Vaibhav Global Limited (VAIBHAVGBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Vaibhav Global Q3 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karl Kolah of CDR India. Thank you, and over to you, sir.

Thank you, Aman. Good evening, everyone, and thank you for joining us on Vaibhav Global's Earnings Conference Call for the Quarter and 9 months ended December 31, 2019. Today, we have with us Mr. Sunil Agrawal, Managing Director; Mr. Puru Aggarwal, Company's group CFO; Ms. [ Deepti Rajput, TGM Investor Relations]. We will begin the call with brief opening remarks by Mr. Puru Aggarwal on the financial performance, followed by a discussion on the business operations, key initiatives and broad outlook by Mr. Sunil Agrawal, following which, the management's opening comments, we will be opening the session for a Q&A. Before we get started, I would like to point out that some statements made or discussed on today's call may be forward looking and must be viewed in conjunction with risks and uncertainties faced by the company. A more detailed statement and explanation of this risk is included in the earnings presentation, which was shared earlier. The company does not undertake to update these forward-looking statements publicly. I would now like to invite Mr. Puru Aggarwal to start proceedings on the call. Over to you.

Welcome to Vaibhav Global Limited's Q3 and 9 months FY '20 Earnings Call. Let me begin by giving you an overview of our financial performance for the period under review. Following which, Mr. Sunil Agrawal will talk about the operational performance, key initiatives and growth strategy. At the outset, I would like to mention that, effective 1st April 2019, the group adopted Ind-AS 116 Leases, applied to lease contracts existing on April 1, 2019, using the modified retrospective method and has taken the cumulative adjustment to retained earnings, as on date of initial application. Accordingly, group is not required to restate the comparative information. Effectively, this has resulted in recognizing the right-of-use assets of approximately INR 27.94 crores on the transition date April 1, 2019, which increased further by INR 10.44 crores during 9 months FY '20 to INR 38.38 crores as on December 31, 2019. This is after depreciation and amortization. The impact of Ind-AS 116 on depreciation and amortization expenses is INR 6.71 crores and, on finance cost, is INR 1.15 crores for 9 month FY '20. A detailed note related to the set accounting standards has been shared along with the results table published day before yesterday. I'm glad to share that Q3 FY '20 has been one of a strong quarter for VGL in terms of revenue and profitability. Overall, revenues have grown from INR 511 crores to INR 563 crores for Q3 FY '20. For 9 months FY '20, these numbers stood at INR 1,488 crores compared to INR 1,352 crore for 9 months FY '19. As you are aware, we have continuously been increasing our focus on the retail business, which now constitutes nearly 96% of total revenues. Growth in the retail business came at 14% Y-o-Y for the quarter and 16% Y-o-Y for the 9 months. I'm happy to share that we reported strong growth in both our retail geographies on constant currency basis. Shop LC U.K. recorded growth of 11% Y-o-Y for Q3 FY '20, and 14% Y-o-Y for 9 months FY '20. On constant currency basis, TJC U.K. recorded a growth of 21% Y-o-Y for Q3 FY '20, and 19% Y-o-Y for 9 months FY '20. We have been early adopter of omnichannel sales model, which has enabled continuing deep engagement with customers through the electronic medium of TV, web, marketplaces, social and new-age digital platform. TV expenses extended by 11% and Web revenue by 21% in Q3 FY '20 in INR terms. For 9 months FY '20, TV revenues grew by 10%, and Web revenues grew by strong 30%. As indicated earlier, the company has been scaling down its B2B business as it is in noncore and are growth opportunities. And margins are considerably larger in the B2C segment. In line with this, B2B sales came in at INR 65 crores for 9 months FY '20 compared to the INR 121 crores for 9 months FY '19. Coming to the product portfolio. We are continuously diversing for our product portfolio into Fashion Jewelry, Accessories and Lifestyle products categories and are happy to report growing contribution from the non-jewelry segment. For the 9 months ended December 2019, non-jewelry segment contributed nearly 32% through retail revenues in INR terms. Another significant aspect of our retail revenue is Budget Pay, where we offer products on EMI to our customers. For 9 months FY '20, Budget Pay constituted around 39% of total retail sales in INR terms. Moving ahead, gross margins came in at around 62% for Q3 FY '20 and 9 months FY '20. Manufacturing and sourcing supply products at optimum prices, maintaining control over the entire supply chain, creating a deep value proposition to customers while maintaining industry-leading gross margins. This is crucial to our competitive edge over our peers. Q3 FY '20 EBITDA increased by 29% Y-o-Y to INR 92 crores as we expanded margins by 240 basis points to 16.3%. For 9 months FY '20, EBITDA had reached INR 216 crores, grew by 27%. And margins increased by 190 basis points. PAT at INR 66 crores for Q3 FY '20 and INR 151 crores for 9 months FY '20, grew by 25% Y-o-Y and 34% Y-o-Y, respectively. This expansion was achieved by realizing top line growth on a stable operating cost platform. During 9 month FY '20, we incurred CapEx of over INR 28 crores attributable mainly to our purchase of an adjacent factory building in Jaipur for INR 6 crores, investment of INR 4 crores in the solar power plant, and the balance was equipment and furniture and new warehouses in U.S. and U.K., factory equipment and global ERP. In conjunction with healthy revenue and profit growth, our operating cash flow during 9 months FY '20 stood at INR 143 crores. And free cash flow stood at INR 115 crores. For the quarter, we reported operating cash flow of INR 70 crores and free cash flow of INR 61 crores. VGL continues to be debt free at the net level. And the company's net debt stands at a negative INR 212 crores as of December 31, 2019. In December '19, we completed the buyback program of 8,65,675 shares at an average price of INR 831.72 per equity share, deploying an amount of approximately INR 70 crores, excluding transaction costs. Further, I'm glad to share that our Board declared a interim dividend of INR 7 per share. Talking about our return ratios. We reported a return on average net worth of 25% and return on average capital employed of 43% on TTM basis. So overall, another strong quarter and 9 months period with growth in revenues, margin expansion, strong cash accretion, which is being returned to shareholders through buyback and regular and increasing dividends. With these comments, I now hand over the discussion to Mr. Sunil Agrawal to share his views on the business.

