Cantabil Retail India Limited (CANTABIL) Earnings Call Transcript & Summary

Now the voice is clear right.

Not clear, not clear, not getting.

So what I'm trying to say on the headline numbers like we have grown at 26 CAGR for PAT level and plus 20 CAGR in top line. On the other hand, if we see the kind of return on capital employed that our business is currently showing has downgraded significantly that the main component that is letting it do that is inventory. So are we doing something so that the inventory is kind of -- like the inventory days or inventory churn becomes faster or anything if you can throw some light on it.

So I think the two, three points you have highlighted. Number one is ROCE, then it is coming back to inventory days. So how we are optimizing it, right? So if you have seeing when we are talking about our FG inventory last year, it was 121 days. That is FY '25. We have managed with 214 days in FY '26. Our working capital, which was approximately 110, that has come down to approximately 100 days. So we keep on working on it. But the ideal number, as in our earlier commentary also clarified many times that what the pieces were required for this asset. So on this basis, the ideal number is 120 days internally. However, we worked on it and make it to 114 days in terms of finished goods inventory last year. We are planning to make it more 110 days approx, but that is somewhere in between 110 days to 120 days, couple of days here and there would have been there. So these are the ideal numbers in terms of considering our store opening store sizes per square feet requirement, which we are going to maintain. And ROCE is approximately 40%, that is the number which would have been there.

[Operator Instructions] The next question is from the line of Anupama from RatnaTraya Capital.

Yes. We just wanted to know what is the SSG growth that you are seeing for long-term basis like three to five years.

Medium to long term, what would be the expectation on SSG?

So, we are always been focusing on a SGR of approximately 5% to 6% [indiscernible]. So that is the number we are continuously want to deliver.

Okay. And is there a point of time beyond which you actually shut down an existing store, sir?

We have agreement renew from nine to twelve years. So most of the stores get renewed after the nine years also. Yes. But every year, some stores get closure due to the performance or the market get outdated or some franchisee issue erupts. So around 20, 25 stores get closed every year. But I think that's a -- normal number. It's nothing abnormal about it really.

Okay. Got it. And you -- from what I understood, you are saying you expect the raw material prices to fall. Is that the right expectation? Did I get it right?

So earlier, the raw material prices have increased around 20%, 25%. Now there is a correction of around 10%, 15%, only 10% hike is there from the earlier figures. So we expect that this 10% should also come down again.

Okay. I was just double clicking on this because the cotton prices seem to have shot up and they have not backed off. So is there any particular basis on which we are saying the RM prices will fall?

No, please come again. I didn't get your question.

I think the cotton prices have been up significantly. So I mean, is there any particular reason why we are saying the prices will fall off now?

Cotton prices also have increased around 10% to 12% only. So there is either beyond 15% increase -- 10% to 15% increase is there in the cotton prices.

The next question is from the line of Varun Thakkar YES Securities Limited.

So my question is a little on the competitive side and the brand specifically. What I wanted to know is how do we compare with the new age fast fashion brands and online only D2C sort of brands that have come up? And what makes Cantabil brand competitiveness so strong that a customer will only come to Cantabil store for certain products and not go to other brands?

So the new age brands, what we are making is the basic casuals, basic formals. We are not making the high fashion and the loud fashion garments. So when it comes to new age brands also, they've also a collection which cater to the basic section. Means they are around the 50% to 60% collection is also about the collection which we are making. Only around 40% collection is what is different from them. So we have our own customer base -- 25 base we have. And these people new age brands are mostly catering to the generation Z and we have the middle aged customers also. So naturally, there will be some difference in the collection. But yes, around 50% to 60% collection is same [indiscernible] brands also.

Okay. And what other brand initiatives are we taking to premiumize our brand? Or are we going to be a price-sensitive sort of a player all the time going ahead?

Customer, see we are not planning to premiumization. So our ASP is around INR 1,100, and we want to maintain the same kind of selling price.

[Operator Instructions] The next question is from the line of [indiscernible] an individual investor.

So following up the last question that we can see the numbers, our business is currently doing great and it's running smooth [indiscernible] all good. But are we planning to do something like to boost our growth? We can see our [indiscernible] price has been flat since the last two years or so. So we need to do something extra, right? So are we planning to do it or we are absolutely certain about not doing anything like.

