Dinesh Gogna – Director and Sandeep Jain – Executive Director addressed the call:

Highlights of the call:

For the quarter ended March 2018, it registered a 6% fall in sales to Rs 86.30 crore. OPM fell 440 basis points to -15.4% which saw loss at OP level grow 30% to Rs 13.31 crore. Loss at PBT level fell 6% to Rs 11.99 crore. Loss at PAT level grew 19% to Rs 8.84 crore.

For FY 2018, it registered a 12% rise in sales to Rs 645.960 crore. OPM improved 230 basis points to 15.6% which saw OP rise 31% to Rs 100.86 crore. PBT grew 39% to Rs 89.86 crore. PAT grew 35% to Rs 59.72 crore.

Majority of revenues come from outright sales.

While the effect of GST is now behind, the management believes that long term benefit of transitioning from unorganized to organized should gradually accrue.

The company has scaled cotton sales to 60% of total revenue against 58% in FY 2017 which reflects shift towards Cotton from Woollen segment.

The company has been successful in making further inroads in western and southern markets in India. It is strategically focusing to build a pan India presence.

There is no likely major capex for next two years. The management hopes to achieve near term growth from higher capacity utilization.

It has strong balance sheet with low debt. Long term borrowing stood at Rs 12.82 crore as of March 2018. Debt equity ratio is at 0.11..

Strong balance sheet is reflected through high cash balance of Rs 146.5 croe which includes cash and bank balance along with current and non-current investments.

Inventory is owned only in case of Company owned EBOs (COCO). Thus the company does not face any inventory risk in case of sales to MBOs.

Launch of Rock It will start showing sales in the subsequent quarters.

Central region accounts for 16% of the overall sales for FY 2018 against 13%.

The company significantly increased MBO (from 198 to 283) and NCS outlets (from 2300+ to 2500+) in FY18. This will give more visibility to brand.

It has 3 overseas Exclusive Brand Outlet (EBOs) in Nepal apart from 235 in India.

The company is focusing on Online sales through own portal as well as Tie-ups with e-commerce portals such as Flipkart, Jabong, Myntra, Amazon and Kapsons.

Average sustaining capex is to be in the range of Rs 8-10 crore on yearly basis in the next two years.

It has entered into distribution agreements with some of the leading Indian digital commerce platforms for online sales.

Qoq results cannot be compared because Q3 generates highest quarterly revenues in any fiscal year as Q3 typically involves sale of winter products.

In next 3-4 years dependence on Q3 will reduce.

Apart from focusing on southern markets, the company is expanding its product offerings in home furnishing and kids segments in order to reduce the overall seasonality impact.

It has built strong and sustainable growth platform for the future.

The company has zero bad debts till date also there has also been no receivables write offs.

The company had given guidance of 15-18% growth on the back of response on retail sales and booking it had last year. But some circumstances impacted the performance. Also the company went for heavier discount which resulted in lower than expected revenues.

Sales growth for FY 2019 are expected to be in the range of 15-18%. However, discounting is increasing every year which could hurt the margins and revenues.

No brand can survive without discount no matter how strong or international the brand is.

Going forward discount is going to increase.

The company has performed better compared to all listed companies.

Woolen volumes sales should grow 8-10% in FY 2019 and cotton volumes are also expected to grow in double digits in FY 2019.

In FY 2018 the company sold 1147201 woolen units in FY 2018 against 1246354. The period of winter is shrinking. In past it used to last for 2.5 months and now winter lasts for 1.5 months.

With other income, margins are at around 18% but without other income it is around 15%. With discounting growing every year, margins should be under pressure. However, the management will focus to maintain the margins.

The company has better margins in cotton winter wear compared to woolen wear.

Margins falling due to discounts is a problem for all the players in the industry.

When input prices rise, the company increases product price. In FY 2018 it increased price by 5-6%. However discount is a major challenge.

At Feb 2018 end the company gave guidance that Q4 of FY 2018 will be better than Q4 of FY 2017 but higher discounts impacted the performance as in Q4 the discount sales had increased.

Home furnishing is a zero capex business same for kids segment.