Cantabil Retail India Limited — Q3 FY25 earnings call

Call held 11 Feb 2025

Management summary

Cantabil Retail delivered a robust Q3 FY25, with significant revenue and PAT growth, alongside a historic 17.7% SSG. Margins expanded in Q3, and the company is on track with its aggressive store expansion plans, primarily focusing on company-owned stores. While 9M EBITDA margins saw a dip, management is confident in achieving its full-year targets and maintaining long-term profitability.

Highlights

  • Q3 FY25 Revenue from operations grew 28% to INR 223 crores, reflecting strong performance.

  • Q3 FY25 PAT increased by 43% to INR 34.4 crores, demonstrating enhanced profitability.

  • EBITDA margin for Q3 FY25 improved to 32.5% from 30.9% in Q3 FY24, indicating operational efficiency.

  • Achieved a historic SSG of 17.7% in Q3 FY25, driven by strong consumer sentiment and wedding season demand.

  • Company is on track to open 70-72 net new stores in FY25, with a focus on larger, company-owned outlets.

Concerns

  • 9M FY25 EBITDA margin stood at 23.2%, a decline from 28% in 9M FY24, though management expects recovery to 28-30%.

  • Inventory days are currently higher at approximately 120 days (FG INR 249 crores) due to winter stock, but management targets reduction to 115 days by FY end.

Key financials

3 periods

Headline

  • Inventory (FG) (Dec 31, 2024)
    ₹249 Cr

Q3 FY25

  • Revenue
    ₹223 Cr
    YoY +28%
  • EBITDA
    ₹72.5 Cr
    YoY +28%
  • EBITDA Margin
    32.5%
  • PAT
    ₹34.4 Cr
    YoY +43%
  • PAT Margin
    15.4%
  • SSG
    17.7%

9M FY25

  • Revenue
    ₹502 Cr
    YoY +19%
  • EBITDA
    ₹146.4 Cr
    YoY +24%
  • EBITDA Margin
    23.2%
  • PAT
    ₹52.3 Cr
    YoY +19%
  • PAT Margin
    10.4%
  • SSG
    6.4%
  • Operating Cash Flow
    ₹90 Cr
  • Online Sales
    ₹33 Cr

What they filed

Q1 FY27: revenue up 12.6%, net profit up 6.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue151 223 220 159 176 +17%264 +18%253 +15%179 +13%
EBITDA35 72 58 49 42 +20%95 +32%78 +34%59 +20%
Net profit7 34 23 15 7 +0%45 +32%29 +26%16 +7%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Men's Category
    81% Revenue Share
  • Ladies Category
    12% Revenue Share
  • Kids and Accessory
    4% Revenue Share

Capital allocation

high confidence
  • Capex ₹20 Cr entirely through internal accruals without debt
    • New store fit-out (per store) 1,700 INR per sq ft
    • Inventory (per store) 2,200 INR per sq ft
    • New plant/warehouse project (additional) ₹15 Cr
    We have sufficient internal accruals. So we are not planning to take any debt for funding the expansion. It can be easily funded through the internal accruals.
  • Liquidity Liquidity disclosed Sufficient internal accruals to fund expansion without debt.
    We have sufficient internal accruals. So we are not planning to take any debt for funding the expansion. It can be easily funded through the internal accruals.

Guidance & targets

Revenue

  • Overall Revenue Growth Revenue · FY25 · High confidence 18% to 20%
    And overall, the growth what we predicted earlier as far as last year concerned, about 18% to 20%, that has been there in terms of overall revenue targets.

    — Deepak Bansal

Profitability

  • EBITDA Margin Profitability · FY25 · High confidence 28% to 30%
    But very confident probably this year, we will be near to that EBITDA margin, which will be 28% to 30%.

    — Shivendra Nigam

  • Gross Margin Profitability · going forward · High confidence 56% to 57%
    So going forward, my gross margin is to be maintained. This quarter, if you have seen, we have delivered better gross margin by 1%. So when we are maintaining approximately 56% to 57% of the gross margin, we'll come back to 28% to 30% of the EBITDA margin and 10% to 11% of the PAT margin.

    — Shivendra Nigam

  • PAT Margin Profitability · long-term · High confidence 10% to 11%

    — Shivendra Nigam

  • Return on Equity (ROE) Profitability · coming year · High confidence 24% to 25%
    So in terms of ROE, probably expected 24% to 25% and ROCE should end up with 36%, 38%.

