Khadim India Limited — Q3 FY25 earnings call

Call held 14 Feb 2025

Management summary

Khadim India reported a mixed Q3 FY25, with revenue growing 2.5% YoY to ₹160.2 crores, but profitability metrics like gross margin, EBITDA, and PAT declined significantly due to increased discounting and flat same-store sales growth. The company is focusing on volume growth through price reductions, new product launches including an athleisure segment, and expanding its retail footprint and distribution network. The demerger process is nearing completion, expected to be effective by April 1, 2025.

Highlights

  • Revenue of ₹160.2 crores in Q3, up 2.5% YoY.

  • Total retail store count reached 890 with 61 new store openings during 9M FY25.

  • Retail segment contributed 66.1% of total revenue in Q3 and 63% for 9M FY25.

  • Volume of retail business increased from 1,749,000 pairs to 1,796,000 pairs in Q3.

  • New athleisure segment with MRP of ₹500-750 to be introduced, expected to enhance gross margins.

  • Demerger process is nearing completion, expected to be effective by April 1, 2025.

Concerns

  • Gross margins declined by 110 basis points in Q3 to 44.6%.

  • EBITDA for Q3 degrew by 18.7% YoY to ₹14.8 crores.

  • PAT for Q3 degrew by 36% YoY to ₹1.2 crores.

  • Same store sales growth (SSG) is currently flat/no growth.

  • Distribution segment continued to incur losses in Q3, though losses have declined.

  • Gross margin impacted by increased discounting (discount sales increased from 20-22% to 30-32%).

Key financials

2 periods

Q3 FY25

  • Revenue
    ₹160.2 Cr
    YoY +2.5%
  • Gross Margin
    44.6%
  • EBITDA
    ₹14.8 Cr
    YoY -18.7%
  • PAT
    ₹1.2 Cr
    YoY -36%
  • Retail Volume
    17,96,000 pairs

9M FY25

  • Revenue
    ₹474.6 Cr
    YoY +0.7%
  • EBITDA
    ₹51.5 Cr
    YoY -4.8%
  • PAT
    ₹4.2 Cr
    YoY -20.5%
  • Retail ASP
    ₹539
  • Distribution ASP
    ₹96

What they filed

Q1 FY27: revenue down 18.7%, net profit down 38.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue161 110 94 96 102 −37%86 −22%84 −11%78 −19%
EBITDA19 16 16 12 14 −29%11 −31%12 −25%8 −37%
Net profit2 1 1 1 2 −28%-0 −116%1 −18%1 −39%
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

SegmentRevenue Contribution (Q3 FY25)Revenue Contribution (9M FY25)
Retail Segment66.1%63%
Distribution Business31.2%32.2%
COCO Stores——

Guidance & targets

Profitability

  • Distribution Segment Breakeven Profitability · FY26 · Medium confidence Breakeven
    See, we have already told that in the distribution segment this year we are trying to reduce the losses, and in the next year we will try to do breakeven. So, we are moving ahead in that direction only.

    — Indrajit Chaudhuri

  • Overall FY26 Performance Profitability · FY26 · Medium confidence Better compared to FY25
    But with the volume increase we have seen that the product is successful in the retail, and we expect that FY '26 will be better compared to FY '25.

    — Indrajit Chaudhuri

Revenue

  • Athleisure Segment Contribution to Total Sales Revenue · FY26 · Medium confidence 1% or 2%
    And we expect that in this year the sales would be around 1% or 2% of the total sales.

    — Indrajit Chaudhuri

Volume

  • Retail Volume Growth Volume · Next quarters / FY26 · Medium confidence Volume growth
    Mainly since we are reducing the price, we are focusing on the volume growth in retail.

    — Indrajit Chaudhuri

  • Same Store Sales Growth (SSG) Volume · Next quarters / FY26 · Medium confidence Increase SSG
    And also, we are trying to increase the SSG of the existing stores.

    — Indrajit Chaudhuri

  • Volume Growth from New Stores Volume · Next quarters / FY26 · Medium confidence Some volume growth
    And also, some new store will be launched. From there we will get some volume growth.

    — Indrajit Chaudhuri

What to watch in Q4 FY25

Distribution Segment Breakeven

FY26
Current Incurring losses in Q3 FY25
Target Breakeven

Why it matters

Achieving breakeven in this segment is a stated management goal and crucial for overall profitability.

See, we have already told that in the distribution segment this year we are trying to reduce the losses, and in the next year we will try to do breakeven.

Risks & concerns

  • Gross Margin Compression due to Discounting

    medium

    Gross margins declined by 110 bps in Q3 FY25 as discount sales increased from 20-22% to 30-32% to clear old stock and drive volume.

    Management acknowledged

  • Flat Same Store Sales Growth (SSG)

    medium

    The company is currently experiencing no growth in same store sales, prompting a strategy of price reduction to boost volume.

    Management acknowledged

  • Continued Losses in Distribution Segment

    medium

    The distribution segment continued to incur losses in Q3 FY25, although management aims for breakeven in FY26.

    Management acknowledged

  • Challenging Macro Market Conditions

    medium

    Management noted that current market conditions are not good, but the company is implementing various strategies to increase sales.

    Management acknowledged

Q&A highlights

8 direct
Demerger Timeline Direct
It is pending with the NCLT for final hearing. ... Within this financial year. ... Whenever the NCLT order comes, the first day of the next month the demerger will be effective.

