Please note that this conference is being recorded. I now hand the conference over to Mr. Jay Gandhi from HDFC Securities. Thank you, and over to you, sir.
Thank you. This is Jay Gandhi from HDFC Securities. Welcome to the SSKL Q1 FY25 earnings call. From the management at SSKL, we have with us Mr. Bharadwaj Rachamadugu, Vice President Sai Silks (Kalamandir), and Mr. K.V.L.N. Sarma, Chief Financial Officer of SSKL. Before we start, we would like to point out that some of the statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been made. Kindly note that this call is meant for investors and analysts only. If there are any representatives from media, they're requested to drop off immediately. With that, I hand over to Mr. Bharadwaj for his opening remarks.
Thank you, Jay. Good evening, ladies and gentlemen. Thank you for joining us today to discuss Sai Silks (Kalamandir) Limited results for the Quarter 1 FY2024-25. SSKL is India's leading women's wedding and celebration wear company. I hope you all have got a chance to go through our investor presentation, and for those who were not able to, you can also find it on our investor relations sections of our company's website. I have with me Mr. K.V.L.N. Sarma, our CFO of our company. So to begin with, let me first start giving you an update on the overall ethnic retail market scenario for the Quarter 1. In this quarter, the sluggishness in the market continued due to the lack of wedding dates.
Unlike Quarter 1 of last year, this year the wedding dates in Q1 of this were reduced by almost 70%, which caused weak consumer walk-ins to our stores. This has been a major reason why the store experienced reduced footfalls. In addition to this, several factors such as extreme heatwave and national elections have also caused some level of impact on the overall consumption trends. As of 30th June, the total retail square footage stood at 653,000 sq ft, with 61 retail stores across 4 states in the company. In this quarter, we have opened 1 new store, and we have made major efforts in staffing and marketing campaigns as we continue to grow in the Tamil Nadu market.
We have made progress to identify, plan, and open additional locations in Tamil Nadu as well as in the Karnataka regions that would start shaping up in the quarters to come. On the new store rollout front, we have faced some headwinds as two of our new stores that were supposed to open in this quarter did not happen on account of some pending clearances from the local authorities despite completion and ready to open. We had experienced more than a two-month delay on account of this. We are making efforts to clear these bottlenecks and are hoping to get them cleared within a week's time to 10 days' time, and then therefore it shall be opened very soon.
We shall now be vigilant on these compliance issues that we have encountered in these local markets so that there will not be any future delays in terms of the project completion. Simultaneously, in this quarter, we have also made plans to restructure a few stores' capacity to prepare ourselves better for the upcoming wedding season, one of which includes changing one of the brands from Kalamandir to Varamahalakshmi Silks in Telangana, and this will be ready to open within a week's time. Despite the weak demand in the ethnic retail space, our company achieved a revenue of INR 274 crore with a gross margin of 41.26%, which shows improvement over the last Quarter 1 of last year.
On the marketing front, we leverage Salesforce and their tools to help map the customer journey better, tracking their entire purchase history and visit journeys better, thereby creating custom automations to ensure we reach the customers in the right way. We started focusing on this as the digital marketing spends are rapidly increasing over the offline marketing spends. Overall, we believe that the wedding date impact in the Q1 combined with the heatwave and elections is a very rare combination that we believe is a one-off case. However, the industry is showing signs of recovery on account of Muhurtham dates in the current quarter being better than the last quarter. Our ethnic brands still continue to have one of the industry's leading repeat customer purchase rates. Our brand penetration in the newer markets has been effective.
Our localized approach is enabling us to adapt to our offerings based on the consumer's culture and the local preferences while still maintaining a national brand identity. The ability to source from across the country by leveraging our vendor network and our relationships that we have formed over the last two decades and provide all of these under one single roof is one of our distinctive strengths that we still hold and is helping us gain the brand value and also market share in the company, market share in the industry. So I would now like to hand over to the operator and be happy to take any questions from the participants.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the attached phone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Balamurali Krishna from Oman Investment Advisors. Please go ahead.
Hi. Good evening. I think Q1 was impacted due to these low weddings, and I think Q2 also, most of the days so far, I think impacted due to this. Ourselves are in line with your target. Hello?
Could you repeat the question?
Yeah. Yeah. As we know that Q1 was impacted due to low wedding dates, but I think Q2 also has a similar trend as us now. Could you please throw some light on this one? How would be the trend in the Q2?
So yeah, sure. Thanks for the question. So overall, what we have seen is the wedding dates in Q2 have been much better than Q1, and we have already seen footfalls track in the month of July. We have considerably seen much higher footfall trends in July and in the month of August. So far, as of now, we do have good wedding dates in this fiscal year, I'm sorry, in this quarter, and we are sure that this quarter is going to be a good quarter, which is going to be a rebound compared to the last quarter that we have. And in terms of the overall wedding dates, when you compare to last year of Q2 and this year of Q2, I think last year we pretty much had negligible wedding dates, but in this quarter, we have about 10 dates. So that is very, very promising.
