Khadim India Limited (KHADIM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 and FY '24 Earnings Conference Call of Khadim India Limited, hosted by Orient Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumeet Khaitan from Orient Capital. Thank you, and over to you, sir.

Thank you, Aditya. Good evening, everyone. Welcome to the conference call for Khadim India Limited. Today, from the management, we have Mr. Rittick Roy Burman, Whole-Time Director; and Mr. Indrajit Chaudhuri, CFO. Before we start the call, I would like to give a small disclaimer that this conference call may contain certain forward-looking statements, which are based on beliefs, opinions and expectations of the company as on date. Actual results may differ materially. A detailed safe harbor statement has also been published on the company's investor presentation, which was uploaded on the stock exchange today. I hope everyone had a chance to go through the results and presentation before this call. I would now like to hand over the call to the management for their opening remarks. Over to you, sir.

Yes. Thank you. Good evening, everyone. On behalf of Khadim India Limited, it is my pleasure to welcome you all to this conference call to discuss the Q4 and FY '24 results. We appreciate your time and interest in our company's performance. I hope that everyone had an opportunity to go through the financial results and investor presentation, which have been uploaded on the stock exchange. The global economic environment has been challenging with inflationary pressures and changes in consumer spending behavior impacting our sales this quarter. Additionally, demand continues to remain weak in Q4. Despite these challenges, we managed to maintain our margins, which stood at 46.2% for the quarter, an increase of 180 basis points and 45.4% for an improvement of 350 basis points year-over-year. Looking ahead, we expect our margins to improve with the softening of key raw material prices. Retail sales contributed 61% in quarter 4 FY '24 and 65% for the full fiscal year. During the year, we added 94 stores bringing our total count to 868 stores in FY '24. Breaking it down by model, our COCO store count stands at 223 stores and company-owned outlets, while the franchisee model had 645 stores. Our Distribution business contributed 35% to revenues in Q4 and 31% for the whole FY '24. Our distribution network includes 753 distributors with an addition of 81 distributors this year. The lease loan remains particularly strong with 482 distributors. Our retail and distribution business are present in 27 states and 5 Union territories as of FY '24. We are closely monitoring the market situation regarding BIS regulations on various footwear categories. And our demerger process is on track, and we are awaiting approvals from regulatory bodies. We are confident in our long-term strategy to return to growth and deliver value to our shareholders. We believe in the strength of our brand, the loyalty of our customers and the potential for growth in the footwear market. Now moving on to Q4 and FY '24 financial highlights. Firstly, quarterly performance. On quarterly performance, revenue from operations, Q4 FY '24 stood at INR 143.6 crores as against INR 159.2 crores same period last year, down by 9.8% year-on-year. Gross margin for the quarter stood at 46.2%, up by 180 basis points year-on-year as higher contribution from retail led to favorable product mix. The EBITDA for the quarter stood at INR 16.8 crores, registering a growth of 2.6% year-on-year. Operating EBITDA margin for the quarter stood at 11.7%, up by 140 basis points year-on-year. The net profit for the quarter stood at INR 1.05 crores, down by 75.5% year-on-year. PAT margins were 0.7% down by 200 basis points year-on-year. Now on to the financial year '24 financial highlights. Revenues for operations for FY '24 stood at INR 614.9 crores as against INR 660.3 crores in FY '23, a decrease of 6.9% year-on-year. Gross margin for FY '24 stood at 45.4%, up by 350 basis points year-on-year. EBITDA for FY '24 stood at INR 71 crores as against INR 72.5 crores in FY '23, a degrowth of 2.1% year-on-year. EBITDA margins for FY '24 for stood at 11.5%, up by 50 basis points year-on-year. Profit after tax was INR 6.3 crores for FY '24 compared to INR 17.5 crores in FY '23, a decrease of 63.9% year-on-year. PAT margins for FY '24 stood at 1%, down by 170 basis points year-on-year. We appreciate your ongoing support and confidence that our proactive approach will yield positive results in the coming quarters. With this, I conclude my speech and open the forum for questions.

[Operator Instructions] Our first question is from the line of Deep Shankar from Trustline PMS.

Congratulations for good retail performance. So firstly, my side, so how do we see footwear demand improving for FY '25 on the background of this BIS implementation? We have seen many of the footwear peers also reported a drop in revenue growth. So how do we see demand improving in FY '25?

In regard to demand in retail, it is muted, still. There are 2, 3 reasons for that. One is the macroeconomic conditions, other is that we are basically in the eastern part of the country, where in the month of April, the continuous period of heat wave going, which has really restricted the footfall in the stores. Second, there is a month-long basis process of votes going on throughout the country, which has also muted the sales. So basically, there is demand new business in the market for the retail sector.

