Dollar Industries Limited (DOLLAR.NS) Q2 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Dollar Industries Q2 and H1 FY '26 Earnings Conference Call hosted by Anand Rathi Share and Stock Brokers Limited. 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 date of this call. The statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shreya Baheti from Anand Rathi Share and Stock Brokers Limited. Thank you, and over to you, ma'am.

Hi. Good evening, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Mr. Ankit Gupta, President, Marketing; Mr. Gaurav Gupta, Vice President, Strategy; and Mr. Ajay Patodia, Chief Financial Officer. I would now hand over the call to the management for the opening remarks. Over to you, sir.

Thank you, Shreya. Good evening, everyone, and thank you for joining us today. We extend our sincere gratitude to all our shareholders, analysts and stakeholders for your continued trust and support. Your confidence in Dollar Industries motivates us to stay disciplined, strengthen our governance and focus on long-term value creation. I would also request everyone to take note of the safe harbor statement in our presentation. Let me begin with the broader environment. Demand in Q2 remained stable, supported by steady consumer sentiment and improving retail offtake across key markets. The overall industry outlook also remains positive, driven by rising disposable income and the expanding footprint of organized retail, e-commerce and e-commerce channels. This quarter marks a significant strategic milestone with the proposed merger of 9 promoter group companies into the listed entity. A key highlight of the restructuring is that Dollar brand now comes fully under Dollar Industries Limited, giving us complete ownership of 4 assets. By consolidating these assets, we eliminate structural overlaps, strengthen operational control and meaningfully reduce related party transactions. The creation of promoter Trust to hold 50% of the promoter stake will ensure continuity, preserve long-term ownership stability and further reinforce governance through an institutionalized framework. Turning to financial performance. We delivered a strong quarter while operating income grew 5.6% year-on-year to INR 471 crores, supported by stable demand across key categories. Operating EBITDA grew at a healthy 23.3% year-on-year to INR 603 million with margins expanding notably by 183 bps to 12.8%, reflecting significant benefits of operating leverage and ongoing cost optimization initiatives. We have been able to curtail our advertisement to 6.2% of operating income in H1 FY '26 as compared to 7.2% in H1 FY '25 and plan to further reduce this percentage in the coming quarters. Profit after tax stood at INR 352 million, up 32.7% year-on-year, resulting in a PAT margin of 7.4% Working capital saw an improvement this quarter. Receivable days reduced to 116. Inventory days moderated to 119 after seasonal stocking and payable days increased to 68. As a result, our cash conversion cycle improved to 167 days compared to 173 days in June. Now I would hand over the call to Gaurav Gupta.

Thank you, Ankit. Let me now highlight some of the key business and operational trends during the quarter. In quarter 2 FY '26, we continue to see steady traction across modern trade, e-commerce and quick commerce, which together contributed to 10.2% of overall revenue. Quick commerce, despite operating on a small base, scaled sharply to contribute 4% of the total sales, underscoring its fast-growing relevance in the retail mix. These new age channels have strengthened our visibility, enabled faster consumer access and supported our premiumization agenda. Dollar's key product categories continued to show resilient momentum through the quarter. Thermals, our winter essentials portfolio, delivered a standout performance with 23.5% value and 28.1% volume growth year-on-year, supported by early season demand and wider market reach. Force NXT, our premium innerwear line sustained its growth trajectory with 6% value growth and 19.2% volume growth, reflecting rising consumer preference for high-quality differentiated products. Meanwhile, Champion, our kids range posted exceptional gains with 109.4% value and 73.9% volume growth, driven by strong traction in mass market channels. Our premiumization strategy continues to gain strong traction with the premium segment delivering 25.1% volume growth year-on-year in quarter 2 FY '26. This reinforces the shift towards higher-margin design-led products and reflects increasing consumer preference for elevated offerings across our portfolio. South India continues its positive trajectory, delivering 8% value growth and 10.4% volume growth year-on-year in quarter 2 FY '26, supported by stronger demand and improved -- SKU depth across modern trade and e-commerce and driving higher contribution from premium and high-end margin products. With this, I request our CFO, Mr. Ajay Patodia, to take through the financial performance. Over to you, Ajayji.

