Credo Brands Marketing Limited (MUFTI) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Credo Brands Marketing Limited Q3 and 9 Months FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance, and it may contain, involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Kamal Khushlani, Managing Director. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. I have with me Mr. Rasik Mittal, our Chief Financial Officer; and SGA, our Investor Relations advisers. I trust you have received the investor deck. If not, it is available on the stock exchange website and on our company website. In Q3 FY '26, we continued to make steady progress on our MUFTI 2.0 transformation journey centered around premiumization of the store experience, elevated merchandise and stronger brand storytelling. During the quarter, 12 stores under the new retail identity have already been opened. And while it is still early in the journey, the initial consumer and trade response across these locations has been encouraging, reinforcing our belief in the direction of the transformation. On a 9-month basis, we have opened 27 new stores and closed 22 underperforming stores, reflecting our continued emphasis on quality of network over scale. The advertising and branding spend for 9 months FY '26 stood at approximately 5% of the revenue, and we intend to increase this to 8% to 10% of revenue for the next year, even if it has a short-term impact on profitability. Q3 FY '26 was a muted quarter for the apparel industry, marked by cautious consumer sentiment and lower footfalls. For MUFTI as well, the festive season did not meet expectations, which impacted overall sales momentum during the quarter. Against this backdrop, our revenue from operations for Q3 FY '26 stood at INR 146.1 crores with EBITDA of INR 33.5 crores, translating into an EBITDA margin of 22.9%. PAT for the quarter was INR 7 crores. Gross margins during the quarter were temporarily impacted by recent GST reforms as we consciously passed on tax benefits to customers on products priced below INR 2,500 while refraining from price increases on products above INR 2,500. This measured approach was taken to protect volumes and sustain consumer traction during a softer demand phase. However, while top line growth remained under pressure, we maintained gross margins of 56.5%. On the working capital front, we saw an improvement during the quarter. Working capital days reduced to 179 days as of Q3 FY '26 compared to 217 days as of H1 FY '26 on a trailing 12-month basis, reflecting stronger collections and tighter credit discipline across channels. While our working capital cycle remains structurally higher due to our deliberate risk absorption model where we retain inventory risk to ensure fresh merchandise and stronger partnership relationships every season. While near-term demand conditions remain subdued, we remain confident in MUFTI's long-term growth strategy. Our strong brand recall, diversified channel presence, disciplined inventory model and continued focus on premiumization position us well to benefit from a recovery in consumption. As we move forward, our priorities remain clear: strengthening brand equity, scaling profitable growth across channels, expanding our premium store footprint and building long-term value for all stakeholders. With this, I will now hand over the call to our CFO, Mr. Rasik Mittal, to take you through the detailed financial performance for the quarter.

Thank you, Kamal, and good afternoon, everyone. First, I will give you the financial highlights for Q3 FY '26. Our revenue for the quarter stood at INR 146 crores as against INR 156 crores in Q3 FY '25. Gross profit stood at INR 83 crores with a GP margin of 56.5% for the quarter. Our EBITDA for the quarter stood at INR 34 crores. Our EBITDA margin stood at 22.9%. Profit after tax for the quarter stood at INR 7 crores. PAT margin stood at 4.8%. Coming to 9 months FY '23 performance. Revenue stood at INR 430 crores in 9 months FY '26 as against INR 465 crores in 9 months FY '25. Gross profit stood at INR 250 crores with GP margin of 58.2% for the 9 months. EBITDA for 9 months FY '26 stood at INR 113 crores. Our EBITDA margin stood at 26.2%. PAT margin for 9 months FY '26 stood at INR 32 crores with a PAT margin of 7.5%. ROCE and ROE as of 30 December 2025 basis stood at 13.7% and 11.2%, respectively. Cash flow from operations for December '25 stood at INR 115 crores. With this, we now open the floor for question and answers.

[Operator Instructions] The first question is from the line of Gunit Singh from Counter Cyclical PMS.

So I just have a question regarding the increase in advertisement spend and the strategy behind it. So for the previous 9 months, we have increased the spend to about 5% of the revenues, but we haven't seen any -- but they don't reflect in the numbers. The revenues have gone down despite store opening and all that. But we plan to take it up to about 8% to 10% of total revenues. So I would like to understand, number one, this will be contracting our margins going forward. So when you planned about increasing the spend, I mean, what kind of results did you -- what were the underlying results of your plan for this that you expect revenues to grow by about 20%, 30% by increasing the spend to about 8% to 10% of the revenues, number one. And number two, is it so that we will continue to spend about 8% to 10% of revenues? Or is it just -- is it that we will cap the spends to say about once we reach marketing spend about INR 40 crores or INR 50 crores or so on, do we have a number that despite revenue growing, we will cap the marketing spend to a given number? Or is it the strategy that even if our, say, revenues double in the next 2 years, we will continue to spend about 8% to 10%. So I just want to understand like, I mean, is this strategy well thought and what outcomes you expect from this?

