Relaxo Footwears Limited (530517) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Relaxo Footwears' Q4 FY '25 Results and Business Update Conference Call hosted by Elara Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Prerna Jhunjhunwala from Elara Securities India Private Limited. Thank you, and over to you, ma'am.

Thank you, Yousuf. Good afternoon, everyone. On behalf of Elara Securities, we welcome you all to Q4 and full year FY '25 Post Results Conference Call of Relaxo Footwears Limited. Today, we have with us the senior management of the company, including Mr. Ramesh Kumar Dua, Chairman and Managing Director; Mr. Gaurav Kumaar Dua, Whole-Time Director; Mr. Sushil Batra, Executive Director and Chief Financial Officer; Mr. Ritesh Dua, Executive Vice President, Finance; and Mr. Ankit Jain, Company Secretary and Compliance Officer. I would now like to hand over the call to Mr. Sushil Batra for opening remarks. Thank you, and over to you, sir.

Thank you, Prerna. Good evening, everyone, and thank you for joining us on our Q4 and FY '25 earnings call. We appreciate your continued interest in our company and are pleased to walk you through our financial and operational performance. The earnings release and investor presentation are already available on the stock exchanges and on our website for your reference. Before we move into the question-and-answer session, I'd like to highlight some key performance metrics for Q4 and FY '25. Revenue from operations stood at INR 695 crore in Q4 FY '25 as compared to INR 747 crores in Q4 FY '24. The decline was primarily due to softer volume amid a challenging demand environment, particularly in the mid-range footwear segment. EBITDA for the quarter was at INR 112 crore as compared to INR 120 crores in the corresponding quarter of the previous year. PAT was at INR 56 crores with a margin of 8.1% in Q4 FY '25. Now moving to our FY '25 performance. In FY '25, we recorded a revenue of INR 2,790 crores, EBITDA was INR 382 crores with margin at 13.7%. PAT for FY '25 stood at INR 170 crores with margin at 6.1% as compared to 6.9% in FY '24. The company has incurred a CapEx of INR 62 crores net of capital subsidy amounting [ INR 17 crores ] till 31st March '25. Our company continues to be net debt free and due to working capital efficiency, reported investment of INR 357 crores as of 31st March '25. We have implemented key initiatives during -- including the Relaxo Parivaar app, Brand As Seller” and broadening our e-commerce product offering. We are confident that these initiatives will establish a solid foundation for the future. Although some uncertainty persists, we are confident to see an improvement in our performance on top line with EBITDA margin enhancement led by operational efficiency. Thank you. The floor is now open for questions.

[Operator Instructions] First question is from the line of Videesha Sheth from AMBIT Capital.

My first question was on the top line front. I wanted to understand the volume behavior a bit in depth. While the consumption environment is not favorable at the moment, but beyond these external factors, could you elaborate on if there are any structural challenges that could be impacting volumes, either on the competitive -- on the competition side or you even spoke about restructuring of the distribution model. But can you elaborate that? That's the first question from my side.

Regarding volume, our Hawai segment was under pressure, because poor segment, middle income segment there has been, what we experienced, pressure on demand, maybe these poor people are really struggling more. So as volume gets affected so Hawai because there are more payers and less ASP. We covered the sales from other segment, but volume of pressure only because of the Hawai segment last year versus this year 2% sale of the share was less in our Hawai segment, which remains for poor segment of society.

Just a follow-up to this, this is a segment where we've also taken similar price hikes, I mean, to the tune of 70%, right? Just wanted to comment on this.

No, last year, there were no hike. Last year thing was stable. There were no hikes at all. And it is a competitive environment also. So we have to be cautious. For profitability, we are working on our back-end operations. So you will notice that our margin structure remains intact throughout the year. We -- margin structure has been quite good. We have created good cash flow this year. Our efficiency and our utilizing working capital has also improved. So all these things, our cash generation has been quite satisfactory, and our back-end operations are getting more efficient. This year also, we are working on it, and our profitability will improve this year also further.

