V.I.P. Industries Limited (507880) Earnings Call Transcript & Summary

Thanks, Raman. On behalf of Edelweiss, let me welcome you all to the Q4 FY '20 earnings call of VIP Industries. From the management today, we have Ms. Radhika Piramal, the Executive Vice Chairman; Mr. Sudip Ghose, the Managing Director; and Ms. Neetu Kashiramka, the CFO, who just joined. So without any further ado, I'll hand over the call to Ms. Piramal for her initial comments, post which we'll open the floor for Q&A. Thank you, and over to you, ma'am.

Thank you so much, Shradha, and thank you, everybody, for joining this call. A lot unusual call. It's 6 -- after 6:00 p.m., and we just concluded our Board meeting less than an hour ago. I would like to give some opening remarks. And then as a new development, this time, we had given an investor deck on the bseindia.com website. So in case anybody on the call has not yet had a look at that. I request you to please go to the bseindia.com website search VIP, and you will find an investor deck that we will be taking you through. Before also, I start with my opening remarks, I would like to warmly welcome Mr. Neetu Kashiramka to our company. She joined us on the seventh of April. It has been a very few short weeks since he joined, and she has been working from home in Mumbai as our head office has shut but it is amazing what technology can do, and she is fully integrated into our company already. So warm welcome to Neetu. Let me start in my opening remarks. I would actually like to talk about the future immediately. And after my -- so I was going to discuss coil and the way ahead with a few remarks, then I'm going to hand over to Neetu, who will go through the investor deck and talk about the Q4 results. And then we will take the Q&A. So for COVID, let me come straight to the point because today, we are on the 26th of May, and we have already been through April and May. So unfortunately, travel and, therefore, luggage, as we all know, is definitely disrupted. I would like to assure our investors that we have been, I think, very fast on our cost containment measures. And that sort of addresses all the costs, whether they are fixed overheads relating to plants, whether they are office rents, whether they are cold calculus on which stores maybe profit-making or loss-making in the year ahead. So for the brand stores as well as for some of our VIP colleagues, we are sort of we have made those difficult management decisions in terms of cuts in salary, some cuts in headcount, where it's unavoidable. And we have also increased our borrowings so significantly since where we were April 1 when we had, I think, a minus or plus borrowings and whatever borrowings we have -- we have not needed to use them yet, but we have increased our sanction limits considerably. So what I can share with total confidence at this point is that our company is extremely secure. We are in a financially strong position on liquidity despite the complete collapse of revenue, and I'll come to revenue forecast in a minute. So we are very sort of solid, even if the revenue forecast nil for 6 months out, 8 months out, we do not see any issues in terms of liquidity. Secondly, we find ourselves in a relatively strong position with respect to our competitive landscape because, as we all know, Bangladesh is more and more important to the company. And you can see from the Q4 results, how much, in fact, it could contribute as and when our revenues return. And also, in terms of the sort of migration from China to Bangladesh, all companies across all categories will try and do that quickly. We are the best of because we have a fully established scaled up operation and looking at, let's say, obviously, we anticipate a revenue decline on an annual basis for the year ahead. But we should be in a position where 100% of our supplies could come from Bangladesh, which is something I have not said on any such call before. But we are in that position. The final point I'll say, before handing over to Neetu, will be sort of what is the revenue forecast for the year ahead. Now this is an extremely difficult question to answer. Nobody knows. It depends when the lockdown is lifted. We all know that, of course, there might be different tiers of demand coming from different places in India. But as long as the 4 metros or the 8 large cities are locked down or in red zones. It will be difficult for the revenue to come back. I can share that in April and May, let us say that our revenues are extremely depressed, okay? I don't want to share too many more figures at this stage. It's midway through the current quarter, but I will use the word severely depressed. And in terms of when we see our revenues coming back, and do we expect them to be, let's say, what percentage of last year's revenues do we expect for the year? Do we expect it to be 50%? Do we expect it to be 70%? Do we expect it to be 80%? Obviously, it all depends on Q2, Q3 and Q4, Q1 is going to be a washout. And for Q2, 3, 4, let us see how we proceed, a lot depends on the disease, on the government of India on consumer confidence, and it is just impossible for any promoter or manager, to give you any realistic estimates of when we see the demand coming back. We can say that we have done a lot of online consumer polling, and we know that people are frustrated by being at home. And they're one of the first things they would like to do once normal life resumes is to just take a short break more likely in a car to some place that they can go on a driving distance, a shorter trip, let's say, a 2- or a 3-day trip rather than a domestic flight. Let -- we see international tourism coming down significantly. We see leisure travel bouncing back earlier than business travel. Because many businesses have realized how much, in fact, we can achieve in the absence of business travel. So we see business travel as more difficult than leisure travel in terms of the return. But when it comes to our brands, our portfolio, our luggage for us, it really does not matter whether it is leisure travel or business travel, VIP Industries is a company with strong brands that appeals to family markets, business markets, all markets. And with respect to market share also, so we have a very -- still highly notated sales team who are just ready to sort of hit the ground running. So as soon as things open, we are looking forward to resuming and meeting the demand, which we feel we can do in a market-leading capacity. The question is when do things reopen. And how quickly do the revenues come back. A final point is my personal goal is to ensure that the company can break even or even be marginally profitable at revenues are much more depressed than what we were last year. And we are taking the cost containment measures to achieve that obviously that -- Chairman, Chairman, Chairman. So that is not possible in the current quarter, that is Q1 where we definitely expect to experience a loss. So that is for the COVID situation. I will happily take all the questions on COVID after our presentation. But for now, over to Neetu, and welcome to VIP Industries, Neetu.

