Vaibhav Global Limited (VAIBHAVGBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Vaibhav Global Limited Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Karl Kolah from CDR India. Thank you, and over to you, sir.

Thank you, Janet. Good evening, everyone, and thank you for joining us on Vaibhav Global's Q1 Earnings Conference Call for the Quarter Ended June 30, 2020. Today, we have with us Mr. Sunil Agrawal, Managing Director; Mr. Vineet Ganeriwala, Group CFO; and Ms. Dipti Rajput, DGM, Investor Relations. We will begin the call with opening remarks by Mr. Sunil Agrawal on the business operations, key initiatives and a broad outlook, followed by a discussion on the financial performance by Mr. Vineet Ganeriwala. Following the management's opening comments, we will open the forum 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 in nature, and must be viewed in conjunction with the risks and uncertainties faced by the company. A detailed statement and explanation of these risks is included in the earnings presentation, which has been shared earlier. The company does not undertake to update these forward-looking statements publicly. I would now like to invite Mr. Sunil Agrawal to start proceeding on the call. Over to you, Sunil.

Thank you, Karl. Good evening, everyone, and thank you for joining us today on Vaibhav Global Limited's Q1 FY '21 Earnings Conference Call. I hope all of you, your colleagues and near and dear ones are healthy and keeping safe. I would like to take you through key business highlights, give you an overview of the company's performance and share my thoughts on the business going forward. We have started the current financial year with another exceptional performance in the first quarter. The headline numbers marked considerable improvement year-over-year. Retail revenues improved 32%. EBITDA margin expanded 170 basis points to 14.1%, and profit after tax increased 47%. As this growth has been achieved on a largely stable balance sheet without any significant capital expenditure committed, we have seen strong improvement in return ratios and in free cash flow generation. Overall, we are highly encouraged by these numbers that reflect the success of some of the strategies we have executed over the last few years. In addition, Q1 performance has been delivered in what is normally a seasonally subdued period and in the backdrop of a widespread impact of COVID-19 pandemic. Our performance showcases the inherent strength of the business model. Over the years, we have emphasized on qualities such as inclusion and agility, which has helped navigate through the dynamic operating, technological and competitive environment. Towards the end of fourth quarter FY '20, we saw nervousness in the markets, and we responded with agility. In addition to our regular fashion jewelry and lifestyle products, we quickly offered health supplements, kitchen appliances, home cleaning products, masks, sanitizers and the likes to our audience. This resulted in significant volume increase to 3.2 million pieces from 2.3 million in Q1 last year, a 39% increase. This also resulted in addition of 84,000 new customers compared to 28,000 in Q1 of last year. On trailing 12-month basis, we served 426,000 unique customers in Q1 FY '21 compared to 347,000 in Q1 last year, an increase of 23%. The ties that we have developed -- deepened with our existing customers and developed new ones that we have built we will -- will have a long-term impact on the business growth. We see this momentum continue to take us forward in the foreseeable future, allowing us to achieve standout operating and financial performance reflected in revenue growth and improved profitability. In late, the lockdowns enforced in any geography has not disrupted our business activities. Our retail operations at Shop LC, U.S. and TJC, U.K., witnessed robust business growth with revenues up by 20% and 32%, respectively, in local currencies. Our global supply chain network includes manufacturing setups in India and China and direct sourcing from micro markets in more than 20 countries. When China and India were in respective lockdowns, other countries picked up the slack and kept retail operations adequately stocked. This diverse and wide locally staffed sourcing footprint has helped us serve our customers at elevated demand levels and continued to offer wide range of products, quick turnaround in product offerings and gross margin around the target level of 60%. Our team is our priority, and we have taken appropriate precautionary measures to ensure safety and health of all during this period of pandemic while continuing business operations. We paid extra compensation to our frontline workers and studio staff, warehouse workers during the lockdown period. Staff that are not really needed to be on site are continuing to work from home even now. We are carrying out numerous initiatives to help our team members engage and inform during this pandemic. We have not retrenched or furloughed any of our employees in any location due to COVID-19. Here, I would like to share some key initiatives undertaken during the quarter that will drive future growth as well. At Shop LC -- at Shop TJC, U.K., [ actually, ] a user-generated content, influential marketing platform was integrated into TJC, U.K. website. To strengthen our social marketing program, we engaged the TVPage platform that enables online ambassadors. We started simulcast on our -- one of our most popular channels in U.K. called More4. At Shop LC, U.S., home shopping celebrity, Chuck Clemency, who has been in the industry for over 27 years, joined us as an expert guest host. At our warehouse, we streamlined our workstations and added automotive conveyors. We've also invested in onboarding expert talent for expediting growth on emerging platforms. We continue to focus on our strategic objectives of expanding the 4 R's underlying business performance. That is, widening reach, growing new customer registrations, improving customer retention and increasing repeat purchases. At the end of Q1, the reach of our TV network stood at 100 million TV homes compared to 99.4 million in the same period last year. We have strengthened our presence on our omnichannel sales platforms, which include proprietary TV and web platforms, social media, OTT and marketplaces. An omnichannel customer has a significant higher lifetime value as compared to a single channel customer. New registrations in the quarter jumped to 96,000 from 36,000 same quarter last year. Our repeat rate defined as average annualized quantity purchased by each customer on trailing 12-month basis stood at 27.2 pieces per customer compared to 30.5 customers last year. This is down due to substantially high new customer acquisition achieved this quarter. Customer retention rate stands at 50.5% from 50.2% in Q1 of last year, improving steadily. Now we talk about some of the achievements. I'm happy to announce that Shop LC, U.S. received Governor's Achievement Level recognition from Quality Texas Foundation for ongoing quality improvement and high performance. This recognition indicates a well deployed, effective systematic approach to organizational management with good performance levels and trends evaluated against industry standards. In other notable achievement, Shop TJC, U.K. has been recognized amongst the U.K.'s best workplaces and best workplaces for women by Great Places To Work institute. As the world continues to reel under impact of COVID-19, we continue to show our solidarity with frontline medical and law enforcement teams, who have been working tirelessly for the last 5 months now. We donated over 160,000 masks across hospitals, care homes, police stations and grocery stores in U.S., the U.K. and India. In these challenging times, we've provided approximately 3.4 million meals to people in need to Akshaya Patra, India. Turning to our flagship CSR initiative, the One for One program, we crossed a huge milestone during the quarter and have now provided over 40 million nutritious meals to school children across India, U.S. and the U.K. since the program's inception 5 years ago in U.K. and 3 years ago in U.S. Before I conclude my opening comments, I would like to restate that Vaibhav Global Limited continues to drive agility and inclusion across every aspect of our business. This is resulting in sustained financial delivery that is visible in our ongoing retail revenue growth, operating margin expansion, growing earnings per share and rising return on capital deployed and cash flows. We expect the momentum to continue this year as well and we look forward to improving value for all our stakeholders. In the short term, our revenue growth will continue to be at elevated levels owing to customer propensity to online shopping during current pandemic. The elevated growth may continue in the medium-term as well, however, I would like to reiterate that we are favorably positioned to give us 15% to 17% retail revenue growth on constant currency terms. And you may already be aware that the business model has inherent advantages of significant operating leverages. To conclude, I would like to express my sincere gratitude to VGL Team, who make the magic happen, thank our vendors for their continued support and our community partners who give us a meaning to what we do every day. With that, I now hand over the forum to Vineet to discuss financial performance for the period under review. Over to you, Vineet.

