Credo Brands Marketing Limited (MUFTI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '25 Earnings Conference Call of Credo Brands Marketing Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kamal Khushlani, Chairman and Managing Director. Thank you, and over to you, sir.

Thank you, Dev. Good afternoon, everyone. I have with me Mr. Rasik Mittal, Chief Financial Officer; and SGA, our Investor Relations advisers. I hope you all received the investor deck. If not, you can view them on the stock exchange or our company website. Mufti's revenues in Q1 FY '25 grew by 5% with EBITDA and PAT growing by 9% and 14%, respectively, mainly due to cost optimization measures. The market for premium and mid-premium branded apparel continued to be subdued due to the consumer behavior influenced by an inflationary environment and a nationwide heat wave we experienced this summer. Despite the difficult market, our same-store sales growth for the quarter stood at 3%. In Q1 FY '25, we added 5 new stores to our portfolio, increasing our total strength of stores to 430. We're optimistic about our continued store expansion efforts and aim to open between 25 to 30 new stores this year during FY '25. EBOs are central to our growth strategy as they offer a holistic in-store brand experience and help enhancing brand visibility and salience. We plan to expand our store network in existing and new cities. We have identified several markets as having potential for opening further EBOs. And this offers the potential for market share gains, increased brand recognition and economies of scale. As on 30th June 2024, we are present in 596 cities having over 1,800 touch points. We intend to increase our salience a lot more on the digital platforms looking to improve market share in the D2C space. We continue to develop a strong brand identity through effective brand advertising and multiple marketing campaigns for our brand. For the full year, we plan to spend approximately 5% of revenues on branding and advertising. Our design team is constantly focusing on expanding our product range to meet a varied range of consumer needs. Our diverse product range comes under the mid-premium to premium price range of clothing in India. Looking ahead for FY '25, the company aspires to achieve mid-teens revenue growth backed by new store openings in new and existing geographies and subject to recovery in overall industry demand for mid-premium to premium brands. The company is also targeting to improve profitability through implementation of various cost efficiency measures. We are also looking to reduce our working capital cycle by reducing our inventory levels in the coming months. We have always, as mentioned on earlier calls, managed to sell our unsold inventory at a profit and never had any material write-offs on account of inventory in the past. And we will continue to manage our inventory efficiently in the coming seasons of autumn, winter '24 and spring, summer '25. We are confident of that. And we are confident in our capability to handle short-term fluctuations, if any, and achieve sustainable and consistent growth for the company in the future. With this brief, I'd like to hand over the call to our CFO, Mr. Rasik Mittal, for the update on the financial performance. Thank you, everyone.

Thank you, Kamal. Good afternoon, everyone. I will give you the financial highlights of Q1 FY '25. Revenue for Q1 FY '25 grew at 5% year-on-year to INR 124 crores. Our SSSG for the quarter stood at 3% year-on-year. Gross profit grew by 9% year-on-year to INR 72.6 crores with a GP margin of 58.6% for the quarter. EBITDA for the quarter stood at INR 33.4 crores as compared to INR 30.3 crores in FY -- of quarter 1 of FY '24, that is a growth of 10%. Our EBITDA margin stood at 26.9%. Profit after tax for the quarter stood at INR 9.8 crores, a growth of 14% year-on-year. Our working capital days have decreased by 5 days to 161 days as on 30th June 2024. As mentioned earlier, we aspire to reduce our working capital days backed with -- by inventory days basically. ROCE and ROE stood at 18% and 17.4%, respectively. Our net debt to equity stood at negative 0.02x. With this, we now open the floor for question and answer. Thank you.

[Operator Instructions] The first question is from the line of Jatin Jadhav from Sahasrar Capital.

Congratulation on such a good set of number. My question was on the line of the competitive landscape. The way we market our products and sell our products is essentially shirts, trousers and I wanted to understand how do you see the competition growing in terms of the brand which are coming up on social media platforms, smaller brands? And do you see them as a competition? And how are you planning, if to compete with them?

