Sky Gold & Diamonds Eyes Positive Operating Cash Flow by FY27 on Strong Q2 Profit Surge and Global Expansion

Sky Gold and Diamonds announced robust second-quarter results, showcasing an 81% year-on-year growth in net profit. This performance is attributed to the company's 'hyper growth' phase, with annual expansion rates of 40-50%.

Managing Director Mangesh Chauhan expressed confidence that the company's operating cash flow, which has been negative for the past five years due to aggressive expansion, will become positive from the financial year ending March 2027 (FY27).

To achieve this financial turnaround, Sky Gold is implementing several strategic measures:

• Receivables Management: The company has successfully reduced its receivables cycle from 73 days in March to 65 days currently. Further reduction to 50 days by FY27 is planned, supported by its Middle East expansion and advanced gold business.
• Middle East Expansion: The recent opening of a Dubai office marks a significant step in expanding its market reach and enhancing operational efficiency.
• Advanced Gold Business & Acquisition: The company is accelerating its advanced gold business. A key development is the acquisition of a manufacturer specializing in Italian-style bangles. This segment operates on an advanced gold model, promising high returns on capital with minimal upfront investment.

The acquired bangle business is projected to contribute ₹40 crore in Profit After Tax (PAT) next year and ₹80 crore in the third year, without impacting Sky Gold's overall bottom line.

Looking ahead, Sky Gold has ambitious plans to capture 4-5% of India's jewellery manufacturing market and become the country's largest manufacturer by 2031-32. This vision includes the development of India's largest standard facility, spanning 5,40,000 square feet, with operations expected to commence in 2028.

The company's stock also saw positive movement, trading nearly 5% higher at ₹364 on Monday.

Impact

This news presents a compelling growth narrative for Sky Gold and Diamonds, suggesting a strong trajectory for investors. The projected positive operating cash flow, combined with significant profit growth and strategic global expansion, indicates robust financial health and potential for value appreciation. The innovative business models, such as the advanced gold segment, and ambitious market share goals highlight the company's strategic foresight. This development is likely to boost investor confidence and could lead to increased demand for the company's stock. The impact on the broader Indian stock market is primarily sector-specific, influencing sentiment towards jewellery manufacturing and retail companies that exhibit strong growth strategies and effective financial management.

Impact Rating: 7/10

Difficult Terms:

• Operating Cash Flow: This refers to the cash generated from a company's normal day-to-day business operations. Positive operating cash flow is crucial as it indicates the company's ability to fund its operations, pay debts, and invest in growth without relying on external financing.
• Receivables Cycle: The average number of days it takes for a company to collect payment from its customers after a sale has been made. A shorter receivables cycle means the company converts its sales into cash more quickly, improving liquidity.
• Advanced Gold Model: A specific business approach in the gold industry that focuses on generating high returns on invested capital with minimal upfront investment. This can involve specialized manufacturing processes, financing structures, or unique product offerings.
• PAT (Profit After Tax): The profit that remains after a company has paid all its operating expenses, interest, and taxes. It is the net profit that can be distributed to shareholders or reinvested in the business.
• Bottom Line: This term refers to a company's net profit or net income, representing the final financial result after all revenues and expenses have been accounted for. It is the figure that indicates the company's overall profitability.