Electronics Mart India Limited (EMIL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Electronics Mart India Limited Q1 FY '27 Earnings Conference Call. Before we begin the conference, a brief disclaimer. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Karan Bajaj, Chief Executive Officer from Electronics Mart India Limited. Thank you, and over to you, sir.

Thank you very much. Good evening, and a very warm welcome to everybody present on the call. Along with me, I have Mr. Premchand Devarakonda, our Chief Financial Officer; and SGA, our Investor Relationship Advisers. We have uploaded our results, press release and investor presentation for the quarter end 30th June, 2026 on the stock exchanges and the company's website. I hope everyone had the opportunity to go through the same. I am delighted to share that Q1 FY '27 has been our strongest quarter to date with all the key metrics moving decisively in the right direction. Revenue grew by 39% to INR 2,419 crores. EBITDA increased by 118% to INR 239 crores and at a 9.9% margin. The PAT grew by 458% to INR 121 crores. This is the highest ever quarterly profit, and I want to spend the next few minutes walking you through what drove this performance and where we go from here. Let me start with the season itself. The summer of 2026 has been good for us. Air conditioners had their best quarter yet, both in terms of volume and value. As demand stayed strong right through the quarter, footfalls in our stores were consistent and healthy through the quarter and conversions held up well even as we saw customers trading up within the category. Our inventory planning going into the season with a calibrated mix of carryforward and new models meant we were well stocked to capture this demand as it came and this discipline is reflected directly in the numbers this quarter. It is worth noting that a strong AC season does more than just add up to the top line for the quarter; it also brings in a wave of new customers into our ecosystem, many of whom we expect to return for large appliances and mobile phones later in this year. And that is a dynamic we will be watching closely as we move through FY '27. Moving to category performance. More broadly, large appliances remained our largest contributor at 48% of revenue with AC leading, supported by continued traction in washing machine and refrigerators. Mobile phones contributed 39% to our revenue mix. Same-store sales growth for the quarter came at 34.2%, and this is one of the standout numbers in this quarter. It tells us 2 things. Our existing stores are maturing well and demand in our core markets remain exceptionally strong. Breaking this down further, our core South market has picked up in a very significant way. Andhra Pradesh alone grew revenue 62% year-on-year with an SSG of 49.1%, while our Telangana up-country market grew at 48% with an SSG of 40%, and even our large established Hyderabad city base grew by 34% with an SSG of 32.3%. For a market we have operated in for over [indiscernible], to see this kind of reacceleration is a strong validation of EMIL, the brand and how our stores are resonating with customers. Overall, our South cluster delivered 40% revenue growth for the quarter and continues to operate at scale, profitable engine at 10.9% EBITDA margin. I'm equally pleased to report that our North cluster has turned a corner this quarter. Revenue in the North grew 29% year-on-year and EBITDA margin improved to a record 4.9%, meaningfully ahead of where we were even a couple of quarters ago. As more of our North stores gain vintage and scale, we expect store productivity and margins here to continue trending towards the South cluster benchmark. This brings me to the theme that I think is central to understand our margin trajectory going forward: the performance of our nonmature stores. As of this quarter, we operate 96 stores that are over 4 years old and 131 stores that are less than 4 years old. Our mature stores are already operating at an EBITDA margin of 11.2%. But what is encouraging is that our nonmature stores delivered an 8.1% margin this quarter, a meaningful step-up and proof that these stores are picking up pace faster than we had originally modeled. With a significant part of our network still in these early stages, we see this as a genuine source of embedded built-in margin improvement for the company over the next few years. Looking ahead, we are preparing to enter West Bengal, which is the next step in our cluster-based expansion strategy. We have studied this market closely, and we see meaningful headroom for organized retail here, much as we saw when we first entered the North a few years ago. Consistent with how we have approached every new cluster, we will enter deliberately, build density before we build our stake of size and let the unit economics guide the pace of our expansion. For the remainder of FY '27, our priorities remain clear and unchanged. First, working capital efficiencies. We will continue to tighten our inventory and cash conversion cycle to better demand forecasting and technology-led replenishment. Second, disciplined expansion. We will deepen our presence in existing clusters, including the North and our upcoming entry into the West Bengal, while being selective about where and how fast we grow. And third, and perhaps most important, the customer experience that has underpinned EMIL's growth for over 4 decades. Whether it is our in-store product experience or conservative selling approaches or the trust we have built with our brand partners, this remains the foundation on which everything else we do is built. With that, I will now request Mr. Premchand Devarakonda, our CFO, to take you through the detailed financial performance of the quarter. Thank you.