And can you talk a bit about the restructuring of the distribution model, which you touched upon in the press release?

Yes, the work is going on, and we are facing good resistance from a lot of distributors because they don't want to become really fully transparent. The DMS, what we are implementing a lot of people we are facing resistance. And then from primary mode of selling, we are focusing on secondary mode. And all this kind of effort company is doing, things happening, happening slowly, but we are in the right direction. Our foot is down. We are not giving unnecessary -- too much credit to bad distributors. Some distributors are closed also. So we are improving the quality of our distributor, quality of credit also given to the distributor. So sale for the year is somewhat affected. But in the years to come, things will be on much better footing because our focus is on improving sale at the distribution, not at retailer level. And that is what is going to really change our complexion of the company itself. It has been a wholesale-driven company, but now it has to be a distribution-led company. We are facing resistance but we'll overcome. Things are happening and it will happen. By H1 -- H2, you will see the difference in it. We are setting right our e-commerce model also other things also. But because 75% is our distribution. So our focus remains there much more.

Next question is from the line of Shraddha Kapadia from SMIFS.

Yes. So sir, I just wanted to understand that our gross margin has been impacted, if you could mention the specific reason for the same? But our EBITDA margin has remained flat for the quarter. So what exact initiatives which we have taken so as to achieve this? And also, if you could provide a bit of guidance for the future. That would be very helpful.

Gross margin, if you see last year versus this year, gross means, I think definition this would be [ aligned ]. It's revenue minus cost of goods manufactured. So it has improved 0.7% roughly. It's majorly due to some material advantage and a little bit price increase, which we took long back on January '24, not in this financial year. So there is a little improvement due to product mix and material advantage.

EBITDA remains constant, same last year versus this year. There is not hardly any change. The margin we have been able to protect actually in spite of loss in sale.

Sir, just to confirm, so the gross profit margin for FY -- for your Q4 for this quarter is 54.9% previously it was 60.3% so there is a reduction of approximately 500 basis points.

You're talking about Q4, Q4 what happened there was a lot of freeze in the inventory. Yes, yes, Q4, yes, definitely. I was just referring full year. So Q4, it has come down reason, there is a decrease in inventory. When there is a decrease in inventory, the conversion cost is also there in the inventory part. So due to that, it looks much higher that cost of goods, but that is not the real case because once inventory decreases, it adversely impacts our margins. It's an accounting entry not much more than that.

Okay, sir. But if take a look at the other expenses, then that has reduced very significantly. So do we see that we have reduced advertising spend or if you could help with the mix of the other expenses that would be very great.

Other expenses, yes, definitely, there is a reduction in advertisement as compared to last year, because production levels were also low due to low sales that is also there because less production and less overhead, other expenses. These are the 2 major reasons.

Can I ask one more question?

Yes, yes, yes, you can ask.

Okay. So if you could just give a percentage, if you have it handy for the ad spend for the full FY?

Ad spend?

Yes, sir.

How much was the ad spend?

3%. It's 3% of the revenue.

3% of the revenue.

Okay, sir. Also our Disney and Marvel collection, how is it [Technical Difficulty].

Your voice is not clear.

Voice is breaking.

Can you repeat the question? Yes, can you repeat the question. Your voice is breaking.

Yes, sure. Yes, yes, sure. The Disney and Marvel collection contribution to the overall sales and how it is perceived by the consumer and what is the response on the consumers? If you could highlight that?

Yes, we have -- Yes, we just started with Disney and Marvel and -- the figure is quite low. So it's too early to comment anything upon it. So it is only available at our retail outlets.

[Operator Instructions] Next question is from the line of Prerna Jhunjhunwala from Elara Securities.

Just wanted to understand how has been the sales of growth footwear for the company? And how has it grown against last year?

