Senco Gold remains optimistic about a recovery in margins in the fourth quarter even as the stocks of the retail jeweller fell by 9.16 per cent to ₹324.85 on the Bombay Stock Exchange on Monday.

The company on February 14 had reported an EBITDA (earnings before interest taxes depreciation and amortisation) margin of 3.8 per cent, which is significantly lower than 11 per cent in Q3FY24. Net profit reported by the company was ₹33.48 crore during Q3FY25 compared with ₹109.32 crore in Q3FY24.

Following the announcement, the stock fell on Friday and continued the declining trend on Monday.

On Monday, Suvankar Sen, MD and CEO, Senco Gold Ltd told The Telegraph that a combination of factors has hit the company’s performance during the quarter.

This includes the impact of customs duty cut on gold, volatility in gold prices prompting the company to hedge for unpredictability and a fall in the sales mix of high-margin diamond jewellery.

“The absolute numbers may look low because of certain factors, but there is no fundamental change in business. We remain optimistic about our guidance. For the nine-month period ending December 2024, the adjusted EBITDA was 6.2 per cent compared with 7.1 per cent of in the same period of FY24,” Sen said.

He said that the monthly average hedging rate by the company is in the range of 65-80 per cent.

Explaining why the company is incurring losses by hedging, Senco informed the stock exchanges on Monday that despite a consistent rise in the gold price in the last 8-10 quarters and expectations of prices crossing $3,000 per ounce in the near future, by hedging, the company is covering for losses in case the price suddenly starts falling.

Analysts said that margin volatility for the company is expected to remain a key factor under watch with margins having missed market estimations during the quarter.

“Senco’s reported Q3 EBITDA missed our estimate by around 500 basis points. However, most of the miss was led by hedging loss in the current quarter and hedging gain in the base quarter, as adjusted gross-margin decline was limited to only 100 basis points.

“Q3 revenue growth at 22 per cent was healthy and in line. We see around 50 per cent correction in Senco (versus 52-week high) as unwarranted, and an assuring explanation for the margin volatility should be the key catalyst for a re-rating,” said Emkay Research.

“Management has maintained its EBITDA margin guidance of 7-8 per cent for Q4FY25 and the coming years. However, the unsatisfactory explanation for the sharpcontraction in gross margin in the third quarter has undermined our confidence in the margin trajectory going forward.

“Peers have also reported third-quarter results, but we have not seen similar margin volatility driven by gold inflation. While peers also engage in gold hedging, such hedging costs were not observed,” said Motilal Oswal in its report.