Iris Clothings Limited (IRISDOREME) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Iris Clothings Limited Q3 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sonya Keswani from EY Investor Relations.

Thank you, sir, and good evening, everyone. On behalf of Iris Clothings Limited, I welcome all of you to the company's Q3 FY '24 earnings conference call. You would have already received the results and investor presentation, which is also available in our filings with the exchange. To discuss the company's business performance during the quarter and outlook, we have with us today Mr. Santosh Ladha, the Managing Director; Mr. Harshvardhan Sharda, the Business Head; and Mr. Niraj Agarwal, the Chief Financial Officer of Iris Clothings. Before we proceed with the call, a disclaimer, please do note that anything said on this call during the course of the interaction and in our collaterals, which reflects the outlook towards the future or which should be construed as a certain forward-looking statement, must be viewed in conjunction with the risks the company faces and may not be updated from time to time. More details are provided at the end of the Investor Presentation and other filings that can be found on our website www.irisclothings.in. Should you have any queries or need any further information, at the end of the call, you can reach out to us at the e-mail addresses mentioned in the company collaterals. With that I would now like to hand over the call to Mr. Harsh. Thank you, and over to you, sir.

Thank you, Sonya. Good evening, everyone. I'm Harshvardhan Sharda, the Business Head of Iris Clothings Limited and I would like to welcome you all to our Q3 FY '24 earnings call. Just quickly on financials, during the quarter, we reported a revenue growth of 15% year-on-year, driven by products enhancements in our infant wear vertical and new launches under our Disney x DOREME brand. We expect these 2 factors coupled with very strong demand for summer wear to drive our growth in Q4. Therefore Q4 is expected to be our best quarter for FY '24. The details on Q3 financials will be shared by Mr. Niraj, our CFO, once I conclude the remarks. I was talking about some key developments in the last 9 months in the company. On the back of the licensing agreement signed with UTV software or Disney, we can design and sell apparels with Disney and Marvel movie characters. First [indiscernible] sample launched in January 2023. We launched our first batch of summer wear collection across India, the same year in April, followed by a very good winter collection in July 2023. All these apparels are being sold under the DOREME x Disney brand. Going ahead, we plan to launch more product categories with different movie characters in a phased manner from the Disney universe. These product enhancements will not just boost our revenues and profitability, but also help grow our brand DOREME enormously. We have begun expanding our [ brought ] credits through exclusive brand outlets, and we inaugurated 2 of them between September 2023 and October 2023 in Calcutta. Both these stores look at a strong demand during the festive season, followed by decent demand in the last 2 months. Over the past 18 years, we have successfully built a strong retail distribution network with close to 160 distributors and 10,000 plus retailers and also have built an online presence through doreme.in. We believe this to be an opportune time for us to explore our third line of expansion through EBOs. This will allow us to be closer to our target customers, enhance our brand recall and have a feedback loop that is much more effective. Therefore in addition to the 2 stores, we plan to open 3 company-owned EBOs in Calcutta in the current quarter [indiscernible]. In the last 9 months, we have also expanded our product categories in infant-wear by at least 1.5x to take full advantage of the opportunity in this segment. Apart from this, our B2B platform for wholesalers, that we launched last year, has been made more robust with additional functionality. Then there has been a wide acceptance of our platform among our distributors and today most of our [ orders ] are coming from that portal. I will now hand over the call to Niraj, our Chief Financial Officer, who will walk us through the Q3 FY 2024 financial numbers. Thank you, and over to you Niraj.

Good evening, everyone. In Q3 FY '24, our total revenue stood at INR 23.5 crores, up by 15% year-on-year basis. This was driven by volume uptick give us a strong demand, existing and new [ growth ] categories. Revenue witnessed a decline of 27% quarter-on-quarter basis. It is basically due to strong Q2 and the simulated [indiscernible] inventory [indiscernible]. Therefore it is both to compare our performance on [indiscernible]. EBITDA margin grew ...

Sorry to interrupt you sir, your voice is sounding a bit distant. Can you come little closer.

EBITDA margin grew by 732 basis points year-on-year basis, by 3% due to normalization of raw material prices. If we are impacting our margins during Q3 FY '23. We expect our EBITDA margins [ going ] the range of 23% to 35% for the full year FY '24. Apart from this, profit after tax stood at around INR 2 crores in Q3 FY '24, by [indiscernible] was 8% versus 4% in Q3 FY '23. In line with this, we have to expect our payout cost savings by FY '25 onwards. This -- we can now open the floor for questions.

[Operator Instructions] First question is from the line of Priyam Poddar from Value Equity.

