Raymond Limited (RAYMOND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Raymond Limited Q4 FY '20 Earnings Conference Call hosted by Antique Stockbroking. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Abhijeet from Antique Stockbroking. Thank you, and over to you, sir.

Thanks, Janice. On behalf of Antique Stockbroking, I would like to welcome all the participants in the earnings call of Raymond Limited. I have with me Mr. J. Mukund, who is the Head of Investor Relations of Raymond Limited. Without taking further time, I would like to hand over the call to Mr. Mukund. Over to you, Mr. Mukund.

Thank you, Abhijeet. Good evening, everyone, and thank you for joining us for 4Q FY '20 Earnings Conference Call. I hope all of you would have received a copy of our results presentation. I would like to urge you to go through this along with the disclaimer slides. Today, we have with us Mr. Sanjay Bahl, Group CFO; Mr. S. L. Pokharna, President, Commercial; Mr. Vipin Agarwal, President, Corporate; Mr. Ganesh Kumar, Chief Operating Officer of Lifestyle Business; Mr. Suman Saha, Chief Operating Officer of Branded Apparel Business; and Mr. K. Mukund Raj, CEO of Real Estate Business. I will now hand over the call to our group CFO, Sanjay, who will give you the summary of the results before we open up for Q&A. Over to you, Sanjay.

