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Ladies and gentlemen, good day, and welcome to the Kaya Limited Q4 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, Niko. On behalf of Dolat Capital, I welcome you all to the Q4 FY '23 Earnings Conference Call of Kaya Limited. 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, our Chief Executive Officer, Kaya Group; and Mr. Saurabh Shah, Chief Financial Officer. Now I hand the floor to the management for their opening remarks, and then we would have a question-and-answer session. Over to you, sir.
Hi. This is Rajiv Nair here. Hi, thank you. Good afternoon, everybody. I welcome you to the conference call on the company's behalf. Let me begin the conference call with a short update on our Q4 performance of Kaya Limited, which is already in the public domain and uploaded on our website, www.kaya.in. Kaya Limited posted consolidated revenue from operations of INR 92.6 crores for Q4 FY '23, a growth of 11% over corresponding quarter. Consolidated loss after tax and before exceptional items for Q4 FY '23 is INR 58 crores, which includes onetime impact of impairment of goodwill of INR 28.4 crores and towards interest on PF liability, INR 10.6 crores as compared to loss of INR 42.6 crores in Q4 FY '22. Kaya India posted a revenue from operations of INR 43.9 crores for Q4 FY '23, a growth of 12% over corresponding quarter. Kaya India loss after tax and before exceptional items for the Q4 FY '23 is INR 23.9 crores, which includes onetime impact of provision for impairment of assets of INR 10.7 crores and towards interest on PF liability, INR 10.6 crores as compared to a loss of INR 8.7 crores in Q4 FY '22. Collection in India at Clinic grew by 13% over last year. Collection in Middle East region grew by 5% over last year at constant currency. Business has been driven by increase in average ticket size by 20% in Kaya India and 7% in Kaya Middle East. India saw a launch of 2 more clinics in Q4 FY '23 in Bangalore and Siliguri. From a customer experience perspective, both regions showed strong positives with NPS reaching over 82. Innovations in the quarter contributed 8% of Kaya India's Clinic business and 6% of Kaya Middle East business. E-commerce showed a slowdown due to limited primary sales with our partners and growing competitive pressure with strong marketing investments from many brands on this channel. Kaya India is now a Great Place to Work certified company in 2023. We have commissioned a marketing automation project to digitize our customer journey, which includes setting up automated appointment booking, customized nudges through WhatsApp and web bots. The detailed information update is already with you. I would open the session for questions, and my colleagues and I will be glad to answer them. Thank you.
[Operator Instructions]
So Niko, if participants start asking the questions before that I'll finish 1 or 2 questions, which I have. So sir, just wanted to understand, if I look at other discretionary categories performance during the quarter, everyone has shown some sort of improvement including Kaya. But then if I go past 2 quarters, then there was a significant inflation in the commodity prices, and that has impacted overall discretionary spends, and Kaya being one of the known -- Kaya [indiscernible] known as one of the discretionary categories -- present in the discretionary categories, how could you say the outlook? So I'm not talking about the care business, but your business on the care business, the care part, which we are talking about and the products business. So any significant improvement you are expecting going ahead in the business?
Yes. So if you look at the India business, like you rightly said, there was inflationary pressures in the market. And obviously, there's a little bit of a slowdown to that extent in terms of customer sentiment in the Feb-March period of this last quarter. What we have seen over the last 1 year post COVID is that people spending per transaction actually has increased, the frequency of visits have reduced a bit. So we actually look at it in terms of ATS for this quarter as well, the average transaction for this quarter itself, we have seen almost a 20% increase over last year. So that's one thing that has happened. There are certain categories that you mentioned, like, for example, a product as a business. Yes, there has been an increase. It's not disproportionate. It is at 12.19% growth for us in product for the quarter. And another area where customers did come out very strongly post COVID was laser hair removal, which as a category grew in terms of collection. I mean we had a slowdown a bit in that category versus last year post a fairly large surge for the year in the first 3 quarters. But if you look at certain other areas, which you can call it high discretionary spending, which is where people really spend a lot of money per transaction like, for example, anti-aging, we actually saw an increase of about 38.89%, so quite a strong growth there. Fairness pigmentation category, which is again an important category for us at about 14.5%, and beauty facial, which again is a care category that as you mentioned, had a growth of almost 33% over last year. So I think that the major push down, I would say, why the growth has slowed down a bit is that we have seen laser hair removal in the last quarter come down a bit in terms of numbers. Otherwise, quite a few other categories have shown good growth, and ATS has shown good growth. We also [ introduced ] a new segment last quarter, which is basically the body contouring segment over the last 3, 4 quarters, we've been consistently pushing this category. I think this category is something that has also contributed to significant growth over last year. But we will continue to invest on this category for future growth.