Thank you, Sunil. Good evening, everyone, and welcome to Vaibhav Global Limited's Q1 FY '21 Earnings Call. I hope that all or you and your families are safe and healthy. I'll take you all through our financial performance for the quarter ended 30th June 2020. We witnessed a good start to FY '21, with both geographies recording strong performances during the first quarter. Our revenues increased by a strong 25% year-on-year to INR 550 crores. Gross margin came in at 64.3%, even as we expanded our portfolio of products to essential items. We have continued to see increasing sales contribution from fashion accessories, lifestyle, essential products in our overall product mix. We have maintained target gross margins of around 60% over the last several years while sustaining our deep value offerings across a growing number of product categories. Margins are also supported by our ability to source from micro market at lower cost and a quicker turnaround time compared to our competitors. Q1 FY '21 EBITDA margin expanded by 170 basis points year-on-year to 14.1%. And profit after tax grew by 47% year-on-year to INR 53 crores. As we expand revenues on a stable operating cost base, operating leverage continues to play out, and this trend may continue during the rest of the year as well based on the growth visibility for the business. Earnings per share increased from INR 11.02 for Q1 FY '20 to INR 16.37 for FY '21, driven by growth in profits. These financial numbers indicate a positive trend and a strong traction for our product offering among customers, even more so in the extremely challenging circumstances, several businesses across the globe are finding themselves in. As you all probably know, we have been focusing on the retail B2C business, which constituted almost 99% of our total revenues in Q1 FY '21. We have been early adopters of the omnichannel sales model. We continue to expand the engagement with our customers through multiple platforms we operate on, such as television, web, mobile apps, marketplaces, social media platforms and several new age digital platforms. This adds to our strength and gives us the flexibility of cross referencing customers, which is beneficial to business growth. While headline revenue grew at 25% on a year-on-year basis, B2C revenue from omnichannel platforms were up by 32% year-on-year. Within retail B2C, the TV home shopping based revenue were higher by 25% year-on-year, and revenues from web platforms grew 47% year-on-year. That is now contributing 37% of retail B2C sales in Q1 FY '21, up from 23% -- 33% in Q1 FY '20, as revenues continued to get more balanced between the 2 sales channels. While we continue to report these numbers separately, it is important to note that the 2 platforms are continuously converging to form a symbiotic omnichannel ecosystem along with several other emerging sales channels that I just mentioned. Volumes in both TV and web were strong, showing year-on-year growth of 39% and 40%, respectively. ASPs were lower on a year-on-year basis due to transition in the sales mix based on the larger range of offerings. In addition, we see our platforms increasingly becoming product agnostic. The contribution from non-JV mix to retail revenues has been expanding, and it now stands at 36% as compared to 18% in Q1 last year. Growth in both the geographies have been robust. On a constant currency basis, Shop LC, U.S., grew by 20% year-on-year, while TJC, U.K., grew by 32% year-on-year for the quarter. We reported healthy cash flows for the quarter. Operating cash flows for the quarter stood at INR 87 crores and free cash flow came in at INR 82 crore. Return on equity was 26%, while ROCE improved to 49%. The uniqueness of our business model supports high cash accretion on a low asset base and low CapEx requirement for a significant scale up, combined with a negative net debt position, results in a higher ROC on a consistent basis. We have put in place our dividend distribution policy based on which VGL would now endeavor to maintain a total dividend payout ratio in the range of 20% to 30% of annual consolidated free cash flow of the company. Based on the same, the Board of Directors declared an interim dividend of INR 5 per equity share for Q1. To conclude, we have witnessed another quarter of strong growth, especially in this challenging scenario the world finds itself in. This has been possible due to our agile business model, which has helped us consistently to adapt to change. Cost consciousness is firmly embedded in the company's culture. In current time, we have renewed our focus on cost rationalization and cost rebasing by renegotiating all contracts. We maintain a strong balance sheet that allows us to reward shareholders while evaluating any new growth opportunities. Going forward, we expect to maintain our growth momentum to add further value to every stakeholder associated with the company. With that, I conclude my opening remarks and request the operator to open the forum for questions.

[Operator Instructions] We take the first question from the line of Pritesh Chheda from Lucky Investment.

Sir, at this juncture, do you want to call out for a sustainably higher growth rate on a constant currency basis for us in FY '21 and also a much higher growth rate on a sustainable basis from hereon versus a 12% to 15% growth rate that we were earlier calling out on constant currency?

Pritesh, this is Sunil. Thanks for your question. So first of all, our earlier growth rate guidance has been 15% to 17% for last, I think, couple of years. So the current pandemic environment is something unknown for us, although we've responded very -- in agile manner, and we've also acquired lot of customers. But there are still a lot of unknowns. We may continue at higher levels, but at this time, we are continuing our guidance of 15% to 17%, mainly because there are a lot of unknowns.

Okay. Any supply side challenges that you are incurring? Or any challenges for the 15% to 17% growth rate generation?

Not at all from supply side.

