Sai Silks (Kalamandir) Limited (KALAMANDIR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sai Silks Kalamandir Limited Q3 FY '26 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Bharadwaj from Sai Silks Kalamandir Limited. Thank you, and over to you, sir.

Thank you, Mika. Good morning. Good morning, everyone. Good morning, ladies and gentlemen. Thank you for joining us today to discuss the financial and the operational performance of Sai Silks Kalamandir Limited for the third quarter as well as the 9 months ended FY '25, '26. First of all, I wish you and your families a very Happy New Year. I'm Bharadwaj Rachamadugu, Senior Vice President Sai Silks Kalamandir Limited, and I'm joined today by Mr. K.V.L.N. Sarma, our Chief Financial Officer. To give you a scenario on the overall market environment for quarter 3, during the quarter 3 FY '25, '26, the ethnic -- Indian ethnic apparel retail market experienced moderated demand, primarily influenced by the shift in the festive calendar. Dasara, which contributed meaningfully towards the footfalls of Q3 in the previous year, occurred earlier and fell into Q2 during the current financial year. As a result, Q3 FY '25, '26 witnessed relatively lower footfalls compared to Q3 FY '24, '25, where festive-led demand had supported higher store traffic and conversions. Consequently, the consumer activity during the quarter also remains largely occasion-driven with softer demand during the non-occasion periods. Consumers continue to display measured and value-conscious purchasing approach, reflecting broader consumption trends across the discretionary retail. Despite the near-term impact of the calendar shift, the underlying demand for ethnic wear still remains structurally strong, supported by weddings and cultural occasions. On the financial performance side, for the third quarter ending December 31, 2025, the company reported revenue from operations of INR 411.25 crores compared to INR 448.5 crores in the last Q. The year-on-year moderation in revenue was largely attributable to the lower footfalls during the quarter, driven by the shift in the festive calendar. For the 9 months period ending December 31, 2025, the company delivered a strong and resilient performance. Revenue from operations grew by 16.1 percentage year-on-year to INR 1,234 crores (sic) [ INR 1,234.61 crores ] compared to INR 1,063 crores in the last 9 months of '24-'25. Gross margin for the quarter 3 improved 40 basis points Y-o-Y, increasing to 42.2% (sic) [ 42.06% ] compared to 41.8% corresponding last quarter. This was driven by pricing discipline and improved product mix. For quarter 3 FY '25-'26, the profit after tax stood at INR 38.4 crores compared to INR 46 crores in the last quarter. The year-on-year moderation in quarterly PAT was primarily on account of the festive-led volumes and the Dasara season. For the 9-month period ended December 31, 2025, the PAT increased by 50% Y-o-Y to INR 108 crores this year compared to INR 71.8 crores in the corresponding last period. On the absolute percentage basis as well, this year for the 9-month YTD, we achieved a PAT margin of about 8.77 percentage compared to the last year's PAT percentage of about 6.7 percentage, which is a 200 basis point increase, reflecting improved operational leverage, better cost discipline and absorption and enhanced operational efficiencies across the business. This represents a strong year-on-year improvement, which is achieved despite the near-term demand variability and ongoing expansion-related investments. Overall, the company's performance demonstrates its ability to protect margins in the softer quarters while delivering meaningful profitability growth over the medium term and underscoring the strength and scalability of its operating module. On the operations front, during quarter 3, the company continued to execute its calibrated expansion strategy with a focus on strengthening the presence in the key retail ethnic markets. In Q3, we have added approximately 20,500 square feet of retail space. During the 9-month period ending December 31, the company added 11 stores with a cumulative retail space added to be 54,500 square feet and are well aligned to meet this year's target plan of opening a desired retail area in stores. As of December 31, the total company's retail footprint stood at 7.7 lakh square feet of total retail area, reflecting steady and disciplined expansion aligned with long-term growth objectives. As of today, the company still stands to not have -- to have a track record of not closing a single store. Looking ahead, the company has a healthy pipeline of new store additions planned for the upcoming quarters. The expansion efforts will continue not only in the existing markets where the company already has a strong brand recognition, but also in select and new markets, which is currently being evaluated. The company remains focused on disciplined capital deployment and sustainable growth as it scales its retail footprint across the country. Now I will hand it over to the operator and would be happy to answer any questions.

