KKCLNSEOctober 28, 2022

Kewal Kiran Clothing Limited

9,939words
245turns
18analyst exchanges
2executives
Management on call
Hemant Jain
JOINT MANAGING DIRECTOR – KEWAL KIRAN CLOTHING LIMITED
Pankaj Jain
PRESIDENT - KEWAL KIRAN CLOTHING LIMITED
Key numbers — 40 extracted
29%
ow standalone performance highlights for Q2 FY '23. Revenue from operations for Q2 FY '23 grew by 29% to INR 26.3 crores as compared to INR 175.1 crores in Q2 FY '22. EBITDA for Q2 FY '23 grew by 55%
INR 26.3 crore
dalone performance highlights for Q2 FY '23. Revenue from operations for Q2 FY '23 grew by 29% to INR 26.3 crores as compared to INR 175.1 crores in Q2 FY '22. EBITDA for Q2 FY '23 grew by 55% to INR 50 crores
INR 175.1 crore
or Q2 FY '23. Revenue from operations for Q2 FY '23 grew by 29% to INR 26.3 crores as compared to INR 175.1 crores in Q2 FY '22. EBITDA for Q2 FY '23 grew by 55% to INR 50 crores as compared to INR 32.3 crores i
55%
29% to INR 26.3 crores as compared to INR 175.1 crores in Q2 FY '22. EBITDA for Q2 FY '23 grew by 55% to INR 50 crores as compared to INR 32.3 crores in Q2 FY '22. EBITDA margin for Q2 FY '23 stood a
INR 50 crore
INR 26.3 crores as compared to INR 175.1 crores in Q2 FY '22. EBITDA for Q2 FY '23 grew by 55% to INR 50 crores as compared to INR 32.3 crores in Q2 FY '22. EBITDA margin for Q2 FY '23 stood at 22.1% as compa
INR 32.3 crore
o INR 175.1 crores in Q2 FY '22. EBITDA for Q2 FY '23 grew by 55% to INR 50 crores as compared to INR 32.3 crores in Q2 FY '22. EBITDA margin for Q2 FY '23 stood at 22.1% as compared to 18.4% in Q2 FY '22. PBT
22.1%
o INR 50 crores as compared to INR 32.3 crores in Q2 FY '22. EBITDA margin for Q2 FY '23 stood at 22.1% as compared to 18.4% in Q2 FY '22. PBT for Q2 FY '23 grew by 48% to INR 52.3 crores as compared t
18.4%
mpared to INR 32.3 crores in Q2 FY '22. EBITDA margin for Q2 FY '23 stood at 22.1% as compared to 18.4% in Q2 FY '22. PBT for Q2 FY '23 grew by 48% to INR 52.3 crores as compared to INR 35.3 crore in Q
48%
margin for Q2 FY '23 stood at 22.1% as compared to 18.4% in Q2 FY '22. PBT for Q2 FY '23 grew by 48% to INR 52.3 crores as compared to INR 35.3 crore in Q2 FY '22. PAT margin for Q2 FY '23 stood at
INR 52.3 crore
for Q2 FY '23 stood at 22.1% as compared to 18.4% in Q2 FY '22. PBT for Q2 FY '23 grew by 48% to INR 52.3 crores as compared to INR 35.3 crore in Q2 FY '22. PAT margin for Q2 FY '23 stood at 16.9% as compared
INR 35.3 crore
s compared to 18.4% in Q2 FY '22. PBT for Q2 FY '23 grew by 48% to INR 52.3 crores as compared to INR 35.3 crore in Q2 FY '22. PAT margin for Q2 FY '23 stood at 16.9% as compared to 14.9% in Q2 FY '22. Standa
16.9%
to INR 52.3 crores as compared to INR 35.3 crore in Q2 FY '22. PAT margin for Q2 FY '23 stood at 16.9% as compared to 14.9% in Q2 FY '22. Standalone performance highlights for H1 FY '23. Revenue from
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Guidance — 20 items
Pankaj Jain
qa
“So if you leverage out the quarter two as well as the quarterly performance, I think, okay, the estimates, which we had given will be sticking to that itself and we'll be on the same estimates there, okay, where the EBITDA margins would be in the range of 17% to 18%.”