Okay. And thirdly -- third question is, sir, on the U.S. operations, what would have been the market growth rate in the TVC (sic) [ TJC ] business there, and any market share changes that you would have seen in the quarter gone by, if you have some educated guess there? And from the initial commentary, you mentioned that the platform has become product agnostic. So in a latter stage, someday, the TJC, which is the jewelry channel U.K. also eventually have to be repositioned at some later date into a different name to accommodate the product agnostic platform?

Sure. Pritesh, there are 2 questions; one is about market share and other about the naming of TJC, U.K. So market share wise in 3 years, this is the data that we recently looked at, so we increased our market share from 1.5% to 3%. But we have a long runway in front of us. I'm looking at only television/e-com players. We do take market share away from other brick-and-mortar as well but I'm not counting that. So we have a lot of runway in front of us from 3% up to the industry leader, which is Qurate group, they have 93% market share. So there's a lot of runway in front of us. Second point is about TJC, U.K. So TJC, U.K. is already product agnostic because it used to be the jewelry channel. So we renamed it TJC about 4 years ago. Since then, it has been product agnostic, and we don't need to change it for the name -- for the product sake.

So now it is now known as just TJC. It's not known as the jewelry channel, nothing of that sort?

Correct.

We take the next question from the line of [ Lakshmi Narayanan ] from ICICI Mutual Funds.

Couple of questions. First is, over the last 4, 5 years, how the demographic of your customers in both the U.S. and U.K. have changed in terms of age as well as any other income patterns? That's the first question. The second question is that from a fulfillment rate of your assortment, how the efficiency has actually improved in the last 4, 5 years? And the third question is that if you look at the product placement either via TV channels and also various other things like Amazon, Google marketplace, et cetera. What's the kind of margin difference that actually happens between television and the other channels?

Sure. So your first question is question about customer demographics. So on the television space, the customer age group is same. It hasn't changed because people who stay at home or people who have retired spend more time on television, but with our switch more and more towards digital and social, our average age has come down a bit. I don't have exact data right now with me, but we are seeing, in fact we just discussed last Board meeting only, we presented what is the age group. So we are seeing more 20s, 30s age group showing up as a ratio of total customer group. Second question about fulfillment. We have added automation in our warehouses over last year. And that has improved our picking and passing productivity. But our productivity compared to Amazon is still about 1/3. So they are 3x more efficient than our warehouses are. And that is our future growth part for further cost reduction part as we go into the new warehouse, automated warehouses that are in the plans. We will improve our efficiencies substantially Your third question was about...

Sir, on that front, where are the warehouses right now? And where are we planning to add any warehouses?

So within U.S. and U.K. only. So we are continuing to add automation within our warehouses. And as we run out of our capacity, so we are planning 3 years out, so as we run out of capacity -- as we would see running out of capacities, we will add warehouses locally. And over the longer term, we will add warehouses in different locations, especially in U.S., we'll be adding warehouses in east coast and west coast. Right now, we are located in south central location of U.S. So to get closer to the customer and faster to the customer, we will be adding warehouses locally. But that is still in early stages of planning, no concrete location or CapEx plan from that yet. Your third question was about product placement at the marketplaces and other properties, how the gross margin differs. So our gross margin is identical at marketplaces as well as our own digital properties. Because the same feed that goes on our platform goes automatically on marketplaces like Amazon, Walmart, Wish, eBay, Overstock and Google. So all those marketplaces have automatic feeds. So it's not manual feed. And so the gross margin is very similar because product is same. So margin...

But if you have -- you have to be -- you'll be paying some placement fee, et cetera, in the platforms. So on the margin at your end, what is the difference? Not of the gross margin, but on -- after deducting the expenses?

So I don't have exact data, but yes you're right, we pay placement fee, the sales fee and also some advertising fee on those platforms. I don't have exact profitability numbers in front of me for each segment, but we know that things have...

I am trying to understand because -- I'm just trying to understand if you kind of put all the costs together for television and then if you put cost for this, right? So at the operating margin level, what delta is actually is because as the mix is changing towards more of non-television, so is it good or bad for the organizations as we move forward for the next 5 years. That's the reason it’s become [indiscernible]

Yes. So as I mentioned in my opening remarks, our business is pretty much omnichannel, and we try to move customers extensively into different channels, because their lifetime value goes up by at least 5x if we do that. So our interest is to move people from social to our digital properties, from social to even marketplaces and from marketplaces to our digital properties and if possible to television as well. Because that's where the lift to the business comes in. Now when we look at stand-alone basis, all properties, whether it is marketplace or digital or television or even social now, they are all profitable for us stand-alone basis. But our main benefit comes when we move customers from one channel to other.

Sir, on the first one on the demography, right, what is the average age right now for our customers in U.S. and what is it in the U.K.?

I don't have that exact average age, but our customer demographic used to be from 35 to 75, now it's about 25 to 75.

Got it. Got it. Okay. And is it skewed towards the above 50 or any idea on that?

So television is skewed towards older age. Digital is a little lower. Market age is even lower and social is the lowest.

We take the next question from the line of Chintan Sheth from Sameeksha Capital.

Am I audible?

Yes, you are.

Yes, sir. Sir, I have 1 set of question. So if you look at our growth, TV compared to web, that is growing faster so -- past 3, 5 years. And within TV, my understanding is that we have roughly 2 TV channels each in U.S. and U.K. through which we broadcast our products. So my first question is, can we sustain our rate of revenue growth in TV from the existing broadcasting space, and if we aim to grow much faster than that, whether we need to add channel count or broadcasting space per se to grow TV side of the business. And related to that, since our web sales again has been stronger than our TV sales, I understand our omnichannel models and lot of our efforts on TV front is driving web sales as well. So in that context, how do we see your incremental investments in TV and web over the medium-term in terms of building the platform or building broadcasting space in either medium?

Thanks, Chintan, for your questions. So TV revenue growth will continue for a quite visible foreseeable future. The reason is that we still are not into the prime channel positions that our competitors are. So as I mentioned in my opening remarks, we contracted with More4 in U.K. and similarly, in U.S., we are going to experiment with those prime channels positions. They come -- they are more expensive. So we are experimenting with small markets and see how those markets pan for us. In U.K., it has been doing well for us. So when you look at QVC or HSN, their revenues are from $25 to $60 per home, our revenue is around $3 per home. So from TV space also we see a lot of potential for many years to come. From that sense -- as you see the ratio of our sales in web continues to grow up because web has more potential and we are continuing to invest in web platforms on native web as well as web-related properties like OTT, which is smart television and also social media. The other marketplaces that is web based, and those are seeing much higher growth than our own digital as well as television.

