Iris Clothings Limited ($IRISDOREME)

Ladies and gentlemen, good day, and welcome to Iris Clothings Limited Q4 and FY '26 Earnings Conference Call. Please note that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Documents relating to the company's financial performance is available to the stock exchange. Thus, you have been able to go through them. [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.

Good morning, everyone. Thank you for joining us today for our Q4 and FY '26 earnings call. I'm pleased to share our progress and achievements over the past year, along with our strategic vision for the future. Iris Clothings has delivered robust revenue growth during the year alongside significant improvement in operational profitability. FY '26 has been a transformational year for the company as we continued our evolution from a garment manufacturing company into a fast-growing branded customer player. Our performance reflects the increasing strength of the DOREME brand, expanding customer franchise and the resilience of our business model. A key growth driver during the year was the expansion of our distributor network, particularly across the B2B channel, which significantly improved our market reach and sales momentum across regions. The addition of new distributors, coupled with growing brand acceptance, helped us deepen penetration in the organized kidswear market and contributed strongly to our Q4 performance. Over the years, we have built a scalable distribution-led platform, supported by product innovation, category diversification and a consumer-centric approach. We are also seeing encouraging opportunities to expand wallet share as we gradually widen our product offerings. Another important milestone during the year was the launch of our dedicated direct-to-consumer platform. This marks a strategic step in our omnichannel journey and reflects our vision of building a future-ready and digitally integrated brand. We believe this initiative will strengthen online sales, deepen customer engagement and provide valuable consumer insights to support long-term brand building. Despite continued investments towards expansion and brand building initiatives, we delivered strong profitability growth supported by scale benefits and improving operational efficiencies. We remain optimistic about the long-term opportunity and the organized kidswear market driven by rising disposable incomes, increasing preference for branded apparel and higher spending per child. With DOREME positioned in the affordable premium segment, we believe we are well placed to capitalize on these evolving consumer trends. Going forward, we remain focused on expanding our distribution network, strengthening brand equity, scaling digital capabilities and driving sustainable, profitable growth. I will now hand over the call to Niraj Agarwal, our Chief Financial Officer, who will walk us through the Q4 and FY 2026 financial numbers. Thank you, 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 '26. Talking about the key financial highlights of Q4 FY '26, our total income was INR 60.4 crores compared to INR 40.2 crores in Q4 FY '25. Consolidated income during FY '26 witnessed a significant growth of 30.5% year-on-year, reaching INR 190.8 crores against INR 146.2 crores reported in FY '25. EBITDA during the quarter grew by 34.1% year-on-year and stood at INR 11 crores as against INR 8.2 crores in Q4 FY '25 with an EBITDA margin of 18.2%. EBITDA for FY '26 was annualized INR 29.4 crores as compared to INR 28.3 crores in FY '25. EBITDA margin of 15.4% in FY '26. Additionally, profit after tax for the quarter witnessed robust growth of 43.5% year-on-year from INR 4.48 crores to INR 6.4 crores. During FY '26, net profit was INR 16.1 crores compared to INR 13.1 crores in FY '25, growth of 23.4% year-on-year basis. In summary, our focus remains on strengthening operational efficiency and leveraging growth opportunities to create long-term values. With this, we can now open the floor for questions. Thanks.

[Operator Instructions] First question is from the line of Aditya Banerjee from Arihant Capital Market.

So my first question is that given that EBITDA margins declined from 19.3% in FY '25 to 15.4% in FY '26, can the company provide a bridge explaining the primary drivers of this compression, specifically the impact of the increase in COGS versus investments in B2C rollout?

Aditya, thank you for your question. So primarily, EBITDA margins, if you see quarter 4 have been decently improved However, since we have been robustly expanding revenue, we have added a few new product categories, which are value in nature and super competitive in terms of pricing to drive that market -- the pyramid of the market at the bottom so that we can capture specific stores, which were certainly out of our reach until now. So since we have entered this competitive products, for which we will see value in terms of growth this year. Hence, one of the reasons for EBITDA margin decline has been that. Secondly, since we launched D2C in Q4, there has been a significant spending in terms of branding and creating the entire platform. So that has also been impacting the margins. Apart from that, we also did a big distributor event for summer's conference, which has also impacted the margins for this year.

Okay. Great. Great. So my -- the question is that is there a planned greenfield expansion of 2 lakh square feet and an estimated capital outlay of INR 50 crores, what are the projected asset turnover and incremental revenue expectations once this facility reaches optimal utilization?