Sir you're not at all audible.

So my entire question wasn't audible, right?

You're not audible at all

The current participant has left the queue. We take the next question from the line of Bhargav Buddhadev from Ambit Asset Management.

In your opening remarks, you mentioned that you are opening larger stores. So is it possible to highlight what is the increase in terms of square footage in the new stores which you are opening? I believe at Karol Bagh also you've opened a very large store. And with this increase in store sizes, are you seeing any change in your merchandise in terms of average bill value or mix in terms of rising female share, child share, et cetera, et cetera?

So yes, our store size is continuously increasing, Bhargav ji. Last year, we ended up, if you see last to last year, 1,300 average size. But for last two years, 1,700 square feet of average store. In Q1, our average size of opening store is 1,810 square feet. And we are expecting more bigger stores opening in Q2 [indiscernible] So our size is continuously increasing. So average size by the end of this financial year, we are expecting approximately 1,500 square feet per store.

Okay. Understood. Secondly, sir, if you look at your repeat sales, it is closer to 50%. Are we doing anything to reward those loyal customers through any loyalty program?

We are not planning to have point-based loyalty program because Cantabil most of the time offering a bundle offer. So combining the points with the bundle. So we have always prevented ourselves from launching the point-based program. But yes, we have the ability, we have the system in place to get it done anytime. So when we feel there is a need to launch the point-based program, definitely we will so.

No, because if you look at your gross margins, your gross margins are far superior compared to the other peers. You're operating at virtually 60% to 75% gross margins on an average. So I mean, does it not make sense to slightly compromise on gross margins and focus more on revenue growth by rewarding the loyal customers?

So we take your suggestion in a positive manner, we will give a thorough deliberation on it, but we need some time to decide.

Thank you. The next question is from the line of Niren from Avrika. Please go ahead.

Hey, sir. Am I audible?

Yes, sir.

Okay. So, my question is, on your inventory card, how much of your inventory is less than one year old, between one to three years, and more than three years old?

So out of our total inventory, my inventory at fresh store that is less than one year is approximately 75%. And my one to three years inventory, is approximately -- out of my total inventory, is approximately 20%. And we are just keeping approximately 5% more than three years, which is mainly on the, you know, super factory outlet.

Okay. And sir, just one more question from my side. Of the stores which you have opened prior to three years, what is the average sales in that store and [indiscernible] which is going on over the newer stores which had opened?

So I didn't get the store name. Which store you are talking about?

So, [indiscernible] if you had 100 stores three years back and you added 30 stores in the last three years, so of that total since you have, what amount of sales is coming from the 100 -- stores, the stores opened two years back?

What you are saying, probably what I'm getting, there's a huge disturbance in line in what I see. You are comparing three years old stores versus last years opened stores?

Yes, yes. I am just comparing what is the sales which you've -- what is the sales run rate of the store which has been opened three years back and what is the current run rate of those stores.

So a store needs two, two and a half years to get mature. Yes, the stores which were opened three years ago have bigger sales than the stores which have newly opened. So there must be around a difference of --20%.

So our average sale for the store, if you see by FY '26, was INR 1.26 crore. That is our average stores, right? It includes all, one-year stores, two-year stores, three-year stores, and three years plus stores. If I bifurcate it, my average sale all together, few stores may be INR 5 crore, INR 8 crore. But if I'll take it average, my complete matured stores must be giving INR 1.5 crore. Exact data I'm not available. I can share you separately. INR 1.5 crore. And obviously, the new store which has been only one year, less than one year or one and a half years, it would be INR 1 crore. So there is a difference of approximately, you can say, 10% to 15% in this range. However, if you want exact data, that we can share separately.

[Operator Instructions] The next question is from the line of Yash from Qode Advisors. Please go ahead.

