Credo Brands Marketing Limited (MUFTI) Earnings Call Transcript & Summary

Thank you. Good afternoon, everyone. I have with me Mr. Rasik Mittal, Chief Financial Officer; and SGA, our Investor Relations advisers. I hope you all received the investor deck. If not, you can view them on the stock exchange or the company website. This year, we advanced our transformation journey under MUFTI 2.0, where our goal is to deliver a more premium retail experience, elevate our merchandise architecture and strengthen brand storytelling across all consumer touch points. As a part of this transition, we opened 5 new premium flagship stores in high potential and strategic locations during H1 FY '26. These stores reflect our refreshed identity and are designed to create a more immersive and aspirational shopping experience for our customers. In alignment with this transition, we have increased our investments in advertising and digital marketing to enhance brand visibility and deepen consumer engagement. These efforts are showing meaningful results. Sales through our website have more than doubled year-on-year in H1 FY '26, reflecting a stronger brand salience, improved digital image and an enhanced omnichannel journey. Encouraged by this momentum, we intend to scale our marketing and digital investments to increase awareness of MUFTI 2.0 amongst potential consumers. Operationally, the first half of the year, we continued to face soft demand and muted footfalls. Additionally, the decline in revenue was largely due to a temporary supply chain disruption from Bangladesh, which delayed product availability for the quarter. These goods have been dispatched now in the third quarter and the associated revenue will flow into Q3. Due to the festive season arriving earlier this year, as per our policy, we proactively refreshed our network with new merchandise to ensure every store carried a fresh, updated assortment. As part of our business model, we retrieved unsold inventory ahead of schedule, which shifted some revenue out of the quarter. This is a reflection of our policy and commitment to freshness and brand experience. Our working capital days stood at 217 days for H1 FY '26. This increase is purely a reflection of our business model and currently -- current market conditions and not a structural change. In a softer demand environment, we supported our franchisees and MBO partners due to slight slower stock liquidation and corresponding payments. Importantly, receivables remain fully secured through deposits and long-standing partner relationships and MUFTI has never incurred a bad debt in its history. As sales momentum normalizes, working capital should revert to usual levels. This is business as usual within our operating framework. Despite these short-term challenges added by transition journey where we are closing the underperforming stores, which affected our revenue for H1 '26, which is at around INR 284 crores approximately, supported by a gross margin of approximately 59%, up 200 basis points year-on-year, driven by a change in product mix. EBITDA for the half year was approximately INR 79 crores, translating to a 28% approximate margin and PAT was at approximately INR 25 crores. We remain confident in our long-term strategy and committed to our vision of establishing MUFTI as one of India's leading premium menswear brands resonating with the modern consumer across both physical and digital touch points. With this, I would like to hand over the call to our CFO, Mr. Rasik Mittal, for the update on Q2 and H1 FY '26 results and financials. Thank you.

Thank you, Kamal, and good afternoon, everyone. First, I will give you financial highlights for Q2 FY '26. Our revenue for the quarter stood at INR 164 crores as against INR 186 crores in Q2 FY '25. Gross profit stood at INR 94 crores with a GP margin of 57.1% for the quarter. Our EBITDA for the quarter stood at INR 48 crores. Our EBITDA margin stood at 29.4%. Profit after tax for the quarter stood at INR 19 crores. PAT margin stood at 11.5%. Coming to the H1 FY '26 performance. Revenue stood at INR 284 crores in H1 FY '26 as against INR 310 crores in H1 FY '25. Gross profit stood at INR 167 crores with a GP margin of 59% for the half year ended. EBITDA for H1 FY '26 stood at INR 79 crores. Our EBITDA margin stood at 27.9% PAT for H1 FY '26 stood at INR 25 crores. Our PAT margin stood at 8.9%. ROCE and ROE as on September 2025 basis stood at 16% and 14.5%, respectively. Cash flow from operations for FY '26 stood at INR 32 crores. With this, we now open the floor for question and answer.[ id="-1" name="Operator" /> [Operator Instructions] Our first question comes from the line of Jay Ladda from JL Capital.

The results are very much bad, but it's okay. I know that this is a business it can't move that further, further, further ups and downs come. But my major is that is totally slowdown occur in market? Or is this MUFTI only facing this slowdown? And also when we are going back to earnings positive sales and profit growth.