Provides clarity on the expected completion timeline for the significant corporate demerger.

Asked by Arnav Sakhuja

Distribution Segment Losses and Breakeven Target Direct
See, we have already told that in the distribution segment this year we are trying to reduce the losses, and in the next year we will try to do breakeven.

Addresses a persistent concern regarding the profitability of the distribution segment and sets a clear target for FY26.

Asked by Ankita Tandon

Same Store Sales Growth (SSG) Performance and Strategy Direct
At present at same store there is no growth, we are having the problem of same store growth. ... For that we have changed the product profile that in Khadim product we have reduced the margin and the MRP so that the volume that comes in will have an effect on the SSG growth.

Highlights a key challenge in retail performance and explains the company's strategy of price reduction to drive volume and improve SSG.

Asked by Ankita Tandon

Impact of Discounting on Gross Margins Direct
No, one is that discount we have introduced early EOSS, so that is the reason for the margin to drop. ... the discount sales as a percentage of total sales were around 20% to 22%. But here what we have seen that the discount percent has increased to 30% to 32% because the flow of discounted item is comparably higher than what was there in the last financial year.

Provides a clear explanation for the observed margin compression, attributing it to a strategic increase in discounting to clear old stock and drive volume.

Asked by Chirag Shah

Athleisure Segment Strategy and Contribution Direct
We will be introducing product with MRP of ₹ 500 to 750. In the first instance, we will be giving it to 50 stores in eastern part of the country and the southern part of the country. ... And we expect that in this year the sales would be around 1% or 2% of the total sales.

Details the company's entry into a new product category, including target pricing, initial rollout, and expected revenue contribution.

Asked by Abhishek Getam

Online Business Strategy and Margin Implications Direct
So, the percentage of online business, I mean, it's somewhere around 4% to 5%. We would obviously like it to increase. ... in ecommerce the gross margin is compromised because of cost of doing the business. We will first try out, then if it's okay then only we will expand there. Otherwise, we will not expand.

Explains the current online sales penetration, the strategic focus on selective products and digital marketing, and the inherent margin challenges in the e-commerce channel.

Asked by Abhishek Getam

Comparison of Retail Margins with Peers Direct
Our margin comprise of our EBO margin, which is lower compared to the COCO margin because there in Metro the franchise business is comparatively lower than us, and they operate in higher gross margin than us. So, these two factors reduce our EBITDA margin. ... COCO EBITDA margin is around 22% to 25%.

Provides insight into the structural reasons for Khadim's retail margins being lower than competitors like Metro and Bata, citing franchise mix and scale.

Asked by Ankit Shah

Seasonality of Business and Q3 Performance Direct
See, because we are primarily in the eastern part of the country, so our peak comes during the Puja thing. So, this year since the Puja was in the second quarter, because we sell to our franchise also and Puja was in the month of October.

Clarifies how regional festivals, particularly Puja, influence the quarterly distribution of sales and perceived seasonality for the company.

Asked by Sahil Vora

2 min read 5 chapters

Detailed narrative

Q3 & 9M FY25 Financial Performance Overview

Khadim India reported a 2.5% year-over-year revenue growth in Q3 FY25, reaching ₹160.2 crores. However, profitability was impacted, with gross margins declining by 110 basis points to 44.6%, and EBITDA degrowing by 18.7% to ₹14.8 crores, resulting in a PAT of ₹1.2 crores (36% YoY decline). For the nine-month period, revenue grew 0.7% to ₹474.6 crores, with EBITDA at ₹51.5 crores (4.8% degrowth) and PAT at ₹4.2 crores (20.5% decline).

Retail and Distribution Segment Performance

The retail segment contributed 66.1% of total revenue in Q3 and 63% for the nine-month period. The company expanded its retail footprint, reaching 890 stores with 61 new openings in 9M FY25, comprising 222 COO stores and 668 franchise stores. The distribution business accounted for 31.2% of Q3 revenues and 32.2% for 9M FY25, onboarding 50 new distributors to reach a total of 776.

Strategic Shift Towards Volume and Margin Impact

Management indicated a strategic shift to focus on volume growth, particularly through price reductions in the Khadim brand. This led to an increase in discount sales from 20-22% in FY24 to 30-32% in Q3 FY25, which was a primary factor for the 110 basis point decline in gross margins. The volume of retail business increased from 1,749,000 pairs to 1,796,000 pairs in Q3, supporting the volume-driven strategy.

New Product and Channel Initiatives

Khadim India plans to introduce a new athleisure segment in the upcoming spring/summer season, with products priced between ₹500-750, initially targeting 50 stores in Eastern and Southern India, expecting 1-2% contribution to total sales in FY26. The company is also refining its online strategy, focusing on selective product baskets and digital marketing, while acknowledging that online is a lower-margin business.

Demerger and Future Outlook

The demerger process is awaiting final hearing with the NCLT and is expected to be effective by April 1, 2025. Management is confident that the new athleisure segment and other higher-margin products will enhance gross margins in coming quarters. They aim for the distribution segment to achieve breakeven in FY26 and expect overall FY26 performance to be better than FY25, driven by volume growth, new store additions, and improved same-store sales growth.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Consumer Durables earnings calls