Dollar Industries Limited (DOLLAR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Dollar Industries Limited Q1 FY '27 Earnings Conference Call hosted by Anand Rathi Shares and Stock Brokers Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Anjali Ojha from Anand Rathi Shares and Stock Brokers. Thank you, and over to you, ma'am.

Thank you. 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; and Mr. Ajay Patodia, Chief Financial Officer. I will now hand over this call to the management for their opening remarks. Over to you, sir.

Thank you, Anjali. Good evening, everyone, and welcome to our Q1 FY '27 earnings call. Before we begin, I would like to extend my sincere gratitude to our shareholders, analysts and partners. Your continued trust is what drives us to maintain execution discipline, uphold the highest standards of governance and remain focused on compounding long-term value. I would also request everyone to take note of the safe harbor statement in our presentation. We are pleased to report that operating income for the quarter stood at INR 405 crores. Gross profit for the quarter grew 6.9% year-on-year to INR 151 crores with a gross profit margin expanding 192 basis [Technical Difficulty]. This improvement was supported by the calibrated price increase implemented during the quarter, which we had flagged in our previous call. And it is encouraging to see it translate into healthier realizations and stronger margins. Operating EBITDA rose 11.4% year-on-year to INR 48 crores, with the operating EBITDA margin improving 106 basis points year-on-year to 11.8% reflecting the benefit of better gross margins alongside our continued focus on operational efficiency. Profit after tax grew 22.1% year-on-year to INR 26 crores with the PAT margin expanding 108 basis points year-on-year to 6.4%. Moving on to Project Lakshya. As indicated previously, we have now commenced Phase 2 of Project Lakshya. We have begun building the team for this phase and have started mapping the retailers we aim to activate across our target markets. Our initial focus is on strengthening our presence in the stronghold states by increasing the number of active retailers, thereby deepening our market share in these regions. In parallel, in markets where our presence is currently limited, we are analyzing local competitive dynamics and retailer potential to develop tailored market entry strategies. As on June 2026, we have 327 Lakshya distributors across 14 states and Lakshya distributors contributed 31% of our business in Q1 FY '27. As the program scale, we expect this to continue driving increased market penetration, stronger secondary sales and improved working capital efficiency at the distributor level. Let me now highlight some of the key business and operational trends during the quarter. Our continued investment in newer channels are yielding encouraging results. The quick commerce channel sustained its strong growth trajectory, recording 59.4% value growth and 15.1% volume growth year-on-year with its contribution to revenue increasing to 5% in Q1 FY '27 from 3.1% in Q1 FY '26. This underscores the growing relevance of this channel and the evolving buying behavior of consumers. Moving to our brand portfolio, Dollar Protect, our rain guard segment continued to perform well, recording 49% value growth and 68% volume growth in Q1 FY '27 and contributing 5.6% to our total revenue. Our regional performance also remained encouraging. The Southern region delivered 22.9% value growth and 7.3% volume growth on a year-on-year basis, taking its contribution to our overall business to 8.9% in Q1 FY '27 from 7.2% in Q1 FY '26. We remain focused on strengthening our presence and capturing the opportunities available in this region. Our export business also continued to perform well, recording 16.2% value growth and 15.5% volume growth year-on-year, with its contribution increasing to 4.9% in Q1 FY '27 from 4.2% in Q1 FY '26. During the quarter, we generated export revenue of INR 19 crores across 15 countries and we will continue to focus on expanding our international footprint. Our strategic alliance with G.O.A.T continues to progress well, amplified by our deepening footprint in modern retail and quick commerce. In Q1 FY '27, this partnership generated a revenue of INR 16.44 crores, a 21% year-on-year increase, with a Q1 PAT of INR 2.27 crores and a PAT margin of 13.8%. As we progress through the fiscal year, we remain focused on enhancing operational efficiencies by deepening our presence across our core products, core markets, newer channels and export geographies. We are confident that this disciplined execution-driven approach will continue to create sustainable long-term value for our consumers, partners and shareholders. I will now hand the call over to our CFO, Mr. Ajay Patodia, to walk you through the details of our financial performance. Over to you, Ajayji.