So Jatin, I mean, we've been in the business for over 25 years now. And there has been enough competition that have gotten added year-on-year. But along with that, the market seems to have grown. Coming to your question of other smaller brands on social media, et cetera. Yes, there are a lot of brands that are sprouting up. But we have a certain tribe that follows the brand and the position that we have created for the brand is very, very unique in itself, right, from the inception of the brand. And the reason for our existence has been finding gaps in the market and giving products that are not available with mainstream brands. That's the reason why we came into existence. And that is something that we have been successfully doing in the past. And the type of products we make are expressive and are different from what most brands offer in the market. So I'm sure that, that is something we have been doing historically, and we will continue to do so. And competition will come and competition will go, but this is, I mean, something that we can easily handle. That's not a problem.

[Operator Instructions] The next question is from the line of Utkarsh Maheshwari from Reliance General Insurance.

Sir, I mean, you did mention that you want to grow in mid-teens. So I mean, what kind of number we aspire for? I mean do we see that, I mean, expenditure, what we did for the branding and all and now you're saying you're going to do it around 5%. So can we expect some kind of improvement in terms of margins and overall profitability going ahead? I mean considering that things should evolve, improve from henceforth?

Certainly, Utkarsh, we intend and we believe that things should be better going forward. But the way the last 3 or 4 seasons have been very, very subdued, and it's a little volatile the market conditions. April also this summer was very, very good. And then after April, suddenly, May was the kind of months that we haven't experienced in the past many, many years. So given that, it's very difficult to look into the crystal ball today and gaze there and give an exact idea of what will happen. But we're very positive and hopeful, and hoping now that the elections also are behind us, and prices have been stable now for the last few seasons. So we are hoping that the festival season and the marriage season should pick up well, and we should have a good season. Going forward, we are -- like I said in the earlier earnings call also, we are not putting our gun to our head to grow at a very -- at whatever pace. But we are putting a gun to our heads to improve our profitability and to improve same-store sales growth. That is something that we are going to be pushing and we're going to push to improve our working capital days, reduce inventory levels, which I'm sure and very confident that we will be able to do by the end of the year. The rest, we are very, very hopeful of it being a better year this one going forward.

Yes, I think when we say premium, mid-to-teen or mid premium, this category is not something which is really get impacted by the rising inflation because these are not the people who are not aspiring lot. So I just want to understand, how do we see things shaping up? Because last time, we had some problems, we had extra expenditure, we had some impact on our gross margins. So probably are we -- is it fair to see that the gross margins, what we have done earlier, can we improve henceforth from here?

I think last year, we did a little north of INR 56-odd crores as a gross margin, INR 57-odd crores. And this year, we've done 58-odd percentage -- I'm sorry, not crores. And so gross margins will remain there and thereabouts. And our expenditure also, I already mentioned, we will be spending -- we intend to spend roughly 5-odd percent of our revenue and intend to continue doing that because we are looking to improve our salience on the digital platforms, and that is something which will help us increase our D2C space and also give a spillover to the demand in the offline market and we are working aggressively towards that. So these are things which will certainly pay off going forward, Utkarsh.

So basically, is it fair to say that key margins can improve henceforth at the EBITDA level also?

All of this, Utkarsh is...

Sequentially, there have moved Y-o-Y, we can see that there is now improvement is there. But I'm not sure that this is the only improvement possible. There's still some decent room to improve, right?

So Utkarsh, see basically, I think we have one of the best gross margins in the industry.

I'm talking about EBITDA margin.

EBITDA margin also, as we have said in the earlier call, we expect to maintain between 28% to 30%.

Okay. So I mean, with Q1 at 21% -- 27%, there's still, we can expect for better margins going ahead?

Correct. What happens, Utkarsh, is that all of these are -- they fall in a certain range. If the market is better than naturally those margins get better. All of it is a function. Our business, Utkarsh, is not so much about making 1% extra EBITDA or 1.5% extra EBITDA. Our business is about keeping the inventory in check, ensuring that whatever we have made, we are able to liquidate that profitably. [Foreign Language]. That is what we always keep looking at. It's that 1% here or there is all business as usual, coming up, coming little down. That's not something that truly reflects the strength of the brand. What truly reflects is the way we gain market share and the way we maintain our gross margins. And if we had to liquidate whatever we have made profitably, that is what truly reflects that are we on the right path or not.

