Senco Gold revenue growth remains strong as margin volatility drives earnings miss

Investment View and Valuation

Motilal Oswal Financial Services' August 12, 2026 results update characterises Senco Gold's Q1 FY27 outcome as a weak print: strong revenue growth was offset by a material profitability miss and continuing margin volatility. The broker reiterates its Neutral rating and target price of Rs 385, based on 15 times September 2028E EPS, versus the CMP of Rs 346.

Motilal Oswal remains cautious about future operating-margin performance because of inconsistent operating performance and relatively low hedging ratios. The broker maintains its FY27 and FY28 EPS estimates and models a 20 per cent revenue CAGR and a negative 4 per cent EBITDA CAGR over FY26-28.

Q1 FY27 Financial Performance

Senco Gold reported consolidated revenue growth of 67 per cent year-on-year to about Rs 3,100 crore in Q1 FY27, exceeding Motilal Oswal's estimate of about Rs 2,900 crore and performing ahead of peers. Revenue was supported by a favourable festive calendar, including Akshaya Tritiya, Poila Boishakh and Baisakhi, as well as the summer wedding season.

Same-store sales growth was 39 per cent. Despite an approximately 61 per cent year-on-year increase in average gold prices, gold jewellery volumes remained broadly stable, supported by demand resilience and a richer mix of lightweight, fancy and daily-wear jewellery. Retail sales grew 50 per cent year-on-year and diamond jewellery sales rose 43 per cent. Senco Gold also recorded approximately 25 per cent year-on-year growth in July-August.

Margin Pressure and Cost Trends

The key negative was margin pressure. Adjusted gross margin contracted 240 basis points year-on-year to 15.7 per cent, versus Motilal Oswal's 16 per cent estimate and 22.4 per cent in Q4 FY26. The broker attributes the contraction to gold-price volatility, discounting and a higher contribution from the old-gold exchange scheme.

Senco Gold maintained an approximately 50 per cent hedging ratio in the quarter. Customs-duty-related inventory gains were about Rs 12-15 crore for 45 days. Employee expenses increased 22 per cent year-on-year, while other expenses rose 86 per cent to about Rs 230 crore, reflecting marketing, store renovations and customer offers.

Adjusted EBITDA rose 21 per cent year-on-year to about Rs 200 crore, but was below Motilal Oswal's approximately Rs 250 crore estimate. Adjusted EBITDA margin declined 250 basis points year-on-year and 730 basis points quarter-on-quarter to 6.5 per cent, against the broker's 8.7 per cent estimate. Reported PAT declined 3 per cent year-on-year to about Rs 100 crore, below the estimate of approximately Rs 140 crore, while adjusted PAT increased 2 per cent year-on-year.

Store Expansion and Growth Strategy

Store expansion continued, with eight stores opened in Q1 FY27, taking the network to 209 stores.

• 105 company-owned company-operated stores
• 89 franchise-owned company-operated stores
• 13 Sennes stores
• Two Dubai stores

Management plans to add another 12-15 stores during the rest of FY27, with greater emphasis on franchise-led expansion and Tier-2 and Tier-3 cities.

Management Outlook and Estimates

Management expects margins to recover as inventory gains accrue and elevated other expenses normalise. It retained FY27 guidance for approximately 20 per cent revenue growth, an EBITDA margin of 7.5-7.8 per cent and a PAT margin of 4-4.5 per cent.

Management also cited gold-price volatility and Gold Metal Loan unavailability as reasons for high blended borrowing costs. Motilal Oswal models an EBITDA margin of 7.5 per cent in both FY27E and FY28E, near the FY23-25 average, while maintaining its FY27 and FY28 EPS estimates.

Key Drivers and Risks

The broker's valuation stance reflects the historical volatility of Senco Gold's gross margins, which it links to limited hedging and resultant inventory gains.

• Potential supports: Sustained sales momentum, store expansion and margin normalisation.
• Principal concerns: Gold-price volatility, discounting, hedging effectiveness, elevated operating costs and the sustainability of margins.