    — Shivendra Nigam

  • Return on Capital Employed (ROCE) Profitability · coming year · High confidence 36% to 38%

    — Shivendra Nigam

Sales

  • Same-Store Sales Growth (SSG) Sales · FY25 · High confidence 5% to 6%
    So we will be closing this year with around 5% to 6% SSG for the whole year.

    — Deepak Bansal

Store Expansion

  • Net New Store Additions Store Expansion · FY25 · High confidence 70 to 72
    So in the whole year, we expect to be like doing some 70 to 72 new stores, net new stores.

    — Deepak Bansal

  • New Store Additions Per Year Store Expansion · next 2 years · High confidence 75
    So we are planning to open 75 new stores every year. So if we combine the 2 years, so we will be planning to open 150 new stores.

    — Deepak Bansal

  • New Store Additions Store Expansion · FY26 · High confidence 70 to 80
    Going forward, 70 between 70 to 80 stores is the target.

    — Shivendra Nigam

  • New Store Type Store Expansion · going forward · High confidence Majorly COCO driven
    Majorly, it would be COCO driven.

    — Shivendra Nigam

  • Ladies and Kids Exclusive Stores Store Expansion · every year · High confidence 15 to 18 stores
    So the ladies and kids exclusive store, we also plan to open around 15 to 18 stores every year.

    — Deepak Bansal

Capex

  • Store Expansion Capex Capex · going forward · Medium confidence INR 20 crores
    So on this basis, if you say approximately INR20 crores in terms of store expansion capex going forward.

    — Shivendra Nigam

Inventory

  • Inventory Days Inventory · FY end · High confidence 115 days
    So overall inventory days as of now is approximately 120 days, but overall target is same. I'm very sure we are closing approximately 115 days by the end of the financial year.

    — Shivendra Nigam

What to watch in Q4 FY25

Full-year SSG achievement

next quarter (FY25 results)
Current 6.4% (9M FY25)
Target 5% to 6% (FY25)

Why it matters

To confirm the sustainability of demand and the impact of Q4 performance on the full-year average.

So we will be closing this year with around 5% to 6% SSG for the whole year.

Risks & concerns

  • Higher inventory due to winter season

    medium

    FG inventory is INR 249 crores (approx 120 days) due to winter stock, but expected to reduce to 115 days by FY end.

    Management acknowledged

  • Challenging market environment

    low

    Management noted a challenging market environment but reported historic performance despite it.

    Management acknowledged

  • Competition from value retail players

    low

    Management differentiates Cantabil by its mid-premium segment positioning and higher ASP (INR 1100 vs INR 500 for value brands).

    Analyst downplayed

  • Brand fatigue in clothing segment

    low

    Management stated they will stick to the Cantabil brand and are not planning new brands, focusing on their established identity.

    Analyst downplayed

Q&A highlights

8 direct
Revision of growth forecast for FY25 Direct
So yes, there is no revision in the annual targets. So the outstanding number of Q3 reflects our points. And overall, the growth what we predicted earlier as far as last year concerned, about 18% to 20%, that has been there in terms of overall revenue targets.

Confirms that the company is on track with its previously stated annual revenue growth targets despite market conditions.

Asked by Arnav Sakhuja

EBITDA margin for FY25 Direct
Yes. So absolutely, as we say, we are perfectly hopeful what the numbers have been achieved in FY '23, that is 30% of the EBITDA margin, last year, slightly dip was there. But very confident probably this year, we will be near to that EBITDA margin, which will be 28% to 30%.

Provides clear guidance on the expected full-year EBITDA margin, addressing concerns about the 9M dip.

Asked by Rajesh Sharma

Inventory days and operating cash flow Direct
So overall inventory days as of now is approximately 120 days, but overall target is same. I'm very sure we are closing approximately 115 days by the end of the financial year. ... However, my operating cash flow for the 9 months is still on a better than EBITDA, which is approximately INR90 crores-plus from the operations only.

Clarifies current inventory levels and the target for year-end, and provides a key working capital metric (operating cash flow).

Asked by Bhargav

Consumer sentiment and industry outlook Direct
Consumer sentiments are good. In Q3 also, we noticed the consumer sentiments were upbound. So in Q4 also, we are hopeful that the numbers will be as per the guidance and as per the expectations. And winter season also going well. Wedding season also going well. There are a number of weddings this quarter. So numbers will be as per the expectations in Q4.

Provides management's positive view on current consumer demand and its impact on Q4 performance.

