Aditya Birla Fashion and Retail Limited (ABFRL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Second Quarter and First Half FY '20 2 Earnings Conference Call of Aditya Birla Fashion and Retail Limited. The call will begin with a brief discussion by the company's management on the Q2 FY '22 performance, followed by a question-and-answer session. We have with us today, Mr. Ashish Dikshit, Managing Director; Mr. Jagdish Bajaj, CFO; Mr. Vishak Kumar, Director and CEO, Lifestyle Business; Ms. Sangeeta Pendurkar, Director and CEO of Pantaloons. I want to thank the management team on behalf of all the participants for taking valuable time to be with us. I must remind you that the discussion on today's earnings call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risks that the company faces. Please restrict your questions to the quarter and half yearly performance and to strategic questions only. Housekeeping questions can be dealt with separately with the IR team. [Operator Instructions] Please note that this conference is being recorded. With this, I hand the conference over to Mr. Jagdish Bajaj. Thank you, and over to you, sir.

Good evening, and welcome to Q2 earnings call for our company. Let me take this opportunity to first wish you all and your families a very happy festive season. The quarter under review showed a phenomenal recovery after the first quarter, which was ended due to COVID secondary effects. The demand comeback has been very encouraging, which sets the stage for a strong festival. Consumer portfolio saw to a sharp rebound in the second quarter as the COVID restrictions were relaxed across the country and malls and high street stores opened up, except in few states. Smaller cities across lower-tier towns witnessed a very fast-paced recovery of business. The excellent recovery in sales across plants and channels from the slump in Q1 stands testimony to the increased appetite of consumers to spend on fashion, footwear and accessories. The e-commerce traction has continued to outpace itself, aided well by a growing omnichannel trajectory. Now let me give you a snapshot of the financial performance of our company. The revenues of Q2 are close to 90% of pre-COVID levels, indicating a much faster rebound in sales versus what we showed at the end of first wave. The recovery could have been even better but for delayed restricted opening of malls in a few states where our stores are operating. The revenues for Q2 FY '22 have doubled to INR 2,054 crores compared to INR 1,028 crores in Q2 FY '20. The recovery momentum continues to be strong, and the businesses have exceeded the pre-COVID levels closer to the festive period. Alongside increasing footfall in our stores, our e-commerce continued to grow by 74% compared to last year. The overall revenue of H1 FY '22 was INR 2,866 crores, which is 65% recovery over pre-COVID levels and 112% over H1 FY '21. A shift in recovery in revenue ahead of cost has resulted in a turnaround EBITDA performance for this quarter, posting an EBITDA of INR 338 crores, recovering from the negative EBITDA posted last quarter and a growth of 142% over last year. Losses at PAT level to a turnaround from losses of INR 352 crore in Q1 to INR 5 crore profit during this quarter. I will now take you through the performance of individual businesses, starting with our Lifestyle Brand. Our Lifestyle Brand business has posted a 92% recovery at the back of a consistent quarter-on-quarter industry-leading retail performance, strong omnichannel revenue jumped 3x over last year and a rapid rise in its e-commerce businesses. This performance is a testimony to its strong brands that have remained relevant for their customers in all times. Lifestyle Brands have continued to innovate and reinvent their product portfolio, increasing the share of casual wear in its portfolio. In addition to its Van Heusen Denim labs and Allen Solly tried to build a schedule portfolio. This quarter, Louis Philippe launched its range of premium casual wear under the brand, Louis. These sub-brand extensions continue to make our brands stay contemporary with their evolving consumer needs. In line with the same strategy of diversification into newer segments and categories, we are yet to announce that Peter England is soon going to venture into kids wear, offering excellent product for value-conscious customer. As you are aware, kids wear comprises of 12% of overall apparel market, growing at 5.9% CAGR and is mostly unorganized. Through the PE and [indiscernible] kids wear formats, we will create a strong foothold in this space and gain well from the unbranded to branded kid segment. On the digital front, the business continued building on its transformative journey, returning the focus on delivering a delightful shopping experience to its customers. The own website business grew 2.5x over last year numbers, suggesting a strong customer affinity for our brands and a seamless shopping experience through our website. We are making critical investments in enhancing the website experience in partnership with global players. We feel this would add significantly to our scale on brand.com. In the long-term, e-commerce 7-year business almost double over last year levels. On a path to build one of the largest fashion omnichannel play in the branded fashion business, the company expanded the omnichannel coverage to more than 1,000 stores across all our brands for both owned as well as partner e-com together. Our hyperlocal and buy online ship from store have rendered encouraging results this quarter 2, reinforcing our faith in these innovative models. Our brands are now in process of extending these models into newer markets, servicing an even wider customer base. While the business gradually built its digital mode, it has not slowed down its off-line expansion. The business added 140 new stores this quarter, mainly through the franchisee route, which reflects the confidence our partners have with us. The brands continue on their aggressive expansion strategy into deeper pockets of India to cater to the needs of consumers in the vicinity of their homes. The PE-RED stores have grown significantly, adding 36 more stores in H1. Building on the successful pilot in Q4 last year, Allen Solly Prime continued with its expansion with 18 more stores. During the quarter, the business recorded revenues of INR 1,156 crores and posted an EBITDA of INR 188 crores with EBITDA margin at 16% this year versus 17% in FY '20 in the normalized period. Moving on to Pantaloons business. Pantaloons business