Khadim India Limited (KHADIM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q2 and H1 FY'23 Earnings Conference Call of Khadim India Limited, organized by Orient Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [ Bhavya Shah ] from Orient Capital. Thank you and over to you, sir.

Good evening everyone. Welcome to the conference call to discuss the results for Q2 and H1 of FY 2023. Today, on this call, we have from Khadim India Limited, the promoter, Mr. Siddhartha Roy Burman, who is the Chairman and Managing Director; Mr. Rittick Roy Burman, Whole Time Director; Ms. Namrata Chotrani, CEO and Mr. Indrajit Chaudhari, CFO. Before we start the call, I'd like to give a small disclaimer that this conference call may contain forward-looking statements which are based on the beliefs, opinions and expectations of the company as on date of this call. Actual results may differ materially. A detailed Safe harbor statement has been published in the Company's Investor presentation which has been uploaded on the stock exchange today. I hope everyone had a chance to go through the presentation and the press release. I would now like to hand over the call to Mr. Siddhartha Roy Burman. Over to you, sir.

Okay, thank you. Namaskar, everybody. On behalf of Khadim India Limited, it is my pleasure to welcome you all to this conference call to discuss the Q2 and H1 quarterly result for the financial year 2022-23. On today's call, we will provide a progress report on industry and overall business and its execution. Secondly, I will go into more detail about our demand scenario and what will be our strategy going ahead. Finally, I will return to provide some brief closing remarks on containing our outlook for the remainder of the year before opening the call for questions. Coming to our business, the company has maintained its strong quarterly business performance because of its increased demand for its product over the festive season. The first festive season without the long shadow of the pandemic saw buoyant consumers with a propensity to spend higher than average. This has stimulated the business growth and helped us record to robust growth in the first half. The positive momentum can be attributed to Khadim's continuous focus on developing affordably priced item to suit consumer demand, expanding its brand footprint through scaling up its retail presence and distribution strategy. We have added 33 new stores in Q2 and 58 stores in total in H1. Company continues its expansion in the Tier 2 and Tier 3 locations through its asset-light strategy, taking the store totally to 826 as of September. The core proposition of the brand is affordable fashion for the entire family for all occasions. We are maintaining the growth of our business by expanding our retail stores, which allow us to reach more people in our target market and provided them with reasonably priced fashionable footwear to continue providing our customers with the WOW experience we aspire to establish ourselves as the family first choice to our brand. Now Q2 and H1 financial highlights. Q2 FY'23 revenue at INR 186 crore has grown year-to-year by 15% and H1 FY'23 revenue at INR 352 crores is up 41% year-to-year. Second point, both retail and distribution business have registered double-digit growth in H1 FY'23 year-to-year at 64% and 12% respectively. In the challenging macro environment, gross margin for H1 FY'23 stands at 41%, an increase of 350 basis year-to-year from 36.5% in H1 FY'22. Retail and distribution gross margin have improved marginally. EBITDA for H1 FY'23 has more than doubled year-to-year at INR 39 crore, registering a growth of 195%. We are proud to say that we have reported the highest quarter-ended EBITDA margin at 11.2%, which has improved by 590 basis year-to-year. We have significant improvement impact growing from a loss of INR 4.4 crores in H1 FY'22 last year to INR 8.4 crores profit in H1 FY'23. So now we can go for question-and-answer session.

[Operator Instructions] The first question is from the line of Abhishek Getam from Alpha Invesco.

My first question was regarding how has our vision or how has the portfolio evolved around sports and athleisure. And currently, how much would it be contributing and what is the sort of ASP in that segment for us?

So in terms of -- in the distribution segment, the sports category has done very well this quarter and in the first half of the year. We've doubled our sales in this first half. And in terms of the category I think right now, I think we've started this category 2 years back. So I think the contribution is approximately 7% to 8% of the total sales. And in terms of the retail side also the contribution of the sports category has been -- is the second largest after the mother brand Khadim. So athleisure category is a focus part for us and I think it is also going pretty well.