Thank you, Karan sir, and good evening, everyone. Let me take you through our financial performance for the quarter -- for the first quarter of FY '27. Revenue from operations stood at INR 2,419 crores compared to INR 1,739 crores in Q1 FY '26, registering a robust 39% Y-o-Y growth. Gross profit increased to INR 417 crores from INR 253 crores of Q1 last year, reflecting a strong 65% growth. Gross margins expanded significantly to 17.2% compared to 14.6% in the corresponding quarter of last year. EBITDA stood at INR 239 crores compared to INR 110 crores in Q1 FY '26, delivering an impressive 118% growth. Consequently, EBITDA margins improved to 9.9% from 6.3% a year ago. Profit after tax improved to INR 121 crores, which was INR 22 crores in Q1 FY '26, translating into a 458% Y-o-Y increase. Our SSSG remains exceptionally strong at 34.2%, reflecting healthy underlying consumer demand and effective execution across our network. The South cluster delivered 40% revenue growth with EBITDA margin of 10.9% and the North cluster recorded 29% revenue growth and achieved an EBITDA margin of 4.9%. Working capital days reduced sharply to 42 days as of June 2026 compared to 73 days as of March 2026. This was driven by tight working capital management and strong seasonal sellout throughout the quarter. During the quarter, pre-Ind AS operating cash flows and post-Ind AS cash flows were INR 631 crores and INR 671 crores, respectively. I'm also pleased to highlight that, by end of this quarter, we could bring down the working capital borrowings to INR 97 crores, which stood at INR 658 crores at the beginning of the quarter. Return on capital employed stood at 20.1% on trailing 12-month basis and return on equity stood at 11.9% on a TTM basis. With this brief presentation, I open the floor for questions. Thank you.

[Operator Instructions] We have our first question from the line of Devanshu Bansal from Emkay Global.

Many congratulations on great set of numbers. Karan, I wanted to understand this quarter also comps on a weak base, right? So if you could just help us better understand as in what are you targeting for the full year across maybe North and South clusters? That would help us better appreciate your performance, right? So what's your view there for the full year FY '27?

So sir, in terms of revenue, we want to be a little conservative on the number. But looking at quarter 1 going forward for us and how things are moving forward in terms of the demand in the market, we feel that the festive period in quarter 3 also is going to be quite good for us. So on an overall number, we can look at a good 18% to 20% kind of revenue growth. That should be very easily achievable. So that is what we have in mind. And plus our operations in Bengal also will start definitely with a few lesser stores by the end of quarter 3 or the beginning of quarter 1, we'll have more stores coming up in Bengal as well. So I think we'll have some flavor of Bengal adding up by the year-end as well.

Very encouraging. Secondly, sir, this gross profit margin has inched up significantly. So I wanted to understand such in our business profile that we are in, this is a really great margin, right? So is there any direct sourcing that we are sort of engaging in now versus, say, by our distributors now? So what has actually led to -- what are the key drivers of this gross margin improvement for you?

Sir, [Foreign Language], majorly summer season cooling products definitely have a higher gross margin. So if you see quarters where cooling product dependency has gone up and the mix of large appliances majorly is coming through from cooling product categories, that is where you will see a blended gross margin being higher, number one. And number two, a few categories like laptops and mobile also actually gave us a little more better gross margin than our comparative quarters. It's because when the pricing was going up, we were able to buy stocks at a lower price and then lay on that price margin game, the price increase game and take that as an advantage. But that is a temporary upside. Probably till the time the market is a little volatile in terms of price increase and stuff like that, we might take that advantage. But not necessarily that it's going to be a permanent increase in the price. But what remains at a good level is gross margin across the cooling product category, especially air conditioners and refrigerators. And with the volumes going up in that category, definitely, we will see an improvement in gross margins.

So you are indicating that some of this 260 basis points is maybe just because of some benefit for the near term that you are enjoying, right? So maybe for the full year, if you could highlight, is 16%, 16.5% doable from a gross margin perspective for you this year?

Sir, I would like to add one more thing here. See, we should compare the gross margins of Q1 of FY '25 because the base quarter was one of the bad quarters. So that's why if you compare that, there is no substantial growth. Definitely, there is about 100 bps up in the current quarter. And that was mainly contributed by the cooling product sales as well as the price escalation advantage we got in IT products. So if the similar trend continues, I think that can be achieved in the next year first quarter as well.

Okay. So can you provide some outlook for full year, sir, as in what should be the target from a gross margin perspective?

It will be about 15% -- 15% to 15.5%.

Okay. Okay. And sir, last question from my end. Mobiles, et cetera, because of increase in chips prices, have seen very strong, healthy sort of growth in the prices, as you have also mentioned. So was that reflective in our growth? Because why I'm asking because our mobile mix actually went down, right? So from 40% to 39%. So are we expecting that benefit to sort of materialize in the coming quarters? So what explains a lower growth in mobile?

Now if you look at -- as Premchand was referring to quarter 1 FY '25, if you look at the number there also, the product mix remains similar. So [Foreign Language]. By the end of the year, you will see a similar product mix change, 1% or 2% plus or minus only.

