Khadim India Limited (KHADIM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Khadim India Limited Q4 FY '21 Earnings Conference Call hosted by Nirmal Bang Institutional Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Girish Pai from Nirmal Bang Equities. Thank you, and over to you, sir.

Good afternoon. On behalf of Nirmal Bang Institutional Equities, I welcome you all to the interaction with the management of Khadim Limited to discuss the 4Q FY '21 results. We have with us from the management, Mr. Siddhartha Roy Burman, Chairman and Managing Director; Ms. Namrata Chotrani, CEO; Mr. Indrajit Chaudhuri, CFO. Without further ado, I will hand over the floor to the Khadim's management to make their opening comments, after which we'll open the floor for Q&A. Over to you, Mr. Burman.

[Foreign Language] Good evening, everyone. We welcome you to this conference call to discuss the fourth quarter results of financial year 2021. Hope everyone continues to be safe. And I would like to start off appreciating the relentless effort of our COVID warriors. After a positive festive season in Q3, normalcy has started to set in people's lives. This was reflected in the consumer behavior and recovery numbers. We grew with a healthy pace in retail and distribution. With regard to both retail and distribution, the focus in Q4 has been to consolidate the outstanding and inventory holdings, which has helped us to have a linear balance sheet. We have also seen a substantial improvement in gross margins in both retail and distribution business. All the metrics are showing a turnaround in the positive direction. Over the years, our company has stood in the test of time and emerged stronger for the challenges it has faced. Financial year 2021 was the toughest challenge faced not just by Khadim, but by the industry and world at a large. Coming to our performance for Q4 FY '21. On a year-to-year basis, the revenue was 70.6% at INR 269.90 crores. The revenue also revised at least from an institutional order from educational department of Uttar Pradesh government of INR 128 crores to supply school bags. Gross margin in retail and distribution business improved to 47.6% and 38.5%, respectively. EBITDA and PAT turned positive at INR 14 crores and INR 11.5 crores, respectively, compared to losses in Q4 '20. Even though there was a step back due to the second wave, leading to another round of lockdown and store closure in April and May. Our team is motivated to put their best foot forward and drive the company to scale new heights. We are working on the vaccination effort for our staff. We will continue to focus on sustainable value creation from our resilient business. Despite the recent lockdown, we are optimistic that the demand for the affordable fashion will only increase. We are looking forward to put the worst of the pandemic behind us and delighted our customers with exciting products. We have come up with a very young and vibrant range of in sweet summer shirt piece and autumn/winter collection. We are looking forward to see the response from our customers. We thank you for continuing support and remain confident on emerging stronger as our strategic plans remain intact. We can now proceed to question and answers. Thank you very much.

[Operator Instructions] The first question is from the line of Deepan Shankara Narayanan from Trustline Portfolio Management Service.

Firstly, I wanted to understand, during Q4, have we seen the trend of customers moving to higher price points and also of higher order value?

Hi, Mr. Narayanan, thanks for your question. Yes, we have seen an improvement in the customer behavior. Last year, I think as we mentioned in the previous call, that the focus was more on the lower price items and it was more specific to athleisure wear and also a lot of home wear. But in Q3, given the festive season and after that given the normalcy kicks in, people started going back to work and started enjoying lives, normally which was reflective in the way the consumer also was purchasing and which is why we saw an improvement in the average billing value and the ASP.

Okay. So what is the kind of ASP and volume growth in retail and distribution business?

So in the retail business, we have seen approximately a 3% increase in ASP. And in distribution, we have seen approximately 1%, 2% increase in ASP. The thing is that in distribution, again, the focus for the entire year has been more on open footwear compared to the previous year, and that trend continued till the end of the year. So despite taking whatever incremental price increases and whatever the sales mix that we tried changing, given that the overall ASP growth looks subdued, but in terms of the category for open footwear has been higher increase in ASP.

Okay. Okay. And specifically, if we see distribution gross margins has increased from 33% to 37% over the past 2, 3 years, but growth in revenues have been dropping. So even particularly for the Q4 quarter also, we have seen some of the industry players growing well in distribution. What is the main reason for the de-growth in distribution in Q4?

