Khadim India Limited (KHADIM) Earnings Call Transcript & Summary

[Operator Instructions] The next question is from the line of Monika Arora from SGW Advisors.

Yes. My line got disconnected. So I was asking the question upon how is the quarter, how is the -- in the previous quarter, like, you said that the e-commerce sales were highest in the company's history? So how are you seeing the sales now through e-commerce especially? And what would be your strategy going forward on the online business? And how can it affect your on-store sales?

So Monika, I think the last time, I think, when we spoke, we have said that our target is to ensure that our online -- omni rather, online cum omni business will reach around 3% to 4% -- sorry 4% to 5%. We are pretty much on that number right now. We're around 4% of our -- at least in the first quarter, we are -- around 4% of the business is coming from e-commerce and omni business, number 1. Number 2, we definitely want to grow the e-commerce and the omni business, but I think we are very cognizant that we want to ensure that we're doing it in a profitable manner. If we want to grow the e-commerce business substantially, we can do that very well, but that may come at a substantial cost, which we do not want to take. So I think the idea is to grow it in a constructive and a profitable manner, and that's something which we will continue working on, and you will see the numbers will continue and sustain in this way.

And any -- like any strategy on your stores, if you are planning to open some new stores, like basically CapEx plan, I want to ask, like going forward in 1 or 2 years?

So I think this year, the idea is to currently consolidate our which is, I think, we have been trying to reduce the number of underperforming stores. So I don't think we are looking at opening more COCOs this year unless and until it's a very awesome area, which will start giving us a profit from the first 6 months itself. But I think in terms of franchisee, as Indrajit mentioned earlier, we are looking at opening out 75 to 80 stores on -- in this financial year. And in terms of CapEx, next year, I think we'll be also looking at opening around 10 to 15 stores, which -- company-owned outlets, which will possibly be a CapEx of approximately around INR 3 crores. And the balance will -- there will be a CapEx for also the factor -- for our distribution business. So total CapEx will be in the range of INR 10 crores to INR 15 crores.

[Operator Instructions] The next question is from the line of Girish Pai from Nirmal Bang.

Yes. The online margins, I just wanted a sense of how they are? And what is -- you mentioned about 4% is coming from omni, how much is it from your -- if you have your own web store, how much is it from there and how much is from a third-party store -- third-party online store? And what is the kind of margins you're making there right now? Or would you think -- had things been normal, would they be equal to the 10% number? Or how much they were would they have been lower by compared to the aspirational 10% margin that you kind of look at?

So I think the breakup of the sales channels, on the website and the platform that we can give to you off-line, Girish. In terms of the margins, I think it will be less than 10%. Please appreciate that we are not a very high ASP or a high-priced brand. When it comes to logistics costs, it comes to approximately -- purely because of the ASP that we are leading in, the logistic cost is on the higher side, which can almost at 20%. So we are not really -- it's not 10%, below 10%, but we're looking at ensuring that we are able to get to the ideally 10% number, which is what you make in the off-line sales.

And is the assortment online, how different is it from the offline? So I don't know whether this question was asked, how different is it compared to the off-line store?

So the range is similar to the offline store, except for the fact that we have reduced some of the low -- very low priced products, which is -- it's not commercially viable to sell online. Given this is the logistic cost, the commissions and marketing cost and returns and also the other agency costs, it's not viable to sell very low-priced products. So we have put a certain benchmark, and it depends -- a difference from the various marketplaces and the various platforms, depending on the cost structure with all of them. And -- but we have an e-commerce exclusive line as well, which we don't obviously service on to our -- through our off-line store, which is only meant for online sales.

Okay. There is talk of an IPOs from 2 to 3 players in the next 6 to 12 months, and you know the names that are floating around. Have you seen any kind of extra aggression from them in the market wherever you're present on the ground?

Actually, most of these names that you're talking about they're not very strong in the markets than we are and vice versa. So I think we're not seeing as much over here, maybe you can ask the other listed competitors, they'll possibly be able to give you a better perspective.

[Operator Instructions] The next question is from the line of Naitik Mody from Ohm Portfolio.

You spoke about expanding -- or adding on to franchisees and COCO stores. So what regions are we specifically looking to add these stores?

We're looking at adding these stores in the east and the southern markets, wherever there is option for penetration because in the southern markets, there's still significant chances of penetration. But at the same time, we're also looking aggressively on the northern and the central markets.