And what are the sort of the ASPs we are doing in this segment in distribution and retail?

In the sports shoe segment, I think we have a price range on MRP basis, which goes from INR 599 to approximately INR 1,299 under the brand Fitnxt. And the sweet-spot in terms of MRP ASC will be approximately around INR 700. And on the same basis, the ASP at our company level will be around INR 400, for the distribution segment. As for the retail side, the ASP would be around INR 1,300, INR 1,400.

Okay. And in retail, okay, second bit is for us. And leaning towards, I'm guessing sports would be the highest ASP for us. So I do understand since other segments are lower SP, we can't really offer an online strategy because it does not make it viable including the shipping charges and the return charges. But for sports, can we propel it via the online strategy for athleisure.

So Abhishek, it's a very good point because in the sports category, we are looking at growing extensively in the online business also. And in the next year, we're looking at developing e-commerce focused sports shoe category as well. So that it does not jeopardize our existing trade.

So most of the online efforts will be put towards the sportswear, right?

Sports shoes, even formal shoes. I think the other categories, which has done very well and the higher price point for us is formal leather shoe, which is in the range of -- on the retail side, we have formal leather shoes at INR 1,299 and premium leather shoes is starting around INR 1,999 and going up to INR 3,000. And frankly, that category for us is a very good category because the kind of price points we are in, there's not much of competition there. On the distribution side also this year we went out on the formal shoe category at almost INR 799, INR 899 where there is very limited competition also. So even in this category, there's a lot of interest on the e-commerce space, which we'll be also focusing on.

And how much would formal leather were contributing in retail and distribution, sort of a percentage.

It will be around 5% to 7%.

In both?

Leather [indiscernible], distribution, only then retail. So the leather footwear will be around 5%, but I think formal shoes as a category ease-off lot of demand because of the kind of price point that we are offering because as I said, leather footwear at INR 1,299 or INR 1,999, there are not too many brands offering you a good rate, then we are able to do that.

Second is a contradictive number. What would be the H1 volumes for retail and distribution?

8.19 million pairs.

This is both combined?

Yes.

Can you explain distribution rating?

I will probably give you a number offline, yes.

Okay. And another was, so in Q2, there is sort of a price cuts taken by other players in the Mass segment. So I think the main concern was regarding a lot of price cuts taken by the local players was also unorganized. So how is the situation panning out now? And in considering how -- what's been the situation in East?

So price was already quite competitive compared to the other branded players because of which the price and the margin, in fact, was relatively lesser. And also during the financial year that we have brought in some production efficiencies, which have helped us cover up the impact of the RM price, the raw material price. So the raw material price has impacted all of us in the market and economy scale. And especially in the distribution side, we've been able to try protecting the margins purely because we brought in some production efficiencies, but I think we will -- given that this is a strong hawai season, which is coming up in the next -- in the third quarter, we will have to evaluate in terms of price correction with any to be able to protect the volumes. But after Q2, we've been able to protect ourselves because we've already been -- we were already quite competitive in terms of pricing and margins.

[Operator Instructions] The next question is from the line of Deepan Shankar from Trustline PMS.

Firstly, I wanted to understand what is the kind of price hike taken in retail and distribution business for us during the quarter?

So I think in Q2 in distribution, I don't think we've taken any price hikes probably because the inflation is the reality, and it is impacting a lot of the brands, which are focusing on the Mass and Economy segment. So we have not taken any price hike in Q2. I think in Q2 the focus has been more to sell in the closed footwear, sports shoe, the athleisure segment, the formal shoe, the fashion focused field segment, which has done pretty well for us. And hawai as a category in Q2 in general has a lower demand, which eventually picks up in Q3 extensively, which is what we are hoping for. In terms of retail, there's been no particular price hike, particularly in Q2. It's a long supply chain, it is a 6-month end-to-end supply chain from selection to getting the product in the store. So whatever price adjustments had to be taken factoring in the raw material price and GST has already been done the season of previous financial year. So there's no particular change in retail that we've done in this quarter.

