KDDLNSEQ2 FY2022November 17, 2021 KDDL Limited
8,880words
67turns
9analyst exchanges
3executives
Management on call
Yashovardhan Saboo
CHAIRMAN AND
Sanjeev Masown
EXECUTIVE DIRECTOR
Ritesh Agarwal
CHIEF FINANCIAL OFFICER - ETHOS LIMITED
Key numbers — 40 extracted
39%
ance on a consolidated basis for the quarter, the consolidated revenue for Q2 FY2022 increased by 39% Y-o-Y to Rs.193 Crores consolidated EBITDA for Q2 increased by 33% Y-o-Y to Rs.23.2 Crores and co
Rs.193 Crore
solidated basis for the quarter, the consolidated revenue for Q2 FY2022 increased by 39% Y-o-Y to Rs.193 Crores consolidated EBITDA for Q2 increased by 33% Y-o-Y to Rs.23.2 Crores and consolidated PAT for t
33%
nue for Q2 FY2022 increased by 39% Y-o-Y to Rs.193 Crores consolidated EBITDA for Q2 increased by 33% Y-o-Y to Rs.23.2 Crores and consolidated PAT for the quarter increase by 76% Y-o-Y to Rs.6.6 Cror
Rs.23.2 Crore
2022 increased by 39% Y-o-Y to Rs.193 Crores consolidated EBITDA for Q2 increased by 33% Y-o-Y to Rs.23.2 Crores and consolidated PAT for the quarter increase by 76% Y-o-Y to Rs.6.6 Crores. And now come to t
76%
for Q2 increased by 33% Y-o-Y to Rs.23.2 Crores and consolidated PAT for the quarter increase by 76% Y-o-Y to Rs.6.6 Crores. And now come to the manufacturing business which consists of watch compon
Rs.6.6 Crore
ased by 33% Y-o-Y to Rs.23.2 Crores and consolidated PAT for the quarter increase by 76% Y-o-Y to Rs.6.6 Crores. And now come to the manufacturing business which consists of watch components precision engin
53%
ineering and the packaging business. In Q2 FY2022 the manufacturing business revenue increased by 53% Y-o-Y and 15% quarter-on-quarter to Rs.53 Crores. The revenue share of watch components and preci
15%
he packaging business. In Q2 FY2022 the manufacturing business revenue increased by 53% Y-o-Y and 15% quarter-on-quarter to Rs.53 Crores. The revenue share of watch components and precision engineeri
Rs.53 Crore
Q2 FY2022 the manufacturing business revenue increased by 53% Y-o-Y and 15% quarter-on-quarter to Rs.53 Crores. The revenue share of watch components and precision engineering business for the quarter stood
72%
e revenue share of watch components and precision engineering business for the quarter stood at 72% and 24% respectively. Revenue from watch component business increased by 53% Y-o-Y to 38.4 Crores
24%
nue share of watch components and precision engineering business for the quarter stood at 72% and 24% respectively. Revenue from watch component business increased by 53% Y-o-Y to 38.4 Crores and fro
38.4 Crore
od at 72% and 24% respectively. Revenue from watch component business increased by 53% Y-o-Y to 38.4 Crores and from precision engineering business by 33% Y-o-Y to 12.5 Crores. EBITDA for Q2 FY2022 increa
Guidance — 20 items
Yashovardhan Saboo
opening
“We expect the positive demand to continue going ahead as the economy continues to unlock and manufacturers ramp up their capacity to cater to the additional demand.”
Yashovardhan Saboo
opening
“We are witnessing a healthy flow of inquiries and RFQs from many large accounts and customers mainly in the export market and expect this trend to continue.”
Yashovardhan Saboo
opening
“We expect all our manufacturing businesses to continue the growth momentum and post healthy growth across the major markets and economies.”
Yashovardhan Saboo
opening
“The company has already utilized the amount allocated for general corporate purposes and the investment in Ethos will be done by participating in the rights issue of Ethos limited.”
Yashovardhan Saboo
opening
“Although the sales will grow strongly from our retail channels as well however we expect a digital presence to continue to be an important focused area for us an omni channel strategy which ethos led over the last five years will continue to cater customers offline as well as online as per their preference in a seamlessly continuous way.”
Yashovardhan Saboo
opening
“As mentioned earlier the board has approved the rights issue of up to Rs.25.5 Crores in ethos which will strengthen our balance sheet we plan to utilize these funds for inventory in the newer stores build digital capabilities and on various business development initiatives.”
Yashovardhan Saboo
opening
“Our second time zone lounge in Delhi has also witnessed good interest we aim to become the most trusted and transparent omni-channel platform in India for trading of pre-owned watches and other luxury products.”
“We are going to start with one boutique in Mumbai and hopefully this will be followed soon with another boutique in Delhi and then we have to then it is really we are in discussions on evolving the complete strategy for India.”
