Kewal Kiran Clothing Limited (KKCL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kewal Kiran Clothing Limited Q2 and H1 FY '24 Conference Call. [Operator Instructions] Please note that this conference is being recorded. Before we begin, a brief disclaimer. The presentation which Kewal Kiran Clothing Limited has uploaded on the stock exchange and their website, including the discussions during this call, contains or may contain certain forward-looking statements concerning Kewal Kiran's business prospects and profitability, which are subject to several risks and uncertainties, and the actual result could materially differ from those in such forward-looking statements. I now hand over the conference to Mr. Hemant Jain, Joint Managing Director. Thank you, and over to you, sir.

Yes. Good afternoon. Can I start? Good afternoon. On behalf of Kewal Kiran Clothing Limited, I welcome everyone to the Q2 and H1 FY '24 earnings conference call of the company. Joining me on this call is Mr. Pankaj Jain, President, Retail and our Investor Relations Adviser. I hope everyone had an opportunity to look at our results. The presentation and results release have been uploaded on the stock exchange and our company's website. As you may be aware, we have launched our kidswear-focused brand, Junior Killer. Foray into kidswear is in line with our growth strategy to build a comprehensive portfolio across age groups and genders. The brand offers extensive range of clothing for kids across casual, sports, and classics from the age of 4 years to 16 years, while the Brand Killer will continue to offer products to -- products for 16 years and above. This move marks Brand Killer becoming a 4 to forever age group brand. Now coming to our financial performance in the Q2 and H1 FY 2024. I am delighted to share that we have continued our growth momentum, registering increase of 16% in Q2 FY '24 compared to Q2 FY '23 from our operating revenues. We achieved an impressive EBIDTA margin of 23.5%. Our PAT of INR 49.7 crores (sic) [ INR 49.8 crores ] in Q2 FY '24 clearly demonstrates company's business and model -- model strength. The growth in sales was backed by a healthy volume growth of 19.2% across apparel and accessories, demonstrating the designing capabilities of the company and strong brand acceptance. This robust performance, despite a general slowdown in the market, reflects the company's commitment to providing customers with a superior fashion experience, rapid response to the changing market conditions, along with effective execution of our growth strategy through brand building, network expansion and category extension. We have also been strategically opening brand-focused EBOs to the -- tap into the untapped markets and widen our customer base, enabling us to enhance our market presence and increase accessibility for our target consumers across India. Continuing our strategy towards expanding exclusive brand, brand-focused EBOs, the company has had a net addition of 22 Killer brand EBOs during the quarter, taking the total tally of Killer EBOs to 271 and overall EBOs to 470 -- 470 EBOs at September 30, 2023. Further work on additional identified 49 EBOs is ongoing and expected to be launched in coming months. Now coming to the financial performance highlights. Standalone performance highlights for Q2 FY '24. Revenue from operating for Q2 FY '24 grew by 16% to INR 262.5 crores as compared to INR 226.3 crores in Q2 FY '23. Gross profit grew to INR 111.9 crores in Q2 FY '24 as compared to INR 93.7 crores in Q2 FY '23. Gross margin for Q2 FY '24 increased to 42.7% as compared to 41.4% in Q2 FY '23. EBIDTA for Q2 FY '24 grew by 23.4% to INR 61.7 crores as compared to INR 50 crores in Q2 FY '23. EBIDTA margin for Q2 FY '24 stood at 23.5% as compared to 22.1% in Q2 FY '23. PBT for Q2 FY '24 grew by 36.8% (sic) [ 26.8% ] to INR 66.2 crores as compared to INR 52.3 crores in Q2 FY '23. PBT margin for Q2 FY '24 stood at 24.5% as compared to 22.5% in Q2 FY '23. PAT for Q2 FY '24 grew by 27.2% to INR 49.8 crores as compared to INR 39.1 crores in Q2 FY '23. PAT margin for Q2 FY '24 expanded to INR 18.4 crores (sic) [ 18.4% ] as compared to 16.8% in FY -- Q2 FY '23. Now standalone performance highlights for H1 FY '24. Revenue from operating for H1 FY '24 grew by 15.8% to INR 440.9 crores as compared to INR 380.9 crores in H1 FY '23. Gross profit grew to INR 188.7 crores in H1 FY '24 as compared to INR 160.5 crores in H1 FY '23. Gross margin for H1 FY '24 expanded to 42.8% as compared to 42.1% in H1 FY '23. EBIDTA for H1 FY '24 grew by 20.8% to INR 95.9 crores as compared to INR 79.4 crores in H1 FY '23. EBIDTA margin for H1 FY '23 (sic) [ H1 FY '24 ] increased to 21.7% as compared to 20.8% in H1 FY '23. PBT for H1 FY '24 grew by 37.2% to INR 107.7 crores as compared to INR 78.5 crores in H1 FY '23. PBT margin for H1 FY '24 expanded to 23.4% as compared to 20.3% in H1 FY '23. PAT for H1 FY '24 grew by 37.7% to INR 83.6 crores as compared to INR 60.7 crores in H1 FY '23. PAT margin for H1 FY '24 increased to 18.2% as compared to 15.7% in H1 FY '23. We may now begin the Q&A session.