this quarter recovered to 73% of its pre-COVID performance. This should be seen in light of higher mall share of this business, which is approximately 50% -- 58% are coming from mall business. Extended shutdown in markets of UP, Maharashtra and Bihar where Pantaloons had a relatively higher share of business vis-a-vis other retailers and also new retail identity-related innovative renovation across 6 large stores. But for these specific factors, the recovery in Pantaloons would have been much higher. While stores resumed operation gradually, the business continued its acceleration across its digital channel, investment into highly targeted digital marketing campaigns, additions of e-commerce-specific product lines contributed significantly in driving much higher traffic to the e-commerce channels. Pantaloons remarkably accelerated its e-commerce presence with a revamped pt.com experience alongside remarkable sales performance with partners' e-commerce website as well. Pantaloon has expanded its omni-presence across 250-plus stores in H1 and has very positive consumer feedback. Signaling the start of the recovery journey, Pantaloon has reignited its expansion plan for this year by adding 7 new stores to its network in the preceding quarter. The business also relaunched its 6 iconic stores, 4 in Kolkata and 2 in Hyderabad with a renewed and reinvigorated retail identity, which garnered great excitement from its customers. Let me assure you that we are well back on track to a 60-plus stores this fiscal. In the month of October itself, we set an internal record of shares by launching Pantaloons stores in 12 consecutive days of the month. As we move forward, our plans are to rapidly accelerate this expansion to more than 100 stores every year for next couple of years. Pantaloons has significantly strengthened its private label portfolio this quarter through new launches in women's ethnic and athleisure and laundry categories as well as strengthening its previous offerings. This puja had been blockbuster performance compared to pre-COVID, showing 90% -- 91% overall recovery and with the closing run rate of puja sales being ahead of pre-COVID levels festive of FY '20. The Pantaloons business has achieved revenue of INR 665 crores for the quarter and posted EBITDA of INR 825 crores versus EBITDA of INR 71 crore for last year. H1 sales are at INR 885 crores compared to INR 451 crores last year. Other Businesses. Other Business segment continues with its outstanding performance of more than 6 quarters now post the outbreak for pandemic. The portfolio comprises of 3 business lines: innerwear, activewear and athleisure business under the Van Heusen brand, Youth Western Wear brands, namely Forever 21 and American Eagle, and its super premium Western Wear business under collective and other mono brands. During this quarter, the entire portfolio had posted a 12% growth over pre-COVID with size of operations of revenue up INR 1,000 crores on an annualized basis with EBITDA margins of 10%. Innerwear and athleisure business continues with its aggressive momentum that is displayed all through this pandemic. Consistently building on the same momentum, the business this quarter grew by 41% over last year. The products are now available across 23,000-plus trade outlets and over 54 EBOs. Business is well on track to achieve its aggressive expansion target of adding 50 more stores this year. E-commerce posted significant growth over last year with a scale of business growing 70%, 71% over last year. The business is looking to aggressively expand its trade and EBO footprint with a stronger presence on the e-commerce channel as well. Youth Western and -- Fashion, including Forever 21, American Eagle and Super Premium brands, they have kept their growth trajectory firm throughout the first half of FY '22. Revenues of Forever 21 have grown to 1.5x of last year's sales and have recorded 73% recovery to pre-COVID levels. American Eagle has doubled its sales over pre-COVID levels and is EBITDA positive now. Forever 21 has piloted franchisee-led expansion model across towns in India gaining strong traction. The Super Premium brands have grown by more than 60% over pre-COVID levels, alongside continued acceleration in e-commerce. Our own brand dotcom channel, the collective in continues to perform well with 4x growth and continues on its journey to become the India's leading luxury shopping portal. Ethnic business, we have executed our comprehensive strategy to build a complete portfolio of strong ethnic wear brand across multiple occasions and price points. Our earlier acquisition, Shantanu and Nikhil. Has grown 3x over last year and Jaipur grew 1.5x over last year. The Jaipur business continue to do well online. In parallel, we are building our offline pages and have planned to open 60 stores during the next quarter. With the acquisition of Sabyasachi, the revenues have grown to INR 58 crores in all ethnic subsidiaries. Sabyasachi has opened a new jewelry boutique in Dubai during this quarter. I am pleased to inform you that we have also launched our premium women's ethnic wear brand, Marigold Lane, to address the large mid-market ethnic wear opportunity in women's ethnic market. Furthermore, the new men's ethnic brand under partnership with Tarun Tahiliani will be launched this month. And we are giving finishing touches to the stores and go-to-market plan. Our ethnic brands have laid down around a strong foundation and are now set for accelerated growth plan. We expect to add more than 100 stores next year in our Ethnic business portfolio across brands starting from Q3 of this year. Our consolidated net debt paid on 30th September 21 was INR 873 crores, lower by INR 327 crores from June 2021 in view of the sharp business recovery. As the first Q draws to a close, that net debt has further reduced, and as on today, the debt is approximately INR 450 crores. This reflects strong cash-generating capabilities of company. We hope to continue to generate strong operating cash flow, which will be used for accelerating growth of our businesses once the economy starts recovering fully. To conclude, the festive season sale has brought about a complete recovery to pre-COVID level of sales and some markets have been surpassed the pre-COVID performance. With the most diversified play across large segments of the apparel market and a portfolio of very powerful brands, ABFRL is uniquely set to leverage the emerging consumption opportunities in coming quarters, 10 years ahead. Thanks a lot, and we are open for Q&A now.