Thank you, Puru. I welcome you all to Vaibhav Global Q3 and 9 months FY '20 earnings conference call. Let me now take you through the operating performances, key initiatives undertaken during the period under review and growth strategy for the next few quarters. This has been the best quarter for VGL with the highest-ever revenue impact recorded by the company. The first 9 months of the current year has been very robust with retail revenue increasing by 16% to [ INR 1,423 crores ] and PAT increasing by 24% to INR 151 crores. And with that, healthy growth in both the geographies. On constant currency basis, Shop LC U.S. marked a growth of 14%, and TJC U.K. marks 19% for 9 months FY '20. Our guidance for the full year is 15% to 17% B2C revenue growth in constant currency terms, and we are well on track to achieve the same. Our omnichannel-shaped model has subscribed deeper customer engagement, thereby boosting our retail profitability. While we continue to report TV and web sales independently, it is vital to note that both platforms increasingly come as an integrated offering to our customers and have been converging in a symbiotic manner. As indicated in the past, we're driving our customer engagement by promoting Web sales on TV and TV sales on Web and the latter marry omnichannel customers significantly higher than there of either platform individually. Therefore, it is meaningful to look at TV and Web in aggregate as retail sales. We continue our efforts in diversifying product categories within Fashion, Jewelry, Accessories and Lifestyle segments to increase the depth of our offering to customers. Contribution from non-jewelry products related revenue was 22% during 9 months FY '20, up from 17% in corresponding period last year, thus, gaining larger share of customer wallet and expanding visibility in product categories that represent significant market size. Budget Pay has been instrumental in further improving the value proposition to customers. Budget Pay sales made up 39% of total retail sales during 9 months FY '20. We also continue to invest in improving the quality of programming at studios, further selling engagement as our supply chain and logistics to get our customers a wide range of products backed by a deep value proposition. The product categories that we are focused on have demonstrated strong demand from customers, and we continue to engage deeply with or -- target segments across established and emerging platforms. This will lead to the differentiated proposition that is likely to drive long-term growth with sustained gain in market share. In addition to our existing customer engagement platforms, shop LC U.S. commenced broadcasting on Amazon Live during the quarter. We also integrated Pixlee with Shop LC website. This will enable user-generated content sharing and boost customer engagement by leveraging our presence on leading social media platforms such as Instagram and Facebook. In the UK, TJC shopping app was launched on Apple Store for iPads. We also launched the TJC U.K. HD channel on Freeview TV platform across the U.K. This is in addition to the standard definition channel. Another key initiative during the quarter was the launch of our community forums, which went live on e-commerce website in U.S. and U.K. I'm happy to share with you that Shop LC U.S. was recognized as a global business of the year for 2019 by Round Rock Chamber of Commerce, Austin, Texas. In December, our Greater China subsidiary, STS Gems, was named amongst the best companies to work for in 2019 among 44 other companies for the fourth consecutive year by the Great Place to Work Institute. I would now like to call your attention to the 4Rs that together comprise our key strategic objectives for achieving accelerated growth: First is widening our Reach; second, growing new customer registrations; third, improving customer retention; and fourth, increasing repeat purchases. In Q3 FY '20, the number of TV households under coverage reduced marginally to 99.2 million from 99.5 million in corresponding period last year. This is based on an ongoing valuation of ROI from each micro market addressed by our network. During the quarter, we added over 52,000 new-customer registrations and now cater to over 353,000 unique customers on an annualized basis. Average annualized quantity purchased by each customer on TTM basis to stable at 30 pieces per customers. Overall, the customer retention rate now stands at around 51% for the group and continues to improve steadily. I would also like to update you about another initiative that we are gushing about. We would like to increase between our business successes and our engagement with the societies that we operate in. Under our flagship CSR initiative, the One for One program, we have provided nearly 34 million meals to school children across India, U.S. and U.K. As a company, we truly value our employees and are committed to their well-being. As you all know, we have our operations in China. The outbreak of coronavirus in China is a cause for concern for the entire world community. In our efforts to extend support to our employees, we have [ called ] in inventories back to India. For those who are still in China, we're providing them the safety toolkits to protect themselves and their families. We will continue to support and assist them in every possible manner. On the business front, we've announced leave from work until 10th February, and we'll further evaluate the situation as they arise in China. We have ample inventory for the current quarter and do not see any major disruptions in operations on account of this outbreak. To conclude, we continue to maintain an emphasis on achieving operational excellence, financial performance, societal responsibilities and environmental sustenance to meet our objective of delivering joy to all our stakeholders, including customers, employees, vendors, communities, environment and shareholders. We believe that our informative and entertaining live broadcast TV and e-commerce dealing is structurally attractive in both U.S. and U.K. And we have right strategy and levers in place to help drive profitable growth sustainability. With that, I conclude my opening remarks. And I request the operator to open the forum for questions.