Thank you, Radhika. So I will straight away go to the presentation. I'll skip the company overview and go to Slide #4, which is financial snapshot. So if you see for the quarter, it's minus 27% on the revenue, whereas profitability is further down around 70%. But for the year, if you see, it's a minus 3%, with a PBT before exceptional item of INR 197 crores versus INR 215 crores. Now if I gave the impact of COVID on this, we lost INR 120 crores and a PBT of INR 26 crores. If I were to add this, then we would have had a 3% growth on the full year and 4% growth on the profitability. Now gross margin had a very healthy increase for the quarter 4 from 48% last year to a 58%. Even for the year, it is 50% -- above 50%, it went up to 53%. Now this gross margin improvement is basically due to few factors. And the biggest out of that is procurement, higher procurement from Bangladesh. There was improvement in the hard luggage share also, there was some reduction in the RM cost. But I would say that bulk of this improvement has happened due to higher contribution of Bangladesh to the overall revenue. EBITDA is at 12% for the quarter and 17% for the year. PBT before exceptional items for the quarter is low at 4% from 8%. But for the year, it is flat at 12%. PAT is for the year at 9% versus 8%. But one good part is that ROC is at 25% versus 22% for the year. This is mainly because we also did some good work around the inventories and debtors. And therefore, there was relief in the working capital and therefore, ROCs have improved to 25%. The next chart clearly explains what happened in March. So January, February, actually, we did a profit of INR 38 crores, which was higher than the last year quarter profit. But what happened in March was actually unbelievable, and we landed up with only INR 32 crores of revenue and a loss of INR 27 crores. It changed the scene. And therefore, you see the quarter 4, where it is. The next is the financial results. So this, I will skip, since you already have the numbers with you. Next is the quarterly revenue. So if you see '19, '20 versus '18, '19, here, we have put up the quarterly numbers, and all of us know that the '19/'20 economic environment was tough. The way we started was much better. So we started with a 9% growth for the quarter 1, then the quarter 2 was a 3% growth. Quarter 3 was a 0% and quarter 4 actually washed out because of the COVID. The key financial metrics. So ROC, as I already mentioned, 25% versus 22%. Inventory was contained at INR 451 crores. In spite of revenue not happening for the last 2 weeks, we were at INR 451 crores of inventory versus last year same period of INR 527 crores. Debtors were at INR 267 crores versus INR 299 crores. Borrowings, which was INR 86 crores last year same time, we were at INR 32 crores. Revenue already mentioned, INR 1,718 crores versus INR 1,785 crores. Gross margin for the full year was at 53% versus 50%. EBITDA was at 17% versus 13%. PBT before exceptional item was at INR 197 crore versus INR 215 crores. I'll just take you through the EBITDA movement, how it's moved from last year same period to now. So for quarter 4, from 9.5%, it has moved to 12% basic increase happened in the gross margin, which was 10.5%. And there was a reduction in the other expenditure. The profits were low because of the other expenditure. This was mainly due to some provisions which we have taken due to the COVID risk. Because once we open, we don't know, there might be some risks on inventory and debtors. And therefore, we have taken a conservative approach and taken some provisions around it. And for the year, if you see, from 13%, it moved to 17.5%, gross margin benefit of 3.8%, employee cost reduction 0.9%, and the other expenditure contributed 1.83%, and therefore, we reached this 17.5%. Now I'll open the floor for questions.