Sir, incremental investments, given the growth, will still look lower because we -- our efforts in the digital and that on social side will continue to grow the business, while -- even if we go for higher cost prime time channel space, it kind of offsets the overall trend in terms of broadcasting content. Is that the way we should look at it?

Yes, we'll continue to see leverage because we are more measured in our approach as a business. So the -- that will leverage into free cash flows as well as into operating profits.

Okay. So incremental greenfield channel or incremental additional channel, even though it will be -- cost will be front loaded, you believe that can be offset by the increase in the growth from the other mediums?

That is correct. And we have a very rigorous method of evaluating any new opportunities. So I think new channels we take, we have evaluation methods of 1 month, 3 months, 6 months, 1 year and 15 months. And at every level, they must meet certain criteria. Otherwise, we exit that market very -- with a lot of agility. So I don't believe such kind of agility is normal for this industry.

So if I need to ask cumulative, how many hours of broadcasting content we display through our TV on a daily basis in terms of...

We are live 24/7, so those many minutes a day. Now, how many channels that we broadcast on? Currently, it is less than 2 channels per home. I don't have exact number, but it is less than 2 channels. I mean, QVC is about 3.5 to 4 channels per home. So we have lot of room to grow from that point of view.

We take the next question from the line of Ashish Kacholia from Lucky Investment.

Congratulations on a great set of numbers. My question basically, sir, can you just talk a little bit about what is our strategy and the kind of traction that we are seeing on the Instagram platform? I see your web page on Instagram and it is quite interesting with a lot of following. So if you can just talk a little bit about that.

So earlier, we used to just advertise on Instagram. But since last about 4 months, we have started to present the product through the videos and through still images on Instagram. And that is giving a lot of traction. So we're getting revenue directly from that as well as following, and we'll continue to accelerate that method of promotion. It's called social DR, social direct response and we are standing up a very robust team to take advantage of that.

Okay. And so what are the kind of investments? Or what are the kind of percentage of sales that you hope to do on this platform over the next 2, 3, 5 years, whatever?

Still very new. So to give a projection on that would be -- we have our internal projection, but to state the -- a projection to wider community may be too early. But we are standing up a team of about 8 to 10 people between U.S. and U.K. and India and accelerate that business.

Okay. And on Facebook, do we have a similar kind of a commerce channel on Facebook as well?

Exactly. So same feed goes both, Facebook and Instagram.

All the very best.

Thank you, Ashish. We are very excited with that future growth potential in that space.

Yes, it looks very interesting because I see lot of women commenting, oh, this looks so good and this looks so nice. And it's kind of -- it kind of seems to be quite a buzzing kind of a channel. So that's kind of very interesting. Ultimately, I think it's a question of how big a community can we create. I think this is a real classic case of success building on itself. So if we get this right, I think it can just completely change the fortunes of our company.

That is true. And actually, what we have done is we are standing up a very strong innovation team, product innovation team as well because social is all about innovative products. Although we were innovating earlier very much, but we were more trend spotter earlier. So standing up innovation team who can come up with a solution product that customer or people or innovators want something that are outstanding in the market. And that will play into these particular channels. And we are very excited with the whole ecosystem that we are creating.

No, my thought would be that suppose we were to be the ZARA of the space, the fast follower model. So you have lot of these very expensive designs that come out on Harry Winston or all these very expensive jewelers, right? But the consumer aspiration is such that they want those same jewelry, but they want it at $30 [Foreign Language]. So if you can deliver a $30,000 piece at $30 then that's like an insane value. So -- do you feel that we can do something like this?

So the ZARA model, we have been following up for many years, Ashish. Our idea is to go one step further also for social channels to come up with the solution product that people -- which is not out there. Looking at the problems that people face, for example, customers might be wishing for certain solution in their lives and they can't find a product for that. So we want to be able to address that need, in addition to what is already out there, but cheaper.

Great, sir. Your thought process seems to be on the right track, and I just hope we can really execute on this. I would just say that, sir, we should not under invest in this. I mean, this is some -- if need be instead of 10 people, if you feel that there's more potential, then maybe 20 people, 30 -- I mean, as much as this part of the business needs, I think it -- that kind of investment we should give it because we have the cash flows now to do that.

Of course, of course. Thank you for the advice. We'll keep that in mind.

We take the next question from the line of Akash Singhania from Motilal Oswal Mutual Fund.

Congratulations on the great results. I have 2 questions. First one is, we have seen a lot of new customers, the first time customers this quarter. So I wanted to understand whether these new first time customers are as profitable as repeat customers? Or there has been any cost of acquisition like discounts, rebates or incentives to any of the new customers?

Okay. You have another question or should I answer this one?

Yes. And the second question is, in the nonjewelry sales, which has now almost doubled this year -- this quarter on a Y-o-Y basis, almost from 18% to, I would say, 34%, 36%. So can you [ explain ] what the trends you are seeing in terms of, I would say, return of these things and cross-sell for these customers from our jewelry part? So these are my 2 questions.

Thanks for your questions, Akash. So from the new customers’ point of view, the cost of acquisition is not anything meaningful extra. We do some incentives on social or from marketplaces to transition to our main channel, but they are not very meaningful. So these new customers came mainly because of the product offering and the engagement that we had during this time. Because during pandemic, other retailers -- the brick and mortar were closed and people didn't want to go out, so shopping online and on television was predominant. So no, we did not spend much time and much money in acquisition of these customers. Our opportunity is to engage these customers and have their repeat purchase rates similar to what our historical customers have shown. So that we have a waterfall methodology drafted at both channels, U.S. and U.K. to utilize these customers -- to engage these customers to outside products, say, jewelry product or the other home product or accessories product. They might have bought some essential, they might have bought home product, they might have bought jewelry during this time, how to engage them further. So that continues to be our opportunity and our task. And that is why we are not giving a firm elevated guidance at this time because we don't how much we can engage these customers. We hope to do so because we are seeing in current quarter, our sales growth is continuing to be at a higher level, even though the essential products have gone down substantially. So we are seeing that right now. But how long it will continue? We don't know. Your second question was about nonjewelry sales, more selling those customers other products. So as I -- this would also be pretty much a similar answer to the first one. So we have a waterfall systems in place, which is about more than 10 tactics to engage those customers into different way through discounts, through offerings, through catalog, through calling, all those methods. And we are continuing to do that. And we are seeing some traction on that. But it is still too early to say how much we will be able to transition those customers into other business.