Sure, sure. Sir, second question is on this INR 2,000 denominations. So if I look at the package, so it's not only for you. If I look at the other companies like [ Mahindra ] Holidays or other companies, what I believe is that this INR 2,000 denominations should -- the INR 2,000 denomination should ban the companies which are mainly into this package kind of business. So is there any significant growth that we have seen post the announcement?
No, no. So it's been just over the last 1 weekend, right? So it's not a very long duration that we can talk about, some set of consumers have used cash to pay. But we haven't done major campaigns around it. But of course, whenever a customer chooses to pay by cash as denomination, we are encouraging that and clinics have been informed to ask the customers in case they would like to pay through these denominations, they are acceptable to us. Some tactical social media campaigns were done over the weekend to actually talk about this delisting of this particular currency. But I would say early days for us to judge.
And sir, again, coming back to your products business, any increase in penetration in terms of your availability of [ presence ] that has happened during the quarter?
Yes. So one good thing that has happened is that we've been trying to expand ourselves into the nutraceuticals space. And we have actually been doing currently on more of a pilot mode launch of collagen supplements in powdered form and also glutathione and biotin and tablet forms inside the clinic. And now that category has already taken up, 25% to 30% of the product sales in clinic in the last quarter has actually come through nutraceuticals as a category. So what is actually happening is alongside topical application and cosmoceuticals, we do believe that people are looking to ingest certain parts of these things as collagen supplements. So beauty from inside is something that people are kind of promoting, and it could be a very large opportunity category going forward.
Sure, certainly. Niko now we can take further questions. I'll come back in the queue.
[Operator Instructions] Our next question is from the line of Sakshi Chhabra from Swan Investments.
Yes. Sir, so I wanted to just understand that for the coming year, what are our CapEx plans, like we see that you will increase debt also on the books. So what are our plans going forward? I wanted to understand on opening new clinics as well as on the product side.
Yes. So a couple of things, I won't give you long-term indications, but I'll tell you which are the areas of focus for us. Post COVID, we are trying to refurbish our clinics to some extent and improve the infrastructure of certain clinics that we have. In some cases, we are trying to expand capacity by relocation of the clinics from smaller clinics to slightly larger clinics, tactically, where there is an opportunity, and the clinics are sustainable and profitable. That's one part that we're doing. And the bigger focus for us is actually investment on technology, which is machines, where we are doing a complete upgrade of some of our old technology in the clinic. And largely, these are going to impact categories like fairness pigmentation, laser hair removal and a few innovations that we bring over the next few years -- a few -- couple of years. Expansion, we have already done about 4 clinics out of which 2 were launched in the last quarter. So we opportunistically will look at expansion now into Tier 2, Tier 3 cities. And because some of the cities by we are present in more than 20 cities right now, there are certain cities that we have not expanded into, we are looking at that. And in some cases, we are going into more than one clinic in the same geography. For example, we now have 2 clinics in Surat. We have 2 clinics in Lucknow. So we are looking at that as the thing. But of course, profitability will drive all of this. So as long as the market shows potential and there is feasibility only then we will go for those opportunities.
And sir, do you see a lot of difference in the average ticket size between a Tier 1 and Tier 2 city?