Asked by Darshil Jhaveri

Store economics and payback period Direct
So broadly, overall, approximately INR4,500 approximately, we are investing in opening COCO store. ... So on these basis of competition, approximately 2 to 2.5 years is the payback period, average payback period for the stores. ... So franchisee viability is slightly on a push -- they are as per our calculation, getting the payback period approximately 3 to 3.5 years.

Details the investment per COCO store and the expected payback periods for both COCO and franchisee models, crucial for understanding expansion profitability.

Asked by Varun Thakkar

Competition from value retail players Direct
It's a totally different category because ASP of the value brand is around INR500, and we are working on the average selling price of INR1,100. So our ASP is almost double what those people are selling. So we consider to be into the mid-premium segment...

Management clarifies its positioning in the mid-premium segment, differentiating itself from value retail competitors based on Average Selling Price (ASP).

Asked by Palash

Reason for drastic SSG improvement in Q3 Direct
Major reason is the wedding dates. There were a large number of wedding days this time as compared to the last year. And in summer time also, there were not much wedding. So there was the accumulation of the weddings in the Q3. ... Simultaneously, we have made good changes in our new collection also. So new collection picked up very well this time. And these two reasons combined made the good SSG.

Explains the primary drivers behind the exceptional Q3 SSG, attributing it to the wedding season and successful new collections.

Asked by Lovish

Wedding wear contribution to sales Direct
So suit, blazer and waistcoat constitute 15% of the total sales. But there is uptick in demand in shirts also during the wedding season because that make only combo with the blazers and the suits and the waistcoat. So at the gross level, you can say 20% of the revenue is directly linked to the wedding wear.

Quantifies the impact of wedding wear on overall sales, providing context for the Q3 SSG drivers.

Asked by Shrinjana Mittal

2 min read 5 chapters

Detailed narrative

Q3 & 9M FY25 Performance Overview

Cantabil Retail reported a strong Q3 FY25, with revenue from operations growing 28% to INR 223 crores and PAT increasing 43% to INR 34.4 crores. The EBITDA margin for the quarter improved to 32.5% from 30.9% in Q3 FY24. The company achieved a historic same-store sales growth (SSG) of 17.7% in Q3 FY25. For the nine months (9M) FY25, revenue grew 19% to INR 502 crores, and PAT increased 19% to INR 52.3 crores, though the 9M EBITDA margin was 23.2% compared to 28% in 9M FY24.

Store Expansion Strategy and Economics

The company accelerated its store expansion, opening 43 net new stores in 9M FY25, bringing the total to 576 retail exclusive outlets (443 company-owned, 133 franchisee) covering 7.4 lakh square feet as of December 31, 2024. Management plans to add 70-72 net new stores in FY25 and 75 new stores annually for the next two years, predominantly company-owned (COCO). The investment for a new COCO store is approximately INR 4,500 (INR 1,700-1,800 per sq ft for fit-out and INR 2,200-2,400 for inventory), with a payback period of 2 to 2.5 years. Franchisee stores have a longer payback period of 3 to 3.5 years.

Margin Outlook and Inventory Management

Cantabil aims to maintain its gross margin at 56% to 57% and expects its full-year FY25 EBITDA margin to be between 28% and 30%, recovering from the 9M dip. Long-term PAT margin is targeted at 10% to 11%. Current finished goods inventory stands at INR 249 crores (approximately 120 days) as of December 31, 2024, slightly higher due to winter stock. The company is confident in reducing this to approximately 115 days by the end of the financial year. Operating cash flow for 9M FY25 was over INR 90 crores post working capital.

Product Mix, Consumer Sentiment, and Competition

Men's wear constitutes 81% of revenue, ladies' wear 12%, and kids' and accessories 4% each. Wedding wear (suits, blazers, waistcoats, and associated shirts) contributes about 20% to total sales, significantly boosting Q3 performance due to a higher number of wedding dates. Management noted positive consumer sentiment in Q3 and expects it to continue in Q4. Cantabil positions itself in the mid-premium segment with an average selling price (ASP) of INR 1,100, differentiating itself from value retail players with ASPs around INR 500.

Capital Expenditure and Funding

The company's expansion plans, including new stores and a new plant/warehouse project (requiring an additional INR 15 crores for completion within 6-8 months), will be funded entirely through internal accruals. No new debt is planned for these investments, indicating a strong financial position. The total work-in-progress (CWIP) for the new warehousing and office project is approximately INR 35 crores. The company targets a Return on Equity (ROE) of 24% to 25% and Return on Capital Employed (ROCE) of 36% to 38% for the coming year.

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