KDDL Ltd — Investor Presentation 2020

Feb 14, 2020

KDDL Limited

Kamla Centre, SCO 88-89, Sector 8-C, Chandigarh - 160 009, INDIA. Tel: +91 172 2548223/24, 2544378/79 Fax: +91 172 2548302, Website:www.kddl.com CIN-L33302HP1981PLC008123

Date : 14[th] February, 2020

Ref : KDDL/CS/2019-20/87

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National Stock Exchange of India Limited Exchange Plaza, C-1, Block G, Bandra Kurla Complex, Bandra, Mumbai - 400 051

BSE Limited, Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai - 400001

Trading Symbol : KDDL

Scrip Code : 532054

Subject: Result Update Presentation

Dear Sir/ Madam,

Please find enclosed Result Update Presentation for Q3FY20.

Kindly take the same on record.

Thanking you,

Yours truly

For KDDL Limited

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Brahm Prakash Kumar Company Secretary

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KDDL Limited & ETHOS Limited

Result Update Presentation February 2020

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Safe Harbor

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This presentation and the accompanying slides (the “Presentation”), which has been prepared b Kddl Ltd and Ethos Limited, a material subsidiary of KDDL Limited, (the “Company”), solely for information purposes and do not constitute any offer, recommendation or invitation to purchase or subscribe for any securities, and shall not form the basis or be relied on in connection with any contract or binding commitment whatsoever. No offering of securities of the Company will be made except by means of a statutory offering document containing detailed information about the Company.

This Presentation has been prepared by the Company based on information and data which the Company considers reliable, but the Company makes no representation or warranty, express or implied, whatsoever, and no reliance shall be placed on, the truth, accuracy, completeness, fairness and reasonableness of the contents of this Presentation. This Presentation may not be all inclusive and may not contain all of the information that you may consider material. Any liability in respect of the contents of, or any omission from, this Presentation is expressly excluded.

Certain matters discussed in this Presentation may contain statements regarding the Company’s market opportunity and business prospects that are individually and collectively forward-looking statements. Such forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties include, but are not limited to, the performance of the Indian economy and of the economies of various international markets, the performance of the industry in India and world-wide, competition, the company’s ability to successfully implement its strategy, the Company’s future levels of growth and expansion, technological implementation, changes and advancements, changes in revenue, income or cash flows, the Company’s market preferences and its exposure to market risks, as well as other risks. The Company’s actual results, levels of activity, performance or achievements could differ materially and adversely from results expressed in or implied by this Presentation. The Company assumes no obligation to update any forwardlooking information contained in this Presentation. Any forward-looking statements and projections made by third parties included in this Presentation are not adopted by the Company and the Company is not responsible for such third party statements and projections.

2

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Q3FY20 Performance Overview

3

Q3FY20 Performance

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Standalone Performance (Rs. Crs)

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Revenue
-0.5%
42.5 42.3
Q3FY19 Q3FY20
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Gross Profit
-1.7%
33.0 32.5
Q3FY19 Q3FY20
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Ethos Performance (Consolidated) (Rs. Crs.)

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Revenue
+23.0%
160.4
130.4
Q3FY19 Q3FY20
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Gross Profit
+17.2%
45.8
39.0
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Q3FY19
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Q3FY20
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Q3FY20 Financials are with applicability of IND AS 116

4

9MFY20 Performance

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Standalone Performance (Rs. Crs)

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Revenue
+6.6%
139.9
131.2
9MFY19 9MFY20
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Gross Profit
+5.0%
105.1
100.1
9MFY19 9MFY20
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Ethos Performance (Consolidated) (Rs. Crs.)

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Revenue
+7.9%
369.1
342.2
9MFY19 9MFY20
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Gross Profit
+11.5%
105.3
94.4
9MFY19 9MFY20
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9MFY20 Financials are with applicability of IND AS 116

