Iris Clothings Limited (IRISDOREME) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Iris Clothings Limited Q2 and H1 FY '27 Earnings Conference Call. Please note that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Documents relating to company's financial performance is available to the stock exchange, trust you have been able to go through them. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference over to Mr. Harshvardhan Sarda. Thank you, and over to you, sir.

Good morning, everyone. Thank you for joining us today for our Q2 and H1 FY '27 earnings call. Over the past year, we have continued to build on our business fundamentals while focusing on expanding our market presence and strengthening our capabilities. Our aim has been to create a stronger foundation for sustainable growth by investing in our brand, distribution network and operational infrastructure. We have seen encouraging business momentum during the quarter with total income growing 40.3% year-on-year and net profit increasing 23.3% in Q2 FY '27. Alongside this performance, we have continued to make progress on several initiatives that we believe will support the next phase of growth for Iris Clothings and the DOREME brand. Our key priorities are to expand our distribution reach, strengthen our manufacturing capabilities and explore new growth opportunities across domestic and international markets. On the digital front, we see e-commerce as an important channel for reaching a wider consumer base and enhancing DOREME's visibility in the children's apparel segment. In line with this, we have entered into an agreement to sell DOREME products on Amazon and have also partnered with Myntra. These partnerships will strengthen our presence across leading online marketplaces and complement our existing distribution network. We have also entered the quick commerce segment, initially offering our products in Bengaluru and Hyderabad. In addition, we have launched newborn gift sets in 4-piece, 6-piece formats across multiple sales channels, expanding our offerings in the newborn category. Together, these initiatives will help us broaden our product reach, diversify our sales channels and make DOREME products more accessible to our customers. Alongside expanding our distribution, we are also investing in manufacturing capabilities to support our growing product portfolio, particularly for the infant wear segment. We are setting up a dedicated manufacturing facility for infant wear, which is expected to enhance production capacity and provide greater operational flexibility. This will help us cater more effectively to our evolving demand and support future product expansion. We have also commenced operations at a new in-house embroidery unit equipped with machines imported from Japan. This capability will enable us to develop premium embroider collections, adding further depth to our product offerings and strengthening our manufacturing capabilities. Beyond the domestic market, we are also exploring opportunities to expand DOREME's presence internationally. Our participation in the Saudi Fashion and Tex Expo provided a platform to showcase our products and engage with potential large-format retailers, wholesalers and distribution partners. These interactions have helped us explore market requirements and assess opportunities across the Middle East and Africa. Our approach will remain measured with a focus on identifying suitable partners and establishing sustainable distribution channels. Taken together, these initiatives reflect our focus on building a stronger brand, expanding our product offerings and creating multiple avenues for growth. As we move ahead, our priority will be to execute these plans effectively while maintaining operational efficiency and a strong emphasis on profitable growth. We believe these efforts will strengthen Iris Clothings' position in the children's apparel segment and provide a solid foundation for its next phase of growth. Thank you. I will now hand over the call to Niraj Agarwal, our Chief Financial Officer, who will take you through the financial performance for Q2 and H1 FY '27.

Thank you, Harsh. Good morning, everyone, and thank you for joining us today. I will take you through our financial performance for Q2 and H1 FY '27. We delivered strong revenue growth during the quarter, with total income increasing 40.3% year-on-year to INR 62.22 crores compared with INR 44.35 crores in Q2 FY '26. For H1 FY '27, total income grew 33.9% year-on-year to INR 1,095.51 crores, reflecting continued business momentum. Our EBITDA stood at INR 9.47 crores for Q2 FY '27 with an EBITDA margin of 15.2%. For H1 FY '27, EBITDA reached INR 17.57 crores with margin improving to 16% compared with 15.1% in the corresponding period last year. This reflects an improvement in our operating profitability over the first half. Moving to the bottom line. Profit after tax grew 23.3% year-on-year to INR 5.08 crores in Q2 FY '27. For H1 FY '27, PAT increased 34.7% to INR 9.09 crores. PAT margins stood at 8.2% for the quarter and 8.3% for the first half. Overall, our financial performance reflects healthy revenue growth alongside improved first half profitability. Going forward, we will continue to focus on strengthening our operating efficiency, expanding our market presence and pursuing sustainable profitable growth. With this, we can now open the floor for questions. Thank you.

[Operator Instructions] The first question comes from the line of Vidhi Shah, an individual investor.

Congratulations on the good quarter. So I had a question. With the company expanding its presence across the e-commerce platforms such as Amazon and it recently entered into quick commerce in Bengaluru and Hyderabad. Could you elaborate on the overall strategy for growing the DOREME brand online?

