Vaibhav Global Limited (VAIBHAVGBL) Earnings Call Transcript & Summary

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

Thank you, Aman. Good evening, everyone, and warmly welcome you to Vaibhav Global Limited's Q1 FY '22 Earnings Conference Call. Today, we have with us Mr. Sunil Agrawal, Managing Director; Mr. Vineet Ganeriwala, Group CFO; and Ms. Dipti Rajput 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 discussion on the financial performance that Mr. Vineet Ganeriwala. Following the management's opening comments, we will open the forum for an interactive Q&A session. 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 which we face today. 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 these risks -- 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 for Vaibhav Global's earning call to discuss Q1 FY '22 financials and operating performance. Before we begin, I hope all of you along with your families are keeping safe and healthy. I hope that the worldwide vaccine drive will inhibit humanity to conquer the COVID virus soon. I also hope that we all will come out stronger from this difficult experience. We all, at Vaibhav Global, have taken the significant challenge as an opportunity. In a rapidly changing environment, we have been considerably resilient and agile to scale up our retail business in both of our consumer markets. This has resulted in market share gains, driving volumes and elevated financial performance. Since the event of COVID, we are seeing accelerated digital adoption. We have, therefore, gained traction on TV home-shopping, e-commerce and several emerging platforms. Customers increasingly recognize the deep value proposition of our brands, that is Shop LC and TJC. We remained well placed to leverage potential of advanced consumer markets of U.S. and media and its rapidly evolving digital platforms. In Q1 FY '22, we entered the new financial year with another strong quarterly performance. Retail revenues grew at 23%. EBITDA grew at 26% year-over-year. Excluding Germany, the EBITDA growth is 34% year-over-year. In Q1, our gross margins were 65%. We gain operating leverage to expand EBITDA to deliver another strong quarter. Q1 ROCE came in at 60%. Our ability to profitably expand on a fairly stable operating base has allowed us to consistently give a strong ROCE over the last several years. Our operations continue to be cash-accretive. And we have once again declared a dividend of INR 1.5 per share for Q1. We maintain a balance between growth investments and dividend payouts, a trend that we expect to maintain by following our stable dividend distribution policy. Net cash on the balance sheet was at INR 510 crores at the end of Q1. Our vertically integrated model is supported by a global network that procures a wild range of products from 33 sourcing countries. This has enabled rapid product diversification based on evolving customer needs. Currently, we have about 25,000 unique items available to customers and tend to add about 100 to 150 new products every day by keeping a close eye on emerging trends, fashions and needs. These quality products are delivered to the customer doorsteps at guaranteed U.S. price, creating a deep value perception in the market. We have demonstrated a unique ability to drive both the lowest ASPs along with highest gross margins as compared to any other player in our industry. This is core to our ongoing success. Backing up the strong customer interface developed technology-driven global organization. IT is embedded into all our business processes with seamless connect from point of source to point of sale. Over the past several quarters, we have made several strategic investments to improve supply chain efficiencies and customer fulfillment, including wallet integration, implementation of enhanced ERP system, product personalization and expanded artificial intelligence capabilities across functional processes. Other significant initiatives are also in pipeline, and we will share details with you as we operationalize them. I will now take you to some of the key developments during Q1 FY '22. Our expanding to marketplaces in new geographies such as Canada, Germany and Japan, we have now commenced our retail operation in Germany with the launch of our local website and TV channel. With 38 million TV houses, Germany is Europe's largest home shopping market, and Shop LC GmbH has now started operating, broadcasting from a partner to ear to over 17 million households across the country. Very soon, we'll be starting operation from our own studio in Düsseldorf. The launch in Germany represents our entry into the third significant retail market globally. Having established a strong and growing business in the U.S. and U.K. over the last few years, we will now look to exploit the tremendous growth potential afforded by online retail and TV home shopping markets in Germany. Another key initiative implemented in the recent past is the launch of TJC PLUS for our U.K. customers. Under this membership program, customers can avail a free and fast delivery apart from other benefits as members. While the additional costs of such key initiatives are embedded into our reported financial performance, benefits in the form of customer acquisition and addition will accrue over the time. Now discussing the 4R strategy that unrealized our operating model, retrack, reach, restriction, addition and repeat purchases as a part of a continuous dashboard. We have undertaken several customer-oriented initiatives to drive sustained improvement on each of these parameters. The reach of our TV networks by the end of Q1 FY '22 was 102.5 million TV homes. This is now further enhanced by 17 million households as in July in Germany. We reached the HomeStar cable, satellite, telco networks and over-the-air antenna-based TV platforms. Our products are also available on digital channels, including our proprietary websites, smartphone apps, OTT platforms, marketplaces, insurance and marketing and social direct response. With combined reach of almost 500 million people and 3 of the foremost consumer markets in the developed world. Newer restrictions on -- during 12-month basis continued to be strong and came in at 2.9 lakh compared to 2.37 lakh in the corresponding period of the previous year. This reflects our ability to not only spot changing customer preference, but also respond to them with agility. Customers bought an average of 30 pieces on a TTM basis from us