Thank you, Mukund. And good evening, ladies and gentlemen, and thank you for joining us today on this earnings call to discuss our results of the fourth quarter for the last financial year '19-'20. First, let me briefly discuss how the year, financial year '19-'20 has been and how the market conditions were in the last quarter for the industry. The year witnessed subdued consumer demand. The trade channel remained impacted by passive consumer sentiments and the liquidity crunch. At the retail level, domestic consumption remained sluggish due to muted rural sentiment and low urban demand. However, moderate improvement was seen during festivities and the wedding season. Aggressive discounted offerings continued by the apparel and retail companies to drive sales were seen as the norm. Coming to the fourth quarter, the calendar year 2020 began on a cautious note with moderate demand that saw the end-of-season sale, period being stretched beyond mid-February. The consumer sentiments were moderate with weak macroeconomic factors and liquidity concerns. Now before we discuss the fourth quarter financial year '20 results, let me discuss the impact of the current pandemic COVID-19 on our businesses and the steps that we have undertaken to address the unprecedented challenges, which are facing the businesses. Historically, fourth quarter has always been a seasonally strong quarter for Raymond. However, the fourth quarter last year witnessed a black-swan event, and we were hit by the COVID pandemic. Nationwide lockdown that was imposed during the last fortnight of March severely impacted performance of all our businesses. March, which usually is one of the strongest months for both branded textile and branded apparel on account of higher primary sales, but this time, the company was also expecting high primary sales in March due to good number of wedding days in the period of April to June. However, trade channel started reflecting the sentiments, with primary sales getting impacted in the second half of March due to the COVID-19 impact. This lockdown in line with government guidelines, all retail stores were shut along with manufacturing facility and offices. The entire supply chain was impacted as dispatches to wholesale channels, our TRS stores and MBOs were stalled. The government export dispatches were deferred as well as due to the retail shutdown in U.S. and European markets. First, with the lockdown in place, we immediately formed the crisis group comprising of the leadership team supported by business operational teams to set up health and safety measures for our employees and customers. We facilitated work from home for our office employees during the period of lockdown. Second, we initiated active engagement with all stakeholders, including our channel partners, vendors, franchises, LFS partners, MBOs and the store landlords. Tests were -- are being undertaken, including extending support to our channel partners to ensure business continuity. We are in continuous engagement with our store landlords to adopt a collaborative approach towards the rental negotiation. Third, we are focused on enhancing our digital capabilities and ramping up our ability to reach out to channel partners, customers and employees through the digital platform. We have now moved to a model of a digital trade show, which eliminates any disruptions to our trade channel and booking and ensures seamless supply chain processes. We are leveraging our e-commerce and omnichannel for effective inventory management. Fourth, as an organization, we are challenging all costs and are restructuring the organization to ensure operating efficiencies. In line with the prevailing market conditions and unprecedented challenges, the company has undertaken the process of cost rationalization, a cost reset and various cost-control measures related to sales and marketing, manpower, rentals and all the other overhead costs to minimize the impact on business. Also, we have deferred our capital expenditure related to store opening, renovation and technology upgrades in the near term. Fifth and most important is about conserving cash and managing liquidity. The company is taking all requisite measures to manage liquidity that includes cost reduction, fund management and focus on collection. The company is looking at all available options that include long-term funding and alternate working capital availability to manage liquidity in the current situation. The company is in the process of taking steps to issue NCDs that would support rebalancing its debt mix favoring long-term debt. Recently, the company has raised INR 145 crores through NCDs at market benchmark rates. Now coming to the quarterly financial reporting. As we are all aware, Raymond has seamlessly transitioned to Ind-AS with effect from 1st April 2019. While the reporting for the fourth quarter is based on Ind-AS 116 basis, however, for the ease of reference for comparison with earlier quarters, pre-Ind-AS 116 financials have been provided in the investor presentation. Coming to our quarterly performance now. Our revenue at INR 1,288 crores is down by 30%, and EBITDA is negative at INR 40 crores. The reported net loss is INR 69 crores. This includes an exceptional item of INR 31 crores, net of tax towards fair valuation of the development rights received as nonmonetary compensation towards the acquisition of land by Thane Municipal Corporation for public utility purposes. Our fourth quarter financial year performance was impacted mainly due to 2 reasons: First, the COVID-19 pandemic, which disrupted the entire economy and affected all our businesses. As already mentioned, March is one of the strongest months for branded textile and branded apparel on account of higher primary sales. This year, specifically, the company was expecting a good wedding season, driven by higher primary sales in March due to a higher number of wedding days from April to June. However, due to lockdown, primary and secondary sales were impacted, resulting in a top line loss of INR 414 crores and INR 134 crore loss at the EBITDA level. Second reason impacting the performance was a planned trade channel stock correction in branded apparel. Let me explain this in detail. Overall slowdown in consumption, coupled with liquidity measures in the last few quarters, impacted the secondary and tertiary sales. While the primary sales to MBOs grew at 40% from financial year '18 onwards till the 9 months of the financial year '19-'20, the secondary sales did not grow at that pace. This resulted in significant increase in receivables in the third quarter, specifically in our MBO trade channel. The need for action was identified and as discussed during the third quarter results, we initiated extending support to channel partners for liquidation of stock. And in fourth quarter, significant amount of stock correction was done to clear the pipeline. We adopted a new cash management model that is collect, sell and produce or procure in that order. Long-term steps are being undertaken to align the primary sales to secondary channel sales. We are sharpening the booking model to reduce the inventory lead time, enabling faster response to market conditions. The impact due to this correction on top line is INR 209 crores and EBITDA is dropped by INR 106 crores for the full year. And in the fourth quarter, the impact on top line is INR 122 crores, and EBITDA impact is INR 54 crores. However, with the above measures, we've been able to better the net working capital management as overall gross working capital is lower by INR 130 crores versus December '19 and debtors is lower by INR 133 crores due to the planned promotions. Excluding the above impacts, the underlying performance would have been as follows: for the consolidated fourth quarter performance over the previous year, the revenue would have been stable at INR 1,824 crores, lower by 1% compared to the previous year, driven largely by a growth in the retail channel, which is plus 21% and LFS was 6% in the branded apparel, mainly due to the increase in the number of doors. And the increased contribution from real estate business is INR 38 crores versus INR 20 crores of previous year. The EBITDA margin would have been 8.1% on an underlying basis, led by strong improvement in branded textile margin, 20% in quarter 4 versus 15.9% in the previous year due to lower raw material prices and a better product mix. The second factor would be a better utilization of the Ethiopia plant in the second half of last year, an increase in high-margin MTM business contribution. However, margins got impacted in apparel due to higher promotions, discounting and an adverse channel mix and the continued slowdown in the auto sector resulted in lower capacity utilization of manufacturing plants in the Auto Components segment. Now let me explain the underlying performance of each segment. The underlying results exclude the impact of COVID-19 and the planned correction in the branded apparel trade channel. The COVID-19 impact for each segment is based on management estimates, which are only indicative in nature and are based on certain assumptions. Underlying results have been provided only for better disclosure, comparison and understanding of results. For Branded Textile segment, at INR 817 crores declined by 2%, mainly on account of degrowth in the suiting business by 1% due to subdued consumer demand, lower institutional sales and controlled sales of low-margin product portfolio such as combo The B2C shirting declined by 3%, mainly due to a lower secondary sales in the trade channel. The EBITDA margins at 20% improved significantly from 15.9% in the previous year, mainly due to a benefit from lower wool price and an improved performance from B2C shirting with higher top line as well as better product mix. For Branded Apparel segment, the branded apparel marginally -- revenue grew marginally by 1%. For Jan and Feb, there was strong growth which came from the retail channels, led by EPOs and supported by LFS and better online sales. However, the trade channel declined due to the stock correction undertaken. Underlying EBITDA is negative on account of the higher promotion and discounting along with the adverse channel mix. In Garmenting, the top line at INR 211 crores was stable as compared to the previous year, mainly due to lower bulk business and increased focus on high margin, low volume institutional MTM business. EBITDA margin is higher at 6.6% versus 3.6% previous year, mainly due to higher utilization of Ethiopia plant and a better product mix. In high-value cotton shirting, top line at INR 162 crores, grew by 4% due to higher domestic sale of fabric and yarn from Amravati. EBITDA margins were higher at 14.9% as compared to 12.9% in previous year due to improved product mix and operating efficiencies. In Auto Components segment, the top line at INR 50 crores degrew by 26%, mainly due to the sectoral slowdown and the EBITDA margin, which came in lower at 17.4% versus 21.9% in the previous year, mainly due to the lower utilization of the plant. In Tools and Hardware segment, top line at INR 98 crores, degrew by 4%, mainly due to slowdown in the domestic file business and EBITDA margins, which were at 10.4% versus 8.2% in the previous year due to the lower steel prices. In real estate business during the quarter due to a suit filed claiming protected tenancies the civil court granted status quo of the construction and bookings in January. The company filed an appeal challenging the status quo order, the civil court rejected the injunction application in favor of Raymond. Overall, during the quarter, we received 52 bookings. Till date, the overall bookings have been 950, with a booking value of INR 960 crores and the 6 towers having a total inventory of 1,530 units. Construction of 3 flats has been completed in 3 towers, and the foundation is in progress for the fourth tower. The real estate business has contributed INR 38 crores to the top line in the fourth quarter. Till date, the total customer collection has been INR 221 crores. Now coming to the cash flow and the balance sheet. Despite facing liquidity challenges in the market, we have been able to maintain our free cash flow and operating cash flow for the quarter. Our operating cash flow was INR 179 crores and free cash flow was INR 80 crores during the quarter. Gross debt is stable at INR 2,430 crores versus INR 2,420 crores in December '19. However, on a year on basis, it is marginally lower as compared to INR 2,468 crores in March '19. Our net debt levels have reduced to INR 1,857 crores in March from INR 1,946 crores in December and INR 2,066 crores in March '19. Net debt-to-equity is significantly lower at 0.7x versus 1.0x in previous years. The interest cost at INR 60 crores is lower by INR 5 crores as compared to December '19. The average interest cost at 8.5% is similar to December '19, which was at 8.58%. On the working capital front, net working capital number of days is lower at 103 days as compared to December '19 of 105 days. Coming to CapEx, the CapEx spend was INR 39 crores during the quarter. This was mainly due to replacement CapEx in our suiting plants related -- also CapEx related to a bulk line to our -- conversion of a bulk line to a MTM line in the garmenting business to cater to international MTM business. Coming to a demerger update. In November 2019, we had announced the demerger of our lifestyle business into a separate entity. The scheme of demerger has been approved by the stock exchanges, and now it has been filed with NCLT. We have -- we now have an update that next hearing with the NCLT has been scheduled on 6th of July. Further updates, I think we will keep giving updates as and when we make progress. Now coming to the current status of the operation post the lockdown. With regard to our retail stores, there is a gradual reopening which began from lockdown 3.0 onwards, wherein the government opened up the sale of certain nonessential items in specified geographies. Currently, 1,332 of the Raymond stores have reopened, and the company is adhering to all COVID-19 guidelines and SOPs for employees and customers. On an average, our stores are clocking about 45% of pre-COVID, which is February '20 as the reference point sale. Lower-tier markets continue to perform better, with above 50% recovery observed -- which we are observing for Tier 3 to Tier 6 markets. With regard to our manufacturing facilities, our suiting and shirting fabric manufacturing plants continue to remain shut due to subdued demand, and we have -- also have adequate finished goods inventory to service the demand. The management is evaluating production, planning to reopen the plant in a phased manner. Garmenting facilities of Raymond have partially resumed operation and are deploying stringent health protocols and safe-distancing measures in coherence with the government directive. The Tools and Hardware segment and the Auto segment plants have resumed production since May to service the pending export orders. The export markets have also opened up, and there is an inflow of export orders which has started now. Coming to the real estate business. As per the phased relaxation post-COVID-19 outbreak, since the government has allowed construction work, the company has initiated premonsoon preparedness activity at the site. The construction work will spruce up with the availability of the migrant labor. As of now, we have adequate labor to progress with the construction. With the lockdown in effect, the company has engaged the potential buyers through digital and virtual interactive touch point. The company has started receiving bookings for flats but sales is expected to pick up only after the current pandemic impact wears off. New business opportunities, which has been crescent as Raymond Care initiative, the company is utilizing its garment manufacturing factories in Bangalore to manufacture PPE products, including coverall suits and masks, which are currently being supplied to the government, the corporate sectors and hospitals. We've launched a range of sanitizing products, including hand cleansers, hand wash and high-alcohol contained colon, meeting the highest safety standards, affordability and ease of usage for consumers. Overall, we expect demand to come back to normalcy over the period of the next few quarters. Our utmost priority remains health and safety of customers and employees, liquidity management and cost optimization. We are focused on creating a lean organization to emerge stronger to leverage the potential growth opportunity, which we see in financial year '21-'22. Thank you. And we are open to questions now.