Just wanted to understand one thing. So, as you've seen many headwinds in the business and the profitability over the last five years has been very good and growing at a great rate. But looking at the franchise, the FOFO model count, like the FY '23 count for the franchise has been 130 stores, and today it's sitting at, the count was 178 stores, and today sitting is 130 stores. Just wanted to get a sense on, as the profitability for us has been so good, and the business model is tested enough, so why -- are we not focusing on expanding FOFO, that is one. Or what's stopping us to expand the FOFO? Because if the profitability is good, and from a business model perspective, it should incline more people to get enrolled on the FOFO model, and it's good from a company perspective because we expand on an asset-light model, and from an incremental return perspective also. So, what is the picture going on that angle? So just wanted to get an understanding there.

So we are opening bigger stores now. And bigger [indiscernible]. So franchisees are more comfortable in the Tier 3 towns [indiscernible]. Earlier, we were opening small stores and our major stores are in the Tier 2 towns and beyond. So we don't have much franchisees in that category available who are able to do big investments in the large format stores.

The next question is from the line of Aditya from Motley Fool Private Limited.

Sir, just one question. The company has reiterated its revenue target of INR 1,000 crores for FY '27. However, based on the Q1 FY '27 growth over Q1 FY '26 and assuming quarterly growth rate trends similar to the historical growth seen in FY '25 over FY '24, the implied full-year revenue appears to fall short of this target. So could you elaborate on the key drivers or initiatives that give you the confidence in achieving this INR 1,000 crore revenue?

So we have opened around 27,000 square feet in Q1 and we expect to open 55,000 to 60,000 square feet in Q2. So that is more than double square feet we are planning to open in Q2. So we will be able to recover the shortfall we have seen in Q1 by the sales and the new stores in Q2.

[Operator Instructions] The next question is from the line of Devank from Shah Group.

First of all, congratulations on a good set of number. I have a couple of questions. One is we have guided for INR 1,000 crores revenue target for FY '27. So just wanted to understand how much would be because of increase in MRP and how much would be the normal sales growth?

So if you see our SSD always we have taken a target of 50-50. We have 5%, 6% of the SSD, we are looking for inflation. Obviously, inflation has to be absorbed. That is 50%, 60%. And balance is from the volume growth. So approximately, if I say, in this number as well you have seen 8% of the volume growth in totality and 13% is total. So that number would have been there. So we are expecting more volume growth in the coming season. So for 18% to 19% growth for INR 1,000 crores, we are looking at definitely 10% to 12% of the volume growth and balance from inflation little bit.

Sure. What would be the working capital cycle? I know this time you have given numbers for.

100 to 105 days.

Okay. And my last question is more of a broader strategic question. The marketing spend typically has been in the range of 2%. And we are very low on debt or virtually zero on debt, right? Can't we accelerate our growth target in terms of opening more stores one is because we have sufficient headroom to take debt? And secondly, improve the visibility in terms of spending more on marketing [indiscernible] we have an industry-leading EBITDA margin. So more of a strategic question. I just wanted to understand.

We have opened 15 stores in Q1, and we plan to open around 30 stores in Q2. And for the marketing spend, we plan to increase our marketing spend on digital marketing, digital advertisements. So we are in the process of reinventing our marketing strategy in the online space. So yes, you will see the change in the strategy in the marketing space.

Sure. And what was the online sales contribution for the quarter? I understand only yearly numbers are given.

Last year, we did online sales of 6%. This year, we plan to do 8% from the online sales.

And what about the quarter?

Quarter, we did a little bit of dip in the quarter itself because we are changing our software end-to-end integration. So that has taken some hit. So overall if I take quarter it is 5%.

And in terms of the gross margin and EBITDA for online sales which is your normal stores sales.

Obviously, offline is more in terms of margin, but we are trying to operate it above EBITDA level for the online business.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to Mr. Deepak Bansal for closing comments.

Building on the record achievements of financial year '26, Cantabil has continued its strong trajectory in Q1 FY '27, delivering sustainable growth, healthy consumer traction and resilient financial performance. We remain focused on expanding our footprint, enhancing customer engagement and driving sustainable long-term value creation. We thank our stakeholders for the continued trust and support and look forward to carrying this performance through the remainder of the year. We hope we have been able to answer your query. Please feel free to reach out to our CFO or IR team for any clarifications or feedback. Thank you all.

On behalf of Cantabil Retail India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.