compared to 27 pieces in the corresponding period of the previous year. As the engagements with new customers deepened, we expect to continue to drive bigger volumes. Finally, our retention rate stood at 45.7% on a TTM basis compared to 50.5% for the same period last year. This is partly impacted by high new customer addition in Q1 FY 2021 linked to essential items offered last year. Our retention rate of old customer base continues to remain strong. Moving back to the society we have lost, we strongly believed, as part of the inflation process, we have given our employees a safe work environment while protecting their livelihood and remuneration. During the second wave pandemic in India, we donated an oxygen plant, 113 oxygen concentrators and 31 BIPAP machines to hospitals in total need. Our flagship Your Purchase Feeds program has now provided meals to about 55 million children in the U.S., U.K. and India. We have also invested in solar power generation, and 100% of our Jaipur manufacturing plants powered by solar energy. We have also invested in rainwater harvesting, effluent treatment, tree plantation, and most recently, Miyawaki forest on 1 acre site in Europe. We remain committed to mitigating our impact on climate change across the value chain and have set ourselves a stringent target to minimize the carbon footprint of our operations. As I conclude, I would like to reiterate our positive outlook for the business. We are confident of our business model, value proposition and our decision abilities. I would like to reiterate the guidance of 16% to 18% retail revenue growth in costs and currencies in our old geographies of the U.S. and U.K. of the current financial year. 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's quarterly earnings call. I hope that you and your loved ones are all safe and keeping well. I will now take you all through our financial performance for the quarter ended 30 June 2021, in greater detail. In Q1 FY '22, we have carried the success of FY '21 into the new financial year. Revenue stood at INR 682 crores, growing 24% year-on-year, with retail revenues growing at 23% year-on-year. We achieved 21% growth in both U.S. and U.K. in their local currencies. TV revenues have grown by 24.6% year-on-year to INR 426 crores and web revenues by 19.7% year-on-year to INR 243 crores during Q1 FY '22. TV contribution to our retail revenue is now at 64%, with the rest coming from the web segment as the business gains greater balance. TV includes customer accessing our products through our proprietary TV channels that reach their homes both on conventional TV media as well as free-to-air channels on OTA platforms. This includes online purchases on our proprietary website and shopping apps apart from popular marketplaces and social commerce. Such omnichannel customers, our core focus is to promote and encourage customers to transact on both TV and web platforms, which gives them a unique shopping experience, and such omnichannel customers tend to be sticky and have a significantly higher lifetime value than customers that buy only on TV or only on web. In our overall product mix, revenue contribution from non-jewelry products was at 31% in Q1, which is in line with FY '21 levels, having grown from single-digit level as recently as FY '17. This clearly demonstrates our ability to expand wallet share by entering adjacent categories over time. Non-jewelry categories now include fashion accessories, lifestyle, beauty and essential products. This trend has also balanced revenue streams from the previously high dependency on jewelry products. Our Budget Pay feature provides customers the convenience of buying on EMI basis. In Q1, Budget Pay-based products contributed 38% to retail revenues. This feature has added a further level of affordability, especially in high-value products, improving access and driving ASPs to some extent as well. Gross margins came in at 65% in Q1 FY '22. As Sunil indicated earlier, we have maintained product contribution margins at 60%-plus level across various stages of the business cycle and across a growing range of products. In fact, we require new products and categories to deliver margins at similar levels before considering inclusion in the portfolio. EBITDA margins came in at 14.4% in Q1, growing from 14.1%, increase of 30 basis points year-on-year. Excluding losses in new Germany unit, the EBITDA margin came in at 15.3% in Q1, expanding by 120 basis points year-on-year from FY -- Q1 FY '21. Some of our key organizational investments include strengthening talent pipeline, greater sales and marketing visibility and costs associated with faster delivery to the customers. Consistently making such investments will allow us to continuously improve our competitive position in the market and continue the growth momentum. However, while investing in our future growth areas, we continue to see operating leverage in our core business model, also supported by various cost initiatives across the organization. Profit after tax for Q1 stood at INR 99 crores, up 86.6% year-on-year. This, however, includes an exceptional item, other income of INR 33 crores was waiver of HA protection program loan net of expenditure. Under KS Act, we were eligible for PPP loan and had taken a loan in our Shop LC subsidiary in U.S. from the United States SB Administration to the tune of $4.8 million, which was eligible for waivers subject to certain conditions. During the current quarter, we have received approval for waiver towards the same and have accordingly accounted for that exception of other income. Operating cash flow came in at INR 68 crores, and free cash flow came in at INR 32 crores in Q1 driven by growth delivery in a capital-light business framework. Cash in hand net of debt was at INR 449 crores as of close of Q1 FY '22. On a TTM basis, ROCE and ROE were 60% and 31%, respectively. The consistency in these ratios signify the strength of our business model. As Sunil mentioned, we continue with our policy of recommending dividend every quarter. And in this quarter, the Board has approved a dividend of INR 1.5 share for Q1. To conclude, we have demonstrated resilience, agility and strength, reflecting in our performance for the quarter. Going ahead, we remain confident of our prospects and look forward to deliver in line or ahead of our stated growth guidance. With this, 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 Manish Dhariwal from Fiducia Capital Advisors.