We take the next question from the line of Pulkit Singhal from Motilal Oswal Asset Management.

Congrats on a good set of numbers. Just wanted to further check on this 32% kind of revenue growth momentum, is it fair to say that April-May have been a bit impacted? But I mean, the way we are looking at is June, the recent trend June-July, we are working at a higher level than the timings?

So 32% revenue growth was for the whole quarter. April initially, a couple of weeks were slow, but after that, it really picked up for the whole quarter. And we are seeing Q1 type of revenue growth currently in July. But how long it will continue? We don't know. It is still very early in Q2. But how long it will continue? We don't know. So that's why we are not giving any elevated guidance at this time.

Okay. And to that extent, that product mix could reverse as well? I mean it is possible that jewelry launch will be...

Yes, product mix has already changed from Q1 to Q2. Q1, we had approximately 17% essentials. Right now -- and the trend we are seeing right now is only about 7% essential, even level -- less than 7%. But the sales is at the elevated level. So we are continuing to offer products for what they need. So jewelry sales has again resumed to be at a higher level and other, say, kitchen product is continuing to sell well. The -- in jewelry, earings are selling well because a lot of people are on Zoom calls, all the tops are selling better than, say, bottoms or skirts. So we are moving very -- with an agile method with whatever customer is needing.

Okay. And what percentage of this now -- the web sales of $203 million do we have from other platforms versus our own platform?

Pulkit, I don't have that exact data right now, but maybe we can share that later with you.

Sure. And on...

I can only tell you about the marketplace, as I remember. The marketplace was about for last quarter -- I don't know, I don't have exact data. For the whole year, last year was about $4 million approximately marketplace and this year's current revenue trend is about $12 million -- $10 million to $12 million. So that is the only data I can -- I have visible to me.

$10 million to $12 million is this year or this quarter?

This quarter is the run rate of about $10 million to $12 million for the whole year, so that is run rate. So last year -- last year, we did about $4 million in marketplaces. This year is about 3x higher. So what it tells me is that when we are selling at marketplaces like Amazon, Walmart, eBay, our product -- it shows our product's strength. Because we are competing there with millions of vendors. So our product sense is robust. So we are able to grow 250%, 300% in marketplaces in competition towards the players. That gives us confidence in the product.

Okay. Great. And sir, in terms of the costs that we've seen this quarter, whether in terms of employee cost and other expenses, I mean they're growing 20% and 26%. I'm just wondering whether there are some one-off elements this quarter because of the COVID, I mean, situation, there are higher costs. Is there something that you would like to call out? Or do you think these are the more sustainable run rate as you're investing in...

Vineet, do you want to answer that?

Yes, I'll take that, Sunil. So yes, we have some COVID cost as we may call it because like Sunil mentioned in his opening remarks, we paid higher salaries to our warehouse staffs and studio production teams who operated in this COVID pandemic from the site. So altogether, if we remove that extra COVID cost, which we've paid during Q1 and also there is some ForEx translation coming into play because the average rate being higher for Q1 this year. If we remove both of these, the employee cost would be increasing at a rate of about 8% to 9% year-on-year, which is pretty much what we expected it to be.

Right. But -- and that would reverse by Q4? Or that will continue as you continue to, I mean, have a limited cost because of COVID?

So the COVID cost of 4% to 5% will reverse from Q2, but the ForEx translation would depend on the prevailing rates.

Yes, yes. Okay. And lastly, what is the CapEx plan for the year?

So right now -- last year, we incurred about INR 35 crore of CapEx. So our run rate CapEx is pretty much similar. Unless like Sunil was mentioning, the go-ahead and invest in some of the warehouse or the office premises, which will come on as we see viable project for that. Other than that, the run rate CapEx is close to INR 30 crore for the year.

We take the next question from the line of [ Lakshmi Narayanan ] from ICCI (sic) [ ICICI ] Mutual Fund.

Sir, if you look at your sales returns, what is usually your sales return? And how you're handling that logistics issue given COVID? That's one. And second, in terms of the nonjewelry items, and you make -- you even sell something like hand torches, et cetera, right? So how do you manage the FTU mix? And what is the proportion of that in our sales and what growth it is actually seeing? And how do you plan to grow that particular nonjewelry item in your portfolio of products?

Thank you, Mr. Lakshmi Narayanan. So sales return is a normal part of business in our case. So we have approximately last quarter or we saw similar -- so last quarter of financial year '20, we saw elevated returns that the people got nervous. But in the first quarter Q1 FY '21, that is our normal return rate, which was approximately 18% -- 18.6%. But we have a team in our warehouses that handles the returns. And like any other warehouse people, we were there as well. And we paid extra during the COVID times and we were there, and we are still out there. So our returns are -- in fact, it used to be about 2 days backlog, but right now, we are not even 2 days backlog. We are refunding the people same day of the product reaching us to make them comfortable and...

And this -- I'm sorry to interrupt, sir, this 18% return is something, which has been there for the last 3, 4 years? Or it's been -- and how do you handle that returns? Once the return happens, do you kind of refurbish it and send it to the place of origin? How do you handle that part also?

So some portion of returns, a very small portion of the return, if we have to say, we sold wigs to the people. And if it comes with the seal broken, then we don't sell it back or, say, the lingerie we sold, we don't use it back. We put it into trash. But most of the product, for example jewelry, we inspect it for quality. If it is of right quality, we put it back. If it is earrings, then we steam it, sanitize it and then we put it back. If it is other household product, if it is usable, then we put it back. So a very small portion of that is discarded. Since, most of our product is sourced from Asia, we don't send back to Asia. We -- if they are small-run products, which doesn't go on, yes, we put it on our rising auction or clearance section. Rising auction has a mechanism of starting everything at $1, and at whatever price it clears, it clears. So we have very good mechanism of exiting the small tails or returns. So we don't have accumulation of inventory, as you would have seen our cash flows because of -- we don't accumulate inventory of small tails. We have a good mechanism, so we don't accumulate. Your next question was about nonjewelry product, how the mix is changing? So as you might have seen our nonjewelry products have steadily increased as of the ratio of total sales and we expect that to continue because as we are learning more about the product, as we are learning about customer taste, as our merchandising, our sourcing is getting better, that ratio will continue to steadily increase. Although within this quarter, it increased suddenly because of essentials, but in long run, we see that continue to steadily increase over the time. And we are also learning, for example, the fabric Kaftan is receiving great traction. So we just started a factory in Kaftan in Jaipur. So it's a contract actually we just started -- actually started last month only. So as we see traction and volume increasing for us in certain category, we'll go deeper into it, into manufacturing or contract manufacturing or our own manufacturing. So we'll continue to go deeper and retain our value proposition for customers and capture the channel margins as much as we can.