Okay. So when you're adding new stores in the east, where do you think, as per your internal analysis, is that you feel that, okay, we've reached sort of a saturation within the eastern markets because that's your strongest market?

You're asking when you think we'll reach saturation?

I mean what is the max-out limit, so to say, in terms of number of stores for you?

I think it's very difficult to comment on this in terms of -- which is a max-out stores because there are newer markets opening up on a year-on-year basis in various of the states. But having said that, I think we're not only looking at larger franchises, we're also looking at smaller franchises, which are nothing but branded outlets, where the investment of the smaller and the product range also is a mix of our Retail and Distribution business, so as to make it affordable for the franchisees to sell to the target audience in that area. So I think there is, in my mind, given the kind of flexibility model that we're dealing with, there's enough penetration left in the eastern and southern markets as well. Other than that Seven Sisters also there where there's also enough penetration left. So to be frank, I hope we don't reach the level of saturation ever, but that's the ideal scenario, but I think there's enough space left, both in Retail and Distribution.

Okay. And in terms of your regional expansion, how are the North and Western regions playing out for you? I mean, are they profitable at the operating margin level?

Some of them are, some of them are not. It's subjective. So the ones who are not, we're taking a call to continue with them on a strategic basis because we need the brand presence from an expansion standpoint. But the feedback -- the interest that you're gaining on the northern markets in terms of the franchise expansion, I think, has been great. There's a lot of awareness of the brand in the northern markets because we have a lot of the target audience, which has moved across the country. And also the kind of product range and the price that we are dealing with, the kind of range that we are dealing in on the retail side for the entire family for all the occasions, a lot of the brands that you see across the country do not necessarily have the entire range at the kind of price point that we are dealing with. And a lot of the brands, which have a larger range, don't have the kind of price points. So I think we have a good mix. Our product offering is very good, and there's a lot of interest coming in. Because mind you, the kind of the economic scenario that we are in right now in terms of disposable income, people are very happy to see affordable fashion footwear. The demand and the interest from the franchisees and the customers wherever we've opened, in fact, as we speak in last -- 2 weeks back, we opened a store in Delhi, I think we've got great response in the market. And we are expanding -- we're making a plan to expand aggressively there as well. So I think the response has been great.

Okay. And for ours as a company, which is a more -- or rather, which is a ROCE-accretive or higher ROCE business? Is it the franchisees? Or is it the COCO model?

If you see -- if you compare both of them, it's more or less same, means, the margin we derive from franchisees and the EBITDA from the store level more or less comes to same. What happens is in COCO, we have a CapEx investment. And in case of franchisee, we don't have a CapEx investment.

Right. So the capital employed in COCO would be higher as compared to franchisees. Is that correct?

Franchisee, there is no capital employed. It's only the working -- means...

Working capital employed there.

So in terms of the profitability, it's just similar to the mature stores. In terms of ROI, as Indrajit said, we are better off -- I mean the franchisee model is obviously better.

So that's why in normal year when we open shops -- means we opened around 15 to 20 COCO and around 70 to 75 franchisees. So there is a 3:1 ratio of opening the store.

So -- yes. So what is the strategy there in terms of why have 2 models, why not have 1 model? I mean what's the thought process behind having...

For penetrating the brand in the newer market, you need the COCO because what happened historically, if you see, first we opened our COCO in Calcutta and then only all the franchisees' growth came. So to penetrate the market, we have to first open our COCO, exploit the market, see the market and then only your franchisee demand will come. So we have to be present with the COCO in a particular state and then only you can expand the franchisee. The same thing we have done in south also. We opened stores in Chennai, Hyderabad and Bangalore. After that, the franchisees followed.

Okay. Is there view internally to look at any particular number in terms of the ratio of, let's say, franchisees to COCO stores?

As I have told you that it's -- I don't know, 3:1 to is 4:1 every year, we open -- means last 2 years, we are not opening COCO because of this pandemic. But in a normal year, we used to open around 20 COCOs and around 70% to 75%.

Okay. But there is a mix of both the thing.

[Operator Instructions] The next question is from the line of Nikita from Galaxy Investment.

Yes. Pardon me, if someone has already asked this question. One, I want to ask that, see, in the last 3, 4 years, we are -- we have seen a lot of events happening, starting from demonetization to the introduction of GST and now COVID. So what we have seen is various unorganized players were forced to leave the market. So from point of view of unorganized players, how are you seeing the competitive intensity differentiating pre all these events and now?