Thank you, Gauravji. Good afternoon, everyone, and thank you for joining the call. Let me take you through the financial performance for quarter 2 and H1 FY '26. For the quarter, our operating income grew by 5.6% year-on-year to INR 4,719 million, supported by steady demand and better product mix. Gross profit at around INR 1,640 million, up by 9.6% year-on-year with margin at 34.8%. Operating EBITDA stood at INR 603 million, a growth of 23.3% and margin expanded by 183 basis points to 12.8%. As covered by Ankitji earlier, we have also continued to exercise cost discipline. Our advertisement expenses have been curtailed to 6.2% of operating income in H1 FY '26 compared to 7.2% in H1 FY '25, and we plan to further reduce this proportion in the coming quarters. As communicated earlier, we remain committed to capping advertisement stand at INR 80 crores annually, which will drive a further reduction in ad spend as a percentage of revenue. Profit after tax rose 32.7% to INR 352 million with PAT margin improving to 7.4% with margin expanding sizable by 151 basis points year-on-year. For the first half of FY '26, operating income grew 11.6% year-on-year to INR 8,710 million. Operating EBITDA increased 22.1% to INR 1,032 million and PAT for H1 stood at INR 565 million, a strong 35.1% growth over the last year. On the balance sheet side, we continue to remain disciplined on working capital. Net debt stood at INR 3,222 million as on September '25 and leverage ratio remained comfortable with net debt to equity at 0.36 and net debt to EBITDA improving to 1.56. We also generated healthy operating cash flow of INR 471 million as on September '25. With no major CapEx plan in the near term, our focus remains on the strengthening free cash flow and further reducing debt. Now I would quickly run you through the brand-wise contribution for the quarter. Our Bigboss that is contribute around 34.9%. Our regular Lehar product economic segment contribute 37.8%. Our women's segment Missy contribute around 8%. Our Thermal which has growth around 24% in this quarter, contribute around 12.4%. Overall, our financial performance reflects the benefit of improved product mix, operational efficiencies and continued traction from new age channels. We remain focused on sustaining this momentum in the coming quarter. We continue to execute on our strategic priorities to ensure sustainable profitability, strengthening premiumization and growing contribution from modern trade, e-commerce and pre-commerce position us for strong revenue and earnings growth ahead. With this, we now open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Yash Tawani from Aamara Capital.

Just wanted to get a sense that how much usually -- let's say, on an average or a ballpark basis, the business we usually get it from 1 retail touch point? And how much retail touch point do we target to increase on a particular year.

So currently, we are catering like we have our active retail base of around 1,60,000 retail outlets whom we are catering. And out of 75,000 to 80,000 retailers are in Lakshya project and the rest are from the non-Lakshya areas. And that is also on the estimate basis because the distributors don't share the actual data with us. In Lakshya area, we have seen that more or less per retailer, they contribute around INR 7,000 to INR 8,000 per month. So that is the kind of sales we get from per touch point basis.

Okay. And including the Lakshya and the non-Lakshya, what is the target that we usually keep it in our mind that gives much retail count do we have to advertise...

So we have our target set that we need to have around 2.5 lakh active retail outlets. By active, I mean retail outlets which buy from us on a month-on-month basis and which are actively working with us closely with our distributors and the trade partners. So we want to create a visibility at around [Technical Difficulty] 2.5 lakh outlets would be active. So this is the kind of target we have set for us in the next couple of years.

In our project Lakshya, we already mapped around 2,91,000 outlet. Out of 2,91,000 outlets around 1,69,531 outlets enrolled with us for the normal working with us. And currently, there are around 75,000 -- 76,000 around outlet is active in Lakshya only. So in our Lakshya project, we have detail for every retailer, how much they take, how much they are purchasing, how much time they purchase. But in normal distributor system, we have only report for our distributor only. But our target is to achieve -- we can actively deal with the whole retail outlet.

