Iris Clothings Limited (IRISDOREME) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Iris Clothings Limited Q4 and FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Bhatt from EY Investor Relations. Thank you, and over to you, Mr. Bhatt.

Thank you. Good morning, everyone. On behalf of Iris Clothings Limited, I'll welcome you all to the company's quarter 4 and FY '25 earnings conference call. The results and investor presentation are available in our filings with the exchange. To discuss the business performance during the quarter and outlook, we have with us today Mr. Santosh Ladha, Managing Director; Mr. Harshvardhan Sarda, Business Head; and Mr. Niraj Agarwal, CFO of Iris Clothings Limited. 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 interpreted as 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 investor presentation and other filings that can be found on our website. Should you have any queries or need any further information at the end of this call, you can reach out to us at the e-mail addresses mentioned in the company collaterals. With that, I would like to hand over the call to Mr. Harsh. Thank you, and over to you, sir.

Good morning, everyone. Thank you for joining us today for our earnings call. I'm excited to share our progress and achievements over the past year as well as our strategic vision for the future. I'm pleased to announce that Iris Clothings has witnessed robust revenue growth throughout the year. We have remained on track for recovery and have seen significant improvements in our operational profitability despite facing margin pressures from higher input costs, particularly in the fourth quarter. I'm happy to announce that the Board has approved the issuance of bonus equity shares to existing shareholders in a 1:1 ratio, offering 1 fully paid up bonus equity share of INR 2 for each existing fully paid up equity share. Now coming to our FY '25 updates. Our strategic expansion has been a key focus as we successfully added a total of 21 new distributors throughout the year, bringing our total distributor count to 186. This growth in our B2B segment has been helpful in enhancing our market presence and ensuring that we can effectively serve our customers. In addition to expanding our distributor network, FY '25 marked the successful launch of a new line of winter sportswear for kids, which has been very well received for its quality and innovation. This strategic introduction reinforces our ambition to establish ourselves as India's leading kids wear brand while also strengthening our presence across channels. Furthermore, the opening of 5 new exclusive brand outlets during the year reflects steady progress in our retail strategy and a continued focus on enhancing customer engagement. In April 2025, we successfully concluded a rights issue that garnered significant interest from our valued shareholders, resulting in a capital raise of INR 47.5 crores. The proceeds will be strategically deployed to enhance our operational efficiency and accelerate business growth, allowing us to grab new opportunities in the market. Looking ahead to FY '26, we plan to expand our production capacity to about 38,000 pieces per day. We are excited to introduce our new innerwear line and enhance our sportswear offerings, reinforcing our commitment to innovation and quality. We anticipate strong growth driven by organic demand and new capacity additions while also focusing on enhancing our retail segment to accelerate our growth trajectory and create value for our stakeholders. Iris Clothing remains dedicated to elevating the DOREME brand and advancing the company to the next level of growth. We are grateful for your continued support and look forward to an exciting year ahead. I will now hand over the call to Niraj Agarwal, our Chief Financial Officer, who will take us through the Q4 and FY '25 financial numbers. Thank you, and over to you, Niraj.

Thank you, Harsh. Good morning, everyone. Thank you all for joining us today. I'm pleased to share that we have delivered strong performance in Q4 and FY '25. Talking about the key financial highlights of Q4 FY '25, our total income was INR 40.3 crores compared to INR 42.1 crores in Q4 FY '24. Consolidated income during FY '25 witnessed a significant growth of 20.1% year-on-year, reaching INR 146.6 crores against INR 122 crores reported in FY '24. EBITDA during the quarter grew by 15.8% year-on-year and stood at INR 8.2 crores as against INR 7.1 crores in Q4 FY '24 with an EBITDA margin of 20.4%. EBITDA for FY '25 was INR 28.3 crores as compared to INR 26.4 crores in FY '24. EBITDA margin of 19.3% in FY '25. Additionally, profit after tax for the quarter witnessed robust growth of 28.6% year-on-year from INR 3.5 crores in Q4 FY '24 to INR 4.5 crores in Q4 FY. During FY '25, net profit was INR 13.1 crores compared to INR 12.2 crores in FY '24, growth of 7.5% year-on-year basis. PAT margin was 9.9% for FY '25. To summarize our financial performance, we remain focused in driving operational excellence and to capitalize on growth opportunities. With this, we can now open the floor for questions. Thanks.