We will now begin the question and answer session. [Operator Instructions] The first question is from the line of Ankit Gupta from Bamboo Capital.

Sir, on the store expansion front, if you can talk about what are our plans for next financial year? Are we looking to expand in the existing geographies, the 4 states we are primarily present in, in the South India. So if you can expand upon that a bit.

Okay. So first and foremost, currently, for this financial year, we targeted around close to 60,000 to 65,000 square feet. As of today, we are at 54,500, and we'll comfortably meet the desired target of 65,000 square feet, and there's a possibility to open beyond the targeted area this year. For the next year, we want to go a little bit more aggressively compared to this year. We have a very strong store expansion plan, and we wanted to extend the current target from 65,000 to almost like about close to 80,000 to 85,000 square feet as well. So the markets where we wanted to look at is both on the current 4 states as well as into the newer territories. As we speak, we are existing -- exploring newer markets in terms of Maharashtra and Kerala as well. Very soon, we'll start expanding our -- I mean, our store presence across the other areas as well. The format that we choose to expand is basically going to be majorly driven through Varamahalakshmi-led expansion strategy, supported by the Valli format.

Sure. So majorly, it will be like Varamahalakshmi and Valli will primarily happen in the existing states we are present in, right?

Hello? Sorry, I am not able to hear.

Yes. So basically, Varamahalakshmi expansion will happen in the new states that we'll be entering and Valli will happen in the existing states that we are present. That's the right understanding?

Correct. Yes, you're right. Correct.

Sir, the second question was on how is the outlook looking for Q4 and FY '27? How are the wedding dates panning out for next financial year? If you can talk about how is the demand in the current quarter? So if you can talk about that a bit.

Sure. So I just want to quickly take a moment to just recap our conversations. If you look at my earnings call as well as my news that I was participating in that, what I've also mentioned is after seeing a healthy pipeline of wedding dates in half year, I have told that there will be some amount of correction because of shifting wedding dates and festive calendar in the Q3. That is the kind of traction is what we are currently seeing right now. But for the full year, for the quarter 4, the desired plan of being able to meet the 15% of revenue target still stands intact. However, on the wedding date side, as you rightly asked for, Q4 is having similar dates compared to last year of Q4. And after that also, in the next financial year, generally, we get one round of calendars in the month of Jan, and we have one more round of iteration that we do in terms of preparing of the wedding calendar again during the Ugadi period, which is around March -- mid-March or in the month of March and April. So from where we initially got our market research as well as the wedding dates, we do have a healthy pipeline in the next year as well. Compared to this financial year, next financial year wedding dates are more by 10 more percent of wedding dates. So last year to this year, it's already increased. And compared to this year to next financial year, it's even more than the current year. So it's looking very decent. And the good part, again, which is going to continue is that all these dates are not clustered or not confirmed to just any particular month or quarter, it seems to have a distributed month. And especially during the next financial year from all the way to April to July, there is nonstop -- there's no break in terms of the wedding dates. It does have a healthy pipeline.

Sure, sure. Okay. Got it. And sir, on the KLM side, if you can share the numbers for Q3 of this year and 9 months as well and the comparative numbers for the last financial year? And how has been the performance of that? Have we seen some improvement till -- in the first half, we did see that there was some moderate growth in the KLM sales. So how has been the performance in Q3? And for overall 9 months, if you can share the numbers for this year and last year as well.

Okay. So on the performance side, I think half yearly KLM as we rightly spoke about because of Dasara and all moving to Q2, we did see a very healthy SSSG growth for KLM as a format. There are no new stores added on the KLM front. But on the quarter 3 side, there has been some degrowth coming in from majorly the men's and the kidswear category. Sarees as a category seems to still be strong. I think that's what I've also mentioned in the opening remarks as well because this particular category is the one, which is men's and kids' is the one category which has been affected in the KLM business as well. And that is what has caused the major degrowth in this particular quarter. But YTD, KLM is still positive, marginally positive compared to last year. And the way we think the remaining quarter for Q4 also goes, we should be able to end with a low single-digit positive SSSG growth for KLM as a business. One headwind that we are facing majorly is with the menswear and the kidswear category. The good news is sarees as a category. Menswear, kid swear on the overall component today stands to be around 12% overall compared to the overall structure, which is 15% last year. So that piece is a little bit shrinking because the KLM as a business, majority of it still being sarees should not be a problem. I think we should be able to recover whatever we have lost in Q3 with a marginally slight single-digit SSG growth by the end of Q4. That should be possible.