5

Standalone Profit & Loss

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Profit & Loss (Rs. Crs.)	Q3FY20	Q3FY19	YoY%	9MFY20	9MFY19	YoY%
Revenue	42.3	42.5	-0.5%	139.9	131.2	6.6%
Cost of Goods Sold	9.8	9.5		34.8	31.1
Gross Profit	32.5	33.0	-1.7%	105.1	100.1	5.0%
Employee Expenses	14.1	13.1		42.5	38.4
Other Expenses	12.0	13.1		38.9	38.5
EBITDA	6.4	6.9	-7.0%	23.7	23.3	2.0%
Margin (%)	15.1%	16.1%		17.0%	17.7%
Other Income	1.1	1.1		4.1	3.0
Interest	2.3	1.1		6.6	3.7
Depreciation	3.0	2.0		8.8	5.8
PBT	2.3	4.9	-53.9%	12.5	16.7	-25.5%
Tax	0.7	1.7		3.8	5.2
PAT	1.6	3.3	-51.4%	8.6	11.6	-25.3%

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Q3 & 9M FY20 Financials are with applicability of IND AS 116

Consolidated Profit & Loss

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Profit & Loss (Rs. Crs.)	Q3FY20	Q3FY19	YoY%	9MFY20	9MFY19	YoY%
Revenue	203.7	171.6	18.7%	515.0	474.6	8.5%
Cost of Goods Sold	124.8	99.7		299.6	278.5
Gross Profit	79.0	71.9	9.8%	215.5	196.2	9.8%
Employee Expenses	25.7	21.1		77.5	61.7
Other Expenses	27.3	26.5		75.9	83.6
EBITDA	26.0	24.4	6.7%	62.0	50.9	21.9%
Margin (%)	12.8%	14.2%		12.0%	10.7%
Other Income	2.8	1.4		5.6	4.0
Interest	7.9	3.0		21.6	10.2
Depreciation	12.6	3.4		35.9	9.8
Share of Loss of equity accounted investees	0.1	-		0.1	-
PBT	8.1	19.4	-58.0%	10.1	34.9	-71.1%
Tax	3.8	7.4		7.0	12.5
PAT	4.4	12.0	-63.3%	3.2	22.4	-86.0%
Minority Interest	1.2	2.3		0.4	2.8
PAT After Minority Interest	3.2	9.7	-67.2%	2.8	19.7	-86.0%

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Q3 & 9M FY20 Financials are with applicability of IND AS 116

Adjusted Consolidated Profit & Loss

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Particulars (Rs. Crs.)*	9MFY20 As Reported	Adjusted for INDAS 116	Adjusted for INDAS 116
		9MFY20	9MFY19
Revenue	515.0	515.0	474.6
Cost of Goods Sold	299.6	299.6	278.5
Gross Profit	215.5	215.5	196.2
Employee Expenses	77.5	77.5	61.7
Other Expenses	75.9	101.5	83.6
Normalized EBITDA	62.0	36.5	50.89
Normalized Margin (%)	12.0%	7.1%	10.7%
Other Income	5.6	5.6	4.0
Interest	13.0	13.0	10.2
INDAS 116 Interest	8.6	-	-
Depreciation	12.9	12.9	9.8
INDAS 116 Depreciation	23.0	-	-
Share of Loss of equity accounted investees	0.1	0.1	0.0
PBT	10.1	16.1	34.9

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9MFY20 Financials are with applicability of IND AS 116

Ind AS 116: Impact on Financials

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• On 1 April 2019, the Group has adopted Ind AS 116 “leases”, using the modified retrospective approach. Accordingly, the comparatives have not been retrospectively adjusted

• The adoption of Ind AS 116 has resulted in recognizing a Right-of-Use Assets of Rs. 128.7 Crores and equivalent to the lease liability of Rs. 128.7 Crores as at 1 April 2019 & reclassification of Leasehold Land and Current & non Current Assets to Right of Use Assets for Rs. 10.9 Crores

• Overall balance sheet will increase by the amount of asset created for Leases. This will have an impact on Profitability as under:

Profit & Loss Impacts	Profit & Loss Impacts	For 9MFY20 (Rs. Cr.)	Financial impact
Other expenses (Rent)	Decrease in Rent expense	-25.6	This affects other expenses, depreciation and finance cost in the Profit & loss statement & consequently impacts EBITDA and PBT of the company
Finance costs	Increase in Finance cost	8.6
Depreciation	Increase in Depreciation	23.0
Profit before tax	Decrease in PBT	-6.0

There would be no change in the cash flow of the company due to applicability of INDAS 116