And again, as we speak, so far, we have got good footfalls in our stores, and we still get to wait for the month of August to complete in September, but we are seeing signs of recovery in our stores. So that's still going to be a positive trend, and Q2 should be a very good recovery coming from Q1.
Yeah. That's good to hear. Going forward, as we are adding new stores, so any further room for the improvement in the margins?
On the margins front, I think we did make good progress despite the fact of these negative trends in the market. Our margins still continue to operate in a better fashion. So compared to last quarter, to this quarter, our margin increased by around 30 basis points. And when you compare this quarter 1 over last year's quarter, I think the margin improved by over almost 98-99 basis points. So we are consistently reworking on the overall product mix as well as trying to make our supplier and vendor arrangement in a much better fashion in terms of the payment. All of that has actually started kicking in, and that's the reason we still are able to maintain this amount of gross margins despite the weak trends.
As to your question, I think in the future of our quarters down to come, we should be able to see additional improvement on the gross margin front.
Oh, that's great. But when you see the historical operating margin like EBITDA margins, so we were in single-digit in the year 2018, 2019, 2020. So now we are at mid-teens. So what could be the difference in the business from there to now? And is there any foreseeable risks so that we can go back to those single-digit margins?
See, in this particular quarter, we have seen a single digit EBITDA margin on account of SSG growth. Apart from that, there is no other specific reason why we should be able to see an EBITDA margin decline. However, I think Quarter 2, we should be able to recover whatever we have lost in Quarter 1, and you should be able to see a double digit EBITDA growth for sure.
Yeah. Just follow up on that. In 2018, 2019, 2020, we had single digit margins. As of now, we are having double digit. What is the difference between the business from those years to now?
I think in 2018, 2019, that was a time I think pre-COVID levels was an early inception of our KLM brand. There could be reasons as such why our EBITDA margins were comparatively low. However, from late 2017 onwards, we have incorporated our new store format, which is KLM Fashion Mall. From that, we started improvising the overall operations. All of these stores in a cluster format enabled us to control our expenses in a much better fashion and improvise our revenues. And that has been a major reason why we kept on increasing organically. And I think we have to remove one year, I think during the year of COVID and the year later, was an impactful year considering COVID was there. Apart from that, I think our margins continue to be in a double-digit number.
Especially in this quarter, we have seen a single number on account of SSG growth, and that should be able to come up in the second quarter in the current quarter.
Yeah. That's helpful. Lastly, on the store expansion plan which you have, that square foot plan we have, so I think we were on track of that plan. What would be the time period to mature for a new store if you open in this current quarter, so when we can see that maturity will come as compared to old stores?
So to your first question, I think we have plans to open 2-3 new stores in this quarter, and remaining other stores, the majority of them will come in the Quarter 3. That's how we plan to open in this quarter. And talking about our store's maturity, generally, what we tell is whenever we plan to open a new store, we try to spend a little bit more in terms of the advertisement and marketing, thereby creating visibility. So that is how we kept opening our stores for the last 18 years, and we will continue to open it in a similar fashion. So because we do go ahead and spend an aggressive amount of money in the advertisement and marketing, we start experiencing footfalls right from the first month and first day itself. And this is helping us to start getting footfalls from the first day itself.
This actually, overall, for a Varamahalakshmi Silks format, enables us to break even from the CapEx front in less than about 10-11 months. And in terms of with the working capital, we break even less than around 20 months' time. So this has been the way we have been operating.
Yeah. That's great. That's all from my side. Thank you. All the best.
Thank you. The next question is from the line of Ankit Babel from Subhkam Ventures. Please go ahead.
Good evening, Mr. Bharadwaj and Mr. Sarma. Sir, a couple of questions. Now, sir, given the Q1 performance, do you still feel you can achieve a guidance of INR 150 crores of net profit for the full year? As you mentioned that the number of wedding seasons are more in the remaining nine months of this year and will offset some of the losses which you have incurred in Q1. So will you achieve your INR 150 crores net profit guidance?
We had two aspects here. One is the low performance on account of minus SSGS plus other factors in the first quarter. Plus, we also had a headwind in our store opening. In fact, our Madurai and Chennai Purasawalkam stores were ready about 1.5 months, 2 months ago itself. And for whatever reason, the local permissions were delayed, so some bit of turnover, etc., was lost on account of that also. Now, we are again working on another 4 stores to be opened during the second half as well. So we are taking care enough precautions are being taken care so that we comply with these. And that's why we think that by the end of Q2, we should be able to confirm in a much better fashion on the profitability for the current year.
Okay. As you mentioned that the footfalls are very good in the second quarter and things are improving. Did I hear it correctly? You mentioned that you aim to achieve at least a double-digit EBITDA growth in the second quarter.