Fair point. One last question, how you actually understand or how you actually evaluate the efficiency or optimization of advertising [Foreign Language]. How do you calculate that?

These are investments that you make in the brand, Utkarsh. And honestly, there is no direct relationship on this except if you only look at performance marketing, where you can look at a ROAS, et cetera. But all these investments that you make in improving the salience of your brand and getting the new message of the brand communicated to the audience, which is very, very important. We have made a lot of changes during COVID and we started making these changes just before COVID. So it's very important that all these changes get communicated to the brand, I mean to the consumer. The brand has gone through a lot of shift, and that is what we are seeing that the consumers are reacting very positively too. So it's very important that all this communication goes out to the consumers, Utkarsh.

Okay. Fair point. So we can expect your high teens, that is what you are guiding, right, on the base of F '24, right?

So I'm not saying high teens or like that.

[Foreign Language] You're trying for high teens and all. You mentioned in the opening remarks, I believe?

Yes, yes. Depending on market conditions, certainly, it could be that.

The next question is from the line of Sagar Sethi from Sethi Investments.

I think you said that you will grow by 15%, 20%, while you are going only at 5%. Why?

I beg your pardon?

I think you said that you will grow about 20%, 15% last time. But the sales grew only by 5%, while our other companies are growing their sales about 20%, 30%.

So quarter-on-quarter, Sagar, does not reflect the growth that the business can have during the entire year. We have the main season coming up, and that's the time we'll see the demand picking up.

Okay. Last year was also lean -- winter season was also lean last time?

I beg your pardon, Sagar.

Winter season was also lean last time?

Your voice is not very clear, Sagar?

Mr. Sagar, I request you to please come closer to the handset and ask your question. I believe Mr. Sethi has been disconnected. Thank you. [Operator Instructions] The next question is from the line of Rahul Jayant Dhruv from Pegasus Growth LLP.

Congratulations on good numbers. I basically wanted to kind of go back to your previous conference call that you were very clear that you want to expand your store network by around 30 to 40 stores. And I can see that you've scaled that down to 25 -- to 20, 25 in this recent press note. So I just wanted to know what is it -- what is behind that thought process?

So, Rahul, typically, as a company, we believe in under-committing and over-delivering rather than just putting numbers out there. So this year, the way -- and the last year, the way, Tier 2 and Tier 3 markets have behaved. They have not behaved to the true potential and what we were seeing earlier. So we are going to be cautiously approaching opening of stores, and we have mentioned 25 to 30. We may even very well end up opening 40 stores depends on the type of stores that come up. And we may very well end up opening 2, 3 stores less than what we say also. This is a function of what will happen by the end of the year. However, there are enough markets that we have identified where we intend to open stores. So stores have to come in. Sometimes the store comes in. It may not be the right location. Sometimes it may be the right location, but it may not be the right rental. So there are a lot of things that go into making a decision before we decide on opening stores. So roughly, this is what we intend to do. And like I said, we intend to grow the brand. And for growth of the brand, we intend opening new stores in whichever markets we are not present. And looking at the market conditions, we will alter these plans as the year unfolds.

And on your online sales, I think you again mentioned in your release that you were looking for a lot of growth over there or expansion over there. So I just wanted to know what exactly are margins like online, what I mean to say online is basically through third party, not your own website? And what -- how is it different from what you make usually MBO or EBO?

Typically, what we make in MBO and EBO is very similar to each other. However, what we make in the e-comm space is lower, but even there, we make a profit. And with the third party, whatever we end up selling most of it, even today, is driven by discounts. So that is a channel that we use to liquidate our old season merchandise, and it serves us very well for that. However, we're also looking to expand and grow our business on our own D2C website, which we are working on very aggressively to acquire customers and go D2C as well. And we believe that in the time to come, the consumer in India also will get ready for full price purchases online. And that is something that we are readying ourselves on, and we are on the learning curve as and when the timing is right, we will be ready to expand that business at the pace at which it will demand.

So I mean any number in terms of how different the profitability is?

I beg your pardon?

How different would be the e-comm profitability between the rest of the business?

