Rupa & Company Limited (533552) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Rupa & Company Limited Q4 and FY '25 Earnings Conference Call hosted by MUFG Intime. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Omkar Bagwe from MUFG Intime. Thank you, and over to you, sir.

Good afternoon, everyone. I welcome you all to the earnings conference call to discuss Q4 and FY '25 results of Rupa & Company Limited. To discuss the results, we have from the management Mr. Vikash Agarwal, Whole-Time Director; and Mr. Sumit Khowala, Chief Financial Officer. They will take you through the results and business performance, after which we will proceed for a question-and-answer session. Before we proceed with the call, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on the company's website. With this, I now hand over the call to the management for their opening remarks. Over to you, sir.

Yes. Good afternoon, ladies and gentlemen. On behalf of Rupa & Company Limited, I would like to warmly welcome all of you for our results con call. We appreciate your time and interest in reviewing our company's performance. I trust that everyone had the chance to look over the financial results and investor presentation that have been uploaded on the stock exchange. The year was marked by stable top line performance. We achieved growth in quarter 4 and 3% value growth for the full year, driven primarily by sales in our economy and athleisure segment. For the full year, revenues reached INR 1,239 crores and Q4 revenues stood at INR 415 crores. Our EBITDA margin saw a notable improvement, benefiting our operating leverage and cost optimization efforts, rising by 15% in Q4 and 11% for the full year. Net profit grew significantly, up 29% in quarter 4 and 19% for financial year '25, reflecting the scalability and efficiency of our operations. During the year, the athleisure category stood out with a significant growth of 26% in volumes, and this trend we expect to continue in financial '26 as well. Modern trade saw a robust growth of 17% in '25 taking the top line to INR 63 crores, contributing 5% to overall revenues, highlighting our strong presence across the major e-commerce platforms. Our X-factor sector segment posted with 11% growth, generating INR 229 crores and accounting for 19% of total volumes -- revenue. We anticipate continued momentum in both modern trade and X-factor areas in financial year '26. Exports also performed well, growing by 24% to INR 31 crores. representing 3% of total revenues. While our export pipeline remains healthy, we are closely monitoring geopolitical development that may impact global demand. To enhance brand visibility, we executed targeted marketing initiatives including celebrity endorsements. We invested INR 63 crores in branding and advertising in financial year '25, representing 5% of revenues. Financial year '26, we plan to increase the ASR, ad-to-sales ratio, by 100 to 150 basis points. We remain committed to delivering value to all our stakeholders. In line with this, I'm pleased to share that the Board has recommended a dividend of INR 3 per equity share for financial year '25 subject to shareholder approval. We project a revenue growth of 11% to 12% in financial year '26, supported mainly by volumes. We also expect our EBITDA margin to be in the range of 11% -- 10.5%, 11% for the coming year. We are optimistic about achieving new milestones and introducing innovative products across diverse customer segments. Our consumer-centric approach will further bolster our industry leadership and reinforce our [indiscernible]. With a strong focus on long-term growth, we are excited about the opportunities ahead and remain committed to creating enduring value for all the stakeholders. With that, I would like now to conclude my speech and would like to hand over to our CFO, Mr. Sumit Khowala, to brief you about the financial performance. Over to you, Sumitji.

