Brainbees Solutions Limited (FIRSTCRY) Earnings Call Transcript

Good evening, everyone. Welcome to Brainbees Solutions Limited Q1 FY '26 Earnings Call. This is Anish Arora, and I have with me Mr. Supam Maheshwari, Managing Director and CEO of the company; Mr. Gautam Sharma, Group Chief Financial Officer; Mr. Vivek Goel, Chief Business Officer of the company; Mr. Abhinav Sharma, Country Head of Middle East Business Operations; and Mr. Anuj Jain, CEO, GlobalBees. Kindly note that this call is meant for analysts and investors of the company. We wish to highlight that the call is being recorded, and by participating in this event, you consent to such recording, distribution and publication. [Operator Instructions]. We would like to point out that some of the statements made in today's call may be forward-looking in nature, and the disclaimer to this effect has been included in the investor presentation shared with you. With this, I hand over to Mr. Supam Maheshwari.

Thank you, Anish. Good evening, friends. Welcome to our Q1 FY '26 performance update meeting. So we are very happy to report 25% growth in our adjusted EBITDA for the consol business for the first quarter vis-a-vis Q1 FY '25. And also at a consol level, first time, we have become free cash flow positive at a consol business level. Growth in Q1 in India Multichannel has got moderated on account of several factors, broadly broad slowdown in consumer sector consumption side and macro factors, including changes in the last-mile delivery ecosystem, which also impacted our performance in the Q1 and a bit of an elevated geopolitical tension in North India. All of these have led to a little slower growth than what we had anticipated. And however, we see encouraging signs in the month of July. We have observed an early teens growth in July over the previous July. Overall, our India multichannel business continued to be PBT and free cash flow positive in Q1 FY '26. International business continued to deliver as we have discussed in our previous calls. We have been able to deliver sustainable growth, with an improvement of 30% year-on-year in adjusted EBITDA that you'll see in the subsequent slides. And we will continue our path on this sustainable growth for the international business and reducing our burn materially. And on the GlobalBees front, we delivered another strong quarter of organic growth with core categories driving the significant momentum, close to around 40%. So I hand over now more detailed discussions and updates to Gautam.

Thanks. So this is the performance summary for the consol business. The revenue in Q1 FY '26 has grown by 13% year-on-year to reach INR 18,626 million revenue. Gross margin, we continue to improve the gross margin. The gross margin expanded by 82 bps. It's an absolute increase of 15% year-on-year. Adjusted EBITDA, which Supam talked about in the previous slide, it has increased by 25% in absolute terms on year-on-year. And if I talk about the percentage of adjusted EBITDA to revenue, it's 5% over 4.5% in Q1 FY '25. Cash profit after tax, which is the net accounting profit after adjustments of the noncash items, it has increased by 197% over Q1 FY '25. The next slide, we will talk about some of the KPIs, the consol KPIs. Annual unique transacting customers, this is for trailing 12 months, is 10.8 million, which is an increase of 14% over June last year. Similarly, GMV for the consol business, which is the India multichannel business and the Middle East business, it has grown by 9% over Q1 FY '25. The next 2 points is we have talked about in the previous slide that is the revenue from operations on a consol basis as well as the adjusted EBITDA. India multichannel adjusted EBITDA, which is the core business, it has delivered a growth of 12% over Q1 FY '25, largely driven by expansion in gross margins. We will talk about in detail for the India multichannel business in the coming slides. Cash profit after tax, we talked about in the previous slide, it's an increase of 197% over Q1 FY '25. Now I will hand it over to Vivek to take you through the performance of the India multichannel business.

Thank you, Gautam. So as Supam mentioned in his opening remarks that Q1 this year was a bit of a -- it had multiple moving parts for us. While the broad-based consumer slowdown, which we mentioned in our previous calls, continued, we also faced challenges in our last-mile delivery ecosystem, which actually impacted the consumer experience in our online business. Q1 also witnessed close to a week sale in Northern states getting impacted due to the India-Pakistan conflict. We also saw an unusually soft and softened summer, which was caused by the early onset of monsoons, which further impacted our performance. In offline, growth was also impacted by the store closures that we did in Q3 last year as some of the -- as the sales remain in the base of Q1 last year for the same stores. However, as Supam mentioned, that we have witnessed some very encouraging signs of growth in July. I want to reiterate that while some of these things have impacted our growth in Q1, we have successfully navigated such challenges in the past, and we will surely do so in the coming quarters. In terms of numbers, our annual unique transacting customers in India multichannel business has increased by 14% to 10.3 million. Orders grew by about 6% to 9.5 million. Our GMV growth was 10% at INR 21,265 million. Anish, if we can move to the next slide. The revenue for India multichannel business grew by 8% to INR 12,366 million. Our adjusted EBITDA grew by 12% for India multichannel to INR 1,067 million.