Okay. So most of the growth, what we are seeing is primarily driven by solid growth in retail segment?

Also it's a mix of [indiscernible] also. Yes.

Okay. And also are we seeing footfalls increasing at the stores level across all the regions?

See, footfalls have been almost equal to last year. But I think as I said, the Mass and Economy segment is largely focused, largely impacted segment in this sector because since you appreciate majority of the products are below INR 1,000. And there's no other footwear retail brand with the kind of focus we have on Mass and Economy. 80% of the items are below INR 1,000 and that has been impacted both by inflation and GST. So we are seeing a bit of -- we are seeing almost equal numbers as last year, but growth is something which we are hoping comes in now in the near future.

Okay. And especially on the distribution side, we are seeing a lot of even bigger players are struggling to maintain pricing and also there is lot of volume decline. So how are we managing the same? And are we expecting this run rate to sustain in coming quarters as well?

See, this quarter we have managed to do a growth of around 9%, 7% rather in distribution. And if you take it on a gross basis, we've done almost 16%. So I think it will be at least because our brand is focused on below INR 1,000 segment where the GST has an impact will be objective to look at both the gross and the net numbers also. So if you're looking at the gross numbers, almost 16% growth. And in the retail side, it will be almost 25% of growth. And to answer your question, in terms of how does that impact, how are the other brands managing, how we have managed, we've been able to do a good deal and good growth in the closed footwear in terms of sports and in terms of athleisure and formal shoes. But as I said earlier, we think others coming in because of the impact of the inflation and GST on the ground level and we're trying our best to be able to incentivize our customers by schemes and incentives to us to ensure there is offtake of stock.

Also that there was impact in the volume of PVC footwear because there was no rain in the Eastern part of the country in this year.

Because Khadim is very well known for PVC products and the offtake has been lesser owing to the lack of rain, but we've been able to manage growth. Despite that, we see now a good share of closed footwear. And we're trying to fight as much as possible to ensure that offtake continues.

Okay. And how has been the festival demand so far running into Q3. So are we seeing better growth than even Q2?

Q3 [indiscernible] which is where the festive for us is more focused on Puja. So the entire impact of festive has come in Q2 itself because the end of Durga Puja was in the first week of October. So the Puja was good. The footfall was good. There was a lot of public. There was a lot of people out there. I think there was a lot of people, revenge shopping as we may call it because last 2 years was a dampener in terms of footfall because people had a subdued experience. And this year was good, which is why I'm saying on a gross level, if you can see we've grown at almost 25% on the retail business.

And lastly from my side, so the current level of operating margins. So do we see further improvement has come back to even pre-IndAS period?

Also right now, I think hopefully in the next year, we'll be able to see that improvement. We're hoping as much to sustain this existing margins in the coming quarter.

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

My first question is with regards to the competitive activity, especially in the Mass and that we have seen one of the largest player, Relaxo has been called out for a sharp price cut in September. So in that sense, how are you seeing the demand getting impacted in the distribution business? And are you also taking any retaliatory price cuts in that sense?

So I think the fact of matter is inflation is definitely a reality and we are seeing cash funds coming at the lower market segment especially. So I think as I said earlier, our price is already pretty competitive compared to the other branded players, which is because of the price and margin impact was relatively lesser. And that was also accumulated by some of the fact that we brought in some production efficiencies by which we were able to protect our margin despite the time of the raw material price had sprung-up pretty significantly because as Relaxo also has mentioned that the supply chain that is generally required is 3 to 4 months, but most of our branded players have purchased a high amount of raw material because of the ambiguity on the political instability in the European markets and the ambiguities around the supply of the raw materials, which would be impacting the continuation of our production. So most of us had purchased raw material prices at a much higher price, but we were able to subvent the impact of it because of production efficiencies. But given the fact that the Hawai season also is coming in Q3 and Q4, we will take an objective call on the price corrections if any, based on the demand situation if at all.