Thank you, sir, and hello, everyone, and thank you for joining us for our quarter 4 and FY '25 earnings call. I will provide a brief overview of our financial performance for the quarter. Coming to the quarterly performance. Revenue from operations stood at INR 415 crores, registering a growth of 4% year-on-year. The EBITDA for the quarter stood at INR 46 crores as compared to INR 40 crores corresponding period last year, registering a growth of 15% year-on-year. EBITDA margin for the quarter stood at 11%, up by 90 basis points year-on-year. The net profit for the quarter stood at INR 31 crores as against INR 24 crores in quarter 4 FY '24, showing a growth of 29% year-on-year. PAT margins for the quarter stood at 7.4%, up by 130 basis points year-on-year. Now coming to the yearly performance. Revenue from operations for FY '25 stood at INR 1,239 crores, grew by 2% year-on-year. The EBITDA for the year stood at INR 130 crores as compared to INR 117 crores same period last year, registering a growth of 11% year-on-year. EBITDA margin for the year stood at 10.5%, up by 90 basis points year-on-year. The net profit for the year stood at INR 83 crores as against INR 70 crores in FY '25, which grew by 19% year-on-year. PAT margins for the year stood at 6.7%, up by 100 basis points year-on-year. Cash generated from operations stands at INR 59 crores positive, which has been majorly utilized in reducing our debt. Our net cash surplus including investment is amounting to INR 24 crores. Our working capital as on FY '25 stands at INR 811 crores. With this, I now conclude my speech and open the question-and-answer session. Thank you, everyone.

[Operator Instructions] The first question is from the line of Raj Patel from RK Securities.

Am I audible?

Yes.

So can you provide -- can you just share what's the CapEx for FY '26?

There is no major CapEx plan. There will be routine CapEx of INR 12 crores to INR 15 crores for FY '26.

Okay. And from the balance sheet, we can see that the cash and cash equivalents balance is INR 24 crores. So what are your plans to use this fund?

Yes. We have a healthy cash and cash equivalents in our balance sheet and we have not much leverage. So we are -- we always look for both organic and inorganic growth opportunities. And anything which will be materialized, we'll use this cash and cash equivalents to acquire these both organic and inorganic opportunities.

The next question is from the line of Mamta Agarwal from ABS Investment. As there is no response from the participant, we'll move to the next. [Operator Instructions] The next question is from the line of [ Radhi Shah ] from SNS Capital.

Am I audible?

Yes.

Okay. My question is, what is the marketing expense guidance for fiscal year 2026?

Currently -- for current year, it was 5%. For FY '26, we projected that ad expenses will be around 6%, 6.5%.

Okay. And my next question is, what were the working capital days in FY '25? And what are the expected working capital for FY '26?

Net working capital days for FY '25 is 231 days, and we expect that to reduce by 10, 20 days in FY '26.

The next question is from the line of Mamta Agarwal from ABS Investment.

Sir, my first question is, are there any planned price increase for the current fiscal year?

Nothing at the moment, ma'am. We'll monitor the yarn prices and all. For the time being, it's stable and industry is quite competitive. So nothing for this quarter probably until there's a sharp movement in yarn prices.

Okay. Okay. And sir, can you throw some light on like the anticipated overall business growth trajectory like over the next 2, 3 years?

So we are looking for a 10% to 12% growth every year, ma'am, with a volume growth of anywhere between 8% to 9% for the next 2 years at least.

[Operator Instructions] The next question is from the line of Rehan from Equitree Capital.

Am I audible?

Yes, you're audible.

I just had a question. First, very basic question. If I look at the financial year on a year-on-year basis, your revenue has been broadly flat 2% growth. EBITDA has grown about 11%. Your gross profit level also has been broadly flattish around the 29% mark. Can you help me understand what are the cost-cutting measures the company is taking that is allowing this change of growth? And basically, I want to understand how sustainable is that cost efficiency and what you all are doing.

Since we -- if you see that marketing expenses were significantly lower -- I mean, slightly lower than last year. Current year, it was 5%. Previous year, it was 5.5%. And there was a saving and administration cost also. And there is a slight improvement in gross margin, say, 50 basis points for a year-on-year basis. That is basically because of change of mix.

Okay. So you're saying it's mainly because of slight change in mix and the administrative. Because marketing will eventually come back, right? It will be normalized in terms of the year.

But for the coming years, we'll be focusing more on our retail brands and all, more secondary, where contribution of margin -- we have a higher margin contribution. So yes, increasing 0.5% EBITDA margin every year is quite achievable.