And what is the mix now, jewelry and nonjewelry? I missed that part, sir.

Alok, can you share that number?

Yes, Sunil. So the nonjewelry is right now 36% and jewelry is 64% for this quarter.

And would it be in terms of your arrived operating profit margin? How that mix would be approximately? It'd be similar or it would be in the other way round?

So the operating margin, Alok. Yes. So Vineet, go ahead.

So we have quite similar margins across the different product categories. And like maintaining the gross margin above 60% is one of the basic rule we follow for the product to find a space in our TV or web. Sunil, if you want to add anything?

That is precisely correct. So we start with our gross margin. So whenever a merchant merchants a product -- merchandises a product or whenever our -- India, China, Thailand or whichever our local units offer a product to channel buyers, they keep the margin in mind. So we have got a rule that we won't sell any product below certain margin. So we start seeing that. And if the product doesn't make those criteria, it doesn't get picked up. So it doesn't go from product to margin, but from margin to product.

We take the next question from the line of V.P. Rajesh from Banyan Capital.

My first question was regarding the new customers that have come on the platform. Can you just comment of what is the driver for that?

So 2 drivers. The main driver is that people are staying more indoors and brick-and-mortar retail was not as prevalent. And second thing is -- and combined with that, our essential and home product offering that we sourced very quickly and offered. And the second is that we are -- more and more we are transitioning customers from different sales channel, for example, marketplaces. And as I mentioned earlier, we are seeing sales tripled from those areas, and we're transitioning those customers to main business. From social DR, we are transitioning to the main business. From OTT, there is streaming platforms, we are going aggressively into marketing to those customers and transitioning those customers to the main business.

Okay. Sir, you -- some -- most of the people in these markets, especially in the U.S., they had these payments given to them for unemployment $600 or something. So do you think your sales were impacted because of that kind of stimulus? Or do you think this kind of customers coming on board are sort of sustainable and will stay with us for a longer period?

So stimulus might have helped them sustain their normal buying behavior, which may not have, if this money had not come. But we don't believe that this money has actually highly elevated our sales -- the sales or the customer acquisition. That was mainly the result of our -- us offering them right product at the right time and elevated viewing or online shopping.

And my second question is, could you share the customer acquisition costs, especially on Insta or Facebook that you were earlier talking about?

I don't have exact data on that, Mr. Rajesh. Everything is bid into -- on our P&L. So television properties and from our digital properties, all our marketing costs are not really high. It is we are relying more and more on the product strength and the product stories that catch people's eyes. From Insta and -- from my memory, from Insta and Facebook, our platform costs are approximately 30% to 40% of our sales currently. That is the cost that you pay to them. So if you have 60% margin, that is really affordable to us.

So 60% is excluding your marketing cost and cost of goods?

Correct. So no, no. Yes. So our outside cost of goods, our gross margin is 60% or 64% in last quarter. Of that 60%, we are spending about 30% to 40% into platform cost. And at these times, I point, they're still very small revenue for us at this time. So they don't really count into our overall mix. Now from the platforms of marketplaces, that is Amazon, Walmart, eBay, Overstock, Google, our platform cost is approximately 30% to 35%. There is a fee we pay to the platform and the marketing we do within those platforms.

Right. Okay. That's very helpful. And the other question I have is that what is your repeat customer count, meaning what percentage of customers are repeated this quarter where they had bought it in the past and they are coming directly to you?

We look at repeat in terms of how many pieces that they bought from us on an average over last period. And we look at trailing 12-month numbers. So as I mentioned, it was a repeat purchase of about 27% compared to 30% last year. And the second thing we look at, retention. How many customers that purchased year before, purchased in last 12 months. That number is 50.5% compared to 50.2% of our corresponding period year before.

We take the next question from the line of Sabyasachi Mukerji from Centrum PMS.

First of all, congratulations on a great set of numbers. I had 2 questions. First, you mentioned that you're witnessing elevated revenue growth for the current quarter as well. What's your outlook in H2 of current financial year, given that U.S. elections are scheduled? If you can throw some color on that?

So we may see elevated growth continue if the habits or the behavior continues. If people stay indoors, you'll see elevated growth continue. If the elevated growth does not continue -- if you find vaccine, if people are able to travel very openly as they were using the travel before, we will go back to 15% to 17% growth. Now how much of the new customer that we have acquired during pandemic, how many we can transition to the H2? We do not know yet. So that is why we are not giving higher guidance at this time.

Okay. Second question actually had 2 parts. So I was going through your annual report. First of all, that if I look at your other expenses between FY '19 and FY '20, the absolute value remained same, I mean, INR 70 crores odd of other expenses, hardly anything -- any addition out there. So -- and this figure seems to remain constant over a considerable period of time, which is why we have seen the operating leverage to your -- or how much this number can see up or providing discount in constant near and medium term at this time for some items?

I will take that, Sunil. So you are right. Our model is unique, and we operate on a very stable kind of a fixed cost, which will not go up commensurately as the revenue goes up. So we have been able to drive operating leverage for the last many years, and we expect to continue doing the same. In this quarter also, like the same as reflected in the expansion of EBITDA margin to 14.1% and even PAT margin coming closer to 10% now. So we do not give any guidance on our profit margin expansion. But yes, cost being largely stable except shipping cost, which will continue to go up in terms of volume growth. The other costs are more or less stable. So we'll see operating leverage going forward as well.

