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Ladies and gentlemen, good day, and welcome to the Kaya Limited Q2 FY '23 Results Conference Call, hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sachin Bobade from Dolat Capital. Thank you, and over to you, sir.
Thank you, Inba. On behalf of Dolat Capital, I welcome you all to the Q2 FY '23 Earnings Conference Call of Kaya Limited. I hope you all and your family are staying safe and healthy. From the management side, we have with us Mr. Rajiv Suri, Global Chief Executive Officer; Mr. Rajiv Nair, Chief Executive Officer, Kaya Group; and Mr. Saurabh Shah, our Chief Financial Officer.
Now I hand the floor to the management for their opening remarks, and then they would have a question-and-answer session. Over to you, sir.
Yes. Good afternoon, everybody. I welcome you to the conference call on the company's behalf. Let me begin the conference call with a very short update on Q2 performance of Kaya Limited, which is already in the public domain and uploaded in our website, www.kaya.in.
Kaya Limited posted consolidated revenue from operations of INR 91.3 crores for Q2 FY '23, a growth of 9% over corresponding quarter. Consolidated EBITDA is INR 5 crores in Q2 FY '23 as compared to INR 14.9 crores in Q2 FY '22. Consolidated loss after taxes and before exceptional items for Q2 FY '23 is INR 16.5 crores as compared to a loss of INR 4.5 crores in Q2 FY '22.
Kaya India posted revenue from operations of INR 44.2 crores for Q2 FY '23, a growth of 17% over corresponding quarter. Kaya India EBITDA is INR 5.1 crores in Q2 FY '23 as to INR 6.7 crores in Q2 FY '22. Kaya India loss after taxes and before exceptional items for the Q2 FY '23 is INR 7.2 crores as compared to a loss of INR 3 crores in Q2 FY '22.
Collection in India at clinic grew by INR 0.20 in Q2 FY '23 as compared to Q2 FY '22. Collection in Middle East region declined by 1% at constant currency in Q2 FY '23 as compared to Q2 FY '22. Customer count for clinic business in India grew by 14%. Customer count for clinic business in Middle East declined by 2%. While Q2 FY '23 saw a decline in performance in Middle East, we believe it's a short-term phenomenon due to the higher than normal exodus of people during the vacation immediately post COVID.
India saw a launch of its first clinic post COVID at Lucknow. And we believe we'll launch a few more clinics before the end of this financial year.
From a customer experience perspective, both regions showed strong NPS reaching over 75 and Google reviews of clinics at over 4.5. Innovations in the quarter contributed to 6.5% of clinic collections.
E-commerce showed a slowdown due to limited primary sales with our partners and growing competitive pressures with strong marketing investments from many brands on this channel. The detailed information update is already with you, and I now open the session for questions. Colleagues and I will be glad to answer them. Thank you.
[Operator Instructions] Our first question is from the line of Eshit Sheth of Anvil Wealth Management.
Sir, a few questions from my end. So first thing is that in terms of the decision to do away with a rights issue, can you shed some light there? Because as I understand that the net debt for the quarter or the half year ended FY '23 now stands at close to INR 70 crores, if I -- correct me if I'm wrong. So how do we source this expansion as well as the ongoing machine improvements that we are doing at the existing clinics?
Saurabh here. So with regard to your rights issue question, I think we have reconsidered the earlier quarter -- reconsidering the process, and we will be doing it a later stage. And if you look at the quarter, H1 overall scenario, if you look at the India performance from Q4 to H2, okay, I think we are showing -- seeing a sign of improvement. Like in Middle East also, the things we like to stabilize. So overall business is improving. We do not draw down any further loan from director. So we would evaluate further, reconsider further, and we'll get back with the strategy. I understand your concern on the debt part -- the debt. Currently it's been [indiscernible] directors has been restricted as per the March scenario. So as and when the business -- based on the business performance, we'll take a call in subsequent quarter or subsequent business. So on an ongoing basis, we do look at or we evaluate the consideration of the rights issue. And from debt also -- the actual loan is INR 93.72 crores, and we have a Standard Chartered loan, which you're well aware that align in India.
