RUPA - RUPA & COMPANY LIMITED Share Price

Management provided an outlook amid competitive pricing pressures and anticipated market dynamics during the earnings call for Q3 FY '26. Vikash Agarwal, the Whole-Time Director, emphasized the company's focus on volume-led growth for the immediate future, while recognizing the pricing challenges affecting margins. He noted that revenues for Q3 reached INR 313.5 crores, down 0.9% year-on-year, with a marginal decrease in the nine-month figure at INR 817.6 crores compared to INR 823.8 crores year-on-year. Gross margins fell to 26.3% from 29.4% a year ago due to aggressive discounting and competitive schemes, while PAT margins also decreased to 5.2% in Q3 and 4.4% for the nine months.

Key forward-looking points from management included:

1. Expected recovery in margins as pricing pressures moderate, with normalization anticipated in the next 2-3 quarters.
2. Continuous investment in channels such as e-commerce, modern trade, and exports, which showed a year-on-year growth of 28%.
3. A disciplined approach to working capital management, maintaining cash surplus at INR 41 crores with operating cash flow of INR 49 crores for the nine months.
4. Routine capex of INR 12-15 crores planned for FY '26, with marketing expenditures budgeted between 6-7% of revenue.
5. Introduction of new products in women's wear, Athleisure, and Activewear as a strategy to capture a broader market share and enhance revenue streams.

Management remains optimistic about future volume growth stemming from an improved product mix and expanded distribution channels, reinforcing their commitment to financial prudence and operational efficiency.

1. Question: "So industry is facing like continuous pricing wars among the players. The margins are getting squeezed post COVID. What do you think when the same will be stabilized?"
Answer: In the short term, we do not foresee stabilization. However, as export demand picks up and yarn prices firm up, we anticipate a shift in trends, which could take a few more quarters to materialize.

2. Question: "Okay. Okay. And why are we seeing sharp decline in margins?"
Answer: The primary reason for the decline in margins is intense pricing competition. Our strategy focused on aggressive pricing, which adversely affected our realizations, resulting in lower gross and operating margins.

3. Question: "I wanted to know that what are your capex plans along with marketing expenditures for FY '26?"
Answer: We do not have major capital expenditure plans, but we will allocate routine capex of approximately INR 12 crores to INR 15 crores. For advertising, our annual budget is around 6% to 7% of revenues.

4. Question: "What is your working capital in terms of days for 9 months and FY '26?"
Answer: The working capital days for the first nine months stand around 230 days, reflecting our operational efficiency and management of receivables and inventory.

5. Question: "What is leading to this pricing pressure, and what are the trade discounts offered for the 3 and 9 months period for FY '26?"
Answer: We are experiencing pricing pressure from aggressive discount schemes to remain competitive. Over the 9-month period, we provided about 12% in trade discounts to our dealers, which is an increase from previous quarters.

6. Question: "When should we expect this aggressive pricing to reverse, and what will drive growth in the coming years?"
Answer: Our focus is on modern trade, e-commerce, exports, and launching new product ranges, especially in womenswear and athleisure. We believe these channels will stimulate growth and help reverse current trends in a sustainable manner.

7. Question: "Can you provide guidance on expected revenue growth from modern trade?"
Answer: We are currently building a new team for modern trade, and while a concrete revenue growth estimate will be available next quarter, our engagement with chains suggests an optimistic outlook for performance improvement.

8. Question: "How are mid and premium products performing compared to the economy segment?"
Answer: In the current quarter, the economy segment lagged behind the mid-premium and premium segments. However, we anticipate growth in the economy segment as market conditions improve and we adjust our strategies.

9. Question: "What gross margin range do you consider sustainable for FY '26?"
Answer: The current decline in gross margin, now at 26.3% versus 29.4% last year, is due to aggressive discounting. We expect margins to stabilize, although specific sustainable levels remain dependent on market recovery and pricing strategies.

10. Question: "What is the anticipated time frame for price normalization?"
Answer: We anticipate that price normalization will occur over the next 2 to 3 quarters as market conditions evolve and competitive pressures adjust.