So once this factory reaches optimal utilization, we will see additional INR 300 crores coming in from that facility. So overall, Yes. Additional INR 300 crores. So we are targeting somewhere around INR 500 crores from this facility over the next 2 years once the facility is in place.

Okay. Okay. And my third question would be that regarding the launch of the dedicated D2C platform, what are your target customer acquisition cost and expected customer lifetime value metrics as the company transitions into a future-ready omnichannel ecosystem?

Right. So the target customer and acquisition costs that we are looking at currently is around INR 250 to INR 300 for a product for an average bill value that we are currently getting is around INR 1,500 to INR 1,600. That is the target cap that we are looking at.

Okay. And the other question would be that both return on equity and return on capital employed saw significant declines in FY '26 from the FY '24 peaks. So what operational levers are being pulled to return these metrics to the 20%-plus range?

So as I said, we are experimenting with multiple product categories. So we are recently planning to launch an infant gift set collection, trying to add a few new product categories, which will provide us with higher margins and take us to the optimal 19% to 20% EBITDA margins that we are looking.

Okay. Okay. Great. And my other question is that the debt-to-equity ratio improved sharply to 0.14x in FY '26, so does the company intend to fund upcoming INR 50 crore greenfield projects through internal accruals? Or is the plan to average the balance sheet?

We are still evaluating our best options for that. But in funding it through internal accruals is definitely an option since we do not have any long-term did on our books currently.

Okay. Okay. And the other question is the company currently has 260 distributors across 26 states. Beyond the initial focus on Eastern regions for EBOs, which specific states are being prioritized to reach the Vision 2030 target of 300 distributors.

So currently, we are targeting the southern part of India. So Telangana, Andhra Pradesh, Karnataka, that is a big focus for us. That is where our presence needs to increase. Apart from that, Utar Pradesh is one state which we are focusing on expanding our reach in that.

Okay. Okay. And sir, one more question. With the introduction of the categories like kids, winters, sportswear and woven suits, so how do you foresee the product mix evolving by FY '27 and which category is expected to have the highest contribution to bottom line growth?

Highest contribution, we are looking -- since we launched woven products, woven will become a big partner, we have primarily been a knit company for the last decade or so. In the last year, we have recently gotten into woven, which is a completely different age and there are multiple products that we plan to add in that category in the next couple of years. So we see woven pants, woven sets, woven night suits as a big category overall in the upcoming couple of years. Apart from that, infant wear, which has been around 12%, 13% of our mix, we plan to increase that to around 20%, which will be a big driver for margins overall in the business.

Okay. Okay. Great. And my other question is, so currently, the company has been exporting to around a few countries with a target of [Technical Difficulty]. Hello. Hello.

I think I lost you.

Yes, yes. is the target of 12 by 2030, is the international strategy focused on organic brand growth of DOREME or averaging the pharma approval for Disney products to enter more regulated Western markets?

So currently, the focus is primarily on growing through the DOREME brand by taking that to more international markets, finding bigger retailers in specific regions and selling our brand to them. That is the primary focus for exports in our strategy.

Okay. And last question from my side would be, in sight of the 30.5% growth in total income for FY '26, how has the company managed its working capital cycle? And are there any plans to further optimize warehousing and dispatch units to improve speed to market?

So our working capital cycle since the growth of this has become much better from last year because of that improvement in revenue. And to improve the working capital cycle, we are planning to optimize our manufacturing cycles and reduce that by significant margins to improve the overall working capital cycles.

Next question is from the line of Nish Shah from Stellar AMC.

So my first question is with regard to digital platforms. So you said that the customer acquisition cost would be around INR 250 crores to INR 300, so what strategy have you kept in place since the customers won't be having the benefit of touch and feel. And also today kids are very choosy with respect to the design you want to wear. So what are the target customers? And what is the strategy in place?

So digitally, our strategy is very.....

Sorry to interrupt, sir. Your voice is breaking. [Technical Difficulty] [Operator Instructions] Ladies and gentlemen, thank you for patiently holding. We have the line for the management reconnected. Over to you, sir.

Apologies for the -- I don't know whatever happens with the network. So Nish, I think let's start off with your question. Are you still online, Nish?

Yes, yes, I am here.

Yes. So talking about the digital platform that we have launched. The idea and the strategy overall as a company is to leverage our wide experience of being a branded kidswear company for the last 20 years and using that brand experience by going into a different distribution network, which is the online network. So digitally, we want to be present in multiple product categories, serving the same audience and offer a variety of products to our consumers in a much more hygienic environment for them to make that purchase. So that is the overall digital platform idea that we currently have.

