Khadim India Limited (KHADIM) Earnings Call Transcript & Summary

[Audio Gap] Thanks, Ayesha. Good afternoon, everyone. On behalf of IDFC Securities, I would like to invite you all for Q1 FY '21 Earnings Call of Khadim India. From the management side, we have Mr. Siddhartha Roy Burman, Chairman and Managing Director; we have Ms. Namrata Chotrani, CEO; and we have Mr. Indrajit Chaudhuri, CFO. I'll hand over the call to the management for opening remarks, and then we can start with the Q&A. Over to you, sir.

Good afternoon, everyone. We welcome you to this conference call to discuss the company's performance for the first quarter of the financial year 2021. We realize most of you have connected to this call from your home and hope all are keeping safe. The COVID-19 pandemic has -- had an unforeseen impact on people, communities, businesses and the world at large. We take a moment to appreciate the monumental efforts taken by the health care workers, front-line staff and researchers working around the clock. The pandemic outbreak and the consequent lockdown have led to the unprecedented disruption across industries. As the external environment was not conducive, we made the best use of our resource to took initially and focus on factor in our control. We are proud of our team, which has worked diligently and remain united as a family during these challenging times. During the lockdown, we embraced the opportunity to help those affected adversely by COVID-19. We distributed sanitizer, mask and dry ration to the needy, especially elderly people in area of West Bengal. Good decision take during the bad times go a long way to strengthening an organization. We prioritized the health and safety of our staff, trained them to execute enhanced hygiene protocol at our operational stores and reengineered some internal processes. Our employees' hard work and toil to create a safe and healthy environment has ensured that we are welcoming customer at our store with confidence. Some rapid changes, consumer behavior have taken place over the last few months. This has focused companies to took up for new way to engage with their customers. We understood the inability of our patrons to visit store due to COVID-19 breakout. Hence, we took a step to take our products to customers and reach them by launching On the Go store on wheels. And another one is Hot Spot to sell shoe sanitizer and mask. And the third one, Khadims Near Me, exclusive shopping tents set up in residential areas. The illustration of the same can be seen in our presentation. We have also stepped up our social media campaign and online marketing to increase engagement with our customer base. In quarter, which saw restriction on operation of our stores, we were able to control cost efficiently. Our team efforts and cooperation have led to the significant 60% drop in other expenses. We have undertaken cost reduction and rationalization measures, including deferral of available operating costs. Employee expenses are down by 14% based on voluntary salary deduction letter submitted by our employees. Coming to our financial performance, we recorded a revenue of INR 60 crore in quarter 2 FY '21, down 72% year-to-year, due to the limited scale of operations. Gross margin for the quarter stood at 28.5%. So we look forward to welcome back our customers soon and have our store filled with smile as customer walk away with new shiny footwear. We as a team are united to face the challenges and our value system [ brands ] as to tackle the situation and emerge stronger. We remain optimistic and excited for the next phase. So now thank you very much. Now the question and answer.

[Operator Instructions] The first question is from the line of Gaurav Gojani (sic) [ Jogani ] from Axis Capital.

First, I would like to know, sir, what's the latest trends in terms of the demand in the retail as well as the distribution side. We do understand that many stores were closed until the end of mid-June or they started rather picking up in the month of mid-June, but how has been the traction in the month of July and August?

Thanks for your question, Gaurav. So April to June was a bit slow purely because stores are opening in May and the footfall started consolidating only end of June. July, we did see an improvement in some numbers. But owing to the lockdowns in multiple states, there has been an impact in our overall sales. In fact, largely -- and there has been a huge impact in East and South owing to the multiple lockdown, be it in Bengal, be it in Bihar, Northeast, Orissa and Tamil Nadu. So there has definitely been improvement in July and August. We have seen healthy signs. And August then -- post August 15, we have seen a much better improvement to the extent of 40% to 50% in some of our stores. So -- but then, hopefully, in September, given that the knockdowns have been withdrawn in most of the states, except for Bengal still has to come up with their stand on it, we are hoping for the trends to be much better in September.

Sure. Also, I would like to know how the distribution piece has done vis-à-vis the retail piece, if we consider. Because retail, we do understand that the consumers' footfall might be less and, hence, impacting the sales. But how has been the sales in the distribution piece?