Thank you so much for your question. So see, the idea is to build the brand. So we have been in the e-commerce segment for the last 3, 4 years in partnership with FirstCry. There we have established a decent presence on online. Now we are expanding that presence across categories. So we are growing our own website, doreme.in. Along with that, we are partnering -- we have just partnered with Amazon. We are closing a deal with Myntra. And along with that, we have quick commerce presence as well. So we have started our partnership with Big Basket, and we are looking to expand our product categories into multiple quick commerce platforms as well. So that is the overall strategy of how we want to create the brand DOREME online and take it across multiple marketplaces and channels.

Okay. So how has been the response across these channels so far?

The response has been incredible, and we see some very encouraging numbers, which we think will grow over the next 1, 1.5 years.

Okay. And do we have any plans to expand into additional cities and platforms?

We are looking at expanding into cities using our own doreme.in platform, where we are planning to expand marketing to multiple cities, but that is the overall idea to grow right now.

Will we see the margin improvement?

We'll see. See, currently, because of the raw material prices being on the higher side, we are seeing some challenges in growing margin. But definitely, we see a basis point improvement from here for the full year for sure.

[Operator Instructions] The next question comes from the line of Deepali Kumari from Arihant Capital Markets Limited.

I just have a few questions. Like how much Q2 growth came from volume and how much from realization [indiscernible]?

Q2 growth was primarily from volume because of expansion in product categories and our production capacities as well in existing product categories. Yes.

Okay. And if you can give the split of Q2 on the distributor or retail business and quick commerce and export and EBO?

I'm sorry, Deepali, can you come again? I think I lost the question.

Okay. I'm asking, can you please split Q2 revenue across the distributor or retail and quick commerce, EBO and export?

Deepali, currently, we do not have the split revenue numbers readily available. We can share that across later.

Okay. And on the outsourcing side, like currently, you outsource some products such as jeans to OEMs. So what share of revenue is outsourced today? If you can give me some idea? And how much lower is the gross margin on that product?

Currently, we are outsourcing around 15% of our overall revenue. And these are for products which we are not manufacturing in-house. So of course, the gross margins are slightly lower on those products. But having said that, that is what is helping us expand our product portfolio across.

Okay. And on the vision of 2030 of 300 distributors and 20,000 retail touch points, what revenue and EBITDA do you expect in some years, 2 to 5 years to achieve? And how much CapEx and working capital will be planned?

In the next 2 years, we are targeting to reach a revenue of around INR 500 crores. And in terms of CapEx, we are looking at expanding our manufacturing facility. We are still looking on expanding into a new greenfield project, but that is still in the works, and we will be able to give more details when we have more concrete proposals.

Okay. And on the EBO side, like you will open 80 stores a year from FY '27. So like how many you will open in FY '27 and in FY '28?

So Deepali, EBO is something that we are still figuring on what is the right approach in terms of growing. We have a lot of interest from our franchisee partners to help open stores as well. But we are perfecting the model and figuring out what will be the right strategy to grow. And then we'll take the call and how aggressively we want to expand the EBO.

Okay. So EBO is not currently the main focus?

It is definitely a part of the focus. We are figuring out the right strategy for it. Along with that, digital is a big part of our current focus, and we want to grow that because we see some very encouraging response on our digital platforms, and we want to build the brand DOREME through digital access currently.

Okay. And if you can share me like for a mature EBO, can you please share sales per square foot store level EBITDA margin and CapEx per store? And also on the distributor side, like per distributor, what can be the average revenue?

So for stores, I will tell you, good revenue is INR 1,000 per square feet per month. EBITDA margin stays somewhere around 20%, 15% to 20% for our store level. And CapEx is around INR 2,500 to INR 3,000 per square feet. That is for the stores. And in terms of our distributor count, average distributor revenue comes to somewhere around INR 80 lakhs for us per distributor.

Okay. And on the pricing -- selling price, like Zudio, Max, Trends and similar [indiscernible] sales were at a very low price. So how is it affecting your distributor retail customer? And what is your current ASP?

So since our -- we are in the slightly subpremium segment, so not exactly directly competing with the value retail format. Since we are a brand which is slightly higher priced than the value retail brand, it is not directly affecting our distributors because we have our edge in giving quality products with better designs and a much better resilience of the product, which helps us create that differentiation in the market. And hence, we are not directly competing with the value retailers.

Okay. And you have told you are setting up a manufacturing plant for the infants. So what can be the capacity of that? And what can we expect the revenue from that?

So the infant plant that we have set up will currently do around 2,500 pieces per day in terms of our overall capacity. And revenue, we expect to be around INR 3 crores to INR 4 crores annually additional revenue.