In our case, not really. Actually, what we do believe that because of penetration in smaller cities is say maybe one clinic in a city, we are still not completely saturated some of these markets. So in terms of pricing, we don't see a major difference. There may be certain categories may be a little bit more elastic to pricing, and we have seen some differences in those categories. So for example, laser pricing between one market to another could be different. But when it comes to high discretionary spends like antiaging, we don't see much of a difference between Tier 1 and Tier 2 cities.
Okay, right. And can you quantify the amount that you will be spending in FY '24 on your CapEx plan?
Currently, we would not be able to comment on this point.
Okay. And around how many new clinics do you plan to open?
So currently, we have opened 4. We have identified multiple geographies for expansion. But since that will be also forward-looking, I think as we go into every quarter, and we would be launching, we'll keep you updated on the same.
Okay. Sir. And also I wanted to understand this subsidiary on which you've taken an impairment. Can you just throw some light on that?
Yes, sure. So this impairment, what we have taken is based on the subsidiary performance. And as and when the scenario performance improves, the things will be considered and [indiscernible] et cetera.
But this subsidiary is based in Middle East or in India because there's some impact which is showing on the India books and there's some impact, which is also showing in Middle East, right?
So one is the investment and one is the goodwill. In India books is the investment and the console book is the goodwill.
Okay. So it's actually the subsidiary in Middle East, which is affected.
Correct. Correct. Correct.
Our next question is from the line of Yogesh Tiwari from Arihant Capital Markets Limited.
Am I audible?
Yes, you are. Yes, yes.
Sir, just wanted to understand on certain unit economics. So we have opened about 2 clinics in last quarter, and we'll open about 2 to 4 going forward. So any thoughts from your side, how much time does it take -- or what is the like payback period for opening a new clinic? How much time it takes to break even? Anything on those lines, on the unit economics?
So Yogesh, hi, Saurabh here. On a cash generating scenario for a clinic to make EBITDA positive, it depends on the vicinity where we are placed. It depends upon 12 months to -- within 12 months, at least EBITDA become positive. And from payback and everything, it takes between 1.5 years or maybe to 2 years on the cash prospective.
Sure. And sir, in terms of growth, which will be segment, main segments, which will -- I don't know if I take a 3-year period, which will be the main segments which will actually drive our top line moving forward?
Yes. So obviously, the main skin categories will continue to grow, but one category of focus for us will be body contouring. We are making some investments in the category, and we are also expanding this category to multiple cities. So over the last quarter, we also added this category into areas like Gujarat, Hyderabad and in Tamil Nadu, which is in Chennai. So expansion will be -- focus will be on body as one of the verticals that will be there besides quite a few of our core categories in skin.
Okay. And sir, lastly, on like the India realizations increased by about 20% approximately, so...
Sorry, can you repeat that? What was that when you say realization?
Yes. I mean to say the spending in the India business increased by 20%, as you mentioned in the opening remarks.
No. One second. I just -- just one second.
12%, it was.
No, no. The business was up 12%. So ticket size, sorry, you're talking about the transaction value, right?
Yes, yes, yes. Transaction value.
Understood, understood.
Yes. So was there any change in mix, which led to this 20% increase? What would be the driver for this?
So one of the main things is a couple of our core categories actually gave us very high sales. For example, anti-aging as a business last quarter grew by about 40% over previous year, about 38.89%, which was an increase, which led us to an improvement in terms of ATS, average transaction value. Then, of course, fairness pigmentation another category grew by about 14.62%. And beauty facial, we reduced our discounts, and we automatically realize better results, so we got about a 33.6% uplift on that category. And we also launched body contouring in a larger way, and body contouring average ticket sizes are much higher than that of other services.
Sure sir. That is very helpful. That's all from my side.
[Operator Instructions] Our next question is from the line of Dhananjai Bagrodia from ASK.
I just wanted to know what is the path to profitability out here considering...
Mr. Dhananjai, sorry to interrupt. May we request you to use the handset.
Okay. Can you hear me now?
Yes, that's better.
So what's the path to profitability going ahead now? How are we seeing that as a company? And what levers do we have? Or are we -- yes.
Sorry, Dhananjai, your question is regards to path to profitability, and what was the second part?
That's it. That's it. Only That. What are the [Technical Difficulty] that?
