intraday trading following the results announcement.
Despite the revenue growth, the significant inventory losses and high hedging costs have weighed heavily on the company’s profitability, raising concerns among investors. Thangamayil’s focus on expanding non-gold product sales and improving its gross margin may provide some relief in the longer term, but immediate challenges remain.
The company’s future performance will depend on its ability to manage costs effectively and capitalize on the rising demand for non-gold products. With these factors in mind, investors will be closely watching the company’s Q3 performance and its approach to mitigating operational risks in a volatile market.