While the recovery is perceptibly visible, the projection that was earlier given on which you are seeking a reconfirmation was also taking into account the new stores that should be added on a staggered basis. See, first quarter, we should have added about 25,000 sq ft, which was ready, but we could not open 17,000 sq ft out of that because of the local clearances not being we could not get them. Even second quarter also, 3-4 stores are underway, and we are expecting that there will not be any major issue on that.
We consider that once we open these stores and we see the productivity in these stores, which will be available for the full half year next, then we should be able to make a realistic presentation because for Madurai and Purasawalkam stores we have already lost about two months' time and two months' turnover there with. By the end of Quarter 2, we should be able to confirm as to what could be the projected levels of operations.
Also, I'm asking about Quarter 2 only. I understand you mentioned that for the full year, you'll guide for after the Q2 results. But for Q2, so far, whatever is the visibility as far as whatever is the.
Not looking at, I mean, not bringing a definitive forward statement, we should see that it should be a better quarter compared to last year and compared to the first quarter as well.
Okay. I mean, that's what I'm trying to understand, is that you'll go back to that 16,000 sq ft EBITDA margin?
Yeah. Yeah. In this particular thing, once I am able to retrieve to the normal SSGS, even at a flat level SSGS also, the profitability will increase. Only when I have a negative SSGS, obviously, since the full store costs are met, almost all the costs related to the store operations are fixed, there will be a negative in EBITDA margins and profitability. So once I am retrieving on my SSGS and I am able to contribute from new stores, the profitability will revert and be better as we are expecting that.
Was the SSG positive in the first half of this quarter, sir?
SSGS were in negative. That is why we have.
No, no. This current quarter, sir, Q2, are they positive?
Current quarter, they are recouping, yeah. So it looks that the negative that has come is only restricted to the first quarter. Second quarter onwards, we seem to be experiencing normal operations or better operations for that matter.
SSG is positive, right?
If I can make that statement, yes.
Okay. And so, second question is your.
We are not even half of the quarter, no. But things look much better, and we should be doing at least neutralize.
Okay. And so second question is you did mention that there are delays in opening of stores due to some clearances and all those. But for the year as a whole, whatever has been the plan, you feel that you'll open that much number of stores and that much.
Yeah. Project implementation, we are still hopeful that we should be able to do it. But sequential delay in opening of stores may reduce the additional turnover that we were envisaging from the new stores. Say for an example, Madurai store. Madurai store, in our initial expectation was that it will generate from around June 15th, June 16th. There was a delay of two months. So two months' turnover was lost out of this store, similarly Purasawalkam. So of course, we are trying to restrict it to these three, four stores and going ahead, we will take care of those local compliances that are required so that the stores opening is not delayed. Thereby, the impact out of this particular reason will be substantially reduced.
Okay. Lastly, sir, you did mention that you expect gross margins to improve from year on. What are the estimates there? What kind of gross margins improvement do you expect?
See, already from the last year, the initial growth, though with the Quarter 1, the turnovers are lesser. The margin improvement is there, and we are planning to sustain this improvement. And obviously, when we are opening these stores and premiumization is taking place, there should be further increase. Would it be right if I give a specific number to you at this point of time? Maybe by the second quarter end, we will give a better visibility on that.
Okay. Okay. And sorry, just one small question on your debt part. I mean, I saw the interest cost, though it has declined on a year-over-year basis. But since you have raised money through IPOs, I mean, the decline has not yet been sharp. So how is the debt position?
That includes the index adjustment also, no? So to tell you the exact figures in that particular aspect, last year, the interest I mean, actual interest outflow was around INR 38 crore on an annual basis. And in this finance cuts, the INR 10 crore, the actual outflow is only INR 5 crore. The other INR 5 crore is the index adjustment that we have to do. For the year overall, we are expecting that we should be doing anything where the interest cost should not be more than around INR 18 crore-INR 19 crore, which would be 50% of the last year.
And to tell you the debt levels also, substantial reduction has taken place in working capital debt. It has come down to approximately INR 150 crore as of June end. And term loans are also in the range of total debt is about INR 180 crore only now.
You will see a perceptible reduction in interest costs this year and going ahead.
Okay. That's it, sir. Thank you so much.
Thank you. The next question is from the line of Ashish Upganlawar from Invesco PMS. Please go ahead.
Yeah. So now, I think with Q1, we had almost five quarters which have been bad for us generally. So I just wanted a couple of figures. I mean, how much of retail area we would have added in these five quarters? Can that figure on an approximate basis be available?
There is approximately 50,000 plus another 6,000, about 57,000.
Is the question about last two quarters or are you talking about the last five quarters?
