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

Ladies and gentlemen, good day, and welcome to the Sai Silks (Kalamandir) Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Bharadwaj, Chief Executive Officer. Thank you, and over to you, sir.

Thank you, Steve. Good evening, ladies and gentlemen. Thank you for joining us today to discuss the financial and operational performance of Sai Silks (Kalamandir) Limited for the first quarter ended June 30, 2026. I am Bharadwaj Rachamadugu, CEO of Sai Silks (Kalamandir) Limited. I'm joined today by Mr. K.V.L.N. Sarma, our Chief Financial Officer. On behalf of the management team, I extend a warm welcome to all our shareholders, investors, analysts and stakeholders participating in the call today. I hope everybody got a chance to go through the financial reports updated on both the company website as well as on the stock exchanges. Let me start with the market overview and the broader market scenario. Consumption during the quarter 1 FY '26, '27, was shared by Adhik Maas that fell from May 17 till June 15, almost 1 full month inside our quarter. Adhik Maas, as you all know, is traditionally treated as inauspicious for wedding, gruha pravesham and other major purchases that contributed to weak consumption trends across our markets. As a result, footfall and expense spend during the quarter remains measured. Customers continue to display value conscious and discretionary purchasing approach. This reflects broader weakness in the overall consumer demand across the discretionary retail and consumption space, a trend we believe is being felt industry-wide and not specific to Sai Silks (Kalamandir) Limited or ethnic alone. Additionally, the retail environment remained challenging due to passive discretionary spending and cautious consumer sentiment across markets. We expect this cautious sentiment to ease as we move into the and wedding-heavy second half of the year. For the first quarter ended June 30, 2026, the company reported a revenue from operations of INR 375 crores compared to INR 379 crores in quarter 1 -- in quarter 1, '25, '26. It is almost flat. The same-store sales saw a degrowth of up to 7.5% during the quarter, reflecting the cautious demand environment I just spoke about. EBITDA margins declined by about 1%, largely on account of the same store sales degrowth given that the fixed cost base spread over softer like-for-like volumes. That said, I'm happy to report that gross margins held up well, remaining close to 42%, despite the challenging environment, which is a reflection of continued pricing discipline and merchandise mix management. We expect the EBITDA margins to improve through the course of the year, supported by SSSG improvement and by the operating leverage that follows as this quarter new stores mature. The company continues to be debt free. This reflects our continued focus on financial discipline and prudent capital management even as we invest in continued expansion. As per our original plan back in 2023 during the IPO, we had envisaged adding up to 142,500 square feet of retail space. I am pleased to share that through disciplined execution and efficient capital allocation, we were able to approximately add 90,000 to 1 lakh square feet of additional retail areas over and above this original target using the same fund allocation. This reflects efficient capital allocation, utilization and implementation on the ground, and gives us a higher store area. And this higher store area will translate into higher productivity for the company. With this additional retail space, our overall inventory levels are naturally expected to be higher in absolute terms. However, I'd like to highlight that we continue to see a consistent reduction in inventory per square foot which reflects the growing efficiencies of our cluster-based expansion strategy. As store density improves within our cluster, our inventory planning and replenishment becomes more efficient. I'd also like to note that the entire inventory owned by the company as all our stores operate under the company-owned company-operated model. Our focus during the quarter remained on strengthening our market presence, enhancing customer experience and improving operational efficiencies and driving sustainable long-term growth. We continued our expansion journey, adding approximately 30,000 square feet of retail space during the quarter, taking our total stores down to 83. These additions further strengthens our presence in our key growth market, Karnataka and reflects the confidence in the long-term potential of the organized ethnic wear retail segment. As of June 30, 2026, the company's total retail footprint stood at approximately 8.14 lakh square feet across 83 stores and 4 states. Looking ahead, we are targeting a net retail space addition of approximately 1 lakh square feet for this financial year. As part of our ongoing efforts, we have planned to rationalize one KLM fashion mall store that has shown sustained degrowth despite dedicated efforts towards revival, including downsizing initiative that has been undertaken in the previous quarter. This action reflects our commitment to disciplined capital allocation ensuring resources remain focused on our best-performing locations. We will continue to monitor performance closely and take necessary actions as warranty. I'd like to take a moment to address how we believe a business like ours should be evaluated, given the inherently seasonal nature of the ethnic wear retail industry, companies like ours are best assessed on a yearly basis rather than purely on a quarter-to-quarter basis. As seasonal shifts are imminent and structural to how this business performs. Our revenue and profitability are closely tied majorly around and wedding main calendar. Events like Adhik Maas can shift the spend meaningfully from one quarter into another without any change in the underlying health of the business. A quarter that looks soft in isolation may simply reflect a calendar-driven timing shifts with the corresponding demand showing up strongly in the adjacent quarter. We would therefore, encourage investors and analysts to look at our full year performance trends as a more meaningful indicator of the company's underlying growth strategy rather than drawing conclusions from any single quarter in isolation. I will now hand it over and would be happy to take any questions.