“So again luggage was one, luggage like travel was one of the most severely hit businesses over the last two years due to COVID but as now travel is going to come back with the bang it is already back with the bang and we can expect a very strong takeoff when we start with this project.”
“Our total fixed expenses like employee cost and other expenses put together has increased by 55%, this quarter for year-on-year so now as the stores are fully open so we can assume that costs have been recognized fully so incremental revenue addition will be mostly coming down to profitability is the right assumption?”
Risks & concerns — 6 flagged
Consolidated reported EBITDA for Q2 FY2022 was down 9% Y-o-Y to Rs.15.3 Crores consolidated PAT for Q2 was down by 20% Y-o-Y to 2.6 Crores primarily due to the impact of Ind-AS 116 stock at the end of September 2021 quarter was at Rs.212 Crores as compared to Rs.182.5 Crores in September 2020.
— Yashovardhan Saboo
In the precision engineering business we are changing to stress more on the higher value and higher profitability segments like aerospace defense, electric vehicles and in similar segments and away from some other segments.
— Yashovardhan Saboo
We believe that there is a strong growth potential in this though what we realized is that in especially in the aerospace and defense there has been a slowdown going due to COVID but it is going to pick up rapidly, the gestation is not going to be very quick but I think you will start to see a great momentum after two to three quarters in the precision engineering.
— Yashovardhan Saboo
They are offering specialized products and I do not know if you know but in some of the top brands their top selling models are actually difficult to find so you cannot really go into a Rolex store and ask for every model, there are waiting lists and it is not only for this brand for several brands, they are waiting lists on their most popular models so the long tail is less valid now than it was let us say five years ago.
— Yashovardhan Saboo
We could not see the future very clearly or it was on the back of one or two difficult years when we were still looking at all the regulatory headwinds and so on I think we are through with that we are looking at blue sky we are looking at all the leading indicators they are looking positive and I think there is every indication that you see macroeconomic if you see valuation of KDDL if you see the response to the right issue so as you know valuation is not an exact sign.
— Lalaram Singh
It is difficult to place exact numbers but of course we have a lot of optimistic outlook on the luxury luggage segment as well as other segments that we arrived.
— Yashovardhan Saboo
Q&A — 9 exchanges
Q
I had questions on the new brand tie-up congratulations for that just wanted to know on the luggage side, will the unit economics be very largely different versus watches in terms of inventory terms asset terms or margins. Secondly if you could give some color in terms of what is really happening on the premium luggage side in India as in how big is the market for the leading players and what is the ethos plan over the next two years and what Rimowa can actually add over next to three years and how is that a franchise contract I thought that is a franchise agreement to sign with how is that di
Rahul Agarwal
Sure secondly on Bovet tie-up so as I understand it is exclusive to across so does that mean nobody else sells it in India that is one and secondly the idea for the company essentially was to get into higher price range and as you said it is for entry into larger share of exclusive brands ultra high-end watches so what is the price range of these watches that was my second question that is all really from my side. Thank you so Rahul on luggage obviously so first thing about the brand Rimowa is of course as I mentioned an extremely well-known brand it is part of LVMH group which is the number o
Q
Thanks a lot for the opportunity and congrats for a good set of numbers. Firstly on Ethos side so we are quite happy to see the sales number increasing at a very good run rate but we are little more concerned on the fixed expenses which has gone up by 55% to 23 Crores so now as the stores are fully opened now our total expenses have been fully recognized so therefore we can assume that incremental revenue audition will contribute maximum to the profitability? Our total fixed expenses like employee cost and other expenses put together has increased by 55%, this quarter for year-on-year so now a
Yashovardhan Saboo
Partially yes because you are comparing with last year right so last year there was a huge rental waiver that was given by all malls which has not happened in this half year especially not in Q2 because last year practically all malls gave 70%-80% some more even gave 100% waiver for several months that is not the case this year because the malls also have suffered so that is one big reason so to that extent yes the costs are now what you are seeing is normalized despite the fact that the sales was impacted this year the sales was impacted by the closed down but the costs were not that much low
Q
Congratulation for a strong recovery and I think pretty strong in the manufacturing also . I think I have got answers for some of the questions but on taking further to the kind of recording we are seeing manufacturing how is it outlook for growth for decision as well as the watch or if you can hide it that was the one question and second you normally share the numbers towards also so for however the numbers for this quarter in terms of revenue and PAT?