No. So since June of 2023, our performance on the top line hasn't been great because of several reasons. And so I just wanted to understand what was the SSG then in these five quarters combined maybe and how much of retail store area we would have added just to get a sense of if SSG comes back, how we would basically be performing going ahead. So that's what my perspective is. So your comments on that would be helpful, actually. Yeah.
Yeah. I mean, on the matured stores, subsequent to 2022, I think we have added last year 50,000 plus this year another 7,000, 57,000. So the SSGs that are to come back would be on approximately 600,000 sq ft.
You're saying, sir, what is the current total area? You said 600,000 sq ft now, is it?
Currently, it is 654,000 sq ft. We take a complete financial year to identify it as a matured store. Matured stores as of now, as we are speaking for the first quarter, are about 590,000 sq ft on which there was a negative SSGs. Even if they are neutralized, then these 56,000 plus the current whatever expansion that takes place will come as an additional.
Okay. Since Q2 is turning out to be better, if I look at maybe the first half in totality, Q1 plus Q2, would you say that it would still be better than first half of last year if we put in total because second quarter would be maybe double-digit growth? So roughly, we would be posting growth. Is it going that way or is it still combined together, it will be kind of a flattish number on each one, on the EBITDA side?
Point of time, we can commit that it will be almost closer or slightly lesser more than last half year. We should get a better traction because the upward movement has started only for the past 30, 40 days. There is about another 15 plus 30, 45 days to go. For the present, we can commit that it will at least be flat and hope to be better than H1 last year.
Okay. And comparing the H2 calendar of weddings and festivals in this year, is there any mismatch with last year's calendar as in maybe between first half and second half? Because I think weddings were really less in the first half of this year. So second half, is it going to be better than last year in terms of the number of weddings that take place? Is there any sense on this?
See, talking about weddings in H2 this year, you have about 46 days of wedding Muhurtham days in H2 of this year compared to 42 days. So it's like four, five days higher. But what's happening is this time in Quarter 3, you can actually anticipate Dashara coming in two weeks earlier compared to last year's Dashara. So things are looking like Quarter 2 onwards are better. So that's what we have seen footfall tractions coming in. Just to give you a measurement of how Q1 was, we had seen a 20% decline in footfalls compared to last year of Q1. And especially being majorly operating in the women's ethnic wear, especially in the wedding segment, one of the major factors why this has happened is because of that.
Even in this quarter, we had about in the month of April, we had about 7-8 days of Muhurtham dates. But what happens is all these 10 days were in the first 15 days of April. So technically, as per the customer purchase patterns, what happens is the customers come and shop with us at least 15 days prior. So technically, these 10 days business has actually moved up to Q4 of last year I mean, Q4 of 2024 itself. So again, this year, the reason why I mean, in this quarter, we are actually having about 8 days or so. So definitely, that's going to be much better than last year of Q2. Last year of Q2 was negligible. And in terms of Q3 and Q4, we had 42 days last year, and this time, we had about 46 days.
More or less, it could be same, but we anticipate that this year, H2 will be much better than last year's H2.
Okay. So any other reasons that I mean, qualitative reasons apart from the number of days and stuff that why your confidence would be there in H2 being better? Would it be mostly linked to the retail space increase that you've done over the last 12 months? Is it that or something changes in the overall footfalls and stuff that you would be expecting?
Sure. So the format where they're expecting the brand that we are expanding right now is Varamahalakshmi Silks brand, which is almost 70%-80%, I mean, almost 90% of what we sell there is wedding wear only. So the impact of wedding dates will have a direct correlation on our Varamahalakshmi Silks performance. And we are actually opening up deep down south itself and not focusing too much on the non-wedding category. And that is the reason why we are very positive on Q2, Q3, Q4 being a much positive use. On top of it, the number of wedding dates itself is changing. So even that is also as attainments.
So as I did tell you, the 20% loss in the footfalls as of now as of today, I think in the last 40 days, we have seen a positive footfalls, a very good recovery coming from that side. So hoping that this trend continues, we should be able to end up in a good Q2. And Q3, Q4 generally for the company are very good cues. So between H1 and H2, generally, H2 contributes to 55% of the overall revenue. So that trend is something that more or less will continue. And this year, because majority of the Muhurthams are falling under H2, we should be able to see slightly better than 55% this year.
Great. And one more, if I can ask, see, the EBITDA margins have been around 15-odd% for the company even in Q3, Q4 of last year. So since there would be accumulated costs of maybe new stores and stuff, so is it possible that since you are saying that maybe H2 would be better in terms of offtakes, the margins would trend maybe towards, say, 18% kind of a number in H2? Is that a possibility?
Yeah. Let's not give a number at this point of time, but definitely, it is going to improve because of the better operations, additional stores that are coming in on a premium section during this intervening period. The margin improvement will be definitely better than the existing one.
Sure. Fine. Thank you, sir. Thank you.