So just to add here, we continue to expand our gross margins. You can see the numbers highlighted in green. Gross margin of 36.6% in Q1 FY '25 has increased to 37.8% in Q1 FY '26.

Okay. I'll hand it over to Abhinav for the Middle East presentation.

Thank you, Vivek. Good evening, everyone, and thanks for joining us over the call this evening. We'll just quickly go over the International Business segment. We are seeing continuous growth across all key metrics. The levers in play, we have outlined this in our previous calls that sustainable growth is of prime importance and focus for us in this region for both UAE and KSA. And we've been continuously executing our plans to achieve that kind of growth by essentially optimizing the top line mix, which thereby yields a superior GMV to revenue conversion, which you will see in the subsequent slides and also superior margins and also ensuring that our quality of acquisitions are very, very high or very, very superior because this, in turn, adds to our overall sustainability sort of idea and vision going forward. So we saw [indiscernible] percent increase in AUTC in Q1 FY '26 over Q1 FY '25, 7% increase in orders in the same time period and GMV grew by 3% in the same time period. However, we saw a 13% increase in revenue. And we've mentioned before that for the International Business, revenue is a more apt number versus the GMV. So we grew from INR 183 crores to about INR 207 crores. Gross margin expansion was about 100 bps. More importantly, going to the sustainable, again, maintaining an equilibrium between growth as well as burn reduction. Our adjusted EBITDA improved both in terms of absolute as well as percentage points, absolute reduction of 30% from INR 30 crores to about INR 21.5 crores and percentage reduction by 700 bps. Anuj, over to you for GlobalBees, please.

Thanks a lot, Abhinav. Good evening, everyone. On the GlobalBees front, we're very happy to report a 31% year-on-year growth from INR 324.5 crores in quarter 1 FY '25 to INR 426.5 crores in quarter 1 FY '26. The adjusted EBITDA as a percentage of revenue was 1% in this quarter. Our growth has been completely organic. The last acquisition that the company made was in September 2022. GlobalBees operates in the core categories of home improvement and utilities, home appliances, health and personal care and active lifestyle and accessories. These core categories contribute around 95% to our business. If we slice the numbers, revenue from core categories increased by 40% plus year-on-year, and these categories delivered an adjusted brand EBITDA post corporate expenses of 4.5% plus in Q1 FY '26. As mentioned on the previous call, we continue to rationalize the brand portfolio across other brands. Therefore, the margins will be weighed down due to that for a few more quarters this year. However, this rationalization will be complete in this financial year itself. Gautam, over to you.

Thanks, Anuj. So this is a repetition of what we talked about in the first few slides. A summary of the consol performance, revenue grew by 13%, margin expansion by 80 bps and the EBITDA expansion by 50 bps, an absolute increase of 25% year-on-year. This is where we end our presentation.

Happy to take your questions.

[Operator Instructions] First question is from Mr. Sachin Dixit.

This is Sachin Dixit from JM Financial. I had a couple of questions. So my first question was on India multichannel business, where obviously growth continues to get worse. And the question largely is what can we do as a company to drive growth out there, right? Because the weather-related impact, right, late winter was there, then early end to winter, now early end to summer, right? So these things will keep on happening. But what as a company we are pushing to drive growth, right? Because until now, our online growth used to be good, but if I'm calculating the numbers correctly, even online growth seems to have dipped to like 11.5%, 12% this quarter.