Closed is also 20% and 80% is our open footwear. Last year also it was same.

Okay. So what -- we had increased our capacities also in terms of closed footwear. So how do we see that segment moving going ahead?

Still, we are setting our e-commerce model because closed footwear is now moving a lot of share to e-commerce model. So this year, we are focused on it. But still, there remains some challenge in that e-commerce because BAS is not proven to be at the moment profitable and efficient. Now we have created a special line for e-commerce, which will have some good influence this year but number of player overall, if you see open and ratio remains same.

Okay. And what will be the e-commerce share for us today as compared to in the past?

See, we are continuing the same percentage. Last year was 10%, and this year also, it is at 10%, 10% of our revenue comes from e-commerce.

Okay. And what will be our capacity utilization today?

55%.

Yes, 55% is our capacity utilization.

Understood. So sir, we had also started with DMS and we were reaching approximately 1 lakh retailers in that initiative. Where are we now? And how do we take this -- the learnings from there going forward?

Yes, yes. You're quite right. We have implemented DMS across India to all our distributors. One more thing what we have done is we have launched RPA program, which is called Retailer Parivaar App, so in that, we have tied up 70,000 outlets. So they have -- 75,000 have downloaded the app and 60,000 are buying regularly. So this is -- it's more advanced than the DMS. So we are getting the data, how the consumptions are happening across India. So this is a new thing which we have started last year. And in future, we'll have our data to understand what is the consumer requirement at different part of the country.

So how are we using this Relaxo Parivaar app to improve our product mix or availability quotient of the stores? I mean I'm just trying to understand how are we using the data that we are collecting now?

See, it is like it -- it is just the first year. First year is to collect the data. Second year onwards, then we'll do up-selling. The scheme, it is first for the retailers to download and start using it. Once they're into the habit, we'll understand which are the outlets who are giving more sales. So we can target them well. We can take more shelf and we can focus there more.

Okay. And is any incentive?

Yes, it has incentive program. Yes. It has an incentive program. We have given starting from 2% to 7%. So depend upon the buying of the retailers.

Okay. Okay. Sir, I'll come back to the question queue. I have a few more questions, and we'll have more on this.

Next question is from the line of Devanshu Bansal from Emkay Global.

Sir, we sort of interacted with the channel, and there were 2 feedback that we picked in our interactions. One is that during the course of FY '25, there were multiple changes in terms of channel commissions and that too in a very short period of time. So that sort of brought a lot of uncertainty in terms of distributors as and when to sort of purchase the stock and when not. Second feedback, was that, obviously, it's a very good initiative in terms of retail app. But there is difficulty in scanning of each and every product to get the sales target commission. And there is feedback that retailers do not scan and the burden sort of only increases with distributors. So I just wanted to check, as you also mentioned that there is some resistance in terms of adoption of these good policies, but regular change of commissions obviously typically do not gel well with the trade. How are we trying to stabilize such commission rates going ahead.

So talking about commission, we have a fixed commission for our distributors. It is only the scheme, which is the add-on, which keeps on changing seeing the season. For example, if shoe season is there, the more scheme is given on the shoe. In the summer, more scheme is given on the Hawai category or the open category. So this is nothing new what happened this year. This is every year phenomenon. So schemes go up and down slightly, but commission is fixed. Yes. The second thing you're talking about is RPA. It's -- again, I'm telling it's the first year. It's the implementation year. So like -- 75,000 retailers who have downloaded, 60,000 are regularly scanning the products. Yes, there is some technical issue in our -- which we are working upon it. But sooner or later, the habit will be there with the retailer and they will get the benefit of this.

Got it. Sir, on feedback, obviously, I may not be understanding it properly, but the feedback that we were sort of getting is that MRP minus 35 is there, sometimes it is minus 37, sometime it is 39. So what kind of a -- is this largely because of the incentives or there were some change in the commissions? I wanted to just pick up. So these were the things that we were getting in our feedback.

