Release Date: November 17, 2023
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Khadim India Ltd (BOM:540775, Financial) maintained healthy gross margins of 44.7% in Q2 FY24, benefiting from lower raw material prices and higher retail sales contribution.
- The company opened 51 new stores in Q2 FY24, expanding its retail presence to 861 stores.
- Retail sales contributed 70% to revenues in Q2 FY24, indicating strong performance in this segment.
- The company is seeing good traction in its Pro sub-brand, particularly in the sports shoe segment, which has contributed to improved gross margins.
- Khadim India Ltd (BOM:540775) is expanding its distribution network, adding 19 new distributors in Q2 FY24, bringing the total to 741 distributors.
Negative Points
- Revenue from operations declined by 15.6% year on year in Q2 FY24, from INR186 crores to INR157 crores.
- EBITDA for the quarter registered a degrowth of 21% year on year, with operating EBITDA margin down by 80 basis points.
- Net profit for the quarter stood at INR1.8 crores, down by 64% year on year, with PAT margins decreasing by 160 basis points.
- The distribution business saw a significant decline in traction, attributed to muted demand for lower segment products and corrective measures in working capital.
- The company faces potential supply chain issues with the implementation of BIS regulations on footwear effective from January 2024.
Q & A Highlights
Highlights of Khadim India Ltd (BOM:540775) Q2 and H1 FY24 Earnings Call
Q: We are witnessing a consistently improving trend in gross margin and now even EBITDA has improved. Can you please explain how the product mix is changing favorably, or any sub-brand in particular, which may be driving this premiumization? And the second question is how are we doing in women's footwear and which brand is seeing good traction?
A: The premiumization trend is strongly at play, especially with the launch of a good range in the sports shoes segment under our Pro sub-brand. This has led to an increase in gross margins. In the women's segment, Cleo and Sharon brands are seeing good traction. (Rittick Burman, Whole-Time Director; Indrajit Chaudhuri, CFO)
Q: What is the outlook for expanding the distributor network? Also, what will be the closing count for FY24? And if you can help me with an estimate for FY25, that would be very fine, sir.
A: We are expanding our distribution business primarily in the East, targeting around 70 to 75 new distributors. For FY25, post-demerger, we will focus on consolidating with larger distributors in specific districts. (Indrajit Chaudhuri, CFO)
Q: Can you please throw some light on the reason for degrowth in top line for retail and the distribution business for the current quarter?
A: The degrowth in retail was due to the shift of the Puja season to Q3, affecting sales timing. In distribution, we are taking corrective measures to manage working capital and credit, which has temporarily impacted sales. (Indrajit Chaudhuri, CFO)
Q: Have we taken any price increase during the current quarter? And are we planning to increase anything in future?
A: Yes, we have seen an ASP increase of around 4% to 5%. We plan to take another price increase in the next festive season. (Indrajit Chaudhuri, CFO)
Q: Regarding the demerger, when are we expecting the whole process to get completed? What is the status currently?
A: We have applied to BSE, NSE, and SEBI. The process is expected to be completed by May or June next year, with the new company, KSR Footwear Limited, starting operations around June 1 or July 1. (Indrajit Chaudhuri, CFO)
Q: Could you give me the numbers on your current outstanding debts? And what is the percentage of finance cost?
A: Current debt is around INR116 crores with an average finance cost of 10% to 10.5%. (Indrajit Chaudhuri, CFO)
Q: What is the guidance for retail EBITDA margins for the second half and for the next year?
A: We expect retail EBITDA margins to improve by about 1% in the second half due to the festive season. Post-demerger, we are planning for retail EBITDA margins around 20%. (Indrajit Chaudhuri, CFO)
Q: In the last call, we mentioned targeting around 16% EBITDA margin in the retail business. Now we are saying we might touch 20%. What led to this change?
A: The improvement is due to softened raw material prices and the introduction of premium products in our sub-brands. (Indrajit Chaudhuri, CFO)
Q: Do you think we are on track to achieve the 10% to 12% growth for FY24 as previously guided?
A: We expect a good festive season, which should result in high single-digit growth, if not the full 10% to 12%. (Indrajit Chaudhuri, CFO; Rittick Burman, Whole-Time Director)
Q: Could you provide an update on receivables from government entities?
A: We have received INR28 crores from the UP government and expect another INR9 crores this quarter. Receivables from Punjab are around INR32 crores, which we aim to collect within this financial year. (Indrajit Chaudhuri, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