No. So I think as I mentioned earlier, that there has been a substantial increase in the ASP in the open footwear, Q4, as an example, there has been -- I mean, in the entire year, they have increase of approximately 5% in the open footwear segment, which is mainly your Hawai and your PVC and EVA. In -- while this Q4, there has been something good, it's purely because as Mr. Burman mentioned earlier in the call, the focus for Q4 for us for both in the distribution business and the franchisee business was to consolidate our outstanding and to make our balance sheet much more stronger. So that did -- that did compromised in tenant base, and we were happy to take that compromise given that we were working on consolidating our outstanding and our balance sheet and our working capital. It also helps to build our business in a more healthy manner, I think and that's something that he had mentioned on a couple of calls, looking at improving our working capital base and running the business in a more healthy manner.

You can see in the distribution that in the past quarter, there was a lockdown for 1.5 months. But you will see, the second quarter, the distribution business grown by 16%; third quarter, 35%; and fourth quarter, 7%. So in the 3 quarters, after the first quarter, the distribution business has grown. There is -- we were able to achieve 2% higher sales, selling 10.5 months compared to 12 months in FY '20.

Okay. Okay. That's good. And finally, the growth in sub-brand contribution has been falling over the past 3 years. So if we see 48%, it was there in FY '18, it has fallen to 40% in FY '21. So are we seeing improvements in sub-brands in the future? And what are the strategies we are adopting to improve that?

I'm not sure about where you're getting this data because this may have been the case in FY '21, but not -- in FY '20, the sub-brand contribution as percent of sales was almost 60% and that's -- that may continue once normalcy kicks in. That I think is...

I think FY '21, the retail sale has come down from on INR 490 crore, in FY '22 INR 306 crore. And if you've seen the -- after the lockdown, there was a demand for Hawai chappals and PVC sandal which are basically Khadim product. So that's why this year, there might be that the share of sub-brands has come down. But in the normal year, again, the sub-brand contribution will be in the range of 58% to 60%.

[Operator Instructions] Next question is from the line of [ Monika Arora ] from [indiscernible] Wealth Advisors.

So one of the components, which is rent, is a major part of our expenses. So especially after the second wave of COVID, earlier we had negotiated for the rents and all. But are we again negotiating? Or it is back to normal? Or what it is? The status I want know.

Last year, if you see the balance sheet and profit and loss account, we have saved around INR 7.5 crores of rent, which is shown in other income. Again, this year, again after the second wave, we started the negotiation with the landlord and trying to get the same amount of benefit that we got in the first -- during the first wave. But since the lockdown period in second wave is comparably lower than the past year, so negotiation from the landlord's end would be a difficult task, but we are trying to get as much benefit as we could.

Okay. Sir, my another question then, we see that these small players, the small private-labeled players or other small players, like they are also present in the online brand. So what is the specific competitive intensity from these players? And how is the competitive intensity otherwise in the sector?

May I know which smaller brands you're referring to, ma'am?

They're like smaller brands, like the common brands, which are present all over in the online segments. Like there is a brand known as Pink & Blue. It's a Big Bazaar own brand. So they also sell these -- their online products to this brand through their own platform. There are various small brands which are present on the Flipkart, ajio.com, Reliance. So these small brands I'm talking about.

So I think there are a lot of brands definitely there even in the online/off-line space, but there will always be competition, it's a healthy thing to happen. We definitely -- but having said that, creating a brand, even in today's time, is a very expensive bond -- cash bond and that require a good amount of investment. The kind of brands, we called -- we have in the country, it has come over a lot of -- many years of sustaining in the market and also giving the kind of products and offering that we do. So yes, the potential, given that e-commerce and online is definitely picking up, we are also trying our best to ensure that we are available in all the marketplaces. But I mean, you can't stop brands to start coming up, and I think this is a healthy thing to happen. Having said that, the affordable fashion is what is here to state, also the premium brands are doing well. But in the current scenario and even last year, the demand for affordable fashion is only -- has only increased. So I think from our perspective, I think it's a good thing for the current demand that is coming in.

Okay. Okay. Fine. And moreover, you get edge over these local brands because we market our brands in a better way, plus our customers are repeat customers, too. Would we see that?

Yes, definitely. As I say, a lot of brands are coming, there's lot of smaller brands, unbranded brands or even smaller unorganized players. But potential and the brand recall of a brand like Khadim is always going to have a better footfall or eyeball compared to any other brand. There is also a trust involved because of the longevity of the brand.