[Operator Instructions] We take the first question from the line of [ Puneet Kabra ], individual investor.

Compliments for the good investor presentation. The first question I have is, can you throw some light on -- maybe if we pick up branded textiles as an example, and what are some of the key assumptions while we made up the underlying results?

Yes. Puneet. Clearly, the assumption that we had was we had a quarter estimate, which we had for the -- each segment. And we looked at January and February sales in line with those estimates and the fact that the progress towards meeting the March estimates and for the quarter. So the loss of sales that we had during the month of March was what was factored in as a loss due to -- clearly as a loss due to the -- due to COVID and that can -- and really, the deferment of orders or cancellation of orders that we got from the trade. So effectively, what we did was we looked at January and February and our March projections which were in line with what we were hoping to achieve and in line with the historical trends that we had as well. And basis that we arrived at what we have really lost because of the flow. One, first, the slowdown that we saw in demand. And also the -- with lockdown, the cancellations that we had in the order. So that was the base.

My next question is on the working capital. Is it possible that you can give a split of working capital days between receivable inventory and payables? So we have the net working capital, but can I get a split of the 3 for end of this financial year and end of the last financial year?

Yes. We can give you in terms of the number of days, we can give that to you. So if I give -- if I see for the last year, number of days of inventory, our inventory between March '19 was -- at a consol level was 103 days. It has -- inventory has gone up to 122 days. Receivables has gone down from 69 to 65 days. It had peaked to 84 days in December. It has come down to 65 by end of March '20. And this is -- this shift is primarily also because the sales as we put together, we had about INR 414 crores of sales, which was a mix of both retail as well as trade channel sales which didn't happen. So obviously, this was resulted in higher inventory at our end and lower receivables at the year-end.

Yes. And payables?

Payables was from a level of end December '19 was at 122 days, went up to 127 days, so some increase there, and March '19 was 116 days.

[Operator Instructions] Next question is from the line of Prerna Jhunjhunwala from B&K Securities.

Sir, first question would be on branded textile. This 20% normalized margin that you have mentioned for the underlying business, could you give what would be -- could you give a breakup of what would be the growth margin contribution in this or volume impact? Because there is no major volume impact as the top line growth in underlying assumption is only 2 -- negative 2%. So what would have -- apart from raw material, is there any component or the entire 500 bps improvement that you're seeing is on account of growth, lower raw material costs only?