Okay. Secondly, sir, so you had an export unit which you had started, I think, which had a potential to generate about INR 100 crores of revenue which are mainly for white labeling and contract manufacturing. There's another apparel player who actually bought out a contract manufacturing unit and is doing white labeling for Jockey, Victoria's Secret, et cetera. And they are doing 15% EBITDA margins. It's in public domain. They're doing about 14% to 15% EBITDA margins. And they have their order books full. In fact, they have a capacity issue. So considering that, I mean, why are we struggling on that front? We've been having this unit for almost 2 years now -- 1.5 years to 2 years. And we're still at the INR 30 crores, INR 50 crores line.

Yes. I appreciate your point. Our focus is largely on exporting or doing in modern trade also our own brands, so where our margins are quite higher than 15% also. So we can always utilize this capacity doing white label brands and all. But that we are taking as a secondary opportunity. Primarily, we want to focus on our own brands and our own in-house brands only. So yes, at the same time, we have to use capacity also. So this year probably, we'll be utilizing a fair bit of capacity. And our modern trade is INR 63 crores, export is INR 31 crores. So we are using that capacity and we want to utilize it in the best possible manner where we have a higher margin of -- which is what you are mentioning.

Sir, just by doing -- you're running a brand, right? Technically, we know that brands get higher realizations because they're built and established, and yours is also very reputable. But they are the only white labeling and they're generating 15% -- 14% to 16% kind of EBITDA. In your best case also, you -- in your best cycle, you reached about 14%, 15%, 16% kind of normalized margins. So -- and what I'm trying to ask you is that don't you feel that considering with the opportunity you have, the scale you have, can we look at opportunities like that? Because that is, in fact, lesser working capital also. So your return ratios will also be better.

So of course, we are looking at that opportunity also. We are focusing there as well. We are focusing there as well.

Okay. And how can we see -- like also India has recently signed the U.K. FTA. Are we looking to penetrate there? Are we looking -- because I think we are MENA region-focused for our exports, if I'm not wrong. So are we looking at diversifying that? And how do we get -- how do we increase our opportunity on hand?

Diversifying to a lot of countries like Singapore, Russia and FTA -- this is a new FTA. So we have a team in place. We are talking. That takes in time to materialize. It's not we are only focusing to MENA region. We are focusing in Africa and all other countries also. We are participating in different fairs, talking to a lot of people. In fact, a consignment we exported to Vietnam also, a small consignment to Japan also. So we are working throughout everywhere. And it's not -- we're not focusing on white labeling. Our main focus is on our own brands and as well as white labeling. The overall margin you are seeing is 10%, 11%. But if you see only for the white labeling or export, our margins are higher there. So -- because the base is quite small, overall...

Exactly my point, sir. I mean, we need -- like over 2 years, we've not gone even to the INR 100 crores. As per my understanding on the con call a couple of years back, you had mentioned it was INR 100 crores of revenue potential from the West Bengal unit. Now I don't know, we've never reached the INR 100 crore mark from it ever. We've been at INR 30 crores, INR 50 crores, INR 60 crores.

So we are doing modern trade and export from that unit only. So it comes to roughly INR 70 crores, INR 80 crores. So that's a fair bit of -- coming from there.

Okay. So modern trade is from that as well. Okay. A couple of other questions. In H1, I remember your gross margins adjusted for subcontracting expense had breached the 30% mark. It was around 30%, 31%. Pardon me if I've got the figure 1% or 2% wrong. But what is the change in product mix that we are seeing in H1 versus H2? Because H2 margins have been significantly lower. Like in Q4, you've reported 26% margin, 26.5% gross. In Q3, I think you reported about 28% to 29% gross margin. So what was the change in product mix that you've had? Because your other competitors have, in fact, been at the same gross level 32%, 33% in all quarters. Usually, Q4 is stronger for you guys. Your margin should technically have held. So why are we seeing that contraction in margins?

