Iris Clothings Limited (IRISDOREME.NS) Q2 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '26 Earnings Conference Call for Iris Clothings Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harshvardhan Sarda, Business Head. Thank you, and over to you, sir.

Thank you, everyone. Good afternoon, and thank you for joining our earnings call for the second quarter and first half of fiscal year 2025-'26. We appreciate your presence as we review the company's performance for this period. I'm pleased to report that during Q2, Iris Clothings has delivered healthy top line growth. This performance reflects the success of our strategic initiatives, thoughtfully planned and effectively executed by our dedicated team. We anticipate that the upcoming winter season will serve as an additional growth catalyst, positioning us to achieve strong results in the next quarter of FY '26. We remain confident in our ability to sustain growth while preserving profitability. Commenting on our operational performance, we are pleased to share that Q2 witnessed notable progress, particularly within the B2B segment. We successfully expanded our distributor network by onboarding 8 new distributors, taking the total count to 202, a strong testament to our expanding market footprint and the confidence our partners continue to place in the DOREME brand. In addition, we launched a new collection of travel Co-Ord sets for kids, which has received an overwhelming market response, further strengthening our product portfolio and brand appeal. We also completed the transition of our ERP system from Tally to SAP Business One, a strategic move that will enhance operational efficiency and support our growth ambitions by enabling faster, more scalable business processes. Looking ahead to the forthcoming quarters, we plan to expand our production capacity to 38,000 pieces per day. We are excited to introduce our new infant gift sets offering and the new innerwear line, reinforcing our commitment through innovation and quality. We anticipate strong growth driven by organic demand and new capacity additions while also focusing on enhancing our D2C segment to accelerate our growth trajectory and create value for our stakeholders. Iris Clothings remains committed to strengthening the DOREME brand and driving the company towards its next phase of growth. We sincerely appreciate your continued support and look forward to an exciting year of opportunities ahead. I will now hand over the call to Niraj Agarwal, our Chief Financial Officer, who will walk us through the Q2 FY '26 financial numbers. Thank you, and over to you, Niraj.

Good afternoon, everyone. Thank you, Harsh. It's a pleasure to share with you the financial performance of our company for the second quarter and first half of the financial year '25-'26. During the quarter, our total income grew by 7% year-on-year reaching INR 443 million compared to INR 440 million in the same quarter last year. For the first half of the year total income stood at INR 880 million, reflecting 12% growth over the corresponding period of the previous year. This growth demonstrates and continues with our business fundamentals and steady demand for our products and services. Our EBITDA for Q2 FY '26 was INR 70 million while for the first half it stood at [ INR 1.3 million ]. EBITDA margin stood at 15.9% for the quarter and 15.1% for the half year compared to 19.5% and 19.3% respectively in the previous year. The moderation margin was primarily just investment in growth initiatives. Despite this, we continue [indiscernible] our healthy profitability. Our profit after tax increased 7% year-on-year to INR 21 million in Q2 FY '26 and 8% year-on-year to INR 57 million in H1 FY '26. PAT margins remain stable at 9.3% for the quarter and 8.3% for the first half underscoring our disciplined approach to cost management and operational efficiency. Looking ahead, we remain focused on driving sustainable growth through innovation, operational excellence and expanding our market presence. We are confident that our ongoing initiatives will help us enhance profitability and deliver long-term value to our stakeholders. With this, we can now open the floor for questions.

[Operator Instructions] The first question is from the line of Nish Shah from Stellar AMC.

My first question is on the margin side. In the last quarter, you guided that from Q2 onwards margin will stabilize around 19% to 20%. So we are still at around 16-odd percent. So why it's so much less?

So primarily the moderation in margins has been weakness of some changes in raw material prices and our product mix as well the kind of products that we have been purchasing that is the primary reason for margins being 16% but going forward in the next couple of quarters, we look at margins being really somewhere around 18% to 19% number.

So we need 2 to 3 more quarters to stabilize around 18%, 19%?

The next 2 quarters will see somewhere in the 18% to 19%, yes.

Okay. So on the overall year basis also would be around 16%, 17%?

Yes. Overall basis would be around 17%, 18%, yes.

Okay. And also in the opening remarks, you said you also invested in some of the growth initiatives. So can you please throw some light on that in detail?

So for growth initiatives, primarily one very -- one important growth initiative that we have taken is we have expanded our -- we are expanding our production capacity in the next 2 quarters. We have added a small stitching facility to enhance that production. Secondly, we are getting into new product lines like infant wear gift sets is something that will come up in the next quarter. Product categories is something -- a couple of product categories that we did explain to you last year. So we are growing by segment as well. And in terms of distributors, we are expanding our reach by our distributors for the growth in the next coming quarters.

Okay. So this new product category, how much capacity is for that?

So initially, we'll start with 3,000 pieces per day for the new product category overall, but essentially scale it up as we go forward.

And what market are we targeting for this?

Similar distributor markets that we currently cater to, they will absorb the same products.

Okay. And also we recently did a rights issue of INR 47-odd crores. So -- and from that funds, we will be allocating it to working capital EBOs and everything. So how much funds have been used from that?