[Operator Instructions] The next question is from the line of Deepak Poddar from Sapphire Capital Partners.

Yes...

Sorry to interrupt you. You're not audible at all, may I request you to speak over the handset?

Hello?

Your audio is a little low.

It's better now?

A little bit.

Okay. Sir, just wanted to understand if any kind of outlook that you can share for FY '22? That will be helpful?

Sorry, can you be a little louder than this?

Yes. Sir, any kind of outlook that you can share for FY '22? That would be quite helpful?

So frankly, I think, FY '22, something we were looking at trying to ensure that the vaccinations will kick in and we'll possibly be able to get the same level as FY '20, adjusting for the last 15 days as well. But I think given the wave that has started in March, April and continued in May, and there are people talking about third wave, I think to commit any number or given any perspective on how the market is going to turn, your guess versus mine. But having said that, I think in an ideal scenario, I think we'd like to grow in the retail by around 10% to 12% and distribution approximately 15%. That's the way I really -- we would like to grow, I think. But there's a lot of uncertainty and ambiguity in this time, and I think, hopefully, in the next few months, it will be a little more clear for us to give you a more clear answer as well.

The next question is from the line of Jignesh Makwana from Asian Markets Securities.

I have just one clarification. Based on your data, what you have given on a gross profit for the retail and distribution business, if I do a simple math, my gross profit should be somewhere between around INR 73 crores, but actual gross profit comes to INR 60 crores. Is it -- are we making losses on institutional business?

No. There is no losses from institutional business. There are some other elements. If you see the accounts, there are some other costs that are in the gross profit margin, so that costs are attracted in the profit and loss account. But if you see the distribution and the retail business separately, so this is the margin. That is before the Ind AS impact. There are some costs that are deducted from the sales. That's why that margin is coming to INR 60 crores. But this is the margin before Ind AS adjustment.

Okay. And we have booked institutional orders to the tune of INR 158 crores in FY '21. So how much that revenue we have booked in Q4?

Total revenue is booked in Q4.

Okay. Okay. But then again, if I'm doing the mathematic retail INR 106 crore and INR 59 crore on the distribution and about INR 128 crores from the institutional business, then my revenue should be higher than INR 270 crores?

I think your -- whatever math you will require, we can take that question offline. You can share your Excel sheet, we'll clarify it.

Sure, sure. And what is sort of growth, particularly the expansion plans in FY '22?

Sorry, can you repeat your question? Your voice is a bit low.

Yes. So my question was, what kind of expansion we are looking in FY '22? Number of stores expansion on COCO side.

So in terms of total number of stores, we're looking at expanding approximately 80 to 100 stores what I targeted for the year including all company with franchise.

Okay. Okay. And lastly, how much price hike we took in distribution business in this quarter?

Sorry, can you repeat?

How much price hike we took in distribution business in this particular quarter?

We have taken approximately -- in the Hawai and PVC segment, we've taken up roughly 10% to 11% hike in the entire year.

Okay. So that means our volume is about low, about 3 to 4 percentage, compared to previous year?

Can you repeat sir, your...

Yes, is it better?

Yes.

Yes.

Yes. So the debt indicator -- we have witnessed the volume decline in distribution business in this particular quarter?

That has already been told because in this quarter we have -- the credit norms were sticker. The growth is around 7% compared to a 35% growth in Q3.

[Operator Instructions] The next question is from the line of Naitik Mody from OHM Portfolio Research.

You said in the opening remarks, the CMD said that there's an effort to consolidate the receivables and inventory rationalization. So could you elaborate more on the receivables part? Was it more to do with the distribution business? Or is it more to the franchisee business? And how much is already done? And how much is still left?

See, the franchise business, the data as on March 31, 2019 was INR 59 crores. '20, it was INR 35 crores. December '20, it was INR 25 crores. And now it has come down to INR 17.5 crores. Distribution, FY '19, it was INR 34 crores. April '20, it was INR 41 crores. December '20, INR 29.92 crores. And March '21, it is INR 21.16 crore. So in case of franchisees, we tried to keep the level at -- we are trying to keep the level at 45 days. And in case of distribution, we are trying to keep the level at 30 days.

30 days. Okay. So this will be the normalized scenario going ahead?

Yes.

And what was it earlier, if I look at '19 and '20?

In the franchise, it was 72 days. And distribution, it was around 50 days.