[Operator Instructions] The first question is from the line of Tejash Shah from Spark Capital.

First of all, thanks for sharing the presentation helps to skip a lot of bookkeeping questions. The first question to Radhika and Mr. Piramal. If you can help us to understand the situation as it stands today from supply chain, labor shortage, if any, and overall demand expect so how things have improved or as it has evolved in May? And what you're looking in June ahead?

Yes. I'll take that question. Yes, sir, on news reports of labor shortages, et cetera. For us, definitely, the whole issue is demand side, not supply side because we do have our own factories in Bangladesh, where unfortunately, in fact, we've had to reduce some headcount, but we do not see an issue with sort of bringing that headcount back as and when we need. So we do not face any issues on the raw material side, supply side or labor side. We obviously foresee great tension on the demand side. With respect to April and May, I mean I want to call it negligible compared to what we're used to. I think I should get some figures. Otherwise, it is not a helpful call. So we can say that in April and May, it is, let's say, 5% or 10% of what it should be. It will end May, our biggest selling months of the year, we all know this. And to that degree, we were also -- well despite the fact that the inventory levels were better than they were this time last year, we were still well positioned with a higher amount of inventory for the season ahead. And now that season is not happening, we find ourselves well-stocked for many months. So it is really a question of demand resumption. And I wish I could tell you the answer. I wish I knew it myself, but we are seeing expansion to the lockdown. We are seeing the major metros close Mumbai in particular. We are seeing malls closed where, unfortunately, a large number of our stores, whether they are our own stores or whether they are modern trade partners are in malls. And I don't think anybody can classify branded luggage as an essential item. We are firmly in the consumer discretionary space, and we have to sort of take the blows as they come. I can't give you any revenue forecast. It's real. I mean we are -- I mean, I can tell you that we are working on a scenario basis, obviously, and we have modeled out scenarios from revenue of INR 750 crores to INR 1,500 crores for the current year. I can share that much.

Sure. Second, Radhika, agenda and as we rightly said, but agenda for the management and this year affected from growth management to cash management. Now cost-cutting measures that if we can share cost-cutting measures that we have planned or already taken our planned for rest of the year?

Yes. Neetu, do you want to take this question?

Yes. So most of the actions actually have been taken already. Few actions might happen in future if we don't achieve what revenue we are talking about. But overall, I would say we have taken around 30% reduction in the cost and the execution already done. So that's what I can share you. So 30%. And in that, it involves reduction of people on the field. So basically, the people who were selling on the field, we have the new, then we have also got waivers and reduction in rentals. We have also looked at reducing our number of stores, exclusive stores. So all this put together, we'll be saving around 30%. And we have not really planned any advertising for the current year. We might make some smaller efforts on the digital platforms, but we used to spend around INR 100 crores a year on advertising. So that is more easily favorable item.

Sure. And lastly, based on the new trends that we are hearing from other sectors that distribution is also under serious stress because of cash crunch so I -- have you heard from any of the distribution that they will be some support once the market opens, and then perhaps you will have to use your balance sheet to provide some liquidity to them?

They can ask us. I don't see us in a position right now to be able to offer help to our customers for their liquidity problems. I can tell you that the collections have continued, obviously, to a much lower degree, but still, collections are happening. So collections are happening in April and May, even though sales are not. So that is 1 reassuring sign with respect to the strength of our customer relationships. And we will have to put in a say more stringent credit risk policy from our side and then we resume billing in terms of clearing past dues. But yes, there's -- I mean, the liquidity is a stress, yes, it is a stress for most organizations at this time. So whereas we feel well protected to some degree ourselves through the higher borrowings, we don't think we can extend financing help to our customers.