[Operator Instructions] First question is from the line of Pritesh Chedda from Lucky Investment.

Couple of questions. One, small observation that your ASP has gone up, but your gross margin seems to have come down in the quarter, if you have any comments there. And obviously -- but the non-jewelry part is rising. So is it to do with impact or any other observation there?

So Pritesh, we look at gross margin more as a minimum 60% threshold. And overall productivity ratio that we have internally for our product level, our level, host level. So that give you very closely that against our targets that productivity levels are in line or not. And the average price point we like generally within a brand, we let customers decide the pull. If they're pulling a little bit higher price, we let them pull. But we -- usually, we decide between a brand, where we want it to be. So this is still within the brand overall. And we're happy to let the customer decide the momentum a little bit.

In non-jewelry, also a reason for it to be lower by any chance?

Non-jewelry margins, we look at their productivity ratio. They are comparable to jewelry as a group level. So that is not the reason. And as I indicated earlier, also, we're constantly looking at 60%-plus gross margin. As long as we are north of 60%, we are -- and our productivity ratios are in line, we're happy to let market or the consumer decide what product to do.

My second question is, you have about INR 200 crore of cash in the balance sheet, yet I see an interest expense of about INR 2.5 crore in the quarter. And this expenditure has also risen. So if you could draw a reason for these 2 things?

So, Puru, go ahead, please.

So Pritesh, one reason is that Ind-AS 116 actually has implication which should impact this particular set. We have some nominal working capital from banks just to keep the business healthy and competitive at its unit level. Retail India has that. So according to the Ind-AS, the difference between the normal bank rate and exchange goes to the finance cost. So that is one reason actually that you are seeing this expense.

How much is the Ind-AS component in this?

Major part is Ind-AS.

Okay, major part is Ind-AS.

Yes.

And lastly sir, last year, in our operations, we had gone into this whole operational digit that we spend in our system, in our operations. And now we're seeing the margin expansion. So do you think that these margin expansions are now more sustainable as you scale up your business? And what kind of margins do you think are possible in the business on the scalability?

You're talking about EBITDA and Pixlee? Is it...

Yes, EBITDA. I'm talking about the EBITDA margin expansion.

Yes. So we'll continue to see the leverage coming in as we continue to increase our top line at approximately 60%-plus gross margin because our -- some part -- a major part of our costs are fixed largely in nature. So we continue to see expansion, and we're not giving guidance on margin expansion, but we're confident of the leverage.

Okay. And lastly sir, U.K. business. Has this turned profitable and generating cash flow in the 9 months FY '20? I'm specifically asking because, until last year, the shape was different. So if you have any comments for the U.K. business for 9 months.

The U.K. business has been profitable and cash-generating for last -- more than 4 years. So I do not know what your source of information is.

The expense is smaller than [indiscernible]

Yes, it's continuously increasing year-over-year. As the top line is increasing in U.K., the leverage is also increasing exponentially.

What would be the margin increase in this?

The overall margin -- gross margin or EBITDA margin?

EBITDA. Gross and EBITDA both for 9 months.

Puru, can you share that number? So do you have any other question as we pull that number?

No, my question was that.

Yes. So I don't have separate EBITDA number for U.K. here.

[Operator Instructions] The next question is from the line of Sabyasachi from Centrum Portfolio.

Just to extend that question on ASP and gross margin, on the TV side, so we have here a sharp uptick in the ASP, not this quarter but in the past few quarters, if I look at Q1, Q2 and Q3, the ASP is hovering around $29 to $30. Whereas in the last year, it was around $24, $25 or $26. And the gross margin has come down in this quarter. Is it something to do with the high value that low-margin products are getting sold? Or how do you look at it?

So the -- I already mentioned earlier to Pritesh's question, so within a certain band, we let the customer decide what they're pulling. And that decision usually comes through the metrics productivity margin that we maintain, metrics productivity ratio. So metrics productivity takes into account the gross margin per minute. It takes into account the shipping costs, shipping revenue, the return rate expected and the new-customer acquisition. So this metrics productivity ratio is a guiding principle for us in our daily decision making across the entire retail organization. So as long as the productivity ratio is positive, we let the customer decide what products they're pulling, And as the product is pulling for a slightly higher price point, we present that product on television on the -- both channels accordingly. And since our -- via vertical operation, our turnaround time for product is very, very quick. So we can pull those product in. But as I said in earlier earnings calls that our overall B2C average right now is around $26.87 in Q3. And for 9 months also, it was pretty much similar with a $26.69 average per piece. Our competing customer is over $55 or so. So our aim is to scale that 55 -- 50% or below of our competitors. So that is why we want to stay -- we are okay to let it be around this price point.