Okay, okay. Fine. So, all right. And -- but wouldn't that also sort of also hit your margins? Would you have to take lower gross margins so as to effect this kind of receivable?

No, the sales was less in the fourth quarter, as you have seen, distribution growth was around 7%. But you have to take corrective action. And then when the demand comes, the volume automatically grows and the sales will grow, keeping the receivables at the same level.

No, that is fine, I'm not referring to this quarter per se. I'm just speaking -- saying generally, on an annual basis, if you were to reduce your data days from, let's say, 72 to 45 franchisee, and from 50 to 30 in distribution, wouldn't that also mean that you will have to take a gross margin hit? I mean, sell them at a lower price, so as to effect these kind of working capital days? data days.

See, your working capital thing also gets improved. You are saving in finance cost for the working capital thing. And margin -- and gross margin doesn't change, because gross margin if I sell at 45 days or 70 days, the margin remains the same. But it's a better utilization of working capital, which gives you benefit in finance cost.

All right, fine. Anyway, I'll take that up offline this with you. Secondly, you mentioned that you have booked the entire institution order of Uttar Pradesh department in this quarter itself. Is that correct?

Yes.

So which means there is actually a 10% de-growth in your top line for your footwear business, if I were to remove this order?

Yes.

Okay. And what is the sort of gross margins we make in institutional business?

Gross margin, the net margin at around 3.5%. There was no other costs involved after the gross margin.

And I think just to clarify to you, I think we've grown in our retail business around 6% and distribution by approximately 7%...

Fourth quarter FY '20 also had an institutional component?

Just a minute.

Yes, there was a small amount, but it wasn't a large amount. It's around INR 7.5 crores in the last year...

Both retail and distribution, there is a growth in fourth quarter.

I'm not sure what numbers you're referring to.

So it was INR 128 crores last year.

It was INR 128 crores, but the net sales is INR 115 crores. So that you should deduct INR 115 crores from the total sales. INR 128 crore is the gross sales.

I think just clarifying one of the previous question also, there was a volume growth in the distribution business of approximately -- in the fourth quarter of approximately 6%. And there was -- I think when you're looking at the entire year, there will definitely be a volume de-growth because the first quarter, there was no -- I mean first quarter was limited growth. So the fourth quarter, there has been a growth of approximately 6% in the volume.

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

Am I audible?

Yes.

Sir, my question is with regards to the raw material trend. I mean what sort of inflation trend are you seeing in the raw material? And is the price increases that we have taken is enough to cover that inflation? Or you might need to take further price increases?

Sorry, can you -- your voice is a bit blocked, can you please speak a bit louder?

Sure. So my question was with regards to the raw material inflation. What kind of raw material inflation are you witnessing in the RM index? And whether the price increases that you have already expected covers this inflation or you need to take further price increases?

So the price increase in the footwear segment has been extremely high in the raw material space. Just to give you a perspective, across the major raw materials which are used in the footwear segment, it is -- you will have EVA, rubber, PU, PVC. And the kind of price increases that we have seen over there has been in the range of 40% to 50% in the entire year -- over the entire year, from last year to some time this year. So -- and the price increases on -- but the raw material component, there's a lot of other raw materials which is part of it, of the final product. But I think the price increase that we have taken have adjusted for the raw material price increases also. So much further increase to protect for the -- against the raw materials, but if there's a further price increase, then we may have to take a call about it.

Okay. And what about the competition? Has the competition also affected similar price increases? Because our check suggest that the competition hasn't taken similar price increases.

No. So, I think the competition also has taken price increases. I think for us, in the last 2, 3 years, the number of price increases that we have taken was relatively limited. The price differences that we had for similar products was pretty high. So we've tried to reduce the gap by taking multiple price increases this year. Having said that, the competition also has taken price increases. I think there are 2 price increases in the year for sure, adjusting for the raw material price increase. Organized players, definitely have.

Yes. Sorry. Just to summarize it, I mean now this pricing premium gap between you and the competition, has it reduced? Or is it remained more or less? And are you the premium -- are you premium in pricing versus the competition?

Your first question is has the price increase reduced? And your second question is?

I'm sorry, are you either premium to the competition in terms of pricing? And has that gap reduced? The pricing premium gap, has that reduced?