Deepak Lalwani
qa
“And how do you expect trajectory to be for the third quarter and fourth quarter?”
Deepak Lalwani
qa
“Sir, okay, for the remaining two quarters of quarter three and quarter four, how do you expect gross margins to be?”
Deepak Lalwani
qa
“And what do you expect from a cost structure perspective, as you know, you ramp up the EBOs we expect the cost structure to be, employee cost to be in the similar range and other expenses to be in the similar range?”
Pankaj Jain
qa
“It will be in the similar range itself, which is the growth has not been only in the EBOs.”
Pankaj Jain
qa
“So okay, proportionately, everything will average out and it will be on the similar structure.”
Deepak Lalwani
qa
“And you're saying the cost structures are going to be broadly in line with gross margins also being in line, are you giving the EBITDA guidance at 17% to 18% because it's quite clear that third quarter even margins could be quite robust?”
Pankaj Jain
qa
“Marketing budgets, okay, when we had given earlier and met people we had given earlier guidance that marketing spend would increase during the third quarter.”
Abhishek Ghosh
qa
“And is it possible to provide some sort of medium to long-term guidance, say, two to three year revenue target or an EBITDA target, what you see, say, by FY '25?”
Pankaj Jain
qa
“Revenue guidance, as we have already spoken, okay, it would be around 18% to 20% over for the next two years and EBITDA would be around 17% to 18%.”
Risks & concerns — 4 flagged
Looking ahead, despite the volatile macroeconomic environment, we are very confident in our ability to further build on the progress made so far and continue to drive a strong top and bottom line growth.
— Hemant Jain
So gross margins were seasonally weak this quarter.
— Deepak Lalwani
No, there is no impact of cotton price on inventory.
— Pankaj Jain
So are you under guiding the 20% - 23% or there is something where you're anticipating a slowdown in the business and primary sales in quarter two is very high.
— Ankit Kedia
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Q&A — 18 exchanges
Q
Thank you for the opportunity and congratulations for a good set of numbers. Sir, I have just one question. In the past interactions, we have made these adjustments, whereby we had brought down the margins to about 16% to 17%. And those two adjustments for participation in the end of season sale and some stock to be on a returnable basis in order to facilitate the whole business and start looking for a better growth. But when we are seeing the margins, the margins are a good 20%, which are back to your original number, just wanted your comment on what kind of margins do you see now in your bus
Hemant Jain
Pankaj is with me. He will give you the answer for this. Pritesh, the numbers do look okay better. But okay, you can't see the performance on a holistic basis for the quarter itself. So if you leverage out the quarter two as well as the quarterly performance, I think, okay, the estimates, which we had given will be sticking to that itself and we'll be on the same estimates there, okay, where the EBITDA margins would be in the range of 17% to 18%. Despite the fact that you have done 20% in the first half? We always believe, it should be better than whatever we have said today. Secondly, on the
Q
Sir, three questions. One is, could you speak about the seasonality in the business? Is this seasonally the best quarter? And how do you expect trajectory to be for the third quarter and fourth quarter?
Pankaj Jain
Sorry, can you repeat the question? Yes, I want to ask you about the seasonality in your business. Is the second quarter the best quarter from a seasonality perspective and how do you see the run rate for third quarter and fourth quarter? That's my first question. So right now, okay, generally, if you're comparison on the seasonality basis, the quarter two and the quarter three are always better off. Okay. But it depends on the festival on which one the festive is falling to. Yes. So this year, as it is the festive pre-buying season taking place in the second quarter you're expecting that to t
Q
Just a couple of questions. So one, if you can just elaborate on why will the marketing spend rise in Q3? That's my first question. l<l<C KEWAL KIRAN CLOTHING LIMITED
Pankaj Jain
It would be related to ATL activities, which we have been doing right now to support the secondary sales. Ok. And is it possible to provide some sort of medium to long-term guidance, say, two to three year revenue target or an EBITDA target, what you see, say, by FY '25? Revenue guidance, as we have already spoken, okay, it would be around 18% to 20% over for the next two years and EBITDA would be around 17% to 18%. Okay. Similar guidance, the numbers you've been doing last. Okay. And on the distribution side, I'm seeing a pretty good pick up this quarter. I think another 41 units, which are u
Q
A good sort of numbers. So most of my questions have answered. Just a quick follow-up question. So, as you have been guiding for a 17% - 20% growth for the next couple of years, that is on a more conservative side or how should we look at it?