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Balance Sheet

Rs. Crs	Consolidated	Consolidated	Standalone	Standalone
	Sep-19	Mar-19	Sep-19	Mar-19
Equity	230.6	235.0	170.5	167.1
Equityshare capital	11.7	11.7	11.7	11.7
Other equity	171.1	179.1	158.8	155.4
Non ControllingInterest	47.8	44.1	-	-
Non-current liabilities	179.1	73.7	49.9	39.5
Financial Liabilities
(i)Borrowings	75.9	67.2	36.6	34.5
(ii)Lease Liabilities	94.5	-	6.8	-
(iii)Other financial liabilities	1.8	1.1	0.9	0.7
Provisions	2.5	1.2	1.1	0.1
Deferred tax liability (net)	4.4	4.2	4.4	4.2
Current liabilities	277.6	210.1	74.3	56.1
Financial Liabilities
(i)Borrowings	81.3	61.9	17.2	7.4
(ii)Lease Liabilities	23.5	-	2.0	-
(iii)Tradepayables	107.4	85.0	17.4	15.7
(iv)Other financial liabilities	46.5	45.7	30.6	26.3
Other current liabilities	10.4	9.1	2.3	2.8
Provisions	4.5	4.0	2.6	2.6
Current tax liabilities(net)	4.1	4.3	2.1	1.3
Total Liabilities	687.3	518.9	294.7	262.8
Non-current assets	311.0	183.1	212.8	185.2
Property, plant and equipment	151.9	143.2	87.8	94.1
Capital work-in-progress	3.3	6.8	3.3	2.4
Right-of-use asset	124.7	-	13.6	-
Investment Property	-	-	0.8	-
Other intangible assets	0.7	0.8	0.6	0.7
Intangible assets under development	0.4	0.4	-	-
Equityaccounted investees	0.8	0.3	-	-
Financial assets
(i)Investments	0.5	0.5	100.7	79.7
(ii)Loans	12.4	12.4	2.6	2.2
(iii)Other financial assets	0.5	0.5	-	-
Income Tax Asset	4.1	6.3	2.0	5.0
Deferred tax assets(net)	7.4	6.3	-	-
Other Non Current Assets	4.4	5.6	1.4	1.0
Current assets	376.3	335.7	81.9	77.5
Inventories	273.7	239.9	30.0	30.7
Financial assets
(i)Trade receivables	38.8	31.1	29.6	23.7
(ii)Cash and cash equivalents	12.0	16.0	2.4	2.5
(iii)Other bank balances	6.0	6.1	6.0	6.1
(iv)Loans	7.3	7.3	1.6	1.8
(v)Other financial assets	2.7	4.1	3.5	5.7
Other current assets	35.9	31.1	8.8	7.1
Total Assets	687.3	518.9	294.7	262.8

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Manufacturing Business Overview

11

Introduction - Watch Dials and Hands Business

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Watch Dials
Watch Hands
Value
Proposition
▪ Commercial operations
began in 1983 ▪ Commercial operations
▪ Leading Global supplier of began in 1996 ▪ Deep Understanding of the
Global Watch Industry
Watch Dial serving many ▪ Only supplier in India and
well-known brands all
one of 5 independent ▪ Established relationships
over the world
manufacturers globally; with Swiss Watch makers
as well as Indian Watch
facilities located at
makers
▪ Manufacturing facilities Bengaluru
located at Parwanoo &
▪ Recently acquired Estima ▪ Consistent Manufacturing
Derabassi, near
AG in Switzerland; to on basis International
Chandigarh in India Quality norms
enhance presence in mid-
▪ Capability to manufacture priced segment European
dials with high & complex Brands
features
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Acquired “Estima AG” in Switzerland

• Estima was established as a maker of watch hands in Switzerland in 1924

• It was a leading supplier to Swiss and other European watch brands in the mid-priced segment and enjoyed an excellent reputation

• However, over last 10 years, it was unable to keep up with market changes and lost market share leading to declining turnover and mounting losses

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• Estima was a competitor of the Company in the business of watch hands manufacturing

• Has a well established name, valuable production infrastructure and will be serve as a good platform to establish a foothold in Swiss watch component manufacturing

• Will help capture additional market share of customers in European market serviced by Estima

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About Estima AG
Strategic Rationale
Deal Structure
Financials
▪
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• Acquiring 100% holding of Estima