[Operator Instructions] The first question comes from the line of Divyansh Jaju with Trinetra Asset Managers.

Thank you for the opportunity. So my question was what's the state wise and the format wise split will be of the 1 lakh square feet expansion target, which is there for FY '27? And apart from this, is there any new state entry outside India or we will be doing expansion more in the same?

Yes. Divyansh, thank you for the question. So at present, it's majorly split between our existing territories where Karnataka is taking the front lead in the overall expansion strategy. The format in-play majorly will be Kalamandir and Varamahalakshmi. Kalamandir will lead majority of the effort. Additionally, in terms of locations, in quarter 4 or early quarter 1 of next financial year, in that time is where our entry to the new state will be. We are looking at closing down on final location in one in Pune, Maharashtra, and we are also actively exploring opportunities in Kerala. So -- but however, these are -- these geographical entries will majorly pan out in the quarter 4 and early Q1 of next year.

Okay. And the guidance you have given in the previous quarter for the revenue growth and the EBITDA margin will remain same only for next FY '27?

For the current financial year, broadly, yes, there is not going to be any changes. We think that the store implementation is something that we are carefully aligning. For the next financial year also, I think there could be a possibility where we might add a little bit more than the 1 lakh square feet before the financial year ends. At this point of time, the visibility that we have in quarter 2, is close to 26,000 to 30,000 square feet. We've already added 30,000 and this 30,000 will broadly build it out to 50,000 to 60,000 square feet. And I believe the target for Q3, Q4 is 40,000, but there are possible changes in where in quarter 4, we might be able to add an additional 10,000 to 15,000 square feet, which will be able to come from 1 quarter to pass.

The next question comes from the line of Resha Mehta with GreenEdge Wealth.

I hope I am audible.

Yes, go ahead.

Yes. So of course, H1 last year was a very heavy base. And since you're encouraging us to look at it from an annual standpoint, and considering the 1 lakh square feet addition that we are planning for the current financial year. Would you like to give any revenue growth guidance for the current financial year?

I think like we already discussed broadly, the revenue guidance for the full year will remain between 12 and 15 percentage like we've discussed in the last interactions as well. The store implementation wise if we could push a number of stores in till date Q3 or first or second week of Q4, then probably that might be able to add a little bit. But broadly, this is how it's going to be. One of the important things that we have mentioned is, as you rightly mentioned in H1 because it's a heavy base and number two, Dussehra came in, in quarter 2 of last year. So therefore, that seasonal shift between quarter-to-quarter is something that we have to be -- I wanted to point out. But broadly, Y-o-Y basis, it's still fine.

And also, I just wanted to understand the price elasticity of demand vis-a-vis poor rainfall. So if I see almost 75% of revenues comes from Telangana and Karnataka, where broadly, the rains have been poor so far at least. So in the past, have you seen that rain and festive demand takes a hit if the rainfall is poor for that particular financial year? Or would we see that it's largely insulated?

Thank you for the question. I mean, there are very good potential markets in our core markets, which is agriculture-dependent markets. So for instance, I'll give you a couple of cities, like one is Rajahmundry, the other one is Vijayawada. These are citiies which are heavily reliant on agriculture. So there are many cities in the existing territories or in our 4 states, which have impact on that agriculture income. So rainfall in nature will have a broad impact on the overall sense of having lesser demand. That is something that in the last couple of years, we have seen because of flooding and all of that happened. But on the agricultural side, I think that is also something that we have to be worried about. One more thing that I'm not able to comment very surely, but has a broader level impact is because of the wars, the fuel prices rising, even with respect to the product wise also, the dying cost has increased substantially. So therefore, the entire supply chain has been something that has been impacting. Despite all of this, our product mix changes is able to absorb some amount of margin, gross margin expansion that we wanted to target, and that is what is something that we were able to maintain despite these challenging times. But broadly, I believe in quarter 2 and quarter 3, see, things like these rainfall effects will not show immediate impact. These are things that might show impact probably in quarter 2 and quarter 3. I personally believe that there will be some impact, but it's tricky to quantify how much exactly it will.