Okay. Okay. So do we expect the flattish kind of run rate to continue in FY '25 also, even per industry?

I think after the election is over, I think some amount of demand will come back that is expected. And also in the festive season, the demand comes right, that is there. But during the year after this lull period a long time, I think the macroeconomic condition for footwear will improve and some demand will come back.

Okay. Okay. So have we taken any price hike during the quarter?

We have not taken any price hike because, since the demand is muted, again, taking a price hike may also impact the volume. So we have kept the price -- I mean, we have changed some products -- new product has come in AW -- when the festive thing with the new price range. But basically all the older products, which are running products, we have not taken a price hike seeing the lull in the demand and the volume degrowth. So we have kept the price for the running products intact.

Okay. So what is the kind of number we have seen in COCO and franchisee stores in retail?

For which period?

For the last quarter, Q4.

In the fourth quarter. So we have around INR 93 crores sales in the franchise retail and around INR 50 crores in distribution.

Okay. And this drop in Distribution business seems very high. So have we consciously reduced any product categories we have consulted any region specific to improve margins?

Yes, we margin in distribution because I think last year -- from last year, we have -- the sale has reduced around INR 30 crores in Distribution. This is a genuine call taken by us to reduce our receivables also. But this year, I think the product category also changed. We have introduced new products and in the Distribution that product is in demand. So I think this year, we will be able to do a sale of what we have done in FY '23. And I think this loss of Distribution will drastically come down.

[Operator Instructions] Our next question is from the line of Abhishek from Alpha Invesco.

We have seen good performance in retail division, and also the bounce back and Distribution margins. Sir, my question is regarding sports and leisure. So how has -- so are we to understand that there is a 20% contribution from the segment? So can you talk more on this how -- build up in Q4? And what are the new designs you are introducing, other SKUs or anything on casual-wear also.

Yes. So sports and leisure remains to be a good contributor. I mean, like the lady sports shoes category has also done very, very well. The boys sports shoe has also done very, very well if we compare on a year-on-year basis. So we are trying -- we are launching a lot of designs in every kind of business. Sport shoes also has a different kind of price points, right? Some like below INR 1,000, some like INR 1,000 to INR 1499, then from INR 1499 to INR 2000. So there are lots of price brackets. So we are keeping products in each of these price brackets so that none of the athleisure and sports consumers are going away from us. Also, we are very shortly going to launch the athleisure wear, I mean the garment athletic wear type of product, gym wear et cetera, under our sub-brand Pro, so that also should give us some addition in sales. So this is how we are working on our sports shoes brand. Like I said, lady sports shoes, boy sport shoes. Then sport shoes stores are doing well only from last year onwards. But after launching good designs in ladies and boys, girls and kids also, those are also doing pretty well. So we are focusing on sports shoes in that way.

Can you say how much will be contributed from athleisure wear in FY '25? What type of business are we looking at?

We are mainly the garments athleisure. We are launching in some of our top COCO and in the franchisee. It is a test -- best case study, we will do.

It's too early to comment how much percentage will that be of the sales, but we have kept the prices very attractive in the athleisure wear category. So we hope that people will like it. We have shown our franchises also and most of them look very energetic, after seeing that athleisure are coming into some clothes also. So that way we are optimistic, but it's too early to comment that how much percentage will that be out of the total turnover.

Because our store size are not very high store size. So while we have space, we can utilize. So we are implementing, I think, on 20 COCO outlets and around 20 franchisee at the initial stage. Then if it clicks, then we will go and spread it more.

Specifically on -- You've already decided to roll out. In Q1, we've already started to roll out.

It will be rolled out in July. We are ready with the products. It will be implemented in July. Q2 onwards.

Okay. Okay. And what are some of the price range for this?

It's a very liquid price around INR 500 to INR 750.

INR 500 to INR 750, yes . T-shirts, Polo T-shirts, all these things.

Understood. Recently we've seen that we've been renovating a lot of stores and a lot of new stores opening also. So what sort of volume growth do we see in FY '25, or any operation [indiscernible] for FY '25?

We will be opening around 25 COCO and around 70 Franchisees. So we expect in our value terms, around 6% to 7% growth from this expansion.

And anything on the margin side for FY '25?

Margin will be more or less same because we're not taking any price hikes. We want to increase the volume. So that's why we are keeping -- in some new products, as we launch it within generally in the same margin range.

Understood. What was your ASPs for FY '24?

ASP for retail, it's around INR 539 crores.

Okay. So that's higher than FY '23?

INR 528 crores was FY '23 and FY '24 it's INR 539 crores.

Understood. Even in a lull market, we've grown by ASP. Sir, any updates on the demerger side? Should we expect a concession of demerger in the financing?

We have received approval from the BSE NSC and now the matter is presently pending with NCLT. So another 3 to 4 months it will take to get the demerger ordered.