Well, primarily, it is because of the -- there are 2 reasons for this. One is lower wool prices. So wool prices, we have been updating in our calls as well since the second half of last year is that the wool prices have softened and in quarter 4, we got the advantage of the drop of 25% in the wool prices. So that was the one primary reason for the lowering of the input cost as being the reason for the increase in the margin. The second reason is the product mix as well. In the fourth quarter, the sale of higher-value products and less of combos has resulted in a better average margin itself.

Okay. And so sir, this wool prices, how are they shipping now? And how do you think that there will be an increase in this FY '21 given the demand structure today?

Wool prices continue to rule soft. We have a woolstock with us already at the lower prices. So -- which are -- which is adequate for production in the coming months. But we also have availability of wool with -- which is with our Australian vendors, which will continue to be at low prices as well. So we'll see the availability of wool continuing at soft prices as compared to the previous year.

Okay. And sir, second question would be on branded apparel. We saw -- we're seeing underlying margins in branded apparel also at negative 7.6%. When do we see margin improvement in this segment? And how do we overcome this situation? Because last year, we were profitable in this quarter.

Yes, you're absolutely right. But we had to take some corrections in this quarter. Some of them were onetime corrections, which were there in the trade channels because of a buildup, as I explained earlier in my speech that it was because of the pipeline correction we had to take. Also, the -- in spite of the pipeline correction underlying was negative because of the higher discounting that was taken in the fourth quarter because of, again, trying to liquidate stock, higher discounting, end of season sales. All of this resulted in our gross margins coming down and -- which impacted the underlying profitability. So overall, for the quarter, while the underlying was still negative because of the high degree of returns and also the discounting that we had to take. However for the year, on an underlying basis, we would have ended up at about -- close to about INR 52 crores of EBITDA, which is still lower than the previous year, but it would have been positive at INR 52 crores. The -- what are we doing and your question as to how will we get back to a better margin of profitability? I think this is one business where post the correction in our trade channel, we are really looking at resizing the whole business model as well in the trade channels and both -- strengths are looking at -- in terms of channel-wise profitability. In fact, the scale of our EBO business as well, given the challenges that we now see in terms of revenue growth and also the rental reduction, which have to be in line with the drop in revenues that I anticipated. So essentially each and every channel is going under the radar and strictly from the lens of how do we ensure that we have a baseline of profitability in that channel. So post-COVID, I think what we are seeing is an opportunity to reset and resize the business to a level where we are able to scale down our cost to deliver maybe a lesser growth or a lesser total revenue in the business but to focus on how do we deliver, maintain our channel profitability. And with this pipeline correction and the whole cycle and the model that we have spoken about is first to collect, sell and then procure. I think this model will lead to a tighter working capital cycle as well. We are also moving away from a fact that it was earlier 2 season working capital cycle and now we are moving to enlarging that so that we ensure lower commitments during the year as well on inventory. So there are many steps which are being taken, and we will keep you posted as we make progress on these. But the idea is clearly to now get back to profitability, and this has not just at a aggregate business level, but actually at each channel level as well.

Okay. Sir, then how do you implement the same low -- multiple season products into the wholesale channel? Is the turnover that high in that channel? Because EBOs, LFS, TRS, we all can maintain because it is under our control to a very large extent. But what about MBOs turnover...

MBOs is also a profitable channel for us. Intrinsically, it is a profitable channel. However, the whole management of the MBO cycle from primary sales to collections is to be managed efficiently. And I think that's where the whole model is being fixed now. And now we are making the changes there to ensure that the stock levels are there are more -- are one, visible. The other is it is -- it may also move towards the secondary lead model as well. And accordingly, then the whole working capital cycle gets more efficient. So it may see lower growth, for sure. We've already taken correction in this channel. Post-COVID, there may be more corrections that they may be required because while the corrections that were taken in March, in a business-as-usual environment would have resulted in liquidation of the stocks that were available end of March and collections and would have then sustained the business. But with April, May and June, coming under lockdown and very little sales happening, we have to reassess the inventory, which is there in the pipeline and see whether it is -- it may be a better option to take the -- either the inventory back and redeploy it in other channels as well. So those are all options that we will have to now again reconsider.

Okay. Sir, your portfolio with respect to formal wear and casual wear, what will be the mix? And how are you seeing the trends currently in your channels on these 2 fronts is what I would like to understand?

Okay. Sure. So what I'll do is I'll request Suman, who is our Chief Operating Officer for our -- the Branded Apparel Business to -- so Suman will answer this question. Over to you, Suman?

Yes. So formal is still about 55% of our overall business. Casual is the rest. The casualization in the overall portfolio has always been a trend for some time now. And formal brands also have started becoming a little more -- far more expressive. Post-COVID also, if you ask me, we are seeing a little more uptick in the casual side of the business. But however, from a merchandising standpoint, how do you reinterpret formal in the new age and how do you sort of give it an edge is also something that we are working on.

Okay. Okay. And last question is on cost optimization that you were talking about earlier. How much can we expect as a reduction in fixed cost as per the initiatives taken till now?