See, it's just that the quarter 3, major part is basically thermal. Thermal and activewear performs well. So there was an earnings margin of 29%. And for quarter 4, the economy segment performs well. So the mix changes according to the seasonality. So the gross margin varies.

Yes. But H1 is usually a lull season for you, right? The first half is usually on the tepid side versus H2.

Yes. But in H1, you will find that the product which have -- the sales of the product having a high margin contributes more compared to the product which have a low margin.

In quarter 2.

Okay. For example?

For example, thermal performed -- thermal sales booked in quarter 3 as well as quarter 2, major sales in quarter 2 and then quarter 3. And activewear also performs well in quarter 2. So there was a high margin in H1 compared to H2.

Quarter 2 and quarter 3 is better.

Yes. But I mean, I remember on Q3 and Q2 con call, you said thermals were looking dull. So I don't -- and I'm very surprised to hear this gross...

Thermals are looking dull. Thermal didn't do very well for us. But whatever it did, the margins are better there compared to innerwear.

Understood. And my last question. I remember our targets for FY '25 going forward was that you will achieve -- try to achieve 11% to 12% and upward percent of revenue in the women's wear. Like 1% of revenue in the women's wear would be about 11% to 12%. It's gone down to about 10%. There are industry reports where on the demand side or broad-based market demand, women have been shopping more than men consumers. And this is public information again. And they have been shopping at a higher CAGR of 12% to 15%. Now why are we seeing that degrowth? Or is the pie -- because the pie is broadly same. On a 2% growth, the pie has not really changed. But the women's wear has contracted by 1%. So can you explain?

We understand that and we acknowledge there is a lacking there. So what we are doing, we are shifting our production base, which was earlier at Tirupur to Kolkata, where we have better control. And we have built up a strong team and building up a strong portfolio. So this one particular area, we as a management also feel that we are not doing an up to mark. And of course, in coming time and coming year, probably we expect to see much better results.

[Operator Instructions] The next question is from the line of [ Darshan Shah ] from [ M&M Associates ].

Am I audible?

Yes.

Sir, a couple of questions from my end. First, on the industry part. You mentioned in the presentation, it's nice to see that you have brands across the premium, mid-premium, economy segment. I just wanted to understand, between the men's and women's wear, what is the price point that you consider as demarcations for all of these segments? And where does the bulk of the revenue value lie in terms of economy, the biggest segment? Or are you seeing people move towards mid-premium, premium segments? Sir, if you can highlight on the industry part of your positioning in terms of pricing and what do future trends looks like. That will be my first question.

So economy, we consider around INR 70 to INR 80. Anything over INR 80 until, say, INR 150 we'll take as mid-premium, and above INR 150 is premium to us, is what we consider for innerwear. And in terms of opportunity, we see enough opportunity across all three segments. Of course, economy and mid-premium is a larger base for us. Premium is a very small base. So in terms of business, we see potential across all three segments and we are focusing across three segments as well.

Okay. And then would I be correct in assuming that your, obviously, margins would be higher amongst the premium, mid-premium segments? Or you have to do more of an advertising spend to build on brand building, and the margin across all the three segments would be somewhere around the similar lines?

Yes. But we have to do advertisements for the economy brand also because the base is bigger there. So we have to work across all the three segments to do some advertisement, the basic advertisement in economy as well. But that activity is for all -- across all three segments.

Right, sir. So margins across all three segments, which one would be your highest margin one, the premium, mid-premium? Yes. So if I feel that there is a secular turn within the economy on consumption and people moving to branded products, then you may also stand to benefit from your underlying the customers moving to a higher segment itself. So margins may tend to improve over a period of time. That is where I was coming from.

Absolutely agree. But India is a huge market. And people moving from a segment to another, there's enough population in each segment anyway, where the market is still huge which we need to capture. So people -- the way economy is growing, of course, people will move from economy to mid-premium, mid-premium to premium. But still each category is huge enough where still we are quite small in terms of percentage share.

