Iris Clothings FY26: Fast growth, but margins show the cost of D2C and expansion

Iris Clothings Limited, which sells kidswear under the DOREME brand, closed FY26 with a sharp step-up in scale. Consolidated revenue from operations rose to INR 190.0 crore in FY26 from INR 146.3 crore in FY25, a growth of 30.5%. Profit after tax increased 23.4% year on year to INR 16.2 crore.

Q4 FY26 also stood out. Revenue from operations grew 50.4% year on year to INR 60.5 million, and PAT grew 43.5% to INR 6.4 million. The quarter benefited from stronger sales momentum and operating scale, but the year’s ratio trend shows that growth came with visible investment costs.

FY26 performance: strong top line, softer profitability ratios

While revenue moved up materially, FY26 profitability expanded much slower. EBITDA for FY26 was INR 29.4 crore versus INR 28.3 crore in FY25, translating into an EBITDA margin decline to 15.4% from 19.3%. Net profit margin slipped to 8.5% from 9.0%.

Management addressed this directly in the earnings call. They attributed EBITDA margin pressure to three factors: the addition of value-oriented product categories with aggressive pricing to reach a broader set of stores, spending to launch the D2C platform in Q4, and costs linked to a large distributor event.

Note: Q4 figures are presented in INR crore equivalents based on the table in INR million.

The ratio slide reinforces the shift. Return on equity fell to 11.40% in FY26, and ROCE declined to 16.10%. At the same time, leverage reduced meaningfully. Debt-to-equity is shown at 0.14x in FY26, and management stated the company has no long-term debt on its books.

Distribution strength remains the base, but D2C is becoming the narrative

Iris positions DOREME as an affordable premium kidswear brand with a distribution-led model. The investor presentation highlights 216 domestic distributors across 26 states and exports to 9 countries, including Portugal, Nepal, Mozambique, Saudi Arabia, UAE, Philippines and Sri Lanka.

During the call, management emphasized that distributor network additions were a key growth driver in FY26, supporting market reach and sales momentum. They also pointed to the long-term opportunity in organized kidswear, driven by rising disposable incomes and increasing preference for branded apparel.

But the strategic pivot is clear. The company launched a dedicated D2C platform in Q4 FY26. Management shared early operating indicators that investors typically look for in new channels. They cited a target customer acquisition cost of INR 250 to INR 300 per order, with an average bill value of around INR 1,500 to INR 1,600. They also said the website has reached about 300 pieces per day of orders within a couple of months of launch and is expected to ramp up over the next six months.

In addition, they guided that digital platforms could contribute around 10% of overall revenue in the current year and 20% to 25% in the next year. They also clarified channel strategy: the company is doing well on FirstCry and expects differentiated SKUs between FirstCry and its own platform. They stated they are not on Amazon currently and are exploring quick commerce with multiple partners.

Offline retail: EBOs as experience, with disclosed unit economics

The presentation outlines an EBO roll-out plan using a cluster strategy, with initial focus on eastern regions and expansion later into western markets. The company intends to run Company Owned Company Operated stores initially and consider franchise stores under a Franchise Owned Company Operated model after FY26.

On the call, management disclosed that the company currently has 7 stores, with EBO revenue contribution around 1% of overall revenue, about INR 2 crore. For FY27, they plan to add 8 to 10 stores.

They also shared the cost and payback framework. Capex is stated at around INR 2,500 to INR 3,000 per square foot. For a 1,000 square foot store, that translates to roughly INR 30 lakh of capex plus inventory, with an estimated payback period of 18 to 20 months.

Investors also questioned past execution timing on EBO additions. Management acknowledged that they are still finalizing direction and said a more concrete plan on funding and roll-out should emerge over the next six months.

Capacity and product roadmap: building for the next scale-up

The investor presentation highlights 13 units across manufacturing, dispatch and corporate office, with total installed capacity of 36,000 pieces per day and installed area of 1,45,000 sq. ft. The capacity roadmap includes three levers: brownfield debottlenecking to improve utilization from about 75%, greenfield expansion to support B2B and EBO growth, and OEM outsourcing for specific categories.

The headline capex plan is the greenfield facility in West Bengal, planned at 200,000 sq. ft. with estimated capex of INR 50 crore. In response to an investor question, management stated that once the factory reaches optimal utilization, it can add about INR 300 crore of revenue, and they also mentioned targeting around INR 500 crore from the facility over the next two years once it is in place.

The product strategy is also widening. The presentation highlights infantwear additions such as woven night suits, and launches of innerwear and nightwear in FY26. Sportswear, introduced in FY24, is expected to contribute more, along with niche winter sportswear. Disney products are expected to expand further, including winterwear collections.

On the call, management specifically stated that woven will become a larger part of the business. They described Iris as historically a knit-focused company, with woven being a newer area where multiple products are planned over the next couple of years.

Takeaways

FY26 for Iris Clothings is a story of scale and transition. The business delivered 30% plus revenue growth and a strong rise in PAT, while also absorbing the cost of new channel investments and product mix changes. The margin compression and lower ROE and ROCE signal that the company is in an investment phase, especially with D2C build-out and the push into value categories.

The next phase will depend on execution across three moving pieces: scaling digital revenue without permanently depressing margins, expanding EBOs with disciplined payback, and funding the greenfield capex plan with clarity. Management has provided several measurable indicators, including CAC, ABV, store capex and payback, and a quantified revenue potential for the new facility. Investors will likely track how quickly these indicators translate into sustained margin recovery and return ratios.