Okay. And has CSD also slowed down along with other channels?

The stores are closed. Okay. So in CSD, exactly what happened is there was a March order that was not billed during the lockdown in April. It was being built in the month of May. It is not clear whether there will be a fresh ore for the month of June. It's unlikely at because all our trade partners, they also have inventory. For all items, right? So nobody keeps only 2 weeks of 1 week of inventory. Typically, everybody has 4 weeks or 6 weeks or 3 weeks of inventory. In some cases, some customers may have even 2 months or 3 months of inventory. So everybody will watch and wait the inventory level before restarting fresh billing.

The next question is from the line of Manish Ostwal from Nirmal Bang.

Ma'am, do you see any material risk with respect to account receivables collection during the year because your customers also facing a lot of liquidity problem, you said we cannot help financing our customers. So what kind of risk we are anticipating for collection?

Neetu, do you want to take that question, please, specifically on the collection, the risk?

Yes. So on the collection piece, we have reviewed our debtors in detail. And if you see the number is not that high. Still we have taken some provisions around it, like let's assume if the bottom 100 guys don't pay then what happens. So that consideration we have taken, and we have created a relevant provision in the books.

So and I'll make it further. So that is on the accounting perspective. And from an operational perspective, we would -- we are okay to wait for sales, but we will collect first. We will not increase exposure to certain parties without collections. If that means that there is a delay in resumption of revenues that -- so be it.

Yes. And secondly, you said that incremental sales will have a stringent credit terms. So what kind of credit terms once you resume your operation normally? So what kind of credit terms you're looking at?

It will vary by customer and channel because every -- these are long-standing customer relationships. So one doesn't spoil every relationship just at one point in time. But what I can say is management is taking a measured approach to credit risk, and we will only resume billing in a carefully calibrated way once we are sure of the trade receivables. By customers, we may have different policies for different channels, different policies.

It is like ABC rule classification of debtors into ABC and based on that.

The next question is from the line of [ Jatin K from Alpha Capital ].

My first question would be, after we come out of all this, do we think there is some market share gain possible, like from unorganized to organized or from some players like Samsonite, et cetera, have announced they're closing some stores in India do we think this kind of thing is possible?

I think so. Market share, definitely because the last 2 months has given us -- while we have not been busy in the daily operations, we've had a lot of time to sort of go through each channel, each customer in detail, understand our market share. I don't think we can gain market share from unorganized sector because I do think there's going to be an overall price pressure. As India goes into a recession, people will be less willing to spend. So we are better off than Samsonite. But I will say that all of the priced players should do well.

And in terms of manufacturing, how much are we getting from China? And how much we're getting from Bangladesh? And how much are we getting from India?

Well, the past is going to be different than the future. So in the past, I will say that we got let's say, 60% of China and 13% from India and only 10% from Bangladesh, but I think the future will be very different. We might go up to 80% or 100% from Bangladesh.

And this thing will increase our cost or reduce our cost moving to Bangladesh from China?

Sir, I'm sorry, but if you're asking this level of question on this kind of call after the presentation we've made, then I cannot answer that. I mean I can answer it, but -- okay. Yes, we will make more money if we get more from Bangladesh.

No. I meant to ask how much percentage terms would be able to -- if you could able to classify?

Sir, you see our gross margins over the last four quarters.

The next question is from the line of Varun Goenka from Nippon Mutual Fund.

I just wanted to clarify on the inventory part. We have INR 450 crores as inventory with us clarify what is the channel inventory that respect? And maybe what would be our assessment of the industry level inventory? And how long would that take to clear either through e-commerce channel or through some kind of price liquidation?

Sure. We don't really keep -- we do keep inventory and assortment channel wise, but brand wise is a better way for us to look at it because we can easily [Technical Difficulty].

Just to clarify this inventory is with us. I think we have not understood the -- this inventory is not with the trade, it is with us.

No apart would be -- Piramal, sir?

He is asking about trade inventory.

Yes.

Let me answer. So we have INR 451 crores of inventory. I like that, depending on the demand to either last us 3 months, 6 months or 8 months, I would like to clarify that this INR 451 crores of inventory is not that our -- is not valued at our selling price. No, this is valued at our cost. So sales price, it is worth more. There's a lot of background noise on somebody's line. May I please request all listeners to mute themselves. Thank you. Please go ahead.

