Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Achieved a 26% increase in volumes and a 27% rise in revenue for Q1 FY25, demonstrating effective operations.
- EBITDA margin of 16.2% aligns with the guided range of 16% to 18%, reflecting core business strength.
- Successful acquisition of Wamsutta, a US national brand, through internal accruals of INR85 crores, reinforcing global home textile vision.
- Received multiple awards, including Gold Trophy for highest export performance and Best Environment Friendly Initiative of the Year 2024.
- Strong ESG initiatives, with Bhilad unit operating at 90% renewable energy and a high Standard & Poor's Global 2022 ESG rating of 42.
Negative Points
- EBITDA margin dipped by 128 bps from 17.4% in Q1 FY24 to 16.2% in Q1 FY25 due to increased logistics and branding expenses.
- Employee expenses increased by INR6 crores due to new talent acquisition for brand promotion.
- Logistics challenges, including container availability and cost, impacted operational efficiency.
- Other expenses increased substantially due to conversion costs related to raw material consumption.
- Branding and promotional expenses for new acquisitions like Wamsutta will only start contributing significantly from FY26 onwards.
Q & A Highlights
Q: Sir, in your opening remarks, you indicated that the employee expenses have increased by INR10 crores to INR15 crores. Does it entirely link to the increase in the branding expenses and the results of which will be visible from the Q4 onwards?
A: Yes, certainly. Because this is where we acquired Wamsutta. In Indo Count Global, our US entity, we have appointed new talent in order to manage the brand and promote it. So these are the expenses related to that, and this will certainly help into building the brand and bringing additional revenues in the future.
Q: If you look on the quarterly numbers, our other expenses have increased substantially if you compare quarter on quarter and year on year. So can you highlight the reason for the same?
A: Other expenditure also includes some of the conversion costs, which are related to the raw material consumption basically. So it's for some of these like power and fuel and job work charges, some of these operational expenses, conversion charges are in the other expenditures. This goes along with the production levels. So this will get adjusted once the goods are sold. It will come to the normal level. So our other expenditures would be in the range of around 30%, 32% overall.
Q: Can you help us in terms of our other brands, Fieldcrest & Waverly, how is it progressing? And when can we start expecting a contribution from them?
A: We are developing this brand because we have just licensed it during the quarter. So we are forming a team, and we are presenting it to our customer base. And we'll see some traction when we launch this in the September market week, so for the spring, summer FY25. So definitely, we'll see some traction happening in, say, the Q4.
Q: How much did we spend on branding in Q1, sir? Could you give an absolute amount?
A: We have just started the journey by appointing appropriate talent for promoting the brand. So as we move up the ladder, we'll have some expenses, but we'll start to see also the fruits of these expenses from Q4 onwards. So during the year, whatever is needed for promoting this brand, we will do so, and we will keep everybody informed about these expenses from our Q2, Q3 onwards.
Q: On logistics front, how much is the increase in cost? And can you expect it to normalize going forward, or will it remain high? What do you expect?
A: This is a moving item. Because during the quarter, we faced challenges on both the availability and the cost of the containers and the freight cost. And whatever we were impacted to the extent, we have reported in our investor presentation. What we are seeing during this quarter also, the situation has aggravated, but there are some green shoots into the availability of the container, not particularly the cost factor. So we are watching the situation. We cannot define a number to it, because you see our FOB and CNF keeps on moving to certain extent, and there are new customers also added, which demands CNF cost.
Q: India's market share in bedspread has increased from Jan to May this year. So do you see this trend going forward? Like will we continue to gain market share here also? Because last year, India had lost some market share here.
A: No, even last year, on the increased revenue, we reported 19%, the same number, but that was increased revenue. So we haven't gone down in those categories. But certainly, yes, we are working on it, and our team is putting the best effort to see how we can add up. We have invested into a new fashion bedding unit, and that will help us project a better image to the overseas customers that we are a major player in this.
Q: Going forward, because of the recent brand acquisition strategy that we have adopted, so when can we see a meaningful rise in the EBITDA margins maybe closer to 18% to 19% from the current band of around 15% to 17%?
A: Earlier what we reported, even now with the kind of impact on expenses where we are investing and the logistic expenses, we have almost been impacted by almost 1.5% in our EBITDA during this quarter. We are watching the situation closely on the logistics side. While I say this, on the branding side, we can see traction moving upwards from FY26 onwards.
Q: You mentioned that you'll endeavor to double our top line in the next three years. So by FY27, would we be able to cross INR7,000 crores with margins of sales?
A: Let me correct. When we were there at INR3,000 crores, we had indicated that we will go to INR6,000 crores in three to four years. And that's where we are trying to double our revenue with the necessary investment in both the core capacity as well as you see in the branded segment and other product categories. And that's the reason we have flagged out, to say, almost seven verticals for the company.
Q: Your growth is -- you've done about 27% of volumes for this quarter. So would it be possible to give more color on where are we able to clock this high growth from? Is it largely because of the China plus one shift, because of which India is gaining share, and so are we? Or is it also because we are adding new customers and also maybe upselling to the existing customers?
A: Not only the existing customers are served better, but we are adding up new customers, number one. Number two, the China plus one strategy is clearly shown in the Otexa data that they are losing ground. And particularly on the sheet side, India increased its percentage share from 58% to 64%. Now as a company, we are well-positioned. So one sheet in every five sheets sold in the US is the market share which we enjoy.
Q: Our depreciation this quarter is a little bit on the higher side. What could be the reason for that compared to the last quarter?
A: These are like CapEx which we had done and the amortization of our brand expense, which has come into this quarter. And so whatever investments which we are doing, the depreciation is bound to increase to a certain extent, and this has happened in this quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