Got it. So your overall net debt figure of INR 70 crores is correct?
No, no, the overall debt from promoter is -- from the director is INR 93.72 crores and from Standard Chartered Bank is around INR 14 crores. But from cash prospects, if you look at -- on the September closure, India has a cash balance of around INR 42 crores, and Middle East is around INR 13 crores.
Okay. So the net debt would be around INR 53 crores. Is that correct?
Yes. Correct.
Okay. So at what level are we comfortable? Because the problem is that as a year has gone past, the problem is on the interest cost till the time we are at least profitable. So at what level do we pause? I mean this is where we pause like INR 93 crores plus INR 14 crores, and the remaining INR 50 crores which we have left right now, which we are unutilized, that we can fund our growth aspirations as well as clinic upgradation as well as the cash flow that we generate. Is that a correct understanding?
Eshit, on finance costs, on the loan, which is outstanding from Director, I think we are providing a fair valuation of interest paid. So to a great extent it's a notional scenario because we get -- payloads from other directors for this financial year. Prospective, it's not the strength on the cash outflow. Only from the accounting perspective, the cost which is part of the financial statement.
No, no, I understand. I mean -- I understand that we are making overall cash -- on a cash profit basis, we are kind of breaking even. That's what I understand especially in the last few quarters. Before that, we had some cash profits, but I understand that. Okay. I'll come back for that question.
The second question is on your overall mismatch, for Rajiv especially, the overall mismatch on collection and build revenue. So for example, for last 2 quarters, consistently, the collections have been higher then INR 52 crores, both in India and Middle East. But somehow, the revenues that we are able to do has only been INR 44 crores and INR 47 crores, respectively, for this quarter. And somewhat similar trend was there in the last quarter also. So can you explain why the collection -- I mean the revenues are lagging in collection?
If you would like to explain or elaborate further, collection which we collect is an overall package collection. So that considers hypothetical 8 sessions and we collect the total amount of 8 sessions. However, the 8 sessions doesn't get consumed in the same month, but we try to consume within the standard. So collection point of view -- Eshit, are you able to hear us properly because we are getting some messages?
Yes, I can absolutely hear.
So the consumption will get gradually based on the consumer as and when the footfall is there for the sessions and the lead time when it appears for the service to get consumed. So what has happened during COVID scenarios, the whole data collection or deferred amount or advanced from the customer had dropped and now that whole pool is getting accumulated. And moment that accumulated to the great extent comes to currently if you look at collection or now the collection is 77% in India, gradually, it may go to 82%. We believe the hypothetical, I can't give further guidance, but it will take at least -- till the time, the whole ecosystem come to a normal.
Okay. Okay. Got it. And Rajiv, on overall revenue growth guidance, I mean, how do you see things shaping up? Again, the question remains that post COVID, a lot of retail and consumer-facing businesses have gone back and grown above the pre-COVID highs also. We are still struggling at about that run rate. Obviously, right now, we are lower by INR 10 odd -- INR 10 crores, INR 15 crores on a consolidated basis. But how do you see that shaping up both for India -- and maybe Rajiv Suri can explain on Middle East and on a consolidated basis also.
If you compare it to pre-COVID levels and go back to '18, '19 numbers, what we used to derive as collections in about 97 clinics today, we are almost 95% of that with 72 clinics in India. We can see a significant movement. And I would not -- no longer call this as an immediate COVID pend up demand because it's been a while since COVID is gone. And there is some change in behavior that we can see that customers are actually, one, is consuming session per visit. At the same time, the value per session or value per transaction is actually going up substantially. So you can see a significant ATS growth over even immediately last year. So we can see almost 13% growth in terms of overall 8 years.
And partly also driven by certain categories where we are seeing super normal improvements like, for example, laser hair removal and [indiscernible], which I think during COVID, people realized that instead of going to salon and doing a short-term business where they have to consistently go and do the same service to vaccine and others, I think this is a long-term safe, efficacious type of procedure.
So we do believe there is some change in consumer behavior that we can actually see. There's a little bit more certainty towards the lead procedures in comparison to purely salon-based services. So I would say that -- I would say, initially, it was purely because of pent-up demand, but now I think it's been consistent for a few months now.