Thank you. The next question is from the line of Himanshu Dugar from Safe Gains Advisors. Please go ahead.
Yeah. Hi. Thank you for the opportunity. I just wanted to first go on the other expenses line item. I understand some of this increase that's happening on a quarter-by-quarter basis; it could be related to store expansion as well. But if we look at the current year because this quarter, there was not much of store expansion. So if we have to think about FY25 overall, what should be the other expense estimate that we should go with?
So other expenses would normally be proportional. See, they are almost in the same lines that are there in the current year also. Most of them, other than the advertisement and business promotion expenses, slightly can be variable. Otherwise, you can take it on a proportionate basis on an annual basis.
Okay. But is there no variable expense in this which could, for example, this quarter was a very, very lean quarter with almost negligible wedding days? Could have been you have cut down on some expenses or something because there's a very sharp hit that's coming on your operating income, right?
In a bad time, we need to do more promotions. On the business promotion front, etc., we may have to do better. When things are improving, that will even out. On an annual basis, you can expect only on a proportionate basis. Current year business promotion, current quarter business promotion could be slightly higher. When we see the weddings coming back and then the footfalls increase, these promotion activity, etc., will come down. Overall, you can take on a proportionate level only. Almost all of them are fixed expenses, okay?
Understood. Coming to your revenue numbers, so I think you mentioned about the decline in footfalls as a percentage. In terms of average order value or, say, I mean, over SSG maybe, right, as you said, I think should be 10% or something minus. But what kind of number that you can see coming back in this quarter in terms of, say, footfalls or how does it typically go? Because this 20% decline in a very lean season, is that normal or this was something exceptional which happened this time?
It is an exceptional, I mean, highly exceptional quarter that we went through. So otherwise, if I say that the -20% can even out in the next quarter, a change of 20% in one quarter might look ambitious, but that is a fact. So it is not as though Q2 was substantially coming back to normal, see. And what was the difference was the exception was in the Q1, which we must not have faced in the near past any time. So that is an exception. And then things are coming back to normal. And once we are on a normal operation, so this will see, if we are able to flat out to a -20%-0%, that's the big achievement. Big achievement in the sense it's not an effort.
It's actually the industry coming back or the regular operations are coming back. That's all. So you can take Q1 as an exception on the negative side. And things are coming back to normal, see, where we will operate on our own sense and will be able to achieve better results.
Got it. Any number on the AOV, average order volume decline, or in the SSG decline, something that you could share?
See, in terms of the ASP, I think the overall ASP decline was about 9% for all stores. For the like-to-like stores, it was around 12.5%. That's for the ASP side. Bill values, I think, remained pretty much the same thing. The negative footfall is the reason why the overall quantity is also good. In terms of the quantity as well, the overall quantity was down by 4% in the overall from quarter to quarter on this quarter one, two, last year, quarter one.
Got it. Just one last probably understanding that I would want to get from you on the store expansion participation in Chennai. You mentioned expansion in Purasawalkam. So I stay in Purasawalkam in Chennai. And the entire area is kind of right now impacted by the metro construction. So I mean, and this was kind of a known aspect, right? I mean, this was been there for a few months, and supposedly, the road could be stretched, I mean, like this for a couple of years as well. So how are you kind of evaluating if you could throw some lights on it, how are you evaluating store expansion strategy? And specifically in Chennai, when there's so much of metro this is a very big metro line that's going on. So are you trying tactically shifting some of your, what do you call, store openings?
So technically, we are not planning to change much with respect to based on the current trend. See, now, when you come to talk specifically about Purasawalkam, the last entire week, because of the rain issue, then we could not do much. But this is all temporary. When we try to look at overall markets currently, we are scouting around 38-40 different places in the overall South Indian store space. And we have decided upon Chennai as a cluster. We are now currently looking at Purasawalkam as one potential area. We are talking about Velachery. We are talking about three other, four other locations in Chennai to help us narrow down. The reason why Purasawalkam seems to be a better bet for us is, again, definitely, it will not be like a store in a Pondy Bazaar store wherein the higher ASP products actually sell.
Purasawalkam generally commands a lower to middle price point kind of value product offering that we have. When we did a survey, we understood that Purasawalkam is a very good potential. Though metro work is on one side of it, we believe that the customers who come down on the heavy footfall traffic is generally something that will not have much of an impact. In general, Varamahalakshmi Silks generally have a goodwill that consumers find our stores and come. Generally, we don't ideally, not many of our stores actually end up in the high street. We actually go one street behind. Therefore, the consumers actually know our brand so well. The recall value is so high that people come down and actually shop.
But when it comes to wedding shopping, people generally make an effort to find the store and come down to our store rather than trying to go to any store that they can find in the near vicinity.