So I just wanted to ask, like as you had mentioned in your opening remarks that you plan to open 2 to 3 EBOs in the quarter. So I just wanted to know what -- how much time does it takes to -- for the EBO stores to break even?

Priyam. So we have opened 2 stores as of now. And what we are expecting is we'll be expecting around breakeven in 12 to 15 months for these stores. We have opened 2, and we are planning to open 3 to 4 more this quarter. As time progresses, we will understand, but our projections are that we will be breaking even within 12 to 15 months. Which is inclusive of the time.

Okay, till now, what is the total count of EBOs as of now?

Right now we have 2 stores, which we opened in September and October, respectively. After that, we will be opening 3 more in this quarter.

Okay. Okay. Okay. And this is now something with regards to how you look at your business for the next financial year. If I can -- help us with the margin range, like EBITDA or PAT margin guidance, like any -- that would be great -- range would also work?

So I think EBITDA margins, we are looking at maintaining our EBITDA margins from say, 20% to -- 15% to 25% that will be, however, going ahead EBITDA margin gains. And for PAT, we plan to increase PAT margins by a couple of basis points.

Next question is from the line of Kartik Jain from Niveshaay Investment Advisory.

I have couple of questions. Starting with what is the volume and price growth in the quarter?

I'm sorry, Kartik, can you please repeat the question?

Sir, what is the volume and price growth in the quarter, sir?

So volume growth, we are down approximately 15% to 20% in terms of volume growth this quarter. Our price has relatively remained constant.

Okay, sir. Sir, next question, how many sales have we done through EBO since launch? And what is the expected contribution on the yearly basis?

So as of now, what we are doing is we are on a run rate of approximately INR 8 lakhs, to INR 9 lakhs from our 2 EBOs per month, and in line with expectations going forward with the number of stores that we open, we will be coming up with the stronger numbers going ahead.

Sir, which are the top-selling categories among T-shirts, shirts winter wear, sports wear based on the contribution in overall revenue for 9 months FY '24.

Both T-shirts is our top-selling category, as of now, both infant and the 6 to 16 category for T-shirt. That is our top-selling category, which contributed approximately 50% of our supply. And then frocks is basically dresses for infant is around 15% and lower [indiscernible] with approximately 10% coming from night suits as well.

Okay. Sir, have you -- how do we manage to reduce the inventory from INR 54 crores in September '23?

We are seeing a very strong uptick in demand for this quarter, we had built up inventory for this summer season, which we are expecting to be one of our strongest quarters. So by the end of this quarter, we will be comfortable in terms of inventory.

Okay, sir. Sir, what is the targeted working capital cycle for us for the full year basis?

So targeted working capital cycle for our full year basis will be somewhere around 1 sorry, would be around 160 days. 160 days.

Okay, sir. Last question is what is the contribution of exports in the overall mix in 9 months FY '24?

So our contribution of exports is somewhere around 15% -- sorry 5%.

5%, sir?

5% of our total revenue.

Sir, how we are going to increase the export contributions in future.

So we are doing multiple [ devices ] in this quarter and the coming quarters, where we are exhibiting to and we are participating in exhibitions with export clients coming in. So I think there are multiple activities going on at the export front, and we strongly believe that this will grow going forward.

Okay, sir. Can you please -- what is the CapEx plan for next 2 years?

For the coming years, we are looking at a CapEx of say INR 3 crores to enhance the capacity. Which is the true capacity for our client as of now. And the rest of it was still in the working for a bigger CapEx plan going forward, but it's still not finalized, yet. It's in the working.

Sir, can you please give guidance regarding to revenue and margins for the full year of FY '24 and the next year?

So this year we will be somewhere in the range of INR 130 crores to INR 140 crores. And margins will remain fairly constant as of 6 to 9 months. The margins are going to be similar to what it has been in the last 9 months.

And sir, what about upcoming year?

For our following year, we are looking at a 35% to 40% growth in terms of revenue and margins to improve by a couple of basis points as well.

[Operator Instructions] The next question is from the line of Poonam Mehta from Shah Investments.

Can you please update on sports wear that was launched last quarter?

Poonam. Yes, so we have launched sports wear to our distributors. Since the season is starting now in terms of retail season, we will be getting a major update about the feedback of the product by the end of this quarter, I think. While we are seeing a strong demand from the distributors and there is definitely a gap to be look forward to grow that category in the coming year itself.

Okay. Sir. And have you started using the FAMA license on Uluberia plant for designing apparels using Disney character?

So we have already started designing apparels for our brand with Disney Characters. And we are expanding, so we started with the Mickey character, and we are expanding into multiple characters from the Disney universe. So that is what we are primarily doing right now.