Yes. So your INR 450 crores of inventory on our books. I was asking also this channel inventory with our dealers, distributors, franchise? Yes.

Yes. It really varies. It varies. So let's say, broadly modern trade has a lease inventory, so they keep only 3 to 4 weeks of inventory on their floors. And that should have been selling, right, as things are opening up. In the last 2 weeks, we have seen some sales. General trade typically keeps a higher inventory than modern trade. So typically, general trade will keep about 60 days, in a bad case 90 days, in a good case 30 days. CSD keeps about they always target 30 days, but it's usually about 60 days. So variant levels, I would say, on average, 60 days.

Okay. And have you seen any initial trends of e-commerce trying to sell or liquidate some inventory or other brands...

I mean the way e-commerce is working, they have 1 thing that -- so we -- I agree with you that in terms of looking at which channels who come back faster, CSD is one, e-commerce is one. We -- in modern trade. These are the 3 we see coming back fastest. We see general trade distributors and dealers being a bit slower. And within e-commerce, what they have indicated is between luggage and backpacks, they would be more interested in backpacks, which makes sense.

Yes, Radhika, just one more thing here. Most of the e-commerce pin codes are not serviceable as yet. As and when the serviceable pin cores happen because a lot of pin codes are on the red zones, so they're not serviceable. So as on -- so the movement is yet to start, but that channel would probably go faster than any other channel.

Okay. What is our assessment of the price side? Will there be a very large, maybe 15%, 20% kind of a pricing so that we can get rid of our inventory or the e-commerce can sell this inventory down because that is what we're seeing across consumer durables and a couple of others.

I would not be surprised if there was some aggressive discounts in order for all parties, that is the manufacturers themselves, in this case, us and customers to redeem inventory, right? I mean, we have an unprecedented situation of 2 months of gap of demand. So everybody has got high inventory.

And is there any major terms of trade from China side in terms of pricing? Because your input costs have gone down so significantly? So your fresh production...

It is because of higher ratio of Bangladesh as a percentage contribution to the company sales. We had anywhere pre COVID. We were -- I have been talking about doubling and tripling Bangladesh capacity that we have tripled in fact, for finally, we have triple capacity and Bangladesh in Q4 would have been maybe as high as 40%, 50% of the company.

55%. Yes, 55%, Radhika.

Thank you, Neetu. Yes. So -- and that's what we have planned for the year ahead. So -- but the best late plans go astray. We feel very confident on the cost side. That's why we am not much bothered about this any threat of price war or anything. I'm not much bothered about market share. I'm very confident on those parameters. Fundamental demand resumption is what we need.

Right. Just apart my ignorance on Bangladesh. What would be our import dependence of raw material for our Bangladesh plant on China or...

Yes, yes. The raw material comes -- 90% of the raw material for Bangladesh comes from China, and we don't see any hiccups. So China is fully open. China is ready to go. China is ready to ship RMs, they're shipping RM, the ready to ship the finished goods. It is a demand-side issue.

The next question is from the line of Ankit Kanodia from Smart Sync Services.

My first question is you lost just INR 120 crore. Do we mean to say that we have lost just INR 120 crore in the last 7 days of COVID or it was for the full month?

It was for the month. It was for the month, but the sales actually dried up from 15, 16 onwards, there was hardly anything.

Okay. And the second question would be, since what has happened right now, from a longer-term perspective, do we see that we would be working on our -- reducing our dependency from China and focusing more on Bangladesh? Because till last call, what we could see there, the capacity was very low compared to the demand we had in our company.

So yes, it is in our interest to move -- migrate quickly from China to Bangladesh. Plus, as I said in Q4, Bangladesh 55% of our sales. And now, let's say, if our sales are much less than they used to be, that 55% can cater the whole time. So yes.

No. But my question was, say, 1 year down the line, when normalcy returns. In terms of demand, how much would Bangladesh would be ready for the...

We'll take a call by then. So financially, it is better for the company to get as much from Bangladesh as possible and leased from China. But China has certain capabilities on product differentiation assortment, which manages has still not yet achieved, so there may be some China products.

The next question is from the line of Susmit Patodia from Motilal Oswal Asset Management.