So we have just launched RPA. So we have started giving directly to the retailer. So yes, there was some resistance from the trade that you are reducing our margin a little bit and giving directly to the retailer. So that was a little, you can say, not taken well with the distributor in some months, which we have corrected later on.

So now is it like giving directly to the retailer? Or is it via distributors?

Both, we're doing both. We are doing both, distributor as well as retailer. So RPA is only for retailer and distributor commission is separate with schemes.

Okay. But the tensions and the resistance is more or less largely done with? Or we may see some...

It's already done. Yes, we have done in quarter 4, yes.

Okay. And sir, now secondly, on the demand front. So obviously, there is some benefits expected out of the tax relief announced by the government, right? So obviously, April was the first month, but any initial signs that you are picking up in terms of how your trade exhibitions went for the upcoming season. So anything that you can sort of indicate, which is giving you some confidence on the growth recovery front?

Presently, actually, things are settling down because our retail app got accepted. Our trade has been now more -- secondary, we are going secondary focus a little bit. This Indo-Pak situation has little -- made the thing little jittery. We have to wait and see how the things settle down. Otherwise, we are going on our fundamental strong distribution network settling down, because of this retail, recently what we have experienced in the last fortnight. So but a little bit our consumers and retailers. Retailers are there on all north side because there were a lot of blackout which they're going to see in the market. That must have affected some sentiments on demand, but nothing stabilized, things will be all right.

Next question is from the line of Rakhshit Desai from IIFL.

My first question is on the...

Mr. Desai, you are not audible clearly. Please use your handset.

Is it better now?

Yes, please go ahead.

Yes. My first question was on the U.K. trade deal. It has opened by export opportunities across many sectors, including footwear. So with an extensive manufacturing footprint, are you exporting this as a revenue stream?

Ritesh Dua this said. We're already in touch with a few leads in the U.K. but we need to see how we can explore this opportunity seeing own branded footwear sales or the private table. So we are open with both the ideas, and we'll see how the opportunity come, and we'll surely tap them and capitalize that.

Understand. Understood. And my second question was on the outlook on EBITDA margin. With crude prices correcting, do you see margins inching up even as sales growth remains tepid? Or do you see competitive intensity heating up something that happened last time around?

No, I think this -- it will be better because we are working on back-end operation, bringing efficiency, things should be better than what we saw last year in spite of competition intensity.

Next question is from the line of Nipun Sharma from VLS Finance.

Yes. For your financial year '25, your revenues were dropped by 4%. So I just wanted to know the reason behind this and your future guidance on the revenues as well as the volume growth?

One thing there was consumer sentiments were muted last whole year. It has been actually happening for the last 1 or 2 years. And second thing, we are focusing on our general trade transformation, which will generally from primary-led focus, we are putting focus to secondary led and focusing on retail growth. To some extent, our distributor partners, they have been resisting all this transparency, implementation of DMS and our retailer's app, all these things. So that resistance is there that has affected our sale also. And then quality of the distributor, a lot of distributors where there were a lot of credit against them. We didn't wanted to give more credit. We wanted discipline all with our distributors. So all these things, our quality of distributor has gone up, quality of debtors have gone up, and we have been able to bring down our inventory levels. All this efficiency has bought good. So whenever you bring change of anything, it is always a pain, but it is fairly for the short term. But for the long term, it is going to be a real good gain for the company. That's it.

Okay. And what is our future guidance for the company? Can you please share your future guidance?

The way market is, I don't think the sale will be too high or jump because of general conditions are not good. But as far as -- we are focusing on profitable -- improving the bottom line of the company. We are working on it. But our top line also in H2 what I think keeping in view all transformation, which we are bringing. These things are settling down. Our top line will also grow and our bottom line will also grow.

[Operator Instructions] Next follow-up question is from the line of Shraddha Kapadia from SMIFS.