Thank you, Ankitji. Good evening, everyone, and thank you for joining us today. Let me take you through our financial performance for the quarter ended June 30, 2026. For the quarter, operating income grew by 1.4% year-on-year to INR 405 crores. Gross profit rose by 6.9% year-on-year to INR 151 crores with a margin of 37.4%, an expansion of 192 basis points year-on-year. Operating EBITDA stood at INR 48 crores, up by 11.4% year-on-year, yielding in operating EBITDA margin of 11.8%. Profit after tax for the quarter increased 22.1% year-on-year to INR 26 crores with a PAT margin of 6.4% and diluted EPS for the quarter stood at INR 4.59 as against INR 3.76 in quarter 1 FY '26. Our advertisement spend stood at 7.7% of revenue in quarter 1 FY '27, in line with the seasonal front-loading of brand investment early in the year with our annual advertisement expense capped at INR 100 crores. We expect ad spend as a percentage of revenue to moderate over the coming quarter, yet adding profit. Our balance sheet strengthened meaningfully during the quarter. Net debt reduced to INR 192 crores as on June 30, 2026, from INR 277 crores from March '26, taking our net debt to equity to 0.2 and net debt to operating EBITDA to 1.01. On an annualized basis, ROE stood at 10.8% and ROCE at 12.9%. Given that we have no major capital expenditure commitment in the near term, our capital allocation strategy remains clear. We stay focused on improving cash flow generation and reducing debt. Our cash conversion cycle stood at 160 days for the quarter, and we will continue to work toward improving to it going forward. Moving to our brand-wise revenue contribution for the quarter. Dollar Always, our economic segment, and Dollar Man continue to anchor the portfolio, contributing 44% from Dollar Always and 38% from Dollar Man, respectively. Dollar Women Missy segment contributed around 8%, followed by Dollar Protect, our rainwear segment, at 6% and Force NXT, our premium segment, at 4% with Dollar Junior and Dollar Thermal making up the balance. With that, we conclude our opening remarks and open the floor for question-and-answer session. Thank you.

[Operator Instructions] Our first question is from the line of Arnav Sakhuja from Ambit Capital.

So my first question is that we're seeing strong growth in the quick commerce segment. So [Technical Difficulty] this strong growth is the growth across products?

Sorry, your voice was breaking. What did you ask? About the quick commerce?

Yes.

Hello?

Arnav, your voice is breaking. It is not clear. It is breaking in between. It is not audible. It is...

Is it audible now?

No, it is still breaking.

Okay. So I'll get back on the queue.

Next question is from the line of Bhargav Buddhadev from Ambit Asset Management.

After almost 2 years, we've seen the industry taking price hikes. Do you think that this is sustainable now given that some of our peers have seen a significant deterioration in margins? So this time around, there would be some price discipline and the price hikes which have been announced will be maintained.

Bhargavji, the thing is we are very hopeful about the fact that things will get stabilized with respect to the pricing and the overall deep discounting, which was going on in the market. The effect -- it will take some time like a quarter or 2, like we discussed last time also. It won't happen overnight. But yes, the process has started and things have started improving in the market as well. And that is the reason we were able to garner 11.8% kind of an operating EBITDA percentage.

Secondly, sir, we've seen a volume decline in the first quarter. Generally, with Dollar, we haven't seen volume declines on a regular basis. Do you think that in the next 3 quarters, we'll catch up and for the full year, we may end up double-digit volume growth?

Yes. So that's our internal target as well. So we are very hopeful and aggressive towards the fact that in the next 3 quarters coming ahead, we'll be -- overall, at a company level, we'll close this particular fiscal with a double-digit growth, which will be a combination of volume plus value growth. And so this year, we are targeting to grow at around 11% to 12%.

[Technical Difficulty] kind of growth portraits, what have suddenly let to exit the new brand ambassador, which we have set up which is helping out so that [Technical Difficulty].

Sorry? You cut out.

[Technical Difficulty].

Mr. Buddhadev, your voice is breaking.

Can you hear me? Hello?

Yes, this is better.

No, I'm saying Dollar India is making a very strong revenue growth. What has led to that growth?

So it's because of Mahesh Babuji, the brand ambassador, that we have taken plus that now we have started getting traction in the market also in terms of demand from retailers and the consumers as well. So our placement has been better than before. And the acceptance is increasing day by day. So like 2 years back, when we took Mahesh Babu as our brand ambassador also, I said that time also, it's a gradual process, which will take some time. And now we are seeing the results coming in after 2 years.

And lastly, any guidance you would want to give for the full year in terms of revenue growth and EBITDA margin?

So for the revenue growth, it would be somewhere between 11% to 13%. That is the kind of growth we are looking forward to during this fiscal. And at an EBITDA level, it would be somewhere between 11.5% to 12.5%.