Okay. Two items out of that other expenses, one is your -- I feel that's -- which arise the position of -- or rise from the budget pay penetration and the budget pay was around 39% of the sales in FY '20, which translates to around almost INR 770 crores. So out of INR 770 crores, you have almost INR 19 crores of doubtful debt, which is around 2.5%. Do you see the same level of provisioning and -- of doubtful debts going?

Sabyasachi, the doubtful debts and advances for Q4, if you are talking about last year, also had maybe besides the budget pay, it would also have some element of B2B of doubtful debts also there. Now which we are like -- as a strategy, we have been reducing it over a period of time. So going forward, these will only reflect the B2C numbers, which are very healthy. So if you look at our bad debts for U.S. and U.K., they are in -- to the tune of about 1%, 1.2%. So you should see that only going forward.

So this number will come down, I mean, this number will be [ increased ] loss or kind of doubtful debts we are having, this number will come down. If it's very urgent?

In terms of percentage of revenue, it will remain same in terms of B2C to the level of 1%, 1.2%. It will -- it should remain at that level. The gross number will follow the revenue, so B2C revenue trends.

And the other thing was on the rent part. So I see almost your rent coming down from INR 16 crores to INR 8 crores. Anything over there? And some mouth on this?

So in last year, it was the Ind AS restatement, which we also disclosed separately. So it was largely because of that. Otherwise, the rent has not come down to 50% in the last year. But that's a regrouping, which was applicable last year because of the Ind AS restatement. From the current year level, so you will see these levels of rental like impacted by renegotiations and also some contract-based increments as well.

We take the next question from the line of Akash Singhania from Motilal Oswal Mutual Fund.

My question is, sir, we already have a net cash of almost INR 250 crores. And post our dividend policy, I feel we can almost double our cash flows in the next 1 year. So in terms of deployment of capital of our cash flows, are there any acquisition opportunities? And if there are acquisition opportunities, your views of perspective on the kind of capabilities, synergies and size of acquisition we would be interested or looking for?

So thanks for the question, Akash. So we continue to build some cash within the group for any potential opportunity that may come our way. So far, we don't -- have not identified any specific opportunity. But we want to be prepared if something comes. But at this time, I cannot give you any visibility on that.

Okay. In terms of any areas in the front end, back end, in terms of business segments or capabilities or synergies, you look to have from any target acquisition in any respect or any area, if you could share your perspective?

Yes. If you will look, it will be mostly in the front end, whether it's digital or other TV, e-comm player to expand our customer base.

We take the next question from the line of Runjhun Jain from Nirmal Bang.

Congratulations to the management. Sir, I'm sorry, but I would like to pressure you a little bit more about the growth. We have done an amazing growth in this quarter. And you're saying that from near to medium term, it is likely to continue. Then I don't understand -- and you're also saying that the essentials has come down and this is the normal sales and normal products, which has been selling. So why the management is not confident of probably upgrading the guidance or of continuity of this growth?

Thank you, Runjhun. Thanks for your question. The main reason is that we believe that the pandemic behavior of people staying indoors are helping online shopping and TV shopping. And we do not know how -- when it will end. So we believe that once it ends, then the situation may again revert back to our 15% to 17% growth level. So that is why we are not giving that firm guidance. So now -- also, this is still very early in the current quarter. It's been only 1 month we have seen the elevated levels. And if the behavior changes next week or next month, then the growth may not sustain. So pandemic is so uncertain, unprecedented, it's very difficult to replicate any past behavior into the new behavior. So we don't want to take that risk of giving a guidance and not meeting that.

Okay. Fair enough, sir. Sir, one more thing though. During the quarter, we have seen that the average selling price has come down, both for TV and web. Despite that, we have reported improvement in the gross margin. Just wanted to understand any reason specific why we are seeing the average selling price coming down? And then what is driving the gross margin?

Yes. So the lower price point, it doesn't mean that it has lower gross margin. In fact, our lower price point overall strategy has allowed us 60% kind of gross margin compared to other retailers who don't made these margins. So on TV and web, both we offered a lot of home products and essential products. Even in the jewelry, higher price points were not selling as much as lower price points. So overall, during this pandemic, a lot of lower price point products sold. And as I've said -- we have said it many times that we offer customers what they need. We are very agile in offering the right product to the customer, and we would offer -- so we depend on customer what they are pulling rather than we pushing.

Okay. Great, sir. Sir, just last one, just closing question. Is there anything onetime or one-off in the interest cost? Or that should be the run rate, because that has come down quite drastically? I mean, I do not know, would only the bank charges probably and all that because it's a digital company. But why it has been as compared to the last quarter or why it has been so down?

So there is no one-off in the interest cost. But what gets added to the interest cost is also the ForEx impact of the working capital loan, which we have in India in USD. So it also depends a large part of that ForEx rate movement between queue and key and so. So maybe in this quarter, the impact of that ForEx loss on that working capital loan was not that much, which might be causing this number to be low. But overall also our utilization of the working capital limit has been a little low when we look at year-on-year. So our net-net interest cost is also down.

Sir, is it possible for you to quantify the ForEx impact?

We can -- maybe I can just have a look and give it to you by end of this call or separately.

We take the next question from the line of Ikshit Naredi from Naredi Investment.

Yes. So yes, my question is, you have a manufacturing facility in China. So is there any impact on manufacturing part or any kind of export problems you are facing between the country -- China and other countries like U.S. and U.K.?

So no, we don't -- we're not facing any problem for our -- for your categories from China in the current environment. Only when the China was in lockdown, at that time we couldn't ship anything from there. But now everything is normal.

Okay. Okay. And is there like any -- like more different type of products you are like -- you're planning to add in portfolio in U.K. or U.S.? Like you will have...

So we continue to add more than 150 products every day. So as customers pull the product, we offer to them. And we have a lot of transporting people who are continuing to merchandise and look all over the world what is new and then we offer. So it is an every day offer, every day phenomenon in our company.

Right. Right. And are you planning to enter in any new geography, like in any new location or something?

Not immediately. Our longer-term goal is to get into Germany and Japan, but there's no immediate plan.

We take the next question from the line of Jason Soans from Monarch Networth.

You did mention earlier in the call that you want to increase your market share in the U.S. from 1.6%. It's already increased from 1.5% to 3%, and you would want to increase it further, and you'll see a long runway for growth. I just wanted to understand in the U.S. as well in the U.K. market, what's your current market share and who is the dominant competitor out there?