Thank you for the opportunity, and I hope everyone is safe with their family. So firstly, congratulations on the phenomenal cash flow management that you've been able to pull off for this year. I wanted to know the 2 things. So for example, gross margins and cash flow management. Would these 2 things carry on imminent FY '22, '23, would these 2 things be the biggest changes that you would see in a normalized year, but that to our past?

Yes, yes. In fact, just to answer, we should do better because till we I think we are still high on working capital.

Right. And secondly, I wanted to know, are the Green zone stores opening up? And are you seeing any flicker of demand there?

Sudip, could you comment on that, please?

Yes. Yes. So we have about 56 stores across the green zone, which have opened. Unfortunately, the national to government of India and state governments, there's some kind of disconnect. Some states are opening, then kind of saying you can't open for the whole week. So 8 weeks are opening for an example, Sunday, this Sunday, out of this 56, we had about 14 stores, which were operational. Others were shut down. So it's happening on and off because nobody is very sure but yes, wherever there are green zones has opened. And we have started seeing some sales coming. And these are primarily people who are traveling -- we're planning to travel immediately after the lockdown which opens either they're going back home, but we have been stuck or they are coming back from home. So we've been also since the banks have some time we have been asking them why are they buying the products, and that's the answer that we are having. About 30% is about on marriage. So a little bit of though, there is no pumpers of marriage, which is happening. But there are certain manages and which is happening at about 30% of whatever has been sold is for marriage. So that's how it is.

All right. And just 1 last question. You mentioned towards a 30% cut in expenditure. So this includes the ad spend that you will also may as well, right. So the INR 620 crores is the non-COGS expenditure in FY '20. So is that the number that you would be referring to? 30%.

Actually, on advertisement, as Radhika mentioned, that we'll be hardly spending? On the entire other fees? Yes, 30%.

The next question is from the line of [ Yoon Yo from Tokio Marine ].

I wanted to ask, you mentioned in your opening remarks about the leverage and you have increased your leverage. Can you give us a sense of what that number is and how do we measure that?

Yes. Neetu, he is referring to the borrowing. Would you like to please answer that?

Yes. So till last year, we had borrowing sanction limits of around INR 100 crores, which we have increased now to INR 220 crores, close to INR 220 crores. We haven't withdrawn the entire money. We have withdrawn only INR 100 crores, but that entire INR 100 crores is actually invested also. So we haven't utilized it, but we have capabilities have been created so that we can withdraw whenever it quite.

All right. And just want to also mention the demand, 30% of the sales. And so far in April and May marriage. So first quarter, I mean, we know it's your peak season, partly due to the marriages. I'm just curious if you have any sense whether this demand and these marriages will be delayed to future months during the year? Or these measures will be postponed for 1 whole year?

I guess...

It's unlikely that the -- go ahead, Sudip.

Yes, yes, saying in India, manage is something that is like a festival. So nothing is going to happen. What I said is of the sales that we have happened. So anyway, the sales have been very minimal as we've been saying, of which 30% is because of marriage. We don't see the kind of a marriage. The summer season is very big, bigger than the winter season. So some of the managers might go in, but it will definitely not be the kind of marriage season that we usually see.

No, I think, Sudip the question was will these managers have to perform and they will certainly get postponed. They will not get canceled. And the question is do they get postponed to the July, August, September quarter, or the October, November, December quarter. Because of the monsoon season and then the sort of festival season, they're more likely to move to Q3 than to Q2 is my sense.

Okay. Okay. So there's potential for some pent-up demand to make up for, as you mentioned, negligible first quarter revenues. Perhaps third quarter, we could see some kind of demand, I guess you won't know what the happens, but there could be a scenario as what you're seeing as opposed to waiting for whole 12-month cycle. Okay. And just curious, the exceptional item you mentioned in your presentation, what is that actually? Is that the receivables that you've written off or provided for?

No, no, no. Yes, go ahead, Neetu.

So this was actually happened in the quarter 1. This was loss of goods at a Ghaziabad warehouse.

We had a fire there.

And it happened in quarter 1.

Okay. Okay, from the fire. Okay, I see. Right. And you mentioned receivables being written up. Has that -- you haven't done that yet in the fourth quarter?

Yes, we have made provision, which is already charged.

