Stanley Lifestyles Limited (STANLEY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Stanley Lifestyles Limited Q1 FY '27 Earnings Conference Call hosted by Arihant Capital Markets Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Deepali Kumari from Arihant Capital Markets Limited. Thank you, and over to you, ma'am.

Thank you. Hello, and good afternoon to everyone. On behalf of Arihant Capital Markets Limited, I thank you all for joining into the Q1 FY '27 Earnings Conference Call of Stanley Lifestyle Limited. Today from the management, we have Mr. Sunil Suresh, Chairman and Founder; Ms. Shubha Sunil, Whole-Time Director; Mr. Venkataramana Seshagirirao Gorti, Managing Director; and Mr. Sudhir Iyer, Group CFO. So without any further delay, I will hand over the call to management for their opening remarks. Over to you, sir.

Everyone, and thank you for joining us for the Stanley Lifestyles Q1 FY '27 Earnings Call. As we begin the new financial year, I would like to share some important updates on our business and the developments we have undertaken during and after the quarter. Store expansion and network rationalization. I would like to begin with the developments across our store network. At the retail level, our focus remained on expanding our presence in the right markets while also reviewing the financial prospects of our existing network. During the quarter, we opened 3 new stores, all in Bangalore, 2 stores were opened in Varthur and 1 store was opened in Mysore Road. At the same time, we accessed the relevance of each location and relocated resources strategically. The residential development cycles in certain catchments had largely matured. So we closed 4 stores, 3 in Bangalore and 1 in Mumbai. Our approach is not only about adding stores, it's about having the right stores in the right markets and ensuring that the network remains productive as the surrounding markets evolve. The selective approach also positions us in areas with higher customer acquisition potential. Expansion into New Markets. Beyond managing current operations, we are executing a deliberate growth strategy. We entered our first international market in July, opening Stanley Boutique in Colombo, Sri Lanka. This was achieved through a strategic joint venture with Singer Sri Lanka PLC, one of the country's leading retail companies. The partnership provides access to local market knowledge and a platform to deepen our understanding of customer preferences as we establish our international presence. We have also expanded our presence in India with the opening of our new Sofas & More by Stanley store in Jaipur. This marks our entry into Rajasthan. Jaipur has developed into an important market for the premium housing and lifestyle products, and the new store begins our furniture portfolio closer to customers in the region. Stanley Superlative Living looking beyond our existing format, we are also preparing to introduce Stanley Superlative Living in the mature markets where there will be one large Stanley store. This will be positioned at the high end of the luxury segment and being developed at par with global luxury retail standard. The format is intended to bring complete home solutions together under one roof with a focus on design, product presentation, and customer experience. We believe this format can further strengthen Stanley's positioning in the luxury home segment and support our longer-term ambition of building a global footprint. With that, I would now like to hand over the call to our Managing Director, who will take you through the financial performance and some of the other key initiatives during the quarter. Thank you.

Thank you, Sunil. Let me begin with the financial performance and business environment during the quarter. The revenue from the operations was at INR 9,935 lakhs, down from INR 10,861 lakhs in Q1 FY '26. Majorly 2 factors impacted the dip in the revenue. The first one is our B2B business. It faced challenges with respect to the Middle East war where it was disrupted because of the freight movement issues. While we have a healthy order book from that, the products have been produced, they are with us, but the logistics is the challenge what we are facing as of now. Second, our retail business operated in a short-term challenging environment. Stanley's customers are primarily new home buyers in the premium and the luxury residential segment, representing 80% to 85% of our base. Residential project handovers have been delayed by 12 to 18 months in several cases. Supply chain disruptions in West Asia have also constrained the availability of construction materials. As a result, while customer inquiries and store footfall remains encouraging, conversions are slower as customers await possession of their homes. Despite the lower revenue, we have maintained our gross margin during the quarter. This has been supported by the restructuring initiatives undertaken by the company as well as our continued localization efforts. This disciplined approach resulted in an EBITDA of INR 1,722 lakhs with a margin of 17.3%. PAT was at INR 65 lakhs. I would also like to talk about an important initiative for us, which is the proposed amalgamation of our subsidiaries and step-down subsidiaries into Stanley Lifestyles Limited. The objective of the amalgamation is to create a simpler and more integrated corporate structure. This will reduce the number of legal entities within the group and make management, governance, and reporting more efficient. At the same time, a unified structure will allow us to deploy our cash, manpower, assets, and other resources more efficiently across the businesses. More importantly, we believe this will create a stronger platform for future growth. It will provide greater flexibility for future expansion, fundraising, Merger and Acquisitions, and business integration while also improving accountability and decision-making across the organization. We appreciate the support of our shareholders and remain committed to completing the proposed amalgamation. Furthermore, as we continue to strengthen the organization and build the right leadership team for the next phase of growth, we welcome Mr. Sudhir Iyer as our new Group Chief Financial Officer. Mr. Sudhir is a Chartered Accountant with over 20 years of experience across corporate finance, M&A, IPOs, and corporate governance. We are confident that his experience and expertise will support Stanley Lifestyles in its growth journey. Looking ahead, our priorities are clear. We'll focus on improving customer conversions as residential project handovers progress. We will expand selectively into relevant markets, accelerate localization, and develop our complete home solutions portfolio. We believe the work being undertaken today will strengthen the foundation of the business and position Stanley Lifestyles well for the future growth. This concludes our remarks. We can now open the floor for questions and answers. Thank you.