The funds have been deployed for working capital and these new capacity additions that we have done.

Yes. And on the EBO side, we guided earlier that we would be opening 5 to 6 new EBOs in FY '26 and H1 has already been filed. So -- and no new EBO has been out. So are we still on with that guidance of 5, 6 new EBOs or alternate?

So EBOs is something that we are still exploring the exact model for EBOs, but I think we'll stick to somewhere around that number.

Okay. And on the last call, you said your primary focus is Mumbai market. So you're still targeting that or any new markets you are entering?.

No, we are stable with that.

Okay. And also you guided -- revenue guidance of 50% in FY '26 with H1 almost we crossed just INR 80 crores. So still on 50% guidance?

Not really. I think that will be slightly moderated given the market demand that we currently have. So I think guidance we'll be able to give you better guidance at the end of next quarter.

Okay. Can we expect 40%, 45% on a year-on-year basis?

We cannot comment on this right now, but because market conditions have been slightly unstable over the last quarter, but this is a...

On what [indiscernible] our export market currently?

The export market has been stable. We'll do around 4% to 5% cloth exports this year.

[Operator Instructions] The next question comes from the line of Deepali Kumari from Arihant Capital Markets.

So actually, I have some questions especially products saw strong demand in winter wear. So what was the revenue mix contribution in H1 FY '26? And like what is the targeted revenue mix by FY '27 and the royalty cost?

So we did the overall is somewhere in the 3% to 4% of our overall revenue in the overall year guidance would be around 3% to 4%. And the royalty is somewhere around 12%.

Okay. Sir, like current utilization is 75% so like 34,000 pieces per day. So the brownfield plant targets take to 15% plus utilization through debottlenecking. So what is the CapEx per incremental of 1,000 pieces per day?

I'm sorry, Deepali, can you come up with the question again?

Like what is the CapEx per incremental of the...

So incremental -- basically the increment stitching -- stitching capacity for 1000 -- every 1,000 pieces per day addition on average.

INR 1 crores is the overall investment in CapEx. That is the thumb rule that we follow.

Sir, if you can talk about what is the average store revenue and the payback period observed in the first year of...

So the average store revenues for the stores that we have currently done stays somewhere in the INR 750 to INR 800 per square feet per month is the number that we are currently achieving on the stores that we have. We target to take that to INR 1,000 over some time as we increase the number of stores. But overall, we believe that INR 1,000 should be the ideal number for stores. And we expect a payback period of 15 to 18 months for the stores.

Okay. Sir, how many levers you are targeting for FY '26, like 6 months?

Yes, we are still evaluating the pieces where we should open the stores and the kind of store model that we should have the sizes. So I think we'll be able to comment on this better over the next quarter.

Okay. So for distributor like how many more distributors you will have this year currently, it is 202.

So currently, we want to -- the kind of distributors that we have added, we want to expand those -- the width of those distributors but we are targeting for -- with the forthcoming summer season in Q4, we target around 10 distributors addition for the overall growth.

Expand distributor for H2?

Yes.

Okay. If you can give me some idea like per distributor like where most of the sales come from this -- which state?

So mostly the maximum sales come from Maharashtra, second is Rajasthan, third is Gujarat and Punjab. So overall, these 4 states combined around 35% to 40% of revenue.

Okay. And you are not targeting any other states?

We are targeting -- of course, that is the new additions of distributors, right? So UP is one state that we are targeting that is one state that we have done very well in the last couple of quarters. So we are targeting the northern states.

Okay. And you are not going to ethnics wear for child, like if you have some plan for that?

For what?

For ethnics?

No, we don't want to get into ethnic wear for children because that is not our [indiscernible] for production.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to management for closing comments.

Thank you once again for your trust in us and for being a part of our journey. We look forward to sharing our successes with you in the next earnings call.

Sir, very sorry to interrupt, really sorry to interrupt. There is one participant out there for questions.

Yes, not a problem.

The next question comes from the line of from Diya from Sapphire Capital.

So I just wanted to understand what was the reason behind the moderation in margin? One was the change in product mix? What was the other reason?

Primarily, it has been the change in product mix for the winter season and there has been some raw material price changes that we have done. That is the major reason for moderation in the margins.

And can you describe a little more on your new product category?

So the product, for example, as I said, right, the travel cost that we currently not [ spoken ], that became a decent contributor to the overall revenue. And the fabric for that is something that we have imported and using much higher quality fabrics, much more expensive fabrics. So hence, that is the primary reason because winter, we have tried a new -- few new products. around that segment, which will be the reason for the moderation.

And what is the realization that you sell to distributors?

So our realization from the MRP of the product is 50%. So we give -- if there's a product which is priced at INR 100 MRP, our realization from our distributors stands in the 50% range.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to management for closing comments.

Thank you once again for your trust in us and for being a part of our journey. We look forward to sharing our successes with you in the next earnings call. In case you have any other queries post this call or anything remains unanswered, you may please connect to our IR team. Thank you.

On behalf of Iris Clothings Limited, thank you. That concludes this conference. Thank you for joining us. You may now disconnect your lines.