Yes. So the most dominant competitor is Qurate Group. So they own about more than 90% of market size in both these geographies, U.S. and U.K.

U.S. and U.K., okay, so they dominate about 90%. Okay. And sir, just 1 question, what I wanted to -- you did mention that your low price points is after selling, and you see a lot of competition from the Qurate Group as well. So I just wanted to know what do you think is the USP of our products or USP of our value preposition?

Yes. So we are mostly a house brand company. So we develop our own brands and sell it under our brand, something like Zara. So we are more like Zara. And Qurate Group is more like Macy's. They sell third-party brands. So they sell national brands of all different products. So they have some of the house brands too. The majority of their sales comes from, say, Samsungs of the world or Bose headphones and all different products. So that is the -- and price point -- the average price point they have is about double than our price point, so they have a different positioning in the marketplace.

We take the next question from the line of Chintan Sheth from Sameeksha Capital.

Again sir, one thing I'd like to -- your comment on is the reversal of U.S., say, support from the government will have any impact on our consumer purchases because from your inputs earlier that jewelry sales has been higher in the month of July. That is kind of reflecting better actual consumption demand is coming back from essentials to jewelry. So any impact of payroll reversal from the government has any impact on our consumer? How do you see that? And secondly, on the technology, like we saw in '15, '16 with budget pays and easy returns. Any new innovations coming in, in terms of this offering from the competitors or something like that, which might disrupt our market going forward?

So your first question will the -- so the U.S., especially, the government has stopped giving the unemployment benefit to the consumers as of 31st of July. So far in the first 2 days, we've not seen impact of -- on our business for that. But will there be impact? I do not know. There's so much unknown at this time. So to make a guess is -- I shouldn't be -- we shouldn't be making that guess. So second thing is, in the U.K., there is no such issue, so we don't expect anything there. Second thing is about any IT issues. So far, I mean, we have, last 2, 3 years, we continue to invest proactively in our customer offering, whether it is shipping promotions or IT infrastructure or a team, we continue to make those investments and we are pretty proactive foreseeing any future requirements. So we don't have any visibility of any issues at this time.

And competitive landscape remains steady, and we continue to gain in this quarter as well like what we saw past 3 years, our market share has grown from 1.5% to 3%? Do we feel that we have gained the market?

Yes. It definitely has gained in the market and will -- we are confident that we will continue to gain the market share in short to medium term.

We take the next question from the line of Tanvi Jain from Hem Securities. We just lost the line for the current participant. We take next question from the line of Kapil Banga, individual investor.

Congratulations for the wonderful performance. So you have given guidance for 15% to 17% growth and did 25% plus. So you out-did your own guidance and worked the top, so that's the hallmark for the good management, congrats on that. So I have 2 questions, and these are on long-term strategy. First is, so we now have a very strong moat. We control the TV channel, we control the website and app through which have direct -- we have direct access to millions of households in U.S. and U.K. Now in the next leg of growth, is there a possibility to also use these robust platforms as marketplaces, at least initially or a limited basis, wherein third-party sellers can access their -- these end-sell products, maybe nonjewelry products and these act like marketplaces? So this will actually give a higher revenue with limited capital deployment and will also lead to broader choices of products for our customers, making web app global platform more immersive and more indispensable for the customers and it will also increase the wallet share. So that was my first question. Could you share your thoughts on this, please?

Thanks for your question, Kapil. It's very interesting idea. So we see ourselves as a product development and a very agile company. And with that, going into becoming a marketplace like Amazon or Walmart marketplace or eBay would be a big jump. So haven't really considered going that route yet. But in future, you know never know where the future will take us. At this time, there is no visibility for this one.

Okay. On a pilot basis, also there's something you would want to try in the near term?

So this initiative, if at all anybody goes, has to go with full preparation and a lot of marketing budget to get the vendors and the customers. So that is a strategy that has to go in a major way because you can't go pilot in this kind of new venture, if you have to go that direction. That is my point on that.

Yes, that's right. So the second question is that we started by selling jewelry and went into women wear and all. So understandably, most of the products were initially -- and they continue to be focused on women. Now we have successfully diversified into new products like hygiene products, health products and jewelry products have now fallen to 60% of the revenues. Any plans to add diversified, customer-centric brands that will increase the utility of this platform to entire family and helps us get a larger wallet share of the family?

That's a very good question. So we are continuing to develop our in-house brands. For example, we have a home smart brand, both at U.S. and U.K. developed internally. So within home smart, we have kitchen, we have living room, we have bedroom products like bedsheets, dhurries, kitchen knives and kitchen utensils. So those kind of brands we are extending to different segments within home. For health, we have a similar -- similarly, we're developing another brand. And we have another higher-end brands for home called Symphony home that takes care of the higher-end or high-quality products. And within, say, handbags or accessories, we have Sukriti, which is another handbag, hand-printed collection. And in jewelry, we have other -- many different brands that goes within -- for men and women as well. So to your point, we are developing our house brands and making sure those brands resonate within those particular segments -- customer segments, which can extend to entire family.

So I saw the men's trimmers also on the website a couple of days back, so that is also you -- so men's-centric products are also something that you are venturing into?

Correct. We are. We've been doing that, but not to that level. So that ratio has slightly increased in recent times. Now the trimer was not under our own brand, but it is something that we want to continue, and we'll bring it under our own brand in future.

Okay. I just had a feedback. This was a question that I had during the last con call also regarding the app downloads on the Play Store. So the app, just a follow-up observation on that, so -- and you mentioned that you have hired a senior guy as technology side and it will take time. But app downloads have still not picked up very well and some of the recent reviews on the app are not encouraging. So probably the client engagement and client satisfaction on the app can be improved further. That was just a feedback.

A very good observation, Kapil. We are continuing to work on our app, both in the U.S. and U.K. And the new app is under development. And hopefully, we'll have that launched in the current quarter.

Congratulations again for the wonderful performance.

Thank you, Kapil.

Well ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments.

Thank you, everybody, for your robust participation and for your continued support. So if you have any more questions, feel free to reach to Dipti Yadava or Shiv at CDR Capital. Thank you. So thank you very much.

Thank you. On behalf of Vaibhav Global Limited, we conclude today's conference. Thank you all for joining, you may now disconnect your lines.