Okay. I need to -- the productivity metric, the fourth -- one is GM [indiscernible] cost component, shipping costs, return rate. And the fourth one, you said?

New-customer acquisition. We lock a certain weightage to our value to each customer acquired by the particular products mix. So we calculate how many new customer acquired per minute or based on the airing of second product. And that has a weightage on our metric productivity. So it's -- the margin per minute, the shipping cost, shipping revenue, the return rate and the new-customer acquisitions. All we have taken into account, and they have certain weightage for in the metrics productivity.

Okay. Okay. What is the typical return rate?

So the typical return rate on our -- let me give it to you. So it's 18.9% in 3 months. And let me also give it you for jewelry separately. Hold on. So jewelry return rate for 9 months is 21%. The home category return rate is 6%. The fashion category return rate is 14%. And the beauty category return rate is 16% in first 9 months for the current financial year. So overall, average is approximately 19%.

19%. On the volume part, so we see that TV volumes have kind of declined by almost 10.5% this quarter Y-o-Y. Is it because of the higher sales value? How do I look at it?

Yes. So we defiantly do not look at the volume on a daily basis. We look at the total margin on productivity ratio base. How much is margin? How many new customer acquired? How much is net return -- net of potential return margin? How many new customer acquired? And what are the shipping revenue, net shipping revenue? So we actually don't look at volume on a daily basis. So volume literally is dictated by what customer is feeling. And if the price point is higher, the volume generally tends to be slightly lower. So it is a factor of price point, but we -- again, let the customer decide what they're pulling. At the end of the day, the margin is what it -- that matters for the business and the revenue growth and the margin.

The direction we -- if we can kind of cement or kind of factor in the volume growth, if I had to do it in probably a year or 2-year basis due to this cord cutting and all those things. Do you see the TV volume coming down and the Web volume picking up? Is that a directional thing?

So again, as I said, we don't look at volume, and we don't really predict volume. So we'll encourage you to create your model based on the current average price point, what is the latest price point, which is $26.87 right now. So we encourage you to create your model based on that price point. It could go slightly up, slightly down. But you'll not see meaningful change there as if we don't expect it, and we don't project volume as such. We predict revenue and margins and new-customer acquisitions.

Okay. Okay. On the -- this market, what's with the medium-term outlook on prices?

As we said, both combined, 15% to 17% top line revenue for medium term, that is medium term would be 2 to 3 years. And leverage benefits on the EBITDA and PBT.

But U.K. business will continue to grow faster because of the low base. And you have said these are now hovering around 10% to 12%. Is that a current assumption?

So we're not giving separate guidance for both units for -- growth average guidance of 15% to 17% top line growth for both units combined.

Right. On last question on the ASP again, the other sales trends from last time we spoke in Q2, you spoke about some rare gemstone being sold in last quarter. In Q2 I'm talking about. It's the same scenario in Q3 or similar kind of gemstones got sold, and that's why you're investing even higher?

Yes. There's some certain gemstones. For example, last quarter, we had one particular gemstone called [ Grandidierite ], that did very well in recent quarters and Garnet did really well. So it could change from time to time [ Grandidierite ] itself -- but Goldenite took more velocity than compared to Grandidierite. So it keeps on changing a bit. As I said, we let the customer decide whatever the volume they are pulling from us, we will present more of those items in a certain time. But that is not a major portion of our revenue. But a certain portion, we'll look at the opportunity and cash it. And now, can I answer back to Pritesh's inquiry about U.K.'s EBITDA margin? So for 9 months, Pritesh, U.K. EBITDA margin was 13% for our current financial year 9 month. And U.S. EBITDA margin was 12.5%.

The next question is from the line of Vikrant Kashyap from Kedia Securities.

Congrats, on a good set of number. And also, I must appreciate your thought on providing support to your employees in China and for their good health. I have a couple of questions. Number one, are -- you said you have these comments broadcasting shows on Amazon Live. What's your strategy there?

So it's still a discovery phase. And for Amazon also is a discovery phase. So we actually don't -- we haven't seen such a level -- we haven't seen revenue started coming in meaningfully, very few pieces selling there. But it'll still be in the forefront of any change that might happen in the industry. So right now, I cannot predict what will be the revenue model or -- what the revenue volume from that model.

So it's just to acquire customer or direct sales?

Yes. So same for the strategy for other market-based platforms. We have decent revenue, actually. Current financial year, we expect to do about $5 million revenue on both platforms -- on both channels put together on the market-based platforms. And next year, we expect it to double. So the revenue is also there now. But the main objective is to see if the customer can transition to our main business. And the lifetime value of those customers is meaningful and very comparable to our TV business. So there -- live television also very long objectives in place.

Yes. So in previous quarters, we have talked about our sales on -- premiums on other great markets or e-commerce channels. Has your day started yielding in? Are you getting customer pull to your website?