[Operator Instructions] First question comes from the line of Saket Kapoor with Kapoor Company.

If you could also explain to us the depreciation rate and the depreciation amount, I think so that is in the higher tune of, I think so, INR 15 crores on a quarterly basis. So what kind of assets do -- our depreciation, I think an annual depreciation of above INR 50 crores. So firstly, on this front. And secondly, how do you see the year progressing in terms of the volatility that we are seeing in the geopolitical setup? And then going ahead, how are the factors that have attributed to degrowth for Q1 that goes or mitigates going ahead.

The first question will be answered by our CFO about the depreciation.

Basically, the depreciation is because of the Ind AS impact. I think I should give a clear bifurcation because of the Ind AS impact, because depreciation is there.

That is a very significant amount. I only wanted to understand the nature of our assets that leads to a INR 15 crores quarterly depreciation. That was my question.

Exactly. See, if you look at the IGAAP depreciation would be lower because of Ind AS, what we will do, we will leverage entire spend to bifurcate the number of years. So the more load is being loaded to the third quarter...

It's front loaded...

Yes, front loaded. Purely, I can tell you in nutshell, it's because of Ind AS impact, not on the IGAAP.

Correct. And sir, now on the growth prospects going ahead. And also, firstly, sir, if you could just also throw some light on the utilization levels as we are also looking to restructure the operations and the synergies that will happen post the merging of the subsidiaries, which you have just mentioned. So what kind of EBITDA margin trajectory can we anticipate? And what -- how are currently our utilization currently shaping up? And going ahead, how will that trend?

So yes. So let me commence by saying that the main task that we set out as promoters for the last 1 year in terms of making the most important senior leadership change that is already in place, and we are very, I would say, satisfied with the way that has taken shape. That was the most important task for us. Secondly, as far as business is concerned, we are very clear that our B2C business, the architecture is being redone. We are going through a complete change where we had 3 brands that's now that's going to be folded in. They will -- going forward, there will only be one Sofas & More and one Stanley brand. That is a brand architectural change we are doing after 8 to 9 years because that is the way that we see is going to be more conducive. Stanley is going to become a complete-home solution provider. We are moving from a furniture to a complete home solution provider, whereas Sofas & More will play the role of what Stanley played in the past. It will be a furniture retail concept. So that architecture is also going on. We hope that it should be completed in about 3 to 4 quarters from now. It's a gradual process. And we also did some certain changes. Actually, we relocated. Technically, we did not close some stores, but we relocated as the markets mature and the catchment fills up, unlike other grocery store, furniture is a more need-based business. So we need to now relocate some stores and go to new catchments where new residential buildings are coming up. So that is what has happened. And thirdly, from a B2B business, in fact, we have the highest ever visibility of opportunity from our B2B business. But unfortunately, due to the Middle East, we were unable to build. In fact, we have produced the products and we are not able to invoice in quarter 1 because of the, what you call, shipment issues and logistic problems that we hope that it's going to get cleared. We are hoping that once we get the logistics moving, we should definitely have a much better quarter ahead.

So can you give us some color how our EBITDA margin will shape up and how are the utilization levels? What are currently our utilization levels at the consolidated level?

Utilization of -- you're talking about the manufacturing capacity or...

Yes, the manufacturing capacity definitely -- and the amount of inventory that we are currently holding.

