Vaibhav Global Limited (VAIBHAVGBL) Earnings Call Transcript & Summary

Good day, and welcome to Vaibhav Global Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now had the conference over to Mr. Karl Kolah of CDR India. Thank you, and over to you, sir.

Thank you, Steve. Good evening, everyone, and welcome to Vaibhav Global's 9M Q3 and 9M Earnings Conference Call for the Month Ended 31st December 2020. Today, we have with us Mr. Sunil Agrawal, Managing Director; Mr. Vineet Ganeriwala, Group CFO; and Ms. Dipti Rajput, Head, Investor Relations. We will begin the call with opening remarks by Mr. Sunil Agrawal on the business operations, key initiatives and broad outlook followed by a discussion on the financial performance by Mr. Vineet Ganeriwala. After which the management line will be open for a quorum for 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 we face. A detailed statement and explanation of these risks is included in the earnings presentation, which has been shared with you earlier. The company does not undertake to update the forward-looking statements publicly. I would now like to invite Mr. Sunil Agrawal to make his opening remarks. Over to you, Sunil.

Thank you, Karl. Good evening, everyone, and thank you for joining us today. To begin, I hope everyone is safe and healthy. With COVID-19 vaccine being rolled out in phased manner, I would like to reiterate the importance of continuing to maintain social distancing and taking necessary precautions. At VGL, our team remains our topmost priority. So adhering our efforts of keeping them safe and healthy, we have been encouraging [indiscernible] and supporting our team members to get themselves vaccinated while maintaining all safety protocols in the meantime. As you may be aware, the retail landscape has structurally evolved rapidly over the last year more ways than one. Digital shift has further accelerated. Omnichannel retailing is becoming increasingly relevant. And customer buying behavior is shifting in favor of value-based purchases. VGL business model is ideally suited for these trends, and we are determined to make the best of the opportunity. I'm happy to share our Q3 results mark another quarter of relentless execution by VGL. Retail revenue, EBITDA and PAT increased by 30%, 37% and 41%, respectively, in Y-o-Y basis, resulting in sustained margin expansion. EBITDA and PAT margins at 17.4% and 12.7% have improved by 110 basis points. In a quarter normally expected to bear the impact of TV viewers focusing extensively on the U.S. presidential elections, we sustained the momentum of the previous quarters. Both the geographies of retail presence have reported robust Y-o-Y constant currency revenue growth. Along with strong growth in top line and profits, we continue to generate strong cash flows and have consistently improved our returns ratios. The reported ROE and ROCE at 30% and 56%, respectively, in TTM basis. Our net cash position improved with operating cash flows at INR 198 crores and free cash flows at INR 166 crores for 9 months FY '21. In line with our dividend policy, the Board has announced a third interim dividend of INR 7.5 per share, aggregating a total dividend of INR 17.5 per share in first 9 months of the financial year. We remain closely aligned with the continuously evolving customer preferences, especially in the times of COVID-19, resulting in strong traction across our omnichannel retail presence. On the overall, unique customer number at 4.7 lakh increased by 33% Y-o-Y and is progressively reaching towards the 0.5 million mark. Our vertically integrated model and a strong sourcing network in over 20 source countries has consistently delivered with prudent time to market and efficient product sourcing. This has enabled us to rapidly expand and diversify product offering to our customers. Rather noteworthy aspect of our supply chain is the ability for bottom cost and price discovery, which drives our new ASP as well as high gross margins. Customers associate our product with high quality and outstanding value and are increasingly engaging with us across our diverse platforms, including TV, web, marketplaces and social media channels. Omnichannel engagement drives retention and customer lifetime value. Summing up, the company has been able to persistently capture a larger wallet share in 2 of the world's largest and most advanced consumer markets. Here, I would like to discuss our background integration efforts in textile segment where we are -- we see solid opportunities. Over the past few quarters, we have experimented and built a working understanding in this area. And in December, we incorporated the subsidiary called Vaibhav Lifestyle Limited for the manufacturing and export of textile garments and related articles of India. We are excited and confident of reaping benefits from this venture, some of which include transporting and agile placement on our retail platforms, greater control on quality and price, smoother integration with our existing portfolio of product offering with respect to margins profile and the likes. We are still in the initial stages, and we'll share details as we make further progress in this space. We are a technology-driven global organization, where IT is embedded into the business processes, seamlessly trying up the point of sale and point of supply. Over the past several quarters, we have been investing strategically in various initiatives for improved efficiency and customer fulfillment. Some of these initiatives include wallet integration, new ERP, product personalization, artificial intelligence capabilities for various processes as market automation and warehouse optimization. And now to discuss some key developments during the quarter. Shop LC expanded presence on third-party marketplaces by listing products on Amazon, eBay and Walmart in Canada. To give boost to our influencer program, we recently partnered with Mavrck, a leading all-in-one influencer marketing platform. At Shop TJC, we lost the TJC PLUS, customer loyalty program that offers members several benefits and services, such as limited -- such as unlimited free delivery, next-day delivery, seamless access and no minimum spend. The user-friendly platform encourages customers to order from Shop TJC's TV, website, customer service, mobile app and even via streaming devices. We have seen great response and are happy to serve our customer better through the membership program. Some of the other initiatives at TJC include enhanced remote cohosting, personalized product offering, launched our warranty program and placed products on additional marketplaces at our Etsy and Wayfair. I'm happy to share TJC has the certified carbon neutral for the year 2019/'20. Moving ahead to our 4R's strategy that underlies our operating model, which focus on Reach, Registrations, Retention and Repeat Purchase to deepen customer engagement and fulfillment. We continue to undertake several customer-oriented initiatives to drive sustained improvement on each of these parameters. The reach our -- the reach of our TV network at the end of third quarter was 99 million TV homes, similar to Q3 FY '20. We reach TV homes through cable and satellite networks and over-the-air TV platforms. Our products are also available on digital channels, including our proprietary websites, smartphone apps, OTT platforms, marketplaces, influencer marketing and social direct response. New installations on a 12-month basis came in at 2.8 lakhs compared to 1.7 lakhs in corresponding period of the previous year. As discussed previously, the momentum of customer registrations has increased significantly