[Operator Instructions] The first question is from the line of Aditya Soman from Goldman Sachs.

So firstly, you mentioned that you've seen almost a full recovery in sales during the festive season. Now would this apply to Pantaloons as well? In other words, would sales have exceeded or equal to record levels? And the second question is on these new businesses, particularly innerwear and ethic wear. Can you give us a sense of the absolute size of the businesses and where we stand on profitability for both of these.

This is Ashish Dikshit. On the recovery part, I think as Jagdish had mentioned, towards the end of the festive season, what you're seeing here is a quarter 2 performance, which is obviously impacted by July and August as well. But if you look at Puja to Puja, Diwali to Diwali, even Pantaloons has recovered completely to the pre-COVID level. On the second question about new businesses. I think cumulatively, if I were to combine all businesses put together, we are clocking something like -- just let me try and get the numbers. A quarterly business of close to INR 250 crores. So that's about a run rate of about INR 1,000 crores as we speak. As you must remember, most of our new businesses are almost at infancy. Just to give you a sense, we expect innerwear business to continue to grow at 40%, 50%. It's just got to a reasonable platform. Our Ethnic wear business is very early. We had held back expansion of Shantanu and Nikhil in Jaipur. And you'll probably see about 10, 15 stores this year and another close to 25, 30 stores next year. Marigold Lane, we just talked about the new [indiscernible] brand has just got launched. Tarun Tahiliani Association is leading into a men's premium ethnic wear line. The first of which stores is going to get launched in later this month. We expect to launch about 50 stores in the next 12 months. So a lot of these are sort of set for a very, very rapid expansion. Overall, if you look at it, just in ethnic wear, we'll probably launch close to 100 stores next year. In innerwear, we'll continue to ride on this trajectory. So from INR 1,000 crores annualized run rate at this point in time, we are very hopeful that this will be up for a much larger trajectory very soon. In terms of profitability, at this point of time, at all businesses put together at this point of time, they have just broken in all other businesses put together. You can see from quarter 2 EBITDA performance, our other businesses, which does not include ethnic, all of them combined together have delivered a post-Ind AS EBITDA of about 10% and a pre-Ind AS EBITDA, which is breakeven plus. In ethnic subsidiaries, we are just marginally ahead and a small loss in that business because we are in the investment phase. But this is a journey that we are very confident will soon be a profitable journey.

Understand. That's very clear. Just on the innerwear bit, can you give us a sense whether we are gaining market share in the premium space? Or is it just that the premium space itself is expanding and -- as we expand our presence.

Our sense is, we are gaining market share. We have grown very well every quarter right through this COVID period and continue to do that. It's hard to predict. But if you look at -- I mean, if I were to talk about just this quarter, we have grown close in excess of 40% for this quarter. We'll have to wait and see how others have grown, but our sense is in a fully recovered quarter, we'll perhaps accelerate this growth rate. So 40% to 50% are census we are gaining market share in this space. It's still very small, though. I think that must be noted.

The next question is from the line of Tejash Shah from Spark Capital. The next question is from the line of Nihal Jham from Edelweiss.

Sir, 3 questions from my side. First is just to understand better on the margin part of it. What is very clear is that at least the e-com share is something that has significantly increased, whether you compare it to last quarter pre-COVID or even versus last year. And still, our gross margins are more or less similar to what they were pre-COVID. So anything that is worth highlighting there or maybe something to give further details on. And a related question to that is that despite the recovery still being at around 75% for Pantaloons, the margins are obviously much better than even what they were pre-COVID as you highlighted. So what are the kind of measures that we have taken that is leading to this kind of performance? And is it something that is sustained? I'll come to the other 2 questions afterwards.

