Electronics Mart India Limited (EMIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Electronics Mart India Limited Q2 and H1 FY '26 Earnings Conference Call. As a reminder, all participants’ lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing *, then 0 on your touch-tone phone. Please note that this conference is being recorded. 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 involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Karan Bajaj - CEO and Promoter. Thank you and over to you, sir.

Thank you very much. Good evening, and a very warm welcome to everybody present on the call. Along with me, I have Mr. Premchand Devarakonda, our Chief Financial Officer. We have uploaded our Results and Investor Presentation for the quarter and half year ended 30th September '25 on both the Stock Exchanges and the Company's website. Hope everyone had a chance to go through the same. During the quarter, performance was marked with volatility owing to the GST rates announcement, which led to some deferment of purchase in the initial weeks. However, demand rebounded swiftly following the reduction in GST rates on select categories, resulting in a strong recovery in sales momentum. Operating margins were also impacted due to our rapid store expansion. We have added around 75 stores in H1 FY '24 and many of these are still in the early stages of stabilizing. As a result, fixed costs such as employee expenses, marketing and promotions are not yet being fully absorbed. The rapid expansion has also led to higher financing costs and depreciation due to the IND AS 116 lease accounting impact. Together, these factors have affected our PAT margins and PAT as well. As the new store ramp up can start contributing more meaningfully, we expect margins to gradually improve in the coming quarters. To give a clear perspective on our store portfolio, out of total of 215 stores, 84 stores are more than 4 years old, while the remaining 131 stores are less than 4 years old. The mature 84 stores delivered sales of about INR 2,254 crores in the first half of FY '26, whereas the newer 131 stores contributed revenue of around INR 933 crores. These figures represent revenue from product sales. On the profitability front, the matured stores continue to perform strongly with an EBITDA margin of 6.8%, while the newer stores currently operate at an EBITDA margin of 3%. Now I would like to share a highlight on our geographical performance. We have seen a broad-based recovery in demand across all our key clusters. In Q2 FY '26, our core market of Hyderabad recorded a strong revenue growth of 15% Y-o-Y with a healthy SSG of 12%. In Telangana, country market revenue grew by 23% with an SSG of 16%. Andhra Pradesh delivered a robust revenue growth of 29% and with an SSG of 8%. Lastly, our NCR cluster continued to scale up well, achieving a revenue growth of 38% and an SSG of 11%. Talking about cluster-wise profitability, we continue to maintain a healthy EBITDA margin of around 6% in the Southern cluster despite adding new 60 stores across Andhra Pradesh and Telangana over the past 2 years. We are also pleased to share that our NCR operations remained EBITDA positive with a margin of 1%. We believe margin in this region will scale up further as we start achieving greater business scales and operational leverage soon. Talking about category-specific performance, I had earlier shared an update on the large appliances segment during Q2 FY '26. In numerical terms, large appliances contributed 38% in the Q2 FY '26 and about 43% in H1 of the FY '26. Another positive trend we are seeing at the store level following the GST reduction is an increase in the average selling price, as customers are increasingly opting for large televisions and higher-priced air conditioners or even purchasing newer categories such as dishwashers. The shift towards premium products will help in driving and improving overall ASP as well. Moving to mobiles. Mobiles contributed 48% of our total revenue in Q2 FY '26 and 44% in H1 FY '26. Looking ahead, we believe the category is poised for a new wave of demand driven by upcoming technologies, upgrades and feature enhancements. Many OEMs are actively developing next-generation AI-enabled devices, which we expect will further boost consumer interest and drive growth in both ASP and volumes. This positions us well to capture the next phase of demand as the upgrade cycle accelerates. We believe the broader environment remains supportive. Interest rates have been reduced, GST rates have come down and the government has also reduced income tax slabs previously, which is expected to boost disposable incomes. Together, these factors are likely to create a compounding effect on consumption and drive long-term growth. Several categories in our portfolio continue to remain unpenetrated, offering significant growth potential. As our newly opened stores mature and reach steady-state performance, we expect margins to progressively normalize, setting a strong foundation for sustained and profitable growth in the years to come. With this, I request Mr. Premchand Devarakonda, our CFO, to update on the financial performance. Thank you.