over last 3 quarters due to COVID through expansions into new product categories and through expansion on new digital platforms for our marketing. As at end of December, we have seen our customers buy an average of 27 pieces on TTM basis as compared to 30 pieces in the corresponding period of previous year. This has been due to 33% increased customer base over the previous year. This has been achieved under -- sorry, finally, our retention rate stood at 51.4% on a TTM basis compared to 50.7% for the same period last year. A balance interplay of 4 hours drive the performance -- drive the business performance consistently quarter-over-quarter and year-over-year. At VGL, we are guiding by our belief in holistic approach towards sustainability, social responsibility, employee well-being, regulatory compliance and transparent function. We also believe that first framework creates a guardrail for our prospects for long-term sustainable growth. I'm pleased to share that Vaibhav Global was recently conferred Best Governed Company under listed settlement in our June category and the 20th addition of ICSI and National Award for Excellence in Corporate government. I'm happy to share that key operating entities within the group is Shop LC-us, Shop TJC U.K., VGL India and STS China are all certified by Great Places to Work Institute. Also, Shop TJC and STS China, featuring the list of best workplaces in respective countries. Further, our Jaipur SEZ premise has received LEED Platinum certification under the LEED v4 Building Operations and Maintenance: Existing Building rating system. Vaibhav Global's SEZ building is the only manufacturing unit in Rajasthan and one of the only 2 across entire India to be certified as LEED Platinum level under LEED v4 O+M. At VGL, community giveback is integral to the business model where every unit sold results in a meal for a school-going child. I'm happy to share that under our flagship CSR initiative, the One for One Program, we have provided 47.3 million meals to school-going children in India, U.S. and U.K. I'm glad to share that Shop LC has been an award recipient for Business Champion in Education by the Austin Chamber of Commerce. The program recognizes outstanding performance by local educator through the Greater Austin area as well as businesses who are helping prepare, inspire and provide opportunities to students and adults. I would like to express my heartfelt appreciation for the entire VGL team for all the hard work and for accomplishing business and sustainability goals. As I conclude, I would like to share that we are -- adept successfully aligning our strategies to the dynamic operating environment with keen attention to customer preferences. The business outlook is upbeat as we are confident of closing this financial year with 21% to 23% constant currency revenue growth. For next financial year '21, '22 and on a medium-term basis, we are confident of delivering 15% to 17% constant currency revenue growth on the current elevated base. 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 quarterly earnings call. I hope that all of you and your families are staying safe and keeping well. I will now take you through our financial performance for the quarter ended 31st December 2020. We are pleased to report strong performance during the holiday season. In Q3, revenues stood at INR 725 crores, registering a strong year-on-year growth of 28.7%. Retail revenues saw substantial improvement to INR 716 crores, reporting an increase of 30% year-on-year. Both geographies contributed to the robust performance. In local currency terms, Shop LC-us. recorded growth of 20% year-on-year, while Shop TJC U.K. grew by 32.7% year-on-year. In 9 months FY '21, our overall revenue grew by 25.9% to INR 1,874 crores, while retail revenues increased by 30.4% to INR 1,856 crores. In local currency terms, Shop LC-us recorded a growth of 19.9% year-on-year, and Shop TJC U.K. grew by 30.6% year-on-year. Within retail, TV revenues grew by 24% and web revenues grew by 43% during Q3. Similarly, for 9 months FY '21, TV revenues grew by 24.1% year-on-year, while web revenues increased by 43.4% year-on-year. Online shopping has been gaining ground globally, and we have also benefited from the trend. We have also delivered equally encouraging growth in the TV segment. As of 31st December 2020, the TV segment contributes 64% of the total retail revenue with web contributing the rest. With the object of growing the base of omnichannel customers, we continue to focus on cross-promoting our multiple channels. Omnichannel customers represent a significantly higher lifetime value than pure TV or pure web customers. In our overall product mix, revenue contribution from non-jewelry products increased to 32% in 9 months FY '21 as compared to 22% in FY '20. Non-jewelry categories include fashion accessories, lifestyle, beauty and essential products. A unique offering in the form of budget pay gives customers the option of buying products on EMI basis and is a value feature for buyers. For 9 months FY '21, budget pay contribution to overall retail revenues stood at 36%. As you know, for the past few years, we have strategically been moving our focus away from B2B with a more profitable B2C business, which now forms over 99% of our revenue from operations. Moving on to the margin profile. Gross margin for the quarter stood at 61.4% and 62.7% for 9 months FY '21. We continue to see gross margins in our targeted range of 60% plus backed by a global value-centric supply chain. Our deep sourcing network enables us to procure from micro markets at lower prices with a shorter turnaround period, resulting in gross margins in our targeted range of 60% plus. We continue to reap operating leverage benefits of our unique business model. EBITDA margins expanded by 110 basis points year-on-year to 17.4% for the quarter and 160 basis points to 16.1% for 9 months FY '21. PAT increased by 40.7% year-on-year to INR 92 crores during quarter 3 FY '21 and 43.3% year-on-year to INR 216 crores in 9 months FY '21. We continue to generate healthy cash flows in the period under review. Our low CapEx business model supports strong cash accretion and conversion from operating profits. Operating cash flow stood at INR 198 crores, while free cash flow came in at INR 166 crores for 9 months FY '21. Cash and cash equivalents stood at INR 380 crores as at end of Q3 FY '21. Return on equity improved to 30%, while ROCE grew to 56% on a trailing 12 months basis. CapEx of INR 32 crores was incurred during 9 months FY '21, attributable to investments in newly commissioned solar power projects, studio improvements, warehouse improvement, ERP and other IT investments, plant and machinery and mobile app upgrades. Cost consciousness and healthy balance sheet continue to remain our priority and while investing for future growth will continue to be prudent. Our new initiative of Vaibhav Vistar and Vaibhav Lifestyle Limited will be value accretive and in sync with the current business model that is characterized by low CapEx requirement. As shared earlier, the Board has approved an interim dividend of INR 7.50 per equity share, in line with our dividend policy of distributing 20% to 30% of consolidated free cash flow as dividends. All-in-all, we have demonstrated resilience, agility and strength reflecting in our performance for the year-to-date. Going ahead, we remain confident of our prospects and appropriate resource mobilization places as well to deliver in line with the stated revenue guidance. With that, I conclude my opening remarks and request the operator to open the forum for questions.