So I'll give you a quick response and then call in Sangeeta for more, specifically on Pantaloons. On the gross margin level, you're right, even though the share of e-commerce has grown, but as retail share has also continued to grow, and you can see the mix change that's happening in the lifestyle brands far more starkly. Our gross margins have continued to improve. A part of it is also because as we have learned to operate with leaner inventory, fresher turnarounds, we are clearly able to sort of reduce the markdowns. And that's a phenomenon, which is across all businesses. Of course, at ABFRL, you must remember that it's a mix of businesses between Lifestyle Brands, Pantaloons, Innerwear and other businesses, which actually also affects the margins. But at a high level, our gross margins have improved because higher share of retail and lower markdowns, almost consistently across all businesses. On Pantaloons overall margin, I'll get Sangeeta to comment, but suffice to say that we have kept our costs completely in line. Even before that, what I would like to recall is that Pantaloons has been sharply increasing profitability curve even before COVID. The organic business performance has been significantly improving every quarter. Some of it has got hidden due to COVID period, and therefore, you're not able to see the trajectory of improvement, but clearly, it will become more obvious as recovery happens. But fundamentally, it's a higher-quality business, which is continuing to improve. Sangeeta, would you want to comment and talk about margins in Q2 at a similar level last year despite lower sales?

Yes, yes, yes. Sure. I think 3 points that I want to make in terms of what really contributed to this. First is... [Technical Difficulty] So 3 things, Nihal, that I wanted to point out. The first thing is in terms of certain actions that we took last year in terms of what contributed to the margin, we used actually the funding period very effectively to make some very bold efficient in terms of how we manage inventory last year. And it actually helped us in terms of improving lockdowns in [indiscernible] and I think that's one big contributing factor to this. And therefore, last year cemented [indiscernible] the journey of creating a better quarter in business with a better health of the business. So that's the first part. Secondly, [indiscernible] versus FY '20, our private [indiscernible] share has actually improved, and that is on account of a slew of actions that we have taken in terms of new category launches that [indiscernible]. And third is our strong [indiscernible] measures across every single cost line. We've taken many of those last year of those contributed this year, whether it's occupancy or whether you think in terms of how we managed our overhead in the front line, et cetera. So I think [indiscernible] led by [indiscernible] other line items that include share of private label, I think are the 3 factors that are contributing to this.

That's helpful, Sangeeta. I just had one follow-up that this includes some where the rental levers that we are getting in terms of as how we are reflecting the margin. Is it fair to assume that, that is a component maybe that gets reversed in the future and the other aspects that you're highlighting is something that will sustain?

Yes. But our renting levers, for example, this year with better sales, it's in line with sales. It's obviously not as low as what we got last year. So it is in sync with sales. And we feel very confident about scaling up this business as long. As we are able to keep our rentals in line with sales I think we are very confident of delivering a business, which is healthy in terms of its margins going forward.

Sure. My second question was, I had this clarification that as a part of our press release, you mentioned that we expect our debt to stay stable for the remaining part of the year. And while I think it's already down by around INR 200 crores just in a month itself since the quarter has ended. So just how should we look at it and what is the [indiscernible] we are taking?

Sorry, Nihal, you made some point about debt being stable in the second half. Is that what you said?

I'm saying that that's something I picked up on the press release. I'm not sure if...

Okay. No. So Nihal, there are 2 things which are happening. Fundamentally, the business is exceptionally strong. And as markets are coming back, our cash flow generation capability is visible. Remember, this was the trajectory in FY '20 also. This will be before into the COVID. And we have used doing between period actually to sort of raise capital to lower debt as well as to use some of the cash generation to acquire. Now as we get into this next phase of growth, we will obviously be able to expand our business much faster. Jagdish has indicated the accelerated pace of Pantaloons' expansion with 12 stores opening in 12 days in 12 days, an indication of 40 to 50 stores in just next 4 to 5 months and with an objective to score open about 100-odd stores. While 20%, 25% of it will be franchise stores, a part of it, a significant part of it will be owned stores. Similar would be trajectory for ethnic wear business, we have acquired some very precious and very valuable brand properties. These now need acceleration in growth, which we had held back, whether it's Jaipur or Shantanu and Nikhil or Sabyasachi or the new menswear brand that we are launching or the women's wear brand. So we will balance our expansion in line with the cash flow. I think the short point that Jagdish was making is that the business' organic capacity to generate cash is very, very high. And our growth, we had held back for the last 18 months. You will see a very different trajectory on growth side as we start to play out the game in the next 6 to 12 months.

Understood. I just had one last question that if you could [indiscernible] in the casual wear for Lifestyle Brands for this quarter and the last quarter of seasonal [indiscernible], that will be [indiscernible].

Vishak, will you have -- respond to that?

Yes. Not very different, Nihal. It's -- from a Q1 to Q2 perspective, not too much has changed. All I can say is that both lines have grown, Nihal. Casual wear continues to grow, especially the athleisure side, the smart casual, they have grown well. Having said that, we've also seen a very strong list of the wedding business and the festive lines. So I would say it's similar percentages, okay? More than half of our business, 52%, 53% would be cashless. It's not changed too much between the 2 quarters.

The next question is from the line of Jiten Doshi from ENAM Asset Management.

