KDDL Optimistic on FY27 Profitability, INR50cr Capex

KDDL Limited — Q4 FY26 Earnings Conference Call (20 May 2026)

1. Overall Tone of Management

Optimistic. Management repeatedly emphasizes “very confident about the outlook,” “remain highly optimistic” (Eigen), and “we remain very confident” despite “challenging” and “uncertain and volatile” global conditions. They also highlight “done even better than expected” versus FY25 recovery promises.

2. Key Themes from Management Commentary

• Global watch industry headwinds persist, but are framed as near-term: weak consumer demand in China/parts of Europe; brands cautious on inventory/procurement; “uncertain and volatile” macro.
• Strategic customer diversification beyond Switzerland: “intensified our customer diversification efforts beyond Switzerland,” targeting customers at different price points; benefits expected “over the coming years.”
• Business recovery cadence: watch components (dials/hands) “forged a recovery during the second half of FY26 after a quiet first half.”
• Bracelets positioned for growth with structural advantage: export-led; “Bracelets are not covered under the Swissness criteria,” enabling long-run India manufacturing advantage.
• Precision Engineering (Eigen) strong momentum + expansion: FY26 revenue “grew by more than 35%” to ~INR200 cr; strategy includes backward integration, process enhancement, and capacity additions; medium/long-term optimism.
• Packaging (Ornapac) scaling with ramp-up losses: FY26 revenue growth “over 35%”; currently loss at ramp-up stage; expects profitability “during the second half of the current financial year.”
• Ethos (retail) growth engine narrative: store expansion and visibility; management expects continued growth and working-capital improvements.
• Capital allocation: capex planned “approximately INR50 crores across businesses during FY27” (maintenance + growth).

3. Q&A Analysis

Theme A: Segment economics, capacity, and utilization (Bracelets / Packaging / Eigen)

• Core questions
• Whether bracelet is included in watch component revenue; bracelet revenue split.
• Peak utilization / “peak revenue” from capacity additions.
• Current utilization and ramp plan for bracelets; capacity numbers.
• Packaging capacity and when it becomes profitable.
• Management responses
• Bracelet is separate; bracelet revenue ~INR40 cr (standalone context).
• “Peak revenue” is hard to define because capabilities expand incrementally and value changes with capability mix.
• Bracelets: existing utilization cited as ~75–80%; expected to go up with incremental capacity and new customers.
• Bracelet capacity guidance: expanded from ~75,000 to ~110,000–120,000 over ~12 months (value/capability framing repeated).
• Packaging: backward integration not emphasized here; profitability expected 2H FY27 (from prepared remarks).
• Notable evasiveness / partial answers
• Repeated refusal to quantify “peak revenue” and “asset turn” of capex; “confidential numbers.”
• Capacity discussed in units sometimes, but management repeatedly reverts to value/capability rather than unit economics.

Theme B: Growth targets and margin outlook (CAGR, margins stability, mix)

• Core questions
• Outlook for Eigen / Precision / Packaging / Bracelets growth and whether 25% CAGR applies across them.
• Margin expectations and whether margins will change materially.
• Whether margin stability is impacted by product mix and customer price points.
• Management responses
• Medium-to-long term: ~25% CAGR for Precision Engineering, Packaging, and Bracelets; watch components “probably grow a little bit less.”
• Margins: “hard to predict” near-term; “do not expect any great change in the margin picture over this year.”
• If needed, they may “compromise margin a bit” to gain market share/new markets; margins expected stable.
• Notable evasiveness
• Limited quantitative margin bridge; “difficult to say” and “hard to predict” repeated.
• Currency impact acknowledged as a factor but not quantified.

Theme C: Precision Engineering (Eigen) drivers, capex commissioning, customer visibility

• Core questions
• Capex commissioning timeline (Bangalore facility / Q1).
• Whether capex is order-backed; OEM concentration; visibility/backlog.
• Backward integration details (electroplating/plating process).
• Metals/process scope (steel vs other metals).
• Management responses
• Eigen capex started last year; backward integration commissioning expected in next 3–4 months; facility utilization to begin thereafter.
• Capex split: INR50 cr capex across businesses; major part for Precision Engineering and Bracelets.
• Eigen is “capability selling,” not a single product selling company; busbar vs other components can shift with customer needs.
• Backward integration: plating process brought in-house (quality/consistency/ramp-up).
• Metals: not clearly quantified; management emphasizes mix/order-dependent production and avoids specifics.
• Notable evasiveness
• No backlog numbers; no customer/product names; “sensitive information” style responses.
• Metals/process details largely not answered directly.