Okay. And complete a listing of demerged entity?

Yes.

In 3 months?

3 to 4 months, depending on the NCLT order.

Our next question is from the line of Chirag Shah from White Pine Investment Management, Private Limited.

Sir, first, a very basic question, BIS has been implemented, right?

Yes.

And now that we into 4, 5 months of implementation, I presume the excess inventory, which was people had holded on in November, December would have been consumed at industry level. Is it the right assumption to look or there is still inventory line in the system? Because that could have also affected our performance in Q4. So, April, May how it has been for?

No. BIS inventory, there has been time given to liquidate the stock also. So most of the stocks have been sold. Some stocks are there. That is also we are trying to sell it out and discounts are given in the late U.S. season.

Okay. So you were saying even April, May, the issue of inventory -- BIS inventory was there in the system. And I presume when you say you refer to your performance, it would be similar for the industry also?

Because you cannot -- in -- within 3 to 4 months, you cannot liquidate all the stock that we are holding in the month of December.

They have given a time line. Before that time, whatever stock you have that you don't need to worry about that, that -- but whatever is being produced after that time, there, you have to implement the BIS. And for some small and medium -- small micro industry they have given further extension for some more time.

Okay. So in your best assessment by when this BIS inventory issue, 3-year inventory to get out of the system? What is your best assessment or best estimate about that, another 2, 3 months, there 1, 2 months, or it could take longer?

Because what happened that some inventory that are not sold get stuck. So ....

That's -- that's kind of best -- I'm not even referring to that. So in general, you are saying that stocking, which was done before the BIS also had happened. So that all has been kind of now getting addressed in last 5 months. That is a fair way to look at it?

Yes, yes. But they have also now -- see, they have implemented the BIS in a mix to it because some -- which are what product they implemented for micro and small there is no BIS regulation right now, for a year. So that when it comes, again, there will be some stock which will be pre-BIS. So that, again, will be liquidated when the year comes within the orbit.

I mean -- we are continuing to produce because we are almost ready with whatever the BIS parameters were, and we are making products already. So we are continuing making the products in BIS standards only. But there has been an extension for a year for the smaller factories. So there shouldn't be a problem for some time.

Sir, that is INR 5 crores, right? That's small and micro classification is up to INR 5 crores of annual revenue?

Yes, Yes.

Okay. So that was one. So second, we -- if -- you were very focused on increasing the share of Pro/premium products. If I recollect the memory, it would be around -- it was around 20% for our last year. So where is that percentage would have gone up this time in the last 1 year?

For Pro or what -- or both?

Pro as well as overall whatever you classify as premium in terms of pricing because the pricing ladder starts from very, very low and entry level, right? So whatever you internally classify apart from Pro versus premium?

So when the whole sport shoes category comes, it would be around 10% to 12% of our total contribution. But under the Pro brand, there are other things also, there's sport shoes, then there is some these -- what do we call that, floaters are also there. So Pro as a brand would be 17% to 20%. But Sport shoes would be around this 10% to 12%. And like I said previously also, ladies sports shoe have grown very handsomely, boys -- kids sports shoes and boys sports shoes have also done very well. So -- and premium price points are also doing better than the -- like I said in previous calls and some other places also that premium price points are doing much better than below INR 1,000 price points at the moment, like above INR 1400 Khadim local products [Foreign Language], above INR 1,000, above INR 1400, with INR 2000 to INR 2499 we have additional colors for shoes, leather premium shoes that has also seen a very handsome growth for us. The sub-brands last year was around 57% and BCI, it is around 59%.

Sub-brand, which was around 59%, and that would be largely because of the -- sir, that is percentage. I was more focused on growth. So this premium brands would have grown by about 5%, 7% for you? Or it could be lower?

Figure like this INR 2,500 to INR 2,999, the it's a bit hard to comment on exactly how much percentage we have grown, but the turnover is almost like INR 2,500 to INR 2,999 the products that we sell, which would mainly constitute the British Walker leather shoes and some sports shoes also high end. That turnover has become almost double from what it was last year. Last year, we didn't have any in this high price range. So that turnover has almost become double. And then INR 1,500 to INR 1,999, which constitutes a lot of ladies premium type of sandals, chappals then there is -- there are some formal shoes also. That has also gone up 8% to 9% that has gone up. But what needs to be kept in mind the lower price points have gone down more, they have gone down quite a bit. So we have to tackle both these. We cannot...

Last year, we had locals around INR 228 crores. This year, we have sold sub-brands around INR 230 crores. But since the retail sale has gone down and it is mainly in the Khadim category. So overall, the sales impact has not come in total. However, the higher price point increase more compared to the degrowth that has happened in the lower price point.