Sure, sure. And sir, just one last question on the other expenses front. So we have seen a significant decline in other expenses in Q3 compared to the Q3 of last year and primarily maybe due to the Dasara getting -- Dasara sales getting keep on. And -- but overall, on a 9-month basis also, if you look at the numbers, we have hardly grown on the other expenses front. So if I look at the breakup of that, there are major rent-related expenses and other fixed costs which are there, but there are some -- sorry, the variable costs, which are there. And -- but there are some business and advertising expenses also. So have we reduced on that from the business and -- business promotion and advertising expenses for this quarter? And even on Y-on-Y number, there is hardly growth of 14% or 4% in this number compared to 16% growth in the top line that we have seen for 9 months. So if you can talk about this and elaborate on the same.

Sure. One of the major reasons what we have consciously taken a decision upon is because the festivity moved to Q2, we have pushed the aggressive expenditure to Q2 and have controlled expenditure in the Q3. And therefore, you see a reduced expenditure on the overall front. If you also look at the -- this year YTD as a number, majority of our stores are Varamahalakshmi. Varamahalakshmi Silk stores generally have lesser advertisement compared to any other format that we currently operate in. So the nature of the business, when we do realize that the festivity calendar has shifted, and therefore, we have taken a conscious decision of limiting the advertisement and business promotion expenditure. That is one of the major reasons why we are still able to show a decent EBIT margin of about 17% this year and still be able to not affect the profitability aspect. That's again something that I mentioned in my opening remarks as well. During the softer quarters, we are aware of what kind of demand will pan out. And therefore, we have taken conscious decision to not overspend on advertisement expenditure. So what you are seeing today in the advertisement and business promotion expenditure saving is the actual saving that will happen. And Q4 compared to last quarter and this quarter should pretty much be in the same lines on the advertisement spend. Apart from the business promotion and advertisement spend, remaining all the other expenditure are pretty much similar. It is as per the normal norms of how the expansion has happened. This is one area that where we were able to like reduce the advertisement and business promotion expenditure and therefore, the entire margin through down to EBIT and PAT.

Sure. Sir, just last question on this front. So how should we look at this number going forward, like as a percentage of sales with the expansion that we are planning in the next financial year in new states?

Sure. See, on the absolute advertisement expenditure, our internal goal is 2.5%. That's where our goal is. On the advt and business promotion expenditure, both put together, we should be able to be under 4%, 4.5% on the maximum side. But the way things are happening, we are aggressively taking a stand to keep it well under 4%.

And that should continue when we expand to new states?

Absolutely. It should continue. It will continue as we expand in new states and new formats as well, whatever comes down, that will still be the goal and the KPI that we will be targeting.

The next question is from the line of Akhil Parekh from B&K Securities.

My question is on the growth front, right? I understand the festive has shifted this year versus last year. But if I combine 2Q and 3Q numbers, the growth rate is still at 6%, 7% on a top line basis, which is relatively weak given that you were expecting FY '26 to be a very strong marriage season. So that is one. And second, I think you've lowered your sales guidance for full year because last quarter, if I look at it as per the con call, you were guiding for 18% to 20% top line growth vis-a-vis what we are saying now, we are comfortable at 15%. That's my first question on the growth.

See, on the growth side, I think 9 months till now, I think we are still positive by 16%, 16.5% is the overall growth. On an absolute SSG level also, I think we are close to around 6% more or less on the SSG side. On the full year side, what we have initially guided is around 15% to 18%, while 18% is still the target. I think after seeing a quarter 3 performance, we wanted to be giving you a conservative approach of being able to achieve the 15% kind of a number that we wanted to achieve. So the way things are in quarter 4 also, there is like February and March and all April, these 3 months are heavily motivated by the festive and the wedding calendar that is there. And therefore, we believe that this is a number that should be possible. We've just hardly completed like 15, 20 days of business in Q4. From where things are, the business should be able to pick up. And once we start moving down the quarter, we should be able to give you a realistic guidance on it. But at this point of time, I feel like achieving a 15% growth would be realistic right now.