Firstly, Ashish and team, many congratulations for an extraordinary performance in challenging times. I also wish to complement your entire team for one of the best presentations, annual report with great transparency for the investors and some wonderful ESG initiatives covered in that. So many compliments for that. I also just have one question. On your working capital, how sustainable are your current levels of working capital?

So first of all, thank you, Jiten bhai, for the appreciation. We are continuously working on several parts of our businesses and a part of our feedback that we take from investors is to improve transparency of reporting because we are a multi-sort segmental businesses. And a lot of investors have sought greater clarity. We're trying to...

It's one of the best in corporate India. I would like to tell you that.

Thank you, sir. Thank you. On working capital side, I think if you look at it, our individual businesses, our net working capital ratio in Pantaloons will be high to mid-single digits as a percentage of sales. And that's very sustainable. That's something that we delivered in the past, we'll continue to do that. In Lifestyle brand business, because business is increasingly turning retail, and at this point of time, it's 75% to 80% of the business is retail. Even then the number of NWC to sales will be early double digit, 13%, 14%, and we hope to bring it down as we go forward. And if you net it off against the deposits that we get on security, the number would probably be even lower. So I think the level of NWC to sales are very, very strong and competitive by any industry benchmark. And where we are operating, we are very confident we'll continue to operate. Of course, what will happen as we go for better times because the future revenue growth rate assumptions change as we start to open more stores and start to make a more optimistic view of the business as it's playing out. Some of those numbers will marginally worsen, but not materially and would not significantly be different from where they are today.

Okay. Excellent. My second question pertains to a presentation that was made earlier sometime back pre-pandemic by Chairman, highlighting the future for the next 5-year vision. Of course, that was pre-pandemic. Do those numbers still hold good? Or are you still chasing those targets, both in terms of growth and profitability and also the return on capital employed, which was a very high benchmark that you had set in the journey earlier.

So short answer is absolutely yes. I think while this last 6 months may have set us back from current year performance, I don't think our view of even immediate future has changed. And it's pretty much in line with what we have said. We will come back, Jiten bhai, towards the beginning of next year and give a status update on everything that we had said before. And I'm reasonably confident that we'll, if anything, positively surprised.

Okay. Fantastic. Keep up the good work and many congratulations to you and the entire team.

The next question is from the line of Tejash Shah from Spark Capital.

I have 3 questions. My first question pertains to general consumer sentiment and demand environment. So obviously, the kind of headlines that we have seen in the last 15, 20 days, were very encouraging and then it's actually heartening to see that recovery is happening. But a lot of it was actually expected because the kind of deals that we have created for industry at large retail in particular, for the last 18 months, this recovery was kind of expected albeit if it will not have come, it would have been a major disappointment. So actually, I just wanted to understand from you, how are you reading the consumer sentiment? Is it just a pent-up or you are seeing a sustainable recovery that we can build on from there for next 2 quarters and beyond?

So a tough question, Tejash. You put me on a spot. I would have to say, unlike you, recovery has somewhat positively surprised us. We remain tentative and worried about the third wave coming in and impact on at least some parts of the country. But clearly, I think the circumstances have turned out to be far more positive than what we had imagined internally. Would it be a onetime thing versus a sustainable thing? I think it's a sustainable recovery. If you go back and look in context of where we were in FY '20, I think most parts of the economy has started to come back. And there is -- there may be a little bit of exuberance, which is excessive at this point of time for a very short period. But I don't think there is any sign that this recovery is either artificial or a onetime thing. I feel we are headed for a more democratic natural growth that economies like us should see.

Great. Second question is around Madura Lifestyle brands. So we are seeing this divergence and recovery trends for a line between wholesale and retail within that portfolio. Now Vishak just spoke about aggressive expansion on the retail side as well. So is it that our wholesale partners are actually migrating or graduating to become our retail channel partners, and that's why we are seeing capital also from that part of the channels getting deployed or getting redeployed on the retail side, and hence, there's a stockable change in the business model?

So I think they are both temporary and structural changes. Vishak will be able to elaborate maybe at greater length for that. Vishak, do you want to comment?

Yes. I think this is at one level, as far as wholesale partners are concerned, please understand that there is a lag between primary and secondary sales. So while secondary sales would have caught up in the last couple of months, there is a bit of lag for primary. So that would explain some fair amount of the delta and wholesale numbers, as you would have seen. The larger point you're talking about is, is there a shift from wholesale partners moving into retail? It doesn't shift, they add on. And when they add on, they're adding one more to exclusive retail. So a lot of our multi-brand partners have become our franchisees for exclusive stores. We continue to deal with them in their multi-brand outlets as well, but the pace of growth is much larger in exclusive stores. COVID have changed some of that, and hence, you see the numbers starkly for the wholesale part. But the reality is even before COVID, there is a lot of our business partners who were putting up exclusive stores along with -- along with us.