So, sir, if you could just give the guidance for the CapEx for the next year?

INR 100 crores.

Okay. And not in terms of only revenue, but if we take a look that our ASP has been increasing continuously. So do we have any for the next 2 or 3 years?

Because there are 2 things. The share of premium article and share of shoe business that is going up and our lower price segment like Hawai that has gone down. So our average sale price has gone up. And in future also with the launch of more premium article, this will also improve further.

Sure sir. Just one last question from my side. So if you could highlight something on the BIS and how is this currently having an impact especially for small players and how it will benefit to us? Just touch upon our -- the recent...

No, now as far as we are concerned, we have implemented this QC or quality control orders. And things are settled down in our organization. As for others whom government has exempted that is government's outlook. I don't know up to now, micro and small they are exempted. They are going to be remain or they are going to implement government has to decide. As far as we are concerned, our job is over. We are complying with it, and we have nothing to now fear or anything.

[Operator Instructions] Next follow-up question is from the line of Prerna Jhunjhunwala from Elara Securities.

I just wanted to understand, has there been any impact of the ongoing situation in the country on the sales? Like how should we take it for this quarter? I mean, what kind of impact should we assess?

So recently, like what we are hearing from the market is some of the markets in North, they were keeping the retail outlets off. So -- but now the things have improved. Now the things have -- from I think, today onwards, we are seeing that all the outlets are getting open. So I think matter of some time, things will come back to normal and we will have a normal quarter.

Okay. And do we look forward to reduce any prices given that raw material prices are coming down?

As of now, we have not seen any major shift in raw material prices. So as soon as there is any change, we'll...

No, no, there is no change.

There's no change as of now in raw material prices.

Okay. Because crude oil prices were coming down. So we thought that there would be a robust effect on our key raw materials.

Till now, there's no change in raw material for us.

Okay. And sir, in e-commerce, now we understand that there is a lot of competition in the mid-segment -- mid-price segment and all. So how are we thinking about product launches, like how many SKUs do we think are we increasing? And how are we connecting with the younger generation going forward? Any thoughts on the same?

So first of all, we have segregated our portfolio. So we had our general trade portfolio. Now we have a specific e-com portfolio. So there was a price war between these 2 channels, but now we have addressed that. Secondly, we have now started selling through BAS, business (sic) [ Brand ] As Seller. Earlier, we were given directly to the Flipkart and the Amazon. They were -- now we are not going through them because they were also under cutting the prices. Regarding portfolio, we have really designed our portfolio according to consumer need for e-commerce.

Any example that you could help us understand how consumers are liking or accepting whatever you are selling now. I mean any initial feedback, anything that you can share?

It's just like we have to really understand the consumer and design product accordingly. So now the fashion is moving towards more sneakers. So we have really developed our portfolio line to address that category. So we're getting good response.

Okay. Okay. And what about the opening price point because there was a lot of -- there is a lot of competition, as you mentioned earlier. So our opening price points were around INR 700 to INR 800. Do we face any major competition that said? Or are we gaining some market share over there? How are we being our market share in the footwear -- in the closed footwear category? And how are we improving there in the opening price point segment?

So major sales is from INR 1,000 to INR 2,000 in e-commerce platform. And yes, you are right, there are a lot of local players who have entered in this price point. So -- but we are following our own ways of selling. So we have designed our portfolio accordingly. Gaining the market share is very difficult to get the data of what is the total size of the market and which consumer is buying from what competitors. So it's very difficult to share the data with us here. .

Okay. And are we confident of maintaining our margins or improving our margins in FY '26?

Yes, yes. We are very optimistic that we will improve our margin here.

So around 100 bps is something that should we look forward to?

Yes, yes, it's workable, definitely, it will be a little higher, but that is surely workable, 1% plus.

And this will come from improved mix? Or what will be the reason for margin improvement in your opinion?