Yes. That is correct. It is still a low single-digit transition, but it is meaningful. Overall, that division is profitable now within 2.5 years of it starting. So -- and the growth in that division is pretty rapid. So admission, we expect to do $5 million this current year. And next year, we expect to do double, at least, of the revenue only and the transition benefit in addition.

And we have seen outgrowing Web sales. So is it a result of that customer pull? Or is it the result of your transition from TV to Web and Web to...

So TV to Web is majority of that. The marketplace to Web is a very small portion script. But it is there. It's profitable. But the contribution to Web growth is still limited.

Next question is from the line of [ Aditya Mehta ], individual investor.

Yes. My question is regarding growth rates. So I see growth rates have been coming down from as compared to last financial year. Our TV sales are growing by 17.5%, and now they're growing around 10%. And Web sales, too, from 26%, they're growing 20%. So how do you see growth coming further then in the coming years?

So the number I have over here are that TV sales grew by 11.1% in the quarter and 8.3% in the 9 months year-over-year. And Web sales grew -- this is in dollar terms. Web sales grew at 23 -- 20.3% in current quarter and 28.5% in 9 months. So TV, actually, for the current -- last quarter, TV actually grew higher than the 9 months. So the -- so I don't know the source of your data for...

I was comparing Q3 FY '19 figures with Q3 FY '18? So that was what I was mentioning.

Also 20 -- so I'm comparing '20 to '19. So there's a little help. '19 to '18, I do not have -- I can't comment on that. But the trend is pretty stable for us. The growth within television is between 8% to 11%. So -- and on the Web, it's between 20% to 30%.

And if you see now your new customer base has been a range by which you're increasing around 3.5 lakhs only. So how can we increase that going forward?

Yes. So we have many initiatives in place to increase that. One is through additional simulcast or HD broadcast like we did in U.K. as I mentioned, and that is showing good results for us. Other is a digital marketing, so we have located budget in this current quarter and next year to increase a position through digital properties. Marketplace is another one. In social, we are -- through Facebook and Instagram through influencers as well as direct marketing. So that division has recently been started, and we'll partner with Pixlee platform. So we hope that we get to growth through our customer acquisition through digital properties coming from those areas.

So we are active in social media marketing now, and we have more entertainment.

Correct. We have initiatives in place for television side as well our digital and social. So in longer run point, hopefully, we'll have in continuous growth. As I mentioned in my opening remarks, we have 4Rs is customer possible reach through digital properties as well as through television. We can -- it will compete with strong reach through digital, television, social, with it, registration through customer acquisition. So if the price point stays constant. We usually see high customer acquisition. So if the price point went higher, our customer acquisition was rather flat. The third is the repeat purchase and retention and the fourth is retention. So we constantly look at the -- all these 4Rs, and that drive our revenue growth and margin growth. So there is a business, seems very simple. This is revenue growth but actually very complicated business with a lot of moving parts, and we look at aggregate of all moving parts, and we -- within our guidance of 15% to 17% overall growth year-over-year.

And medium term from 2 to 3 years.

Yes, correct.

And this last question, I was late to -- for the con call. I don't know have you have answered it. I think as far as China is concerned, so we are sourcing from China. So has it been affected or ...

Yes. As I mentioned in my opening remarks, so and -- we are supposed to open up 1st of February, after Chinese New Year. So we have delayed that for 10 days from now. So we are not reopening our China operations for another 10 days -- for 10 days from now, and we will review the situation. We already evacuated all Indian experts there to India. So Chinese employees are staying at their homes right now. We are supporting them with whatever they need. And -- so we -- so far, we've had no issues in the operation. And we have enough inventory within our channels for this quarter -- end quarter. So we shouldn't see much issue from the business side.

So the situation continues for to next month more quarter. So how will the sourcing affect it? Can we do it from another source, other countries? Or...

Yes. So our guidance will not change because of this issue.

So you can manage.

Next question is from the line of Vinay Khattar from Edelweiss.

Great set of numbers, sir. Just one question around our customer acquisition. This 52,000 are one of the highest numbers that we have done in 8 to 10 quarters. We've had such good customer acquisition numbers earlier also.

I'm sure you had earlier also, but I don't have any data right now. So Vinay -- Deepti is pulling that data if she can. And she will let us know in a few minutes.

And what is our customer acquisition strategy? Because if we have about 50% attrition rate [ at a rate of ] 3.5 lakh customers, we will need to add about 45,000 to 50,000 customers just to maintain this number. What is the customer requisition strategy that we can aggressively add more customers -- significantly more customers than what they're losing.