Next question is from the line of Prerna Jhunjhunwala from Elara Securities.

Congratulations on the margin performance. After a long time, we've seen improvement in margins to double digit in the first quarter. So congratulations on that. Just wanted to understand, sir, what led to this improvement in margin, whether it is a price hike or share [Technical Difficulty] improvement in share of premium products? And -- or is it something else that is working out for us?

So I would -- this margin expansion, which has happened in Q1, there are 2 contributions. The one is the price hike that we have taken. So low-cost inventory was there in the system. And because of that, we could see higher EBITDA. And the second thing is we still didn't give in to the market in terms of extra discounting and the schemes that are going on and try to protect our margin and operating cash flow as well. So because of which, yes, we were unable to garner 9% or 10% kind of revenue growth. Instead, we settled with 1.5% kind of overall growth. But at the same time, we try to increase our margin.

And this is fantastic that you are able to protect your profit and rather than giving in on competition. But how long will you be in a position to sustain this kind of competition? Because this will also mean volume-based market share loss. Or how should we read it?

See, the things are settling now. Like, yes, we know that another couple of quarters to go by. But we think that we'll be able to manage with that. But like last year, we survived with a good volume growth as well and keeping our margins intact. So this year also, it's too early to comment on that since just 1 quarter has gone by and 3 more to come. So we don't think that will be much of a problem for us.

Okay. And sir, given cost inflation, would you need any further price hikes or you good with current price hike that you have taken? And how much would be the price hike that you've taken till date?

So till date, we have taken just 4% to 5% of a price hike and no other price hike is in picture right now. And the yarn prices and the cotton market is also stagnant and they have stabilized right now. So we don't see any reason why we should need to have a price hike again.

Understood. And how should we see the competitive intensity in terms of mass market brands versus premium brands? What would be your take on that, whether Force NXT and other premium brands that you have are doing much better than the mass market, which is your Dollar Always and Dollar Man? So how would you see this competition panning out?

So yes, from -- if you see last 3 years' data, Force NXT has been doing really good. Its CAGR growth has been above 20%. So it has been growing by 20%, 25% year-on-year basis for last 3 years. And the base has now reached around INR 85 crores to INR 90 crores last fiscal. Like, FY '26, we closed this brand at INR 85 crores to INR 90 crores revenue, which is like 4.5% to our total sales. So Force NXT is doing really well. Then our Dollar Protect rainwear segment, which is a seasonal product, that is also growing at a good rate, and we are seeing good traction in the market. So high ASP products are getting good traction in the company. Plus like the upcoming season, which is the thermal season, which is coming in, we are getting good traction over there as well. The conferences that we do in the month of July, pan-India basis and the booking that we got for thermals is really -- it shows a trajectory for this year as well.

Okay. And last question, on cash conversion cycle that you mentioned in your commentary that you are working towards reducing the cash conversion cycle. What are the efforts that you're taking there? And how should we see it by the end of this year or at the end of 2, 3 years that you have? Any targets in mind?

So for this particular fiscal, we have targeted that around 6 to 7 days improvement we'll see as compared to March '26. And over 3 years' time period, it would be a total of somewhere between 15 to 18 days reduction in the overall working capital cycle.

Understood. And how is the working capital cycle in Lakshya network?

So in Lakshya, receivable days are still better than our non-Lakshya distributors. And overall, we are able to control the inventory at a distributor level also. So that means the distributors' ROI is also very much protected and on an increasing trend. So like their ROI ranges from 17% to 24%.

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

So in Q1, did we have some low-cost inventory due to which we were able to maintain margins? And given that we have taken a 4% to 5% price hike in Q1, so currently, I mean, with the lower cost inventory behind us and cotton prices increasing every day and yarn prices also being -- I mean, peaking -- reaching a peak over the, say, last 2-, 3-year periods, the current yarn prices are higher as compared to those periods. So if we don't take any further price hikes, won't that margin shrink, I mean, going forward in Q2, Q3?

So the yarn prices and the cotton prices have stabilized now, and we don't think that there will be a need to increase the price further. And it was a very small contribution of low-cost inventory in the system because the prices started increasing from the month of February end, and we took a price hike in the month of April. So it's been taken care of. We don't see any reason we will take a hit on margin or anything.

Got it. So with the current yarn and cotton prices, we can still be able to maintain 11%, 12% margin that we are seeing today?

Yes.

Got it. Sir, for Project Lakshya, what percentage of our distributors are enrolled in that? And in the investor presentation, it's mentioned that I think 31% of the value and volume is operated through Project Lakshya. So I want to...