Am I audible?

Yes.

I have -- my compliments on excellent results. And an observation that 38% of our revenues are now getting contributed by the EMI plan so -- which is very significant impact, up 23% a couple of years ago. So when a customer is buying on an EMI, so there is a credit risk that has been taken. So how is that managed?

Vineet, you want to answer?

Yes. I can take that one, Sunil. So yes, our Budget Pay revenues are at 38% of our total revenues. And we consciously try to maintain it at around at 40% levels only. So also -- like we usually offer this for high-priced products, and the installment range is anywhere between 2 to 6 installments. The first is charged upfront before the goods are dispatched to the customer, and the remaining installments are charged every month after every 30 days. So over a bit of time, like we have subscribed to various kinds of fraud checks mechanisms to all the processes we have subscribed to, which filters the bad customers and only the good customers' orders actually flowing and are accepted and are like accepted under these Budget Pay mechanisms. What we have observed over a bit of time is that health of receivable is quite good. Even in the peak pandemic period, the level of bad debt last year was about 1.2%, 1.3%. In fact, in Q1 this year, we have recovered further from our old receivables. And the bad debts as of Q1 is only 0.7% as we speak. So the health of the receivable is good. All the fraud check system-led support is available to filter out the bad customers at the initial stages. So that is ended. So no concerns on the receivables as such.

Next question is from the line of Yash Joglekar from AMBIT Capital.

So my question was relating to TV segment. So how much TV sales grown so fast than web in this quarter?

I'll answer that. So we've taken from new distribution in the U.S., especially OTAs and the beauty channel in the U.K. So these distributions have helped television a bit. And also the product offering, sometimes product mix also makes a difference. Last year, there was a lot of essential sold on TV and web. And people could not get hard enough on TV. So they were coming -- a lot of them are coming through that. So web, last year was a bit extra elevated. So when you look at the ratio wise, it is still pretty healthy by the economics that we have.

Also, when I have a look at the TV channel expenses, that is the content broadcasting expenses, that has gone up year-on-year around 45%. So is it likely to remain at the same level for the rest of the year or...