Right. And as far as margins go, like you did highlight cost pressures in the entire supply chain. So would you say that are we still confident of maintaining our margins at the gross margin level?

Gross margin, as you see, I think ideally, we were expecting the gross margins to be a little bit higher. But with all of these things playing out, the gross margin will hardly sustain, I think we've lost close to 10 to 15 basis points and broadly, the gross margins remain. We aim to maintain the same gross margin till the end of the year. The newer format, which is majorly not Varamahalakshmi, which is Kalamandir that is coming this year is one thing that we have to keep in mind. And these cost pressure that is coming broadly -- we will still aim to maintain the same kind of gross margin till the end of the year. But on EBITDA margin, you should be able to expect better than what we closed last year. I'm talking about the full year in perspective.

Understood. And Telangana this quarter has seen a very sharp decline, I think, almost around 15% odd. So -- and how much of that decline would be linked to the high footprint of KLM in Telangana? And also if you could quantify the SSSG for this quarter? And would KLM be pulling the overall numbers materially down?

So our SSSG broadly was around 7.5 to 7.8 percentage. This was heavily driven by scale and growth. And since KLM's majority of the contribution is coming from Telangana, so naturally, these numbers seem to be a little higher. And number two, as you already did mention, the higher base in last year is also one of the effects that we had. So yes, that is the reason why I think despite the continued effort, this -- all these couple of quarters, we decided to consolidate one of the stores, and this too happens to be in Telangana itself. We're aiming that the inventory, whatever is available in the store will get transferred to the other KLM stores, and the manpower wherever reductions could happen, will happen, and we will move the manpower to the new stores and upcoming stores that are going to come. So the effect of this is something that's going to come up in the next quarters.

So from 19 stores, we are looking to consolidate to how many stores going ahead? Or is it just one store for now?

Right now, it is 1 store. The market has also changed. I think I think 1 store is what we have definitely identified. We've negotiated, and we've finalized the date of closure as well. The other store, there is 1 other store in the radar that we are carefully monitoring it. We have not taken a definitive decision yet, but if it comes down to it, we are open to figure out the necessary course corrective plan that we need to take out these stores as well. At present it's only 1 store. From 19, we move to 18.

18. Got it. I'm sorry, I missed it. So 7.5% to 8% is the SSSG degrowth, right, in this quarter?

Yes.

Okay. And then in KLM Fashion Mall, if you could just comment on how is the recovery going? I think we've launched 2 new categories, in other and jewelry, while there was pressure on menswear and kidswear. So how are these 4 categories doing?

So with respect to Innerwear, I think month-on-month is Y-o-Y, it is showing growth. We are expecting a 20% growth compared to last year in innerwear category. With respect to jewelry, I think the jewelry has been added as fashion jewelry and it just started. We started with the 2 new stores that we've opened in last quarter in Kalamandir, those stores also we started adding. In KLM, we just started adding this. We will take a phase-by-phase approach and try to put -- start putting the jewelry, the fashion jewelry in more and more stores. The concept behind that will continue to be the same. Reallocating the existing store space to be able to fit in this category and see how the productivity levels increase. So broadly, the implementation in the jewelry side on the KLM front, particularly is in the slow -- is just starting. But on the Kalamandir, because the 2 new stores opened in last quarter, we were able to add aggressively there.

Understood. And lastly, on the warehouse funds, they have been unutilized for quite some time now, basically from the IPO proceeds. So are we looking to utilize the same anytime soon?

Yes. Warehouse is one part that we have to see exactly where it is to be located. One or two places that we have identified on the due diligence is under process. So just for the sake of spending of the amount, we cannot conclude on any one place, and then we will have a problem in shifting if necessary. So other than the warehouse part, the funds are being utilized on time and in fact, as explained by Bharadwaj in the opening remarks, we have established approximately 80,000, extra -- 80,000 to 90,000 extra store area. We are pulling one particular area where we wanted to put up the warehouse and discussing them. Hopefully, we should be able to complete the deal by the end of September. And then that particular part of the amount for warehouse will be spent at that point of time.

Apart from that even I think the entire utilization will be completed. The target in September quarter 2 of 2026.

The next question comes from the line of LLP.

