Brainbees Solutions Limited (FIRSTCRY) Earnings Call Transcript

Good evening, everyone. Welcome to Brainbees Solutions Limited Q2 and H1 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 CFO; Mr. Vivek Goel, Chief Business Officer of the company; Mr. Abhinav Sharma, Country Head of Middle East Business Operations; and Mr. Anuj Jain, CEO of 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'll be covering the presentation in the beginning of the call, and we'll thereafter open for Q&A forum. 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.

Good evening, everyone. So first of all, I'd like to say Happy Children's Day to all of you. Thanks for joining our quarter 2 and H1 '26 earnings presentation. Anish, can we move to the next slide, please? Yes, we'll take you through our H1 and Q2 performance highlights. This quarter, and in H1, happy to share the progress report card. On the consolidated basis, we have been PBT positive adjusted for ESOP cost in quarter 2 as well as for H1 FY '26. Also happy to report adjusted EBITDA increased by 51% in quarter 2 FY '26, led by improvement across all our business segments. And we continue to remain free cash flow positive as well for H1 FY '26. On the segmental update, at a broad level, India multichannel despite deferring of consumer demand due to implementation of new generation GST reforms, we witnessed sequential improvement in Y-o-Y basis on growth rate for GMV across -- for both online and off-line channels. And with the expansion of our faster delivery initiative that we spoke about at length last time around during our earnings call and plus new scale-up of our new initiatives that we will discuss -- we have discussed last time, but we will share more details this time around. We believe our year-on-year GMV growth rate for both online and offline will be sequentially better for second half of the FY '26. We continue to be PAT and cash flow -- free cash flow positive in H1 FY '26. On the international business, we delivered another quarter of sustainable growth, as we have spoken about in our last several earnings call. And this comes with a significant improvement in the adjusted EBITDA, which has been around 52% on a year-on-year basis for quarter 2 ending '26. On the Globalbees front, we delivered another strong quarter of organic growth with core quarters with core categories driving the growth momentum as well as the profitability.

Yes. So we continue to improve our EBITDA across all the business segments. As Supam mentioned in the previous slide, our adjusted EBITDA for the consol business in Q2 has grown by 51% year-on-year. And if we further break it down into different business segments, we can see India multi-channel business EBITDA has improved by 14% year-on-year. International business, as Supam mentioned, we talked about this in our previous calls that we will continue to focus on a reduction of losses in international business. You can see a significant reduction of losses in our international business, from a loss of INR 39.4 crores in Q2 FY '25. We have reduced this by more than half to INR 18.9 crores in Q2 FY '26. Globalbees' EBITDA continue to improve, an increase of 23% year-on-year in Q2 FY '26 over Q3 FY '25, which is the preschool business continued to deliver a strong EBITDA. It's an increase of 55% year-on-year in Q2 FY '26. This is a snapshot of Q2 performance for the consol business. Annual unique transacting customer, this is a trailing 12 month stands to be INR 11 million. It's an increase of 11% year-on-year. This is for the India multichannel business and the international business. Similarly, GMV has also grown by 11% for India and international business put together. The revenue from operations on a consol basis has increased by 10% year-on-year. Similarly, the adjusted EBITDA consol adjusted EBITDA, which we talked about in the previous slides has increased by 51% year-on-year. Talking about the India multichannel business EBITDA, it has increased by 14% in Q2 FY '26 over Q2 FY '25. And we continue to improve the cash profit after tax, which stands at INR 71.6 crores. It's an improvement of 157% over Q2 FY '25. Now I hand over to Vivek to take you through the performance of India multichannel business.