Okay. And just one more sense on that. Like usually, when we set a target for the volume growth for 2, 3 years, do we more predominantly focus on adding more retail points or it's more of getting more volumes from the existing retail points? What's like the predominant focus of our strategy move on the sales?

So it's a blend of the 2 because we need to create visibility at a retail outlet also but at the same time, we need to increase the number of SKUs. So through this particular project, what we are doing is we are asking the retailers to buy in smaller quantities, but do the range selling with the active retailers. But when we are adding new retail outlets, we are giving them basic products like Dollar Man, Big Boss or Dollar Always Lehar. These are the basic bread and butter in our industry, the innerwear. So we start new retail outlets with those kind of products.

Got it. And just last thing, on the advertisement spend, like what's the target that we are keeping for the next, let's say, 1 or 2 years? Like just to get a sense that from what level we can expect the operating leverage to get in and with that cap like we're not going to go beyond that, like any color on that?

Past 2 to 3 years, we have been spending around INR 100 crores, INR 101 crores in advertisement. This year, we are very hopeful that we'll be able to close it at around INR 80 crores, INR 85 crores. And for another -- like next year also, it would be somewhere between INR 85 crores to INR 95 crores. The percentage of sales, the percentage would come down.

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

So we have improved our EBITDA margins by 100 basis points for the first half of the year. But if we look at where the improvement is coming from, it's just because lower ad spends because we have reduced the ad spends by about 100 basis points. So in future, I mean, improvement in EBITDA would be coming from this avenue? Or are we looking at other optimizations as well...

So there are some improvement -- we can see some improvement on the gross margin also that we saw. It was small, but 0.6% gross margin improvement we have seen in the first half of this fiscal as compared to the last fiscal. Apart from that, we have added our new spinning unit, the spindles that we have added, we have seen positive results coming out of it. So that benefit we have got in this first half, which was not there last time. A lot of costs will get rationalized as soon as our revenue starts increasing or like the employee benefit expenses, overall other expenses also, which are in build nature, they will get rationalized. So overall, we are very hopeful that the EBITDA levels that we are talking about is very much doable and... [Technical Difficulty]

Sir, I mean, the math for this, they don't add up because if we look at the other optimizations, this EBITDA margin grew by 100 basis points, and that's the reduction in ad spends. So other optimizations have not come to fruition maybe in H1. So by when do you think -- I mean, will those optimization also lead to better margins? And also, are we sticking to the 12% to 13% EBITDA margins for FY '26 considering the current scenario? Or do you think we can do better than that? Or what is the outlook?

So for this fiscal, we are keeping the guidance as is. EBITDA target is 12% to 13% only for this particular fiscal year. But in long term, in a couple of years, on a sustainable basis, around 14% is what is doable in our segment, in our kind of an industry.

So sir, at what revenues -- at what scale do we expect to reach 14% to further optimizations to kick in? The revenue numbers?

So for this particular fiscal, we are targeting that we grow by around 11% to 12% as per the guidance we gave last time also. And after we cross INR 2,000 crore mark, I think the costs will start getting optimized. It would be mainly the fixed cost that we are talking about, not the variable costs. And advertisement cost will not be taken as a percentage of sales then. We have already capped the total amount because INR 80 crores to INR 100 crores is a handsome amount for advertising plus the brand restructuring that we did, it is helping us a lot in capping up the advertisement expenses because now whenever we are advertising the advertising Dollar as a main brand, right? The sub-brands act as a collection and not as a sub-brand. So that benefit we are getting, and that's why we are able to cap our overall advertisement expenses.

Got it. And sir, what has led to an increase in net debt quarter-on-quarter?

Net debt actually increased only due to -- we have to keep a seasonal stock that is Thermal. We have to stock thermal for our -- this current quarter for October to December. So in this H1 in September month, if you compare from the last year results, the net debt also increased in that quarter. But ultimately, it is by the year-end, we reduce the same. Our target is to reduce by INR 40 crores to INR 50 crores.