So, Rahul, the profitability in the online channel, third-party channel is considerably lower compared to our main channels like EBO and MBO because e-comm at present remains liquidation channel basically for us. But we make sure we earn profits for the sale made on the e-comm channel also.

Okay. I got it. And just -- and 1 last thing on the working capital. You mentioned you've been over the last 2 calls, consistently you mentioned that you want to reduce the working capital. What kind of reduction are you looking at in terms of number of days? I mean just a broad number.

Maybe another 5-odd days?

From what was it?

Business, we are in, in retail. We need -- I mean, that does not give an absolute true reflection of how the brand is doing. So -- but give or take, 5, 7 days here or there. So, Rahul, one more point basically, see the way our numbers look in our balance sheet. It's not a true this thing, basically because we have collected deposits from our franchises. If we give effect to that, around 25 days from working capital will get reduced. Those are actually advances against the goods that we supply to them.

But as of March, it does not show that. So when I look at your annual report, I don't find the advanced numbers as of the last -- it was a very small number. It was a very, very small number.

No, no, it should be around INR 37crores, INR 38 crores in March also, for 30th June, it was around INR 40 crores, INR 40 crores.

All right. Okay. I'm sorry, I got the wrong number in that case. And just one last thing. So if you do manage to reduce the working capital, then you would effectively not require any debt probably by the end of this year itself. And what do you plan to do with the debt you have around -- I think you have around INR 37.5 crores as of March?

We're already debt free position as on date.

Right. And would you -- I mean, if you remain at that working capital over the next 2 years or 3 years, then you would have a nice accumulation in cash. So what do you plan to do with that cash?

Besides using it for expansion, we have always been a dividend-paying company in the past, Rahul, except for the -- barring the COVID years. And yes, we'll continue to do that.

Okay. Because the dividend payout ratio last year was around 5%, do you think that you would want to increase that?

Yes, depending on the kind of -- currently, in this quarter, we've made a very healthy cash. But like I said, that one quarter doesn't reflect our business in totality. These are things that we look at on an annual basis and basis that will decide the dividend payout for the forthcoming years.

The next question is from the line of Lakshminarayanan from Tunga Investments.

So last quarter, you mentioned some increase in provisions because the demand was subdued. So just want to understand what has happened on that front, whether our inventory has actually increased, returns are increase. Just give us some sense of that?

No, we are not expecting the returns to increase. But however, last year, in Q1, the provision for returns was 22%. And this year, the provision for returns has been consistent, 25% as per the provision made in Q4 of last year.

Got it. So typically, what is the -- what kind of inventory you actually carry which is inventory which is more than a year old or something? If you can just give some insight on how the inventory aging has been in the last 2 years and how it is now?

So like I said, the old inventory, we keep clearing through our -- the third-party e-commerce partners and through our factory outlets. And we are never in a hurry to do that because you have to discount very deep if you want to be too much of a hurry to liquidate that. So we take our own sweet time because we don't want the brand value to get eroded in any certain way because hence, you can see, by the grace of God, we are able to maintain our gross margins, and that is something we intend to continue doing so even in the future, whatever we make we go only up to a certain level and a certain rate at which we discount the goods. And we, however, have always managed to liquidate whatever we have made by managing our production and sales and our demand projection accordingly.

Okay. And typically, how much of your sales is done in full price at an aggregate level? Like if you look at the volume of t-shirts or in terms of revenues, whichever way you look at it?

We realized roughly 70-odd percent of the MRP.

Okay. And in terms of your various formats and especially in the EBOs and MBOs, how much is actually on a consignment basis? And how much is ordered, I mean, which is nonreturnable?

Everything is totally on a consignment basis. They're very, very limited portion of maybe hardly 2%, maybe on nonreturnable basis, and we are very happy to do that because as a brand, we intend to have total control of the entire inventory in my pipeline, starting from my -- what is on my machines at my factories to what is on my, I mean, shelves in my stores to what is in my warehouse. Because at the end of every season, whatever is leftover, I'd like to pick that up and discount it and sell it at my own pace at the discount at which I desire rather than pushing it down my -- the primary partner's throat and him pushing for higher discounts to liquidate it, et cetera. This way, I'm able to maintain the brand equity, the way I would like to do it. So we intend to take back everything that is unsold after every end of season sale. And we are able to manage liquidating everything that we make profitably, like I said earlier, Lakshminarayanan, so we have no problem in doing that, and we have a knack of managing that. We're very confident.