Theme D: Ethos (retail) store economics, margins, working capital, currency pass-through

• Core questions
• New store payback / performance.
• ASP strategy and whether margins improve after aggressive store expansion.
• CHF cover / how much currency exposure is passed through; gross margin impact.
• Working capital initiatives and inventory days reduction.
• Store format strategy (COCO vs franchise; Tier 2/3 expansion; new format vs wearables).
• Management responses
• New stores: performance “as per expected”; Tier 2 takes longer but costs lower.
• Margin: depends on currency stabilization; they expect improvement when FX stabilizes; costs already “baked in” from expansion.
• Working capital: inventory days reduced from ~247 to 221 days at cost; merchandising/process/brand relationship investments; AI lab mentioned.
• CHF exposure: they state “room for improvement of 7%–8%” and that pass-through happens every ~6 months; avoid exact cover %.
• Expansion model: explicitly “We have not done anything other than COCO” (company-owned, company-operated).
• New format: launching a format this year (INR 25,000–2 lakhs price band), wearables threat “over,” contracts already tied up.
• Notable evasiveness
• CHF hedging/coverage quantified only qualitatively; no exact cover percentage or remaining hedge tenor.

4. Guidance / Outlook

Explicit guidance (quantitative)

• Capex: “approximately INR50 crores across businesses during FY27.”
• Growth (medium-to-long term): “~25% CAGR” for Precision Engineering, Packaging, and Bracelets; watch components “a little bit less.”
• Bracelets growth: expected “20% to 25% growth” (near-term) with margins moderated due to lower price points of newer customers.
• Bracelets capacity expansion (units): from ~75,000 to ~110,000–120,000 over ~12 months (management’s estimate).
• Ornapac profitability: expects division to become profitable “during the second half of the current financial year” (i.e., FY27 2H).
• Ethos store network: crossed 100 boutiques; “doubling… in the next 3 years” (goal; may take 4 years earlier phrasing).

Implicit signals (qualitative)

• Margins: management expects “stable margin picture” and “no great change” over the year; near-term moderation possible due to mix/customer price points.
• Demand: hopeful that global conditions “will change,” but they are not relying on a near-term rebound; they emphasize resilience and customer diversification.
• Visibility: they repeatedly say quarter-to-quarter prediction is hard; medium/long-term confidence is higher than short-term certainty.

5. Standout Statements (direct / revealing)

• Recovery confidence despite volatility: “we remain very confident about the outlook of our businesses.”
• Performance vs expectations: “we have done even better than expected.”
• Customer diversification thesis: “intensified our customer diversification efforts beyond Switzerland… benefits… over the coming years.”
• Bracelets structural advantage: “Bracelets are not covered under the Swissness criteria… provides an advantage.”
• Eigen strength + expansion: “FY26 has been an extremely successful year… revenue grew by more than 35%… backward integration and process enhancement together with capacity additions.”
• Margin stance: “do not expect any great change in the margin picture over this year.”
• Packaging ramp-up: “currently is showing a loss at its ramp-up stage… expect… profitable during the second half.”
• Ethos FX pass-through framing: “we are definitely 7%-8% below what we need to be… pass it on… once in six months.”
• Hedge/coverage refusal to quantify: “confidential numbers” (capex asset turn; capex efficiency; CHF cover specifics).

6. Red Flags / Positive Signals

Red flags
– Frequent “hard to predict” on margins and peak utilization → limited transparency on downside scenarios.
– No quantified backlog / order visibility for Eigen despite questions.
– Currency impact not cleanly quantified (they acknowledge it affects EBITDA margin but won’t provide a bridge).
– Confidentiality used repeatedly to avoid key operational KPIs (capex asset turn, some brand metrics).

Positive signals
– Clear operational progress markers: Eigen capex commissioning timeline (3–4 months), bracelet utilization (75–80% → rising), inventory days reduction (247 → 221).
– Multiple growth engines simultaneously: Eigen + bracelets + packaging + Ethos store expansion.
– Profitability timing for Ornapac (2H FY27) and margin stability guidance.