So around 20% of our distributors are enrolled in this particular project, 20%, 22%, contributing 31% of our total sales.

Got it. And what's the target for FY '27 in terms of Lakshya enrollments? And what kind of a benefit -- I mean, do you -- firstly, how many more distributors are you looking to add? And what incremental benefits do you see from this?

So given the competition intensity in the market and everything that is going around, so we are not enrolling any new states as of now and working on a strategy how we can we can enter that, the new state, with a different strategy. But on the -- for the states which are already enrolled in this particular project, we have started this Phase 2, wherein we are trying to activate more and more retailers under this particular project. And we have just started with the Phase 2. So it will take some time to show some progress on that.

Got it. So do we have some targets like currently, 21% are enrolled? So do we have any target that by the end of FY '27, we target some number?

So currently, no, we don't have for the Lakshya Project like how many distributors would get enrolled. But yes, we are trying that since last year, we had active retailers to the tune of 74,000 to 75,000 retailers who were active in Lakshya Project. And this quarter, our active retailers went up to 80,000. So for this particular fiscal, we are trying that we have around 90,000 retailers activated or being in the active stage in this particular fiscal.

Got it. And in terms of sales growth and EBITDA margins, can you help us, I mean, understand those numbers for Lakshya enrolled retail stores? Are they any different from non-Lakshya?

So at a margin level, it's almost similar, not much of a difference is there. And for the Q1 part, the growth trajectory was almost similar to what we saw at a company level.

Got it. Sir, my final comment would be regarding -- so our share has been trading at around INR 350 currently, which was the same price that was around 10 years ago, whereas over the last 10 years, our revenues have more than doubled. And we have developed Dollar as a strong name, which is known in every household and every corner of the country. So, sir, I would just request you to consider a share buyback instead of paying dividends because not only will it be EPS accretive and beneficial for the long-term shareholders as it will be a step-up in terms of -- I mean, the earnings pool that will be divided between lower number of shareholders, number one. And number two, it will also be a signal to the market towards our own confidence in our company and the fact that our share is undervalued even though we have developed such a renowned and household brand over the last 10 years. So I would just ask you to consider a share buyback. And in case you have any -- in case you already have had such considerations, please let us know.

Sure. Thank you for the feedback. We'll take that under advisement, and we'll see what can be done on that.

[Operator Instructions] Next question is from the line of Anjali Ojha from Anand Rathi.

I wanted to understand what impacted the overall revenue growth and volume growth this quarter.

Since there was a price hike that was taken in this particular quarter, so what happens is people become skeptical that it might go down in future. And since there is deep discounting also that is going on in the market, intense competition that is happening in the market due to which there was an impact on the overall volume growth.

Okay, sir. So my second question is, so which segment saw the most volume decline?

So, overall, Dollar Man, we saw a volume decline of around 3%, 3.5%. That was one segment. The other was the top category that we saw a volume decline, which was to the tune of around 7%. And its contribution is around 2% to our total sales. So 7% is minuscule as compared to the overall volume degrowth that we have seen. But majorly amongst the top contributors, it was Dollar Man that we saw certain volume degrowth because of which our overall volume degrowth turned to 1.6% negative.

Got it. Sir, my another question is that you mentioned that you are capping your advertisement spending at INR 100 crores annually. So how much margin improvement are you expecting in FY '27 or going forward just from this benefit?

So if we are able to achieve our target of 12% to 13% growth for this particular fiscal, then it would be -- like the advertisement cost would be 5% of our total sales, which was 5.5% last year. So around 0.5% benefit will be -- can be seen through the optimization of advertisement cost.

Okay. And sir, I had one more question. Sir, could you please tell me what is the quick commerce channel's contribution margin compared to general trade, modern trade and e-commerce? Also, can we scale the channel without putting any pressure on working capital or margins?

So at a margin level, they are at a similar level because our domestic and we keep a pricing parity when we talk about domestic or the online channels. And in quick commerce, it's doing really good because all the big players like Myntra, Flipkart, everyone has entered into quick commerce now. So then we have Zepto, which is doing really good. Swiggy, we have started. Blinkit, we have just started. So overall, quick commerce is contributing around 5% to our total sales. Yes, 5% of our total sales. So it's growing at a pretty fast pace. And in Q1, we saw 59% kind of a growth overall in quick commerce. So when compared to the other platforms also, the quick commerce part is growing at a faster rate.