[Operator Instructions] The first question is from Kapil Jagasia from Nuvama Wealth Research.

Sir, first of all, congratulations on a great set of numbers.

Thank you.

Sir, my -- yes. My question was on this shirts category where the growth has been kind of flattish this quarter. So would need any color, is it on account of realization decline industry-wise or some shift in demand for the category itself at the industry level?

The second quarter, if you see, there is another category which comprises of winterwear. So we consider bottom -- topwear as a category together. So that's the reason. You will see that, okay, for the September period where my primary dispatches for winterwear has already started, it will -- we'll look at topwear as a contribution, not shirt in isolation.

Okay. So usually, Q2 would remain as it is, but Q3, the shirts contribution would be going up, right?

No, the Q3 generally, the shirts contribution goes down and the winterwear category moves up. But here, since there was a shift over structure, okay, the winterwear has started from the month of September. So that's why you'll see that the number -- that's why you'll see that the number of winterwear has gone up during that period.

Okay. Okay. Okay. Got that. My next question is on the K-Lounge stores. Like, what would be the outlook on it as we have closed around 40 K-Lounge stores over the last 1 year? I know most of it would have been converted into Killer reviews and now you are also looking at some large-size K-Lounge stores. But just for our reference, what would be the number of this K-Lounge stores by end of FY '24 and also beyond that?

So we are trying to continue with the number of K-Lounge stores. So what is happening is, in the revamping, as the stores are maturing, okay, some of the stores are getting converted to Killer stores, okay? And there is a shift over -- and we are on the path to make the K-Lounge stores on a bigger format stores. So that working is also going on. So there will be a shift in the [ group ] possibility. That's a possibility, okay, but we are trying to maintain -- but the number of stores as far as possible for K-Lounges.

Okay, so any number here, what would be the closures or additions of K-Lounge stores for this particular year?

So on the number of stores perspective, if I show that, okay, K-Lounge on an individual level, K-Lounge has been closed down by 28 stores and Killer have been opened by 49 stores.

Okay. Okay. Okay. Fine. And just by this last one year's store-wide structuring, now which format is giving better results? Would that be individual EBOs or Killer EBOs or that would be K-Lounge individual?

The individual stores are giving better results.

Okay. And this large-size K-Lounge stores, how that would come into picture here then once you start opening them?

We see that happening what maybe, okay, in the next year perspective, not in the current year.

Okay, okay, okay, okay. And just this last question from my side, now when would Killer Junior sales start reflecting in our numbers?

See, as far as Killer Junior is concerned, so we just launched, but sale will happen in the quarter 4. [Foreign Language] So as far as number is concerned, we will give you after [ 3 months ]. [Foreign Language]

The next question is from Priyanka Trivedi from Antique Stock Broking Limited.

Congratulations on the good set of numbers. Sir, my first question is on...

Priyanka.

Yes. Am I audible?

Yes. Yes.

Yes. So my first question is on the margins. So our EBIDTA margins have improved by almost 142 basis points for the quarter. So what has driven this improvement? And is this sustainable in the coming quarters?