Okay. And do you expect that things move towards 100% plus sooner than later in the 72 clinics? Or we need new clinics to go higher than the INR 50 crore revenue mark for India?
So you're seeking -- you are looking for information to what value selling collection is a key metrics for us currently for the future revenue. So currently, the collection what we are trending is almost 95% of the 97 clinics which were operating in financial year [ '22 ] as compared to the Q2 quarter. So moment of collection, we are also launching some new clinics which are in pipeline. So gradually we believe that the numbers what we were there in 97 or 100 clinic, movement in the number of clinics may come to that level on the hypothetical manner.
Okay. Okay. Got it. And for Middle East?
Yes, Rajiv.
Middle East growth process last year has been 7%. And similar to India, what we are seeing is that the net revenue and the consumption patterns are different, but we believe that our growth in India is going to be faster than Middle East because there is more amount of work to be done in India refurbishment [indiscernible]. And the India business will see the engine in the coming 1 or 2 quarters.
Okay. Okay. So you expect that because of the refurbishments that we are looking at in Middle East, so currently, how many clinics are refurbished, 6 out of 23?
Six are refurbished, but there are some we are going to do budgets for next financial year. And then we will do 4 to 5 next financial year, and then we will start to see a better improvement because of -- we have to relocate them because of locations. And when a location doesn't work, then the clinic doesn't work. So there is going to be requirement to do that. And then once we do get the funding, et cetera, you will see that we will accelerate that. And we will also then start on next step -- like business margin daily in India.
Sure. And your markets of Saudi and Oman, which were, I think, struggling in and around in that COVID period, then Saudi came back very strongly. So all those markets are now doing well?
Yes. So if you look at the market, Saudi is more like in the golden period now with the oil price, where it is, it's a good place to be. And besides the oil price and the fact that the market dynamics are very positive, there's also a big change in women empowerment that in the last couple of years, they are allowed to work, allowed to drive. The country has allowed cinemas. There were no cinemas before in the country. So it's opening up a lot. And therefore, the demand there is huge in Saudi. And our business is doing extremely well in Saudi Arabia. There is a huge potential also to grow the market itself is 2.5x the size of our U.A.E. market, so we have a long runway to grow in Saudi Arabia.
Sure. And right now we have 2 clinics there, right?
Three.
[Operator Instructions] Our next question is from the line of [ Gaurav Preet ], an individual investor.
Even with the top-class management like yourself, Kaya has seen a huge shareholder value in this structure over last 5 years. Our market cap is 1/3 of where we were 5 years back. So my question is what is our strategy or aspiration for medium- to long-term growth? And number of -- maybe you can throw some color like number of clinics we want to add over our next 3 to 5 years. Do we have an aspiration to be a market leader in aesthetic derma products? And our product revenue growth, can it be linear going forward? And specifically like our peers like VLCC have moved way ahead during the same time. It's like there's -- it's 2.5 to 3x of our clinic. So do we plan to catch up?
Okay. So see, if you look at our strategy for growth, there are 2 or 3 aspects. One is the financial restructuring, which is going to be done at a certain point of time in the near future once the Board will decide. On doing the rights issue, once that is completed, they will look much better. All the loans will be retired. That in itself will show an improvement in our financials and should get reported.
The second thing is in order to grow, you grow by doing 2 things or 3 things. One is you improve your like-for-like sales growth. And as you have seen in this quarter, again, first quarter, our collections growth has been quite strong in India. The second thing you -- in terms of growth is to open new clinics. For 7 years, we have started our journey on the new clinics, we have opened 1 clinic already. There is another 1 opening in the month of December. And in the future, we are not expecting, we are planning and we are searching and under negotiation to open more clinics.
So if you look at our like-for-like growth in India versus '19 or pre COVID period of this year, it's at 16% against a national average of -- in retail of 11%. So we are moving faster than what the market is. Once we layer onto this and fast forward a few months from now and if our performance continues to outstrip the market and we layer on to this new clinics sales and collections, at that moment of time, our growth will lead to higher profitability. So I think that the journey is it needs the financial restructuring, which, as you know, the Board has approved. We need to start our growth journey by opening new clinics, which we have the first and we will open more. And therefore, we will reach at which stage that profitability and because of our [ interest ], we will also continue to remain the #1 derma brand in the market.