So I think the pricing gap has definitely reduced in the year because we've taken multiple price increases to reduce the gap because the product differentiation and the quality differentiation wasn't that fun. We have a very strong brand recall in the markets that we are present in. Secondly, in terms of whether we are more premium or the other brand is more premium, I think it's subjective to the products. In some products, we have a premium and we can command a better pricing. In some products they have premium and we are trying to figure out how to improve our products or our positioning on our marketing to be able to -- that other kind of premium value. So I think there is competition in the product, I don't need to generalize totally.

So I was talking about a weighted average level. I mean, if you just didn't compare apple to apple similar products, because you said the pricing premium gap has reduced. So I was just trying to understand who was more premium and who was less premium earlier and...

It also depends on the product basket mix. Some of the competition, the branded and other competitors have a good proportion of closed footwear as well in the distribution segment, I'm not talking retail here. In the distribution segment, they have a decent proportion of closed footwear as well, which we are trying to build in, I think, which we have mentioned in the last couple of calls as well as we introduced as a sub-brand, focusing on various product categories across the distribution segment, which will also help us improve our ASP and our margins. So from that perspective, yes, other brands have more premium product basket in terms of a larger product market. But we are getting there, we are focusing a lot on the kind of product that we are getting, we are investing in people and investing in proper merchandising, investing in the factory as well to ensure that we're able to bring the kind of product base so that we are able to reach the kind of ASP and margin. In the current product mix that we have, as I said, it is objective to the product, it's very product specific.

[Operator Instructions] The next question is from the line of Bhargav from Kotak Mutual Funds.

Yes. It seems that we've lost some market share in the distribution business in the fourth quarter on the back of tightening of working capital. So is this trends -- in terms of tightening of working capital or we resort to some loosening to grab market share?

Sorry, can you -- is it tightening the working capital or?

No. I mean, if you look at your competitors' growth in the distribution business, it is far superior as compared to your growth. So essentially, it seems like you've lost some market share in an effort to tighten your working capital. So can we expect similar working capital trends to continue in the distribution business or sort of resort to our old technique of EBIT of relaxed working capital in order to chase volume growth?

No, I think -- as I said, the idea was to consolidate our balance sheet and make it more healthy. Having said that, I mean, in the third quarter, we had grown by 30% plus and the competition has not grown at such a healthy rate. Today, we -- in the fourth quarter, yes, we have let go some sales, but it's not that we won't be able to get back that sale at that share at all. I mean, we'll definitely get back. We have become stricter with regard to the working capital, and that's something the distributors are also getting used to and it's the relationships we are building with them. And that's something which any change will require some adjustments from both the sides, from our side and distributor side as well. And the sale they have advertising too and possibly, they'll get used to this kind of working capital. So in fact the volume will grow accordingly. So I don't think I'm too concerned about the growth in market share with going forward.

So we will keep at a 30 days level of data in distribution business?

That's the target.

And the tightening of working capital happened starting 4Q? Or has it happened much earlier?

No, we have started the process on third quarter itself, but basically got a bit tighter in the fourth quarter. And that's why you seen the kind of numbers that you are. In fact as sometime the Indrajit narrated the entire reduction in the debtors in both distribution and...

The next question is from the line of Vishal Chopda from UTI Mutual Fund.

Yes. Actually my question was largely on the distribution business, which was answered in the earlier participant's question. So actually, no questions, but one thing that -- I think in the last quarter, in the presentation, we were giving the data on the post Ind AS basis. Now this quarter, we are giving them pre Ind AS. So it's like very difficult to compare when the reported P&L is on different accounting because post Ind AS, while your segmental numbers, margins actually are on pre Ind AS, and that's why there is a lot of confusion with respect to the growth numbers and all. So I mean is it possible, please, revert back to the old way of reporting in the presentation, that will be useful because it's just very confusing.

We lost the audio in the between. Can I request you to repeat your question once again? .

No, I was just saying on the presentation the data we are providing, we are giving on post Ind AS basis while pre-Ind AS basis, while actually the results are on post Ind AS. So it's very difficult to compare the segmental numbers with the reported P&L. So that's the request to...