• 2018 Turnover : CHF 1.8 – 2.0 million

• Cash – CHF 4,00,000 for 100 % Shares

• The cut-off date for acquisition by new management was 7th January, 2019

Acquisition of “Estima AG”

13

Introduction - Precision Engineering Business

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01
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Value Proposition

Eigen offers a full package of services, ranging from design and development to full scale production, providing customers with optimized supply chain solutions

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02
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Capabilities

We address various segments such as Electrical, Electronics, Automobile, Telecommunications, medical equipment, Aerospace, Consumer Durables etc

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03
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Customers

Enabling our customers to meet their design and production needs for over 12 years. We have some of the most wellknown names in their industry as our esteemed customers

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Stable Manufacturing Performance*

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Revenue (Rs. Crs.) EBITDA (Rs. Crs.)
175 32
+11%
+15%
146 27
127 125
22
21
FY16 FY17 FY18 FY19 FY16 FY17 FY18 FY19
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*Excludes the Financial Performance of Estima AG, Switzerland

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Ethos Q3 & 9MFY20 Snapshot

16

9MFY20 Performance

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9MFY20 vs 9MFY19 (Consolidated*)

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Billings (Rs. Crs.) Revenue (Rs. Crs.) Gross Profit (Rs. Crs.)
+6.6% +7.9% +11.5%
420.0 369.1 105.3
394.2 342.2
94.4
9MFY19 9MFY20 9MFY19 9MFY20 9MFY19 9MFY20
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*Consolidated Financials include Watch Retailing Business and Digital Marketing business 9MFY20 Financials are with applicability of IND AS 116

Consolidated Profit & Loss

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Particulars (Rs. Crores)*	Q3FY20	Q3FY19	YoY %	9MFY20	9MFY19	YoY %
Revenue	160.4	130.4	23.0%	369.1	342.2	7.9%
Cost of Goods Sold	114.6	91.4		263.8	247.7
Gross Profit	45.8	39.0	17.2%	105.3	94.4	11.5%
Employee Expenses	8.1	7.5		25.5	22.1
Other Expenses	15.0	13.4		34.2	43.6
Reported EBITDA	22.6	18.1	25.0%	45.6	28.7	58.6%
Margin (%)	14.1%	13.9%		12.3%	8.4%
Interest	5.5	1.8		14.5	5.7
Depreciation	9.3	1.3		26.0	3.5
Profit before share of JV	7.8	15.1	-48.1%	5.0	19.6	-74.3%
Share of loss of JV	0.1	-		0.1	-
PBT	7.7	15.1	-48.9%	4.9	19.6	-74.7%
Tax	3.0	5.7		3.0	7.3
PAT	4.7	9.3	-49.5%	1.9	12.2	-84.2%

*Consolidated Financials include Watch Retailing Business and Digital Marketing business Q3 & 9M FY20 Financials are with applicability of IND AS 116

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Adjusted Consolidated Profit & Loss

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Particulars (Rs. Crores)*	9MFY20 As Reported	Adjusted for INDAS 116 & other items	Adjusted for INDAS 116 & other items
		9MFY20	9MFY19
Revenue	369.1	369.1	342.2
Cost of Goods Sold	263.8	263.8	247.7
Gross Profit	105.3	105.3	94.4
Employee Expenses	25.5	25.5	22.1
Other Expenses	31.3	54.7	41.2
Normalized EBITDA	48.5	25.2	31.2
Normalized Margin (%)	13.1%	6.8%	9.1%
Interest	6.7	6.7	5.7
INDAS 116 Interest	7.8	-	-
Depreciation	4.8	4.8	3.5
INDAS 116 Depreciation	21.2	-	-
Forex Items - Loss	1.0	1.0	1.5
One-time Items#	2.0	2.0	1.0
Share of loss of JV	0.1	0.1	-
PBT	4.9	10.6	19.6

One-time items include cenvat credit written off & provision for legal cases

*Consolidated Financials include Watch Retailing Business and Digital Marketing business 9MFY20 Financials are with applicability of IND AS 116

19

Ind AS 116: Impact on Financials

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• On 1 April 2019, the Company has adopted Ind AS 116 “leases”, using the modified retrospective approach. Accordingly, the comparatives have not been retrospectively adjusted