Hello, everyone. Apologies for the technical glitch. So Happy Children's Day everyone. So the Q2 for India multichannel business, played out for us in 2 parts. The first half of the quarter was very good, and we also alluded to it in our earnings call during our last time. The growth in the second half of the quarter was moderated as the customers deferred their purchases following the announcement of the new GST rate reforms as Supam had also mentioned. We witnessed this from mid-August to late September. In order to incentivize the customers during this period, we increased our discounts on our platform, which has resulted in difference in GMV and revenue growth and also a slight reduction in gross margin that you will see in the next slide. However, our adjusted EBITDA margins continue to expand. Further, it is important to note that the GMV growth on a year-on-year basis has sequentially improved on both online as well as offline channels in Q2 FY '26. Also I would like to highlight that we've witnessed very encouraging signs of growth during the -- during and post festive season for both online and offline channels. On the profitability front, I'm happy to announce again that India multichannel business continued to be PAT and free cash flow positive in H1 FY '26. When it comes to online unique transacting customers, we grew by 11% in Q1 -- in Q2 FY '26 to INR 10.5 million. India omnichannel business had an orders growth of 8% in Q2 FY '26. And for half yearly basis for H1 FY '26, we grew by 7%. Our GMV increased by 12% in Q2 FY '26. And on a half yearly basis, H1 FY '26 over H1 FY '25, we grew by 11%. So as I mentioned earlier, India multichannel business witnessed continuous expansion of adjusted EBITDA margins. Our EBITDA margins for Q2 FY '26 grew to 9.1% from 8.6% and for half yearly basis, we grew to 8.9% from 8.5%. When it comes to gross margin, as I mentioned, there is a slight decline in Q2 FY '26 to 37% from 37.3%. However, at a half yearly basis in H1 FY '26, we grew to 37.4%, which is 40 basis point growth over last year.

So on India multichannel business, I just wanted to highlight few key initiatives that we are undertaking to drive growth. First off, the one is the new generation GST reforms, it's obviously a gift from the government. Almost 1/3 of our portfolio transitioned to 5% GST. It will help us spur demand for all retailers, including FirstCry. So that will be definitely a very good positive for us. Most importantly, what is in our control and what we are endeavoring to deliver, which we have spoken at length last time around. Happy to report that we have expanded our delivery network from 4 cities to 13 cities, which in-house delivery network and has helped us significantly to improve the TAT and resulting in growth in those cities as well as the customer experience. We continue to expand on this initiative, our endeavor is to take and continue to expand month-on-month and adding more cities to be able to cover half of our shipments in -- by the mid next year. And the next initiative that we would like to share with you all is that we have been witnessing, we had witnessed in the past is around the footfalls in the offline channel. Here, we are aiming to roll out realigned product portfolio by H1 '27. Here instead of playing -- instead of wicked strategy, we'll be playing more of a debt strategy, enabling us more margins, which we will be able to pass to the customer and thereby expanding our certain customer base that we will be able to target additionally without really losing any material margins at a gross margin level. So this -- with this, we anticipate increase in footfall as well as conversion. Also with improvement in faster delivery network that we are creating, this all has been created in last 6 to 7 months only, and we rapidly continue to increase this. We are encouraged with this to the extent that we will be actually spending more marketing monies and we still manage our unit economics and we're able to accelerate the growth because we are able to now offer much superior customer experience that we have not been able to deliver in the past. So with these initiatives, we believe the best is yet to come for us and H2 and even FY '27 looks more promising as we progress towards in the H2 and the FY '27 zone. Now I'll hand over to Abhinav to take you to the international business update.

