GOLD Rush: I'm SKYing a 144% Jump in Profits
Summary
Afterall, heres a company whose stock price has already surged 10x in just 1 year \U0001f633But Priyam was well-prepared and what followed was a deep, four-hour discussion the highlights of which are featured in this weeks issueThis is Priyams debut research piece, so kindly share your appreciation & feedback in the comments belowSky Gold operates a B2B-model, manufacturing gold jewellery to mid-range jewellers like Kalyan, Malabar, Joyalukkas, Senco etc. who further sell these products through their retail outlets and online platformsMy initial impression was that this outsourcing is done to meet demand spikes during the festive seasonHowever I was surprised to learn major jewellers including Titan rely heavily on companies like Sky Gold, Emerald, Kanakratna, P Mangatram etc. It specializes in casting jewellery (watch) that accounts for 35% of overall retail sales a substantial addressable marketWith 900,000 unique designs & a range between 5,000 & 1,00,000, Sky Golds products are in 2,000 stores across India, plus another 500+ outlets globallyQ1FY25 was a record-breaking quarter for Sky Gold, with the company doubling its revenue, gross profit, EBITDA & PATThe margins gross profit, EBITDA & PAT havent changed much and thats how this model works. )\U0001f48e Further, the management has set a revenue target of 6,300 crores for FY27 assuming 100% utilization of capacity (production of 12 tons; FY24 was 3 tons)Here again, I havent increased the PAT margin beyond 3%, even though the management is aiming higherMy caution stems from comparing Sky Gold to the industry leader Emerald Jewel Industry India Limited which operates at a 1.4%-1.7% margin (ICRA rating)Sky Gold is currently trading at a PE ratio of 70.7 & has seen a 835% jump in share price over the year (wow! If you know someone wholl benefit from the ideas featured kindly forward this email & encourage them to subscribeSky Golds simple business model (capacity expansion = growth, margins = 3%) is reassuring but because we need more comfort before investing lets examine the major drivers of its strategy1.