7. Historical Comparison & Consistency Analysis

a. Change in Tone Over Time

• Current call (May 2026): more confident/optimistic—“done even better than expected,” “very confident,” “highly optimistic.”
• Prior call (Nov 2025, Q2/H1 FY26): tone was cautiously positive with emphasis on mixed global signals and “on track,” but more focus on navigating uncertainty and maintaining momentum.
• Shift classification: More Optimistic.
• What changed: management now speaks from a position of outperformance (“better than expected”) and provides more concrete operational milestones (capex commissioning in 3–4 months; bracelet capacity expansion numbers). They still hedge on near-term margin/FX, but confidence on medium-term growth is stronger.

b. Tracking Past Commitments vs Outcomes (from prior calls provided)

1. Favre-Leuba demand / ramping beyond initial underestimation
2. Past statement (May 2025): market response exceeded expectations; “falling short of the product” and ramping supply; “you’re going to see a lot… in the coming 12 to 18 months.”
3. Current call (May 2026): “already present in over 20 countries, with more than 80 points of sales… stores are actually short of stock… ramping up production.”

4. Assessment: ✅ Delivered (stronger-than-expected sell-through/ramp narrative).

5. Bracelets capacity utilization ramp

6. Past statement (May 2025): capacity utilization ~50%; expected to rise to ~65% in FY26.
7. Current call (May 2026): bracelet utilization cited as ~75–80% this year and expected to go up.

8. Assessment: ✅ Delivered / exceeded (65% target vs 75–80% cited).

9. Eigen growth momentum continuity

10. Past statement (Nov 2025): confidence that growth momentum would continue for “coming at least few quarters”; long-term growth ~25%.
11. Current call: Eigen FY26 revenue “grew by more than 35%” and they reiterate medium/long-term optimism.

12. Assessment: ✅ Delivered (at least for FY26; still no quantified backlog, but performance supports momentum).

13. Ornapac packaging profitability timing

14. Past statement (May 2025): packaging early stage; growth expected; no firm profitability timing given in provided excerpt.
15. Current call: explicitly expects profitability “during the second half of the current financial year.”
16. Assessment: ⏳ Not yet verifiable (timing is future relative to call; but guidance is now more specific).

c. Narrative Shifts

• From “watch component recovery + hedging” (May 2025 / Nov 2025) to “multi-division scaling with customer diversification beyond Switzerland” (May 2026).
• Bracelets moved from “integral/export-driven” (May 2025) to “structural advantage via Swissness criteria exclusion” and quantified capacity expansion.
• Margin narrative shifted from “one-off/mix effects” (earlier) to “stable margin picture” with FX and mix as the main caveats.

d. Consistency & Credibility Signals

• Credibility: Medium to High.
• They have delivered on several operational ramp narratives (bracelets utilization, Favre-Leuba sell-through, Eigen momentum).
• However, they still avoid key quantifications (capex efficiency, CHF cover %, backlog, peak utilization economics), which limits full confidence in downside risk modeling.

e. Evolution of Key Themes

• Demand: global headwinds persist, but management increasingly emphasizes domestic strength + diversification rather than waiting for global watch recovery.
• Margins: from “mix/ramp-up pressure” to “stable band,” but with continued caveats on customer price points and FX.
• Expansion: capex now tied to backward integration + process enhancement (Eigen plating; packaging ramp; bracelet capability increments).
• Retail (Ethos): working capital and inventory efficiency become more prominent (247 → 221 days), plus AI lab and new format launch.

f. Additional Insights (cross-period intelligence)

• Increasing defensiveness/limits on disclosure: questions on “peak revenue,” “asset turn,” “CHF cover,” and “backlog” repeatedly meet confidentiality or “hard to quantify” responses—suggesting management is managing expectations around what can be modeled reliably.
• Margin stability claim vs. ramp-up losses: Ornapac is still loss-making at ramp-up stage, yet management says margins won’t change dramatically—this could imply offsetting strength elsewhere (Eigen/bracelets/FX), but they do not provide a bridge.
• Customer diversification beyond Switzerland is now central: earlier calls mentioned exploring newer geographies; now it’s framed as an intensified, medium-term value driver—potentially a response to persistent Swiss/global uncertainty.