Yes. So I think one is, of course, translating to higher productivity within our clinics. Basically, one of the things that is there about our business is getting more utilization of our assets inside the clinic. So very large part is on how to increase the net revenue based on productivity within the business. So to that end, we are also making some investments in technology to improve our time taken per service, so that's one thing that we're doing. Second is to increase the count of customers inside the clinic. That's the reason why we are going for marketing automation to ensure things like appointment bookings, and all are digitized, and we can increase the quantum of flow of customers inside the business. Third is products as a vertical will continue to invest on, and we will actually add more segments into that category, which is areas like nutraceuticals, as I mentioned. Body and hair vertical are 2 categories which are doctor-led services and based on technology. And these are not so easily replicable services in the market because it means expertise, are areas that we will also work on. And last but not the least, I think optimization of cost at all ends is something that we would be looking at. So it could be labor costs, it could be cost towards rentals will be something that we are constantly assessing and trying to do. Tier 2 expansions and looking at markets opportunistically where the cost structures of running a business are lower is something that we are doing. So for example, when we go to smaller tier cities like Siliguri or for that Lucknow, the cost of rent are much lower than that of what happens in bigger cities. So I think these are a mix of various things that we are trying to do at the moment to build in profitability in the business.
So just along those lines, has there been -- you think, like you mentioned that, okay, now let's for example, one thing you mentioned was...
Mr. Dhananjai, your audio is not clear.
Can you hear me now?
Yes, that's better.
Yes. So one thing you mentioned was that, okay, now let's say, improving order flow. And has that been ever a hindrance during services where like people have -- orders have not been able to be done or something? Because I'm just wondering now it's been many years since this company started. And like what has been like tangible improvement we've seen in the last 5, 7 years on the same aspect?
No. Actually, productivity in the clinics have gone up. There is still potential. So it's not like we're losing customer opportunity to service at the moment. So there is enough open capacity available. We have to utilize the capacity better, which means the fact that flow of customer traffic is extremely crucial. And that is what we will be focusing our energies on. So I think the whole effort of ours in the next 1, 1.5 years would be towards improving the flow of new customer -- new customer count in the clinic that will help us increase utilization of the assets that we have. And of course, on the asset side, we're improving the quality of the assets, especially machines. So that's the time taken to achieve the service is reduced. And then, of course, automation in terms of customers' ability to book appointments to be eased out because with more technology and more control with the customer, the opportunity of taking appointments, changing appointments, managing appointments becomes that much more easier. So I think those are areas that we are trying to work on at the moment. And [ spend ] our assets more actually. I mean that's in simple terms, utilize our assets more is what we are trying to do.
No. But let's say now, there's been 6, 7 years since this company is [ IPO ], and we have been here in the same thing, the revenues are still Q4 INR 90 crores, INR 100 crores, nothing much has changed, and we're still talking about the same thing. Is it inherently that the business is more doctor-led or more like a specific person in a clinic where this is not letting us grow because people prefer to go to the person who they're more comfortable with? Or what exactly is -- would you say is the problem? Let's say, it's been 6, 7 years since you have listed, what has been the problem that the revenue is not growth since then?
Yes. I think a growing customer footfall on a regular basis is something that has -- that is a key requirement of the business and can get customers into the clinic and footfall is very important because if you look at all the existing customer metrics in the business are very good. So if you see there is maybe very little, very few services businesses that you will see today with NPS scores as high as 82, 83. And customers have stayed with us, existing customers for more than 5, 6 years as well. So point is the fundamental model that we offer, even if it doesn't mean that it's the same doctor running for 10 years and 15 years, I think there's quite a good amount of trust in the brand. It's just the fact that it is a premium service. And you need to drive an x amount of feet into the clinic regularly to build more traffic for the future. And that's the place where I think we are trying to work more and more on.
So then would it be fair to assume that this is early compared to where India's potential could be? Or is it that even after having such high NPS scores, the company is not being able to generate money? So is it that are we giving service to cheap? What do you think is the issue there?