So competition, I mean, the competition is definitely there. You see a lot of the unorganized player business has been converted to distribution business. That's why you're seeing a lot of the distribution players doing so well and distribution business as doing so well, be it in terms of the Relaxo, there's Aqualite, there's Action, there's Paragon, [indiscernible], there's Carlton. So we are -- I think we are the only unique brand getting -- are we able to gather distribution recently well enough. But a lot of the distribution players are getting the benefit of the unorganized and the organized market. And that's why you've seen the kind of business improvement there.

Another thing is that in terms of GST and I mean [Foreign Language] that there was a limit of INR 1.5 crore in GST. So unorganized sale was less than INR 1.5 crore. So that GST presence impacted them. And I mean in terms of notes also, I mean unorganized can carry on with new notes also. The thing that has impacted them is this COVID, but that benefit has not passed to the organized sector because the organized sector footfall has also gone down. So once after the COVID when the impact goes up, the unorganized players have gone up, then only, you can see the benefit.

Okay. Okay. Okay. And secondly, all these local brands, like as in the e-commerce, I'm talking about, all the private e-commerce brands like Reliance has its own brand, Big Bazar has its own brand. So how is the competition from those brands? And if I talk about the quality, how your product is different from those?

So I think a lot of the brands are trying to dabble in private label. And I think we wish them all the well and all the best because it's always good to have a healthy competition. But I think our strength, to be frank, has been the kind of product and the price for that we are be making. I've not seen a lot of other brands being able to provide the kind of variety that we are providing at the kind of price points that we are providing. As I said in my calls earlier, a good branded side of men's loafer, if you're paying for INR 999, you don't find too many options in that. Yes, in the unorganized market, you may find, [indiscernible] you may find. In organized and branded, we have very limited offerings, a leather pair of formal men's shoe, which have been -- we are able to sell at almost INR 1199 today. You won't find too many brands being able to do that. So there is the -- not only the men's side, in the women's side as well, we have got a very good range sarees starting from almost INR 399, INR 499, ending at approximately INR 300. A lot of brands, the starting price point is approximately at INR 999 or INR 700 or INR 800. So I think it's the variety, we have almost 1,400 lines, I think. And the average -- and 80% of our items are below INR 1000, which is our strength. So I've not been able to see the kind of number of brands being able to offer the kind of variety. So I mean, competition is good. It makes us stronger and make us try and do better. But I think we've been able to manage, I think, a more affordable fashion footwear across the entire gamut of merchandise categories compared to the other brands.

[Operator Instructions] Next question is from the line of Haresh Shah from HS Investment.

As we have just mentioned right now that you have SKUs at various attractive price points. And I have noticed that you -- there's a vast product portfolio that you are having right now, which is of a model and trendy look. So does that theme that we are targeting, millennium target group customers?

We must answer your question, really appreciate it, and I think it's a very valid question that you've asked. Yes, I think over the multiple cause in the last few quarters, I have been suggesting and reiterating the fact that we are working very hard internally to ensure that we are coming up with some more colorful vibrant range of products for the younger audience because I believe a lot of the 40, 45-year-old plus people, they already know the brand and what we have to offer. And we already have a very strong loyal customer base. What we are trying to do is trying to attract the younger crowd of people. And for that, we need to ensure we have a high product mix. And we are working very hard. We are working -- we're investing on people. We're investing in production. We are investing in vendors to ensure we are able to come up in this kind of range and we are seeing the change coming in. But we also have same thoughts that as communicated also expecting the target audience through all digital media and social media campaigns, but there's no awareness of the kind of sales that you're bringing in. I think in the next couple of quarters, we're possibly awaiting more in terms of the change between making in the retail experience. And then possibly, it will help you understand better the kind of work that we have been doing. It will be great if some of you have questions and want to see the kind of change in products to be great, we can host you at our office and possibly you guys can see the kind of new introductions that we are experimenting with. As we speak, we are conducting a lot of shoe lives as they're doing selections of products, which would be ranged and tested the next 3, 4 months, which should be introduced in the next financial year as well. The next SS '20, the spring/summer '20, autumn '20 and the marriage collection '20 -- '22, -- sorry, very sorry. So I think there is a lot of effort going on to make the product range much more younger, relevant, vibrant and colorful.

Really appreciate. One last question from my side. Could you highlight what is your expansion strategy for the west and the northern markets?

