Iris Clothings Limited — Q3 FY25 earnings call

Call held 4 Feb 2025

Management summary

Iris Clothings reported strong Q3 FY25 results with total income up 42.1% YoY to Rs. 33.4 crores and PAT up 20% YoY to Rs. 2.4 crores. The company continued its expansion strategy, adding 13 new distributors in 9M FY25 and opening 5 new D2C exclusive brand outlets, with ambitious plans for 100 stores in the coming years. While Q3 is seasonally weaker, management is focused on operational excellence and growth opportunities, targeting an EBITDA margin of 19-20% for the year.

Highlights

  • Total income increased by 42.1% YoY to Rs. 33.4 crores in Q3 FY25.

  • Consolidated income grew by 33.1% YoY to Rs. 106.2 crores in 9M FY25.

  • PAT increased by 20% YoY to Rs. 2.4 crores in Q3 FY25.

  • Added 4 new distributors in Q3 FY25, totaling 13 new distributors in 9M FY25, expanding network to over 177.

  • Opened 5 new exclusive brand outlets in 9M FY25, bringing total to 7, with plans for 100 stores in next few years.

Concerns

  • Q3 is seasonally weaker due to seasonal change and winter wear sales cycle.

  • Gross margins have been volatile (41%-50%) due to seasonality and raw material changes.

  • Fundraise of Rs. 100 crores is "still in conversation" and not yet complete.

Key financials

2 periods

Q3 FY25

  • Total Income
    ₹33.4 Cr
    YoY +42.1%
  • EBITDA
    ₹6.1 Cr
  • EBITDA Margin
    18.1%
  • PAT
    ₹2.4 Cr
    YoY +20%

9M FY25

  • Consolidated Income
    ₹106.2 Cr
    YoY +33.1%
  • EBITDA
    ₹20.1 Cr
  • EBITDA Margin
    18.9%
  • Net Profit
    ₹8.6 Cr
    YoY -1.1%
  • PAT Margin
    8.1%

What they filed

Q1 FY27: revenue up 26.3%, net profit up 52.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue41 33 40 37 44 +7%49 +46%60 +50%47 +26%
EBITDA8 6 8 5 7 −11%6 −0%11 +33%8 +53%
Net profit4 2 4 3 4 +7%3 +27%6 +44%4 +52%
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.

Capital allocation

medium confidence
  • Capex Capex disclosed
    • Greenfield expansion to double current capacity over 4 years, aiming for 3x current capacity
    • Capacity increase to 38,000-48,000 pieces by FY26 end
    Before FY27, we are planning a Greenfield expansion at the factory level as well. So, I think that will enhance the capacity quite a bit. But then again, that is something which is still in the words. We will let you know as we have more information. / We are planning the capacity expansion like irrespective of the fundraise, but then we are planning a Greenfield expansion which would take the capacity to almost double of what the current is and with it over a period of next 4 years, we will grow up to almost 3x of the current capacity.

Guidance & targets

Capacity

  • D2C Stores (Next Few Years) Capacity · next few years · High confidence 100 stores
    We plan to open around 100 stores in the next few years

    — Harshvardhan Sarda

  • D2C Stores (Long-term) Capacity · next 5-6 years · High confidence 400 stores
    We are opening to target roughly around 100 stores over the next few years initially and with a larger ambitious plan of over 400 stores in the next 5-6 years.

    — Harshvardhan Sarda

  • D2C Stores (Q4 FY25) Capacity · Q4 FY25 · High confidence around 5 stores

    Previously 10 stores (H2 FY25) → around 5 stores

    So, what we are doing is we will be launching a few stores this quarter. Maybe not the 10 number, but then again, we will be somewhere around close to that number. / Yes, I am sure.

    — Harshvardhan Sarda

  • Capacity Utilization (Q4 FY25) Capacity · Q4 FY25 · High confidence up to 35,000 pieces per day

    From 28,000 pieces per day today

    Q4 will slightly enhance it, maybe up to 35,000 pieces per day.

    — Harshvardhan Sarda

  • Capacity (FY26 End) Capacity · FY26 end · High confidence 38,000-48,000 pieces

    From 33,000 pieces per day (installed) today

    So, with the current apart from Greenfield expansion that we are planning later, we will take this capacity to around 38,000-48,000 pieces.