And on from a capital efficiency perspective, we have taken a lot of pride in past also in wholesale channel, they are a source of funds and the way we have actually developed that business over the last 2 decades. So how do you see that business? Obviously, as of now, we are saying it is tangent, but where do you see the future of that business, let's say, 2 years, 3 years down the line in our overall business plan for Lifestyle Brands.

You're absolutely right. The wholesale business has been our strength, continues to be there. To the extent that, that network grows, our shares will only grow within that, okay? And we have some of the best operating systems to manage that channel. For example, even in the peak of pandemic with the digital trade show, we were able to take orders from retailers without even having to do a physical visit with them. So some of these things we've been ahead, we are able to give them 12 [ drops ] in a year. So every month is a fresh season. We've been able to create many things, which are very, very multi-brand retailer friendly. We also have very, very strong relationships with business partners. So that's something which continues. Having said that, how much of more new multi-brands will come up in this country? Unlikely that, that pace will be very high in the trade segment.

If -- Tejash, in terms of the working capital impact on trade versus retail, I think the way our retail channel is structured, it's extremely working capital efficient. Most of our retail and lifestyle brands is through franchisees. Our stock at value is covered by deposits and security to a large extent, if not fully, and our debtors are practically one day. So you can imagine it's a very high NWC positive network. So don't worry about it. I don't have a concern that if we grow in retail, our working capital will get affected adversely. In fact, it's very well managed.

And then just one technical part there. When we build from retail, it shows up only when retail uptake happens or when we bill it to the franchise?

No, no, non-consumables.

Non-consumables, okay, okay. And the last one pertains to Pantaloons. So you spoke about very unconventional target of 100 stores per year. Usually, this kind of expansion also requires a lot of back-end investment in terms of supply chain. So if you can speak on that part of the business as well.

So Sangeeta, if you can comment, but just very quickly, this has been a part of our plan, and we have made necessary investments in the back end in teens and everything else. I think Pantaloons was about to sort of express itself after -- just before the COVID hit, you know the trajectory we had started to hit. The COVID has sort of slowed down the growth trajectory, what is -- but our quality of business has further improved. Sangeeta talked about several private label brands. We expanded into new categories, far east, home, launched new casual wear portfolio. The store experience has significantly experienced -- if any of you have not seen Pantaloons new stores, I would advise you seriously to have a look at it. So now it's the time really to sort of expect and take that business to its true potential. So the question is about, are there other aspects that we need to invest in to support this growth?

Sure, sure. So as Ashish said, we feel very confident that we are poised -- now well poised for that acceleration given the journey that we have been on in terms of addressing some fundamental challenges that we have in the business historically. [Technical Difficulty] And I think from everything that we have improved, whether it is our product [indiscernible], we've alluded to improvement in the private cable share, the new category that [indiscernible] talked about. I think that gives us the confidence and the improvement in the margins that we've seen that now we are kind of ready to really stay this is up with everything being in place. We need to obviously think about what capabilities to get to that level of expansion with great agility and therefore, investments being made in terms of building an organization can deliver this in the front end. Whether it's in the business development team, whether it's still large people who actively create the stores and in the back end in terms of the supply chain. Looking at consolidating our vendor base and creating the right kind of warehousing model, I think all of it, every element in our value chain, whether it's at the back end or the front end is gearing up for this expansion. But I think the timing of it is absolutely right, given where we have brought into the business. And I think if we invest in the organization in the right manner, but there's no reason why we should not be able to tell. I hope I've answered your question, Tejash.

The next question is from the line of Ankit Kedia from Phillip Capital.

Sir, my first question is regarding the government's proposal to increase GST in value fashion, sub-INR 1,000 5% to 12%. Given the increase in land prices, we would have taken some price hike as well. Do you think the industry can pass on this price increase to the consumers?

So Ankit, that decision to increase GST rate, still under consideration as an industry. We are representing to the government to show them the impact that it has or the lower end of consumers. But having said that, I think it does happen and it happens on cost on top of the raw material inflation that we are seeing. There would be no choice, I think, for the industry as a whole, but to some significant part of it. Obviously, there will be efforts to improve efficiency. But I don't think there is a choice but to pass on that increase.

And sir, my second question is again on bank loans and EBO. We have launched EBO after 2 years exclusively on Flipkart Group and Pantaloon inventory is also now available only on Flipkart Group outside marketplace. Is this a conscious decision to move value fashion products only on Flipkart Group or not on other marketplace?

So what happens is typically, Ankit, we get different level of response from different marketplaces for different brands depending on the customer profile. We need to consolidate where we see maximum value. And unlike brands, which are relatively narrow in terms of offering, something like Pantaloons has a very large range of offering. And therefore, to get maximum play, we need to integrate very deeply with them. And that's really what is being done. As far as EBO is concerned, it's a brand which we have sort of resuscitated in some manner in the last 18 to 24 months. It was lying dominant, but we realized that it has a lot of equity. And we have created a value fashion play on that. Right now, it is being tested on one platform. It doesn't stop us from taking to other platforms as we scale it up.