We are working on both sides. Definitely, one on the high-value item product mix. And majorly, we are working on the cost side. So we are driving a lot of efficiencies in the system, back end and at plant level, we are working on that. So that all will bring at least good margin improvement in the coming times.

And any further improvement possible in the working capital from your end? Anything possible over there in terms of inventory reduction or debtor reduction, something?

Yes. That opportunity is there, definitely, but not in a big way because the volume will increase. That's what we are expecting. So overall, from the inventory holding or working capital overall days, it will come down. It will come down. It will come down.

Working capital yes [indiscernible].

And anything on the retail strategy, how many EBOs you would like to open this year? And where do we see you in various brands, if at all, this Sparx store or anything that you do planning on the retail side? We would like to get some clarity over there?

This year, we are adding 50 more retail outlets, and we are also modernizing retail outlets and a few Sparx exclusive outlets also.

Okay. And, sir, you also started with the quick commerce deliveries, right. So any color on that, where the revenue share will be for that segment? And how is it doing?

We are really tied up with all the quick commerce platforms. So it's too early to comment upon that, but we are seeing good sales contribution from that channel. But it's too early to say anything on this.

Okay. Maybe we can check with this 6 months later.

Yes, yes, yes.

Yes, correct.

Next follow-up question is from the line of Devanshu Bansal from Emkay Global.

Sir, we sort of indicated that we may sort of explore the export side of the business, right? So I just wanted to check one, U.K., obviously, maybe the product is more on a premium side, while in India, currently, we are at the entry level. So one, I wanted to understand that bit. And second, how big can this opportunity become, right? So if any initial outlook that you can provide us from that perspective?

In the export side, we have been exporting largely to African continent and the Far East, Southeast Asia. These have been our major markets, and some part of Central America as well. So seeing the product profile we are having, we have been putting the -- our same product line towards these markets, seeing the market potential, and the price points that we are working in. So seeing the latest development of the deals that are happening, yes, we are open to this. Just a few questions back, I replied that. We are open to -- for both the options like our own branded or the private label.

But do you think there is a market for other products or we have to change the product strategy for U.K.?

The market is -- we have market for all kind of products in U.K. We have seen that the traction is for EVA footwear, we have a good opportunity. And then we have even in flip flops, we have a good opportunity. Besides that, we are exploring opportunity for Sparx, like sports shoe, if [indiscernible] shoes, but we -- whatever opportunity we will have, we will surely grab it.

Understood. And is there a component of CapEx towards this opportunity within that INR 100 crores that we have sort of talked about. So are we specifically dedicating some of that towards this opportunity? Or how should we see that?

See, we already have good capacities, as you know, that our -- we have a surplus capacity with us. So we'll be able to utilize that capacity well. And in fact, we will get advantage of utilizing that capacity in a better way and we'll give a benefit on fixed cost, definitely.

So any indications that you can provide, sir, what is the thought process behind investing another INR 100 crores where in 1 segment that is specifically going since our utilizations are relatively lower as of now?

One thing is certain, new article have to be introduced. So cost of new boards. That is a level is around INR 30 crores every year, it has to go there. And then opening of new 50 retail outlets, their capital will go. Then we are also making various capital investment in energy saving devices like putting solar energy and then fuel-efficient boilers where we have saved the costs which will help us in the long run. So these are the investments. And then some of the expenditure is on our -- in project department, some office expenditure.

And last question, sir. From a distribution perspective, what is our target in terms of addition of distributors and retail outlets for the current year?

See our target, we have -- last time, we mentioned that we have reached 70,000 outlets. So we are going to really increase it by 5% to 10% in that front, because what regular buying is happening is around 50,000 to 60,000 outlets are buying regularly from us. So we have to first take it to 70 and then increase our base.

Okay. So it's more mining of existing outlets? Can we term that way rather than addition of...

Correct, correct. Also no addition of new distributors, 100, we are targeting, adding new distributors in the -- distribution networks.