So as I mentioned earlier, we have a customer acquisition strategy from television. So we think television make the program more interesting so more customers can log in and -- because we have the data from ComScore that tells us how many customers on average watch us. So we know that there are many more customers watching us than they're buying so how to make our programming more attractive for them to start engaging with us. And then acquire the customer through digital properties, through digital marketing, through Google and through shopping comparisons and through social media, through marketplaces. So we have those strategies in place to acquire more and more customers. So we always are very prudent in our business approach. For example, any new market that we acquire, we're only including, say, 99 million homes right now out of potentially about 130 million homes. We could acquire more homes at very expensive rates, but then we reduce our ROC or ROI. So we look at the homes, and we have very strict cadence. So new homes must create certain productivity business within a fourth -- first 3 months, 6 months, 9 months, 12 months, 15 months, 18 months. If they don't hit our cadence for 2 quarters, we exit from that home. And that's why you see that, in this quarter, we reduced our number of homes to exit. Not that we didn't acquire many new homes, we did. But we also exited a number of homes that were not productive for us. So we have a very disciplined approach in terms of productivity. It's still worse for the digital customer acquisition as well so any strategy that we have for digital customer action. If we are not giving ROI, we don't continue with that. So we leave it for additional resources. Throughout, the marketplace strategy has been very good for us. We have a great ROI. Social and marketing -- not marketing, social -- we are what we are doing. So influence the marketing that we're doing. We're still in initial stages. We continue where we purchase the refinements but focus on ROI on that. So in opposite to the digital platforms that we have in India, for example, Flipkart or Amazon, they're acquiring customers at any cost, and they're burning off cash. And our approach is very different. Our approach is more disciplined and more cadence deterrent. So we'll continue to look at customer acquisition but within reason.

So the next question is around the product selection strategy. Now you mentioned earlier in your call that 60% gross margin is one of the criterias that is put in place before our product can be brought in for -- as an offering. I'm wondering, can we increase more verticals? And how do we grow the product basket, per se, so that the client offtake and client acquisition and a lot of other things can form beside of the product basket more easy it is for us to get more sales and more clients. So other than the gross margin strategy, is there really a metric that we want to focus on? And what do you want to do in terms of adding more products or more verticals to this product basket?

So that's a good observation, good question. We constantly go to the different tradeshows and different market, China market, Thailand, Indonesia, India, many different locations within these countries. Even outside these markets, we go to Italy and Vietnam and Cambodia. So we constantly are on the lookout for new compelling products. And within U.S., U.K., also, we look for this product. And every product has to be presented, and every category has to be presented to a team, and the team has to have a view of the product categories making sense for customer demographics from margin, from price point and our overall ASP strategy. So there are a lot of reasons for us to look at the product critically. And if you find there is a reasonable chance of this becoming successful, you definitely bring it. As I mentioned in earlier calls, on average day, we have 150 new products aired on an average day. So there's a lot of new churn coming in and going out of the business. And if the product does well, gets exponentially or quickly ramped up. So there's a lot of experimentation, product sourcing, transporting teams are very deep and wide, and they spread very wide.

So one of the things that you mentioned was that our average sale prices, on the B2C side, is approximately half of what larger competitors do. But if I were to adjust those larger competitive figures for electronic items like televisions and laptops and all, for the rest of the basket, their ASP would also be comparable to us?

I don't have the data on that one, Vinay. But I don't believe it will remake a meaningful difference because, when I look at their jewelry, they sell a brand of jewelry. And their jewelry -- their national brands is pretty expensive. And when I look at their dresses, they're expensive, too, or shoes, for the matter. So we, as a company, adopted a strategy called -- we call it Zara strategy. So if you know Zara, Inditex, they're about a EUR 22 billion company. And they don't have any outside brands. They always develop their own brand, and they have 60% kind of gross margin. So as compared to Gap, which is in U.S., and they sell U.S.-centric product or, say, for that matter, Macy's. They sell third-party brands. And their gross margin start at 40 to 45s. So we adopted the Zara strategy right from the beginning. And we want to keep that strategy. But within the high third-party brands like Apple or Samsung, which will give us 20% or 15% kind of margin. Vinay, give us a top line, but that will also make us dependent on third-party clients. So we have not taken that strategy, and we're happy to see that our strategy is working as it has done for Zara Inditex.

Great, sir. So one last thought. If I were to just divide the actual active customers by number of households, we are close to about 0.3%. And this has been a fairly stable number in that brand, if I were to say. Is there any chance that this could go up to 0.5%, 0.6% or even closer to 1 percentage level? And how did that happen? Because some of the larger competitors that you have would be doing numbers where the conversion ratios would be appreciably more than what ours have been.

So that's a very good observation, Vinay. QVC has about 10 million customers compared to our 300-odd-thousand customers. So our -- their customer book size is much larger than ours. But they have been in business for much longer than us. So we are kind of start-up in the space. So we're learning every day, too, what is an extra way to acquire new customer and to increase the active value of the customer by way of increasing the peak purchase, increasing retention rate. And also, the sales value when you compare the price point higher, the bucket value goes higher. So we're learning, and as we are learning, we are implementing all those learnings into our business. And as we mentioned earlier, we have 4 levers that we call 4Rs. We constantly look at them and refine them, as you know.

The next question is from the line of [ Kapil Banga ], an individual investor. [Operator Instructions] Next question is from the line of [ Shankaran ] as an individual investor.

Congratulations on good set of numbers. Sir, last con call, you told that you're going to a hire a marketing agency and in the month of November onwards they will start working for you. What is the status? Have you started on this yet?

Yes, correct. So in the U.S., we already started that. That's all in digital marketing, not the television or print or outdoor media. So they started experimenting different strategies for us. And it's still early stage because it's only 1.5 months, so it's still early stage, but we're experimenting different strategies with them.

Okay, for the [indiscernible], what was the new-customer additions from last quarter, sir?