Thank you, Supam, and good evening, everyone. Happy Children's Day to everybody, the best forum you can expect to get wished for Happy Children's Day, I believe. So very excited and happy to share that we've launched our first store in Riyadh in Saudi Arabia. It's a company owned and operated store in a mall. We launched somewhere around the third week of August 25. And off to a very promising start, both from a customer experience or customer feedback standpoint as well as the first -- sort of metrics that we've measured. Early days, but very promising and very excited and happy to share with you. And I think 14th November is a very good day to share with you this news as well. Anish, on to the next slide, please. So as mentioned on the previous calls, both by Supam and Gautam as well as I, we are on -- truly on our journey towards a very sustainable growth this quarter as well, we've been able to deliver in both the countries, both the markets, UAE and KSA very sustainable quarterly growth. By optimizing our top line mix resulting in a very superior GMV to revenue conversion and superior gross margins as well. Also, our relentless focus on acquiring superior quality customers, ensuring a very high probability of retention, which has been a key driver to the results that we'll see in the next couple of slides. AUTC grew by 12%, quarter 2 of FY '26 versus the same quarter last year. Orders grew 9% in comparable quarters. We saw an 8% order growth first half of this year versus last. GMV grew by 9% in comparable quarters and 6% versus the last -- first half of last year. Revenue, which -- actually is the metric that we all should look at from our international business to measure the scale of the business, we grew 13% from INR 208 crores to INR 236 crores approximately in Q2 of FY '26 versus a similar -- same quarter last year. To top it up, we expanded our gross margins by 300 basis points from 23.3% to 26.3%. Sort of a similar story first half of this year versus last year, 13% growth in revenue from INR 392 crores to INR 443 crores with gross margin expansion of about 200 basis points from 23.6% to 25.6%. Having done that, we also ensured what we promised over the last few calls is a relentless focus on burn reduction and loss reduction. We saw a significant reduction in Q2 this year of 52%, INR 39.4 crores going to INR 18 crores, just under INR 19 crores, which then helped us with our EBITDA margins by 1,100 basis points from 19% to 8% in Q2 of this year. Progressively, even in the first half of this year versus last year, we saw a 42% decrease in losses in absolute terms and a similar sort of EBITDA margin improvement from 18% to 9%. This shows us a progressive loss reduction that we've -- the journey that we've embarked upon the sustainable growth journey that we've spelled out very clearly over the previous calls as well as on this call. If you compare FY '25 versus FY '23, we had about 831 bps reduction in our EBITDA losses, 25% going to 16%, and that continued in the first half of this year, the 16% versus last year became 9% this year. So there is a relentless focus and laser sharp focus on both expanding the top line gross margins as well as reducing losses. So that's been sort of our corner store for this year and -- for this quarter as well as last quarter. And we believe that subsequent quarters also, we continue to deliver reduced losses and top line expansion on both fronts. Anish?

Okay. Good evening, everyone. I'm sorry, because of a technical glitch, I think the video is not coming on, but nevertheless, let me continue with the update on Globalbees. So our core categories continue to demonstrate strong growth. These core categories witnessed a 30% plus year-on-year growth in H1 FY '26. Further, the margin profile for core brands also continued to be strong. Core categories are operating at 5% plus adjusted EBITDA margins post corporate expenses. As mentioned on previous calls, we continue to rationalize our portfolio across other brands. And therefore, the overall growth and overall margins are the way that they are. Our endeavor is to complete this rationalization of other brands within the next couple of quarters. Overall, the revenue growth in H1 FY '26 was 21% year-on-year with an adjusted EBITDA margin of 1.6%. Specifically for the last quarter, we have grown at 14% overall. However, if we focus on core categories, the growth is 20% plus year-on-year. And if we account for the new settlement policy of Flipkart that some colleagues in the industry have also called out, the year-on-year growth is in the mid-20s. An important point I would like to highlight is that this entire growth is organic and the last acquisition that we made was in September 2022. Anish, you want to -- yes, thanks. I think we're still 4 years into the business. The first year went in priming the engine. And rarely we've been scaling up our businesses over the last 3 years. If we look at EBITDA performance over the last 3 years, you will see that the adjusted EBITDA has moved from 0% in FY '24 to a 5% plus adjusted EBITDA in H1 FY '26. And we continue to endeavor to demonstrate a great balance of growth as well as an improvement in adjusted EBITDA.

So this is the combined result of all the 4 business segments. In fact, we didn't have any slide on the education business. So the preschool business revenue in Q2 has grown by 22%. And we talked about the growth in EBITDA, which has grown by almost 26% in Q2 over last year Q2. So if we combine the results of all the 4 business segments, we get a 10% growth in our net revenue for Q2 over previous year Q2 and the H1 revenue growth is 11% year-on-year. If you see the gross margins, gross margins, while -- for the Q2, there is a slight dip in the gross margin, largely coming out of the Globalbees business, which Anuj explained in the previous slides, rationalization of other brands, which should be over in a couple of quarters. And second is a slight change in the revenue mix within the business segments. However, H1 over H1 continue to improve. Gross margin has increased by 10 bps in H1 FY '26. A clear focus on improvement of the adjusted EBITDA on a consol basis. We talked about the Q2 performance EBITDA performance, 51% increase in consol adjusted EBITDA for Q2 year-on-year. And similarly, if we talked about the H1 improvement. It's an improvement of around 38% year-on-year from 4.3% improved to 5.4% in H1 FY '26 and 4.2% in Q2 FY '25 has reached 5.8% in Q2 FY '26, largely coming out of improvement in profitability across all the 4 business segments.