[Operator Instructions] Next question is from the line of Harmit Desai from Pendulum Investments.

So I have 2 questions on macro funds and also on the business front. So in business perspective, my first question would be, what kind of revenue are we seeing with the B2C segment?

The B2C segment is something that we have just started on if you look at it, we have just opened 2 EBOs that is what is primarily driving the B2C segment and online B2C is something that we are watching very closely. We are not overspending on ads in that segment yet. But we are getting a good response in terms of organic traffic from our brand presence. So what we are trying to do is we were trying to address our offline market and try to bring back some of them into our online category for a better feedback.

Okay. Secondly, I wanted to ask you regarding the order book. Our current order book and how do you see this order book growing 2, 3 years down the line?

So our order book has been really strong this quarter. And I feel like given our seasonality in terms of winter and summer. And with our product range expanding with multiple categories being added. So we are definitely seeing a big uptick in the order book going forward.

Okay. So sir, at 3 years CAGR, if I have to take a ballpark number for a growth of an order book, what could be that number, just a ballpark -- I don't want to -- I will not quote you on the numbers, sir.

So I can strongly say we are looking at a 35% to 40% loan growth at least. It's one of the major upticks in the middle of the year.

Okay. As a follow-up on this would be, sir, regarding our EBITDA margins or the operating margin from current levels, is there any scope of improvement in the margins, which we are doing internally. So apart from the cyclicality of the sector, are there any steps which we are taking to actually improve our operating margins?

Definitely. So I think our margin is going further will definitely increase, which is the brand recall, we are improving our product value, we are trying to extract better margins going forward. So there we see definite improvement in the EBITDA margin going forward, apart from the cyclical raw material prices.

Understood. Sir, on the macro front, as we see that the competition -- competitive countries like Bangladesh and Srilanka, Srilanka having their economic issues which they have. And Bangladesh, the parity of wages for the labors, so labor costs have increased. So are you looking -- can this help us? And can you please throw some light on this?

Absolutely, I think going forward, if you look at the opportunity, the manufacturing opportunity that is building in India, -- and with a unit like ours, which is fully [ imposed ] to handle, if any good business comes in, I feel it is the right opportunity -- in the next 3 to 5 years is the right opportunity for brand companies and brands in India to go global with our manufacturing facilities, especially given the macroeconomic conditions across the world right now.

Understood, sir. And sir, are you also looking for any acquisitions to enter into export market or something of that?

Nothing in the works right now, but we are definitely open to opportunities and keeping our eyes open if something comes up, we will definitely take care of them.

Okay. But everything so we would like to grow in the Kids segment itself, right? We don't want to diversify into any other segment as of now?

Yes, we want to focus in the Kid segment because I feel like those are all big, big gaps in the industry and our very growth potential investor.

[Operator Instructions] Next question is from the line of Priyam Poddar from Equity Capital.

So this is with regards to the margin front again. And you had mentioned that your -- when we are coming out with this new infant products like DOREME and Disney. So would you see that the margins would be slightly getting better on the higher side?

Absolutely. As I already mentioned, we are definitely looking at margins improving going forward with especially with infant wear products with the value add the kind of value add that we are doing, we are definitely going to see a margin uptick going forward. [indiscernible] seeing quite a build up improvement in the past 9 months, and we are definitely seeing some uptick going forward as well.

So the -- in a very conservative case, would it be in the range of 100 bps to 150 bps if you can quantify it?

I can definitely say let's say, 100 bps for sure going forward.

[Operator Instructions] We have a next follow-up question from the line of Harmit Desai from Pendulum Investments.

Sir, I just wanted to ask regarding our customer base. So who all are our major customers, sir. If you can thrown some top...

Our major customers are distributors we have set across the country. We have very, very strong in the Western part of the country. which is a good percentage of our sales comes from Maharashtra, Gujarat, Rajasthan, Punjab. These are the 4 major states. But we are present across India, again we have covered most of the states and we have distributors across. That's focused mainly on the Western side, where we have to improve.

Okay. Sure, sir. And lastly, on the debt front, I wanted to ask. So what are our plans on debt going forward?

So going forward, I think we keep the debt as is what we do...

Okay. Okay. So -- going forward, seeing the profitability improving in the debt levels are the same, we can expect the ROCEs. ROCEs to go up from current levels. Is that understanding right?

Definitely.

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

Thank you all for joining the call today, and we hope you keep tracking our company. I hope we were able to resolve your queries. In case you have any of the queries post this call, or anything remains unanswered, you may please connect to our IR team at Ernst & Young. Thank you so much, everyone.

On behalf of Iris Clothings, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.