So I think, Sachin, if you look at -- I understand where you're coming from, and it's a very fair question. Some of these things, external event may continue to happen. It's not in our control. We need to focus on what is in our control. And that's, I think, what we are sort of working towards. Part of it is visible and part of it will probably -- we'll be able to continue to demonstrate. So first factual information is the July-over-July performance in India multichannel has been in early teens in terms of growth. So I think we are back on quite a good sort of a shape. And we strongly believe that we should continue to deliver similar trajectory for the rest of the year as well. Having said this, what are the factors that will help us that we are actually working towards. One of the most important things that we are working towards is building our -- the impact that has been on us is from a last mile customer experience perspective. And I can talk about both online and then specifically on offline as well. So on the online, the impact has been largely because of the customer experience, and there have been consolidation in our sort of last mile logistics sort of service network in the ecosystem of that. We all know that. And that has shrunk some of the capabilities. But at the same time, there has been a lot of demand that has been generated out of some of the players, which essentially leads to a demand-supply gap, leading to supply being constrained and leading to industry average going down in terms of delivery performances, which we believe we need to work upon. And as you would remember, we had started an experiment a couple of months back, we talked about in the last quarter. Happy to report that we have expanded that experiment to now 4 cities, and we will continue to expand that to many more cities over a period of next few months. And there, we have seen the results of a much superior growth year-on-year basis in those cities where our tech platform and our local regional logistics partners are able to deliver a much superior customer experience and able to have that growth back. So we believe over a period of next few quarters, we will continue to work on it. Probably it will never finish. That work will never finish. But it's something that we want to really expand aggressively to control that customer experience and being able to get the growth back. This is one thing that we are doing from an online perspective. Rest are things -- from an online perspective, we continue to depend on some external factors like environmental factors that unfortunately, we can't control. From an offline perspective, yes, there have been -- unseasonal rains do impact offline stores. But we believe that -- and the stores that we had closed in Q3, which Vivek talked about were there in the base of Q1. Hopefully, once that base is gone, then I think you should be able to see superior growth. And some of the store size discussions that we have done last time around will help us in improving our capital efficiency. So I think those are the ways that we are addressing the broad consumer slowdown, especially in the offline. But we are very confident that what we have seen in July, we'll continue to be able to leave for the rest of the months of the fiscal year FY '26.

Just a quick follow-up on that. Are you happy with the speed of store expansion, offline store expansion that you're doing in COCO format?

See, look, it's -- I think we have put ourselves in a constrained way to be able to deliver that. We have optimized that. I wouldn't say that what we -- we will add in FY '26 close to around 90 to 100 stores, what we added in FY '25 as well. So that is what we will be delivering for FY '26 as well.

So the focus, Sachin, is to better the capital efficiency of the offline business.

Got it. Sure. My second question is on GlobalBees, which is a business which continues to surprise positively every quarter, right? So on that piece, I mean, two minor questions. The first one is, do you plan to start acquiring brands anytime soon there? And secondly, as FirstCry investors, can they anticipate any liquidity from that business getting demerged, having its own IPO or anything like that? Those are my two questions.

Anuj, do you want to take that or you want me to take that? So second question, we'll take because let's...

Sorry, I was just [indiscernible]. Supam, carry on.

Go ahead with the first question. At least let's answer the first question on the acquisition.

Yes. So on the first question, I think we have -- in our core categories, we already have quite a few categories. And I think we have a very good spread of play to be able to grow. And it is very important for us to prioritize consolidation and financial prudence for us to be able to sort of continue to grow with this kind of a margin profile. Therefore, acquisitions are not something that are on the cards or under consideration right now. On the second part, I'll let Supam take it.

Just to add here, Sachin, the last acquisition we made was in September 2022. So whatever growth we are delivering since last couple of quarters is all organic growth.

Completely, sir?

So on the second question, Sachin, from an exit path perspective, from a monetization for the shareholders of GlobalBees, company has its separate management team, which is run separately. And also, it has its Board -- separate Board and also it has a separate set of investors apart from BrainBees as well, which include Premji, Lightspeed, Chiratae and so on and so forth. Having said this, most probable outcome for GlobalBees as an outcome will be a listing, which company and its shareholders will decide over a period of time is when Brainbees also will find a monetization opportunity over a period of a few years.

The next question is from Sachin Salgaonkar.

A couple of questions from me. One on the core multichannel business and one on international. On the core multichannel business, two parts to the question. One, are we seeing impact of quick commerce on the business? And the question is because you guys are experimenting with this faster delivery in 4 cities and clearly, you're seeing traction. So I guess there is appetite for customers to get products at a much faster pace out there. The second part of this question is, clearly, there were 3 factors which impacted the growth this quarter; consumption slowdown, last mile challenges and what we saw in terms of geopolitical issue. Now the geopolitical issue is behind and generally wanted to understand, Supam and Gautam, your thoughts on consumption slowdown, last mile challenges. These have been there for a quarter or so. So what's the kind of a steady-state growth we should expect going ahead, at least for a few quarters before these things normalize? And just to call out my second question, wanted to understand, again, the steady-state GMV growth for international business. We did see a 3% growth this quarter. How should one think about steady-state growth? And what are some of the things we should see from FirstCry to reach to that level?