Got it, sir. My second question to the CFO around the working capital days. So if you could, I see that have around 9,000 SKUs. And sometimes what we have noticed is that if there are companies with lesser products with much more SKUs, inventory management tends to become a kind of an issue. So if you can just highlight what your working capital days are for your debtors and inventory days? And also what are the steps that you've taken to kind of manage the inventory?

The inventory days for the FY '25 is 128 days, debtor days is 147 days and creditor days is 44 days. So net working capital days comes to around 231 days. And we are taking necessary steps, means we are onboarding our dealers to the channel financing program to reduce our debtors. We are also using SAP, S-A-P, applications to -- means forecasting the demand and produce that much of inventory, which would require to be sufficient to cater the market. These are the major steps.

And sir, because Q4 tends to be your best quarter, is there a seasonal trend in terms of Q3, you would stock up the inventory. And by the end of Q4, the inventory number that I see on the balance sheet, that steadily goes down during Q1 and Q2, and then the cycle starts again? Is this also something that you do?

If you see the inventory numbers as on December '24, it's INR 527 crores. And if you see the March, it's INR 447 crores. So it's significantly because fourth quarter is basically more of festive seasons and there were incentive target given to the dealers as well as our salesmen. So fourth quarter is due to seasonality, as is due to festive seasons and the [ targets ], it is bulky.

So you tend to stock the inventory in Q3 because you have a lot of demand coming in that you have to fulfill for Q4.

For the beginning of summer, so summer is the peak season for us. So...

Got it, sir. And sir, one last thing on -- I joined the call late, so my apologies if I've missed it. My question is on the Bangladesh situation. Currently, there has been announcements on both sides. We've also recently announced the blocking of certain exports and we've also given limited access to land ports. Bangladesh, I've seen in the PPT, is again one of the key export areas. So just wanted to check, what is the revenue that comes from Bangladesh? And what do you -- so how are we affected, in short?

So we are not affected and there's no revenue for us coming from Bangladesh. But whatever is happening in Bangladesh, we see it as an opportunity both in terms of export from India to other countries. And domestically, we see demand coming up because a lot of manufacturers from India do take -- source a lot of goods from Bangladesh for local consumption. So that demand should also come to India both in terms of production and consumption.

Okay. You've been very generous, sir. I have one final question. Because your plans on growth, especially your EBO outlet, tripling it in the next 2, 3 years, they seem very ambitious. I just wanted to check in. How would you like to propose to go about it? Is it a COFO, COCO model, FOFO model? And what are the geographies? Because you are very East-heavy. Is this something that is going to continue? Or are we going to -- the new EBOs that are coming in will be other East of India and see -- over a period of time, we see a more homogenized sales mix?

So honestly, we have around 33 EBOs now. But with just 33 EBOs, we are yet to crack a very scalable model as of now. So we are in search of a senior EBO head. Probably we have located him, and he'll be joining soon. So -- and as of now, we are focusing more on FOFO model, which can be scaled up. But we are looking for some senior team who can actually help us to reach our target of 100 stores. So there is a slight delay in that plant with just 33 stores now because we need to have a strong team to scale it up in a very viable mode.

Got it. And geography, what are they targeting? Or then that planning happens once your team is onboarded?

So largely, we are focusing more on East geos and all. But once anybody joins, to have 100 stores, we'll be focusing more on East and West primarily to start.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to Mr. Omkar Bagwe for closing comments. Over to you, sir.

Thank you for joining us on the call today. I would like to thank the management for sparing the time and answering all the queries today. We are from MUFG Intime Investor Relations, advisers for Rupa & Company Limited. For any queries, please feel free to contact us. Thank you, everyone, and have a great day.

Thank you. Thank you so much for your time.

Thank you. On behalf of Rupa & Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.