And the second question was in regards to, you actually have maintained margins pretty well on a sequential basis. Because if we see both the margins on the retail front and the distribution front, in that sense, hasn't declined much as you highlighted from here on. So how do you see these margins panning out in the years ahead once this entire inflation thing settles down? And what will it be still driven by, I mean, you already highlighted that you are seeing good growth in the sports shoes and formalwear shoes. So how do you see the demand in these segments obtaining once [things] will be normalized?

So athleisure as a category is definitely here to stay, because I think athleisure the way the common man looks at it is smooth, comfort shoe. And that category is growing significantly high irrespective of inflation, irrespective of the ground situation. And I'm hoping that this continues across quarters. But in the next -- yes, there will be a short-term impact. I think all of us in the branded space are facing a short-term impact in terms -- because of inflation, especially those who are focused on the Mass and Economy categories. But I would look at the long-term proposition of the category and Mass and Economy category as a whole and would not be too worried accordingly. So I'm hopeful for the growth, even across the category and athleisure is a segment, definitely is a focus for our products internally. And it has been showing a good amount of growth internally.

Sorry. So if I understand it right, you are saying that athleisure as a category will continue [indiscernible] and once the situation on the RM front normalizes, you also see growth coming back in the market. Is that the right understanding?

Yes.

On the retail side, we have been seeing a continuous expansion in terms of the footprint by you and all the other major players and also across different retail formats. So are you seeing any cost escalation here, especially on the employee front, rentals and also because the marketing spend was substituted in the earlier quarters, how are you seeing the escalations of the cost in the normalized world?

So I mean, whatever adjustment like, for example, the employee cost adjustments that had to be taken compared to the last year, normalized business have already been taken. I think the escalation will happen on the next financial year, but on a normalized basis. I don't see it being totally out of track at all. It will be on a going concern basis.

Because also due to the salary of the employees remains the same.

Okay. Because we are hearing that a lot of hike in minimum wages in many cases and also because of the ongoing inflation, the wage rate hike is a bit higher. And hence, I also alluded to the fact.

Yes. Whatever the medium wage rates are for a particular state, we adhere to that. And based on that, because we are present in 24 states, so where we are all paying what is the minimum wage there. So that is on the Y-o-Y increase in the employees cost.

So just a follow-up on this. So in this case, so once the raw material situation reverses or normalizes, do you think the entire flow-through we can see in terms of the EBITDA margin, then ultimately to the fact.

I think it's a bit premature because I think we'll have to assess it based on the demand and business situation because [indiscernible] we are hoping that the Q4 stabilizes and inflation impact reduces because the raw material that we are buying right now in forward looking for the Q4, it is on the -- in terms of oversight. But having said that, you don't know how the political instability -- how the political climate, how it changes and what is -- how is that impacting the prices. So it is a bit premature to assume that. We are hoping that the impact of inflation reduces earlier than we hoped.

Also there should be an improved uptick in the Tier 2, Tier 3 cities.

Yes, sure. So my question was more like if the situation remains as is today because we are seeing some cooling-off in the RM trend and just assuming that we being as it is today, we should expect some benefit in it, right?

Yes. But I think as Indrajit also mentioned, 60% of our business comes from Tier 2 Tier 3 markets. So we're hoping the disposable income affordability also improves and yes, we can definitely see the improvement coming in then.

The next question is from the line of Sachin Kasera from Svan Investment.

Can you just tell us what was the revenue mix growth between realization improvement and volumes?

Sorry, can you repeat your question?

I'm saying, the revenue growth, if you could speak between volume growth and realization improvement or product mix improvement because price hike was not there. So essentially, it could be a function of volume and improvement in the product mix.

You're saying compared to last year, right?

Yes, compared to last year.

So on the volume front, there has been a de-growth of approximately 8% and balance has been a growth -- there's been an ASP growth of approximately around 15%.

And this volume degrowth that you are mentioning, is it at the company level or is the trend between retail and wholesale a little different?

No, I think at the company level.

So broadly similar trends across wholesale as well as retail?

Yes.