The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

My questions are slightly from a medium-term perspective. So one on the debt, how do we see the net debt part moving considering that we, in our business, had rounds of equity raising, rounds of leverage and deleverage? An associated question, incrementally when we expand our network, is it more asset-light? Or it continues to have your own stores? The third question is, are there any more white spaces in our portfolio which needs an acquisition?

So a quick response, and Jagdish, you can come in and sort of throw more light on that. On the medium-term debt level, I think we stand where we were. We had Jagdish had made this point earlier. We had made it in the investor call that for medium to long term, we want to keep debt level between 1 to 1.5x EBITDA. In all likelihood, we will do better than that, but we keep ourselves some sort of boundaries in which we want to play with. And that's the first remark, but that's on medium-term level. Your second question was the expansion. I think, as you know, much of the part of the brand side, which is small store format is 80%, 85% and increasingly more, 2 franchise routes, so that remains capital-light. On Pantaloon side, we are at about early 20s as far as franchisee share of the total new business is concerned. That number may grow as we grow fast, but it is nowhere likely to be anywhere close to 50%, 60%. We would like to keep it between 25% to 30% at the medium level. So to that extent, that part of the business will continue to. But remember, it's a high ROC, high capital return business from a single store economics. We had demonstrated that in our investor call. And therefore, as long as we have access to capital within the bounds that we have set for ourselves for debt, we would like to invest in that and Pantaloons will remain 70%, 75% of stores coming through our capital.

White spaces in your portfolios, if any?

So I think in terms of big white spaces, we have covered ethnic wear, which was a very -- which was 1/3 of the market. And we have made significant gains. As you know, multiple brands are being lodged as we speak, few acquisitions have happened. That remains a large space in which we need to grow. Casual wear portfolio will continue to sort of keep looking for opportunities, if anything, in that side. On the menswear side, we don't see a scope. We are very, very strong. And therefore, I think to that extent, it's about growing the new spaces as the markets evolve.

Okay. Sir, just on the first answer, which you gave about debt. How does it match with our FY '26 vision, which was shared, let's say, a year from now? Yes, it was shared on March '21.

Yes, yes. Our debt projection, I'm just reiterating what we said then. We remain committed to that as the longer-term trajectory. Currently, we may end the year with a forward-looking debt-to-EBITDA ratio, which is much better than what we may have thought about for the short period. But I think on an average, as Jagdish has mentioned in the previous call, [ 1 to 1.5 ] is what we have indicated as our medium-term goal, and that's very much in line with what we have said in FY '26 projections also.

Sir, what is the usual maintenance CapEx that we need to run our setups?

Not much. I think it would be a small part because we have factories with gross fixed assets of less than INR 100 crores. So there may be a small part that goes there. Our stores require a little bit of refurbishing every year, but that would be only on the [indiscernible] part of the stores and that, typically, the stores have life of 5 to 6 years in small format and 7 to 8 years in the bigger format stores.

Any guess as a percentage of your depreciation? So it will be...

Jagdish, would you have any sense of that?

I could not get it. Can you repeat the question, please?

No, maintenance CapEx as a percentage of depreciation.

No, actually, our maintenance CapEx is even smaller than the regular CapEx.

It will be much, much smaller then. I don't think we have large maintenance CapEx.

The next question is from the line of our of Gaurav Jogani from Axis Capital.

So my question is with regard to stand-alone, while we are looking to aggressively expand 200-odd stores every year, do you see a scenario wherein the margins in the near term might be diluted? Because these stores might take some time to catch up to the system to change the number. And hence, a short-term dip in the margin will be coming in?

So Gaurav, just to give you a sense, if you're talking of EBITDA margin, we have demonstrated in past our EBITDA margin grew from 4.5% to nearly 8-plus percentage in a pre-Ind AS period as we expanded our network. So which could mean only 2 things, and we have tried to cover it in our investor deck in a greater -- Pantaloon stores are profitable from year 1. The [ full box ] ROC, which is incremental capital to incremental EBITDA, is in high double digits. And there is a lot of leverage over the fixed cost of operations, which is the corporate fixed cost of overheads, of supply chain, warehouses, advertising, et cetera, which further gets the operating leverage on that. So our experience so far is expansion has brought about expansion in margins, and we expect the same journey to continue.

Okay. So my other question is with regards to the Marigold, the brand that has been launched under the ethic space under the Pantaloons. So the sales there would be plugged under Pantaloons or would be separately shown under the ethic side? How this will be done?

So at this stage, it's because mostly inside Pantaloons stores, it is getting reflected within Pantaloons. It just got launched month, 1.5 months back. As we go forward and expand the business outside, we will sort of take it out as separately counted what happens inside the Pantaloons with line Pantaloons and what happens outside can be reported separately as ethic. I think it's too small for us to separate at this stage.

And sir, the last question is with regards to the ethnic [indiscernible], it's been really hard to see that it's already at an EBITDA reported level, but the investment is already a big profit business. But how do you see the trajectory going ahead as we expand there and [indiscernible]?