So I think this year, when looking at the eastern UP, Western UP, Delhi NCR area, we're looking at MP, CG. We're also looking at some parts of Gujarat and Maharashtra. We not necessarily need to be the metros and the mini metros. It can also be tier 2, tier 3 markets, depending on -- with the entire micromarket exercise, where we have listed the various state wide, city wide macro market wide, where the potential market is present and where the other brands, which are the brands in those markets and where we would be positioned well enough. I don't think we are intending to be a very high fashion mall kinds of brands. I think we intend to stick to our core, which is affordable fashion footwear and for that, we intend to be in a high street market. So that can based tier 1 and tier 3 wherever that we are getting a commercially viable markets across the states that I mentioned. And besides the newer market, as I mentioned to you, our existing markets in the eastern side, which is -- we are the seven sisters, Bengal, Orissa and the southern markets are always there. So again, we get a lot of incoming interest. And also, we are using a lot of the other platform, the offline and online platforms to garner interest for franchisee fractions.

Okay. Sir, any number of stores, like any ballpark numbers, if you can share the number of stores that we would be coming with?

So the target is about 75 to 80 stores.

Okay. Okay. That was helpful. Thank you. Wish you all the best.

Thank you.

The next question is from the line of Naitik Mody from Ohm Portfolio.

Yes, Namrata, with respect to the product portfolio that you have, there's a view that -- which I also think sometimes that it is too large a portfolio, and there are probably too many brands that you guys are dealing with. So has this been sort of an impediment or a deterrent for your growth? Also, has there -- is there any brand within our portfolio, which is not doing well for us, and we are looking at doing away with it? Is that something in the pipeline?

Naitik, thanks for your interest and your question. I think you see the sub-brands that we have, there are many private labels. But I think the way we have positioned each of the sub-brand is focusing on different merchandise categories. For example, Khadim's is a mother brand is basic. The basic footwear, which also recalls we are making the entire range a little more fancier. Even Khadim, the mother brand, is becoming a little more fancier. And the price range for that is ranging from like INR 299 to like INR 699, INR 799. That's the mother brand margins. But Cleo is very high fashion for the women. It ranges from INR 699 to approximately INR 1,199, INR 1,299. Sharon, we are positioning very strongly as a brand for the working women. So we have a range, flat to heels with stilettos to wedges for the working women. You have Lazard, which is for younger man, which has low [indiscernible] sandals, chappals, some formal shoes for, let's say, age group of approximately 18 to like 30-odd years. Soft touch is for a very comfort footwear. For see, women and men whose main focus is comfort, but at the same time, we try to make that also a little more fashion-driven. British Walker is a handcrafted leather footwear for the working man. Pro is sportswear, which is also going very well as a category. TOC is a brand which is for the outdoor. [indiscernible] hard on shoes. Those shoes may be -- those -- that category may have had some maximum impact in this -- during the COVID time because of the lack of opportunities of going out. But I think this is a -- this category also is a decent category which is also growing year-on-year basis, but every category, every brand is focusing on a particular use case. And it is also the price points are defined accordingly. So I think that the private label has to define product range much better. I don't see it as an impediment. In fact, I see it as an opportunity. I think if the sub-brands do well in the future in terms of becoming larger or almost equivalent to Khadim, we can definitely explore them as a focus brand as well. So I think it's definitely a plus point to have sub-brands for a differentiating factor versus to have Khadims across all the products becomes a bit repetitive and monotonous and doesn't have any differentiating factor.

Appreciate. But how would you rate yourself internally in terms of communicating the ethos or the features or characteristics of these various lines that you explained to me? Do you think that there is -- a lot more needs to be done in terms of communicating to your target customers?

I think our loyal customers know the difference in the product. So anyway -- many of our loyal customers will come and they'll ask for [indiscernible] and they'll ask for British Walker, they'll ask for Lazard. It's the same thing like you go to our website, you'll ask for Lunar Blue, which is a additional category of product. I don't think the promoter is ever externally, but I think their products have been so good that people go and ask for the product. Similarly, walk into a Bata store, you'll find a Marie Claire, Naturalizer or Hush Puppies, which -- in the historically, they're not really promoted differently, but because you're the regular customer into Bata, you will know the difference between what a Marie Claire or Naturalizer or a Dr. Scholl's or a Hush Puppies is.