Vishal. This is Indrajit. The thing is that we used to give at post Ind AS, but there -- in case what happens, our selling expenses are booked in different quarters. So it hampers. You cannot see the actual margin growth in the business. Because whenever we keep the credit note that is adjusted, suppose the third quarter is adjusted in fourth quarter, so what we can -- I can give you is that I can give you both pre Ind AS number and post Ind AS number. That I can give one to one. Otherwise, most of the people will not be able to see what the impact the business has done for a particular quarter because the Ind AS [indiscernible] in fourth quarter last year, the selling expenses were less compared to fourth quarter this year because the credit note given based on the scheme and all these things. So in order to have -- see the business growth and all these things, we have changed the model. But obviously, we have both pre Ind AS and post Ind AS because that I can give one on one.

The trouble is that then we can't correspond to the reported P&L. I mean, when they are trying -- people are trying to back calculate the institutional business, the numbers get all wrong and even the gross margins on a reported basis and segmental basis doesn't corresponding that's the problem. And I get your point also, I get your point. But I think -- I mean, I know there are problems in both methods, but I think it's better if we continue to do it on pre -- post Ind AS basis only. I mean if that possible that would be great.

I can share you both pre Ind AS and post Ind AS numbers to you.

[Operator Instructions] The next question is from the line of Shiv Bansal from Lighthouse Funds. [Operator Instructions] The next question is from the line of Abhishek Jain from Arihant Capital Markets.

I just want to know like because I joined late on the call, if you can throw on the light, first, the unlock, so how the things are shaping up and which are the segments, which are the regions you are seeing a faster pickup. Can you throw some light on the same, sir?

So the lockdown has just started opening up in some of the states, and I think it's not opened up across all the states even Northeast, which is open until 2:00. They hadn't still opening up for 3 days a week. So I think it's still a bit, no, no, that is not totally opened up. But whatever has opened up, we are seeing that the recovery is a bit better than last year. Because I also think that even people are little relatively -- they know how to handle themselves. There is no experience in handling the situation compared to last year. So we seeing the recovery to be better. And hopefully, we should be able to -- this trend should continue. Momentum should continue, fingers crossed.

And which are the areas of -- which are the segments you are seeing, like things are looking good in last 15, 20 days?

I think it is, compared to last year, given that the impact in the last year was more in the cities compared to tier 3 cities. This year, I think it is -- because we are seeing a similar kind of trend across all the areas. So it will definitely be a little better, but I think the difference compared to last year has reduced.

[Operator Instructions] The next question is from the line of Harsh Shah from B&K Securities.

Of the trade receivables which you have recorded in the balance sheet in March '21, of the INR 120 crores, how much of the institution order would put -- would be sitting in this amount?

Out of that INR 120 crores, INR 77 crores is from institutional business.

Okay. So basically, apart from that, it's only INR 53 crores, right?

INR 43 crores.

INR 43 crores. I'm sorry, my bad.

[Operator Instructions] The next question is from the line of Girish Pai. Please go ahead.

Namrata, you came in a couple of years back and prior to that Khadim had a decent IPO. Then it went through a challenging phase. What do you think are the issues that Khadim was grappling with at that time? And how have you tackled them as a CEO? And do you think you put all of them behind you? I mean, the problems? Or are you still grappling with some of them? And when do you think you'll kind of tackle them? And if you do tackle them, what kind of EBITDA margins pre Ind AS 116? Or do you think you can work with on a longer-term basis?

Thanks for your question, Girish, I appreciate it. So I think while we were, last time, you joined -- prior to me joining, I think when we were analyzing as to what has gone wrong, there were few things in terms of the way the product range was being structured, the way the premiumization was being structured, the way the gross margin was being addressed, the fixed cost increments. I think there were multiple challenges across the business, even the way the outstandings have increased around franchisee business and distribution business. The focus on products across both the retail and distribution business has reduced. So I think what we done is essentially tried to improvise on the entire range architecture, which I mentioned earlier, to ensure that it is more relevant to the number of orders with more vibrant, more colorful. It is in line with trying to ensure that we are increasing our ASP, we are increasing our gross margin. We -- our -- and the conversions increase in the stores, the average billing value increases, [ VPT ] increases in the store. So there is more structure in the way we are looking at business. It's a very data-oriented structure that we're looking at the business compared to how it was conducted earlier. There has been a very, very high focus on reducing the fixed cost. There's been a very high focus on improvising the working capital. And that is very apparent in the kind of metrics that we are seeing. There has been improvement in ASP, there's been an improvement in gross margin, there's been improvement, which is visible at the time of sales increase that we are seeing. There's been an improvement in working capital efficiency, which we are trying to ensure. So and this -- these metrics and this trend is definitely here to stay. We're ensuring, we're working on the fact that how to ensure that these metrics continue across both retail and distribution business. And the only thing right now is missing is the volumes, which hopefully by Q2 we'd be able to see an upliftment. Q1 has been, again, much lower than what we were anticipating. So we're very confident to ensure that this trend continues. What kind of EBITDA level we're looking at, as we've mentioned earlier, around 10% to 11% is what we targeting. In ideal scenario, hopefully, we should be able to achieve it sooner than later once things normalize.