[Operator Instructions] The first question is from the line of Bharat Shah from ASK Investment Managers.

Pretty delightful set of results. Now when we look at your business model, it is very clear as to what your trends are. The way we have expanded our categories from jewelry to accessories to home items and now the fashion, we are expanding channels of distribution from TV to web to public marketplaces. And our [indiscernible] SKU selection, range of the SKU and a very strong focus on right selection so that margins as well as execution. And finally, all that filtering into operating leverage. So this sounds a pretty remarkable well-oiled machine, the way it has been functioning in an area or in a subject matter, which wouldn't have been sold be actually one way to think about it. So there is something pretty remarkable about business model and equally about execution. So my question is if something has to go wrong, what can that possibly be?

Thank you, Bharat bhai. Thanks for your comments. Now it is difficult for me to say what can go wrong because we constantly worry about potential competition, potential execution challenge and constantly mitigate them. So nothing jumps to me as to what can go wrong, except that we -- execution wise, we don't capture the opportunities. And we are constantly experimenting and testing and don't take large risks. So I don't think I'd see anything on the horizon that can go wrong. The only thing is, we may not be able to capture on the bigger opportunity available to us. That's all I can say.

But Sunilji going -- something going wrong may not necessarily mean falling apart or coming off the scenes. Even if the growth moderate or becomes nominal, that itself can be a threat to the overall power of the business margins. So if we had to worry if something is to -- something definitely we will. Are the any meaningful breaches to the moats, any meaningful challenge to our advantages?

Not at this time. We are constantly testing. I firmly believe in Jim Collins' bullets and cannonball concept as we had discussed when we met that we constantly test with the new areas of opportunities with limited exposure. And as we see success in them, we constantly expand as we are doing with the product category, as we are doing with the sales channels, as we're doing customer acquisition strategies. So the growth testing mechanism in place, which is ingrained the whole organization. I don't see really risk in growth prospects as well. Now as I mentioned earlier, whether the growth could have been 40% or 35% instead of our guidance that we are giving of 15%, 17%, consistent growth in the medium term, so that is a possibility. But we have balanced the 2% of growing consistently. We want to continue to deliver leverage. And we want to continue to deliver 60% plus gross margin. So those are guardrails. And within those guardrails, we consistently test and take risks and try to expand the business.

Sunilji, can you look at internally in the organization. One of the most important pivots of a good business model will be people to kind of not just strategize and think through any challenges, but also executed it very well. Are there any worrying on the people front in terms of internal potential capability, retention and ability to look ahead in a fast-changing world.

That's a very good question you made in. At VGL, we pay a lot of attention in employee development and retention. So for retention, we take care of our teams in terms of compensation, bonuses of shares, ESOPs and creating a great learning environment. So from retention quantity, we've not had any issue of any people leaving, our capable people leaving us. Some development, the last 1 year has been phenomenal for us. We used to hire 10, 15 or maybe maximum 20 management trainees from MBA institutes. This year, we've been able to hire almost 50 people. So we've got a great bench of talent coming into the organization. it's getting trained, get coached and moving upward and moving forward. So from bench point of view, I'm happier right now than I have ever been in the organization.

The next question is from the line of Ashish Kacholia from Lucky Investment.

Congratulations on a great set of numbers. You have given -- for the next financial year, you've kind of indicated a 15% to 17% growth rate. So how does that translate into the Registrations, Retention and Repeat purchases metrics? This is over a period of time, ultimately, we have to increase our registrations and retention and purchases. So can you throw any color on this, Sunilji and team?

Yes. So we have internal targets on all the 4Rs. There is the Reach, Registrations, Retention and Repeat. And the growth target -- the growth positions that we're giving to you are the interplay of these 4Rs. And all 4Rs, we're expecting to see growth, maybe not in absolute TV homes but from the digital marketplaces and social. So we expect to continue to reach -- expand further. And we also look for geographical expansion medium term. We hope to go to new countries as well. So that will add to the Reach as well. From Registrations, we have marketing spend targets in place that will continue to improve our new customer registrations. And for Retention, we have marketing spend, the new investment, integrating sales force, marketing automation cloud and Salesforce Commerce Cloud for our web platform. So those investments will help us into retaining more of those registered customers and the repeat. So new product categories and new innovation continues to improve our repeat purchases.

Any theoretical limit to the retention ratio of this 51%? I mean, can we aspire for 70%, 75% kind of a -- this is kind of toppish in terms of where it is?

So it is too far out for me to say that. Our internal goal is more modest because, as I said earlier to Bharat bhai's question, we have guardrail of investment that we make. So 60% gross margin, operating leverage and growth position. So we manage the business in a way that we constantly meet those guardrails.

Right. And any thoughts that you can share with us on the influencer program, particularly with relation to Instagram because that's like the #1 picture social media platform in the world. So any thoughts that you can share on that?

Definitely. And I appreciate you've been campaigning that for quite some time. I appreciate that. So that has been going very well, both in U.S. and U.K., and we plan to further accelerate that with the induction of New Mavrck agency that I mentioned and addition of our talent internally. So thank you for following it up, and we will continue to expand on that. We see that as one of the main growth engines for us going forward.

The next question is from the line of Nitin Bhasin from AMBIT Capital.

So one question about how do you see the next. There's a lot of changes happening in how customers engage with you and also you are using web, Instagram, et cetera. So how do you see in the next few years the customer purchase mix in U.S. and U.K. for you from the present mix in terms of split? If you could help us on that for the next 3 years. What's your target that you're changing on what you imagine could become?

So from the customer point of view, we will continue to see the growth on television because we still believe there's a lot of runway in front of us for TV, even though there's a cord cutting happening. But we are seeing the over-the-air and OTT, these both spaces have huge runway for us. OTA, the main OTA, we have just started entering them, and we are seeing a lot of potential. So on the television space, we see growth, but digital, we expect to see a more rapid growth than television. So I think from customer -- new customer acquisition as well as from revenue point of view, we expect to reach about 50-50. So let me take it back. The new customer should -- the digital customer should even be higher in next financial year than TV customer, from new customer point of view. So from the revenue point of view, we expect to cross 50-50 in about 3 years' time.