No, no, I think partly what you're saying is correct. I wouldn't want to say that we are at the same place where we were 5 years ago in terms of customer awareness of the category. Of course, there are many individual stand-alone clinics or dermatologists who will be there in the business. But this category is also getting more and more organized. There is more interest in the category that is coming up as of today because there is belief in the potential of the segment for the future. Many of the services are something that people have seen a journey from purely buying products or going for only pure salon services to get into dermatology service. So in that sense, it's a more evolved market in comparison to what is salon business actually is. So definitely, India poses tremendous opportunity and scale over time. Of course, things like COVID and others over the last 5 years have kind of put a little bit of a break on the momentum. But I'm sure after post COVID, this will definitely keep showing positive signs. And plus, whatever innovation that is coming internationally, we are trying to bring those innovations to the country. So as I said, the body vertical will see certain machines that we are bringing into the market, which are best-in-class. So I would say we have to keep innovating. We have to keep giving reasons for customers to keep coming into the business. But I would say the movement towards dermatology business is definitely happening.
And for the last one for the product business, how are you seeing that come along? Because our product business, we've seen so many new start-ups coming without the Marico brand name, who managed to scale up much bigger than we have. What are we missing on that segment?
Yes. Only difference is that we are -- we have been largely focused on our clinic business, and we have not gone into the GT/MT, which we did before COVID, but unfortunately, during COVID, we had to shut that business down. And the other vertical that you're talking about is e-commerce. E-commerce, we see a good amount of growth as a market but also need significant investments on scaling, right? So basically, all the D2C brands that you see around us have first put in tons of money towards initially burning cash and then getting the growth happening, which we have not done. Our focus has been on clinics, and we continue to focus on the clinic business. But at some point, we will definitely push our business for e-commerce. And at this stage, we have started our D2C venture about 1, 1.5 years ago, and we will continue to do that. Now we also started omnichannel in that respect, which means customers can buy online, off-line. Are we going to put tremendous amount of money behind growing in the partner, retail partner, e-commerce channels? Maybe at the current level, we won't. So I think the business growth will largely be driven by the growth in clinics and at some point through our D2C vertical.
And how much of it would -- like how much sales you'll do on Nykaa just roughly?
Nykaa, specific numbers. I think about 60% of our business comes between Amazon and Nykaa average per month.
Of the e-commerce business.
Of the e-commerce business.
Because if you think about this, the scope is quite big in this company. I was just wondering, is it too early on time in terms of the service part? Or is the execution not going well? Because the brand name was super strong. We all know the Marico brand name, and you all also have a stake in to the parent in Nykaa. So that also is potentially we're seeing multiples of brands being created on Nykaa. So then why is this one not being able to crack it yet? This is the multi-dollar question.
Yes. Yes, it's a more complex business than a product business alone. So to that extent, there is a lot of complexity of the type of business. The awareness levels of customers are growing. There are many, I would say, low price options that are available in the market, but we are approaching it like a brand. So of course, we are not the cheapest in the market, and we don't even claim to be or want to be the cheapest in the market. So we'll keep sustaining on the brand story and keep building on the brand story and look at more expansion into more territories that we are not currently present in. So our footprint as a brand will try and increase, but beyond that, I think it's a market which has an opportunity to grow according to us, and we'll continue to invest on those areas.
So I think the cheapest thing is a little myth because we've seen other brands who have been more expensive have done well. So I think that's not an issue.
Not really. Actually, if you look at the dermatology space, it is not necessary that every brand out there is actually in the super premium space.
Yes, yes, exactly.
Yes, yes. So we continue to -- so -- but what I am talking about is the fact that there has been a mushrooming of individual clinics, which are there out there in the market, which are playing maybe more the price game, which we are not in at the moment. So we are not acquiring at any cost and acquiring at the cost of maybe making the services very accessible at a lower price. We are maintaining a mid- to premium price positioning, and we'll continue to do that.
By when do you think you will be able to break even on a consolidated basis, at least on the EBIT level?
It would be too early to give us this response currently because we are putting our effort in that direction. So maybe gradually as and when we move based on the performance, the number should improve.