Yes. So if I look at what are the scenarios that are facing us on the revenue side, and quarter 1, of course, has been very bleak in terms of -- with the April full lockdown and May also with lockdown 3.0 resulting in opening up of a few stores. So virtually, the sales have been very, very muted and very small percentage of what would have been business as usual. So quarter 2 also is uncertain as of now. While 90% of our Raymond stores are open and overall at about 80% to 85%, but there is uncertainty now with lockdowns getting reinforced. So it's just scenarios that we are working on in terms of revenue models. But one thing which we believe we have under our control is the cost. And we are looking at now really using this post-COVID now as the opportunity to reset and resize the organization across all cost parameters. And it goes with both employment cost and goes down to the overhead items as well. So we've gone through the spectrum of costs. We believe that we will emerge much stronger out of it with the cost reductions that we've already -- actions that have already been taken. We believe that a reduction between 30% to 33%, 1/3 of cost on the operating side is what we clearly need to do. And with that kind of a cost structure, we believe that we should be able to withstand the business scenarios, both from optimistic to a worst-case scenarios that we may see on the revenue side. So that's what we are really internally focused on in terms of a cost reset.

Okay. 30% to 35% -- 30% to 33% operating side, meaning this is on a short-term basis or on a sustainable basis you are talking?

No. At this time, this is not on the -- immediate knee-jerk reaction to cost. This is really on a structural, sustained basis because ultimately, what we believe is that if we are able to achieve this reduction in cost, we would be able to emerge much stronger. Our sites are focused on the growth, which is expected to come back in last quarter of the year and certainly, financial year '21-'22, which will really be definitely a bounce-back in growth in '21-'22. So we are really gearing up to prepare ourselves for growth. And the best way we believe is to first get into a lean organization and a lean model on the cost side. So there are some hard calls which have already been taken. And accordingly, these are the focus that we have in terms of numbers that we should achieve to help us to really get back to high level of profitability in the next year.

Sir, last question is on the end-of-season sale. Do you think this time it will be a little milder or stronger given the current circumstances? And any change in channel mix do you see because of the current situation?

I'll ask Suman to take this question, please?

Yes. So demand continues to be uncertain as Sanjay is saying. As we open the store, we are seeing variety -- various levels of throughput. So the market hasn't been really consistently open. At least the way we see it, we don't see any significant uptick if we do end-of-season sale because anyway the demand is low. If you recollect, last year, the sales actually started pretty early. Last year, same time, the market was fully on sale. Ultimately, you can't predict what happens in terms of which market player goes on and does what it does, but there is no rationale for the moment to go on to a -- purely from a demand point of view.

We take the next question from the line of Harsh Shah from Dimensional Securities.

Sir, I wanted to ask you about the channel correction which you took in the Q4. Can you mention the amount that you took in Q4 and how much can spill in Q1? If you can give any estimate of that?

Yes. So if you look at the total channel returns that we took in Q4, we had INR 122 crores of returns that we took in Q4, which were above. There is always a certain percentage of returns that we take, which is part of the business model. And so INR 122 crores was the total returns that we took from the trade, which is basically meant that the receivables got converted into inventory, and we had to book the loss on account of the profit margin on the receivables. For the full year, the number is INR 209 crore. So the bulk of it was in Q4 and Q3.

And do you further think you can take a further loss in this once you liquidate it, maybe even at a lower price once the demand -- or once the unlock -- once the lockdown is lifted and you start selling it back?

No. So I don't see further loss happening on liquidation per se. I think whatever -- I think this is good stock, which was sold last year, which was obviously ahead of the secondary sales, which we've taken back. There is no further loss that we -- it's not a liquidation sale that it will be subjected to. But yes, I mean, there will be the end-of-season sales, et cetera, and all, and there will be -- once the stores open up, there will be some pressure on discounting, which will be there. But clearly, this is stock which we'll be looking to convert back to deployment in other channels that we have. And today, we have omnichannels, we have very strong EBO network, the LFS is there, the Raymond stores is there, and we'll be deploying this stock in other channels, including online as well.

Okay. And just following up on the question asked by the previous participant. So we are seeing more and more work shifting to work from home and even the social gatherings might get restricted in the near term. So how do you see the formal segment of your clothing grow going forward? I mean there will be some competitive intensity, everyone will buy for some pie. They'll try to protect their share of market. So how do you see this market panning out in the next 2, 2.5 years, 2 to 3 years?

Suman will take this.

Yes. Like I mentioned in my other response, this so-called pressure on formal is something not now and not new. There's been increasingly a progressive casualization of the wardrobe, which is happening. Secondly, the players in the formal brands are few and they are far established, and they have been figuring out suitable responses in terms of casualization of the wardrobe, getting more -- sort of coming more towards the casual end of the spectrum. This -- the work from home and the other things are also getting certain response from the formal brands by creating a special work-from-home collection. For example, if you look at work from home, the need for a white shirt hasn't really gone down. They're still required to, perhaps for some of the meeting, put on a formal-looking shirt. How sort of it spans out over the period of time? I mean there is any way a large market for formal, which hasn't really been growing, but there are very few established players. And with formal sort of changing and keeping -- coming closer to the casualization boundary is perhaps the way to go. The -- what we call formal perhaps is going to sort of morph into what is called a workwear clothing. And the definition of workwear being changing, formals will have to keep pace with it.

I see. I see. And just coming to your garmenting division, so which are the countries you cater to and how has the demand been there? I mean we see that the overseas markets are recovering quite fast compared to us. I just wanted to get an idea about how that segment is doing?