And also, if I just look at your growth, if you disaggregate your growth projection, let's say, you start the year and you want to draw our budget for the next year. How much of price escalation you actually build in, in general? Like if you look at the growth projection of X, how much would come from price escalation in general?

Maybe 2-odd percent. It does not necessarily reflect price escalation. It also reflects the product mix, the ratio of what else. And as we are going towards premiumization, there might be some premium products that get added, et cetera, and that may take up prices. It's not really going to be escalation of prices.

And if I just take a growth of, say, 15% or 30%, how much would come from distribution led expansion and how much would come from existing stores or tenured stores additional growth? How do you desegregate it in general when you project it for a year or a 3-year business plan?

I think India is showing enough opportunities, Lakshminarayanan, across all kind of towns. So typically a smaller town as it grows and the consumers there become conducive to buying branded products. The MBOs first start stocking national brands. And we are always in the list of brands for any new EBOs that come up in whether it's a Tier 2 -- MBO, sorry, any new MBO that comes up in any Tier 2, Tier 3 town as well. Typically, that's how it starts. And as the brand grows, as the town grows richer, slowly, it becomes conducive for single brand retail and then multiple outlets of single brand retailers, et cetera. So we are seeing all kinds of opportunities. We see MBOs opening up. We see new EBOs opening up. However, we don't count too much on the MBOs because that's not -- opening them, it's not in my control, but opening EBOs is in mine. But however, we intend to have organic and inorganic growth in both MBOs as well as EBOs.

Any mix in general -- you're saying that if you want to grow 20%, how much would be by store-led expansion, which could be EBOs or MBOs? And how much would be your existing channel, the channel that was existing last year?

Currently, it's very difficult to put a number on that, Lakshminarayanan, however, we are intending to grow in mid-teens, depending on market conditions.

[Operator Instructions] The next question is from the line of Rohan from Deutsche Capital.

So I was just going through your financials. And I think you do decent ROC...

Sorry to interrupt Mr. Rohan, could you come a bit closer to your handset and speak?

So, I was going through your financials and are you a decent ROC of say north of 20%? And you don't have a dividend paid -- you're not paying dividend at this moment. So can we expect that you can accelerate your mid-teens growth rate to somewhat on 20% growth rate for a long period of time? Say 4, 5 years?

Why not. Certainly. We intend to double in 4 to 5 years is what we have mentioned earlier also. However, all of that will be done depending on the market conditions. And we have always grown through the profitability lens, and that is something we will continue to do. We will calibrate the growth of the company through the profitability lens. We will never compromise on profitability for growth and vice versa.

Okay. And if you can just explain us the -- just like one of the participation -- or participant also asked this question. Are you feeling this heat coming from the new age brands that are more focused on D2C and that has more customized element?

Not really, Rohan, the heat and all, honestly, we haven't. The market, there is enough room for growth for everyone, and a lot of endeavors at our end also which we will end up achieving growth on that. We don't see the brands giving us heat or anything of that sort.

Okay. So you still feel that there is a long runway for all of the players? It's not like you have to take competition from somebody else?

Certainly, there is enough of a runway, Rohan. And like I said, it also depends on the type of brand you are. If you end up being just another me too brand trying to sell or be another app also ran in the industry where you're trying to sell on the edge of price or something, but we are not like that. We are a brand which is very unique in itself. And you will only know that if you visit some of the competitor stores and visit our stores and actually touch and feel our products where you will see how we are different from the others. And what's the reason for our existence and the reason for our belief that we will continue to grow profitably.

Okay. And another thing with the growth plans that you are having, can we expect the percentage in percentage terms of branding and marketing expense to go up because you definitely want to market it aggressively?

Give a little -- give or take here or there, but roughly, we intend to spend approximately 5-odd percent of our revenues.

The next question is from the line of Ravi Shah from Opal Securities.