So if you're not adding outlet, so it will be like a division of these 50,000, 60,000 into more distributors for better servicing of those outlets. Is this the way to look at it?

Yes, yes, because we have 4 brands with us. Some brands are weak and some are strong. So we equal representation of all our brands.

Okay. Last follow-up on this. So is this like -- are we also targeting brand-specific distributor or that's not the case as of now?

No, not yet. We have not -- we will see how things will go.

[Operator Instructions] Next question is from the line of Siddhant Gupta from RV Investments.

Just a small question. When can we expect some improvements in our sales volume? And what could be drivers behind it?

So we are setting our distribution model and we are focusing on that. That improvement will help when we are focusing on secondary sales and then opening of new retail shops around 50, we are doing level, focus on our modern trade. All these things will help. You can see uptick H2 onwards because still some distribution is 75% of our contribution in sales. Here, we are -- it's taking time to revamp all this distribution setup, which is from primary to secondary. So H2 onwards, you will see the uptick although we may get earlier also, but H2 onwards, a lot of things will settle down auto, I think, will improve.

[Operator Instructions] Next follow-up question is from the line of Prerna Jhunjhunwala from Elara Securities.

Sir, just one last question. I'm just trying to understand that because you're connect to rely -- your Relaxo Parivaar app, how do we -- can we distinguish how would be secondary sales through this app initiative and how much can be primary sales through distributor-led model. Just trying to understand the effectiveness of this initiative taken.

So it's been just 1 year we have implemented this app. And we are very happy to see that 50% of our sales are being captured there. So we can see the retailers whoever are scanning and they are selling the product. So at least 50% is captured. So whatever we're selling to distributor, so 50% of that is being captured in this retail RPA app, Relaxo Parivaar App.

This will only improve.

This will improve month-on-month.

Okay. Okay. And what changes you are trying to do in the distributors system? Because I'm just trying to understand that how things can improve radically of distributor acceptance or product acceptance? Or what are we trying to change the distribution system to improve our sales?

So first thing is we have identified the distributor who are not going or the distributors who are giving a lot of discounts or doing the valuation. So we are closing them down. Secondly, we are going to appoint those number of distributors, like we have -- our MD has said that 50 new -- 100 more distributors will be added. Secondly, RPA plus DMS implementation. So a lot of things are going to happen here.

Secondary sales. [indiscernible].

The mindset shift from primary sales to secondary sales is going to happen, which is taking a little time. So a lot of from wholesale to retail mindset takes time. So a lot of small, small actions we are taking to improve our distributor growth -- sales growth.

Just trying to understand how are you monitoring the growth from them largely because sales growth will be a function of revenue and mix -- the volume and the mix improvement price hike is in your hand, but volume and mix improvement, anything that you are targeting towards mix improvement because we are at closed footwear at 20% for a long time now. So how do we really think...

Most companies taking control of sales -- by deploying sale officers, the sale officer is going to retailer. That is going to help us, what we want to sell, where we want to sell, how much we want to sell. Our control will be more because our people are in the market selling to the retailer. That is the way forward. We have to take the responsibility of selling sales team, less on the distributor.

And plus, we are going to increase our ASP as well, what launches we are doing, our NPDs is focused upon that to improve our product mix as well. So multiple things are happening to.

Okay. Okay. And what is the price range of sneakers that we have launched?

These are all above INR 1,000, INR 1,000 to INR 2,000-plus.

INR 1,200-plus.

INR 1,200-plus. Okay, okay. And it ends at INR 2,000 or it goes above NR 3,000 to INR 4,000.

INR 2,500 only.

INR 2,500. Okay. understood.

Next question is from the line of Rajeev V from Nuvama.

Sir, with regards to this compliant distributors, which you mentioned, so what is your revenue per distributor of this lot currently on an average?

We have -- we can say we have more than 500 distributors. On average, we are doing more than INR 4 crores per distributor.