Priyanka, the total number is a composite number, okay. It contributes one because of there has been an improvement in the gross profit margin, that aspect, and a little bit on the operational aspect, where the operational synergies is giving me a [ 0.50 ] bps or 0.75 bps perspective, which overall contributes to the total value.

Okay. And is this sustainable in the coming quarters as well? Should we build in a similar expansion in the coming quarters?

We'll try to sustain it, but we -- okay, general guidance from our side would be 18% to 20% EBIDTA only.

Okay. Okay. Got it. So -- and my second question is, what has been the ASP and the ASP growth in apparels?

Apparel numbers are not directly given, okay, it's a composite number which we do give, where it consists of apparel as well as accessories. But I can tell you that, okay, there has been a growth in volume as well as realization.

Okay. Okay. Okay. And lastly, my third question is that our working capital cycle has improved significantly in the last 2 quarters, driven majorly by the inventory days. So what has driven that? And is it expected to continue in the coming quarter as well?

Yes. Priyanka, we generally say that, okay, the working capital cycle will stay between 120 days to 130 days period, which is right now as of today. So we think we will be able to maintain this.

The next question is from the line of Varun Singh from ICICI Securities.

Yes. Sir, congratulations on a great set of numbers. Sir, my first question is on non-retail channel revenue decline. So how should we read this number, if you wish to share any color on this? Hello?

Yes. Yes. Just a moment.

Yes.

Yes, sorry. Okay. You are looking at the numbers in terms of percentage. Absolute numbers have not gone down.

Okay. So what is that number? I mean, if you compare retail channel revenue compared to non-retail channel revenue year-on-year growth?

See, we give composite mix percentages only, Varun.

Yes.

So -- okay. The absolute numbers for both the channels have not gone down.

No, no, because basis my computation that number has gone down. So I was just -- just wanted to understand if there is any mistake in the number that I am working out. So what would be your number?

The absolute number has not gone down.

Okay. So you are saying that there is a growth in both the channels?

Yes. On the quarter and quarter perspective also as well as on the half year perspective also.

Okay, no problem. I'll just cross check my numbers. My second question is, you expect next 2 quarters you will be able to drive 18%, 19% kind of year-on-year revenue growth given the current momentum. I mean, this quarter if we could grow at 16%, but still given festivity and Durga Puja, which has shifted from Q2 to Q3, so given all this background and context you -- I mean, more number of wedding days, et cetera, also in second half. So what would be your hunch with regards to the revenue growth that we have clocked in the first half compared to expectation in the second half?

Varun, we have grown by 16% on the revenue perspective, and we are confident still we'll achieve this kind of growth, okay, in the next quarters maybe next half year also. Our guidance has been 18% full year growth and we are looking at, okay, achieving that. But it also depends on how the winter season pans out as well as how the new categories perform. But, okay, we are trying to achieve our guidance.

Okay. So the ask -- I mean, to achieve 18% rate, the ask rate for second half which is 18% to 19%, you think that there is more than 90%, 95% chances of the -- you being able to deliver that number?

We are trying our best to [ achieve that ].

[Foreign Language], we are trying to achieve that. [Foreign Language]

Understood. And, sir, my next question is on the size -- the store size. You mentioned in the PPT that you would be looking for a bigger format of K-Lounge store. So just wanted to understand over here that -- so on the first part, why we started rationalizing the K-Lounge store with the Brand Killer, assuming that Killer has a larger brand pull and more focused larger appeal in -- or more brand awareness. So my understanding was that it's the right approach to do that. But now, I mean, what is the -- so how should we look at the aspiration? What is the need for a bigger size K-Lounge store going forward? If you can give some strategic insights over there?

[Foreign Language] When we say K-Lounge, K-Lounge is a mixture of all our KKCL brand. And we have -- we want to launch more categories also. So in future, when we say, [Foreign Language], I will put all my brand and all my gender, all my categories. [Foreign Language], we need a bigger size of store. So next year onward, we are trying to [Foreign Language], and we don't want to keep it dependent on the others. [Foreign Language], we need certain square feet sizes [Foreign Language]. K-Lounge is dependent on 700 square feet to 1,000 square feet. For the single brand, it is okay. But when we say [Foreign Language], then we need a bigger size stores. And we want to involve some more categories also. So in future, K-Lounges will be a bigger size store and individual brand store will be the smaller size store.