So the distribution -- it is in quarter 1, we have degrown by 37%, which has been pretty comforting and a healthy sign for us internally. And one of the main reasons we see that is that the low price product, which is your Hawai chappals, your PVC product, the demand for this product has been pretty good. The higher-priced products, which include PU product, sport shoes, pylons, the demand for them have been relatively lower, but we've been able to capture all the low-priced product in the Hawai and the PVC category. To the extent that we have -- in June, by June end, early July, we were functioning at almost 100% capacity. And the similar trend, it has been continuing even in August and even as we speak. And we do have good hopes for quarter 2 for results for distribution business.

In distribution, there is a demand. But there is a challenge that we faced is because of the lockdown since there was [ 6 ] lockdown in August, the production gets hampered. So that has impacted the growth to be more -- from, say, 10%, 11% to 16%, 17%.

And it will have been more.

Sir, just follow-up on this one actually. So because you have been seeing a good demand here at the distribution piece. And I also see there is some margin expansion on the gross basis. So are you able to take some market share and some pricing action? Is there anything of that sorts visible here?

So in terms of margin expansion, there has been -- it's been owing to the price increases that we had taken some time in March, the impact of which you -- we have seen in the first quarter. In terms of market share, it's too early to say. I think a lot of distribution -- I think, the first quarter, we have performed well, owing to the fact that, as I said, the demand for low-priced products was high. Plus a lot of the North-based players were not able to open because the restrictions were much higher up North. And a lot of the migrant workers issue was there, owing to which we were able -- the demand was much higher than the amount we could supply. So to that extent, maybe market share would have been better during that time. But over time, it will stabilize.

Sure. And just one last thing on the retail bit. So as you mentioned that because of the intermittent lockdown in certain places, the sales are still at 40% to 50%. So is there any empirical evidence wherein -- where the lowdown wasn't -- not stringent or maybe was -- your stores were allowed to operate unhindered? Do you -- have you seen any good improvement in those type of stores, at least?

So I think in -- just to give you a perspective, in the Tier 2 and Tier 3, we have seen a better result than the Tier 1 and metro cities. And this purely owing to the penetration of -- or the impact of COVID in those areas. So wherever the lockdowns have been released, the performance in the -- in those cities have been better in terms of -- compared to last August in terms of average sales per store for the day. So yes, I think it's dependent on the area and the tier of the city and the impact COVID has had.

[Operator Instructions] The next question is from the line of Deepan Shankar from Trustline PMS.

Firstly, I want to understand what is your expectations on festival demand? So are we expecting higher inventory at primary level? And when do you see that picking up? And how do you see the growth for distribution and retail segment?

So festive, I think, we all are hopeful for festive to perform. And with all of the lockdowns declared by the center, I think, that's going to help -- only help customers to get into the stores and footfalls to improve. And so we are hopeful for the festive to be -- to at least be much better than the current situation. [Technical Difficulty] in a position to suggest that it will be as good as last year or it will be better than last year. I think that only time will tell, but we at the back end are pretty much geared to address the kind of sales and to capture whatever sales by increasing conversions, by increasing average billing value, by trying to increase ASPs, so that's -- by coming up with innovative schemes. So I think that's something we all are at least geared at the back end. The footfalls is something which only time will tell, over the next couple of weeks. And in terms of retail and distribution, I think the -- as I said, distribution also, it's the same. Distribution, we are more hopeful in terms of the performance, again, purely because lower ends of market, the products as in lower price, where the acceptance is much higher.

Okay. Okay. And in terms of cost, so overall, I think last year, we were around INR 60 crore kind of quarterly run rate on fixed cost. So currently, we have reduced to INR 31 crore kind of run rate. So do we expect this run rate to continue for 1 or 2 quarters? Or we expect some increase in the other expenses side?

No. This first quarter, since the company store was shut for around 45 days, there are some fixed costs that didn't happen. But in the next quarters, that will happen. So we think that the average cost would be around INR 50 crores for next quarter because -- means some fixed expense will definitely come in.

[Operator Instructions] The next question is from the line of Hemant Shraman (sic) [ Sreeraman ] from Bearing Advisors.