So Jay, we have faced muted footfalls in this season. And this is ridden on the changes that we are making and some of the stores that we are looking to close, the inefficient ones and open the new stores. And in the earlier calls, the guidance that we had given for this year is that we would remain flattish in this year because these are the changes that we intend to make. And it will -- the changes that we are making is a slightly longer-term outlook that we are holding towards the business. These changes will give results in some time because we've begun making the investments, and it's important for the customer to see MUFTI 2.0 in its new light, and that's going to take some time till people see it, till they realize it and then that starts converting into reflecting positively in the growth trajectory. So we hope that in the next year onwards, we are going to accelerate our investment into marketing even more, as we have also mentioned that earlier. So that should come about in about 1.5 years.

Okay. So we expect something like a top line to bottom line growth of mid-teens or maybe like early teens in next 1 year?

No. This year will be flattish. And the following year also, we will continue what we are doing. So I'm unable to predict right now as to what exactly -- what kind of growth it will lead to. So we are going to play it by the day and see how the consumer is responding. But however, we'll be thinking very quickly on our feet and making whatever changes it takes. This is business as usual. And there are times when you get these kind of roadblocks at times, but you overcome those. We know what are the things that we need to change in the brand, and those changes are currently underway and in process. And as soon as we start seeing the results, we'll be able to predict better.

Yes. And this GST impact has created any more footfall? Or is it like, let's say, a shape of GST.

What we see is that higher footfalls have been created for hard goods and not so much for apparel. However, in a brand like ours, we have to wait and watch as to how it pans out because not everything we make is below INR 2,600, or INR 2,500. A lot of the products we make are above. So for us, in fact, the prices have gone up in some of the products. And in some of the products, they have been reduced. So -- but with time, we believe that these reforms will certainly improve consumer sentiment and should improve demand.

We are in MUFTI because of Kamal, sir. He is a great person. [ id="-1" name="Operator" /> [Operator Instructions] Our next question comes from the line of Naitik from NV Alpha Fund.

Sir, my first question is, just wanted to understand MBO channel, I understand that we might have seen muted footfalls, and that's the reason for degrowth there. But what is the reason for degrowth in the online channels? Because I see that has degrown the most -- if I look at Y-o-Y numbers as a percentage, that's the most degrowth. So what is the reason for the same?

So this is a function of when we are working with the marketplace partners on our website, the business has grown. And these are toughs that keep happening sometimes for margins, et cetera. But that's -- by the end of the year, we will end up doing what we wanted to do even in the online space. Typically, we use it as a channel to liquidate the old season merchandise, and we maintain our strings very strongly and hold on to our reins so that we don't end up losing margins. We don't mind liquidating the inventory slightly slower, but we ensure that the value of the brand does not get eroded.

Sir, in that case, I mean, was -- I mean, we did make higher -- we took some returns also and we made some provisions. So online should have actually grown in that case, right? I mean, if we use it as a liquidation channel, this quarter, we refreshed the inventory also earlier. So that should have grown ideally, right?

The sales overall has been muted, Naitik.

Okay. Okay. Got it, sir. Sir, my second question is what -- I mean, we were going to spend extra amount on marketing. So have we started doing that? And if yes, what was the percentage we spend higher than, say, last year first half?

So current year, the marketing spend is around 5% in H1 '26.

And this was maybe 4%, 4.5% last year.

Last year, I think 3.5%. By the end of the year, we may end up spending between 6% to 7%.

Right. So it is not fully come in yet as a percentage of sales. That is what I'm trying to understand. The increased percentage. Got it. Got it. Sir, my next question is, do we see any sort of green shoots? Or do we expect H2 to grow Y-o-Y, I mean, versus H2 last year? Because if not, we would end up not flat, but having -- we would end up having degrowth year-over-year?

Hopefully, we should end up with a flattish year, and we expect to see that growth. Like even in Q3, we should be higher than last year because some of the sales moved into -- due to supply chain issues from Bangladesh, some of the sales moved into Q3, et cetera. And due to earlier Diwali, some goods were also picked up earlier this year.

Sir, is it possible to quantify the -- sorry?

If you look at our business, Naitik. We've said this in the past as well. A quarter does not reflect the health of our business.

No, sir, what I'm trying to understand is, if you can quantify this due to -- what is the amount of sales we lost because of supply chain issues from Bangladesh?

So Naitik, around 1 lakh pieces, which we expected to come from Bangladesh in September and sold got delayed to October, November. And similarly, around 1 lakh pieces, we picked up earlier from -- last year, it was in October. This time, we picked up them back in September. So around 2 lakh pieces, the sales got impacted by around 2 lakh pieces, which should be around INR 20 crores, INR 25 crores.