Sorry, can you repeat the question?

What is the new-customer additions from last quarter?

Yes. So the new-customer addition was 52,241.

Okay. And sir, do you have a nominal rate fixed return, sir? It seems like fixed marketing and rate-based facility marketing, like we are seeing some activity. Sir, do you have any type of data? How can the customer base you are using this, whether you are pursuing more or you are still going to [ TV ]? Do you have any sort of data like this?

Yes, we do. We constantly look at the data. So the lifetime value of a customer who buys real television versus the lifetime value of the customer who buys only in web is 3x. So TV customers 3x more valuable than web only. And the customer who buys from the both is 3x more valuable than the TV customer.

What about other competitors? QVC [indiscernible] basically how they are performing and how they performed last quarter?

So QVC, lifetime value-wise, they don't break up separately TV, Web and lifetime of an omnichannel customer, but their lifetime value is slightly higher than us right now. Now from a business point of view, QVC has been pretty flat last couple of quarters in terms of revenue. So that means we have gained market share constantly over last few quarters over there.

Next question is from the line of Dipan Mehta from Elixir Equities.

Congratulations on very good set of numbers. Might as well know macro and broader question that why are you focusing only on 2 countries? I mean, what is preventing us from launching the service product in many other geographies I think, be it Eastern Europe or Middle East, Australia. So what the profile of population and income there is?

Yes, good question, Dipan. We will constantly monitor our current business opportunities and also look at other countries, where potentially we can go. In fact, we were in Germany in 2007. During the recession, we exited from the market in 2008. So the debt market actually bigger than U.K. that we are in. Japan is another market, which is bigger in the U.K. and we have those markets in sight. But when we look at our management bandwidth, we look at whether we can -- we should be able to take out action -- should take our attention away from our U.S. and U.K. business or not. And are there enough opportunities within U.S. and U.K. or not. So if we find that it's within our management bandwidth, we have sufficient opportunities available to us within U.S. and U.K., we continue to pay attention to that. As I mentioned earlier, we recently -- 2 years ago, we met in the marketplaces. Now we're going into social media marketing. We're going into influencer marketing. And so these are additional opportunities that are available for our management bandwidth. So when we see that we have additional management bandwidth and some opportunity presents itself in these 2 markets, existing companies or even greenfield, we look at it -- we look at that and capture that. So other markets, you said Middle East, India, China. Those markets are still new markets, and they're having strong profitability and long-distance marketing yet. So we want to go into the market, which are already proven markets rather than be Maverick. And because they have very high-efficiency levels in terms of our operations, so a comparatively much lower price point than any competitor. So we will go into those markets, which are already there for long -- comfortable with long shopping.

[Operator Instructions] We have a follow-up question from the line of Sabyasachi from Centrum Portfolio.

Two follow-ups. One on the funding cost that you have recently launched, I think, in the last quarter. What have been the cost implication for this thing?

Yes. So the costs are much lower than the full channel. If it is high, we won't pay. But even on simulcast, we constantly look at our cadence of the cost that you're paying for that and the lift we are seeing from that simulcast. Real lift is not very high because it is depicted on our platform. Sometimes, we have [ repeats ] as well, the lift is still smaller. And the cost is -- associated cost is lower than the full channel.

Okay. And it gets reflected in the content and broadcasting cost only?

Correct. It does.

Okay. So if I compare year-on-year, the absolute amount, the absolute cost amount and also as a percentage of stains, I think it has gone down substantially from last Q3 '19 to Q3 '20? Any color on that?

Yes. So there are 2 reasons for that. One thing is we were spending quite a lot of money in certain marketing activities, which we're not getting ROIs. So we scaled down those marketing activities. Second thing is we continue to negotiate the airtime cost. We have a very micro level valuation mechanism that we look at every week on the airtime agreements. We have more than 100 agreements in U.S., and we have about 6 agreements in U.K. So U.K., if you don't look at too often, but U.S., we look at weekly basis. And if the market is not performing, we either lower the cost or end it. So as you saw, there was some exits because our absolute number has come down. And there were some renegotiation that shaved the cost.

Okay, okay. So lastly, I didn't understand actually on the modeling part. So basically, what I do is that I have the news feed of TV and Web both, and then I have the volume numbers on multiplan that I divide revenue and the currency impact to divide the Indian revenue in INR. I didn't understand how to divide without the volume numbers, if you can help?

So volume number, I think you should see it. We keep it constant. So not volume. The price should be kept constant. And then we're giving the guidance of 15% to 17% growth. So your volume would increase 15% to 17%. Now if the volume for the -- for some reason doesn't increase or even increases more than 15% to 17%, then the ASP will be different because we're giving guidance off net revenue number.

Okay. So this 15% to 17% is basically a blended constant currency growth both upon markets put together?

Correct. Yes.

[Operator Instructions] The next question is from [ Kapil Banga ] as an individual investor.

So first question is on the new customer addition. I heard your response on the -- that you'd be improving via the participant, but the initiative has been in place since a long time. I mean, for the last 1.5 year, hardly, this number has increased, and it has been rate bound. So these initiatives have not actually materialized into an increase in new customer addition. Could you elaborate on that?