Of the compliant lot, who have already transitioned to your...

Contributing to sales. Total number of distributors with the average sale of INR 4 crores.

650 was the number which is there in the presentation, if I'm not wrong.

Yes. which I'm talking about is the active month-on-month.

Okay. No, I was asking there is pushback which is coming from a certain lot of distributors, right? And there are distributors who have already embarked on your [ journey ] and okay with their RPA app as well. The contribution of those distributors is larger in the sense per distributor revenue than average?

The exact number, we have to -- see, what we have noticed is around 10% of our distributors, we are facing more challenges in terms of changing their mindset or who were not growing or cutting a lot of discount in the market. So these are the corrections we have identified and we are going to replace them with the new distributors.

Sure. Is it safe to assume that the average new distributor would be smaller in quantum in terms of revenue per distributor? Is the same -- the incremental which you're adding in future?

It depends upon the market, it depends upon the market. Newer market, they will be slower. But in the existing market, there will be a bigger distributor.

Sure. And in Sparx, what is the, let's say, sandals versus shoes mix currently?

Total Sparx brand is 40% of the sale. 50% is shoes, 50% is sandals.

Yes. So because the prior -- if I remember a few years back, I think '22. '21, your shoes used to be 40%. But the ASP is -- has not moved up despite, let's say, the contribution of shoes portion has gone higher. Any reason why?

There are -- in this brand, there are 3 things. One sandal, one second is shoe. And third is our average slippers. So that is also a share because that has also grown this year, which is in the price range of INR 400 or something, INR 400, INR 2,000. So that is why you are noticing this thing average out when it happens.

Sure. And what is the reach of Sparx currently in terms of touch points?

So we have more than 25,000 outlets Sparx is present.

Okay. And there was a question on gross margin. So I could not understand it clearly. So there is a drop in gross margin. And when I see that your -- the inventory has decreased for the second half close to, I think, INR 100-odd crores in the second half. So the channel inventory in general is healthy or you have pushed something to the channel by rolling out higher discounts and that will basically affect, let's say, future sales in the next couple of quarters at least?

No, no, we are watching our secondary sales, which is more important. We can push primary, but rather we are more concerned. We just don't want to push primary sale. You have to watch the quality of the sales that is through secondary.

But in March, there was a pull definitely because people have to achieve their targets. So that's why this inventory has come down in the month of March. So due to that, margin seems lower side, but that is not the actual case. Overall, margins are intact and a little better at full level. But in March because the inventory was reduced, inventory was reduced in a big way, so that's why, it's looking different in this quarter 4.

[Operator Instructions] Next question is from the line of Ashish Shah from Business Match.

I have 2 questions, most likely long term in nature. So if one was to take a 3- to 4-year outlook ahead. Do you see meaningful volume growth ahead, if one was to look at it slightly long term rather than the next few quarters?

We are doing premiumization. In that case, volume may not be there. But overall growth will happen. You have to see quality of sales, whether we focus more on premium or more on mass article. Since mass articles are under pressure because of the lower segment of the society are going through more pressure and premium articles are getting more accepted, and we'll be focusing there. So value sale maybe more proportion to the volume sale as you will see.

Okay. Sure. And sir, the second question is on ROCE. Even if growth was to meaningfully improve over the next 2, 3 years, do you see ROCE also moving meaningfully higher? And if yes, then what are some of the levers that you have for you to improve ROCE, your ROCE will remain in this band even if earnings was to improve?

So ROCE will definitely improve when we are working on the cost side. So overall, EBIT will improve because EBITDA will improve and everything is going to be improved. So we are expecting -- it will improve by at least 2% to 3% in coming time. .

As there are no further questions from the participants, I would now like to hand the conference over to the management for the closing comments.

So this is all from our side, and we thank you all for joining the call. Looking forward to joining you again. Thank you very much.

Thank you, sir. On behalf of Elara Securities India Private Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.