Okay. Okay. Perfect. And when you acquire these customers, how are you seeing the customer acquisition cost now change on a web versus TV? How should one think about the factor difference between them? Have you done any metrics on customer acquisition cost?

So for TV, it's very difficult for us to calculate per customer acquisition cost because we are there for selling as well as for acquiring customers. We don't really spend much on cross-channel promotion on television because we didn't see much ROI on that. We still do some, but not a whole lot. So TV is -- I don't know. We don't. But from digital, yes, we do. We constantly monitor our customer acquisition cost through social, through digital marketing, through shopping through SEO general spend, we don't exact cost, but PPC and other mechanics, we monitor those costs very closely.

Okay. But you haven't seen -- you don't have a number to share where what it is right now, and how it is progressing?

The number is so different in different spaces. For example, OTT has a different number. We pay for, say, Roku, we just download 50,000 names -- first 50,000 downloads and we paid a certain amount to them. Next place is spending different amount for them to engage those downloads into purchasing behavior. So that is one way to spend. Shopping has a different spend. PPC has a different spend. Social VR is a very different spend. So it's very varied in different practices. So that will be a long number to -- for me to share here.

Okay. Okay. And then you said earlier that 50% in 3 years, you are indicating 50% for both U.S. as well as U.K.?

Yes, on a metrics basis.

Last question is -- from me is, if you can help us in the last 3 months or 6 months, some experimentative bets that you have started taking and early days for them, and where you are seeing that you have successes yet to be seen. Can you share anything? Because I can see that in the web, you moved very rapidly in the last 9 months or 12 months proprietary moving to Shop LC mobile then to marketplaces and then to social retail of targeted products on InstaFace and Pinterest so -- then OTT, et cetera. So what are the -- if you could tell us 1 or 2 experiments that have not worked, and 1 or 2 experiments you are very, very hopeful about to fast pace the growth of the company in the next 1 or 2 years. Just trying to get a sense of -- because you know it more closely because right now, from outside, it's very difficult for us to form a view what initiatives you are taking.

Yes. Sure. That's a good question. So experiment, that kind of worked and not worked. So marketplaces, so marketplaces this year would be almost 3x what we sold last year on marketplace in Amazon, eBay, Walmart, Wish and now Etsy and Wayfair. So from sales point of view, that was tremendous success. But from customer transition to the main business, it was not as successful as we expected. So we expected going in that we will maybe transition about 5% customer to the main business, but actual transition is less than 2%. So that was a disappointment to us. But that space is profitable as it is. The stand-alone is very profitable, not very profitable, let me not take it back. It is profitable after spending -- after expensing everything, but not as profitable on the main business. Because there is shipping expense because we ship free [indiscernible] marketplace expense and also advertising expense on that. But that has been very successful in learning point of view. What worked for marketplaces on, say, enhanced brand content or positioning, so the divisions, marketplace division and the main business division will learn from each other from advertising point of view, from content point of view. There's tremendous learning way. From success point of view, we're feeling tremendous success in OTA that was better than it came. Social DR is tremendous success because we knew customer acquisition is really good in social. And all the customers that we get are 100% ours. In marketplaces, the customers that buy from us actually, the number of customers who buy on marketplaces today is larger than our own in-house customer base. But they are not our customers. They are marketing customer. The customer who transition to us are our customers. We don't count those customers as ours till the transition. But social, we are 100% of our customers. So we market to them, and we see repeat purchases going up and higher. So that's why I appreciated Ashish confirm -- Ashish's follow-up on social media because that's very powerful. The customer is valuable. And the acquisition cost of that customer is a lower than acquisition cost of our drive digital spend that we do on Google or Bing. So there has been tremendous success for us. The product innovation that we are doing constantly, like apparel, so far has been very successful. We did full. That was very successful. We did candies and biscuits so that was very successful for us. And some perfumes that we launched mid-market brands have been tremendously successful. So as you're learning about the product, we're seeing a lot of traction. We launched personalization jewelry line. At least people can get engraving done of their name or they can get the initial necklaces done of their names. That has been very successful. We just launched a couple of months over 3 months ago, and that has been very successful. We're seeing a lot of successes in testing. There are some disappointments, too.

In which one, sir, which one?

The disappointment of marketplace customer transition. So that was a disappointment.

The next question is from the line of Manish Poddar from Nippon AIF.

So a few questions. Few questions. The first one is if you can help me, let's say, with your broad subscriber base how many subscribers would you having right now?

So we don't really work on subscriber bases because we are not social media company. On TV home basis, we have about 99 million homes, as I mentioned, that we -- our signal goes to. And we don't full -- we have some data of viewership but not a full data of viewership. But the customer who registered with us and come and buy with us are the really customer for us. On social media, relatively new initiative for us, so subscriber, I'm not a whole lot. The customers we get from them is our customer that we value.

So let's say, how much would that number be, these customers which are registered or who buy from us?

So digital customer, I can give a total digital customer that is within the total customer bank. So let me...

Where I'm coming across is, I think in the FY '20 presentation, you have given a customer base of roughly about 350,000-odd customers. So I'm just trying to circle back, what is the number right now?

Yes. So Sunil, I can add on that. So our unique customers on a trailing 12-month basis right now is 4.7 lakhs. So the number which you are referring to 3.5 lakhs was last year December. So right now, our unique customer is 4.7 lakhs.

So if I get it right, in this 9 months, you've added roughly 30% base. And if I have this number, this number in the last 3 years, from fiscal year '17 to '20, was largely flattish. So is that a correct understanding?

Yes. You may say it was largely flattish. And right now, it is 33% year-on-year.

Okay. Just a couple of more. First is, if I -- if you look about new launches, or let's say, when you're going across geographies, do you look at a particular ASP for the customer because if you look at your ASP over a period of time keeps on increasing generally at this high single-digit-odd inflation. And I believe that will be how prices of the end products would be moving, but you've got a mix of products. So how should one really think about ASP, let's say, from a medium term, per se?