The first question comes from the line of Deepali Kumari with Arihant Capital Markets Limited.

Congratulations for the good set of numbers, sir. Sir, I have some questions like can you please bifurcate the revenue from EBO and distributor for FY '25 with margin [indiscernible]. Also, how much revenue have you generated from non-ABO?

Deepali, thank you for your question. So if you look at our -- since we have opened, we have around 7 stores and 5 stores have not completed the entire year. So there's not a lot of -- most of our revenue has come from the distributor segment. There's not a lot of data entirely since most of our stores have not completed an entire year of operations, we do not really have the entire data because they have to book at least the entire season, yes.

Okay. And sir, how many more distributors are you targeting this year?

So we plan to take the count from 186 to around 210, 215 by the end of this year.

And sir, your e-commerce and [indiscernible] revenue can you give some numbers for that?

So e-commerce revenue has been -- so for e-commerce, most of our revenue comes through FirstCry, which stands around about 10% for this year. And exports has been steady around the 3% mark as per last year.

Next question comes from the line of Resha Mehta with GreenEdge Wealth.

So I think you just mentioned that exports is around 3% of our revenues. If I recall correctly, we were planning to ramp it up to around 7%, 8%. So what is the kind of growth that we are seeing there? Have we been adding new countries? If you could just comment on that?

Speakers, we cannot hear you. [Technical Difficulty]

Hello.

Is it better now? Yes. So primarily this year, most of the growth has been from Saudi Arabia, a lot of our exports, which we started like customers, which we engaged with last year. And Saudi and Dubai...

If you could repeat your answer, that would be great.

Resha, so yes, to answer your question, I hope I'm audible now.

Yes, yes, very clear.

Yes. Perfect. So Resha, talking about exports. Since a lot of our exports is inbound interest coming from retailers, we are trying to build that depth in countries like UAE, Dubai, Saudi Arabia, Mozambique. And we have quite a lot of interest coming in, and we expect exports to be around 5% this year for us.

All right. Got it. And did I just hear that right? So sales via FirstCry is around 10% of our revenues for FY '25?

Yes.

Got it. And e-com is basically only FirstCry, right?

Primarily FirstCry, yes.

Got it. Got it. And on the financials, right? So revenue growth on Q4, we saw that the numbers were flattish. And for the full year, we were up by plus 20%. While 20% revenue growth on a full year basis is good, but we're on a very small base, right? So at around, let's say, now around INR 150-odd crores revenue. So from here on, how do we think about growth? Because on this base, we -- one would have expected because I think also a year ago, you had mentioned that 30%, 40% revenue growth is what we are aiming for. So if you could just highlight that on a small base, even if the demand is weak, would that really impact so much from a growth standpoint? And if it was not the external factors, what were the internal factors, what were the gaps in our execution, which led to a subdued kind of a growth in Q4? And even for the full year on a small base, 20% seems slightly on the lower side in terms of growth. Just your thoughts here would be helpful.

Right. So if you look at the numbers, right, up until Q3, we were around 28%, 29% up in our revenue. So I think overall, first 3 quarters, our performance was in line with what we were expecting. And similarly, the expectation was to improve slightly better, maybe achieve around 30%, 32% growth in Q4 as well. But because of a sudden drop somewhere in the demand [indiscernible].

Yes. So I heard you till Q4, the demand dropped. And if you could share the outlook after that, like how are you seeing the demand recovery? What were the factors that you think that led to that demand drop? And how do you see FY '26 to pan out in terms of top line growth?

So we saw a decent enough recovery in April, and we see very -- now since we are in the winter wear production season, we see very strong demand predictions coming in from the next season onwards already. And we are very confident that we'll be able to achieve around 30%, 35% growth in revenue this year [indiscernible].

Got it. And also you mentioned that the gross -- sorry, you mentioned that the gross margins declined by around 500 bps if you look at it from a year-on-year basis. And the reason mentioned was the increase in input costs. So can you just elaborate on what are these input costs? And how is that kind of shaping up?

So primarily input cost for us is yarn cost, which is the raw material cost per fabric, which went up slightly in the month of say December, January, but that has already come down, and we figure that will remain somewhere flattish for the upcoming season. And we are trying to predict that and make some early commitments so that we can grab it at a better [indiscernible] (014:37) time.

And yarn would be what percentage of your raw material?

So fabric is somewhere around 50% of our raw material costs.

Okay. Okay. And the balance being...

