Rupa & Company Limited (RUPA.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 and H1 FY '26 Earnings Conference Call of Rupa & Company Limited, 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.

Yes. Thank you. Good afternoon, everyone. I welcome you all to the earnings conference call to discuss Q2 and H1 FY '26 results of Rupa & Company Limited. On behalf of Rupa & Company Limited, I'm delighted to welcome you all to this call. Thank you for taking the time out on this call to discuss our latest financial results and performance. To discuss our results, we have with us from the management, Mr. Vikash Agarwal, the Whole-Time Director; and Mr. Sumit Khowala, the Chief Financial Officer. They will take you through our results, and then we'll proceed to Q&A session. Before we proceed to the call, a small disclaimer. This conference may contain certain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. The actual results may differ materially. These statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. A detailed safe harbor statement is also given on the Page 2 of company's investor presentation. Now I would like to hand the call over to Mr. Vikash Agarwal. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. On behalf of Rupa & Company Limited, I extend a very warm welcome to all the participants joining us today for our Q2 and H1 financial year '26 results conference call. We appreciate your continued engagement, and I trust you have reviewed the financial results and investor presentation available on the stock exchanges. In the second quarter, we recorded a broad-based recovery with positive momentum across key categories, underpinned by our focused execution and strategic execution. We acted calibrated pricing approach, improved channel and focused marketing initiatives to drive volume growth, enhance competitiveness and reinforce our market position. Revenues for Q2 financial year '26 grew by 8% year-on-year, supported by robust 14% volume growth, driven primarily by strong traction in economy and mid-premium segments. While the mid-premium segment economy segment in the growth pace, the focus ahead is to reignite momentum in the mid-field segment to restore contribution balance and improve margin profile. Exports continued to deliver strong performance with year-on-year growth of 28%, contributing 4% to the revenues in the first half of financial year '26. Modern trade, including e-commerce continued the steady momentum contributing 8% to the H1 revenues. Thermal wear contributed 13% of quarterly revenues. While the measures undertaken has strengthened primarily offtake, we remain disciplined in working capital management. The company generated operating cash flow of INR 23 crores during the half year. As of 30th September 2025, gross cash and cash equivalents, including investment stood at INR 258 crores, while the net cash after accounting borrowings stood at INR 18 crores. Looking ahead, while competitive intensity in the industry continues to remain high, we believe our calibrated pricing approach, improved channel programs and focused marketing initiatives will reinforce our position across our -- across four categories. The focus remains on driving volume-led growth in near future, near term and restoring margin balance through mix optimization and operational efficiencies. With this, I would now like to hand over to our CFO, Mr. Sumit Khowala, to take through the financial highlights of the quarter and half year. Over to you, Sumitji.

Thank you, sir, and good afternoon to everyone. Thank you for joining us on the quarter 2 and H1 FY '26 earnings call. I will now take you through the key financial highlights for the period. For quarter 2 FY '26 revenue from operations stood at INR 320 crores, registering a growth of 8% year-on-year. EBITDA for the quarter stood at INR 22 crores as compared to INR 29 crores same period last year, registering a degrowth of 21% on Y-o-Y basis. EBITDA margin for the quarter stood at 7%, down by 260 basis points year-on-year. Net profit after tax was INR 15 crores as against INR 18 crores in quarter 2 FY '25, which degrew by 21% year-on-year. PAT margin for the quarter stood at 4.5%, down by 170 basis points year-on-year. Now moving to the half yearly performance. Revenue from operations stood at INR 500 crores, registering a marginal degrowth of approximately 0.7%. EBITDA for the period stood at INR 35 crores as compared to INR 47 crores same period last year, registering a degrowth of 26% year-on-year basis. EBITDA margin for the period stood at 6.9%, down by 230 basis points year-on-year. Net profit for the period is INR 20 crores as against INR 29 crores in H1 FY '25, which degrew by approximately 31% year-on-year. PAT margin for the quarter stood at 4%, down by 170 basis points year-on-year. The overall performance of H1 reflects company's steady progress in recovering lost ground from quarter 1 and regaining growth momentum. We continue to remain a strong balance sheet position. As on 30th September 2025, net cash surplus stood at INR 18 crores, reflecting our robust cash position. We remain committed to maintain financial prudence and cost control while continuing to invest behind the brand and growth opportunities. Our focus remains on improving profitability through a better product mix, efficient channel management and disciplined working capital [indiscernible]. With this, I conclude my remarks and open the floor for question and answer. Thank you.

[Operator Instructions]. The first question is from the line of [ Rudy Vora from SAS ] Capital.

So my question is, sir, that why there is a sharp decline in the EBITDA margin despite the increase in the revenue for the quarter?

Yes. The main reason for decline in the EBITDA margin is the decline in gross margin as the company adopted the aggressive pricing approach in order to be competitive in the market. So there is a dip of 140 basis points. Ad spend for the quarter has been rising by 60 basis points and other administrative and other expenses has been rise by 60 basis points. So overall, this combined 2.6% EBITDA down.