    — Harshvardhan Sarda

Market Share

  • Infant Wear Share Market Share · over the years · Medium confidence 13-15%

    From 10% today

    Infant is around 10% currently, which we are enhancing to around 13%-15% over the years.

    — Harshvardhan Sarda

Working Capital

  • Working Capital Days Working Capital · by the end of this year · High confidence around 190 days
    Overall working capital days that we will be maintaining by the end of this year would be around 190 days.

    — Harshvardhan Sarda

Margin

  • EBITDA Margin (FY25) Margin · this year · High confidence 19%-20%
    we aspire to be in the range of 19%-20% for this year, specifically for EBITDA.

    — Harshvardhan Sarda

  • EBITDA Margin (Aspirational) Margin · currently · Medium confidence 22%
    I think 22 kind of EBITDA would be a good aspirational number for us currently.

    — Harshvardhan Sarda

  • Gross Margin Margin · High confidence 45%
    Our target gross margin would be somewhere around in the 45% range.

    — Harshvardhan Sarda

Distributor Network

  • Total Distributors Distributor Network · this year · High confidence around 185

    From 177 (9M FY25) today

    So, the overall distributor target would be somewhere around 185 for this year.

    — Harshvardhan Sarda

What to watch in Q4 FY25

Q4 D2C Store Additions

Q4 FY25
Current 0 in Q3 FY25, 7 total as of 9M FY25
Target around 5 stores in Q4 FY25

Why it matters

Indicates progress on D2C expansion strategy and ability to meet revised targets for store rollout.

So, what we are doing is we will be launching a few stores this quarter. Maybe not the 10 number, but then again, we will be somewhere around close to that number.

Risks & concerns

  • Q3 Seasonality and Sales Cycle

    medium

    Q3 is seasonally weaker due to seasonal change and winter wear sales cycle, with distributors buying by September.

    Management acknowledged

  • Gross Margin Volatility

    medium

    Gross margins vary significantly (41%-50%) due to seasonality and changes in raw material fabric for winter vs. summer wear.

    Management acknowledged

  • Uncertainty of Preferential Fundraise

    medium

    The preferential issue of Rs. 100 crores is still 'in conversation' and not yet complete, potentially impacting funding for growth.

    Analyst acknowledged

Q&A highlights

6 direct
Q3 seasonality and festive wear strategy Direct
one of the major reasons for Q3 being slightly weaker is because of the seasonal change. All the winter wear products which usually sells at a retailer set during the months of November, December, January. Since our major sales are to distributors; our distributors buy it from us by September because that is when they forwarded to retailers. So, as we move towards D2C a little more, Q3 will start becoming stronger for us in the longer term.

Explains the seasonal nature of Q3 performance and how D2C expansion is expected to mitigate this.

Asked by Vinadh Sabmit

D2C strategic targets (stores, revenue, profitability) Partial
For D2C specifically, we have set certain targets which you can find in our investor presentation. We are opening to target roughly around 100 stores over the next few years initially and with a larger ambitious plan of over 400 stores in the next 5-6 years.

Provides specific store count targets for D2C expansion, indicating aggressive growth plans.

Asked by Vinadh Sabmit

Broad range of SKUs Direct
Yes, we have the entire range of SKUs basically to cater to kids from the age of 0-16 with multiple categories inside. So, if I have to give a rough number on the number of SKUs, we would be somewhere around 1000 SKUs for the whole year.

Quantifies the breadth of the product offering, indicating diverse market coverage.

Asked by Vinadh Sabmit

Location focus for new brand outlets Direct
So, the next set of outlets that we are planning is primarily in 4 cities of the South, so primarily Bangalore, Chennai, Hyderabad and Bombay along with Calcutta. These are the 5 cities that we want to open the first few set of outlets for our Company.

Identifies key geographical markets for D2C expansion, showing strategic focus.

Asked by Bharat Sharma

Direct online sales strategy and presence Direct
So, if we talk about it, we are already present on marketplace like FirstCry. We have a very strong presence on FirstCry already and we have our own D2C channel which we launched a year ago. We are not really expanding the D2C channel right now by spending aggressively on advertising there, but we are figuring out a stronger strategy to launch the D2C very strongly. So, I think over the next few quarters, you will find some results on that segment, but we have a very strong presence already online on marketplaces like FirstCry.

