Vedant Fashions Limited — Q2 FY25 earnings call

Call held 30 Oct 2024

Management summary

Vedant Fashions reported a strong recovery in Q2 FY25 following a weak, non-wedding Q1. The company achieved double-digit SSG and significant profit growth, driven by a return to normalcy in wedding dates and early festive demand. Management is focused on portfolio diversification through the new Diwas brand and category expansion into fragrances, while undergoing a strategic store cleanup exercise.

Highlights

  • Revenue from operations reached ₹268 crores, a strong growth of 22.7% YoY.

  • Same-Store Sales Growth (SSG) stood at a robust 17.3% for the quarter.

  • Profit After Tax (PAT) grew by 37.3% YoY to ₹67 crores with a 25% margin.

  • EBITDA margin remained healthy at 45.4% for Q2 FY25.

  • Sale of Customer (retail sales) grew by 24% YoY to ₹334 crores.

  • Launched 'Diwas by Manyavar', a digital-first brand targeting Gen Z at ₹1,000-₹2,000 price points.

  • Retail network area stands at 1.7 million square feet globally as of September 2024.

  • Introduced 'Essence by Manyavar' perfumes in top 50-60 stores to drive category expansion.

Concerns

  • Wedding Date Volatility

Key financials

  1. Revenue ₹268 Cr +22.7%YoY
  2. EBITDA Margin 45.4%
  3. PAT ₹67 Cr +37.3%YoY
  4. Same-Store Sales Growth 17.3%
  5. Gross Margin 67.9%
  6. Sale of Customer ₹334 Cr +24%YoY

What they filed

Q4 FY26: revenue up 8.7%, net profit up 12.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ1 FY25Q2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26
Revenue240 268 511 367 281 +17%263 −2%492 −4%399 +9%
EBITDA113 122 242 166 121 +7%111 −9%218 −10%179 +8%
Net profit62 67 158 101 70 +13%56 −16%135 −15%114 +13%
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.

Guidance & targets

Market Share

  • Retail Area Expansion Market Share · Midterm · Medium confidence 14-15%
    So broadly, from a midterm perspective, I would say, plus/minus 1%, 2%, we will be in that sort of a retail area expansion mode only.

    — Vedant Modi, Chief Revenue Officer

Other

  • Store Closure Rate Other · FY25 · High confidence 4% to 5%

    Previously 2-2.5% → 4% to 5%

    However, we typically close about 2%, 2.5% of our retail footprint area every year... So this year, we feel that number could go slightly higher to about 4% to 5%.

    — Vedant Modi, Chief Revenue Officer

  • Working Capital Days Other · FY25 · High confidence 110
    And I think we've mentioned this in the past, as a company, our working capital days are about 110.

    — Vedant Modi, Chief Revenue Officer

Revenue

  • Diwas Brand Focus Revenue · next 2-3 years · High confidence Primary focus
    Yes. So the major strategy, at least from a 2- to 3-year perspective, will be Diwas. And that is where the entire focus will lie.

    — Vedant Modi, Chief Revenue Officer

Risks & concerns

  • Wedding Date Volatility

    high

    Business performance is heavily tied to the national wedding calendar; Q1 FY25 was severely impacted by a lack of wedding dates.

    Both acknowledged

  • High Real Estate Costs

    medium

    Management noted that rental costs have shot up throughout the country, leading to a more cautious approach to new store openings.

    Management acknowledged

  • Inventory and Receivable Buildup

    low

    Receivable days increased by 15-16 days in Q2, which management attributed solely to the 15-day earlier onset of Diwali.

    Analyst downplayed

Areas of evasion (2)

  • Specific growth percentage targets for FY25/26
  • Quantifying the exact revenue impact of the early festive shift

Q&A highlights

2 direct, 1 evasive
Growth Guidance for H2 FY25 Evasive
But unfortunately, we've decided to not give any guidance per se as of now.

Management refused to provide a specific growth number despite a strong Q2 and a favorable wedding calendar in H2, citing external volatility.

Asked by Sameer Gupta, India Infoline

Negative Operating Cash Flow in H1 Direct
But once we only look at the cash flow for 6 months period, because this year Q1 was an exceptional quarter. It behaved like a non-wedding quarter because of no weddings at all.

Explains that the negative H1 OCF was a timing issue due to a weak Q1 and inventory buildup for an early Diwali in Q3.

Asked by Ankit Kedia, Phillip Capital

Cannibalization Risk from Diwas Brand Direct
Diwas operates in broadly the INR1,000 to INR2,000 kurta price points. From a Manyavar perspective, we primarily play in the INR2,000 to INR6,000 range.

Clarifies that Diwas targets a different price point and use case (daily/festive wear) compared to Manyavar's wedding focus, minimizing cannibalization.

Asked by Chirag Lodaya, ValueQuest

2 min read 5 chapters

Detailed narrative

Q2 Recovery and Normalization

After a challenging Q1 FY25 characterized by a lack of wedding dates, Vedant Fashions saw business resume to normalcy in Q2. Revenue grew 22.7% YoY to ₹268 crores, supported by a strong SSG of 17.3%. Management noted that the onset of Diwali being 15 days earlier this year also contributed to a decent start for Q3 in October.

Strategic Retail Network Optimization

The company is undergoing a periodic 'cleanup' of its retail footprint, which occurs every 5-6 years. This year, store closures are expected to reach 4-5% of the total area, compared to the typical 2-2.5%. This involves exiting lower-productivity stores and experimental Shop-in-Shops (SIS) to focus on larger, flagship experience stores in shifting market hubs like Himayat Nagar in Hyderabad.

Portfolio Diversification with Diwas

The launch of 'Diwas by Manyavar' marks a strategic entry into the ₹1,000 to ₹2,000 price segment, targeting Gen Z and millennial consumers for daily and festive wear. Management emphasized that Diwas will be a major focus for the next 2-3 years and is designed to be digital-first, though it has already begun taking orders in the MBO channel.

Working Capital and Cash Flow Dynamics

H1 FY25 saw negative operating cash flow on a pre-Ind AS basis, which management attributed to the exceptional nature of Q1 and inventory buildup for the early festive season. However, on a Trailing 12 Months (TTM) basis, the cash conversion ratio remains healthy at approximately 74%. Working capital days are maintained at around 110 days.

Category Expansion into Fragrances

Vedant Fashions has officially entered the fragrance market with the launch of 'Essence by Manyavar'. The product was rolled out in the top 50-60 stores last week and has already seen 'pretty decent traction'. This move is part of a broader strategy to use new product launches and category expansion as levers for SSG growth.

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