When you say bigger size, that means what? From 700 square feet, it would be 1,200 square feet?

Then I will come back to you, we are working on that. [Foreign Language]

Varun, we are still under the incubation stage scenario for that. Okay, what has happened is, okay, the first K-Lounge was opened in the period of 2005, okay. It was a competition to a pure MBO. You will see that, okay, over a period, it was competing with the Tier 2, Tier 3 cities, that MBO stores. That MBO has also evolved over this period and started going to indoor shop and shop, okay. Where the brand cycle came into picture, that's why we shifted our entire perspective to MBO stores or exclusive format stores. Now, K-Lounge is somewhere in between which has to [ fed ]. It will again be a competition to that family-owned store in the Tier 2 and Tier 3 city only.

Understood. Understood. And sir, my just last question is, so now what is the aspiration that whatever incremental store addition on an annual basis that we wish to do, what percentage would be Killer and what percentage would be K-Lounge?

As we are saying, net used to be around -- we are saying is around 80 stores to 100 stores. This year, it will be close to around 60 stores to 80 stores.

Sorry, 60 stores to 80 stores of Killer?

60 stores to 80 stores on a net basis. You need a net number, right?

[Foreign Language]

We are [ not ] looking at adding up K-Lounge stores anymore.

Sorry, sir?

We are not looking at adding up K-Lounge stores anymore.

Okay. But then you said bigger format K-Lounge store.

This is for next year.

[Foreign Language] because we have to build in our estimates also. So...

So for next year perspective, I am saying that, okay, the project plan is still on paper, where I am saying that it will be a competition to a purely a MBO in a Tier 2 and a Tier 3. So exact numbers, how the store will happen, what type of styling, what contribution this category makes, I will give you after, okay, maybe in the next year perspective.

The next question is from the line of Sahil Doshi from Thinqwise.

Yes. Sir, firstly, congratulations for good performance despite the Diwali quarter, meaning the month getting shifted. Just on this store opening, wanted to really understand, firstly, I think we've reduced the aggression or the aspirations of opening around 100 odd stores a year to around 60 stores to 80 stores. So why is that so? Is it because of the market dynamics or is it because of this re-strategy of K-Lounge and the Killer strategy?

Sahil, most of the stores generally, okay, when we say we open our franchisee owned franchisee operated. So market sentiments do play a role when we go and pitch in, okay. There are a number of stores which are under development, but the closure is happening, taking a little bit longer period.

Okay. So aspirationally 100 odd stores a year, that target remain, I understand a quarter or 2 delay because of...

Target for this year, which was from 80 stores to 100 stores to 60 stores to 80 stores.

Okay. And incrementally for the next couple of years, if we have to see, we will maintain the run rate of 80 stores to 100 stores? Is that the right number?

The new format picture of K-Lounge will also be there in place. So definitely we're looking at 80 stores to 100 stores in the coming years.

Okay, understood. And when I see the first half, the K-Lounge number, which is we've reduced roughly 44 odd stores in the first half, is it that the K-Lounge stores have got converted into Killer reviews or you've vacated those geographies or the store itself?

Most of them, most of the stores. So the entire aging of the stores in K-Lounge, and most of them are, okay, higher than -- all of the stores are more than 3-year period. And most of the stores are more than -- 75% of the stores are more than a 5-year period. So we are revamping the strategies and structures for them.

Okay. So it's not that you've vacated the premise for the location, you've converted it into a Killer store?

Some of the locations would have got vacated, but, okay, instead of that, a Killer store would have been taken that place in that city.

Okay. Understood. And what is the strategy on this other brand EBOs, because we've also seen 5 odd store closures in the first half again?

Not vacated the city, I may have vacated that location.

Okay. Okay. And on the other brand EBOs, where we've seen [ 5 stores in H1 were closed ], what's the strategy on this other piece?

See, we are still -- that other brand stores are still under that pivot stage to justify their numbers. So, [Foreign Language], the number of stores opening, we are still on the deciding phase.