Sure. Abhinav, do you want to take the second question first, and then we can come to the first one.

Yes. So before I answer that question, I missed an update, a very important one for everybody. So very happy to announce that in the Middle East, we'll be setting up our first store and operating our first store out of Riyadh in Saudi Arabia, well within the time lines of this quarter. Before the end of this quarter, we will be live. So this is our first step, baby step while we go towards our omnichannel play and a great testament again to the India playbook that we've evolved and developed over the last 1.5 decades. So Sachin, on the -- so first off, on the GMV, I would like to mention that for the International business, I think the right sort of a number to look at is a revenue growth, not GMV growth. So in terms of -- your question on the sustained growth or a steady-state model, I think too early right now because the reason why I'm saying this is because KSA is just 3 years old in the market in terms of business and UAE is about 5. So we are still early days. However, when it comes to growth, we are very clear on our focus of having a sustained model of top line growth. And when I say sustained, I mean maintaining an equilibrium between generating top line, which is also helping us at the same time, reducing burn because that's what we mentioned over the last few calls, and you've seen that in the second slide, where we've reduced the burn in absolute terms of about 30% or so. So while we do this, we are very, very clear on acquiring customers that are having a very high or a superior quality in terms of retention and thereby a longer sort of LTV for us generating -- or helping us expand our gross margins as well as strengthening our moats while we do this. This journey is, I would say, in its infancy right now. So we need to give it some bit of time. But the light at the end of the tunnel is very clear. You've seen that the cost or the losses are cut quarter-on-quarter, and you would see that progressively from here on. And you will see growth coming as well on the back of both our home brand share improving, the acceptability of our home brands in both markets, UAE and KSA, while we improve the product assortment, product quality and we sort of acquire and retain our customers, fending off any headwinds that we see continuously with heavy or deep discounting and very robust or aggressive postures on marketing spends in the ecosystem. So our first sort of focus is unit economics improvement. And then from there on, while we do that, from there on, we then double down on our growth and marketing spend. That gives us the sort of an open playing field to expand and to grow sustainably.

And sorry, Abhinav, what kind of steady-state growth are we talking? India business is early to mid-teens. Is that something similar as a growth we should look at the international business?

In the foreseeable future, I think, yes, because that would be a more sort of a sustained number. But like I said, once we achieve a unit economics that is helping us -- allowing us to double down on our marketing spends, we can then achieve certain higher growth numbers as well.

Got it. And foreseeable future is 1 to 2 years, I presume, right?

I would say the next couple of quarters for sure.

Yes, Sachin. So coming back to the first question, yes, there are certain factors that are -- we talked about those factors leading to the kind of growth. And I think, look, we are putting our efforts as Sachin Dixit asked that question. And I think July is a testimony of that. So somewhere, some efforts are being put by government policies, some efforts are being put by sort of our own efforts in terms of improving the customer experience, and the planning that is underway. And some are external factors that should be helping us during the course of our journey, should not surprise us negatively. With all of those, I think July has been a month that looks -- give us the confidence that clearly, we should be in -- as I mentioned, it was in early teens for us, July over July. We believe for the rest of the sort of fiscal year, we should be able to demonstrate or we should be able to deliver the similar kind of a growth for the India multichannel business. While our focus on our effort will remain what we can influence, which is delivery experience and a bit of -- rest of the stuff, there are so many finer points that we don't want to get into that. Those are related to tech merchandise and a lot of list of activities that we will end up doing as a management team. However, the key focus area will remain delivery experience. And we hope we continue to strongly believe that we should be able to demonstrate what we saw in July.

And so -- any thoughts on quick commerce? Is that impacting business or not so much?

Nothing has changed, Sachin, is what we have mentioned in the last quarter update or last couple of quarters updates. Nothing materially has changed for us from a quick commerce sort of perspective.

Sachin, the overlap at the category and the brand level is quite small. So that's what -- and that has not changed per se from a quick commerce point of view. And as Supam said, the core focus remains on customer experience improvement and the delivery experience improvement, which had actually suffered in the previous quarter.

Got it. And Supam, just a clarification. When you talk about early teens growth, are we referring to GMV growth or revenue growth?

So we mean revenue.