Secondly, if you could also because you mentioned that it's the lower end of the segment and we are primarily [indiscernible] economy, but within your overall portfolio, is it that the bigger volume impact was seen in, say, INR 500 segment and lesser in INR 1,000 and even much less in INR 1,500 or was it across all price segments that more or less the trend was similar.

See, the impact will be higher in the below INR 500 because the disposable income is lower in the SEC B and C. But having said that, we are seeing an impact also in the INR 1,000 and below because it's a dual impact. One, you've had a GST increase, one you've had a raw material price increase. And on the retail front, we will try to pass on some and retain some because we want to enter the affordability in the hands of consumer as well. So we had to manage and balance out both to ensure that you know that the price is not unaffordable. So you are seeing an impact in both the categories for sure. It's not particularly in the only below INR 1,000, but the impact below INR 500 is more.

Sure. And then one of the previous guide, you mentioned that below INR 1,000 is 80% of our volume or revenue?

Revenue and SKUs. 80% of our SKUs are below INR 1,000 on the retail side. And on the distribution side, 80% of our SKUs are below INR 500.

But when you see [indiscernible] embedded by volume, but when it will be lower because above INR 1,000 reduction is much higher. So is it that 30%, 40% of revenue on the retail side is coming from above INR 1,000 or...

Around 80% of our sales value was coming below INR 1,000.

Secondly, is there any significant difference in margins between the various price points of INR 500, INR 1,000 or INR 1,400 or is it just that helps you get a better value for store, but the percentage gross margins or EBITDA margins are more or less similar.

So the target margin that we have set internally is almost equal, but fact of the matter is that the margins are higher in the higher ASP items and higher price items because if you were selling a hawai chappal, you are selling open PVC chappal or low price lady sandals, I mean to have a same margin for the low price items will be tough to get comfortable higher price item because the elasticity of demand between INR 1,500 and INR 1,600 is not much as much as INR 500 and INR 600. So I think we have to ensure that we're maintaining that balance.

Sure. And so in that case, in terms of trying to renew our portfolio, what are the key initiatives we are taking and this 80%-20% ratio, where do you think we could be, say, 2, 3 years from down the line, it would be more like 65%, 70% above INR 1,000? What is your aspiration, if you could say?

See, I think our brand stands for affordability. So I think the idea is to premiumize within the gamut of affordability. Currently, our ASP is around INR 600. I think in the next 2, 3 years, I think we'll be hoping around INR 700, INR 750, but I'm not -- we're not hoping that we increase our prices significantly over INR 1,000. Otherwise, we will not have a competitive factor in differentiating and competitive factor for our brand. Our brand stands for affordable fashion and affordable is below INR 1,000.

Next question is from the line of Rahul Jain from Credence Wealth.

The first question is with regards to your guidance for the current year, you have mentioned about INR 800 crores of sales on gross basis and 12% EBITDA margin. So firstly, do we stick to that guidance?

We're able to keep the guidance. I think we did not anticipate inflation to hit us in the industry. But I think we are trying our best to ensure that we're able to reach that number, yes.

And just to get a clarification, the INR 800 crores is the gross number. And in the first half, you have already done roughly INR 470 crores. And on the other side, the net sales number for the full year guidance would be around INR 700 crores, INR 720 crores EBITDA number on the net sales.

Around INR 700 crores.

Sir, so the clarification, you had mentioned 12% margin. Now when we take that margin at 12%, so we should be assuming that to be on the gross or on the net. Because if I look at our operating margins for the current quarter, on the net basis, they are somewhere near 12%. But on the gross basis, they are somewhere around 10.25%.

Our EBITDA margin is always at the net sales.

On the net sales. And secondly, ma'am, just to understand this average sales price you mentioned to the previous participant has moved up by almost 15%. So typically, if I look at the last year's quarter, you said the first quarter, but in general, what could have led to this average selling price increase? Is it more product mix and within that product mix, what has helped you to get a better average selling price?