Balance being production process, process-related costs, printing, stitching, finishing and then there's packaging, which comes in raw materials.

Right. And lastly, on the inventory. So typically, how many seasons do you all plan? And can you just talk about your past inventory write-offs, if any, what is our policy in terms of managing inventory over how many days old inventory do we tend to discount or just the policy there basically?

So one very interesting in the kind of products that we do and the industry we operate in is we do not really have any inventory write-offs because most of our inventory, even if it is late, say, for example, summer products, right, if that came in the month of May because of some production delays, we are very confident that, that will get sold at the same price in the month of November when the summer season starts again. So we don't really have any inventory write-offs per se. Of course, there's delays in inventory in terms of production at some level, but that is something that we are trying to optimize currently.

And how many seasons do we plan for in a year?

So we plan primarily for 2 seasons. One is summer and winter is kind of broken down into 2 seasons, pre-winters and proper winter. So effectively 2 seasons, but pre-winter it has 3 seasons.

Next question comes from the line of Priyam Shah with Value Equity.

Congratulations on the good set of numbers. Sir, I just wanted to know that as you have mentioned in your opening commentary that you are planning for a capacity enhancement. So as we plan for this new capacity, could you guide us what would be the revenue potential that we are targeting? And how do you see yourself -- like what would be your revenues in the next coming 2 years?

So the current CapEx that we are planning for this year is primarily incremental CapEx in terms of stitching capacity, where we would be doing around INR 5 crores to INR 7 crores of CapEx, which will take our production capacities from 34,000 pieces to around 38,000, 39,000 pieces. And we expect our revenue growth from here to go up to, say, INR 200 crores, INR 210 crores this year is what we are targeting.

And for the next couple of -- what would be the run rate that you would be anticipating from this enhanced capacity?

So this enhanced capacity...

FY '27.

So this enhanced capacity since it's incremental capacity, it's not a big mother capacity that we are putting on. It's incremental capacity just in terms of stitching and finishing for us. So we expect this capacity to take us from 34,000 to 38,000, 39,000. It's efficiently done maybe 40,000 pieces. But that's about it. That's what this incremental capacity will do for us. But in the meanwhile, we are planning a much bigger capacity expansion, which is in talks right now, but which will take the capacity twice 2.5x of what the overall current capacity is.

Okay. Okay. And my another question would be like kind of an extension to the previous participant. How do we plan to sustain and further accelerate our profitability?

So I think profitability, we want to remain -- since we'll be pushing aggressively on revenue going forward, we expect profitability to remain somewhere around that 20% EBITDA numbers. We don't expect -- maybe a basis point up and down, but that's where the expectation for us would be.

Okay. Okay. And like we also spoke about that we are planning to foray into innerwear. So if you can highlight what would be the rationale of that? And what profitability are you targeting from the Innerwear segment?

Soner kids innerwear is something which is -- there's not a lot of branded organized players in that segment. And from our market itself, we have realized that there's a very strong demand for someone to come in with a fantastic product in kids innerwear. And that is what we have realized. We will, of course, do our research, get into it with a strong research and strong product range. So profitably, of course, initially when we launch profitability might not be at the levels at the 20% EBITDA level. But then again, that is something that will be focused on as we go ahead and launch once we are in the market.

Okay. So when are we going to accrue the revenues from this segment?

I'm sorry, Priyam, I lost your voice. Can you come again, please?

When are we going to accrue revenue from this segment, Innerwear segment?

So I think Q3 and Q4 is when we'll start to accrue revenue from Innerwear [indiscernible].

And this would be the quantum? What would be the ballpark numbers that you -- that would be adding to the top line?

Ballpark numbers would be somewhere around INR 5 crores to INR 7 crores for Q3, Q4 from Innerwear. So it will be an entry to the market to understand what it is.

Correct. Correct.

Got it. Got it.

And my final question, if you can highlight your road map for your retail business?

The road map for retail is something that we are also closely watching and understanding our strategy. That is something that is in the works. We have -- we are trying to build a team. We are getting some consultants on board as well to understand what exactly should be the retail rollout strategy. I think we'll be able to answer more concretely on this in the next quarter call because that is something that we are still building on this quarter.

Next question comes from the line of Surya Mehta with Malabar Investments.

Congratulations on a good set of numbers. So my question is in regards to the EBITDA margin growth in Q4, which is 20.5%, which is a decent increase. So can you provide some color on this? And additionally, what is the EBITDA margin at the store level? And how do you see this trending in the future?