Yashovardhan Saboo
Right for the Estima numbers I am going to reach out to Sanjeev He is on the call unfortunately we are not in the same place he is actually visiting Bangalore, the precision engineering company so he is going to answer that but your first question was on manufacturing and the outlook there. We are very positive outlook on manufacturing on watch components as I mentioned in my initial speech I think we are seeing a strong demand coming from the high-end segments in export and this is more profitable than the other segments so while the quantity is not growing the value is growing and the value
Q
One question on Ethos side, basically just wanted to understand our three to five year vision so do you want to create a luxury focused distribution channel for all the luxury brands out there like the way we are entering a baggage segment, are we planning to enter any other segments like eye glasses or something like that? Yashovardhan Saboo: Okay so in three to five year vision yes we do have the vision too to expand to luxury segments outside watches. We believe that the experience we have in the luxury business, the experience to understand and manage luxury brands, our understanding and i
Ronak Vora
Okay so in terms of growth or offline focus for ethos so where do we want to see in the next three to five years is it like 3x or 4x going ahead or just to give a whole picture or what your internal targets are? Yashovardhan Saboo: Well we would love to, we are ambitious and we continue to discuss how we can make our targets more ambitious and more aggressive I am not really sure whether we can share exactly what targets but I can assure you that there is going to be very strong growth going forward about two or three years, three years ago we have said that in four years we will four to five
Q
Couple of questions from my end, firstly what value addition you will be using the money to right issue in Ethos also secondly what can be the sustainable margins for the Ethos business once business normalizes? What is the sustainable margins for Ethos business once business normalizes post pandemic?
Yashovardhan Saboo
So the right issue of Ethos is at Rs.540 premium at Rs.550 total and that translates to a valuation of about Rs.1000 Crores and sustainable margins in ethos as I mentioned. Our goal is to get to an EBITDA of about 10% we believe in EBITDA of 10% to 11% is the sustainable margin in the ethos it will take some time to reach 10% about two years or so because we are still the operating leverages are now starting to kick in and the gross margin growth which comes from a greater share of exclusive high margin brands that is still playing out and over the next two years then we will reach this table.
Q
Hi Sir I hope you are doing well and keep repeating, just two questions Sir in your journey towards 10% EBITDA margin, what is the gross margin you are targeting that is question number one and second across your format in Ethos if you can just help me with the net working cycle and the inventory which is required to be carry just two questions?
Yashovardhan Saboo
So in EBITDA calculation I do not think the gross marks from where we are, the EBITDA is emerging as I mentioned largely due to operating leverage kicking in, yes gross margin changes a bit but again not very substantially from where we are due to the fact that a higher share of the business is going to come from exclusive brand which typically have a higher cost margin so that is probably going to be something like I do not know something I estimate about a half a percent increase in gross margins but a larger part is going to come from the operating leverage side of things. Got it. Yashovard
Q
Thanks for the opportunity. One comment was of the withdrawn of exclusive branded watches from third party website in line to that I have also heard that there is shortage of exclusive brands in the market and I think this strategy of management is in line with same, I would like to know because going further this will add to the profitability I would like to have a view from management.
Yashovardhan Saboo
I think our strategy on exclusive brands is evolving and it is based on the success we are seeing, communication on digital platform we are successfully establishing the presence of exclusive brands in among the Indian customers and it is important that the credibility of the exclusive brands is not impacted adversely so and one of the aspects is to be able to control the pricing so as on third party website sometimes that is not very easy if a stock is held for a longer period of time more and so on and that sometimes leads to a problem because we do not want our brand's exclusive brand portf
Q
Good evening team and very happy to see the recovery. I have lot of questions should I just ask them together. My first question is on the Ethos side the third party website I believe you are referring to the likes of Tata Cliq, Nykaa and even Myntra where we see a lot of your exclusive brand so firstly do we only put the exclusive brands list then on these websites number one can you confirm that and number two is what percentage of sales can we derive from these websites as of today of our whole pie then I want to know that ethos valuation after the right issue it means that it will be almos
Lalaram Singh
Understood. Sir just if I can ask a couple of more questions. Firstly really love the way we explained the value addition of Patrick Hoffman in the sense that we thought needs to be valued by the brands and we need to be accepted well although we are present in India but I think that was something which so thank you so much and having been a shareholder for the past four years I have been a huge admirer of what we have been doing in luxury retail and the reason why I could sort of stick and shareholder even during the lockdown since there is nothing right was the fact that we have built such g
Q
Thank you very much. I thank everybody for joining the call and I hope I have been able to answer most of the queries in case that query is still remaining please contact SGA our investment relations partners we will get the queries and we will do our best to answer them very promptly. Thank you very much and have a nice day.
Opening remarks
Yashovardhan Saboo
Thank you and good afternoon and welcome to everyone for our Q2 FY2022 earnings conference call. I am joined by my colleague Mr. Sanjeev Masown, Executive Director and CFO of KDDL and Mr. Ritesh Agarwal, CFO of Ethos and we also have SGA our investor relations advisors on the call, I hope everyone has had the chance to go through our updated investor presentation already uploaded on the exchanges. Let us start with a quick overview on the overall business. We witnessed a strong recovery in the business during the Q2 FY2022 in both our manufacturing and retail businesses as the economy recovered back strongly after the second wave of COVID-19. There was encouraging demand in the manufacturing business as watch manufacturers increased their business operations leading to better order inflows and our retail business Ethos also posted a strong recovery in sales led by reopening of malls and complemented by strong online led sales. A brief on the financial performance on a consolidated basi