In addition to this, we are doing several other things on innovation. We are also going to be investing in refurbishing existing chain. And that also will improve the customer experience. Our business within existing customers at all-time high, as is our NPS score at an all-time high. So I think that's it. We have a clear path and this path will take a few months, but we will progress as per our plan.
That was quite helpful. Just to follow up on that, regarding your rights issue plan, so by when Board will be ready with the strategy and the growth plan, by end of this financial year? Or can you throw some color?
Gaurav, currently -- sorry, I would not be able to comment on -- or be able to give any guidance on this topic. But gradually, we'll keep you updated/posted all shareholders and all stakeholders, as soon as we get some clear indications.
Fair enough. Just a couple of more questions. Can you please explain about your PF liability? By when will we have a complete or extraordinary write-offs? And what is our operating cash flow generation expected for India and Middle East for FY '23?
So PF liability, it's a whole case, the 2011 matter where the demand has been based on the PF operative subsidiary -- structural rate of various -- splitting a venue. But as per management, we have represented to the department and we are awaiting outcome. And in the presentation what we have made, we have not been given an opportunity. Moment we get some opportunities, we get a clarity. But on a conservative basis, in quarter 1, we have made some provision, which you can look in the financial statement.
And with regard to operating cash flow for the next H2, I think I would expect that -- let's wait for the overall development in the environment based on the scenario. Currently, giving the guidance would not be correct, but we expect things to be better based on the H1 scenario.
Fine. And just one last question. We have recently passed special resolution for grant of ESOP plan. So what are the key benchmarks for ESOP distribution to top management in terms of like TVA creation, revenue store addition or product portfolio growth targets? Can you please throw some color?
There has been the strategy of financial restructuring growth or [Technical Difficulty]...
Sorry to interrupt. This is the operator. Sir, your voice is not clearly audible now, sir. If you could move, closer to your mic. [Technical Difficulty]
So regards to ESOP plans, I was saying that, in our growth plans for the coming years, we have got many actions to be taken which require a heavy investment, whether it is to do with our new clinics, refurbishment of existing clinics, investing in product, diversifying our product. And therefore, the program has been designed to rate among the top talent of the company along the measurements of profitability as well as how we perform in the market.
[Operator Instructions] We'll take the next question from the line of Sachin Bobade from Dolat Capital.
Sir, you have mentioned that -- in your earlier comments you have mentioned that e-com business has reported decline this time to 9% decline you mentioned, that is because of competition. So can you elaborate it more, is it -- in which categories we are seeing significant sort of competition, if we can name some players? And also in other channels -- in other channels are we present in the modern trade and other sites? And how is the performance at that side? Plus, what is the product business contribution right now?
Okay. Just to start with your first question on e-commerce, I think during COVID period, because we are a physical retailer plus we work with the e-commerce channel, we did not invest significantly in marketing due to irregular period on e-commerce. And at that point in time, I think the number of derma brands and cosmetic brands, which actually got added to e-commerce, because the physical world was shut down, has increased multiples. And that is the reason why the amount of marketing dollars going into these kind of channels to drive up sales and searchability has gone up substantially. While we have not really gone and invested disproportionately, our belief is the fact that we still have to keep this business profitable. So we're looking for profitable growth and not just buying sales. And that's why our markdowns on the e-commerce channel, including the Amazons, Nykaa and the works is limited. So we are keeping a strategy which saves the fact that we will look at it as a growing and evolving category rather than putting in extra dollars for buying sales, okay? So that's the basic difference.
So when you ask competition, yes, there are a lot of cosmetic stroke, derma brands which are opened up on the e-commerce channels over the last 2 years.
And would be the -- please go ahead.
No, no, please continue. Sorry, you were asking some follow-up.
Yes. So I was asking about the contribution of product launch.
In the clinic business, our contribution from products is about 12%. And overall we can see a healthy growth along the category versus last year. So there is no problem as far as clinics is concerned on products.