Just a couple of more questions. This institutional business, how critical -- do you think it's an important business at all? And what kind of margins and return ratios would that be, would that business have compared to your either distribution or your retail business?

The margin in institutional business is lower, but that margin that we get from 3.5% to 4%, it is back to back with our vendors. So our working capital is not involved in this business, and we are able to generate some margin out of -- without investing any money.

Okay. My last question is regarding advertising and promotional spend. I don't -- can you give me the number for FY '21? And I recall you saying, I think, Namrata, that if you go down to like 1% in FY '22. Did I hear that right?

No, I'm not aiming sequence like that as of now, but I think we're not looking at spending more than 1%, 1.5% in this year. I think most of the spend will happen now maybe in the end of it, during the festive and maybe post that depending on how the trend move. Again, as I said, when you start the year, you have a certain plan, a budget in mind. We had a budget of approximately [indiscernible] but I'm not -- but given the way the [indiscernible] in terms of the entire sales coming in footfalls and lockdown, to give you the exact number of how spend in the marketing and the advertisement is a bit premature right now again. I think we'll take it as it comes, how the outcome.

What was the number in FY '21?

Around INR 4 crores.

The sales promotion expenses will be separate here.

The next question is from the line of Bhargav from Kotak Mutual Fund.

Yes. Just one data point. What would be the receivable cycle for these institutional orders?

Probably it's around 6 months.

6 months?

Yes.

So what was the rationale for getting -- so order, I mean, at one hand, we are trying to curtail our receivable cycle. So what would be the rationale for taking up this institutional order bill?

As I told in the previous question, that our working capital is not involved in this institutional business. We work on a back-to-back with our vendors. So it's -- you are getting a margin without investing any money.

So would that not be the case with our other businesses?

Yes, yes. We have the stock, we don't hold any stock. It's receivables and creditors. But in other business, there is receivable stock. And if the stock is not sold then it is a paid stock. Yes, there is no paid stock, nothing, it's only receivables and creditors. So whenever you get your receivables, you pay to the creditors.

[Operator Instructions] The next question is from the line of Amit Luthra, individual investor.

Am I audible?

Yes, sir, go ahead.

And I hope everybody is safe at on the other end. Quick two questions. So one is, where do we see ourselves in terms of a 3- to 5-year time line compared to the other brands? And the second is in terms of what sort of plan for the EBITDA margins compared to other brands like Bata and Relaxo, because we are a little lower end; so where do we see ourselves targeting in terms of the same time lines of 3 to 5 years?

Thanks for your question, Amit. So I think in terms of next 3 to 5 years, where you seeing ourselves, I think, we definitely intend to have more focus on the product, both in retail and distribution, we definitely want to continue to be affordable footwear fashion brands. We don't intend to become a premium brand. We intend to premiumize within presently affordable fashion segment itself. We continue -- want to continue to be catering to the entire family for all occasions across all merchandise categories. Intend to grow the retail business by 10% to 12% year-on-year and distribution by around 15% year-on-year. In terms of gross margin, when you're comparing to the other retail brands, you are seeing mainly the company-owned outlet margins. So if you compare on a like-to-like basis for that margin, we pretty much are in place there. Our margin is very comparable to the other brands when it comes to the gross margin, [indiscernible] is relatively lower because also -- we also have the franchisee business that we sell to the customer -- to the franchisee. With certain reduced -- with giving them amount of distribution margin, retail margin, leaving some amount of margin, basically taken for them to get them to earn money. So that's where the average margin is. But on a product gross margin, we are pretty much comparable to all the other brands.