[Operator Instructions] First question is from Videesha Sheth.

This is Videesha Sheth from AMBIT Capital. To begin with, can you double down on the initiatives that you talked about on the product portfolio in the offline channel. You did touch upon depth -- focusing on depth versus width, but if you could elaborate on this as to whether -- would the initiatives be towards focused assortment or tighter pricing? Or what is it that you're thinking about over here, please?

So Videesha, yes, this will be focused on -- the product realignment will be around in sort of focusing on width, which allows us to have more leeway in margins and able to offer better prices to customers as well without any material dent in our gross margin, enables us to address a more range of customers that today will attract more footfalls, more conversions and also further lead to more online volumes. And so all of this will be enabling us from a multichannel view. That is what our thought process is. We have done some experimentation, but the whole change will be actually applicable someway around H1 of '27.

Sorry, Supam, so just to clarify, offering a wider assortment would be a part of this?

Wider assortment -- it will be wide enough. I mean, let me put it that way today, we are very wide. We want to make it adequately wide and increase more depths to be able get the leverage on economies of scale to be able to have the more latitude on margins to be, again, be able to get that set of extra set of customers, who we are maybe losing out and making ourselves to be a more destination play as we have been in the past. So this will make us even bigger destination for mothers, baby and kids across all price segments. As you know, we as a -- both as an omnichannel player both in our home brands as well as in our third-party brand partners, we have products across price ranges. So we aim to cater to all kinds of price segments. But this latitude will also help. In offline, obviously, you can't -- the variety has to be slightly limited. You can't keep such a wide audience or such a wide price laddering as what you can keep it online. But we are just realigning that a little bit in the offline front as well. So to be able to make a footfall and convergence to further improve for where we stand is a change that we will be making without compromising any material sort of gross margin loss at -- for us as a business. Hope that answers.

So if you've done any -- so like you said, it's been rolled out in certain stores. So if you could talk about how is the growth profile improved over there?

Look, it's a very early sort of -- only few stores that we have done. So you can't do it at a like -- so therefore, it has to be done at a scale, but we are very confident that it will work out, and it will actually deliver us the yield that what we are anticipating. So we are very, very confident. That approach compounded with our faster delivery and increase in our market spend will drive the overall growth for the business in the India channel is what we believe is -- will definitely accomplish because we had issues around delivery, which we had talked about last time. And as you have seen our progress that instead of 4 cities that -- less than a matter of 7 months, we expanded from 0 to 4 and now 4 to 12. And we will continue to expand on a monthly basis. And our endeavor will be by mid next year, we'll be able to take it to almost 50% of our business. And with that, increasing marketing spend will mean more retention of customers -- new customers and more retention of those customers driving the growth. So our whole ambition is to drive growth and obviously our gross margins and some of those things are structurally well placed to continue to increase over a period of time.

Next question is from Rohit Mundra.

[Foreign Language].

Thank you.

[Foreign Language].

Sure. Thank you.

Next question is from Mr. Jay.

Myself Jay Laddha, I'm from JL Capital. Actually, I'm super bullish on this baby care sector. And as we know, we are the only player in an organized sector and the total market is unorganized. So how we are going to penetrate ourselves in this market? And what's our strategy for this?