Sure. And anything on the margin front...

I think overall -- yes, please.

No, no. Go ahead. Go ahead.

No. I mean, that's what I wanted to mention. I think what we have also mentioned is I did highlight in my earlier conference call also that quarter 3 should be a little weaker quarter when you look at because last year, in H1, it was pretty negligible year for us in terms of the wedding and festivity calendar. The entire business moved from H1 and fell into Q3 and Q4. So Q3 was a quarter that has taken major heavy lifting in the last year business. This year, what happened is, one, it's a heavy base when you compare to last year Q3 to this year Q3, plus the season has moved from Q3 to Q2 is the reason why we are seeing this sort of a degrowth in the Q3 numbers. But when you pan this out and when you spread this out to a full year, 15% should be possible for us. That's what I wanted to mention.

Got it. And my second and last question on the growth and margin front for FY '27. So first 9 months this year, we did around 16.1% of EBITDA margin. Given that we are going to expand further in Varamahalakshmi, should we anticipate some improvement on the margins front for FY '27? And second, should we pencil in 12% to 15% of growth for '27? That's my last question.

So on the margins front, I think I wanted to mention you is like, see, even with respect to profitability aspect, right? I mean, we're talking about EBITDA margins, I'll come to that also. This year, in the third -- 3 quarters, last year, we have done a total profitability of about INR 71 crores, INR 72 crores. This year, already, we have surpassed the last year's full number of INR 105 crores profit by already right now. We've reached the INR 108.2 crores or somewhere in that range. What I'm trying to tell you is the operational leverages and the EBIT percentage margins are already kicking in and that is what is causing us give a healthy margin. So this should be able to continue in the Q4 as well, and we should be able to post our comfortable margins overall. But on the overall front, the gross margin side, I think achieving a 42% to 43% in the next full year should be achievable. And on the EBITDA margin side as well, 17% to 18% is something that we are targeting for the next year. This is majorly driven by Varamahalakshmi format and change in the product mixes is the 2 fundamental reasons that I wanted to put out there. Even if you look at the overall full year this year projection, even if you are able to achieve a 15% to 18% kind of a number, on the profitability side, I think what I wanted to mention is the operation leverage will kick in and almost we are expecting a 35% jump in terms of profitability compared to last year's profit. So both on the margin -- gross margin expansion is possible and EBIT margin is definitely possible. On the PAT margin, I think we are clearly able to see that the jump is already there. And we have surpassed last year Q3, and we have 1 full quarter of the entire profit being added to the overall full year profitability aspect. This is taking into consideration of the onetime tax provision that we have given last year. Otherwise, the reported profit last year was only INR 85 crores.

Sure. That is clear. Just one clarification. You said 35% PAT growth for full year, right, on a Y-o-Y basis, FY '26 over '25.

Correct.

The next question is from the line of Rahul Jain from Credence Wealth.

So with regards to the growth next year, you mentioned we have better wedding dates, which are much more spread out compared to this year. And also, you are targeting a much higher square feet addition which you mentioned in your initial comments. So when we look at next year on overall top line growth, should we expect at least 15% or maybe in the range of 18%, 20%, given the square feet addition and the wedding dates being better than this year. So can we expect on a current 15% growth, so this year, we end up around INR 1,700 crores of sales on that? Can we expect somewhere around 18%, 20% growth?

The goal, sir, is to actually have a 5% SSG and a 15% kind of a new store rollout addition. Both put together, it's going to be 20%. That's the goal that we internally have been working with. But to answer your question in short, yes, we should be able to target anything between 15% and 20%.

Sure. And coming to the next year store addition, which you spoke about and also you spoke about Maharashtra being there. So typically, what kind of -- since the number of stores being added and the square feet addition is quite aggressive, could you add some more details in terms of what this -- what kind of addition in which states we are looking at? And Maharashtra any -- typically, are we trying to get some stores in Maharashtra also in the next 1 year?