Yes. So our ASP target usually is about 50% of our competitor. So to retain our value, perception in mind of customers. It can move a little bit 5% or 10% plus or minus because we usually let customer dictate what they want to pull from us, and we have very varied book -- bouquet of product. So when we go to a new geography, we would go to new geography. We would map our competitors and try to stay at 50% of their ASP. And this is what we do in the U.S. and U.K. as well.

So would it be...

So sometimes it moves. So you're right, last 4, 5 years, it has moved up a bit. But we tried to cap it at around 50%. It can be 45%, could be 55% around that space.

So would it be a fair understanding, let's say, if I look at from a, let's say, 3- or 5-year per se going ahead, this average pricing, let's say, if it is $25, would revenue be function largely of new subscribers or more repeat purchases and pricing would largely be in this $25, $26 range vendor? Or how should one think about it? That is what I'm trying to understand.

So new customers. High retention of those customers and more repeat purchase by the customers. So the other 3Rs will play in that.

Okay. And just one last one is on the cash flow sales. So if you could probably highlight, I think we have a significant amount of cash pool on the balance sheet. And you are adding significant cash flow from operations incrementally. So why just give out dividends of 20% to 30%? Are you -- so what is the cash usage in the entire scheme of operations as such, incrementally?

So last financial year, we gave out pretty much all the cash we generated, we gave back to the investors. We balance our need of cash for potential limit acquisition or ordinary expansion and then rewarding shareholders. So we balance that need. And if we consistently see that we don't have such opportunities, then we'll give that, too. Manish, did I answer your question?

Yes. Yes. Yes. I'm good.

The next question is from the line of Anil Sarin from Centrum.

Outstanding results. I guess, it's becoming a habit now. So wonderful job done.

Thanks, Anil.

So I had to sort of -- I had to get off the call for a bit. So sorry if I have sort of missed something. Just wanted to know -- I noticed that the gross margin trend is sort of dipping. No complaints on the operating margin front. But the gross margin used to be earlier 62%, 63%. And now if I heard you correctly, you're saying as long as it is about 60%, it's fine. So could you comment on that?

Yes. Sure, Anil. So our guideline is that we will maintain above 60% of the gross margin for the year. And that we keep in focus. And within that guardrail, we give out promotion. For example, this Christmas holiday -- this Christmas season, we gave out shipping promotions. So shipping revenue is part of top line revenue. And if we give out those shipping promotions, as I mentioned on TJC PLUS U.K., so those will impact our gross margins. So within that guardrails, we experiment constantly and will give those promotions.

Okay. Okay. Yes, just one more. I mean, I have a few more. The next one is on this STR marketplaces, et cetera. What is the revenue share they currently have? And what do you think the revenue share of these digital markets would be there by fiscal '23 end?

So marketplace projections, I don't have in front of me. We have done -- we have 3 years out projections for every space. They are not in front of me right now, Anil. But we expect marketplaces and social DR and our own digital to grow faster than our TV business. So 3 years from now or third financial year from now, we should see digital total revenue be more than 50% of the total revenue, all put together, marketplaces, social DR and digital.

Okay. Okay. Great. Great. In between when we had earlier interacted, you had mentioned that you've made some senior level hires in data analytics, et cetera, because that is where you come to know who your customer is, what their behavior is. Are you still continuing with those initiatives and having a lot of bandwidth dedicated towards mining and exploring and predicting where the customers are and what they are doing.

Absolutely, Anil. That is a very crucial area for our business growth sustenance. So in AI as well as data mine -- data analytics, we've hired people, and we are continuing to hire. So we are -- we are talking to some -- one more person, very senior, to get him on board as well in addition to the people we already hired. So you're right, we are focusing on that space consistently.

And if you want to benchmark -- sorry to just labor that issue a little bit, if you were to benchmark, like there are these well-acknowledged leaders who do it very, very well. Where would you be relative to those leaders? You would be at what percentage of that efficiency would you be, if that is the benchmark you want to have?

So efficiencies in what regard, Anil?

Like, how Amazon does it. I mean they do a multiplicity of things, which basically keep -- which retains the customer in terms of suggestions, in terms of the whole set of value that they bring to their customer. So if you were to benchmark, I remember you mentioning a few quarters ago that you're thinking of having more warehouses in different parts of the U.S. so that the time -- the delivery time can be cut down. So things of that sort, not only delivery time, but I'm saying in terms of having a better understanding of what the customer is. I mean you would have some kind of a role model, somebody whom you want to be as good as if not better than? And where are you today as per your own assessment?

Yes. So from television content and story point, and I think we are ahead of QVC or equal or ahead of QVC or other TV shopping networks because we -- our story, we have the vertical benefit of being vertical. We're able to tell a better story of the sourcing and how it has come about, designing and all that. So we are very good at that. From digital understanding of customer, I think we're still behind other players definitely behind Amazon and probably behind QVC also. I do not know exactly where QVC, but we are definitely behind Amazon. So understand the customer and offering products, product recommendation to that level and following through a customer all through journey. We are investing in that. We just contracted in the sales force, marketing automation, CDR and their customer suite. It is top of the line, and that is in implementation phase. Once we completely implement that, I think we'll be very close to Amazon in terms of customer engagement. From logistics point of view, we are still -- we recently had a very capable head of logistics at U.S. and in U.K. We are quite there already. TJC PLUS is actually very much similar to Amazon Prime, and we are able to deliver to customers within 24 hours of ordering now in the U.K. In U.S., we are behind. But we hope to catch up with Amazon, if not within next financial year, but either after that. So for that in U.S., we have to have multiple warehouses to be able to do that. So that is a longer term than in U.K. So we are getting there. We are there in some areas, but we are getting there in other areas.

That is fantastic. That is what it is music to my ears and wish you on Godspeed on that. Last question from my side. This -- you mentioned you started by talking about some kind of lifestyle garment unit that you have set up or apparel unit. So if you can throw some more light on the rationale, is it that you think that you've got a direct pipe and you could push more of this product? And I mean -- or maybe not second yes, let me just leave it at that. What is the rationale? And what is the potential in a blue sky kind of a scenario?