Hemant Jain
Sir it is like, whatever we plan accordingly we share a figure. If it is better than that, then it is good. But it is like what we say it should be comparable to a minimum to what we plan to atleast grow. If it is more than that, it’s good. But whatever we share a data that is under plan and should be done this way, if it is better, we will try to get more, but what we are committing, at least a wrong message should not go. The only point is I'm asking because the way your current quarter has gone, I think you will easily beat your guidance.
Q
Thank you for taking my question and Congratulations on a set of great numbers. Sir, most of the questions have been answered. So I would just like to just one if I could briefly understand how does the store economics or we've added 63 stores. So do we -- what is our breakeven time, payback period of time? And how does that work? And how much -- could you just somewhat briefly explain that? Because 63 stores have been quite a good addition that we have done. We are planning for more 40, so 100 new stores. So just if you could explain some thing on those lines that would be great.
Pankaj Jain
Most of the stores which have been added okay, have been on a FOFO driven model. So if I add around 10 stores, 1 store is COCO and around 9 stores are around FOFO stores. Okay. So where the investment of the CapEx as well as the inventory has been done by the franchisees. And regarding the return, okay, franchisee, generally his return on his investment is around 18% for the first two years period, and then it increases to around 24% okay, hence forth. Okay. So sir, how many COCO stores would we be planning going forward? That would be very [inaudible] ? 1 on 10. Okay. Yes, thank you so much,
Q
Yes. So like in the quarter gone by in the Q2, I mean, we can see that the sales has gone up by almost 50%. So do you mean to say that we will sustain this sale in the Q3 or Q2 is mainly you can say like this a primary sale and the secondary sales t has not been because if you open a lot of new stores during Q2, it means company may have sold to the stores, but if the off-take has not happened from the stores like -- the same sales may not happen during the Q3?
Pankaj Jain
Okay. As I said that, okay, most of the stores opened are on a franchisee owned, franchisee- operated stores. So where the CapEx as well as the inventory investment have been done, the primary sales definitely comes in the second quarter, okay. You can see the secondary results from the third quarter. If the market is good and very good itself, okay, you will see the secondary numbers coming in the third quarter also for the stores. So you rightly said that, okay, the primary numbers will generally come one month before to what secondary sales are. No, that's okay. Let me just rephrase my ques
Q
On the revenue recognition part, we book revenue when we bill to the franchisee, right? -- irrespective whether sales is happen or not by the franchisees. So our revenue is inflated to [inaudible] and hence the profit because generally, the franchisees will take three to six months to sell the inventory?
Pankaj Jain
No. Can you repeat the question again, please? Since we book revenue when we bill to the franchise irrespective whether if you're material sold by the franchisee or no? -- in this case and since we are aggressively opening new store under the FOFO model. So revenue is front loaded in our case, right? And hence… The agreement that most of the stores have been on a principal to principal basis only. Agree. But hypothetically, if the store has been COCO model instead of FOFO, the revenue recognition would have been delayed by six months or nine months because then it is on actual sale? True. Not
Q
Yes. So sir, my first question was on your working capital. My calculation suggests it is somewhere around 125 days on a net basis. So is there any room for improvement here? Are you opting for some channel financing with your dealers and retailers?