Okay, sir. And my next question is, can you throw some light on the thermal performance that we have? And what is your order book for the same?

Thermal, this quarter show a robust growth. It shows a volume growth of approximately 23% to 24% with a contribution of 13% in the revenue. So we have a good order book as of now, and we expect that the same will continue in quarter 3 and it may be even better in quarter 3.

[Operator Instructions]. The next question is from the line of [ Viral Jain from SMG ] Finance.

So a few quick questions from my side. Can you just give us a walk regarding the future plans on the CapEx?

There are no major CapEx. There will be routine CapEx of INR 12 crores to INR 15 crores for FY '25/'26.

Got it, sir. And my next question was, can you give us some light on the marketing spending this time?

For H1, the ad spend is around 7.5%, and we expect that it would be remained same by the year.

Okay, sir. And on a quarterly basis?

Quarterly basis, it's 5.1%. And overall, the guidance is 7%, 7.5% for the year.

Understood, sir. And my last question was regarding the working capital days for the quarter and the yearly guidance?

The working capital for the H1 is 235 days. And since the market is quite competitive, we expect that this year, the working capital will be slightly reduced, maybe by 20, 25 days at the end of the year.

Got it, sir. And sir, what will be the yearly guidance?

It's around 210 to 215 days.

[Operator Instructions]. The next question is from the line of [ Richa Shah from SRP ] Associates.

As it can be seen that the growth during the quarter was led by the economy segment. So like could you tell us what initiatives led this growth in this segment?

Pardon ma'am.

It's largely because of price competition, ma'am. So we were holding our prices and all, but seeing intense competition. We are also going a little bit with the price war, compromising the margin for a short term, short while, but focusing more on the volumes at the moment.

Okay, sir. And also keeping in mind the earlier guidance which we have gave for Q2 EBITDA margin was 8% to 9%. But this quarter, we only delivered 7% margin. So like could you put light on that? What quantitative bridge to reach in FY '26 exit margin back towards FY '25 levels?

At the moment, the competition is so intense. So as I repeated like we want to focus on the top line at the moment. So margin, we might -- because of the -- some flexibility on the margin side, we have to compromise on that, but we want to ensure the top line growth at the moment.

[Operator Instructions]. The next question is from the line of Prashant, an individual investor.

Yes. So my first question is, you have already alluded to maintain top line and revenue, you have provided schemes and I mean, you have benefited -- provided more benefit. So in the near future, is there any plan to reclaim the net realizable price or this will continue? I mean, those schemes and rebates and channel discounting will continue for the rest of the year also?

Yes. Of course, we don't want to do that. But in quarter 1, we will stick to our original policy. But as I said, for a short term, we have to match we have to -- the market competition is so intense. So probably for a quarter or 2, we might follow that strategy. But once we have the top line in place, we have another marketing initiatives in place. So once that also runs in parallel, I'm sure we'll have better margins.

Okay. But that -- I mean, okay. So in a way, it indirectly also says that there is no product differentiation and basically, the channel does not see any differentiation between this company's products and competitors and price is the only differentiator. So I mean, in that case, I mean, whatever spend we are doing on marketing, advertising, that is not providing any lag up or any support in maintaining the price. Would that be a correct assumption?

Well, of course, it helps. But the competition in terms of thermal brands, it's so intense because of whatever reasons for short term, yes, but long term, definitely, these activities helps. And of course, there is a product differentiator in all, but at the same time, we want to be aggressive and you want to gain market share also. Clear?

So I mean unprofitable -- yes please tell me.

It will be to absorb the operational cost and every other expansion plans we have in place, the marketing initiatives we have in place.

So finally, if it comes down to maintaining top line at the cost of -- I mean by discounting the prices, is there any -- I mean, can we see that in the going -- I mean, in the near future, at least the advertising expenses will be reduced so that, I mean, at least some sort of EBITDA and profitability is maintained?

That is what we -- as a management, we need to strike the right balance. So quarter 1, we have a different strategy. Quarter 2, we have a different strategy, which we have a 14% volume growth. So as I said, once we have a volume growth, of course, there will be another different initiatives where we want to have higher margins for sure. As a management also, we don't want to, but competitive activity is so intense at the moment, we have to take up this strategy.

And any plans of expanding into new geographies to compensate for the less -- I mean, to increase the volume?

That is a continuous process. And as I shared our numbers, whether it is in terms of export or modern trade or other areas, we are expanding our reach, our presence in all those segments and channels as well.

So any definite numbers, I mean, like in quarter 3 and quarter 4, how many -- I mean, retail touch points or how many distributors the company is planning to add?

There is no definite numbers, but we are sticking to our original guideline of 10% revenue growth by the year-end, this is what we are sticking to improve.