• The adoption of Ind AS 116 has resulted in recognizing a Right-of-Use Assets of Rs.105.7 Crores and lease liability of Rs. 106.0 Crores, as on 31[st] December, 2019

• Overall balance sheet will increase by the amount of asset created for Leases. This will have an impact on Profitability as under:

Profit & Loss Impact	Profit & Loss Impact	For 9MFY20 (Rs. Cr.)	Financial impact
Other expenses (Rent)	Decrease in Rent expense	-23.4	This affects other expenses, depreciation and finance cost in the Profit & loss statement & consequently impacts EBITDA and PBT of the company
Finance costs	Increase in Finance cost	7.8
Depreciation	Increase in Depreciation	21.2
Profit before tax	Decrease in PBT	-5.7

There would be no change in the cash flow of the company due to applicability of INDAS 116

20

Consolidated Balance Sheet

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Liabilities (Rs. Crores)*	Sep-19	Mar-19	Assets (Rs. Crores)*	Sep-19	Mar-19
Shareholder’s Fund	152	134	Non-current assets	160	43
Share Capital	18	17	Fixed Assets	33	27
Other Equity	134	117	Right of Use	111	0
			Financial Assets	11	11
Non-current liabilities	109	18	Other Non Current Assets	5	6
Borrowings	19	16
Lease Liabilities	88	-	Deferred Tax asset	7	6
Other Liabilities	2	2
Current liabilities	198	150	Current assets	293	252
Borrowings	63	53	Inventories	241	206
Lease Liabilities	22	-	Trade Receivables	11	9
Trade Payables	89	69	Cash and Bank Balances	7	8
Other Financial Liabilities	14	17	Other Financial Assets	8	8
Other Current liabilities	11	10	Other Current Assets	25	22
Total Liabilities	459	301	Total Assets	459	301

*Consolidated Financials include Watch Retailing Business and Digital Marketing business

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Largest Pan India retailer of Luxury Watches

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Stores as of
Sep-19
53
Rado World Trade Park, Jaipur
Boutique 514 Sq.Ft.
Rado Boutique
Omega World Trade Park, Jaipur
Boutique 487 Sq.Ft.
Omega Boutique
Total Stores
55
With 55 pan India stores, Ethos offers the
widest variety of Luxury watches in India
Additions
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22

Fund Raise strengthens Balance Sheet

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Rs. 50cr 73.56 %
Rs. 480cr
Ethos Limited raises Shareholding of
Funds raised at a pre
KDDL Ltd (directly
Rs. 29 crores equity
money valuation of
funds in FY19 & Rs. and indirectly) in
Rs. 480 crores
Ethos Ltd
21 Crores YTD FY20
Equity Funds will primarily be utilized towards New Store rollouts and
working capital
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23

New Initiatives

Repair and Service

Repair and services over 60 of the World’s top Luxury watch Brands Strap and Bracelet replacement Servicing of Movements Bracelet link removal and adjustment Ultrasonic Cleaning	Repair and services over 60 of the World’s top Luxury watch Brands Strap and Bracelet replacement Servicing of Movements Bracelet link removal and adjustment Ultrasonic Cleaning
Bracelet link removal and adjustment	Ultrasonic Cleaning

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Pre-Owned Watches

Pre-Owned Watches has the potential to expand the volume and customer base

Ethos has the expertise to check the authenticity and to ensure that each time piece is in great condition for its new owner to enjoy

The prices we quote for each pre-owned watch is based on a thorough assessment of its current market value, and its years of use. This makes it a fair price

Financial consultancy Kepler Cheuvreux estimates the current global market for pre-owned watches alone to be worth upward of USD $15 billion annually

Ethos Watches is the #1 destination for Luxury Watch shoppers in India

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Operational Snapshot

25

Ethos - Performance Trend

Revenue (Rs. Crs.)