How much?

Around INR 8 crores, INR 8.5 crores.

The next question is from the line of Ravi Naredi from Naredi Investments.

What is the setup of insurance claim when we are going to receive?

Yes. We were making good progress on that. We have submitted our claim and it is being processed. We were making good progress, I would say, until February, but there has unfortunately been very little movement in March, April and May. So we are looking forward to getting that claim successfully process in the current financial year. I would like to be able to give you a more specific time frame, but I can't at this time.

And whatever provision we are making towards debtors and stock, it will be sufficient for current year?

As of now, we feel, yes, but we don't know, right, because only once the lockdown open, and we will understand the economic situation. But whatever we felt it is...

Radhika, just mention the cost and selling price, the bill detriment.

With respect to -- with respect to inventory?

Stock -- yes, inventory, yes.

Yes, right. But this was a down debtor payment and we did. We have provided a...

No, no. It comes to the same thing, Radhika. Provision is the provision enough for the write-off, I mean, up to 50%. I mean, if there is a write-off of 50% on selling price, then that's our cost price on I believe just explain that.

We've taken a larger, yes.

The next question is from the line of Jinesh Joshi from Prabhudas Lilladher.

Thank now, I mean, there have been news reports that 1 of your largest peers has decided to close about 100 EBOs in India due to demand pump. So have we taken any such decision as yet? And secondly, for the EBO that we typically have involved, have we moved the fourth major clause? Or are we still liable to pay the rent in lockdown?

Sudip, would you answer this, please?

Yes. Okay. So what we have done is we have taken a very calculative thing on the EBOs that we have. And we have made scenarios on which other ones which will make loss and we have already given notices to a large number of them. So we are not going to -- the way to look at it is if the store is not making profit, the expected sales that we have in mind, we have already served notices, and we have actually got waiver of almost 60% of our stores for the time of love down period. So there is no rent to be paid during that period of time. For the mall stores, malls, we are still not -- malls are still not open. We have already put in our application and are -- and officially asked them to waive off the rents but until the time, they actually -- we decide and get a confirmation from them, we have not -- we can't stay back. So on the High Street stores, everything is done. When renters, rent reduction all of it has been done. On the milestones, we are working on it, all retailers across all malls have written to them. The mall owners are also waiting for some government intervention. But as of now, there is no confirmation from their side.

I'll just add 1 thing. I think in 1 sense sensor and is worst, more badly affected than our because they are a higher price point. So they are going to be [Technical Difficulty] than us in absolute terms. And that is their business decision. We are taking our business decision.

Okay. And secondly, I believe that the orders to Chinese vendors for our planned sales in FY '21 may have been done well in advance. But the actual sales might be lower because of the kind of environment we are into. So can this lead to a situation of significant inventory pile up in FY '21, despite we seeing the reduction in inventory in FY '20? And what steps are we taking to mitigate this risk?

Yes. I'll answer that. One good thing is we had -- because of so many of our Chinese suppliers are -- I mean, from China, we've been sort of tracking COVID since [ Yoon ] said. So I do not expect inventory pressure also because we are going to be extremely strict about restarting procurement and production. So I don't see any -- I mean, with the kind of focus we have on cash right now, I don't see any danger of inventory going on. And in terms of our commitments to Chinese vendors, we are negotiating with them. We will find a way out.

Okay. Sorry, I'm stretching this a bit more. But for 1Q of FY '21, I believe the orders might have been placed in October and November. So that cycle would have been -- the cycle would have already been in process. So will we kind of cut down on those orders in anticipation of lower sales? Or will we have to take that excess inventory on book I mean that is what I want to kind of...

So now, you are correct that we have placed the orders in October, November, but the factories don't ship them until February and March. And the reason is because in this [ Yoon ], they take that 1-month Chinese lunar holiday. So we place the orders, they buy, they prepare, they take a holiday, then they come back, they make it and they ship it. So we want in time to stop many shipments in February and March. You're right that like we have not inverted the same amount of goods as what we played orders for back in October.

Okay. Okay. And 1 last question. On Bangladesh, I mean in this quarter, our margins were higher because working from that particular destination had risen meaningfully. So going ahead, I mean, how will the situation exactly pan out? Does Bangladesh operate at a peak capacity? And will it mean additional pension or the current capacity is sufficient to kind of meet the current demand requirements once situation stabilizes, not in the current environment?