So new customers have added 52,241 but not at the speed that would be increasing year-over-year. So that is true. Now the customer acquisition comes from all different channels in the marketplace. We know how many customers we acquire from other places or, from that matter, which do we have, which is rates that are very new. The new-customer acquisition through digital initiatives that we have just taken up, how many new customers we acquire. But there are also some marketing activities that we were spending quite a lot of money. We're not seeing a lot in terms of new-customer activation, but we scaled down. So we look at our -- each tactics or initiative wise. We look at overall productivity in some new customer acquisition and the revenue and the better margin. So we look at the branded business on each initiative and take a decision. And we also look at our business guidance that we've given with overall revenue growth and leverage. And we constantly look at that number and give that to internally on a weekly basis, on a monthly basis. We constantly -- your own delivery system, we look at constantly. So volume is something or the new customer is something that is actually first secondary, not the primary for us. Primary for us is the revenue growth overall, net revenue and net margin growth and cost control.

Okay. So I had a query on the cash flow also. So this quarter, the revenue and EBITDA both have gone up, but if you see these cash flow -- operating cash flow, that has actually gone down. So on a higher pace, we are incurring lower cash flows. And I understand before that the major return that would be the share of cash sales that are coming from Budget Pay. Now Budget Pay is -- a share of your sales coming from Budget Pay is only going up. So can we expect the incremental sales to generate less cash for the company as has been the trend in Q3 as well as 9 months.

So from a number of days, this is our inventory. It's constant. The -- on absolute number, it has gone up, but the number of days versus inventory is constant. And even the working capital overall is rather constant. But we have heard from CapEx. During the quarter, as I mentioned, as Puru has mentioned, the certain CapEx investments, factory building and some warehouse investments and some other areas. So you'll see some small variation. But overall, we believe our free cash flow is fairly, fairly healthy. And as you will see, the end of the year, we expect it to become even healthier.

So CapEx -- so question was on operating cash flows, not on free cash flow. So operating cash flows have also gone down, even on -- and you're saying working capital has been constant, so...

It was not the question followed up. But on the number of days, tops. So it has gone up, but number of days terms, it is constant. Absolute number is higher. So I don't have the exact calculation with me right now. But I will look for it.

On working capital, since the intensity of operations has remained the same, number of days are roughly at the same levels, then why would the operational cash flows go down on a Y-o-Y basis?

Yes. Sorry. I have to go through the numbers again, [ Kapil. ] But as I understand from the discussions that we have reviewed our -- the numbers we reviewed, as the business has increased by approximately 14%, 15%, our inventory and receivables have gone correspondingly higher. And that has consumed additional cash. I have -- it's a good question. I'll, again, review it how much has been exactly reviewed -- consumed by working capital. And what are the users in there. Perhaps in operating cash, the buyback and dividend to inquire that. So I have to review that further, [ Kapil. ] I can't answer it right now. Puru, maybe Puru can answer?

Kapil, if you the match for the growth, right, so corresponding to the growth, the data, and stock has been up. As Sunil said, in terms of day time say -- barring the data part as Budget Pay has increased to 39% from 38%. So that is in terms of number of days it has gone up by half a day. From 2.5 -- sorry, 20.5 days to 21 days, the datas. Okay, so both the increase in accidental value of cater and stock. It self-funded from actual. And if I do the math for that, balance is operating.

Yes, it is possible, [ Kapil, ] that the last year, we might have had a reduction in inventory or -- you see, I don't believe in the reduction. But inventory, we had some reduction that is from the year of financial 2017, our inventory was pretty high. That was -- and that time we get operating cash flows for the year. In the last 2 years, we had a good reduction in inventory, which naturally resulted in -- a little bit in terms of operating cash flow. But I haven't looked at the numbers and seen where exactly it has gone. But what it seems to me from my observation and what Puru was saying, since the operating number of days wise, we're constant. But absolute dollar wise, it is higher. And that is why it's keeping this number.

So just to be more precise on stock, on March 31, our stock level was INR 407 crores, which has gone to INR 449 crores. So there has been an increase of INR 42 crores. Now if you do the math for the growth, which is 14%, 15%. So you're applying 14%, 15% on INR 407 crores. And you have reached to INR 449 crores. So precisely, the inclusion of working capital has been into the same ratio. And that obviously has been self-funded out of the operating cash flow which you are switched. Otherwise, the company normally take -- borrow more money. So it's absolutely just because of these 2 reasons, that because of the higher growth, the data part as well as stock part has gone up, which is self-funded out of operating cash flow, and that is only to tax. And besides turning back towards VAT tax payments. So tax payments, as you know that we have multiple geographies, right. And all the geographies had such their own operating tax provisions from 21%, 19%, 15%, 20% sort of -- India is, of course, the highest but we then we have hedge. So that too is very tax-efficient. But then because of the higher profit share has been high tax payables also. So these are the free adjustments if we do corresponding to the growth and profit, you find the match absolutely in place.

[Operator Instructions] Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments. Thank you, and over to you.

Thank you all for your participation in Q3 this year's investor conference call. Feel free to contact the team to share any further questions that we can help you with. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of Vaibhav Global, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.