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369.1
342.2
251.9 250.0 260.4
9MFY16 9MFY17 9MFY18 9MFY19 9MFY20
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EBITDA (Rs. Crs.)
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28.7
22.2
10.6 9.9
4.0
9MFY16 9MFY17 9MFY18 9MFY19 9MFY20
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Front-end Rent & Manpower Cost as % of Revenue

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11.3% 11.4%
10.9%
10.3%
9.8%
9MFY16 9MFY17 9MFY18 9MFY19 9MFY20
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EBITDA Margins
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8.4%
6.0%
4.2%
3.8%
1.6%
9MFY16 9MFY17 9MFY18 9MFY19 9MFY20
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26

9MFY20 Financials are Computed for Like to Like comparison of past period

Ethos - Online Sales Trend

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Online Billings (Rs. Crs.)
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Online Billing as % of Total Billing

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123.4
112.6
98.8
87.2
82.5
9MFY16 9MFY17 9MFY18 9MFY19 9MFY20
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32.1%
31.0%
29.0% 28.7% 29.4%
9MFY16 9MFY17 9MFY18 9MFY19 9MFY20
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Visitors (‘000)
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11,624
10,888
9,783
7,464
5,701
9MFY16 9MFY17 9MFY18 9MFY19 9MFY20
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Ethos - Repeat Sales Trend

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Club ECHO Member Base
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Repeat Billings (Rs. Cr.)
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2,44,564 139.9
135.0
2,16,704
1,84,891
91.4
1,54,357
52.0
Mar’17 Mar’18 Mar’19 Dec’19 9MFY17 9MFY18 9MFY19 9MFY20
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Ethos is India’s Largest Luxury Watch Retailer

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Pan-India Presence with Offline Store Network

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India’s Largest retail chain of
Luxury Watches with 55 stores
Ludhiana Presence across Metros, Tier I, Tier
Chandigarh II cities
New Delhi
Gurugra m Noida
Jaipur Guwahati
Lucknow
1 Duty Paid Retail Outlet at
Domestic Terminals
Bhopal
Ahmedabad
Indore
Kolkata
Nagpur
Pune 2 Duty Free Retail Outlets at
Mumbai
International Terminals
Thane
Hyderabad
Store Selection Criteria :
Reputed /Pedigree Mall at Premium
Bengaluru Chennai location where other Premium brands
present and having better facility
management
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Maps not to scale. All data, information, and maps are provided "as is" without warranty or any representation of accuracy, timeliness or completeness

Pan-India Presence with Offline Store Network

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Exclusive New Store Digital Right Mix Brands Strategy ▪ ▪ ▪ Targeting to Leverage on our Targeting to Digital platform have a right mix open new to drive sales of Brands at all ▪ Higher share of stores in Tier 2 and customers price points Business from cities ▪ Exclusive ▪ Ethos stores will Digital strategy leading to faster to lead to cost churn in Brands be a 1 stop optimization Inventory and destination for and margin increasing watches growth profitability

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Ethos is India’s Preferred Destination for Luxury Watches…

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Knowledge

One-stop shop

Mind Share

Ethos has well trained Knowledgeable staff to ensure highest customer satisfaction and increasing repeat buying.

Ethos’ access to Swiss Watch Brands will make it a ‘1 Stop Shop’ for Luxury Watches In India

Ethos to be synonymous with Luxury watches retailing in India thus gaining ‘Customer Mind Share ‘

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Online

Trust

Ethos makes Swiss Watches ‘Available Online’ in a confluence of Online-Offline model helping us to leverage the strength of Swiss Watch Brands and our wide Distribution Reach

Ethos DNA is all about Authenticity increasing the ‘Trust factor’ in a large Unorganized market.

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With an Asset Light Model…

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Improve Return On Capital Employed

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Operating Leverage Playing Out

Reduce Front-End Cost like Manpower and Rental expenses

Maximize Reach

Expand catchment area of offline store, leading to higher revenue

Minimize Investment

Focus on Online Presence & Rationalize Store Presence

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and Continued Investments in Advertising…

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Print Ads in leading newspapers…

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… with ETHOS co-branding
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Offering the best Watch Brands under one roof

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The Brand Names mentioned are the property of their respective owners and are used here for identification purposes only

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For further information, please contact:

Company : Investor Relations Advisors :

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Ethos Ltd. CIN : U52300HP2007PLC030800 CIN : U74140MH2010PTC204285 Mr. C. Raja Sekhar Mr. Shogun Jain/ Mr. Shrenik Shah +91 7738377756 / +91 9664764465 rajasekhar@ethoswatches.com shogun.jain@sgapl.net / Shrenik.shah@sgapl.net www.ethoswatches.com www.sgapl.net

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