Okay. Okay. So when will we be in a better position to roll out or just share the strategy on the store opening?

The stores which will be open out on the next 6-month basis will be only Killer stores.

Okay. Okay. Understood. Sir, the other question was on, because of the shift in the festive month, is it right to say that the stocking up by MBOs, et cetera, would have got delayed? And that's why on a first -- this quarter or so, if we see the non-retail growth, it's only 5%. So...

Sahil, can you repeat the question? I couldn't get that.

No. So if I see the non-retail, which has the MBO, the growth in this quarter is roughly 5% in absolute terms. Is it because there is a shift in the festive month from October to November? Is that the reason?

Okay. Non-retail doesn't only comprise of MBO, it comprises of 3, 4 numbers, okay?

Sure. Sure.

Okay. There could be a little bit shift over, okay, on one of the mix of the channels.

Okay, meaning -- the question I was meaning -- what I was trying to get at is that the entire impact of the festive will possibly get shifted from October to November, and hence...

That's a likely number, okay. If we compare the quarter 2 and quarter 3 together, we'll have a better picture and better understanding of the numbers. That's true, Sahil.

Okay. Okay. And just one clarity on the other income. Now that has become INR 20-odd crores in H1, right? And even we saw in Q1 and Q2, the number is quite elevated. What is the composition of this, and how sustainable is this?

Which number are you talking about?

If I look at the other income...

It has a direct correlation with the debt markets. The debt markets have improved, and that's the reason, okay, it has a direct relation with the debt markets.

Okay. There is no other one-offs in this other income at all.

Not at all.

Okay. Okay. Understood. Understood. And just a final request, this is basically, can we possibly bifurcate the volumes of apparel and non-apparel? Because that is actually changing the entire dynamic. And it's very difficult to understand the kind of realization growth and the SSG growth we could possibly see.

But, okay, looking at the competition perspective where most of them are unlisted, I refrain from giving such numbers.

Okay. But -- or indicator number at least if you can just give, that will also be really helpful.

It would be one and the same, Sahil, okay. Let me -- okay, let our management evaluate the perspective and then get back to you on this question maybe in the next quarter.

Sure, sir. Sure, sir.

The next question is from Shrinjana from RatnaTraya Capital.

Firstly, congrats on a great set of results. Like I have a couple of questions. So first is on the gross margin side. I wanted to understand the movement in the gross margin. So compared to last year, gross -- our gross margins has improved roughly by around 1%. So is that because of material cost benefits or is there some -- because on the mix side if we see, the share of winterwear has increased, right? So that should have a negative impact but the gross margins have still increased. So just wanted to understand that.

You rightly said. It has improved by more than 1% and it is because of the price bracket changes, yes.

Sorry, the price market?

It's because of the price bracket.

The material cost because the cotton prices have come down. Is that correct?

That is right.

Okay. Okay. One -- just one more question. So this year, our winter sales -- winterwear sales have come early. Is that the reason why our inventory has gone down, like even on absolute terms?

Winterwear is the entire buyout category, okay. Definitely there has been some preponement on that, okay, but winterwear major sales would be during the third quarter scenario.

Okay. So this -- so the others category, the sales, INR 30 crore odd sales which is in the others category, that is not winterwear, that includes others.

That's winterwear and accessories.

So it would be primarily like what would be the largest part of that others category?

Winterwear would be a larger part.

Okay. Okay. And the inventory improvement, that's just because this quarter has gone well. Is that correct?

Winterwear improvement. See, we track this on a working capital cycle, so -- okay, not exactly on the inventory-based structure here.

The next question is from the line of Arpit Shah from Stallion Asset.

Congratulations on a great set of numbers. I had a couple of questions on where do you see the channel mix changing for you, let's say, from retail -- from non-retail to retail? And what kind of working capital changes do you see when you change, let's say, from non-retail to retail?

The category contribution, we say that, okay, we feel that retail will grow at a faster pace, so it's going to be at a 50-50 percentage.

And what kind of working capital differential is there between the 2? Like, what kind of working capital do you entail in non-retail and what kind of working capital do you entail in retail?