I'll answer that question. So with respect to supply, there's machine supply and there's a labor supply. So as the machine supply, I suppose things that once we return to normal, I expect 100% utilization of machine supply and we can increase our machine supply as for the growth in demand. With respect to labor supply, in fact, unfortunately, we have had to reduce labor. Okay? So the market creation, but we feel confident we can bring it back. So it is a fairly flexible and cost-effective supply solution that we have in Bangladesh. And yes, we have reduced the labor. We have excess capacity right now in Bangladesh, looking at the demand situation. But once demand comes back to normal, we will first hit 100% of capacity. And then as demand goes, we will go back to our good all days of increasing manufacturing capacity as and when that time comes.

Okay. And 1 last question. Out of the total labor force that we have, can you share what is the approximate contractual labor force? I just want a rough indication.

In Bangladesh, we have no contractual labor for us, but the label laws are very different there. We are an export processing zone. So we follow absolutely -- we are in 100% compliance with every label or in that country, but the Bangladesh has a different labor law regime than India. And for India, we -- in terms of our factories, I will say, about 50% of our workforce is permanent and to 50% as contractual.

The next question is from the line of Samir Rachh from Nippon India.

I have 2 questions. One, what is the mix between soft and hard luggages during last financial year? And do you think that mix changing significantly in favor of hard luggage because they are easy to this impact? And my second question is regarding growth in backpack. So how much of the growth in backpack during the current financial year? And do you see backpacks following a different cycle than the luggage?

I request Sudip to take this question, please.

Yes. So the first part of the question between soft and hard. Frankly, we have to see how consumers buy. Whatever sales that we have seen it's been 50-50. So it's not really changed much from where we are. Okay. Earlier, again, pre-phrase the answer. Earlier, it was about 70-30. Currently, also, it's around 70-30 between what we have seen the sales, which is going. So that's part one. Backpack. Yes, backpack season will change because the biggest backpack season is with school. Schools will probably open sometime in September. So we see that the backpack season, which usually is between April, May, June, July. It's now going to move to August and September. So yes, the backpack season would change. And presumably, there would be -- that season will not get impacted because when you go to school, you buy new bags. And probably, that market is going to be -- will be going.

Sir, and just some sense on how much of the backpack sale is doing last time in the year?

Well, we don't give internal numbers, but it roughly some one of the book pillars was backpack. So backpack we are good. And we had -- the new range are already coming. So we have good stocks for the season.

I'd just like to add 1 point, which is there's no material difference in our gross margins between hard and soft. So therefore, mix change between hard and soft does not move the needle on gross margins or profitability. Backpacks are a little bit less, like I'm going to say, let's say, 200 basis points or 100 basis points less gross margin than luggage. But being the fastest-growing category and also the facets will resume demand. At this point, it's really about hitting some revenue numbers and breaking even again rather than worrying about product mix.

Okay. I want to add 1 thing very relevant here. To answer your question about luggage that had luggage demand is going up. So for luggage perfect, there is no doubt that hard luggage demand is growing. As compared to for sluggish. But backpacks are entirely soft sluggish. Right. And that is growing very fast. So the sort of proportion of backpack growth keeps the 70-30 ratio in favor of soft luggage.

The next question is from the line of Sonaal Kohli from Bowhead.

You mentioned about the cost cut, can you please give us a breakup of what is the absolute amount you're looking at in terms of cutting costs? And whether you include it as rental, you mentioned that for many of the stores, you have got exemption in terms of things to rentals as a part of that cost. So some color broad color would be very helpful.

Neetu or Sudip, please.

[indiscernible] mentioned is [indiscernible]. So in fact, 8% of cost reduction are than January, February. So because in the first quarter and reduction overall teeing everything.

Go ahead, Neetu. You are not very clearly audible, but try again, it's better enough. Please go ahead.

Okay. So basically, when I mentioned 30% reduction, it is for the full year. The first quarter reduction might be higher than the second quarter. The reason being that the rent waivers and rent reductions and lockdown period is much larger as compared to the full year. So 30% includes all costs.

Can you give an idea what that absolute number would be when you say 30%?