See, 2 things. One is that our manufacturing capacity is currently at about 68% to 70%. Secondly, in terms of our inventory because August usually Europe closes, so we have to forward load, so we have a little higher inventory just now. Because for us, the season starts in September, and August, usually Europe closes. So we normally, in the first quarter, our inventory increases a little bit. That is a normal thing for us when we go back historically.

Okay. And lastly, sir, since we are a home solution company and we are looking forward to providing, then the service part also plays -- the maintenance part also plays a big role because of the value of the sofas and the furniture. So, do we have any other forward integration in terms of the service part also wherein we provide our customers with -- post the guarantee of the warranty expires, how do things that shape up? And how do -- what steps do we have for the service part of the issue because of the wear and tear of the surfaces with the passage of time?

So, this is a valuable question that you asked me. It's a very valuable question because we cater to the premium end of the market or the luxury market, whereby word of mouth is extremely important for us. So up till now, we have been extremely careful. We have never sort of tried to -- just to show growth, done anything wrong, and we have been very, very careful in handling our customers. We almost have a 98% of customer satisfaction report. And that is an ongoing thing. Now we are, in fact, enhancing our products as well as our services by introducing new training into our retail chain. So these are the changes that we are making. It's a very important question. And you're absolutely right, as the country progresses and the premiumization has started, people want premium products. They want luxury products. At the same time, we should be able to not only give them the customization product, but also the services. It is an ongoing process. We are definitely now, I would say, taking the playbook a little more seriously than what we were in the past, and we are articulating that in our retail stores.

And lastly, sir, the other income component is mainly on the treasury, the cash we have on book that is attributable to the other income...

You're right. This is the internal treasury what we have.

[Operator Instructions] Our next question comes from the line of Ashish with AK Investments.

So first of all, I think most of the retail businesses, they are reporting pre-Ind AS margins, right? But I think we are not reporting. So as a feedback, can we start reporting that? because from analyst point of view, it is important to analyze pre-Ind AS margin, right?

No, no, no. Let me correct here. We should report Ind AS numbers only. But we can -- as a CFO, I can carry to you what the IGAAP looks like offline. But for the financials and for the publication, I wanted to go for the Ind AS matter only.

Yes. So separately, we can mention pre-Ind AS EBITDA margin as well.

Yes, yes.

Okay. Okay. Also, I want to understand like what are our pre-Ind AS store level operating margin in each format, if you can give that?

For each store you wanted, I think...

For each store or each format?

Each store format.

Just a minute. We'll give you.

Pre-Ind AS.

So if I wanted to average it out, our pre-Ind AS gross margin will be around hovering around 56% to 60%.

You are giving me gross margin or EBITDA margin?

I'm talking about the gross margin and you wanted the EBITDA margin it is hovering around 11%-13%.

Gross margin is 56%-60%. EBITDA margin is between 11%-13% currently.

Okay. So it is like consolidated all 3 formats put together, right?

Yes, all 3 formats put together.

Okay. And how much is our corporate cost?

Corporate cost. See it's roughly about INR 90 lakhs per month. So that is -- on the revenue, sir? it is 10%, INR 10 lakh into 1% of the revenue.

2.5% of the revenue, 420 divided by INR 90 lakhs revenue. INR 11 crores. About 2.25% of our total revenues annually, but right now it is at about INR 90 lakhs per month.

And is there any opportunity to reduce corporate cost I think as we scale up and as we add more stores. So is there any opportunity to reduce the corporate cost?

In fact, I think we are now going to go through a bit more of additional corporate expenses because the store formats are actually changing and there are early stores. So, we need the right set of people, and that is exactly what we have done in the last 1, 1.5 years, identifying and taking better qualified people at all levels. So, the corporate expenses probably will hover around the same as we grow.

My other question is, so can you give me average revenue for like mature store in each format?

Mature store average revenue per square feet is what you're asking.

Square foot per store.

Square foot per store is difficult to say because our Sofas & More are averaging at around INR 4.5 crores, INR 5 crores per store. Our Stanley 14, which are now going to be merged into Sofas & More are averaging again about INR 5 crores, INR 6 crores per year for INR 40 lakhs to INR 50 lakhs per month, about INR 5 crores to INR 6 crores a year. Stanley Level Next is running around INR 12 crores to INR 14 crores a year and found on different size format. So it's a bit tricky for me to give you. But average, we are looking at our stores, Sofas & More around INR 5 crores per annum is a kind of a number, INR 5 crores to INR 6 crores. Stanley Boutique, a similar number, around INR 4 crores to INR 5 crores is the number. Stanley Level Next is about INR 10 crores and above some stores are even giving up to INR 20 crores.