So Gunit, the thing is that the brand has undergone transformation again and is moving towards a premium position in the market. And it is important that the consumers are -- there is enough awareness that is created among these consumers regarding the new position that the brand is taking in terms of elevated merchandise, elevated store experience and the way the experience at the store will be curated for them in future. So to do that, it's at a stage where we have to make these investments, which is going to be in line to keep the brand salient and competitive in the environment which is ever evolving. So this is something which is necessary for the long-term health and future and sustainability for the brand. So for the next couple of years, for sure, we are going to be spending 8% to 10-odd percent of our revenue. However, these are decisions which are taken keeping in mind the longer-term growth, which I'm unable to project right now that when we'll hit the 20%, 30% numbers. But for the next couple of years, we'll be spending heavily in investing and all the changes that we are making. It's a little early in the journey to say much about it, but there are already positive signs that we see from trade as well as from consumers with a little bit of whatever kind of interactions that we have had with consumers.

Sir, what kind of positive signs are we seeing? Because, I mean, if we consider our business earlier where the spends were limited, not the 8% to 10% levels, we were growing year-on-year, we were having comfortable margins. So I mean, why are the pivot to such higher spends wherein even after 9 months, the revenues are falling. And obviously, we'll take a long hit on the profitability as well. So why -- I mean, what's the rationale for, I mean, transition? I want to understand basically, I mean, what was the main idea behind this because everything is going well to now, if I'm not wrong.

Sure, Gunit. It is certainly going well, and we will still be spending from our profits only. It's not that we are going to hit our bottom line or take it into the negative. The thing is that as the market keeps changing and market keeps evolving, there is new brands, new things that come into the market. So to stay relevant, you have to change your course. You cannot just continue to do what you were doing in the past. So keeping the future in mind and keeping the current competitive scenario in mind, these are the steps that we are taking, which we believe are going to help sustain the growth for the brand in the future.

Okay, sir. I wish you all the best, and I hope that these will come to fruition soon. This time, our share has fallen about 75% from the all-time high. So I just hope that, I mean, these decisions work well for us.

Sorry, your voice was muffled.

So I'm saying that -- I mean, if we look at the bottom line, the profitability has gone down. The share has fallen about 70%, 75% from all-time high. So I just hope that, I mean, in future, we are able to create some value for the investors as well from the decisions that you take. Wish you all the best.

Thank you, Gunit. Thank you.

[Operator Instructions] The next question is from the line of Nilesh Doshi from Prospero Tree.

Sir, we are changing the strategy. We are opening the new format store or the premium store, and we are spending 8% to 10% of the revenue for the advertisement. By spending that much money and by opening the premium store, will the company achieve the earlier revenue and profit or it will be much more higher than the earlier profit?

In future, Nilesh, it will certainly -- we aspire and aim to get it to a higher level. The midterm or short term for the next couple of years, definitely, our profit will be impacted.

Sir, the profit may be impacted maybe due to the advertisement cost, but our GP margin is lower and our revenue is also degrowing on quarter-on-quarter -- sorry, on a Y-o-Y basis. So if we are opening a premium store, naturally, we are selling the premium product, which is higher than the average sale price. So why our revenue is not growing, why our GP margin is not maintaining and why our profit is down?

So at this, you should be looking at our business on a quarter-on-quarter basis. I have even said that in the past. By the end of the year, this should -- EBITDA should come to around 25-odd percent by end of Q4. And also our GP margin will be sustained. It's not that it's going to be terribly lower. Nilesh, the GP margin has gone down because there have been changes in the GST rates. And as we have explained in the presentation, in the Q3, we have not increased the MRPs to take care of the higher GST. However, we have passed on the benefit of the lower GST to the consumer. So that's why the GP margin has been impacted slightly. But however, going forward, we are confident we'll be able to maintain our GP margins.

So what about the revenue? Will we maintain from quarter 4 onwards, can we maintain the revenue as earlier or further it will go down?

No, no, it won't further go down. But by the end of the year, we might be 5% to 6% lower than last year.

Okay. Because the investors are a little bit worried, at least the investor like me because last 3 to 4 quarters, every time the press release or everything from the company is informed that there is a market condition is not good and the demand is not good. So the revenue is down. Now we are spending the money on opening a new store. At the same time, we are spending the money on advertisement to establish our premium brand. I think this strategy will work for the company in the future because currently, it does not seem that our revenue is growing because we are opening the stores, then why the revenue is down? I don't understand because we are closing some nonperforming store and opening the new stores. So I think the revenue must be maintained at least because of the advertisement expense, our operating expenses is higher and EBITDA margin should suffer, not the GP margin and revenue. That's my understanding. I may be wrong, but it is my understanding, sir.