As a matter of fact, I think from the last quarter, we have been actively scouting for locations. It's just that the rental costs are much, much higher than the average rental that we paid down in any of these 4 states. We are actively exploring the -- we're negotiating with the landlords to ensure that it fits into our ecosystem of rent-to-revenue ratios. The way things are currently is that the rentals are much, much higher in Mumbai. But I think we are in advanced stages of negotiation, and we are actively pursuing opportunities in Nagpur, Mumbai and Pune as well. We don't anticipate, at this point of time, we should be able to see a huge number of stores in 1 year, but we should definitely be able to see a few couple of stores and us entering into this market, trying to understand once. Next year, we start like probably in 1 or 2 quarters, we should be able to sign a couple of stores. Once those stores come into full operational existence and once it completes like about a quarter or 2 quarters, probably that's when we'll start adding additional new stores. But at this point of time, to answer your question in short, by next year, you should be able to see stores in Maharashtra.

And last thing, sir, with regards to Valli, so we are already at 11 stores and almost more than 6 months since the first store opened. So if you could share the unit economics with regards to this format, that would be quite helpful.

Sir, I think I wanted to again put that first quarter of Valli operations was Q2 and the next -- another Valli in the quarter 3 was a lower quarter overall. So it still wouldn't make sense to give a number. But broadly, if I have to put Valli into perspective and give you numbers, it will be in the same range of how Kalamandir formats are currently working with reduced CapEx and reduced inventory levels. I mean what I would request is, if you could give me another quarter by the end of March, it would at least complete like about 6 to 9 months of complete operations and probably I'll be able to give you. And then these 3, in this next quarter 4, we don't have any new Valli stores planned. So what we wanted to do is, like, we wanted to have a proper model build in terms of how we wanted to take it forward and only then we will add new Valli stores. These 11 Valli stores should remain in the same count by the end of March, and we should be able to build a model out of this and be able to provide it to you. And post that, we should start looking at Valli expansion in the next financial year. Whatever stores that we will be adding in this particular quarter, in Q4, will be Varamahalakshmi Silks major.

Sure, sir. So sum it up, Valli economics currently are almost somewhere near your Kalamandir format. Is that the right assumption?

Yes, you're right. Absolutely.

The next question is from the line of Param Vora from Trinetra Asset Managers.

So my question is regarding the margins. So are there any margin differences between online and offline sales?

Yes. So yes, there are margin differences between the online and offline. On the Varamahalakshmi and on the Mandir (sic) [ Kalamandir ] these are the 2 formats that we are having on the online business, slightly lesser. On the online business, we have like 10% lower cost compared to the offline stores. But on the Kalamandir front, again, there's a difference. But online business in the overall aspect, if you see, it's probably 1%, 1.5% of the overall business currently. So it's still relatively a smaller pie compared to the offline section, but there's a slight lower margin, I mean, on the online business compared to the offline business side.

And any plans to partner with third-party online channels like Myntra, Ajio, et cetera?

On that front, I don't think, as a company, we would want to aggressively go into the third-party channels. I think on the marketplaces, as you wanted to mention, I think we have tried this out in the last 2 financial years. And what we have understood is like a huge marketplace commissions eats up and there's a heavy advertisement commission that eats up, and the worst of all is that when you get the returns, the product doesn't come intact in shape. There's a lot of business loss that we are incurring as saree as a business. So we thought like whatever business we try to do it, we will try to pull it away from the marketplace channels and try to do everything on our websites only, and it's working well. The good part is that we were able to -- the typical ASP for these marketplaces that you were mentioning about ranges around INR 700 to INR 900, INR 950. But for us, if you look at the Mandir and Varamahalakshmi, we are still being able to like operate with an ASP of about INR 8,000 or so. So that's something which is encouraging, and we don't want to actually go into the market place as we speak. We are comfortable in this place, and it attracts a lot more. You need to jack up your -- increase your margins aggressively and then provide deep discounting. That's a model that we don't want to operate in.

The next question is from the line of Dhwanil Desai from Turtle Capital.

Sir, first, a clarification. I think you guided for 15% growth on an overall -- entire year. So that comes out to be 12%, 13% growth for the Q4, right? So is that a fair understanding?