So specifically for Q4, I think we got some input cost benefit because of some early purchases, but we expect EBITDA margins for the overall year to remain at the 20% level, not maybe a basis point up and down, but that is what our expectation from EBITDA margins will remain. And speaking about store EBITDA, store EBITDA currently is at the 10% to 15% level, but we expect with more sales, we would be touching around 20% at the store level.

Next question comes from the line of an individual investor.

Yes. So I have 2 questions. How is the demand in our EBOs? And did we see the growth in sales during the second half of the year compared to H1 FY '25?

So since most of our EBOs, we opened 5 EBOs in Q2 and Q3. So the demand in EBO, especially since they were in the Eastern zone, there was a spike in sales, especially during the festive season of Durga Puja. That is one very good spike that we saw. And another spike that we are seeing at our retail stores is in the month of April because of summer season peaking at this time. So that is the overall spikes in sales that we saw at the EBO level.

Okay. And I have a second question. You mentioned that there is an increase in capacity to 38,000 pieces per day. So what is the estimated CapEx for this expansion? And what is your current capacity utilization out of 34,000?

So currently, 34,000, we are doing around 30,000-odd pieces. And for capacity expansion of around CapEx will be somewhere at around INR 6 crores to INR 7 crores number.

Next question comes from the line of Deepak, an individual investor.

So my question is regarding the store expansion. So how many stores are we looking to open in the first quarter FY '26? And what will be the focus geographical area for those?

Deepak, as I said, we are looking at retail opening very, very carefully. And we are very cautiously doing some research on which exact area should be open. But we plan to open around 3 to 4 stores this quarter -- this and the next quarter. And -- but then again, it's something that we will come up with over the -- because this is a strategy that we are still defining at end.

[Operator Instructions] Next question comes from the line of Priyam Shah with the Value Equity.

Sir, this is slightly on a longer term, like that is particularly by 2030. How do you see the company shaping up? And what kind of growth can we foresee ahead?

Priyam, if I talk about 2030, we expect ourselves to be one of the biggest kids brand -- one of the biggest kids wear brand in the country. That is what our overall objective is. In terms of distributor count, we expect to be around 300-plus distributors. EBOs is something that we are still cautiously taking an approach, but we expect around 300-plus EBOs by the end of 2030. And again, online D2C will grow as it expands. Exports will also be a part. But these are the 2 major points where we see most of our growth coming in from. And we expect entirely most of our growth coming in from our brand DOREME. So one very important point in this entire conversation is we are committed to expanding the brand DOREME through various channels.

Okay. And any number that you would like to assign to that 2030 target revenue?

We would refrain from talking about the exact number, but maybe at a later stage.

Okay. But the growth rate of 20%, 30 percentage would be maintained, right, top line growth rate?

Absolutely, absolutely, absolutely. We are definitely looking at 50% plus growth rate over the next few years.

[Operator Instructions] Next question comes from the line of Shruti Sharma, an individual investor.

So sir, I have a few questions. My first question is like how do you see the demand in Indian kidswear? How the industry is expected to grow?

Right. So Shruti, we are very, very excited about the demand coming in, in Indian kidswear because there's a consolidation of market happening and we're being at the forefront of trying to organize a very, very unorganized market. We expect to be at the forefront of that demand pickup. So we are very excited about the opportunity shaping up in the Indian kidswear space primarily.

Okay, sir. Okay. And sir, secondly, I wanted to know like what is our CapEx plan for FY '26, FY '27.

So the CapEx plan for this year, what we are expecting is around INR 5 crores -- INR 6 crores to INR 7 crores, which will -- it is an incremental CapEx of stitching and finishing facilities only, which will increase our current capacities -- which will take our capacity from 34,000 pieces to 38,000, 39,000 pieces per day.

Okay, sir. Okay. And sir, my next question is that we have recently raised capital. So this capital utilization would be for the CapEx, the expansion plans we have?

So a lot of the capital will be used for primarily working capital requirements, and we are planning to use some in general corporate affairs like branding and maybe some incremental CapEx, but most of that incremental CapEx, we expect to source some profits in the business.

Ladies and gentlemen, as there are no further questions, we have reached the end of question-and-answer session. I would now like to hand the conference over to the 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 at Ernst & Young. Thank you so much.

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