Thank you, Karan sir. Good evening, and warm welcome to all the participants. Firstly, I'm happy to share that we received the full insurance claim amount relating to the fire accident that occurred on 29th May 2025 at our one of our godowns, which has earlier resulted in an inventory loss to the tune of INR 8 crores. Secondly, during the quarter, we took a strategic decision to divest 4 of our IQ Apple Stores, which are shown as EBO in our reports. This move is in line with our focus on strengthening our core multi-brand retail business, which continues to offer greater scalability and better operating leverage. By realigning our portfolio towards the core business, we aim to enhance capital efficiency and sharpen our execution focus across key growth areas. Now moving on to the financial performance during Q2 and H1 of FY '26. First, I would like to start with Q2 FY '26 performance. Our revenue for the quarter stood at INR 1,591 crores. EBITDA for Q2 FY '26 stood at INR 82 crores. EBITDA margin for Q2 FY '26 stood at 5.1%. Pre-Ind AS EBITDA for Q2 FY '26 stood at INR 46 crores with a margin of 2.9%. PAT, including exceptional items for Q2 FY '26 stood at INR 16 crores. Same-store sales growth for Q2 FY '26 was 11.4%. Moving on to H1 FY '26 financials. Our revenues for H1 FY '26 stood at INR 3,330 crores. EBITDA for H1 FY '26 stood at INR 192 crores. EBITDA margins for H1 FY '26 stood at 5.8%. Pre-Ind AS EBITDA for H1 FY '26 stood at INR 122 crores with a margin of 3.7%. PAT, including exceptional items for H1 FY '26 stood at INR 38 crores. For H1 FY '26, SSSG stood at minus 4.8%. RoCE and RoE on annualized basis for H1 FY '26 stood at 9.8% and 4.8%, respectively. The working capital days as on 30th September 2026 stood at 76 days. Pre-Ind AS cash flows from operations as on 30th September '25 stood at 209 crores. With this, we can open the floor for question and answers. Thank you.

[Operator Instructions] The first question is from the line of Mr. Yash Sonthalia from Edelweiss Public Alternatives.

So, my first question is on our gross margin. Like if I see Y-o-Y from Q2 FY '25 to Q2 FY '26, our mobile mix has changed from 51% to 48%, while large appliances sales have increased from 36% to 38%. But while in this Y-o-Y scenario, our gross margin has declined, which in the ideal scenario should have increased because of the mix change. So, can you please help me with the same?

Sir, this is Premchand. See, what happened since the GST rate cut announcement came [in, it led to a] total slowdown. There was drastic degrowth in the sale of the large appliances category. So, during that period, we have to just push some sales by offering additional discounts that has marginally reduced the margins, gross margins during this period, sir.

Got it. Got it. So, the decline in gross margin is majorly due to extra discounts we provided in the quarter. Am I reading it right?

During that flat period since the announcement came in on, that has come on 22nd of September till festive, the sale, which was total slowdown in the market. People actually deferred their purchase decisions in anticipation of the GST rate cut. And as a result, we had to offer like we have to run the stores and stores people also, they have to push the sale on the floor. So, these things actually marginally reduced the gross margins. And the GST rate cut advantage will come in, I mean, in the next quarter, that is in the festive season, which went on very well during the first 3 weeks of October.

Got it. Got it. And sir, on the same line, I also wanted to know what is the AC inventory for this quarter and what was it in Q2 FY '25?

So, AC inventory in spite of GST rate cut, there is no traction, I think, in the AC inventory because of the off season. So, season was, I mean, even the weather was not supporting our AC space, still we are carrying INR 200-plus crores of air conditioner inventory, which we thought that it will get liquidated in the festive season, but we didn't see any demand. So, we have to wait and see the upcoming summer season, which will start sometime in the second week of February.

So sir, we are still holding INR 200 crores AC inventory?

Yes.

Just to add on to, sorry, just to add on to Premchand sir, yes, whenever we exit a season or our ground stock, which now we are operating 215 stores, so the inventory would be for displays, which is around, say, almost 15,000 units in display across 215 stores and the subsequent backup stock for that. So if you look at the overall number, we'll be carrying another INR 100-odd crores of excess inventory that you would be not carrying during this period of time.

INR 100-odd crores of excess inventory, that is what I was expecting.

[Foreign Language]

And one last question on operating leverage also. Like this quarter, we reported healthy SSSG. And while our store growth was on 20%, what was the reason for such high employee cost? Was it there some one-off it is going to stay like this only going ahead.