But these stores have just recently been opened and it's a game of patience, Nilesh. Over the future, definitely, the business will grow, and we are confident about that as the demand picks up. But these stores have just now been opened and underperforming stores have been closed. So they take some time to pick up. And these are investments that are necessary to keep the salience of the brand going forward.

Okay. Okay. All the best, sir. From Q4 onwards, at least we see the revenue growth, at least not the profit growth, but the revenue growth.

Thank you, Nilesh. Thank you for your wishes.

The next question is from the line of Rahil from Sapphire Capital.

Can you hear me?

Yes, sir.

Sir, firstly, I would really like to applaud you and commend you for the journey you've taken upon, I can really see the change. I recently passed by one of your stores in one of the malls, MUFTI 2.0 stores. I also recently visited your website, right? So I can see the vision which you had portrayed in front of investors that you want to premiumize the brand. It's really working. My only concern is in today's time since COVID, so many small brands have come up, right? And they are also targeting the young generation who want those fancy names and the logos from the market, and they want to wear that. How will you make MUFTI an overnight sensation. So for example, recently, I've been hearing a lot from friends and other people that they are into Rare Rabbit and similar brand. So MUFTI has been in the market for such a long time. And now I see that, okay, the quality is there, the whole image has changed. But how will you insert in your mind that okay, MUFTI is something you want to go for against the likes of JACK & JONES, Lacoste, Superdry, et cetera?

So this is exactly what we are looking to do, Rahil. People have an overhang of the brand from the past. And with whatever changes that we are making, it's important to communicate and change people's perceptions about the brand because there's a certain rate at which the physical stores will change. There are many factors that come into play when we are changing or renovating new stores also. Even while renovating a store, we have to keep in mind how much of the lease is still pending, whether the lease is ending in 2 years then those kind of stores can't be renovated because then you have to amortize the depreciation over just 2 years and things like that. So this will happen at a certain pace. However, we will do it prudently at the fastest pace possible. But that's the reason why we are changing the brand because as the environment and the retail landscape keeps changing, we have to keep changing. So there are times when there are some ups and downs, but it does not impact the long-term sustainability of the brand. But whatever we are doing right now is to keep -- keeping in mind that what competition is doing, what we have to do and how we will have to navigate through this period where we are able to come back on a growth path and rekindle the demand for the brand.

Okay, sir. I just want to wish you all the best, sir. I really wish that people are able to see what you have to offer now. I recently purchased from -- yes, even for that matter, the website and the overall, everything is looking -- there is a drastic change in your presentation as well. So -- and if I have to pick out of the bunch all the stores in the mall, I think I would go to MUFTI first from what I've seen from afar. So I think it will work. I think it is working, and I wish you all the best for that.

Thank you so much, Rahil.

The next question is from the line of Deepan Sankara Narayanan from Trustline Holdings Private Limited.

Sir, firstly, how do we see the growth profile of the company changing over next 3 years, considering the substantial increase in ad promotion and spend strategy. So do we see the growth profile changing over long term?

Certainly. Certainly, we see it changing over the long term. But however, as we have mentioned earlier, for the next couple of years, we are not going to commit on numbers that this is what we'll do, this is what we do. Typically, we believe in under-committing and overdelivering. So it's -- certainly, we should start seeing growth from next year onwards. But after the next couple of years, we'll definitely be back on track.

Okay. Okay. So is this change in strategy is mainly due to huge competition coming from these D2C companies, which are being funded by private equity guys, and they have been aggressively growing. So this is reflective of that to stand holding position in the competitive market environment?

Partly, yes. Partly, yes. That is ever-changing market scenario. You have to keep changing with the market.

Okay. And sir, specifics to the quarter -- yes, sorry. Go ahead, sir.

I said, we have to stand the test of time. That only time will tell us in hindsight.

Okay. Okay. Sir, specific to this quarter, what is the kind of gross sales growth we had seen adjusting for sales return discounts and the GST impact? What is the kind of gross sales growth we had?

So Deepan, we have not seen any growth in the revenue. In fact, the quarter has degrown by around 6%.

Okay. 6%, okay. And can you throw some light on the GST impact on this gross margin per se?

So GST impact has been only in the third quarter when the -- because on 23rd September, the new GST rates got applicable basically. So as a company, we had taken a call to pass on the benefits of the lower GST rate to the consumers and not increase the GST -- the MRP for the higher priced GST rate basically for the garments. We took the hit -- in fact, the company took a hit. We didn't want to disturb the consumer sentiment in between the season.

The next question is from the line of Aditya Varma from Synergy Investments.

My question is on the quarter 4. Now we are already sitting in mid of February. How do you see the sales happening? And is there some improvement from the previous quarter?