I think it's a function of some price increases and premiumization within the categories. The focus is to ensure that we are trying to promote the sub-brand and through which you're getting the premiumization increase in ASP. So I think we're trying to create a product with a higher potency value to help us increase the ASP accordingly.

Lastly, ma'am, on the gross margin. We have seen gross margins on the retail front somewhere around 50% to 55% and distribution margins around 35%, 36% for last 3, 4 quarters. And on the company as an overall, the gross margins for last 2 quarters have been around 41%. So typically, do we have some levers or what is the way out to improve the gross margins going ahead into the coming time periods.

So on the retail side, again, the premiumization within the gamut of affordable fashion, I think the idea will be to try increasing the -- improving the margins of the higher price point item and try to increase the ASP, which will drive the higher gross margins. On the distribution side also it will hopefully be both price increases and gross margin and premiumization also by improving the 2 category items, both category promised to -- but it will have to be gradual. I think we'll have to take it -- we'll have to pace it out, taking into account the ground reality is based on the demand and inflation. So I think it could be a mix of both, but we get the caution.

Sure. And lastly, Madam, on the average sales per store, so how has been the movement on the average sales per store, both on the retail side and the distribution side. So more, of course, on the retail side, within COCO and franchisee. How has been the average sales per store and typically, how do you see it going ahead?

So the average sales per store in a COCO is approximately INR 1.5 crores. And the trend is continuing that way. And at franchisee, it is approximately INR 90 lakhs to INR 1 crore and it continues that way. So I think we are hoping that the SSG continues and we are able to also grow the business through further expansion. Our focus is predominantly franchisee gain, which will help us grow in a capital-efficient model.

The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead. Mr. Poddar, Your line is in talk mode, please go ahead with your question.

Hello?

Yes, sir. Please go ahead.

Yes, thank you very much for the opportunity. So first off, I wanted to understand now on the store count, I mean, I think first half, we have opened around 58. So what's the plan on that front this year as well as next year?

So I think we're looking at growing by 70 to 80 stores on a yearly basis out of which 10 will be COCO and balance will be franchisees. I think we've done an excellent job in the first half of the year and generally first half of the year is always better because everyone wants to start and get the benefit of the entire year. But I think we will be continuing our aggressive growth strategy and hopefully we will have a similar number in the second half as well.

Okay. Understood. And in terms of growth, which you mentioned, I think we had set a target of about INR 1,000 crores by FY '25, right, in terms of top line. So that's what we are saying on a gross basis or on a net basis?

Gross.

So that's gross? So 12% GST will get subtracted, right, I mean to cover that reported number?

Yes.

Okay. And 14% EBITDA margin is also one of our key target areas, right? So any sort of time line we are looking at, maybe what one year, 2 year so like '25 we are targeting around 14% to 15% I mean, largely interim?

Fair enough. Understood.

Okay. That's it from my side, all the very best. Thank you.

Thank you. The next question is from the line of Sachin Kasera from Svan Investment. Please go ahead.

Question is on the PBT versus the EBITDA margin, since the majority of the growth is driven by the franchisee model. Is it fair to assume that the improvement in PBT margins will be far more than the improvement in EBITDA margins?

See, lastly, to compare to last year's second quarter, there was other income from savings rental and transfer of our office from one place to other while 116 write-up came. But this year, mainly the profit came from the business income and we...

I'm talking of the margin ex of other income, so I'm talking about PBT ex of other income because the -- I'm talking of the PBT marketing sector of other income because a lot of the rentals get reported as the head of interest and depreciation, which I would presume primarily belong to the company owned COCO outlet, right?

Depreciation and interest mainly IndAS 116 -- the more we open COCO the impact will come in depreciation and interest. And also we have shifted some warehouse from one place to another and we have shifted -- that rental impact will come in the interest. So the EBITDA will...

My question is if I'm saying since majority of the retail growth is driven by the franchise model where we do not incur rental, which majority of it gets reported on the interest and depreciation which would mean that the PBT growth should be much faster as the share of franchise in the overall retail and the overall company revenue keeps increasing, may not be so significantly repeating in terms of the EBITDA margin, but far more in the PBT ex of other income, is that mathematical understanding correct?