It is in line basically, [Foreign Language]it is in line with what the employee cost is. [Foreign Language] It means variable incentive is also added for that quarter. So, because we were running a lot of schemes so the variable incentive was a little higher than what usually we would do. So that employee cost would include that as well. And plus, what happened was a lot of stores which we opened in the last quarter or so. So, though they took a little time to get launched, but the managers, security housekeeping. So, you've got to employ a lot of these people. So, whenever the incremental store addition happens, the subsequent growth in the cost of employees also goes up, right?

Understood.

Sorry for interrupting, so if you look at the employee cost as a percentage of the top line, it is more or less similar compared to the last year's figures.

[Operator Instructions] The next question is from the line of Mr. Jitaksh Gupta from Tikri Investments.

So, my question is, sir, if we see revenue per store for either it is Andhra Pradesh or Telangana, so, it is constantly moving down, and it is one of the lowest in this quarter. So, sir, can you please help me understand what is happening with the South market?

Sir, actually, what happened if you look at the store addition also during this, I mean, in these clusters, so it was a little rampant compared to other reasons. So, since the denominator has been increasing, so obviously, average store throughput has come down. These stores will take time to mature. Normally, the average age of these stores is also it's less than 3 years in these clusters. So, I think by end of this financial year, I think most of these stores will start performing, and we are quite optimistic about normalizing the average store throughput.

And sir, one last question. Sir, how is the competitive landscape in South market?

Competitive landscape?

Yes, in Southern market where we operate.

Okay. See, in Southern markets, in the markets like Hyderabad, so we are the market leader. And in Andhra Pradesh, I think we stand #2. And in Telangana up country, we are still holding our market share. We are #1 only. So, in fact, there is not much competition in Telangana up country market. In Hyderabad, obviously, there is competition. Still, we are gaining or rather improving our SSSG. If you look at the quarter, this quarter's performance, definitely, it is quite encouraging, and we are not losing any market share to our competitors.

The next question is from the line of Mr. Mehul Desai from JM Financial Limited.

So my first question is on the top line. I think our full year guidance was around 15-odd percent. But given that the first half, there is a miss, how do you see second half panning out, especially because of this GST rationalization? Do you see further acceleration in your overall sales growth and you still maintain your guidance of 15%? That is first question. And second question is on the margins. Obviously, this quarter margins were impacted by higher discounting and weaker mix. But going ahead into 3Q, I'm assuming that this discounting factor should go away. So, is it fair to say that in the second half, our EBITDA margin should go back to that 6% kind of 6%, which we saw in 1Q? These are my first 2 questions.

Okay, sir. The first thing, the 15% year-on-year growth, since we have already through during the financial year. For me, I think we need to revise that. But still, we are quite confident of reaching low double-digit growth in this financial year. So that is there. It's on the track. And coming to the second question, okay, margins during the Q3. I think now it is going to be impressive. Definitely in Q3, the margins will be better than what we have seen in the last couple of quarters.

Sorry, just to add to Prem sir's conversation on the growth. See, the trends right now, see, we had a bad summer that definitely impacted the AC sellout. But we are quite optimistic on, so you're looking at, say, if you're talking about 14%, 15% growth, you're looking at an additional delta of INR 100 crores, INR 150 crores of sell-out in, say, March month for cooling season products. So that comes up, summer comes up a little early, then it becomes much easier for us to achieve that kind of a number. But it all depends on seasonality. It all depends on the thing. But when you're looking at an organic sell-out that happens every month, every day, every week, I think we are on track on doing good business. So that is what we're looking at, making sure the market share is intact. and growing from there on, the new clusters are performing. The stores which are yet to get matured are on track to getting matured. So, [Foreign Language] if you see all these things, things are looking good. Things are on track. But what will definitely help us surpass that growth rate is the cooling product season, which will start, which might start a little early, say, in March, if it starts so early, and then we get that additional INR 100 crore- INR 150 crores of growth there. So that is very important.

Got it. And secondly, on Delhi NCR region, while you gave your matured and new store margins on an overall basis, in specifically to Delhi NCR region, the stores which were opened in FY '23, obviously, they are maybe 3 year old, they are not 4-year old. But those 3-year old stores in Delhi NCR, what kind of margins they are clocking?