Got it. And sir, if we talk about project Lakshya, so we have been able to transition a lot of our stores to that till now. So I mean, what kind of main top benefits are we seeing from Project Lakshya? Because if you look at the working capital cycle or the cash conversion cycle over the last 2, 3 years, they have remained unchanged. So I'm not able to understand what have been the main benefits from Project Lakshya.

So there's one way to see headed like we are getting benefit from Project Lakshya in terms of working capital cycle as well. But yes, overall, the numbers are not visible. But I'll tell you one thing that in our trade channel, like the wholesale model that we talk about or the non-Lakshya part of it, in our entire industry, the overall receivables is very much stretched. The reason why we are at a similar level as compared to the competitors also or the other players in the industry also, if you see the trajectory of the debtor days over past 5, 6 quarters and compare it with us, we are at a similar level as compared to others. And it is only because our debtor days in Lakshya distributors or Lakshya areas are much, much better, which compensates the non-Lakshya distributors debtor days.

So sir, what the debtor days for both Lakshya versus non-Lakshya?

So for non-Lakshya, our debtor days stand somewhere around 123 days. And for Lakshya areas, it is around 85 days.

Got it. So sir, by when do we expect to fully transfer all our -- everything under project Lakshya?

Given the industry scenario and the intensified competition that is going on in the market so we are going a bit slow in the Lakshya project side, but we are very hopeful about the project and everything. We are very positive about it. It's just that whenever you start a new state with the project Lakshya, the area gets disturbed for 5 or 6 months. And since the competition is very much intensified right now so it is not in our -- it is not favorable to actually go ahead with the project full scale or in full swing. So that's why we have slowed it down a bit. But maybe another 1 or 2 quarters and we'll again pick it up.

[Operator Instructions] The next question is from the line of Bhargav from AMBIT Asset Management.

Congratulations on a good performance. Sir, my first question is that given that there has been a merger of 9 promoter companies with the listed company, what are the benefits that are expected? And what led you to this announcement?

Basically, this merger is announced for the restructuring of our total group and the related party transaction mainly 7 to 8 companies which are merging is providing office and godowns to the main our Dollar industry. So once they merge with our main company, then the transaction is eliminated. Other than this, one company, our Dollar Brands Private Limited Holding, brands of Dollar, which is also merged at book value only. So from this Dollar brand, the company is more -- intrinsic value is very much increased. We are -- we can use it for new innovation and new purpose also. And other one is our hosiery business of Dindayal Texpro Limited is also merged with our Dollar. So where job work is doing by the specialized people for our premium segment products. So the manufacturing part is also coming in the main company. So by this, we avoid the related party transaction. And also by this, our efficiency has also increased.

Sir, my question is that what kind of monetary gains you can get? Obviously, these companies would be making some margins, which will now be captured in Dollar. So I was just trying to quantify what could be the benefit of this merger.

We can work on this already, we save on the rent part, and we also have -- we also save on the compliance part also. And in all the company, we also save from the employee expenses also. So when the company is merged with the -- our main company, Dollar Industry so we reduce the employee expenses, we reduce the rent expenses. And we can also work on the -- and we also reduce the royalty expenses. So they are mainly monetary. Other than this, we have very much other nonmonetary benefit also like compliance and other regulations.

So sir, from which quarter can we see that benefit? And in terms of quantification, is it fair to say that the benefit could be in the range of INR 10 crores to INR 20 crores per annum or...

Currently, we cannot quantify. Once the scheme is through, we can calculate the actual, but it is not more than INR 5 crores to INR 6 crores in quantification currently now. But ultimately, we have gained very much from this merger. And also from this merger, all our assets is in the one main company, Dollar.

Secondly, sir, obviously, the Thermal season is doing well. We also see 28% volume growth. So just wanted to know how much of the Thermal gets booked in Q2 and in Q3? And is it fair to say that gross margins in Thermal are better than the company average?

Yes. So gross margins are in Thermals is better than the company average. And Q2 generally sees around 50%, 55% of our overall Thermal sales. So similar kind of value we'll see in the third quarter also coming in.