All right. And then just one last question. So I think you said we are looking for 80 to 100 new stores in FY '22. Any specific distribution in terms of regions like where -- how are they placed, because we are mostly confident on site, they're trying to get into other regions. So is there any distribution that's been targeted for these new 100 stores?

Sorry, what your question -- for the stores, what is your question?

So the new stores, the 80 to 100 stores across the company-owned model and the franchisee that we are targeting in FY '22, so is there any distribution that we are targeting across the regions basically?

You're asking in terms of where does we open our stores?

Correct. In terms of the regions, like where are -- how we're trying to distribute those?

So we're looking at the northern side -- the North, the Northeast, the North, which includes the UP, Bihar, southern region, Tamil Nadu, Karnataka, kerala, some of the western parts of Gujarat, Maharashtra. So I think it's not specific to any particular area. We're pretty much looking at a pan-India presence.

[Operator Instructions] The next question is from the line of Mr. Girish Pai.

I had a few questions. You mentioned 80 to 100 stores, how many of them would be COCO stores?

So the COCO stores will be around 5 to 7. We are looking at predominantly focusing on franchisees this year in terms of more allocation of capital protecting the P&L as well, in terms of the fixed cost.

So the other question is regarding gross margin. 4Q gross margin for the distribution business, I think, you recalled numbers were significantly better both on a Y-o-Y and a Q-o-Q basis. Is there any specific reason? Is that a one-off? Or do you think that's a stable trend?

So we're definitely looking at a gross margin increase year-on-year. The reasons are both. One is the price increases and even the premiumization, change in the sales mix, product mix enhancement. That the increased trend will definitely continue. We will continue focusing on trying to ensure that our product mix will lead to a growth in gross margin on a real basis across retailer and distribution both.

My last question is regarding your distribution business. Obviously, you're most likely working through multi-brand distributors. If you had stricter terms, do you think they will kind of tilt their business more towards the other brands? Or what do you think is going to incentivize them to sell your products?

So in terms of the -- like I -- the loosening or tightening of norms, I think everyone -- every brand has its own credit policy and CD policy so as to ensure that they are recovering the money faster than the others. We were a bit -- I believe we were a bit lenient, and I think we were trying to just correct that. It's not that we are becoming stricter than the other brands. We're pretty much similar to the other brands. And the second question was, sorry, can you repeat that?

No, I was asking whether because of stricter norms, whether they will take more towards your other peers. So what are the incentives for them to sell your products?

So as I said, we're not more stringent compared to the other brands. I believe we were more lenient compared to the other brands. I think you were -- we are just correcting our leniency and becoming more fairer, I would believe. And whatever is for them to sell, they upsell our brand, brand recall, yes, I mean, we have a strong brand in our existing markets. And I think, we have the right product range, and I think we are building on that as well. So I think it is -- given their interest to sell the product because there's demand for the products that we're offering.

Next question is from the line of Vikas Shah from AQ Capital Limited.

Just a quick question. What's the breakup of the revenue in terms of EVA, PV, PU, PVC and Hawai?

This year, it has been more open footwear base. So I am not sure this year would be a good benchmark to judge the business at all. I would believe that Hawai, PVC, EVA contribute almost -- in normal time, it contributes almost 80% of the business. Balance, your PU sports sandals, formal shoes contribute 20%.

Okay. Okay. That was helpful. Also, typically, what is the total capacity and the utilization? And what is CapEx typically involved for incremental CapEx rather?

Last year, we had a CapEx of around INR 3 crores for the total business. So whereas the mold, I mean in factory, it was around 40 to 50 lakhs for mold investment last year. Particularly in a year -- in this year, we'll be going for a new press line. So that will be having an investment of around INR 1 crore. So it will increase our capacity. Right now, we are having a capacity of around 120,000 Hawai per day. So that will be increased to around 140,000 pair per day.

Okay. And what is the current utilization?

In case of Hawai, around 90% utilization. And in case of PVC, it is 60% to 65%.

[Operator Instructions] As there are no further questions, I will now hand the conference over to Mr. Girish Pai for closing comments.

Yes. That's the company interaction with the Khadim management, would like to thank it for giving us this opportunity to host this call. Thank you all for taking part, and have a good day.

Thank you.

Thank you for your time and interest, appreciate it, and look forward to connecting with you soon again.

Thank you very much. On behalf of Nirmal Bang Institutional Equities Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.