No, here, I have to say that there are also some investment in the warehouse and the factory fund, while there are lease property where the impact of interest and depreciation as per IndAS INR 160 million impact. So the PBT will be -- EBITDA will be higher, the PBT will be lower.

Okay. Secondly, in terms of the working capital cycle and the ROC is franchisee better than the company owned company outlet is like, does it mean that the free cash flow actually should increase and hence we should be able to repay debt much faster?

The ROC for franchise is obviously better than COCO, but since there is no investment in franchisee, but for expansion in different geographies we need the support of the COCO. And in strategic location where the investment is high while we need COCO store to cover.

In terms of revenue, what is the current revenue contribution of retail between COCO and franchisee?

COCO is around 55% and franchisee 45%.

And how should we see this mix say 2, 3 years down the line, 55/44?

Maybe the trade will come to 50/50.

Okay. So not significant improvement?

Because of -- I'll tell you sales and MRP less the trade discount, whereas COCO, we move the sales at MRP.

Sure. Secondly, if you could tell a bit about the geographical mix the way we are seeing because from a concern we are very strong on the Eastern side and little bit on the south, but not that strong in North and West. So 3 years down the line when our total store count increase significantly, is it that larger number of stores will get opened in areas where we have leather presence or it will remain the way it is today?

So we are focusing on opening store in North and West, the percentage will definitely increase for north and west. But since the concentration is heavy on heels around to 50% to 54%, so the percentage will come down to 58% not in a such a rapid manner.

Thank you. Mr. Kasera may we request you turn to the question queue for follow-up questions. We'll take the next question from the line of Gaurav Jogani from Axis Capital.

So my question actually is partly in regards to what the previous participant asked. So we have a 12% EBITDA margin that is the post IndAS 116. So if you adjust for the rental cost and other, what would be the pre-IndAS EBITDA margin for us?

Around 8%.

8%? Okay. And sir, how do you see the -- because if you look at the PAT level, the PAT level margins actually are a bit lower despite Y-o-Y, they're 2%, 2.7% despite 30 -- 350 bps higher EBITDA margin. So in that sense, how do we look at the PAT margins going ahead? Because I think that will be a better barometer given the fact that a lot of cost now sits in the depreciation and interest expenses also?

See, there are some property that we have shifted where the impact of IndAS 116 will come. So the EBITDA level, we will see a much better percentage compared to the PBT or PAT level because these impact comes high in the first 2, 3 years and the impact will lower in the fourth, fifth year. But since we take lease property 10 to a lease property every year, so that impact will rebate.

No, sir, that hence I'm asking more about the PAT level margins, not at the EBITDA level because, again this IndAS impact will be there. So how should one look at the PAT margins going ahead, the drop at the PAT margin?

So there is drop in PAT margin because of the deferred tax this year because last year we had a first quarter loss, the deferred tax impact was renewable. But this year, the deferred tax impact was there, so the impact in PAT was high, but if you see the PBT it has increased. But as you told that going forward, our -- there is lease assets and then lease assets impacts are heavy in the first 3, 4 years compared to the rental thing, see the rental is 51, the lease impact comes to 70. So there will be impact in the PAT margin which is comparatively growing at a later pace than the EBITDA margin, that is what I'm...

Sure, sure. Got it. Got it, basically -- because you've taken a recent rental of warehouse on the factory that's the impact is isle now and should be...

In the PBT level.

Thank you. The next question is from the line of Rakesh Par from [ EastWealth Capital ].

Thank you for the opportunity, sir. Sir, my question is, what is the same-store sales growth and volume growth in retail size? And if you can talk a little bit about sequential gross margin compression in retail segment compared to Q1 of this financial year? Thank you.

Sorry, can you repeat your second question?

My second question is, if I can see there is a sequential gross margin compression in our retail segment, that is compared to Q1 of the financial year. Maybe you can -- if you can share some light -- shed some light on this?