When we closed down the choice of Purasawalkam, in fact, the metro works have already begun. And we have chosen a place which is convenient, and the parking traffic, etc., was much better, whereby we may slightly have an advantage over the others who are getting blocked in that I mean, I can speak about the specific streets, but that may not be appropriate. But after Purasawalkam, now, currently, we are planning to go into Trichy, Pondicherry, and other places.
Wherever we are planning in Chennai, we are planning the places where the metro and other works are complete so that there will not be any impediment on account of traffic or blockage of roads, etc., so that our project team continuously monitors and takes these factors into account while locating the store premises.
Understood. Understood. I think that was clear. Just this feedback I wanted to give because I think last year also, some of the months, you were impacted in the Luz Church store, which was a flagship earlier. And I felt that at this point of time, looking at Purasawalkam, where again, maybe your location might not be having the parking issue, but typically, there's a lot of clogging that's happening. So I was just curious whether you would explore to delay the opening or prioritize it maybe later in the year in line with the wedding season.
I mean, naming may not be appropriate, but if you visit the place, you would see that other major stores are getting this kind of an intrusion. It might slightly result in an advantage for us also.
Great, sir. Thank you so much.
Thank you. The next question is from the line of Prince from PINC Wealth. Please go ahead.
Yeah, sir. My question is hello? Hello?
Yeah. Please go ahead. Go ahead. Please go ahead.
Yeah. My question is, since you said that this last year's Q1 versus this one, sorry, last year's H1 versus this one H1 will be at par? So you are saying in terms of sales or in terms of EBITDA level will be at par?
See, once the SSGs are normal and we are able to get the additional revenue for the new stores, it should always be better because there is an improvement, margin improvement in the first quarter itself. So it should enable a better margin also. But at this point of time, we shall conclude that at least it will be the same.
Okay, sir. So if you say that it should be in the same level, so that for that, our sales, if I assume that we'll be making an EBITDA margin of somewhere around 16%, which you have been making it around, so we have to do INR 500 crore sales in this quarter. So do you think it is achievable based on the current trend and demand you are seeing it?
We're not going to that particular figure at this point of time, but we shall definitely be doing much better improvement than Q2 of last year and Q1 of this year as well. I don't think I'm permitted to make a specific figure statement on this.
Okay. Sir, my question is that since we have come with an IPO, so we have been aggressively adding the stores. But what is happening is that we are seeing that our SSG degrowth is happening. So I think on the revenue per square foot, revenue per square foot, we have been stagnant only. So can we say that our mature stores are actually not contributing? In fact, in terms of SSG, they are in negative. And whatever the sales have been coming is from new stores. But if you see on revenue per square foot basis, revenue per square foot basis, we have been the same. So do you think that that's a concern that on the mature stores, basically, how we see the improvement in SSG?
Because otherwise, we'll be just opening the stores, and the current mature stores, it will be contributing in negative in terms of SSG. So how do we counter that strategy?
See, the stores that are coming in are in a new territory, new area. Stores that were matured stores are also in different areas. It's not as though in one area where new store is doing and old store is being cannibalized. We have gone through the reasons for the reduction in SSG, barring external reasons that were there last year and this year. We have identified certain places where there is a potential for improvement by converting the format. That is why in the current quarter, one of our big stores in Hyderabad, where the potential is for Varamahalakshmi Store, we are converting from Kalamandir to Varamahalakshmi Store and other places also. We are improving the store experience. Definitely, from this quarter onwards, we should see the improvement in the existing matured stores also.
Perhaps going ahead, the negative SSG may not be a concern for the company.
Okay. Then just one thing for revenue per square foot on the mature stores, what will be the peak revenue per square foot on the mature stores or the area, I can say? Let's say we have 650,000 sq ft. After, let's say we have 550,000, we have matured. How much revenue per what can be the peak revenue per square foot on that? Just a ballpark number. I want to understand it.
So it varies between formats. In Varamahalakshmi format, as you said, even it ranges to be anywhere between.
On a blended basis also is fine since.
Blended basis, since Varamahalakshmi is on the expansion mode, it continuously improves. Earlier, it used to be in the range of about 21,000 or so, which this year will improve to approximately 24,000. Going ahead, by the time we complete the expansion and be operational on all the stores, we should be achieving approximately 28,000-28,500 on a blended basis per sq ft. That should be in the year 2026.
2000?
2020. When we complete this expansion, then the Varamahalakshmi stores will be in the range of about 65% on our total 60%-65% of the total revenue coming from Varamahalakshmi format. We targeted that we should be able to reach to approximately 28,000-28,500. This will be by the year 2026.
Okay, sir. I can assume that on a blended basis, revenue per sq ft will be INR 28,000-INR 29,000 will be the peak on the mature stores, I can say, right?
Yeah.
Hello?
Yes, it is.
Okay. Okay, sir. And, sir, since Q3 and Q4, how do we see since we have a lot of wedding dates? And also, one more thing is that since now the Andhra Pradesh has been given funded by the central government as a lot of support, so do we see that we can see a significant store addition in that area since it will be the whole state will be in the development mode?