So we took some extra -- new TV homes so that elevated the expenses and also we spent cloud in digital market during the quarter. So that was the reason and for the coming -- for the rest of the year, I can't give a set guidance, because I don't have in front of me. But what we can say is the U.S. and U.K. markets will have continued leverage while you continue to invest in the German market.

Okay. And also, I actually missed the part on the new registrations. So if you could please repeat it.

Can you repeat your question on new registration?

So from your opening comments, I actually missed the new registrations part, the results on the new registrations.

Sure. Yes, I'm trying to find the data that was given off.

Sunil, I can take that. So the new registration on a TTM basis continue to be strong and was 2.9 lakhs in Q1 compared to INR 2.37 lakhs in the corresponding period of the previous year, following our ability to not only spot the changing customer preferences but also respond to them with agility. So that was the comment, sir.

Can you repeat the last year's number?

So the numbers you're talking about or the comment? I'm sorry to...

The number -- the TTM number for the last year?

2.37 lakhs.

[Operator Instructions] Our next question is from the line of Kanwalpreet Singh from AMBIT.

Sir, I wanted to get your sense on how you view customer growth. The reason I'm asking this is because last half year, there was a big jump up in registrations and almost 30% of the total customer count was from reregistration. So we see any risk from physical retail opening up again? And as you also mentioned earlier, there's less, less traffic happening now. So any risk to sales growth because of lower registration for the full year? Any risk you see on that front?

Yes. Kanwalpreet, the number of new customer registrations we had in Q1 FY '22 was 53,000 compared to last year's Q1 of 84,000. But when we look at the year before that, it was only 28,000. So from Q1 FY '20 of 28,000, the number today -- the last quarter was 53,000 from the year before. So in a steady-state, we have grown substantially year-over-year even though the economies are looking. So last year was an extra jump that we call on new customers because of our essentials. But overall, when you look at the repeat purchase and ASP also combined have gone up a little bit, our revenue growth will continue to grow. And we are confident of our guidance that we've given of 16% to 18% growth for this financial year even on top of elevated growth last year.

Right. Right. Yes. Sir, the other thing, that was another feature that I saw with the results this quarter that or your sales growth has come from increase in ASP. I understand that last year, there was sales of essential, so maybe that use average selling price. But over a longer term, do you think there is room for ASP to increase?

So our target is not to increase too much because we want to be differentiated in the market. We want to be approximately half of our retail -- our other competitors, so as to create the differentiation. So retail -- so ASP tend to go up when it is more jewelry or less of essential. So all in all, $11, $12, $13 items. So there, ASP went down quite substantially. But when you look at the year before, we are in line with that number.

Okay. Right. The last question, on the TV expense. Again, I'm sorry, I'm repeating what my partner spend as earlier. But could you give a sense of how much of that was in Germany because that is a new addition, right? So could you quantify the cost of TV and broadcasting for Germany?

So do you won't to give in a break separately? What we can do is to give you the breakdown of total operating loss that we incurred in Germany during the quarter. I don't have the number of bridging separate right now.

Sir, any profits against that -- sorry, any sales against the loss in Germany? Or is it only investment?

Germany is very data phase right now because we are testing broadcasting from a third-party studio. Our own studio will be operational before the end of this quarter. So we'll be starting to record sales from not even current quarter, but from next quarter onwards.

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

Am I audible?

Yes, you are.

Yes. Congrats for the great set of numbers, again, beating your own guidance. One question was I'm observing the recent registration. You already pointed out about the retention being low because of the last year, a lot of essential customers kind of adding in the world and that resulted in you going down a bit. But if I look at the sequential number on the TVs and the registration as well as on the unit customer number, TTM basis kind of declining. So is it anything you need to be worried about that? Or this is because of the last year as having more essential customers getting out of the network?

It's all about this and very high number of customers that we acquired, as I gave you the number. Q1 FY '20, we only reached at 28,000 customers. And in FY '21, it was 84,000 and FY '22, it was 53,000. So we did phenomenal growth from the year before. But last year was very unusual, and we took the advantage of that situation of customer needing certain products we offered them that led to very high restriction. Now the key thing is we are able to continue the overall momentum of revenue growth and keep meter actually our guidance of 16% to 18% constant currency revenue growth.