Okay. Sure. I'll get back in for more questions.
[Operator Instructions] Our next question is from the line of Ajay Vora from Nuvama.
If you can just give a sense in terms of what can be our annual run rate on both finance cost and employee cost for this year?
Okay. From -- just one minute.
Sir, I'm talking about FY '24, the ongoing fiscal year.
So fiscal for '24, I cannot give comment, but it would be pretty much in line with what is going in '23.
Okay. So when you say pretty much meaning either single digit or broadly flat?
It maybe because in the finance cost, it comes at a consumer finance cost also, so our business [ 15% ] in India, around 15% to 16% also business comes from consumer finance. That contribution goes up, then also the cost increases. There are multiple [indiscernible] build up in the finance cost...
So this year, the finance cost was somewhere around INR 36 crores. How much would that be consumer financing costs over year?
Consumer finance cost would be around -- in India would be around INR 3 crores to INR 3.5 crores.
For the full year?
For the full year.
Okay. So I'm saying for FY '24, so can you also help with what is the gross debt right now?
Gross debt is around INR 150 crores, considering both the entity.
Okay. And what would be the cost of that?
It depends on -- it depends upon 8% to 11%.
On the entire amount?
No. It's a split. Maybe 1/3 is on 11% and the balance is on 8%.
Okay. Still, the finance cost looks very high, right, sir?
Yes, because there's a lease cost also comes into picture. There's one -- if you look this quarter, there's exceptional costs also we have booked, which is for PF liability interest, which is around INR 10.5 crores. So if you look at on average...
Yes. I'm saying when you say that it will be the same for this year as well because that includes the PF liability of INR 10 crores...
No. So that's why we highlighted it's exceptional cost, we can remove it. And on that basis, we can take it.
So next year, the overall interest cost should be lower quite...
Yes. So if you remove the exceptional cost, then it will be low.
Yes. And similarly, for employee cost also, you think it will be same or it should be lower next year?
So the cost would be -- there would be escalation which comes in the picture on the employee front, which range into 5% to 8% because of that, can the cost go up.
And just lastly, are we almost done with the whole impairment of the international assets or there is more to come in a couple of next quarters as well?
So currently, I would not be able to comment on that why because it depends upon how we relate to the scenario on the performance.
What would be the gross block right now on the international assets?
Gross block on international.
Can you give me 2 minutes?
Yes.
It's around [ AED 126 million ] including the lease assets. And if you look without that, it could be around [ AED 80 million ], around INR 160 crores roughly.
INR 160 crores.
Yes.
Okay. And just lastly, I just want to understand in terms of a long-term thought process, is the management comfortable with the current pace of expansion, meaning like 2 to 4 clinics per quarter, and we are more or less dependent on how the cash flows are and considering the debt also what we have. Is there any alternative plan where the company is really gunning for higher growth through expansion and look for alternatives for overall funding of that growth? What is the overall thought process over here?
So basically, currently, the funding, which is -- in India is basically towards expansion. But for futuristic scenario currently, I can't comment, but the objective is to do brand refresh technology that Rajiv Nair already briefed. The strategy towards the business is brand refresh, new clinics, investment in infrastructure, that's what we're looking across.
Yes, but that all would be dependent on the internal cash flows, which has its own limitations. So in case if we are looking at a much bigger opportunity, is there a thought process to grow through alternative funding and grow aggressively, expand aggressively?
So currently, I would not be able to comment what would be that strategy, maybe as and when during the course of the financial year in case something turns up on the public domain, we will just announce it.
Okay. But internally, that definitely is something on the mind, right?
So we acknowledge your point. We have the thought process in mind what we are trying to tell. But currently, we don't have anything concrete in place. So I would not be able to comment. We are currently focusing on the current cash flow what we have and how we are going to expand. We are concentrating currently on that part to generate the cash flow.
That was the last question of a question-and-answer session. As there are no further questions, I would like to hand the conference over to the management for closing comments.
Okay. Just one moment, please. Okay. Thank you all for participating in the conference call. Thank you very much indeed. Thank you.
Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.