So talking about the overall situation of AP, definitely, the purchasing power is definitely there in the southern belt. So at this point of time, we are not planning to add major stores in the current belts of AP and Telangana. However, we are exploring one or two locations only. We're looking at areas where we haven't expanded, and not even one store is there. Only one store in AP and one location in Telangana is what we're exploring. Otherwise, the focus still continues to remain in Tamil Nadu. And one or two locations, we've also almost finalized in the northern part of Karnataka as well.
Okay. And, sir, are we looking in Kerala also? Is there any plan to go to Kerala also?
We definitely do have plans to go down to Kerala. I think Kerala is a very big market. Again, the strategy when we wanted to enter into Kerala should be where we have a cluster number of stores. Once this expansion is done, slowly, we should be able to start putting up stores in Kerala and a few bits of Maharashtra as well. But at this point of time, I don't want to talk about other areas. Right now, the focus is still continued to remain in the south of Tamil Nadu and Karnataka. Only one or two locations we are exploring in the current areas of AP and Telangana.
Sir, just one last question. How is the demand coming out since are we going to see that consumer will be buying still downgrading products, or do we see that they will be buying premium products also, like which we are into Kalamandir, Varamahalakshmi? So do we see that customer going downgrading, or since we are expecting that customers will buy these value-added premium products, still there's a pocket to buy?
Definitely, when it comes down to weddings, generally, people go overboard and spend as much as possible. So till last quarter, the overall ASPs, when you look at, actually went down because there are no wedding muhurthams. So the moment where the wedding season and wedding calendar and festivity calendar kicks in, definitely, we see people spending much higher than what's anticipated. And as you rightly pointed out, Varamahalakshmi Silks format is rightly meant for wedding customers itself. So to answer your question, see, when we see in the current quarter, which is in Q2, we actually see high-value items also being sold out. So the same thing has been replicated even in terms of what our stores have. The higher-value items are also pretty much getting sold, which happens to be a declining category in the last two quarters.
Last 2 quarters, we have seen a major decline in the INR 30,000-INR 50,000 bracket. But in this quarter, we are seeing a positive growth in that particular price point. That price point generally happens to be pure silk sari segment. And that segment also is thriving at this point of time, which means the wedding as a category is what derives the overall consumer spending power.
Okay, sir. Thank you, sir. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Priyam Kamawat from ASKIM. Please go ahead.
Hello? Am I audible?
Yes, sir. Go ahead.
Yes, please. Yes, sir. Sorry, I missed the guidance in terms of network expansion in this year. So I understand that some of our stores have moved from Q1 to Q2. But on annual basis, do you believe that we'll be able to open 1,000,000 sq ft as we had guided earlier?
Priyam, so yes. See, the guidance of having a 90,000 sq ft is what we have promised from the beginning, and that's still the case, yes. But what has happened in unfortunate circumstances, things have moved down from Q1 to Q2. So we should be able to see majority of the stores coming in end of Q2, Q3, and a few stores will also overlap to Q4. So overall, by this fiscal year end, we still should be able to have a similar guidance of reaching to 90,000 sq ft. But it's just delayed by a couple of months. So we still are targeting to open about 90,000 sq ft.
No, that's fair enough. Okay. And there's a lot of confusion in terms of comments made by you for Q2. So firstly, I just wanted to understand that H1 FY25, you are telling that it will be similar to H1 FY24. So that basically implies a 12% kind of revenue growth in Q2. Now coming to EBITDA, if I look at your base quarter, which is Q2 FY24, you had done around 16.8% kind of margin. So do you think, considering that we'll be doing double-digit revenue growth in Q2 and flattish SSG, that kind of EBITDA margin should come back in Q2 this year?
Right. Should see negative SSGs, obviously, with full costs meant the margin will come down. But since we are expecting that at least neutralizing SSGs and improving on the output of new stores additions, additional turnover, we should expect that the margin should come back to the last year's.
Okay. So 12% kind of revenue growth and 17% margin is possible in Q2 provided the next 45 days goes as per our expectation, correct?
Correct.
Sir, we've opened around 7 stores since our IPO, like 6 last year and 1 this year, all in Varamahalakshmi format. Just wanted to get some clarity on how these stores are performing in the first 45 days of this quarter. Because on annual basis, we always believe that these stores on per sq ft basis can generate INR 50,000 kind of revenue. So are they trending towards that, or they're trending lower than our expectation? I'm talking about Q2 because Q1, I understand that there were lower wedding dates, etc.
Priyam, so overall, when you talk of the mark and few stores below the mark, but on an average, we are definitely in the range of about 55,000-60,000 sq ft range, 70%.