Pankaj Jain
I am exploring the possibility of channel financing also. But looking at the growth aspect, okay, the working capital may reduce marginally, but not to a great extent. So any guidance on that, sir, where you see your working capital by the end of this year and also sales…. Should be around this year itself. No. How many days you are expecting? I mean, this 125 days to come to, what, 100 days, 120 days, any guidance on that? 110 to 120 days. Okay. And sir, what would be your dividend payout policy, sir, going forward? In case of Dividend, it all depends on the revenue. Currently we give dividen
Q
Sir, just wanted to know, in FY '18 our sales realization per unit was around 779 and currently, it is 674. So what were the major reasons for the fall in ASP?
Hemant Jain
First we were mainly bottom wear brand, so we have added the category Top wear. So if Top wear added category is increased so at the end of the day, averaging its little down, but there is price difference in top and bottom wear, that’s the reason or otherwise. And second you had noticed that we have added many things in accessories. So accessories is the low margin, mean low price thing. That’s the reason for average is down.. Okay. But our main brand is Killer only, right? From Killer, getting the highest contribution 60% - 62% contribution from Killer. Okay. Great. And sir, recently, there
Q
I just have a couple of follow-up questions. So sir, can you -- like you have mentioned the channel right - MBO is the biggest channel -- can you -- is it -- would it be possible to provide some channel wise breakup for the quarter, like how much percentage?
Pankaj Jain
I'll be able to provide you only with the two formats, which is retail generally segregate into retail and nonretail format. So there is three formats, retail or non-retail and others. This is the number which I can give you. Yes, that's there in the presentation. So in retail, like what are we considering retail is non-retail and others, can you… So retail is EBO and LFS, non-retail is MBO. Okay. And others would be exports e-commerce and all others. Okay. That is helpful. And just one more follow-up question. So you mentioned that the marketing spend to the correct way to think about it woul
Q
So just again on this primary sales, secondary sales point. So it would be sort of quite fair to say that as far as second quarter is concerned, because you did a lot of pre-selling in anticipation of festive season in third quarter, your Primary sales growth has been ahead of secondary sales. What I just wanted to understand is that is there any sort of estimation at your end in terms of what the difference is going to be? Is it like 2%, 3% only? Or are we talking a larger delta as far as second quarter is concerned?
Pankaj Jain
No. You're comparing which data, Second quarter this quarter. Yes. Second quarter, your primary sales growth is what is sort of reflected in the numbers. So the secondary sales growth seemingly, I mean, based on the discussion only, it would be sort of lower than the primary sales growth. Would you have a sense in terms of how much? So the quarter two and quarter three and have put together, it will be almost similar on the primary level as well as the secondary level Okay. So in third quarter, your primary will come down, primary growth will come down slightly and your secondary will sort of
Q
Sir, is it right that your revenue guidance is spot this year is 20% to 23%?
Pankaj Jain
Yes. And sir, if I back calculate the second half revenue growth, it comes to around 10%- 11% for the second half of the year. Also on your comment that your tradeshow, you have got very good response for the summer season. That doesn't dwell well with 11% growth given the price hike in the system as well. So are you under guiding the 20% - 23% or there is something where you're anticipating a slowdown in the business and primary sales in quarter two is very high. And hence, quarter three growth would be single digit? Sir, did you hear the question, sir? I did hear the question. You said the q
Q
And congrats on a good set of numbers. Sir, I had a couple of questions. One to Hemant-ji sir. I just want to understand that you showed winter collection, was there in December quarter or it is arrived now?
Hemant Jain
No. it was there in last December quarter and just we started, it will be shown again in this quarter for winter sales. So winter collection compared to last December this time it would be better? Yes. Last December your pieces sell was 18 lakhs pieces which was mix of everything. So in this how much is winter ballpark? We can’t say this much in detail right now. But I can say the percentage of sales growth we will maintain that, whether it is winter, Denim, shirt, whatever the category or maybe the category mix that whatever we committed in terms of sales that order we have in my hand. May be
Q
Just maybe I missed the early part. So can you please see like this quarter gone by, we have done a sale of INR 226 crores, so what kind of growth are we looking for the third quarter in sales, that's my first question?