But as per weather announcement we have heard that this year the cold is very much and the season is also increased. And from the November second week, we have still the cold in our city and also in Northern region. So we expect there is extra demand in quarters 3 from normal periods.

And lastly, sir, is it fair to say that in terms of the increase in competitive intensity that we have been seeing for the last 2, 3 quarters, is it fair to say that we are now at the bottom end because after a long time, we've seen margins get into double-digit territory? Or do you think that it can also increase from here on?

So -- our intensity is still there in the market. It's just that we took a conscious call and not given to that kind of a thing in the market. So if you look at our overall ASP also, there's no -- not much of a difference over there as well. But when you compare it with others, we are very much better off. So a steady growth with a good healthy margin is what we are favoring right now.

Because I think you also have an association, right, which keeps on meeting. So that you must be discussing that things are hurting the industry per se so it's better to have some discipline.

Definitely. Discipline is [indiscernible] for future and sustainable also.

The next question is from the line of [ Prashanth ], an individual investor.

So first of all, congratulations on a good set of numbers. A couple of questions. My first question is, this year, the cotton and yarn prices have been subdued. What impact that has had, what positive impact that has had on your numbers, if you can quantify?

So in this H1, already the yarn prices and cotton prices is stable from April onwards. And as per our projection, this is stable throughout the year. So our total cost for the raw material is stable. There is nothing much more -- any pressure on this. Last year in H1 year-on-year basis from April to September '24, there is some percentage increase of prices of yarn and cotton prices, but they are stable. So when you compare H1 to H1, year-on-year basis, we have some gross margin also -- increasing gross margin also. So some part is due to this stability in the prices of the raw material.

Okay. Because in discussion with yarn manufacturers, they say that because of the India-U.S. tariff situation, the U.S. demand has dropped off and so they have been clearing stocks at lower prices. Has this affected or benefited you in any way?

The change in price is very miniscule to create change in the price of the goods or the change in the gross margins also. That change is very, very miniscule. It's not that this deep discounting that is going on in the yarn market or the cotton market.

Okay. The second thing is, I mean, you mentioned that the advertising costs have been capped at around INR 80 crores, INR 85 crores and next year around INR 95 crores. So that is advertising. But the below-the-line marketing expenditure like your discounting and rewards and all that, what would be the quantum of that for the first half, this quarter, first half and the same quarter last year?

It is around 6.6% to 6.5% overall during the year only. So we caved at this percentage only overall, if you say, because the amount is less from the total revenue. So it is not shown separately. But as per our calculation, in costing, we take 6.5% to 7% of the total sales.

Okay. So I'll put it in a different way. As your turnover increases, you will put this expenditure at 6% to 6.5%. So on say, hypothetically, on a INR 2,000 crore turnover, it will be 6.5% will be INR 130 crores. And if you remove INR 85 crores of advertising, the balance INR 35 crores will be for the below-the-line marketing and promotion activities, correct? Is that understanding correct?

These 2 are 2 separate things. The discount schemes and the rewards is already less from the total revenue, gross revenue. We report the net revenue -- standard, we have to reduce the total revenue from the discount we offer to the dealer or the retailer or any type of scheme. So they are already less from the net revenue, but the advertisement is shown separately in expenses side.

Okay. Understood. So what I understand is in days, I mean, if the schemes, rewards, discounts are disclosed at the time of the sale, they have to be reduced from the revenue, right?

After sale or before sale, any type of discount, we have to reduce at the time of reporting of the revenue. So we have only the realized amount.

Okay. So what was the value for this quarter, previous quarter and the same quarter last year?

They form a part of our costing method only. So it is capped at 6.5% to 7% of our sales value.

So okay, if I have to quote it backwards, I'll take this reported sales at 93%, and then I can work backwards.

You can. Correct, correct, correct.

Okay. And another question was on the mergers of the related entities. You mentioned that there is -- one advantage is that there is a lesser number of related party transactions. The second is, I mean, 5 crores to INR 6 crores of probable savings. My question is that the properties and the assets which are transferred from the related part from these entities to the holding company, will this be at a book value or there will be a revaluation?