Sir, just on this, we were already present in other online marketplaces like, Amazon, FirstCry, so was this own digital platform really need which you stand?

Absolutely. So we are not on Amazon currently. FirstCry, we are doing significantly well on FirstCry, which is what makes us very, very confident that we, as a platform can offer better variety, can offer better experience to our customer who really wants our products and are searching for them on FirstCry, they can directly come to us as well and expand that overall product -- overall vision of the brand in the minds of the customer.

So the product SKUs would be different in FirstCry and our own platform?

Absolutely. Absolutely.

Okay. And are we creating visibility on the web side, what is the footfall and -- how are we creating the visibility?

Yes, since we had just started, it's been a couple of months. Currently, we have received a decent response, and we are doing around 300 pieces per day in terms of orders. And we plan to ramp it up very, very fast over the next 6 months.

Okay. So going forward, our focus would be to -- we had more focus on our own platform or we will like to explore the marketplaces like Amazon or also Quick Commerce?

So Quick Commerce is something that we are still exploring with multiple partners, but our primary focus will be to build our own digital platform and, of course, also improve our presence on specific platforms like FirstCry.

Okay. And will the funding for the market internal or raising some debt?

So that is something that we are still working around with. Primarily, currently, we are using through our internal accruals that the company is generating. Funding is something around that we are exploring and we ramp up our expansion.

Okay. What contribution are we expecting from digital platforms next 2, 3 years?

This year, specifically, we are expecting somewhere around 10% overall from our digital platforms. And next year, we are targeting around 20% to 25% of the overall revenue coming from digital.

Sir, I can see we don't have much cash in our balance sheet. So internal accruals, I don't think will work out in near-term.

As I said, we are -- as we plan on expansion, we are very, very aggressively discussing on how to fund this. We either raise debt or raise funds.

Okay. Sir, are the margin profile better than -- if we sell to B2C model rather than going to distributors or the marketplaces?

So initially, since we are in digital initially, we have to spend on advertising and getting those customers. Once the customer lifetime value starts kicking in, the margins start improving. Initially, we'll have to take a hit on margin, but that is our investment for the future. As we go ahead, margins will start improving massively.

So how much gross margins are we expect when everything is settled out?

When everything is settled out, we are expecting around 65% gross margin coming in.

And EBITDA margins?

EBITDA margin, we target around 20% to 22%.

And which year do we expect this to kick in?

We expect the next 2 years. At the end of the second year, we are expecting this to kick up. Set up the overall revenue, we expect this to start kicking in.

Then can we expect the margins total to be around 15%, 16%?

We expect margin profile to slightly improve to somewhere around 18%. That is our target.

Okay. So that any development on the EBO front?

EBO front, we are exploring, as I said in the previous question, we are exploring regions like Talangana, Karnataka, Maharashtra to expand EBO. So hopefully, we'll see some development happening in this quarter.

Okay. And for this also, we will be raising debt correct? For EBOs.

We are still -- not going to raise that for EBOs. As I said, funding is something that we are still working on, and we'll be more clear in the next quarter. The entire development, going forward.

So any plans for raising further equity?

As I said, we are still exploring the opportunities that we have currently have.

Okay. Sir, going forward, what will be a focus to develop our digital platform at a much higher focus or going towards EBO.

I think digital will be more focused but EBOs will be part of our omnichannel strategy to create that brand experience for the customers.

Okay. And sir, we also had 4,000 additional capacity. 4,000 pieces per day. When will it be operational?

So the factory is already operational. We will get to full capacity in the next couple of months.

[Operator Instructions] Next question is from the line of Madhur Gandhi from SIES School of Business Studies.

Yes. I just wanted to ask a few questions. So first one is that digital, like you said that the company is exporting, how did the raw material price fluctuation impacts profitability? May be there as there is the rise in price of go-through? So that [indiscernible]?

So if the raw material price continued [indiscernible] it will definitely impact our margin. But currently, we are -- since we have recently covered, we are currently looking at what the -- how this entire raw material pricing situation shapes up over the next month or so.

My next question is, so now as you said that you are going to do less B2C platform. So company appropriate sales -- so while mentioning the margin, how will you approach the [indiscernible] that you are planning?

Madhur, [indiscernible] I missed your question, sorry.

I'm sorry, sir. So our company is going B2C. So how does something approach this level of sale while retaining the margin?

As I said, Madhur....

Mr. Madhur, we please request to mute your line.