Yes. So on the -- you're right that there is recovery that we see. But initially, I think when the -- when there was lockdown imposed in -- across Europe and U.S., the reaction from all our customers was to defer orders, and the outlook was very bleak in terms of how the year would really pan out to be. But thankfully, the Europe has opened up. Businesses are back -- seemingly back on track, and it started with what feelers and signals we were getting in the Auto segment. Our auto ancillary started getting their orders from their customers' factories in Italy and Germany. And that is the early signals that we got that the markets are opening up. Similarly, U.S. retail has also -- there is a rebound which is seen in the U.S. There's retail stores as well. Consumer spends are getting back there. So there is improvement that we see in the export -- our export orders coming in both at the fabric -- for our Fabric division, our Shirting division as well and also, there is visibility on orders that we are now getting in -- from quarter 2 onwards. In quarter 1, what we were dispatching was really the backlog and orders which were not dispatched in March. But clearly, there is better visibility that we are getting certainly for the second half of the year, but even quarter 2, I think, we are now getting from some of the customers due to some markets opening up. So that's the positive that we see in garmenting. The other, of course, favor that we have done in garmenting is to move towards manufacturing PPE, coveralls and overalls in a big way. So all our plants, in fact, in May and June were fully utilized for servicing PPE orders that we got from Hindustan Latex, which was the nodal government agency. And that kept all the plants quite busy. Now of course, the export market is also opening up on that. There are -- there's a government notification which has come, which has introduced a quota system now. We are getting more clarity, but we've already received export orders for PPEs. So there are positive signs we see in that as well.

Okay. That's good to hear. And then coming to Real Estate segment. So in last 2 to 3 months, I mean, what is the kind of inquiry traction are you seeing? And have you -- as you corrected your prices or has there been increasing demand for lowering the prices? How is that playing out?

Okay. So demand has been impacted, of course, during the lockdown phase. While on an average, we were doing about 27 to 30 units of sale a month. So obviously, the April, May, June has been substantially impacted because normally, customers would like to visit the sales center, see the show flats and mull over it for a few days and maybe see it a couple of times with the families and then take a decision. Now all of that was really not possible in the first quarter. So that has been impacted. But what has been a little bit of a surprise to us is that we opened up the digital channels and virtual sales centers is what we opened up with a virtual walk-through our show flats that was developed and our sales team started engaging with our potential customers and inquiries that were there with us. And we were able to convert close to about 15 customers through the digital virtual walk-through route and that was a surprise for us where bookings happened on -- at a virtual level with, of course, the provision that the customers would come to the sales center and finally confirm the booking. But yes, I mean, we are now waiting to -- for the lockdown in Thane to ease off. There is some news that we have now since yesterday that the lockdown may get extended for another 10 days or so. But as the regulatory -- the regulation ease on lockdown in Thane, I think we will open up a sales center. The initial -- the expectation is that the response initially in quarter 2 is likely to be tepid, subdued. But we are hopeful that with the onset of the festive season, I think the mood is going to be back in terms of buying again. There are seasoned buyers who have deferred their purchases will be again looking at their closing of deals because these are end use -- these are all end-use apartments at 1 BHK and 2 BHK are all end use. So there is -- clearly, there is a need, which -- there is a customer base which needs to close out these apartments, and we don't have a lot of inventory as well on hand. So we are not under any pricing pressure as of now. But if required, I think we have the flexibility with us because we don't have -- we have the added advantage that we don't have a land cost sitting on our balance sheet. So if there is -- if we need some flexibility in pricing to achieve a higher sales velocity, we have the ability to do that as well.

Got it. Got it. And have you seen any cancellation of any bookings?

Acceleration of bookings? No. I mean not...

No. Cancellation. Sorry, cancellation of bookings.

Cancellation. Cancellations have been, in fact, that way, I would say that have been very few, in fact, negligible, very few. There has been customers who said maybe moratoriums have been claimed, deferment -- some deferments as well, request for deferment of payments, et cetera, and all, but no cancellation. I mean very few, I mean, very, very exceptional basis.

Okay. And just last question on your branded apparel side. So the stores, which have opened, probably in the green zone in, say, Tier 3 or below cities where the movement of people have been fairly better compared to the metro cities. What kind of footfalls are you seeing there compared to pre-COVID levels?

So if you look at our network of 1,632 stores, its spread across from metro to Tier 6 towns. And if I give you a perspective between the metro and Tier 1, the sales that we are getting since the stores have opened, are at about 30% of the pre-COVID levels when I look at sales per day. If I look at the second tier, which is Tier 2, 3 and 4, the sales are at about 50% of pre-COVID. But the Tier 5 and 6 towns, which are really deep into the country, they are at about 60% to 65%. So I think that gives kind of the dispersion that we've seen in terms of how the consumer sentiment is visible across the different segments and different geographies as well. So clearly, the -- on the semi-urban and rural side, clearly, there is a better consumer response that we are witnessing. The footfalls that we are seeing in the stores are leading to firm conversions as well. There is a purpose to the customer visiting the store and meeting the needs. There is less of browsing around, as we used to see earlier and more purposeful buying. So footfalls are lowered, but conversions and ATBs are higher to give you a perspective.

Sure. Sure. That's it. Okay. Just last question. So have you taken moratorium on your debt repayments?

Yes. To the extent that RBI has allowed, we have applied for moratorium and most banks have given us that. Because first quarter, our collections, obviously, with our stores being closed, our collections were -- the good thing is that we still had our collections as compared to business as usual. Even with store closures, we had at least 20% of our business-as-usual collection coming in, in the month of April, which got better in May and which in June is even higher than May. So I think that's the positive that we see. But yes, given the fact that our collections were impacted and the costs that we had in the manufacturing -- being a manufacturing company, we have high fixed costs. So yes, we have taken to the extent of what is granted by RBI and allowed by banks, we've availed that -- availed of that.

We take the next question from the line of [ Jackie Gandhi ], individual investor.