And how do you classify maturity store 24 months or more?

No, it is between -- it is, again, depending on the location and the catchment area, it is we have had the maturity kickstart at about 18 to 20, 22 months. In some cases, it goes to almost 38, 38 to 40 months. So average, you can say 36 months is a very good period for us to what we call as become ROI that is written off investment or maturity.

And so how many -- like I think in your initial remarks, you mentioned like we closed certain mature store, right? So at what stage do we decide to close down?

So actually, Bangalore, we have closed down 4 stores, out of which 2 have already relocated. We have also relocated and opened the other stores. We have gone further down on the same streets or same highway because the catchment area has moved. One of the stores we had to close because in commercial street when we took the store, they had given us a lot of parking in the front. And finally, the local body had to change the entire rule and they made it a one way, and there was completely parking takeoff from there. So our footfall drastically dropped. So we had to change that. So this is a bit of a -- I call it as an industry problem or a retail hazard because many times when we go to certain areas, suddenly, there will be like a metro that will come up, which we will not have a visibility before we take the building. So we are trying to put a lot of checks and measures now. We try to go to the BBMP or the BDA and understand whether these roads are not going to have any problem. So we are also learning to expand in a more careful manner going forward.

Okay. And when we relocate our stores, so are they as good as new store?

Just now, we have opened Mysore Road, is about 6 months old. No, 3 to 4 months.

In terms of...

In one case, I can just give you an example, we have relocated and the business is almost 2.5x more than the previous store.

And if you can give me rent expense for this quarter?

Rent is it?

Yes, rent.

Rent expense for the whole quarter.

Consolidate?

Yes. Consolidated.

Yes, 10%...

10% of revenue?

Yes, 10% revenue is the right answer, yes.

Okay. And lastly, can you give me like per store CapEx, how much it takes to open a new store in each format?

Yes. So basically, like I said, we are going through our brand architectural changes. In fact, last couple of quarters, when we made earnings call, some investors also suggested that there is a bit of confusion in the market with Stanley having 2, 3 different positioning. So that architecture has just started. We are in certain mega cities where we have actually bought over our franchisees, we are opening large format Stanley stores and going to have only smaller format Sofas & More. So the CapEx as of now for Sofas & More is roughly about INR 2 crores per store. The average size is 5,000 to 6,000 square feet is what we are looking for. But for the larger one city, one store, the CapEx can go up to INR 20 crores, INR 20 crores. So that is the kind of CapEx we will involve in the bigger stores. And that will just be one city, one store. We have already started work on the one in Hyderabad. Hopefully, we should open in the next few weeks or so. And then we are also doing the same thing in Bombay. We are consolidating and opening large format store. And then Bangalore and Delhi. So 4 cities where we are present for more than 15, 20 years, we have decided that we are going to go with 1 city, 1 mega store for Stanley and Sofas & More in the same city, which are going to be stand-alone value premium kind of an offering. Stanley will be in the luxury offering.

[Operator Instructions] Our next question comes from the line of Nishant Sahu with Green Portfolio.

I read your annual reports and other offerings. Sir, exports aren't disclosed separately anywhere. What was the export revenue in FY '26 and quarter 1 FY '27? And is this a business you intended to scale, sir?

Sorry, we don't have big percentage of exports as yet. it's domestic market works mainly.

Only domestic market you work at, sir?

Yes.

Are you exploring sir?

We have just started with our first opportunity in Sri Lanka, so exports is something that we are going to focus on in the road ahead, but as of now, we are mostly manual retailers at Sri Lanka.

And sir, what's the growth and margin driver from here even mature store growth? Like from here, what growth you are expecting, like growing revenue and margin from here at current level, quarter one?

So, our focus is constantly to ensure that we are not just growing the company from a quarter-to-quarter perspective. We are building this brand and company for the next decade. So very focused in terms of having -- it needed the plumbing changes. Those plumbing changes are completely now on its way. They are very, very happy the way it's taking shape. So we aspire to be an Indian luxury brand, and we are going to make sure that our profits also are going to be in the premium range of the market. So that is exactly where we are at this point in time.

And one more question, sir. Can you put the light on the -- you uploaded the filing misappropriation of funds by CS. Could you please put on the light on the statement, sir?