So on a gross margin Q1 -- Q2 versus Q1, the reason that in Q2 this time we have the EOSS also. And also we had the entire impact of the promotional campaign, which we do in -- during the festive season, which is basically around gifting campaign, which will help us increase the average billing value. So just both the impact have come during the Q2. Generally, what happens is that the impact of the promotional campaign is broken up between Q2 and Q3, this time since the [ Pooja ] was in the beginning...

Hello?

Sorry, since the Pooja was in the beginning of Q3, the entire impact of it has come within Q2. So I think that's why you're seeing a bit of a blip in Q3 onwards that number should normalize.

Can I [indiscernible]. What are your sales -- same-store sales growth and the volume growth in retail segment?

So I think compared to last year, we have -- as I said the volume overall we have about 8%, I think the value has been 15%. I think the SSG would be in the range of approximately 10%, sorry 8% and the balance would be coming from new store openings.

And this volume these are -- you are talking it is on the combined level, right, retail plus distribution level right on growth?

No, so even on the retail side also it's a similar number.

On volume de-growth has happened in retail side, right?

Yes.

Okay. Thank you.

The next question is from the line of [ Anil Desai ] from Total Capital.

So 2 questions. The first question is, we intend to reach INR 1,000 crores by FY '25 and this year we are seeing on gross basis INR 800 crores. So I'm just trying to decipher this growth. So we're looking at 12%, 13% CAGR and we are opening 70, 80 stores every year, so that gives you 7%, 8% delta on growth and you have said in the past that ASP we are looking at 4%, 5% increase on a yearly basis. So does it mean that on volume size we are not looking at a high single-digit kind of a growth also? I mean how should we look at this number? Because Maths just doesn't add up?

No, so on the SSG side is around 5% to 6%, which will be driven by our ASP growth is around 4% to 5% and the balance will be coming from new store opening, which would be a function of volume and volume predominantly volume, right? So I think probably we will be having volumes coming in.

Okay. So I mean, Namrata my follow-up on that is that we are saying that the kind of range that we have for the value that we provide, there is hardly anybody who can match us. So even in the same store, don't you think that the volume growth can be in mid-single digits or high single digits, it's so difficult to drive volume in the same-store?

Retailing is a very localized environment, it's not something that people travel 20 kilometers shop at the store irrespective of the kind of discount you're offering. So it's in a particular say 5-kilometer radius and 6-kilometer radius, so 5 to 6 kilometer radius the population are increasing that drastic in the rate. So you cannot expect single digit growth to continue for over like almost 10 years. So till you reach maturity level, you can expect a volume significant growth, but after reaching maturity, it's now going to be going around 8% to 10% on a year-on-year basis. It doesn't work practically across all the entire retail industry.

Okay. And second question is slightly longer-term on distribution side, so I think we have been saying that we are working on even range architecture on distribution side and to increase the premium product percentage. So currently, we're standing at 35%, 36% gross margin there. So with whatever efforts that we are making there in 2, 3 years, do we see our distribution margin going to 39%, 40%. Is that something that you guys are looking forward to?

Yes, definitely, something which we are everyone looking forward to and we're hoping that happens through a mix of premiumization on price increases, but predominantly driven the premiumization because we're looking at getting into more sub premium and premium categories for the distribution business.

But that debate of -- the raw material prices to stable down.

Right. That I understood. RM price scenario has been pretty volatile in the last 1.5 years. So I'm saying on a normalized basis, these RMs are not so volatile and lot of people on distribution side do make 40% kind of a gross margin. So...

No, no that's fair.

That is fair, yes.

As there are no further questions, I would now like to hand the conference over to Mr. Nachiket Kale from Orient Capital for closing comments.

Thanks, everybody for participating on this call. I would also like to thank the management for their time on the call. Orient Capital is the Investor Relations adviser to Khadim India. For any queries, please feel free to get in touch with us. Thank you. Have a nice day.

Thank you.

Thank you. Ladies and gentlemen, on behalf of Khadim India Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.