Hello?

Yes, please.

I have very specific questions. You had a presentation also made on 17th of February 2020. In that presentation, whatever negatives which have happened in respect of sales returns, in respect of stock corrections, in respect of so many things which have happened in last 1 month or so, did the management have no information or any inkling also about all these things happening? See, as you said, the secondary sales have been going down vis-à-vis the primary sales, but that was just thing available to the management on 17th February also. Why all of a sudden, today, we are giving this information -- getting this information?

17th February presentation, I don't know which presentation, but we have repeatedly been informing that we are going to take this correction. Quarter 3 in the investor call also, we had mentioned that. In our information that we had sent to the investors in June on the post-COVID impact also we had mentioned the fact that these corrections are being taken now. And specifically, the quantum has been in March post the impact of lockdown, obviously, the quantum is high. It's in the best interest of the business to take back the idle inventory, which is lying with the distributors and the MBOs to -- and it has a better chance of getting converted into cash and into sales because we have an omnichannel opportunity with us. So yes, we have made these disclosures at every step of the way that this is how -- what we are planning to do, and these are the challenges which are there in the market, and we are going to take these actions. We took some actions in quarter 3, and then a higher quantum had to be taken in quarter 4. Even as we speak, I have also mentioned that is the -- is all the corrections being taken. And I clarified also that post-COVID, I think the realities may have changed again, and we have to reassess because the stock, which is -- which we believe was -- should be cleared off in the first quarter. Now hasn't happened, so we have to reassess that as well. So -- and which we will do.

So now one more thing, sir, you have reported a sales of 30% down in the quarter Q4, whereas if I look at it that -- and all what you said, the January, February, the sales were as per the underlying projections and other things, but the reported numbers have come down by 30% to 32%, so am I to understand that in last 10 days of that lockdown or whatever we had or maybe 15 days of month of March, so this 30% difference between the reported and underlying has happened in the last 15 days?

Not the last 15 days, it's the whole month of March that you'll have to see because the primaries...

So even if I -- am I to understand that March sales was 0?

No. We had a...

30% -- if you are saying 30% downgrade, that means the March sales in 3 months, 1 month, you're saying 0, then only you can have 30% downgrade.

No. You can't see it that way. You have to see the total quantum of sales which are there. And if you see it across businesses, there are 2 impacts that are there. One is the COVID impact is INR 414 crores as we saw. So the entire impact is not because of COVID, the other impact is also because INR 120 crores of sales return has also happened in the quarter. That has added on to this percentage that you see. If you see purely the COVID impact, that's INR 414 crores. But if I take out the INR 122 crores, the total impact has been higher. And that is the INR 536 crores number that we have reported is the total drop in the sales in the fourth quarter. So there is -- there are -- and we've explained this in the investor presentation also that our results have been impacted both on revenues and profitability on account of 2 counts. One is the COVID impact on sales, which has slowdown from gross margin to the EBITDA level, and the second is the stock returns that we took, which had an impact on revenue as well. So both revenue and profitability, INR 122 crores on revenue and INR 54 crores on EBITDA. We've explained this.

So if I understand what you said, is INR 414 crore is your COVID impact, which is assuming that it is full month of March you are taking that INR 414 crore sales, so then going forward in April and May and June, which we are today sitting on 30th June. So that INR 414 crore COVID impact would be sometimes, something like, I don't know, 3x, 2.5x, 2x?

Well, generally, our first quarter sales are lesser. We have averaged at about -- close to about -- for the whole group, the quarter sales at about INR 1,400 crores. Normally, our INR 1,800 crores is the fourth quarter sales. And the first quarter ranges between INR 1,350 crores to INR 1,400 crores. Business-as-usual environment here.

So against INR 1,400 crores -- pardon?

So on a business-as-usual environment that is the trend.

Absolutely correct. But so in this current quarter, which is just ended today, so against INR 1,400 crore sales, usual sales, which you have, what do you think would be your sales number like look like?

Well, I don't want to give our guidance now, but I think it's going to be quite -- I mean, you can understand that with the whole closure of -- whole lockdown in April, where there was no store operating and in May, some geographies, the stores started opening up. And then obviously, the consumer response was to the extent of 25% to start with some early footfalls. And there are a lot of sales -- stores which opened but had no sales initially. But yes, I mean, now we move to a situation where towards the end of June, where 80% of our stores -- 80% to 85% of our stores are open now and the responses average of over 45% of pre-COVID. So we'll have to assess the numbers. But clearly, it's not a quarter where we can say that there is -- obviously, revenue has been severely impacted because we are -- at the end of it, we have a very large B2C business. The B2B business, to some extent, is there because there were export orders which had to be serviced, which I mentioned to you that the auto and engineering business started in May and June to service those orders. But otherwise, this is largely the B2B business, which has got impacted. So the quarter 1 numbers are not about how much sales, I think, we did. The quarter 1 numbers are about how much of cost we were able to save. I think that's really the right perspective to see, and that will prevail upon quarter 2 as well. This year is going to be more about how much of cost we have been able to restructure and pay, and we have to see as to how these scenarios on revenues pick up. We are hopeful that in the second half of the year, we should see with the festive season, a better bounce back. If we today are at about 45% of pre-COVID, we certainly expect that, as I mentioned earlier, to come back to a much higher level with the festive season starting towards end of September and in quarter 3. Quarter 4, we definitely anticipate it to be a growth year versus the previous year. So I think we'll have to see it how it plays out. Uncertain as of now.