Clarifies the company's existing online presence and future plans for D2C e-commerce.

Asked by Navin Kumar

Change in Q3 store additions vs. prior guidance Direct
Q3, specifically, was a conscious call from our end to not open stores because it is always a change in season in the regions that we are targeting in. So, what we are doing is we will be launching a few stores this quarter. Maybe not the 10 number, but then again, we will be somewhere around close to that number.

Explains the deviation from previous store addition guidance and provides revised Q4 targets.

Asked by Kruttika

Capacity utilization and future expansion targets Direct
So, with the current apart from Greenfield expansion that we are planning later, we will take this capacity to around 38,000-48,000 pieces. / Before FY27, we are planning a Greenfield expansion at the factory level as well. So, I think that will enhance the capacity quite a bit.

Outlines specific capacity expansion targets for FY26 and beyond, indicating significant growth plans.

Asked by Kruttika

Status of Rs. 100 crores preferential fundraise Partial
And I think we were planning a preferential of Rs. 100 crores. So, is that fundraise complete or? It is in the process. It is still in conversation.

Reveals that the planned fundraise is not yet complete, which could impact funding for growth initiatives.

Asked by Resha Mehta

3 min read 7 chapters

Detailed narrative

Strong Q3 & 9M FY25 Financial Performance

Iris Clothings delivered robust financial results in Q3 FY25, with total income increasing by 42.1% year-on-year to Rs. 33.4 crores, up from Rs. 23.5 crores in Q3 FY24. Consolidated income for 9M FY25 grew by 33.1% year-on-year to Rs. 106.2 crores. Profit after tax for Q3 FY25 also saw a substantial growth of 20% year-on-year, reaching Rs. 2.4 crores, while 9M FY25 net profit was Rs. 8.6 crores.

Distributor Network and B2B Segment Growth

The company's B2B segment, a major contributor, is growing at a good pace. Iris Clothings successfully added 4 new distributors in Q3 FY25, bringing the total new additions to 13 for 9M FY25, expanding the network to over 177 distributors. The strategic focus is on deepening relationships with existing distributors rather than solely expanding breadth, with a target of around 185 distributors for the full year.

D2C Expansion and Brand Building

Iris Clothings is pursuing a clear path for D2C expansion, having opened 5 new exclusive brand outlets in 9M FY25, bringing the total to 7. The company plans to open around 100 stores in the next few years, with an ambitious target of over 400 stores in 5-6 years, making significant investments in a dedicated retail team. Initial D2C store expansion will focus on Bangalore, Chennai, Hyderabad, Bombay, and Calcutta, with a few stores planned for Q4 FY25.

Product Portfolio Diversification and Infant Wear Focus

The company continues to increase its focus on the infant wear category, expanding its product range to include infant sets, cord sets, nightwear, and new Disney apparel designs. Infant wear currently contributes 10% of revenue, with a target to increase this to 13-15% over the years. This category is noted for its higher margin potential, being 3-4% higher at the EBITDA level compared to kids wear.

Capacity Utilization and Future Expansion Plans

Current capacity utilization is around 84-85%, producing approximately 28,000 pieces per day from an installed capacity of 33,000 pieces per day. Management expects Q4 FY25 utilization to slightly increase to 35,000 pieces per day. A Greenfield expansion is planned to double current capacity over the next 4 years, ultimately aiming for a 3x increase in capacity, reaching 38,000-48,000 pieces by FY26 end.

Margin Outlook and Seasonality

The company aspires to achieve an EBITDA margin of 19-20% for the current year, with an aspirational target of 22% in the future. Gross margins are targeted around 45%. Management acknowledged volatility in gross margins, which have ranged from 41% to 50%, primarily due to seasonality and changes in raw material fabric between summer and winter wear collections.

Fundraise and Working Capital Management

A preferential issue of Rs. 100 crores is currently "in the process" and "still in conversation," indicating ongoing efforts to secure this funding. The company aims to maintain its overall working capital days around 190 days by the end of the current fiscal year. Exports currently contribute about 3% of revenue, primarily under their own brand, with margins similar to the domestic market.

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