So apparel -- the fashion apparel is about 10x the size of market than fashion jewelry, in both in the U.S. and U.K. So market is definitely big there. And our demographics 40-plus demographic, a fast fashion, there are not many retailers in U.S. and U.K. We couldn't find many. We found Chico's and rest is all from Amazon or from Walmart or Target or all these retailers. There's no Zara. There are no boohoo's or no H&M for 40-plus, which is our audience. So we found there's a gap there in the market. But we don't want to take any larger risk. So we want to test how it is going. So far, the test is going phenomenally well. And as we are learning, we'll keep on expanding that. The reason we went into manufacturing ourselves is to understand that space deeply, which is our strength, as we've done in fashion jewelry. And because there's still some -- lot of potential, you have to understand the back end as well. And we're putting people in, say, Bangladesh, putting people in Vietnam, our people, to understand that space better. So we understand the component cost to understand the gross margin of the industry and to capture more of that economic pie and be able to give to our customers better than Amazon or better than Walmart. So that is our effort in that direction. How successful we will be? I don't know yet. It is too early. But there's a large marketplace -- market space that we see.

Okay. So just a follow-on, so this is a pilot or this is a full-fledged kind of a unit? I mean...

It's a unit with about just about 50 workers right now. But we are scaling it up. We're planning to scale it up to 100 in the next couple of months and then keep on scaling it up as time goes. So it is basically a low CapEx model. We believe in Jim Collin's bullet and then cannonball. So we are testing and expanding; testing, expanding; testing, expanding.

Okay. Okay. Great. I'm sorry, I made a mistake. There was one more question and before I hand the mic back to you. This Canada, Germany, Japan, et cetera, you've been piloting. If you can give us an idea of how big these markets are? And what you are expecting, let's say, in the next couple or maybe 3 years in these new markets, and what your expectations are?

So Canada is just a simple extension from U.S. We don't plan to launch in Canada a time soon but ship from U.S. So there is just an extension of U.S. From Germany and Japan, they both are bigger markets than U.K. Even for QVC, it's much bigger than the U.K. And we are piloting both in Japan and Germany. As we see the right time for us from the understanding of the market point of view and our ability of our steering our top talent, we will go in those markets?

No. In terms of how entrenches the competition, so it is bigger. And what -- I'm sorry, as an aside, I can say is that while U.K. may be much, much smaller than U.S. and financially also from an economic standpoint, they may be doing worse than the U.S., but your success has been at least to a distant observer, like me, it appears that U.K. is actually outpacing U.S. So one is the size and the other is how well you are performing within that. So coming to Japan, I mean, there are these unique lows, and there are a lot of local competition. So how -- I mean what is your outlook over there?

Yes. So we are trying to understand those markets to marketplaces right now, product, customer behavior. While in Germany, we had an experience earlier. So it will be much easier for us to get to that market. We have seen that the customers so far from the pilot we are seeing. And in Japan, it's not fully available the pilot to us. In Germany, that has started to become available. And we are seeing good traction for our products there. So -- but it's still too early for us to really commit to the when in fact we are going. But they will be going probably Germany before we go to Japan.

The next question is from the line of Pritesh Chheda from Lucky Investment.

Yes. So I have a couple of questions. One, it's a small observation. Does the incremental customer which comes on digital, these are slightly more costly customer versus what would have come on the web. And I am trying to draw this observation from the fact that if you look at the SG&A cost increase, what we see now versus what we were seeing for the last 3, 4 years, it's quite a different increase of growth rate that we see. So if you could clarify on this whole aspect?

Sure, Pritesh. So the customer coming to us from web, it may seem more expensive because we are not paying -- we are paying the customer acquisition cost initially. On television, the customer acquisition cost is in terms of air time expense that we already pay. So the cooperation is not really apple-to-apple between the 2. The SG&A cost increase that you're seeing is largely because of the shipping. So we did shipping promotions and the shipping costs were partly higher in Q3 because of elections and COVID issues and partly our LSP ratio has gone up, which have higher shipping costs. So it is not the customer acquisition cost there, but more related to the shipping costs.

To be looking for quarter 3, so if you look at the SG&A cost increase for the whole 9 months is a fairly high number. So in that as well, the shipping cost was a part of the higher number?

Yes. Shipping cost is a major component of increased SG&A.

Okay. So should that normalize? And all the other costs other than shipping, should have grown at the single-digit what we see in the past 3, 4 years?

So HR costs increased double digit, but lesser than our sales growth. And other costs are much lower than other growth, much lower than the revenue growth.

Okay. My second question observation is we have gone on the Walmart as one of the third-party place in Canada. Is it at that slightly conflict of interest there? And what is the terms of trade or the idea behind being in Walmart?

So in Walmart U.S. now as well as in Canada. So Walmart U.S. has been doing very well for us as a marketplace. And Canada was natural extension to that.

Okay. So...

I couldn't get your point about the conflict. Why would there be a conflict?

Are these marketplaces similar -- so Walmart typically have an habit to even source themselves and they follow a source and sell retail model unlike Amazon and eBay, which is a pure marketplace. So I was just wondering, and there is some dissimilarity between the 2 and Amazon type model and a Walmart. That's why.

So from a marketplace point of view, Amazon is trying to catch up with -- sorry, Walmart is trying to catch up with Amazon in increasing the marketplace presence. So they are inviting vendors like us with open arms to come on their platform. So the support we're getting from Walmart right now is even higher than the Amazon.

Okay. And the -- another question on the manufacturing side. So there, are we going to get into textile manufacturing, what you were answering to the other participants?

So as I mentioned, we have only 50 people in that unit right now. We will be expanding that as we are seeing success of that and capturing more margin. So for our own retail channels. And we'll continue to expand that till we sustain. So we have always have a mix of that, some in-house manufacturing, some outsourcing. So we are outsourcing a lot of apparel from China and India also. And we compensate [indiscernible] that we always discover the bottom cost. So manufacturing for us discovery of the bottom cost and capturing the economic pie, if you can. But will always have a mix of manufacturing and outsourcing.

It's like working like more like a buying agency.

So we have buying agency ourselves in-house. But manufacturing is important for us to discover the count. And that is a potential growth area for us after attention for 40-plus demographic. So we want to discover the cost of that. And also manufacture if it is something very low-cost and if you can deliver cheaper than our third party vendor, then we will benefit ourselves.

