FAZE THREE REPORTS STEADY OPERATIONAL PERFORMANCE IN TOUGH BUSINESS SCENARIO

News:

 Faze Three reported steady operational performance with revenue increasing 17% YoY to Rs 137 crore (down 7% QoQ). Judicious price hikes and improved product mix resulted in the company reporting gross margins at 60.9% (down 20 bps YoY, QoQ increase of 577 bps). Though employee expense to sales ratio declined 141 bps YoY, increase in other expense to sales ratio by 171 bps YoY led to EBITDA margins declining by 40 bps YoY to 17.4% (Q1FY23: 15.9%). Absolute EBITDA grew 14% YoY (2% QoQ) to Rs 23.8 crore. Higher depreciation (up 57% YoY to Rs 3.7 crore) and interest expense (up 82% YoY to Rs 1.5 crore) with lower other income (down 47% YoY to Rs 90 lakh) led to net profit growth being restricted to 6% YoY at Rs 14.4 crore (down 2% QoQ)

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 The company has maintained revenue growth momentum with stable margins, which is commendable in an uncertain global demand scenario. The management indicated that despite a slowdown in key export geographies (US/UK: 90% of sales), order visibility for H2FY23 & FY24 is indicating moderate growth across all products. New products, development pipeline, orders are showing encouraging signs and improving sentiments versus H1FY23. The company’s products are largely positioned in the band at $10-25 per piece/ per set band for sale by retailers, which empirically has not seen significant reduction in demand in challenging/recessionary demand scenario. The company specialises in polyester/cotton based home textile products such as bathmats and rugs, which are mainly dominated by Chinese exports (unlike sheets & towels wherein India has a significant share in US markets). In a bid to capture long term growth opportunities the company has embarked on brownfield capacity expansion and outlined capex worth Rs 80 crore, which will be funded mainly through internal accruals (potential revenues 2x of current annual run rate). The ban on cotton from China is now fully implemented globally with China plus one sentiment continuing to improve in India’s favour

Impact:

Positive