You are asking about GT/MT. We did grew GT/MT before COVID. But during COVID period, we actually withdrew that because most -- our business is a little more technical in nature, our product circle, and that's why we had to invest on a large pool of contractual employees to sell products in GT/MT because it cannot be just sold over the counter. And that's the reason -- during the COVID period we actually pulled back from that business.
So our focus remains our clinics and on our e-commerce partners, plus now we have a D2C channel as well. One of the areas of development for us right now is also to get into omnichannel so that at a local level, we are able to service the requirements of the customers faster. So that's the area that we are currently developing for e-commerce.
And sir, in product business, have we taken any price hikes because of increase in packaging costs and everything?
New NPD products, there has been an increase because of input cost. Otherwise, overall, our prices on products have not really gone up in the last 3 months' time. But we are evaluating the situation because every month, as the inflation is increasing our cost of goods sold is also going up. So we may take marginal hikes in terms of pricing going forward. But at this stage, our prices are quite stable.
Sure, sir. Sir, so we were in the process of shifting clinic. So pre COVID we are continuously shifting clinics for the [ person ] type. How -- whether there's new clinics which we are planning, will that be -- so this clinic shifting process will be including that or new clinic will be completely new, new geographies and new India sites.
There are 2 parts. One is that there are certain clinics that are in the markets where they are dated in terms of all that matter, the market, where we may look for opportunistic relocation. So that's one thing that is there. There are some very few clinics currently which are very high rent. That's where since the rents keep climbing year-on-year, we may look at movements. But largely, we are looking for movements at location the markets have shifted. But that will be progressively over the next few years.
As far as the new clinics are concerned, our focus is largely on Tier 2 cities. We are looking for clinics in markets where the overall rent structures are lower. And of course, we being a market like to increase the number of cities where we are present in. So from 20 cities, we are looking for the next 20, 25 cities where we are exploring opportunities.
So because I think during COVID period and with the penetration of Internet, there is a lot of aspiration towards dermatological products and services in small cities, and we do believe we provide those kind of opportunities for customers. And that's why we are looking at it. If you look at the kind of cities that we've done already now, Lucknow, express city, which is, I think, an up and coming, I would say, very strong city in the North. And similar type of cities Southeast of India we plan to expand to.
And sir, the benefits which we are getting during this COVID period for lower rental costs, so we were negotiating some rental cost. So that benefit still exists or the prices have increased, rentals price have increased.
So Sachin, I think that was a onetime wherever we [Technical Difficulty]. But I think the rents have come to normalize.
Okay. Okay. One more. So the new clinics which we have added, it is after a long time. So pre COVID, if I remember correctly, we were adding 2 to 3 clinics in Middle East. And we were hopeful that we will add new geographies as well. So if we are adding some clinics in India market, are we planning for expansion in Middle East also?
Okay. Sachin, I think we would be thinking of in the subsequent financial year, but guidance process, I would not be able to give a page or a period when we are set. That's in the pipeline, so moment and as and when we take decisions, we'll definitely [ expect ].
Okay. Okay. And last one, sorry, if I may. Just your opinion on this employee cost increase, so this time compared to revenues, employee costs have increased significantly. So there is any one-off or this would be the normal?
What we're looking in a Q2 scenario, it's a normal course. And now it has normalized, the manning has been to a full potential.
So if you actually look at it, we are looking at significant growth in collections vis-a-vis last year. So if I just directly compared to last year, we think collection increase of almost 28%. So to that increase and then a larger number of the consumption sessions that we're doing in the clinics. So pre COVID level, we usually do about 38,000 or 39,000 sessions -- live sessions in the clinic. Today we are doing close to about 40,000 sessions. So there is a significant increase in the number of sessions, and that's why we need more employees in the clinics. So that's something which is there.
Of course, during COVID periods, the salary structures and all were quite under tight control. And now as the markets are opening up, we also have to pay competitive salaries to people in the front end. So that's the reason why the overall costs are going up on employment costs.
[Operator Instructions] So there are no further questions from the participants. I now request the management team to add a few closing comments. Over to you, sir.
Thank you for your participation. And yes, so thank you very much for your participation.
Thank you very much. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.