First of all congratulations on achieving a positive efficiency in a tough demand environment. Sir, my first question would be, sir, what would be our pre-IND AS EBITDA margin, sir?

Pre-IND AS EBITDA margin would be around 10% lower. So it will be maybe around 16-odd percent.

Understood, sir. Sir, my next question would be little bit around strategy. So what would be our growth aspiration for the next 3 years? I know you mentioned a little bit, but then from this, what kind of volume -- can you guys split within volume and value between efficiency and actual growth going forward? Anything like what are we targeting for the next 3 years? So basically, what would be our growth aspiration for the next 3 years? And where do we see our business heading?

Can you come again, I'm sorry, Ravi?

So, basically what would be our growth aspiration for the next 3 years and where do we see our business heading?

We intend to double in the next 4 to 5 years, Ravi, exactly in 3 years is -- we intend to have at least mid-teen growth year-on-year. Yes, we'll past it also.

Understood, sir. And sir, this will majorly be driven by volume or value, sir, that was the question.

Both. Of course, both.

Okay, sir. Sir, my next question would be what would be our short-term targets like in the coming few quarters, what will be our major targets if you have any?

For this year, our targets are to reduce our working capital days and reduce our inventory levels, and grow at the mid-teen levels but ensure that we grow profitably. We improve our profitability and improve our working capital days and reduce inventory levels. Keeping -- those are going to be the boxes we are going to be ticking before we think of growth. That we're very confident, we're able to do that by the end of this year.

Understood, sir. Sir, my last question would be, how have the MBOs performed during the last quarter? If you could give a brief highlight on that, it will be very helpful.

The MBO performance in the last quarter has been decent, MBO and EBO typically move hand-in-hand, Ravi. Yes, the sentiment is pretty similar across.

The next question is from the line Lakshminarayanan from Tunga Capital.

So, in terms of the -- your EBOs, what's your annual rent you actually paid for your facilities. What is the set of percentage of revenues?

So it depends on different types of EBOs, but it's in the range of around 20-odd percent of the revenue.

Okay. And in terms of your stores, I mean, COCO, COFO or FOFO, what's the kind of typical format like what's the kind of square feet you have, what's the revenue per square feet you normally targeted? And when does these stores breakeven at least at an operating level?

So Lakshminarayanan, see typically, our stores breakeven are from 6 to -- within a year, basically, 6, 9 months generally. Typically, we are around 800 square feet at an average and revenue we do is around 11,000, 11,800, 11,900.

Sorry. It's around 800 square feet, and what is that number, 11,00, you've talked about?

I beg our pardon.

No, you said 800 square feet is an average price of your store. And what is the other number you gave, 11,000 something you told?

We do average revenue of around INR 90 lakhs per annum.

Okay. And in terms of garmenting, so do you completely outsourced or some part of garmenting you actually retain?

Completely outsourced. We maintain control over the entire outsourcing process.

And typically, how many franchises you actually offer every year? And how many actually apply like what kind of filtering you have for becoming a franchisee?

There is a process that goes through, that one has to go through, Lakshminarayanan. I mean there's a committee that meets with the franchisee and looks at the potential of the market and in some sense, kind of screens the franchisee and understands and looks at their experience and their -- and then it's the chemistry getting matched along with the franchisee and us having confidence in them being able to run the store successfully. So that is a stringent process that one has to go through before one becomes a franchisee. Typically -- I think around, how many of our store are run by franchisees, about 2/3 of our stores are run by franchisees. And the growth also is coming in the same percentage.

Got it. And then another question is that how are you taking advantage of information technology? How do you ensure that the last 3 years, how you have progressed in that front, let say that how do you optimize the inventory at various stores, micro markets, how -- what has been the journey so far and how are we benefiting now?

Very difficult to answer that question like that on the call. But there is a -- we have a direct connect with our POS where we know the sales every 30 minutes, and we have an ERP that gives us the SKU wise data of what is selling where. And there is a very, very strong team internally that monitors what is selling where to ensure that the right product is lying at the right place and lots of endeavors are taken up, including inter store transfers and there are a lot of BI tools that give us insight on merchandising and what should be put in which stores and what is it that sells where. So that's a constant exercise that is done.