Flexing of trousers or shorts maybe of that sort also or...

so right now, what we're manufacturing is more unsized apparel like what we call on size kind of apparel. So right now, we are not into size apparel manufacturing yet, for that we're going outside. So Kashan was what we are manufacturing quite a lot in our small unit. By April we are sourcing from outside because we are not exporting that yet.

And my last question is in your 15% constant currency growth outlook, how much should repeat purchases be a contributor to 15% constant currency growth? And how much should be by virtue of new customer, either by reach or by retention?

So I can't give a specific component of repeat purchase within that 15% to 17% because I don't have it. But as I mentioned, we have quarterly, monthly, even weekly and yearly projections for all the 4R's. Now there is an interplay of all those 4. The reach -- how much will be the reach in advertising on digital spaces, on television. What customer registrations do you expect on a daily, weekly, monthly basis? How much of the retention rate do you expect over the next 3 years on each segment? How much has the repeat purchase of them over the next 3 years? So what we do is, we do 3-year larger projection. And for next year, we do detailed projection. But I don't have a specific number component of repeat for that 15% to 17%.

The next question is from the line of Chintan Sheth from Sameeksha Capital.

One query I have on the initial remark you made regarding the customer preference changing towards when we buy value purchases. But the basic or understanding about those U.S. and U.K. market being a developed market, is that there are more brand conscious and not a saving economy as such like India. So if you can elaborate more on this changing difference, which we are seeing, vis-à-vis what they have -- both the countries have received the cash subsidies from the government. And that is -- that has also played some part of increased consumption on the discretionary side. So if you can provide more light on that comment on customer preference changing towards when you buy versus earlier brand-conscious buying they did?

Yes. My comment on the value front was more to do with the current COVID environment and where many of the families have limited resources and the employment is also relatively -- unemployment was a little bit higher both in U.S. and U.K. But in longer run, U.S. and U.K. both, have tremendous audience for value-conscious purchases. As we've seen, the Walmart has grown phenomenally well over decades in the U.S. compared to, say, Macy's or [indiscernible], they have not grown. So they are kind of Macy's of the world for full-priced retailers, and Walmarts are the discount retailers. So discount retailers have consistently grown in U.S. and U.K., whereas a full price have not. So value segment is always there, will always be there. But current environment is more -- a little bit more towards value, and we are driving that aggressively.

Right. Second is on the gross margin trend. In typically, you did hinted on a higher logistics freight cost being piled on to the consumer led to lower gross margin. But anyways I was looking at our sales mix which you also alluded to sales has increased from 32% last quarter to 35% in last year's same quarter to 35% this quarter. And typically, what we have seen is -- on the web portal, we have more discounted products going through that portal. And our ASPs are significantly lower than what we get that on the TV sales. So despite that, if I look at our ASPs on the web also grown at 10% Y-o-Y on a Y-o-Y basis. Despite that, we have seen contraction in the gross margin. It would be the additive to the logistics part, but if there is anything else you can highlight on that would be helpful.

So there's 3 component on that. The live TV -- the live programming goes through web for the audience who are not seeing TV, who don't have access to TV signal. There is a fixed price catalog of all the inventory we have in the warehouse that's published on the web. And the third is the rising auction. So rising auction model is where the margin is lower and that is mostly an exit mechanism of our remainder of inventory from television or from the web or aged product. So that's why we don't have a problem of inventory piling up, as you might have seen. Now margin is on FTC and on streaming is similar to television. So there is no difference there. And rising auction as a percentage of web will not grow as much as of the sales will grow because marketplace margin is high, social DR margin is high, catalog margin is high and web TV margin is high only rising auction is low. So margin-wise, we don't see an issue as we increase the percentage of web biz. So but -- so as a percentage, as you saw, there's a very slight contraction in gross margin. Our business model is to continue to be above 60%. So above 60%, there will be sometimes you see lower, sometimes you will see higher. But there's not much to read into that, except that the shipping revenue may get contacted in coming times to follow what Amazon model is, but we'll try to compensate that by increasing the gross margins.

Right. And lastly, on this growth subscription model, which we piloted in U.K. And are we planning to replicate in U.S.? Have we launched it? Or are we in the process of it?

So we haven't launched it yet. We are still evaluating how U.K. is doing, also evaluating what would be impact of that in the U.S. when we launch. So we'll decide on that maybe 6 months down the road, where you want to go, whether we want to roll it out in U.S. or not.

So how has been the traction there in U.K. because if I compare MSN Prime in U.K. versus ours annual package or a monthly package. Both are priced more or less similar. But what we get in Amazon is on the top of the shopping experience and delivery experience, they also are for entertainment. So I'm just trying to understand whether -- how is the traction we are getting in the U.K.?

Chintan, congratulations for doing a great homework. So you're absolutely right. Amazon does add a lot of -- a lot more value into their package than we have added so far. But so far, we already got good number of -- actually, the velocity of customer engaging with that program is higher than our expectation. But -- and we expect to add more to the thought in coming months. So we are working on initiatives internally. We can't share right now what all those initiatives will be. But we plan to add more of those initiatives that will not be dilutive to us, but customer will have more value -- will perceive more value to them.

Sure, sure. And on the IT front, the web portals and mobile apps, any recruitments and anything new we are planning over there? Any investments apart from what we are doing.

Yes, definitely.

I can look at Vivo. Vivo being a part in the U.K. web portal, but the similar kind of engagement is missing in the U.S. portal. So...

Yes. Thanks for that. Even I was not aware of that. Thank you very much. So we're constantly learning from each other and improving the customer experience and trying to improve the customer experience on both the portals, the U.S. and U.K. learn from each other. For example, U.S. has got a business bureau. That is the rating system and which is not in the U.K. So you're trying to gain customer confidence in each position where each geography, where the customer would relate with them.

Because we can selecting a product in U.K. that site, we can easily see the Vivo benchmarking in terms of ratings of that particular product in the U.K website TJC. That is missing in the U.S. Shop LC. And we will be also -- I tried to look out that. This quarter, that site is not working, yes, that site is not working. So I was wondering whether we have a hands-on Vivo like feature in the Shop LC side will be more intuitive to our customer mind in terms of buying experience.