See, it depends on which store we are opening. When we open the Pondy Bazaar store, it gives much higher per sq ft throughput also. Similarly, in other places I quoted manam chesinadi ekkada?
Salem.
[Foreign language]. Chennai [Foreign Language] .
Okay. Just one last question from my end.
In Punamali.
May I?
Yeah, go ahead.
So in Poonamallee store, which is a small store catering to a local area, the average would be in the range of about INR 35,000 or so. Overall, getting it to INR 50,000-INR 55,000. That is why, in fact, we were expecting that our Madurai store would also be a premium store, like the Pondy Bazaar store or Jubilee Hills store, which will definitely improve the average per sq ft of productivity of this format.
Got it. Got it. Just one last question from my end. Last year, FY2024, if I'm not wrong, KLM Fashion Mall revenues were around INR 500 crore. This year, how is that format trending in terms of overall revenue? Are we expecting a degrowth on that INR 500 crore revenue number, or do you think that possibly we can achieve a flattish revenue? And also, if you could help us understand what kind of EBITDA margin does that format make?
KLM, we are expecting that this year, it will be at least a neutral SSG or slightly better. Overall, there will not be any degrowth in KLM format for this year. But the improvements, the additional turnovers vis-à-vis better productivities, we are expecting from Varamahalakshmi format only.
Okay, sir. And on the EBITDA margin, EBITDA margin for this format?
EBITDA margins individually for KLM format?
Yeah. Yeah. Yeah. Just a ballpark number.
It remains the same. Currently, it will be maintained at historical level, but our team is working on it to improve KLM format's profitability also. Next year, we should be able to see an improvement in the operations, both on the productivities and margins of KLM format because there is a specific effort that is being made on the KLM format.
Priyam, on the KLM front specifically, apart from the normal categories, I think I already did mention last time that we are planning to add a few more white tables and accessories as a category. We have just started launching all of these in our stores right now. Laundry as a category is doing pretty well. We plan to improvise the focus on that segment, along with that, add a few more sections. All of these categories generally have a higher margin compared to the regular apparel section that we currently have. So all of this is currently being executed at the store level. So again, however, this quarter or maybe next quarter, we should not be able to expect a lot. But in the next financial year, you should definitely be able to see these value-added categories also contributing to the overall gross margin.
That will impact, drive a little bit higher up in terms of the gross margin values and EBITDA levels.
Got it. This is very helpful. Thanks. Thanks. Thanks. All the best.
Thanks.
Thank you.
Thank you. The next question is from the line of Rohan Patel from Turtle Capital. Please go ahead.
Hello. Thank you for the opportunity. I just wanted a.
Sorry to interrupt you, sir.
Mr. Patel, could you please come a bit close to your handset? You sound a bit distant.
Am I audible now?
Yes, sir.
Yeah, yeah.
Yeah, yeah.
I just wanted a midterm overview about your growth plan for next three to four years. What kind of growth do you want to take it from 6.5 lakhs sq ft that we have currently to how much we can do, like 13 lakhs or 12-13 lakhs in next three to four years? And from 61 stores, how many stores do you want to add in next three to four years? Your target, if anything, sir.
Sir, as we speak currently, the guidance for this year, we planned about it for 90,000 sq ft. And from next year onwards, the idea is to open around 10%-15% of square feet addition year on year. So that's where we currently stand for the guidance for the next three years at least. So a 15% addition, 10%-15% addition is what you should be able to expect in terms of the new stores. Net retail square foot addition is what you should be able to expect.
Okay. And that is on a sq ft. So can I get a range of what kind of stores we would be having in the FY27 from currently with standard 61 stores? I mean, we should be able to achieve approximately 100 stores by the year 2026. By year 2026, you may be reaching 100 stores.
Okay. End of 2026, yeah.
Okay. Just all the old stores getting matured, and also after one year, the 90,000 sq ft which we are adding will get matured. What kind of average revenue per store or per sq ft we can achieve at end of, say, FY26 or FY27, as per your understanding and experience?
That is what. On a blended basis, you can take INR 28,000-INR 28,500 per sq ft after expansion, say, at this stage of about 100 stores existence.
Okay. We will be maintaining EBITDA margin of, say, between 17%-18%?
We should be improving on that because entire expansion will be going on premium format. So the premiumization will add to the margin profile as well.
The margins, can we expect going forward to be better than FY2024 level?
Definitely. On a progressive manner, we are planning for the margin improvement year on year. Both on the gross margin, sir, as well as on the EBITDA.
Okay. Okay. That's all my questions. I've been answering. So thanks for the opportunity. This was for me.
Thanks.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you, everybody, for being patient and following us. We are definitely on the right track moving forward, and we'll connect back after Q2. We are anticipating that Q2 should be in a very positive trend and hoping to hear from you all at the next quarter earnings call. Thanks for joining. Happy weekend. Thank you.
Thank you. On behalf of HDFC Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.