So Jay, you're right on one front that we have 84% of the market is unorganized. It's a massive market. We almost have 25 million babies born almost between 0 to 12, we have 300 million children across the country. We are the largest multichannel mothers, baby and kids platform, having around 1,100-plus stores and online playbook. As a part of our strategy, we will continue to increase our store footprint, make our products more relevant, be able to address customer audience through different tiering and product tiering as well from an offline perspective, get those customers from offline to online. And a lot of our customers go from online to offline. In our online, we'll continue to invest behind our delivery experience that has been our pain point for the last couple of quarters that we have started to improve materially. And plus, we continue to invest around technology and personalization to be able to find relevance across different segments of sociodemographic, economic demographic and therefore, be able to expand that. And then there are several initiatives around building connect programs with mothers, baby and kids, whether through our schools, where they can enroll their kids and we are a partner in that education journey or through our hospital initiative program where we connect with them at the time of delivery and a lot of other influencer programs that we do in the baby and mother's and baby and kids space, we are the largest -- we run the largest influencer program in the country through which we will connect. So I think it's a whole ecosystem of digitally, physically within the shopping, outside shopping and education that we are trying to stitch together to be remaining on top of the mind as a choice, both from a retail platform as well as a brand product platform, brand and product, both is what we are endeavoring to deliver and build partnership, long-term partnership and build joy of parenting to the young parents. So that has been our journey, and we'll continue to peddle down across all of these facets that I described to be able to capture more -- and build penetration and capture more and more wallet share of those customers from an offline and online perspective. So in a very short way I have tried to explain this, but each facet has a very detailed overview of how we're going to do it. And we're going to continue to innovate on that to be able to drive relevance and effectiveness while building our KPIs from a top line and bottom line as a -- from a shareholder perspective.

I'm super bullish on this baby care sector and all the best ahead.

Next question is from Mr. Vraj Shah.

This is [ Viraj from Tatvic Digital Analytics ]. Sir, my question is with regards to India multichannel business. So as you have rolled out the faster deliveries from 4 cities to 13 cities. So my question is that what is the growth profile that you are seeing in terms of GMV or revenue, if you can share some light there in comparison to the other cities for India multichannel?

Viraj, significantly higher growth compared to the previous -- the other cities where we do not have our own delivery network as of today, it's significantly higher. As I explained in the last call as well, the reason the rationale for doing and building our own sort of a network will yield us a better control on customer experience, reducing RTOs, reducing returns, improving customer experience. All of that will yield at the end of the day, a superior customer experience and a repeat. And our particular category is a high repeat category, and therefore, will enable us to drive growth as we acquire more customers building that cohort. So we remain extremely bullish on expanding our network, which -- and then driving more marketing on top of it to be able to accelerate our overall growth.

Understood, sir. And sir, if you can share like what percentage of total GMV that can be coming from this 13 or 4 cities that you have rolled out faster deliveries?

Broadly around we -- in the last 6 to 7 months from 0% to almost we have covered 20% of the shipment. And in middle -- by middle of next year, we'll cross 50%.

All right, sir. Understood. And sir, my second question is with regards to the gross margin. So in India multichannel business, is there any increase in our share of home brands in our total revenues?

So Viraj, we have talked about the gross margin improvement levers in previous calls as well. More or less the gross margin expansion levers remain the same, which includes increase in the mix of home brands, increase in fashion mix and continuous improvement in margins with the third-party brands with continuous negotiations. So all these factors put together led to an improvement in gross margins. And it remains more or less same every quarter and every year.

Okay. So sir, my question was more towards the number that you had set for FY '25, 55 percentage contribution...

It's continuously increasing, Viraj, yes.

Next question is from Ashok.

Congratulations for good results. I have a couple of questions. One, so your gross margin in India business has declined, but EBITDA is increasing continuously. Basically, what line items are leading this improvement? Question number one. Question number two is on the international business. What are the improvement areas in international business in terms of EBITDA and by when we'll reach our breakeven state? Third one is on the -- do we have any impact of quick commerce on our business?

So Ashok, on the first point, which is -- your question was despite of a dip in the gross margin, we were still able to improve the EBITDA. So first of all, gross margin dip is a one-off thing, which is a result of giving away higher discounts to drive better conversions after the GST 2 was announced mid of August. And gross margins post festive season is back on track. However, despite of a 30 bps reduction in the gross margin, we were still able to improve the EBITDA by almost 50 bps is a combination of efficiency in marketing spends as well as driving efficiencies in SG&A as well.