So there are 2 business, which are sort in very early stages. If you see our Jaipur business we had acquired in FY '19. And by the time we had got control over the business fully understood the dynamics and started to expand, we had COVID. So that is a business that we now have a fairly good understanding control and confidence about. So that would expand over the next 18 to 24 months rapidly. And therefore, that will require a little bit of investment in earlier first 2 years. Similarly, our men's ethnic wear business, we think it's a very large opportunity. When we launched that business, we had announced in the transaction call that we want to build a INR 500 crore business in 5 years with 150 to 200 stores and that is the second business which we'll require. So new businesses, which are starting from 0 and rapidly scaling up, will incur losses for first 2 years at least. The existing ethnic wear businesses are quite profitable, so that's not an issue at all.

Sure. So by [indiscernible] actually spend to your stores [indiscernible]?

So businesses like Sabyasachi, Tarun Tahiliani, et cetera, profitable businesses, and those will continue to generate profit. I think where we'll have to invest first few years, the businesses which we are either starting or have to scale significantly, which is primarily Jaipur and the men's ethnic wear brand that we're launching.

The next question is from the line of [ Saravanan Bora ], an individual investor.

Many congratulations to the team on a great performance and happy festive season to everyone present on the call. I have a really simple question, which was on our e-com strategy. During the Investor Day and in the successive calls, we have spoken about having a consolidated app or a plan -- a website where you would have all our offering -- all our brands. So are we looking at that right now or sometime in the future?

So [ Mr. Bora ], that is the work in progress right now. As we speak, we are developing the underlying technology and consumer experience pieces of that. At the first stage, this super app of brands will carry 4 or 5 brands and see how consumers are able to get combination of rich individual brand experience and yet the ability to move across brands. And that's something that we'll perfect. I think it will take us another 5 to 6 months before we hit the market with that, but that's our medium-term strategy, which you would understand that as a company, which has some of the most desirable brands from consumer point of view and a large portfolio of brands, this will create quite a traction for consumers when they're looking for meaningfully powerful brands with white portfolio. And that's really the plan. We have a separate plan for Pantaloons, which operates in a different segment. And that's really how our strategy for e-commerce is.

And just a bit on the strategy for the innerwear segment, and please correct if I'm wrong. So our [indiscernible] goal towards the premium innerwear segment. So are we planning to keep it that way? Or do we have separate plans to expand real quickly in the men's innerwear? How should we look at that?

So what we have a fairly decent and fast-growing men's innerwear business on top of the women's business, which actually got run subsequently. Our womenswear business is still yet to fully scale up. Over the next 12 to 18 months, you will see rapid growth in that. The men's wear will continue to grow. If you look at the innerwear segment, it's not just innerwear, it's innerwear, it's athleisure, its activewear. And therefore, we feel that for any healthy living men or women, this can create a destination retail concept. Next part of our growth strategy will be to build exclusive stores where you can buy innerwear, athleisure, activewear, loungewear, sleepwear and one -- sort of from one brand in one place. And that would be a compelling proposition from a consumer point of view, and we'll grow that. So it's not limited to either women or men and both parts of the portfolio will go up.

Ladies and gentlemen, we'll do the last question from the line of Kunal Bhatia from Dalal & Broacha.

Sir, I just had one question in terms of what was the discounting in this quarter on an overall basis vis-a-vis last year during the end of season sales kind of period?

I don't have the exact number. We'll will try and pull it out, but I can tell you right away, it is much lower than last year. As there was really no need to discount. Even last year was lower than the year before. So that's a testimony of how we have managed merchandise at these points of time. And overall discounting across businesses, and you can see the reflection of that in the improved gross margins for this quarter over the same time last year.

Right, sir. So also just to add on to the question, which was asked earlier. So in terms of this gross margin, so come -- when we come to a normalcy kind of a period, do we see this, say, 100 to 150 basis points of raw material costs going up again going forward?

So I think we have answered that. Our endeavor would be -- and I think this is not a choice that industry will have any other way. When the organic material-wide cost inflation hits you. I think we'll have no choice but to take price increases at this point of time. We are not sure what will be the final extent of the price increases we'll have to take as some of the industry is -- some of the raw material side is still evolving. But let me just assure you, as we have demonstrated in case of rent, when the situation came, our leverage, our strength, our strength of our brands allowed us to get best possible situation on that. Same would be on the sourcing side. We would, however, if the situation continues, we'll definitely take price increases to account for it.

Okay, okay. And sir, my final question, what would be the ballpark CapEx figure for the current year and next year?

Maybe about INR 400 crores, around that. INR 400 crores or so.

Thank you very much. Ladies and gentlemen, on behalf of the management, we thank all the participants for joining us. In case of any further queries, you may please get in touch with Mr. Rahul Desai or Mr. Amit Dwivedi. You may now disconnect your lines. Thank you.