Okay. Karan, did we enjoy this price benefit for the full quarter is what I wanted to understand from mobile category perspective. Or...

It was periodic. It was not across all brands, not across all SKUs, not across all the 90 days of the quarter. [Foreign Language].

So more sort of laptops in coming quarters, right? So some more benefit may come.

Yes, yes, yes.

[Operator Instructions] We have our next question from the line of Aditya Bhartia from Investec.

Karan, my first question is that we have obviously had very strong revenue growth. Would you have any sense on how the broader market is likely to have grown in Hyderabad, Andhra Pradesh and NCR region? Is it that some of these product categories themselves grew at a very fast pace, especially ACs, given the season in Hyderabad and AP? Or is there a market share gain also that we would have enjoyed in first quarter?

So Aditya, both the things here. So especially markets like NCR, which were quite new, the base was less. Even Andhra Pradesh, where we've opened up a lot of new stores last year, which are yet to get matured. [Foreign Language] So you would see an upside coming in from the market gain share as well, whereas existing [Foreign Language]. We've said that this time, South overperformed than any other cluster in the country, especially Tamil Nadu was the #1 market. So Tamil Nadu actually grew in terms of cooling product category more than AP and Telangana also this year. So that itself was a very big number coming in from Tamil Nadu. [Foreign Language] a little slower. North was negative. [Foreign Language] because our base was less, and last year, if I tell you, for the first 6 months of the year, we did around 20,000-odd units of air conditioners. This year, we did around 26,000, 27,000 units with a similar number of store count. But [Foreign Language], we could have gained that market share but [Foreign Language]. And North, we are seeing a trend of unorganized players moving out and organized players taking over, not only me, but all other bigger ones, Vijay Sales, Chroma, Reliance, other ones are also doing really good there.

Understood. Understood. And this particular quarter, we are seeing exceptional growth mainly from -- also from markets which are fairly mature for us. And in that context, should we assume that this quarter was -- I mean, a lot of things really came together in this particular quarter. And therefore, sustaining this performance is going to be a little difficult?

So now -- see, if you look at the trend going on, we don't see any external factors affecting the growth coming through. But definitely, if you're comparing this number to last year, then because of a bad summer, you would definitely see a very good growth coming in. But we were even comparing this number to '24, '25 year as well, whereas we would see definitely upside, especially with a lot of new stores in the AP, Telangana cluster that we opened up have started performing really well. So that definitely gives you confidence that things are going to look better in the coming times because we started gaining market share there, not only across cooling products, but even in panels, in mobile phones, laptops, other categories as well. So it is going to be a mix of all products going forward because cooling products might contribute only in one major quarter in a year, but all three other quarters would depend on the product mix coming in from other categories as well. So the focus is there. All individual teams are on ground working, making sure that the profitability is sustained, the growth is there, all stores perform, and that is what you would see a result like this.

Perfect. Perfect. That's great to hear, sir. My last question is that are you seeing any challenges on the volume side for categories like mobile phones and IT hardware, laptops, et cetera, because of memory chip shortages or brand owners are able to manage it quite well?

So definitely, we would be given a heads up in terms of if there is going to be a shortage. So that is how we preplan our purchases, making sure that there are no stock-outs at the store level. So probably a few products, few categories, we might have to -- a few brands there, we might have to stock up a little more than on average that we would do. Instead of stocking up to 30 days, we might stock up to 50, 60 days also, but for a few SKUs, not across all categories.

[Operator Instructions] We have our next question from the line of [ Rupesh Tatiya ] from Long Equity Partners.

Karan, congratulations on fantastic set of results. So I am looking at post Ind AS EBITDA margins and last several years, they have been between 6% and 7%, given such a strong start to the year and mature stores, I think, moved from 83 in Q4 to 96. And I think I'm sure they will improve through the year. So is it now fair to model that we will have EBITDA margins between, let's say, 8% and 9% this year?

Post-Ind AS?

Post-Ind AS. I'm asking post-Ind AS, yes.

It will be too optimistic. 9% means too optimistic. Around 8% -- I mean 7.5% to 8% is easily achievable, looking at the current trend.

Okay. Okay. That's good to know. And finance cost, I think now our gross debt is what, INR 300 crores. So any number would you like to guide for FY '27 on the interest cost?

See, that interest cost has multiple components. It includes the interest on lease liabilities, sir.

Yes, yes. But I mean, can you -- INR 150 crores, sorry -- INR 150 crores last year. This year will be INR 130 crores -- INR 120 crores, INR 130 crores?

Yes, it will be in the same range like last year. I mean about INR 10 crores will be less. It will be less by at least INR 10 crores.