Yes. Thank you for the feedback. We will keep that in mind. But in the U.S., we focus more on product level rating by the customer. And we can follow up if there's any negative rating, we follow-up with customer. We look at the product closely. There's a team dedicated focus on the customer ratings and improve the rating constantly.

The next question is from the line of Astha Jain from Hem Securities.

Yes, am I audible now?

Yes.

Am I audible?

Yes.

So congratulations to the Vaibhav team on such an exceptional performance, especially the all-time high profit which they have posted. Congratulations on that. So my question is also wanted to...

Ms. Jain, we are unable to you. Can you speak closer to the handset, please?

Yes. So am I audible now? Am I audible now?

Yes, ma'am. Please proceed.

Yes. So my question is that can you please give me the breakup of the gross margin from U.S. and U.K. geography? I mean, what kind of margins we are targeting [indiscernible]?

Yes. Sure. So let me get that information, hold on for a moment. Yes. So U.S. gross margin last quarter was about 57% -- sorry, 56% and U.K. was 55%. So remember that the U.S. and U.K. gross margins are clubbed with supply chain gross margin to come up with a total group gross margin. The sales from supply chain is netted off against the purchase of retail units. And that's why the group gross margin was 51.4% last quarter. And U.S. U.K., U.S. was 56.2%; and U.K. was 54.9%, to be precise.

And, Sunil, can you just give me, like, what kind of gross margins we are garnering from TV and web in these geographies, if it is possible for me? I just want aggregate...

That is micro number. There is too much of detail. So Dipti will get in touch with you. We'll give those to you. There is too much micro for this forum.

Sure. One more question from my side, like, because in the last 2 quarters, we have seen due to this pandemic situation brick-and-mortar kind of CIBIL scores like end point. But now I'm feeling that it is now coming back to the normal. So what are other views on that? Are we maintaining the same sort of growth levels even in the view? Because even in India also, we are seeing now people are moving towards, I mean, shopping and all. So does we see any sort of impact on the web or TV for this, I mean, reopening of the economies or some sort of like that? Can you comment on that?

That's a good question, Astha. Definitely, we believe there was a positive impact on company because of COVID. And that is why the growth you have seen is what you're seeing. That is why next year, we are giving a guidance of 15% to 17% on this accelerated growth. We may have people not be at home as much as they were during pandemic. But with all the initiatives in place we have, we are confident of achieving 15% to 17% growth for next financial year. For this completely year on constant currency basis, I'm giving you this number. For this current financial year, they're giving a guidance of 21% to 23% growth for the full financial year.

Yes. Sure. And another question is that can you throw some light on our EMI? I mean, I think how the things are going on, like what are the policies, and how many days? Like have we created some sort of web base or something sort of that. So We have taken into account everything and then we have done this projection. Because I'm seeing that your budget phase is like they are increasing any constantly. So any views on that part? I mean what is the policy behind this? If you can throw some light on it in detail?

Yes. So we give budget paid to the people who have credit card or they give credit card information to us. So if they have a credit card that we assume that they have credibility, and they have credit worthiness that's why we have a credit card. So first payment, we collect right away. The balance 2, 3 or 4 payments, we collect over next 2, 3, 4 months. Our bad debt ratio for Budget Pay over first year is below 2%, below 1.5%. And we expect -- we project that kind of bad debt to go forward on the Budget Pay, and we project that in our financials.

So that you are considering even in term of the outright place. Because now I think we are expecting this to increase forward. So even on the inventories also we are expecting the same part of that bad debt pile.

Yes. On online, on rising auction, we don't give budget pay, but on TV auctions or FPC, we do give Budget Pay. On marketplaces and Social DR, we don't give budget Pay. Unless it is expensive, we give budget pay for only Social DR but not on marketplaces. So it depends on what ratio will be higher, those Budget Pay assess will be there. The bad debt on digital and TV are not different. They are constant, and they are very miniscule. So we don't see much risk on bad debt going forward. And we have a good collection process in-house as well. We have a partnership with our credit card company as well for collecting, and we have in-house team as well to correct any delinquent receivables.

So any sort of provision we have done for these things and we are taking already all. Any view on that?

So we constantly have -- so we have filters in place. When customer orders a product, we automatically have a filter for judging that customer if they would be eligible for high-end budget pay or not. If not, we don't give it to them. Any customer who have any delinquent payment doesn't get it. Any customer who was in past delinquent payment don't get it. So those filters are already in place through our systems and through our customer service agents.

Okay. And one last question coming from side. Can you just comment on the market share which we are getting in these geographies? Or any comments on that part, like what kind of market share we are enjoying right now?

So between television/e-com companies, our market share is less than 3% right now. So we still have a lot of runway in front of us.

Okay. And like competitors, like any idea on competitor also? If you can throw some light on them, if you can?

So our competitors, when we look at only the television space, then it is Curate Group or ShopHQ, Jewel Television in U.K., there's Ideal Shopping and all those. But from digital space, we are competing with Amazon. We're competing Walmart. We're competing with Costco or Tesco in U.K. We're competing with large space of retailers. But the 3% market share I gave was only even compared to television/e-com players.

Okay. Okay. Fine. One more thing I just wanted to know, is there any sort of surveys or something like that which you can just give an idea of which are, I mean, giving certain sort of datas, like, about our company or the competitors, how much market share they are gaining or something like that? So we have such factors -- certain -- such kind of surveys or any surveys which are going on in the market right now, any idea on that? I'm just guessing it. It's like totally, if you want to share something on that one.

So our share of the data that I give you basically our tracking of their published numbers. So from that, we pull out all the information that we share with the market. Other than that, we do not subscribe to any service that gives us the data on the market share of that space per se. We subscribed a lot of information that comes through from the customer demographies, from the customer habits and overall market trends and all that, but not from the market share perspective.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

So thank you all for your participation in Q3 and 9-month FY '21 Investor Conference Call. Once again, I wish you and your loved ones health and safety. Please free to contact Dipti Rajput or CBR, if you have any further questions that we can help you with. Thank you.

Thank you.