Prem sir will get back to you on this, because we don't have a split on that. Premchand sir will get back to you on that.

Yes. I'll give you that working because we didn't work out that anything for the Delhi stores. But to the best of my knowledge, like it is better than more than 3%.

[Operator Instructions] The next question is from the line of Mr. Devanshu Bansal from Emkay Global.

Sir, you mentioned that overall we have about INR 1,200 crores of inventory. So, inventory is about INR 100 crores higher versus last year. What about extra inventory in other categories? And further to this question, how much can be the potential margin impact if we sort of try to liquidate this inventory as there was some margin impact in Q2 also. So overall for H2, what is your initial sense on the margin impact of this excess inventory?

Sir, we are not carrying any excess inventory in other categories. Because of the bad summer season, we were forced to carry the air conditioner inventory, and I think we, as explained by our CEO, I think this summer in early, we are quite confident of liquidating this inventory before this financial year.

Sir, still the sense was that because already there was impact in the south, the festive season sort of starts off early. And in Q1, Q4 also, our inventory was INR 1,200 crores. Now also it is sitting at INR 1,200 crores. So just wanted to double check as in if you can confirm because the festive period must have a good part of would have already been consumed by September.

Yes. So, if you see the inventory level at that, at the end of September, we started buying a lot of products, especially for television, the sales went up really well, right? So mobile phones, television and Diwali, carries out across categories. So spread across all categories. So, we had to buy out a lot of the stocks, right? So, except ACs, we had to pile up our inventory for other categories as well. So that is where you would see a higher inventory level. But if we talk about that inventory level today, it is much lower than what usually it would be post the festival period, except again, ACs to a certain extent. And luckily, apart from that, all other categories are in line with the regular, say, 40 days, 30 days, 60 days for different categories. So that is in line with that. So, by 31st December, when you see the number, you will definitely see a much lower number of inventories.

Understood. Can you comment on this festive, you have given some indication about low double-digit growth for H2, sorry, for full year, which implies about 20%, 25% growth in H2. So, can you comment some light as in how did the festive go this time around versus last year, maybe some trends for first 40-odd days?

We are quite positive on how the festive period panned out. But again, looking at the split between quarter 2, quarter 3, we just finished, ended up our festive period completely in the month of October, but still had another 60 days of November and December to go through. So usually, there is a sluggish period post Diwali, right? So, [Foreign Language] and then there is another 60 days of 2 months of non-festive period in this quarter. So, it will be too early for us to comment. But things are looking positive. I would not complain. Things are looking definitely positive than the previous festive period. So that is a good sign for us. And that is across all categories and all clusters.

Fair enough. Second question, I wanted to check on the incentives, right? So brands also have struggled for this year. And in this particular industry, there are a lot of incentives linked to meeting the target. So do you foresee some lower incentives on account of that because sales, et cetera, have been impacted. So do you foresee some impact on that?

Prem Sir, you want to take that question or you want me to answer it?

Yes, please, sir. I think he was asking you.

Okay. So yes. So no, if you look at that incentive part, looking at that number, we are not worried about it because most of the schemes that we had were all upfront majorly. So, there was not much of a sellout or linked scheme that was pending or pending. So, whatever the incentive we were supposed to receive for the sales target that we had completed, that is on track only. So, there is no deviation there.

And lastly, Karan, thanks for providing this segregation for mature stores and nonmature stores. Typically, I wanted to check what is the typical SSSG that your mature store clocks and what is the same number for, say, nonmature stores?

Prem sir, do you want to answer that? You have the number with you?

It is not readily available. But last year, when I worked it out, so fully matured stores, that means stores aging more than 10 years will have mid-single-digit SSSG. So blended, all the mature stores are actually giving, this time, this quarter was quite impressive. So, on the whole, like for the year, I think we can expect high single-digit SSSG across the board.

Sir, I'm checking for more of a medium-term perspective, not from this year. Obviously, this has been a disruptive year. I wanted to check more from a medium-term perspective, what is a reasonable assumption for SSSG for mature stores and for nonmature stores because your average age for nonmature is less than 2 years. So, I wanted to check on that.

Yes. See the stores between aging 4 and 10 will have at least 9% to 10% SSSG and the stores aging more than 10 years will have around 3% to 5% SSSG sir. That was the historical performance.