Okay. Okay. And second question, Karan, why same -- SSSR for Delhi NCR circuit is low? Is it to do something with the product mix? What's going on there?

[Foreign Language] Delhi actually didn't firm this year for air conditioners and cooling products. So [Foreign Language] cooling products between refrigerators, air conditioners and air coolers were very negative -- the market degrew. [Foreign Language] North market was actually minus than '24 as well, if I look at the bigger cluster in '24. So though we had a small base, we could see that upsell coming through with our stores, but overall market was minus for North. So North didn't perform well this year. [Foreign Language] you'd have seen our SSG has -- I mean, like -- or higher than what South would have done, so -- because the base is less. But now if you look at the trajectory, our SSG for this month also, it is quite in line with what we have planned to achieve there.

Perfect. Perfect. And what is the store opening target for Kolkata this year?

Kolkata, hopefully, we should be operational around Diwali.

How many stores are we planning to open?

5 stores will be operational by Diwali. And by 31st of March, by quarter -- end of quarter 4, we should be operational by 10 to 12 stores.

We have our next question from the line of Manoj Gori from Equirus Capital.

Congrats on good set of numbers. My question would be on the overall guidance that you have been offering, probably 18% to 20%, because if you look at, the price increases have been very significant across product categories. And plus, if you look at, there was some favorable deals also of last year, and you are already being very optimist on the underlying demand environment. Plus, when I look at, there are anticipations that there would be further price hikes probably during the month of August and September before festive season starts on mobile phones and on laptops, and which should also boost your margins. As you said, it benefited in Q1. So just wanted to understand in detail probably where is the gap here? And probably is your guidance too conservative? That's what I want to understand on the first part.

Manojji, when we look at the growth between value and volume both, we've been seeing a significant growth in volume as well, not necessarily the growth is only coming from value. But this is only, I think, to a very high extent, in categories like mobile and laptops is where we would see a price increase -- drastic price increase. But in terms of televisions, refrigerators, washing machines, even air conditioners, we've seen a single-digit price hike, not more than that because the dependency on the manufacturing cost or the raw material, those categories were not affected much compared to what shortage we saw in chipsets for mobile phones and laptops. [Foreign Language] And then, number two, the biggest advantage that we had was that we anyway are a premium seller. [Foreign Language] whereas a lot of other partners could not take advantage of this who are always selling entry level or had smaller store footprint or were not in premium selling categories. [Foreign Language]. They could not take advantage of this price hike or increase their sales drastically.

Okay. And second, I just want to understand, suppose if the prices are going up, so one thing is we will always ensure that the gross margin level we probably try to maintain or improve. Is that understanding correct? Because that will affect your return profile also positively because your incremental investments will be only to the extent of cost of goods or probably to the extent of price increases but the rest of the investment being stable, your return ratios are also likely to improve. So is that understanding correct?

Yes, sir. It is a mix of that and even a mix of the performance that we've got from all the other stores that we opened up in clusters like in AP and Telangana, especially in up-country market, where we've gained a lot of market share as well. So it is a mix of everything, not necessarily that the SSG is driving only through the growth in value, but even the volume growth in those clusters have been significantly higher, where we took advantage of gaining market share because we did a lot of initiatives on ground for marketing. So we're trying to do a lot of local activities, targeting our audience in those local clusters and not just doing a general -- generic ad across the major cities.

Correct. And lastly, Premchand sir, if you can guide on the CapEx front specifically, probably for West Bengal, what would be the CapEx? And how should we look at the company level also?

So sir, we plan to open around 25, 30 stores in existing geographies as well as in Bengal for that matter. So the CapEx that we plan to invest would be in the lines of around INR 100-odd crores for the upcoming stores, plus or minus INR 5 crores, INR 10 crores because [Foreign Language], so that way. And another INR 50-odd crores would be the investment that will go through in buying our properties in Calcutta. In the next 2 years, we'll be buying around 11-odd properties. The transaction might happen in the quarter 1 next year, quarter 2 next year, depending on how soon the buildings would be ready for us, but that will be the complete outflow. So we plan to open around 30-odd stores in Calcutta itself. And then by the next financial year, we will then plan to expand into Darjeeling, Siliguri and neighboring places there.

Okay. But this will be all through internal accruals.

Absolutely, absolutely, absolutely.

We have our next question from the line of Deepak Poddar from Sapphire Capital.

Many congratulations on a good set of numbers. So just wanted to understand, first of all, clarification. When you say post-Ind AS EBITDA margin, I mean, this is as in reported basis, right?

Yes. Yes, sir. Yes.

Okay, okay, okay. Great. And secondly, I mean, in terms of store opening plans, everything is our own stores? I mean it's our own -- I mean, we are not into franchisee route, right?

No, sir, no, sir. So they're all company-owned company-operated stores only. So no franchisee model at all. So we lease out the properties and then we only make them and operate them.