So what do you expect, what sort of sales return would you expect in this quarter? [Foreign Language] As you have done INR 122 crores in last quarter, so this quarter, April, May, June quarter, what would be your ballmark (sic) [ ballpark ] number of returns, which you would be expecting?

No. Unable to give you a specific number here, but I said what we're going to do is to reassess that has been going on in terms of the stores have opened, what has been the kind of sales velocity in those MBO channels. We don't have visibility on a day-to-day basis on MBOs, but we have visibility on our Raymond stores in terms of how the consumer offtakes are. We want to assess that. Even if it doesn't happen in quarter 1, certainly in [indiscernible] we'll have to see as to what happens in quarter 2 because if you see that there is a buildup, then it may happen in quarter 2 rather than quarter 1. Quarter 1 is coming to an end right now. And it was more about, I think -- and then warehouses were closed, I mean, there was very little movement that was being allowed. So there is not much of initiatives that could be taken with respect to stock movements. But clearly -- and the whole focus was really to get our stores opened. But that assessment will happen now, and we will let you know when we give our results for quarter 1, and we declare our results as to what is the position with respect to the outlook on terms of any other planned corrections that we have.

I appreciate. Last quarter has been majorly management thirst has been of restructuring of the cost and other things, most part of it. And I understand as a part of this exercise, you have done retrenchment of your employees also some -- roughly about what -- can you throw some light on that?

Well, I mentioned earlier that if you are looking at a cost reset, I think the cost reset will happen across all aspects of cost, the whole value chain that we have and starts with employment costs and goes down, as I explained earlier, towards the every overhead item as well on a 0 base. It will be assessed in terms of what is essential for the business, what -- and there are roles which clearly were surplus to the current needs of the business. And those were delayered, restructured, all of those have happened. We've had to take those decisions. And we have done it in the interest of all stakeholders, interest of business and also in line with all the service conditions or staff. So we have done that, and we have honored every service condition that we have, but business exigencies, unprecedented times, demand unprecedented and some of these actions, quick actions as well, and we've had to take that. We want to emerge stronger as a business entity as well. All -- whatever actions had to be taken have been done in accordance with all service conditions. So I'm -- I can reassure you on that.

So can you give me -- give us some ballmark (sic) [ ballpark ] percentage of cost reduction...

Excuse me, Mr. Gandhi, I'm so sorry to interrupt, may I please request you to rejoin the queue for your follow-up as we have people waiting for their turn? [Operator Instructions] Next question is from the line of [ Puneet Kabra ], individual investor.

Yes. Sanjay sir, just because we are in a unique situation, we're actually at another quarter end, just wondering if you can throw some light on what kind of activity we've seen in the month of June, example the auto plant. Just directionally or at a ballpark level, what is the kind of utilization that we are seeing in the auto plant or what is the utilization in the engineering plant and likewise. I know our manufacturing plants for textiles are shut. I would assume that we are doing some billings out of the inventory we have and what kind of billings are we seeing just for the month of June on a like-to-like basis versus last year?

So I can give you some indications on the engineering because they are largely export-led. The domestic market in both auto and engineering are yet to open up to a significant extent. But the export market, as I mentioned earlier, have opened up. So we are -- we would be at about -- close to about 60% to 65% in terms of utilization there. And hopefully, as we see, let's see how things shape up with the -- in global markets, a little bit of a wait and watch also with what is happening there. So far, it has been a bit positive coming in. And we have opened up our plants to service those requirements. On the textile side, we have enough inventory with us, and we will use that inventory to see that the -- with the stores now opened up, with secondary movement started happening now. So that we will now try and service it from the inventory we have. There will be -- manufacturing is likely to start later. So in quarter 2, for sure, but towards -- right now, we have enough inventory to service the current demand. So I think that's where we are, Puneet.

Could you give some indication by when -- just as a -- again, directionally by when do you think the textile manufacturing could get started for us?

So for us, I think manufacturing is, as I said, in terms of the cycle that we used to follow has changed now. For us, it used to be first we would produce, and then we would sell and then the collection would happen. So I think we've changed that cycle now. Now it is collection, sell and then produce. And we are -- we have -- we are first focusing on opening up the stores, and we are waiting to see the wholesale. I think markets are in -- especially in the East, if you look at the whole spectrum of -- tier wise, where the markets have opened up, East actually is lagging behind. So there are wholesale markets in East, which are yet to open up fully. In Delhi also, they are impacted. So while the stores are opening up, wholesale market which is obviously the other dealers, et cetera, and all are yet to bounce back completely. So we are essentially -- we have -- the point I would like to make is that we have enough of inventory with us to service the requirements that we have. And manufacturing will only come into service the third quarter requirements, and we have time for that. So we -- as for quarter 2 requirements, we have inventories in stock, finished goods as well as WIP that we have on plant. But largely finished goods is more -- if we have more than INR 420 crores of finished goods inventory so that is going to come in and service the needs that we have in quarter 2 and some part of quarter 3 as well. So manufacturing will start as we see visibility on fresh orders, et cetera, and launches that we -- the sales team is now working on.

So this INR 420 crores finished goods inventory you mentioned is related to textile or it is related to...

Textile.

Textiles? Branded textiles?

Yes. Yes. Overall, inventories are much higher, but I just took out since you mentioned textile, I said, this is what we have.

Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments. Over to you all, members of the management.

Yes. Yes. Thank you, everyone, for taking your time out and participating in this call. In case if you have any further queries or questions, please connect with me and the IR team. Thank you.

Thank you. On behalf of Antique Stockbroking, that concludes this conference. Thank you all for joining. You may now disconnect your lines.