Mainly they are -- the valuation is calculated by the KPMG. And they take the minimum value for the purpose because they have to explain all the methods to the SEBI also for approval of the same. And we take the maximum -- minimum value so that the cost effect for the -- our main company is very minimal, like our brand. Our brand is book value around INR 4.6 crores. These are transfer at around INR 5 crores only.

So will we see any addition of goodwill into the balance sheet after this merger is over?

No. Actually, after implementation of accounting, we cannot recognize goodwill in our accounts.

The other expenses have moved up from around INR 90 crores -- INR 92 crores to INR 110 crores. So any color or any explanation, I mean, you would like to share on what are the main items and the reasons behind the movement?

[Technical Difficulty] only INR 73 crores.

Sorry to interrupt, sir. Again, your voice is breaking. Yes, sir, we can hear you. Please proceed.

The other expenses total is only INR 73 crores.

Sorry, sorry, I meant subcontract expenses.

Okay. Subcontracting expenses is the part of the COGS only. So it is adjusted with the change in inventory of finished goods actually. It is not related to quarter-wise. It is related to finished goods production. So when you see the change in inventory of finished goods and work in process so it is adjusted with the value...

Understood. Understood. So my last question is relating to the competition and how sustainable do you think this growth will be? Because frankly, you would have seen the numbers of your competitors also and your biggest competitor has provided -- has shown a very subdued result. So I mean, the initiative that you have taken under Project Lakshya in maintaining the prices and holding the prices, how sustainable would you see in the coming quarters?

We are very hopeful, and we think that we'll be able to maintain this kind of profitability that we have shown in this quarter.

I mean, okay, other way around, will you be sacrificing any volume to maintain profitability?

See, for the whole year -- on a whole year basis, we'll be able -- we are very positive that we'll be able to do around 12% kind of a growth, which would be mainly driven by volume growth only. So in a half yearly basis also, we are standing at 11.5% kind of a growth. And so overall, it's very much doable.

The next question is from the line of Deepali Kumari from Arihant Capital.

I have a couple of questions. Like quick commerce grew to 4% of total sales in Q2. So how does it logistic cost structure different from traditional and e-commerce channel? And what is the long-term scale you have for quick commerce while also ensuring it does not dilute the margin, gross margin?

So overall, in terms of the costing part, it's almost similar to what we spend in e-commerce. The only thing is that through quick commerce we are able to reach our consumer real, real fast. So that is the only difference that we have there. In terms of profitability and the discounting structure and everything is similar to what we have in our e-commerce.

Okay. And sir, what is the margin difference between traditional and quick commerce or e-commerce?

It's almost similar. It's almost similar.

Okay. And sir, the cash conversion cycle have increased from 160 to 167 due to receivables and inventory center so what was [indiscernible] H2 to manage inventory better and [indiscernible]

Sir, let me disconnect your line and then connect you again. Over to you, sir.

With regard to cash conversion cycle, it is increased due to the inventory of the thermal products that are the seasonal products. And we hope that by the end of this year, fiscal year, we reduce our cash conversion cycle by 10 to 15 days...

Also sir, can you throw some light on medium term vision to offer premium and super premium products...

Pardon, can you repeat?

Can you give some light on the medium-term vision for premium and super premium products.

For premium product, we have Force NXT, which is doing really good and the kind of growth that we are getting in Force NXT is very nice. The traction we are getting for innerwear now in Force NXT has been really good. And this year, we are very hopeful that we'll grow around 20%, 22% in this particular segment.

Okay. And what about the Dollar Women, which you just launched?

So Dollar women has been going at a company level only around 4% to 5% kind of a growth. And this particular fiscal, we'll be seeing around 5% to 6% growth only. But next year onwards, we are working on some new product ranges, and we are very hopeful that we'll be able to pick it up again.

Ladies and gentlemen, due to time constraints, this was the last question for today. I now hand the conference over to the management for closing comments.

I would like to thank you all for taking the time out to join the earnings call. Have a good nice day. Thank you so much.

Thank you, sir. On behalf of Anand Rathi Share and Stock Brokers Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.