So as I mentioned earlier, Aditya, at the end of the year, we should be at about 5% or 6% lower than last year's sale numbers. So it continues to be muted. However, the improvements and changes that we have made in the merchandise, et cetera, hopefully, from spring/summer '26, they should start paying dividends.

Okay, sir. Okay. I had other questions, but I think most of them are answered by previous analysts.

All right.

The next question is from the line of Ashi from Matterhorn Investment Advisors.

I had a few questions. On the store opening plans, I wanted to understand how do -- what are the plans going forward in terms of the number of stores being planned to be opened in the coming few quarters and the closing as well?

So Ashi, currently, we have -- in 9 months, we have opened 27 new stores and closed 22 stores. That's a net addition of 5. However, in the next quarter, we shall be we shall be closing 21 stores and adding 15 new doors -- adding 6 new doors in the season. So for the year FY '26, we would be at minus 10, which is 431-odd stores. And out of these, 20 stores will be of the new retail identity. And going forward, in the next year, we intend to close about 20, 25-odd stores and open 25 to 30-odd stores. We are not going to chase scale. We're going to chase quality for the next year.

Understood. Another thing I wanted to get a understanding on was that there was a mention about inventory optimization as well in these stores. Could you dwell a little deeper on that as well?

Inventory optimization, I don't know what exactly you're referring to, but this is something that we consistently do. It's the business model that we follow, Ashi, is a business model where we take risk of the entire inventory. We provide it to all channel partners and whatever is left over at the end of the season, we take it back. Since the season has been impacted and the performance has been low, the goods will be coming back to us. However, historically, we have always managed to clear these goods at a profit. We don't end up making losses. We take our own time to do it, which impacts our working capital days, but we don't end up eroding the brand by giving extra discounts and trying to liquidate it in a hurry.

Understood. Yes, this was around the point that was mentioned about the working capital cycle going down. Just wanted to get an understanding on that. Also, there is a mention quite frequently about the market momentum being quite slow in the coming -- in the past few quarters and in the coming few quarters as well. I wanted to understand how do you see this market momentum? Of course, we expect that the company would be able to recover the invested value, say, by December '26. But how do you see the market moving in this particular segment going forward?

So we are hopeful that the demand should pick up given the reforms that the government has made. And for the last few quarters, it's been muted. We are hoping that the demand should pick up from spring/summer '26 onwards.

Understood. I just wanted to point out that I happened to visit one of the stores in the city I live-in and it's commendable that even though store staff is very well worked with the Strategy 2.0 that you guys have implemented. Just wanted to point that out as well.

Thank you, Ashi. Thank you.

The next question is from the line of Tanmay from Growth Infinity.

Hello, sir. Am I audible?

Could you come closer to the mic and speak because your voice is pretty low.

Yes, sir. Can you please use your handset.

Sir, am I audible now?

Yes, better.

Yes.

Sir, I was asking that in the last -- means from Jan only, I have started to observe that there is a large number of views coming towards your advertisement on YouTube and on Instagram as well. So are you able to see some green sprouts coming up and with those advertisements means the large number of views that are coming, are they converted into real-time sales on websites or on offline basis?

Yes. Yes. On the website, our business has grown by 87% over the last year same quarter. And definitely, we are seeing an improvement in that. And from whatever we get in interactions from trade also, like I said, the response is very positive and people are noticing that something has happened even on the website. It looks a lot more premium. The stores look a lot better. But however, Tanmay, these are not things because it's not like a call to action advertisement that you're just promoting discounts and you're getting people to your stores. These are investments made for the longer term. So they take some time to pay off. And there's a certain amount of frequency with which we have to hit the consumers along with the reach that we have to -- for it to bear fruit. Hence, we say that for the next couple of years, at least we will have to make huge investments in advertising. And post that, looking at the market scenario and the performance, we will take decisions on how we want to invest going further.

Okay, sir. And sir, one more question that as for now, we have 12 premium stores. So by the end of quarter 4, can we expect it to reach by 20 or 15, 16 in the better number?

20.

Okay, sir.

End of Q4, there will be 20 new identity stores, out of which 15 will be new stores and 5 will be renovated stores.

Okay, sir. And sir, do we have something big colabs coming up with online creators as well or colabs in the means you are expanding the advertisement spend as well. So are we expecting some big colabs between some creators or the industry colabs as well?

That's constant work in progress, but we are not looking at big slaps, but certainly, we are looking at content creators as collaborators with the brand.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments.

Thank you. I'd like to thank everyone for being a part of this call. We hope we've answered your questions. If you need more information, please feel free to contact us or SGA, our Investor Relations advisers. Thank you once again, and have a good day.

Thank you, sir. On behalf of Credo Brands Marketing Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.