Yes. So Madhur, just to answer your question, since we are right from manufacturing to distribution -- since we are this vertically integrated, and we have had a vast experience in the space that we are currently operating in. So scalability will not be a challenge. It's just a change of platform. So initially, of course, we will have to take a hit on margins at the digital front. But having said that, in the next couple of years as it starts to scale up, we will definitely achieve the profitability that we are targeting.

[Operator Instructions] Next question is from the line of Majeed Ahmad, an Individual Investor.

My first question that I have is, sir, for the EBOs, how much are we looking to expand for the coming years, sir?

EBOs, we are planning to add around 8 to 10 stores in this coming year.

Okay. Sir, as of now, how many stores do we have, sir?

[indiscernible].

Okay, good. And what is the CapEx for EPS [indiscernible] CapEx and what could be a payback period?

So the CapEx per EBO is around INR 2,500 to INR 3,000 per square feet, which is for 1,000 square feet store that comes to around INR 30 lakh for the CapEx only plus this inventory. And overall payback, we see somewhere in the 18 to 20 months.

Sir, how do you see the competitive inventing the market base currently? Because with the new players emerging in the private equity funded players and other international players getting into this market. How do you see the right to win for us to [indiscernible]?

So the right to win eras is definitely the experience that we have built over the last decade as a manufacturing-led company and a product-led company. Having said that, in the kidswear space, apart from one very big player, there is not a lot of competition. Primarily, the market is still very unorganized and there's still a dearth of organized player. So our right to win is to become a big organized kids branded player in the market in the affordable premium segment that we operate in. Because if you look around, there's not a lot of competition in the organized kidswear space.

But sir, so how much do we exactly spend in marketing and making our brand -- like what are the channels are we trying to market like [indiscernible] digital marketing or -- how you think about that?

[indiscernible] exploring primarily is digital marketing, which is running ads through social media channels like, Youtube, Instagram, Facebook. Apart from that, we have a lot of local marketing that we do at the distributor retailers, the retailers that we are currently selling to. So we have a lot of marketing that happens at that point of sale as well. Those are the 2 primary marketing channels that we are currently using.

Sir, in terms of the export, how do you see this [indiscernible]. How do you see that tipping up?

Export, I think it is a good opportunity for India and like us to explore the various FDA that have been signed by the government of India. And we are keeping a close eye on opportunities that arise out of this agreement.

Sir, just wanted to know just the revenue from the EBOs and the segment margins currently, sir. How much should we expect?

So currently, EBO is contributing somewhere in the 1% range to the overall revenue of the overall [indiscernible]. So it's still very significantly smaller. We are planning to expand that from digital focus mostly and having ever as more of an experience center for the overall brand.

So the revenue is around INR 2 crores as of now?

Yes.

Going forward, how much do we expect this 1% [indiscernible]?

This time, we expect overall to grow up to 3.5% [indiscernible].

Sir, finally, how much growth are we expecting it next year? Any guidance?

We are very aggressive in terms of our growth. We expect 30% to 35% growth this year in terms of revenue.

Next follow-up question is from the line of Nish Shah from Stellar AMC.

The question is, [indiscernible] in the year, we said that we'll be adding 5 to 6 new EBOs by March '26 months but then in Q3, you said that the execution will be delayed by a quarter or so. And we are still in the exploding stage for identifying the new ADRs. Also, we are unsure of how will be funded and marketing spend of a digital platform. So I understand it is not a easy decision to make, but when can we expect something concrete in the regards?

I think we'll see something concrete since still figuring a lot of things in the overall direction of the company. I think in the next 6 months, we'll have a concrete proposal on how this is shaping up. Since we have launched digital and we are seeing a lot of traction coming into digital, next 6 months, we'll get an update on how this is expanded overall as a company.

Okay. Sir, we have been distracted and were launching too many things, launching a digital platform and also going -- focusing on an EBO side by side, won't be making it difficult for us?

Not really, not really. I think EBOs and online goes hand-in-hand. It is an omnichannel strategy that has to be implemented for any brand which wants to come in and capture this space. We see a big, big gap in this entire market where there is no player which is doing -- there's one very large player, which is trying to do what we are replicating, which is FirstCry. Apart from that, there is no big player which has come in and try to capture this market. So we are very, very positive that the direction that we are going as company is a very high growth and a big, big opportunity for someone like us who has that experience over the last 15 years in building something similar, I'm capturing that space and becoming one of the pioneers in the kidswear apparel station.

Ladies and gentlemen, as there are no further questions from the participants. I now hand the conference over to the management for the closing comments.

[indiscernible] being a part of our journey, we look for in earnings -- in case you are with Paris post this call or anything remains may please connect to our -- thanks so much.

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