Is it something which you embarked upon very recently in terms of the ERP, that is actually...

No, no, no. It's been there for a long time. But yes, new endeavors that we keep embarking on and newer ways of slicing, dicing our data to get better and better at predicting sales.

So which means that all your EBOs you have -- on a daily tracking, you have payment, which is selling fast, which is -- is that at an EBO level, you must be having it, both primary and secondary?

Absolutely.

The next question is from the line of Naitik from NV Alpha Fund.

My first question is your receivables seem to be a bit on the higher side, so any thoughts? Is there a room for improvement or they would remain in the same range? Or any thoughts on that?

Naitik, we are working on reducing the receivable days basically, so...

But on this, Naitik, the receivable days that we have is there is a certain amount of phasing stock that is required in the stores. And like I said, we have advances from our franchisee partners, lying with us as deposits. So if you factor for all that, then you will see that it does not -- it's not actually as high as it appears to be. But retail, we have to fill up the store with stocks. And that, again, is in the fashion business may not be the best way to evaluate the health of a business. As long as we are able to liquidate what we have and ensure that, that has done profitably on whatever we have produced. We are on the right track.

And recover the monies from our customers.

Yes. And like I said earlier, there have been no write-offs on account of inventory in the history of the company. Similarly, there have been no material write-offs on account of receivables also.

Okay, got it. And my second question, if you could just give the pre-IND AS margin for the last quarter and Q1 of FY '24 also so that we get an idea of how it's moving?

Can I get back to you on that?

Sure. Okay, yes.

The next question is from the line of Rahul Jayant Dhruv from Pegasus Growth LLP.

I just had a follow-up question on the returns. You mentioned that you provide for 25%. One, is what was this percent, say, in FY '21 or FY '20, and what is it now? And second is, when you say provide basically means that it is actually a number which you decide, but actual number would be different, right? So if you can tell me a little bit...

Number is -- derived number from the basis on which we have been getting returns historically. However, what's happened is, that the way we have completely gone to an outright -- I mean, sorry, SOR basis from outright, this number has gone up. And like I said, I prefer to get everything back from -- in my pipeline. So I know that, a, every new season, I'm putting in new merchandise at the -- on the shelves for my consumers to see. And whatever is left over after end of season sale, when it comes back to me, I have a complete view on what's the inventory that was unsold. And what is the rate at which I need to discount it to be able to liquidate it at the rate at which I would be happy to do that. And if I was not going to pick it up from my MBO partners and other partners, I may not have an eye view, I may not have a complete view of what is the inventory that's left over, which is, we believe, is much healthier to get everything back as long as we are able to liquidate it, which is what we do successfully. So that is something that has grown. Last year, it was 22%. And I think prior to that, it was even maybe lower the provision.

Yes, around 20%.

So if I'm not wrong, and correct me if I'm wrong, is basically the gross margin of 57.5% is after a 22% returns, right? And which basically means that if the returns fall to, say, 20% or 15%, and I'm not saying it will but I'm just assuming, then the gross margin will be much higher?

So we've changed our return percentage looking at the last 3, 4 seasons. So if the returns percentage reduces, we'll change the provision. GP will remain the same. There will not be any impact on GP because even when I make a provision for the returns, I give effect to the cost also for that.

My point is, sir, when the returns come, you actually liquidate it through the online channels, right, which is at a lower price. So I'm just trying to understand if it is at a lower price, then the gross margin over there will be lower, right?

But this is normal, basically, as it keeps on happening, means older stuff gets being sold on e-commerce sense.

But if less inventory is returned from the channel partners, then yes, our margins will go up.

Okay. And this 25% is the highest that you have seen so far?

It's not like that, depends on season to season. That's the average what we have seen, and that is what the auditor and Rasik have decided to write as a provision.

Ladies and gentlemen, that was the last question for today. We have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.

Thank you, Dev, and thank you, everyone, for joining us. I hope we've been able to answer all your queries, and we look forward to such interactions in the future. In case you require any further details, you may contact Mr. Deven Dhruva from SGA, our Investor Relations partner. Thank you very much, and have a good evening, everyone.

Thank you. On behalf of Credo Brands Marketing Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.