Right. So close to INR 25 crores. Got it, sir. And sir, my last question is just wanted to understand what percentage of our portfolio would be below INR 2,500 and what percentage roughly would be above INR 2,500? Just trying to understand the GST impact overall as a company on us.

Just give us a minute. About 60% to 70% would be below.

60% to 70% would be below. So that should see a benefit.

That's realized sale price we are talking about.

Got it. So we should eventually see some benefit, right, of the rate cut?

Yes. We should. Naitik, we had to pass on the benefit as per the government directive. So this will not reflect but going forward, we have some scope for gains in that.

Right. So eventually, that demand could -- you could see demand increasing because of passing on. That's what I wanted to understand. Eventually, not next quarter or immediately, but eventually, that should somewhere lead to increased demand.

Yes, we expect that. [ id="-1" name="Operator" /> The next question comes from the line of Nilesh Doshi from Prospero Tree Asset Management LLP.

Yes. Sir, my questions are related to the management view about the flattish growth. See, when we are opening a new store and closing down -- even opening a new store at a mall where the footfall are higher than the others and closing down the nonperforming stores, then why there is a guiding about the flattish growth. Then the company should report the higher growth because we are closing down the nonperforming store and opening a new store at a place which can generate the higher revenue, then there should be the revenue growth rather than the flattish growth. Am I correct, sir?

Sure. But this is a time when we are going through that change. And like I said, after the changes that we make, we expect to see the results come in. But in the beginning of this year, we had said that for the next 2 years, we are unable to say what exactly that will be. But next year onwards, we expect to be on a growth -- back on a growth trajectory.

And sir, when you say that there will be a flattish growth, flattish growth to which year when it is -- are you taking the FY '25 as the base year for the flattish growth for the next 2 years or the FY '26 will be the base year because we are implementing the new changes in the FY '26.

So FY '26 will be flattish like FY '25. And the year after that, we certainly expect to see growth.

So FY '24...

And we don't want to predict that this is what the growth will be. We want to see what kind of growth is reflected in the -- after the changes that we make.

And that's okay. We don't want any prediction or we are doing the best. Sir, but do we have done any studies that we are sitting in the -- because the high footfall mall will have a higher rent cost and other LI cost. So will it be enough to spend that money? Or will it be a growth driver? What it will be exactly, sir?

Certainly, with whatever we are doing and communicating the new identity of MUFTI, that will certainly -- we expect that, that certainly changes consumers' perception that rekindles the demand for the brand. [ id="-1" name="Operator" /> Our next question comes from the line of Apurva from BugleRock.

So my question -- I have 2 questions. One is, can you provide some color on the new stores that we have opened in those high-end malls, right? There are 4 or 5 that we have opened. If you can give some data points around that in terms of traction that we are getting. I mean, I know it's early days, but still if you can throw some light.

The signs are very encouraging. And overall, the salience of the brand is improving. And the sales on our website is a reflection of that. And also, these stores have just been opened in the last 45 to 60 days. So it's too early to be saying anything. But it's a store -- if you visit the store, Apurva, you will be able to see when we say that how the brand has been premiumized. If you visit one of our earlier stores for the previous identity and then visit one of the stores, whether it's Oberoi Sky City Mall or you visit the Phoenix Palladium, Sky Zone, you will be able to tell the difference. And then you will see what kind of changes we have made and whether they are actually being reflected in the stores or not.

Okay. Just related to this, in terms of the quality of the -- I mean, we are always focused on quality, but have we further improved upon the quality of the merchandise? Or I mean, how -- it's just the SKUs that have been rigid in terms of where the stores are being opened? Just trying to understand.

Certainly, we are working on that, but that's a constant endeavor and a work in progress, Apurva. That is something which is constantly on. And when we have been saying that we are looking to premiumize the brand, we are not looking to premiumize the brand in terms of charging more. We are looking to premiumize the brand in terms of delivering more in the experience at the final touch point for the consumer. That's what we are looking to do when we say we are premiumizing the brand. But coming back to quality that is constant work in progress.

Okay. And one medium- to long-term question. So I mean we are spending -- we will be increasing our percentage of -- in terms of marketing and sales as a percentage of revenue and the premiumization of stores and things on these lines. So over the next 2, 3 years, we are going to see a change. So how does it -- I mean, in terms of going ahead, how does it pan out -- I know I don't need a forecast, but in terms of directionally, in terms of margins, the return profile and the leverage on the balance sheet, can you just take us through that a bit? How are you looking at it over the next 3, 4 years maybe?