Okay. But wouldn't that be sort of a limitation in terms of the loyalty or rather the loyal customers being concentrated, let's say, in the Eastern region, which may not be the case with your newer regions where you are diversifying?

Yes. So I think the loyal -- we will start developing a loyal customer base in the new markets as and when we go over there. And people will get to know what the differentiation in brand because that's what our sales staff also is trained to explain to the customer what the differentiation between the various sub-brands is. So I think it's a communication that matters, and we are also using digital media effectively to be able to communicate the difference in the various sub-brands as well. But the larger focus is to promote Khadim, it's not to promote the sub-brands on social media, but internally, the customers very much lower the differentiation between sub-brands, the loyal customers. And the newer markets, I'm sure that our product range, if it clicks very well, which we are very hopeful and confident, we'll create a very strong base of a new loyal customer, who'll know the differentiation.

Okay. And is there -- or one more, are there any more than...

And maybe just to also add, in our stores, there is a branding differentiation between all the sub-brands, means there is a -- there are placards and there are a proper branding for all the sub-brands and there's also an explanation given for all of them. Each of the tags of the sub-brands also explain what the products stand for and the category stands for and what is the offering that we are getting. So in the store, there is enough explanation for the sub-brands.

Okay. Okay. Great. Now my question was, apart from Khadim, are there any emerging brands, which are really growing well and they also stand out in terms of sales numbers?

So I think...

If you might want to promote as a separate brand, let's say, something like Hush Puppies has its own store. So is there something that we have internally?

So I think Pro is doing well, British Walkers is doing well, Lazard is doing well. I think it's a bit premature for us to get into sub-brands stores' right now. To be fair, Hush Puppies has become a large enough brand in itself to be able to become a separate store and it was also helping in increasing expansion for Bata as an organization. For us right now, Khadim itself as a branded store, we have enough place for penetration left across the country. So let us stand with Khadim and then possibly, we can look at expanding with sub-brands.

Sorry to interrupt, may I request Mr. Mody to please rejoin the queue, we have participants waiting for their turn. The next question is from the line of Akanksha Dhanotiya from Bharti AXA Life Insurance.

Yes. My question is what are the challenges that you are anticipating in -- while expanding into the newer markets? And are there any plans to expand inorganically?

I think the challenge maybe is purely in terms of the brand awareness, but having said that, I think the kind of sales that we get in the -- once the store opens is very, very comforting to all of us internally. Purely, it's a function of a brand offering and the product offering. Today, if you have an option when you're getting an entire range of products which are INR 1,000 and plus in a particular store or when a store opens and you get to know that there are products available at a much fashionable range at a much lower price point, the word of mouth spreads very well, and I think we get a very good response from the customers itself. So I think our brand and our product speaks for ourselves very, very strongly in the market that we opened. In fact, we've noticed whenever -- if we have a challenge of a competitive brand open next to our stores, many a times, we'll see our store sales improve because the logic for that is that it becomes a very strong comparative [Foreign Language]. So I think they realize that the differentiation in product and the product offering is extremely good and our sales really improved. So I'm not really worried. And I think the challenges over time will reduce because of our expansion is aggressive, and I think there will be more brand awareness coming in. And having said that, in -- because of our, we have 700-plus stores across the country, so there is a lot of awareness of the brand in the minds of the [Technical Difficulty] who may have come to the eastern, southern part of the country and know the brand, so then they walk in and possibly have a good experience. So I think that is -- I'm very confident of that changing of challenge to strength. I'm sorry, your second question, ma'am, Akanksha, was?

Are there any plans to expand inorganically?

As of now, no, I don't think we don't have such plans right now. I think we want to ensure that we are growing and expanding Khadim only very well.

Ladies and gentlemen, as this was the last question for today, I would now like to hand the conference over to Mr. Girish Pai for closing comments.

Yes. With that, we come to the end of this interaction with Khadim management. I would like to thank it for giving us this opportunity to host this call. Thank you all for taking part, and have a good day. Any closing comments from the Khadim team?

Thank you for your time and your interest in the organization. We are looking very hard internally to ensure that we are able to live up to the brand or expectation and deliver value to stakeholders connected to the organization. And we hope to be in touch with all of you on a regular basis and please feel free to reach out to us in case of any questions and clarifications. And we are also happy to host you guys in an office and showcase an entire range of products to you on a regular basis. Thank you so much.

Thank you.

Thank you. On behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.