My question is that how are you looking at the next 3 quarters in terms of wedding dates? I realize that Dussehra has moved to Q3 this fiscal year as opposed to Q2. But could you give us a broad sense of what's the distribution of wedding dates in Q2, Q3 and Q4 relative to the same period last year?

So broadly, Q2, Q3, Q4, if you take all of that put together, Y-o-Y, there are like 2, 3 days. If I have to put you in percentage perspective, like about 5 to 10 percentage of additional wedding dates is what is there in quarter 2, quarter 3 and quarter 4. And it is a distributed calendar like how I've already mentioned in the previous calls as well. Now with regards to the festive demand, as you rightly said from quarter 2, it shifted to quarter 3, that is one such parameter in terms of the overall revenue that moves. And Dussehra is one of the biggest seasons in our Hyderabad, I mean, Telangana cluster, and Telangana does have a significant impact on the overall revenue. So with respect to the festive, that shift between Q2 and Q3. But with regards to the wedding dates, broadly, it is distributed like how it was in the last year with an additional 5% to 10% of additional wedding days.

Okay. And the 2 stores that you opened in Q1 were both Kalamandir stores based on your opening remarks. So they're pretty large format in this, between the 2 stores is 30,000 square feet. I thought that there was kind of a strategy to also kind of open smaller stores with the Valli format, which you had attempted last year with a bunch of stores. Any comments on how they have done?

Sure. So the broader idea is Valli stores by the end of quarter 4 of -- by the end of last financial year, we scaled it up to 11 stores. And we -- I mentioned that after 11 stores, it gave us an enough sizable picture for us to understand what is the entire economics going to work around with the Valli format. So as of quarter 4, the Valli format broadly is operating in the same range of Kalamandir and little better than Kalamandir in terms of the productivity as well as efficiencies in terms of inventory. Now Valli Silks is still in focus, is still in play. It's just that we are trying to time the Kalamandir stores in Karnataka. So -- so the focus in Valli is still there. We have not shifted, or we are not changing the plan towards that. Probably by Q4 and early next year, we will have the Valli store pipeline that's going to come from. With regards Kalamandir, as you've mentioned, the 30,000 square feet are bigger size stores. I think one store is close to 14,000 and one store is close to 15,000 square feet, somewhere that 29,000 some change. The -- these stores, if you look at Kalamandir's brand value, in Karnataka is significantly higher compared to Telangana. And these stores that are currently in -- in Karnataka are all family stores, and heavy focus on reliance more on sarees. So we are trying to use the brand value that these stores already have on leveraging that and expanding deeper into these markets. The reason why this store seems to be a little bigger than the current averages are because the store majorly are identified into markets where there are all family stores in and around, and that's the kind of audience that, that particular geography requires us to have. And therefore, Kalamandir stores is what is taking that leap forward. If you look at the overall store mix as well, I mean, Karnataka, the number of stores that we have is 14. Tamilnadu is 14, Telangana 28 -- Telangana 29, Andhra 28, I mean there could maybe 1 store plus or minus. So total, that's the split between the number of store count. So there is a huge opportunity for us to target in Karnataka. And therefore, we have chosen the Kalamandir format as a format that we wanted to start expanding. That being said, the Valli Silks format is also something that we are actively looking at in terms of store square feet. In terms of Valli, one of the challenges are because it is a 3,000 to 4,000 square feet stores, the rental costs are significantly a little bit higher than the company averages with respect to Valli. Because all the other store formats have higher productivity and bigger store size, it works out better. But with Valli, the rent to revenue cost is now shooting up a little bit. So what we have decided is -- we wanted to add a few more stores giving a break between about 1, 2, 3 quarters. By quarter 4 and next year onwards, we will start adding the next wave of Valli Silks stores. But I wanted to take the moment to give you the strategy of how we do the store selection process. The fundamental idea is to look at in -- we start identifying 1 or 2 markets, and we start expanding between multiple formats as well, not just go with a singular format. The reason being any particular location will have an appetite for one or more formats and not one format alone. Now because we do this, the entire operational efficiencies with respect to stock management and administrative bandwidth, it will all work out. So right now, the next interesting place for us to expand will be in Karnataka with newer formats as well as in Tamilnadu with non-Varamahalakshmi format. The goal for us is to make sure we balance Varamahalakshmi and non-Varamahalakshmi format, so that we don't miss out in terms of margins. We don't miss out in terms of capital allocation.