Pankaj Jain
So I won't be able to give you quarter three numbers, but I said, no, okay, the estimate is revenue guidance, which I have given that this year, it will be around 20% to 22% for the entire year Okay, we're going to touch that estimate. Okay. Number two, since we opened 38 new stores during the Q2 and what is the sales you have made from our side like that is booked in our sales as per the accounting standards -- so how is the off-take from those 38 store newly opened that? Yes, how is the second is moving like from those particular that we are store? Is it only stocking there or 10%, 20% sold
Q
So I just wanted to understand how the trajectory of other expenses would be due to the opening of new stores. In the sense, how it is going to shoot up?
Pankaj Jain
In proportion to sales, it will be in line up. Why would it shoot up ? Any particular reason it should shoot up ? I'm just trying to understand that. So is this expected to go up with the opening of new stores? It will be in line with sales structure. EBITDA margins will be maintained. l<l<C KEWAL KIRAN CLOTHING LIMITED And can you give some idea on the like winter wear products? How is the initial reaction from the launches? Winterwear is like, it is too early to say anything. Because winter we just place in the shop. Unless winter is not started, we cannot say about the sales, what will be p
Q
So out of INR 760 crores revenue we did in the first half, how much were revenue was from the, say, FOFO model roughly?
Pankaj Jain
Sorry, out of the… Out of INR 760 crores revenue we did in first half. How much revenue was from the franchise, FOFO model? Franchise operated? I said, okay, we do generally give three formats only, which is retail, non-retail and others. I've already shared that numbers. So just I want to check about inventory days. So like out of INR 178 crores inventory. So if you take about the MBO. MBO is mostly inventory lies in their own books, similarly franchisee inventory lies on their books. So if I adjust for that, only 50% of revenue or less than that inventory is in our books. So if I adjust for
Q
Congratulations on great set of numbers. I have two strategic questions only. So earlier, we had a Franchisee-Owned Franchisee Operated store, but in FY '18, FY '19, what we were seeing is the number of stores that we were opening was nearly equal to stores which were getting closed down, okay, in franchisee model, okay. Have we changed any policies or any thoughts on that? And why -- so that the success ratio improves, okay? So can you elaborate on what changes have you brought in why the life of franchiser should be longer with us because till FY – pre-COVID churn was very-very high some ela
Pankaj Jain
So earlier, okay, as compared to my competitors, okay, I was working on a stricter norm, which I have leveraged it to an extent. And that's the reason you'll see that also my EBITDA margins have gone down to a proportionate to that extent. So, I have leveraged that, but not to a full extent. As a result, you'll see that the growth aspect is coming. Now as of today, we are at par with the commercial aspect with most of our competitors. l<l<C KEWAL KIRAN CLOTHING LIMITED Okay. And one more thing. See, generally, the franchiser will not be profitable from -- it takes time to recover the overall c
Q
I would like to once again thank all of you for joining us on this call today. We hope we have been able to answer your query. Please feel free to reach out to our IR team for any clarifications or feedback. Thank you all. Happy Dhanteras and happy Diwali.
Management
Speaking time
Pankaj Jain
75
Hemant Jain
37
Moderator
20
Marsal
20
Jignesh Kamani
16
Deepak Lalwani
12
Ankit Babel
10
Akshay Kothari
8
Dhwanil Shah
7
Himanshu Upadhyay
7
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Opening remarks
Hemant Jain
Hi. Good evening, everyone. Welcome everyone to the Q2 and H1 FY '23 Earnings Conference Call of the Company. On behalf of Kewal Kiran, I would like to wish everyone a Happy Diwali. Joining me on this call is Mr. Pankaj Jain and Marathon Capital, our Investor Relations team. I hope everyone had an opportunity to look at our results. The presentation and press release have been uploaded on the stock exchange and our Company's website. Before I begin the overview, a brief disclaimer. The presentation which we have uploaded on the stock exchange and our website including the discussions during this call contain or may contain certain forward-looking statements concerning KKCL business prospects and profitability, which are subject to several risks and uncertainties and actual results could materially different from those in such forward-looking statements. I'm happy to inform you that we have registered a robust revenue growth backed with a healthy margin, which is added by strong perform
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