Right. So this is not a worrying sign? It's just a temporary base effect kind of catching up in terms of registration?

Absolutely.

Okay. And second is we discussed some of the newer markets you want to target through U.K. and Germany as a base in other European geographies in years. So this was kind of coming as positively surprised in terms of timing of those announcements because we were a view that focus will be kind of stabilize the German extension, and then we kind of accentuate the geographies from that. So is the expansion to Switzerland, Ireland and Scotland are in place? Or the thought process are in place and we can expect it as soon as next year? That's the thinking.

So Germany, similarly goes to Austria and Switzerland. So then it's not going right now, but it will start to grow. But Austria goes naturally. So we're already shipping to Austria from Germany. Switzerland, we have not at this time. But it doesn't mean that we have to have additional outpost in Switzerland or Austria. I think from U.K., U.K. broadcast to Ireland and Scotland anyways.

Right. Okay. So it will be through TV channel? Or it can be e-com that these sales which we will be having before?

Both.

Both. And lastly, on the size, when we indicated that we have around 3% market share overall in the retail e-com sales. If I try to further slice it down to over the target segment, which is the age group between 40 to 65 and the product categories between jewelry and lifestyles, what is the managements abroad estimate in terms of what can be the size of that particular demographic pending on this -- on the relevant product category annually in these geographies, if you can share some qualitative or quantitative guidance on that?

Yes. So we don't have a set down that. We do market research from time to time. I don't have the data right now. We do know that our product segment that we are addressing and going -- making a larger investment, there is jewelry and fashion has tremendous market size in the geographies that we grow in. And we are addressing those customers through multiple reach-out platforms, the television, our mobile app, market places, desktop, social DR and as well as issuances. So we have multiple omnichannel strategy continues to give us growth as well as resilience in tune of the customers' preferences. And the customer that sees us from multiple channel is with more lifetime value. So we are very confident of our strategy and comfortable in our growth guidance.

The next question is from the line of Rahul Ramakrishnan from Vista Investments.

Congratulations and best wishes to the whole team. Sir, in -- am I audible?

Yes, yes.

Yes. Sorry. Yes. Sir, in one of your previous con calls like a couple of times, you mentioned that QVC is at $60 per household, while we are at $3. Now this $3 is revenue divided by the number of active households, correct?

Correct.

Yes. So sir, going by that logic, we can't aspire to be $60, right? Because there are certain items that QVC sales that we will never sell -- not never sell we don't like sell, acting or something. So am I -- is my understanding correct that we shouldn't look at $60 as a benchmark?

So from the point of product-wise, there's nothing that we won't sell, but the main difference in the strategy is, does this help third-party brands? This is more ZARA strategy of developing our brands.

Yes, yes. I'm totally aware of that. My question was actually the fact that there are some households where we would never cater to, when though we are active in 100-plus -- 100 million households just because of the kind of products that we sell. So by that logic, if we divide revenue by households, we are actually also using in the denominator a lot of households, which we'll actually never cater to, which is not the case with QVC, and hence, $60 is more justified, I guess.

Having more OEM brands. And for that, what are we selling? We don't know. Because nobody has tried this before. We're the only one who's doing this on us more than brand with the value proposition at the price point that we sell. So we give their reference, the $60 as reference. Now what is our selling? Is it $20 or is it $100? Nobody knows.

Fair point. So fair point. That answers my question. Sir, my second question is, what's the difference between any customers? How would you define that?

So unique customer is the customer who's purchased from last year trailing 12 months irrespective of the registration was done during the year, during the period or 5 years ago.

Got it. Got it. And sir, my last question is, could you please tell me the share of revenues through your social deal and marketplace currently? Just an approximate figure like...

It's not a whole lot large. Let me see how is it? Yes. It is approximately between the U.S. and U.K., if I remember from the top of my head, we did about, I think, $8 million or $9 million. Do you have it, Alok?

Yes. Sunil, in INR terms, so in quarter 1, we would be about INR 15 crores of marketplace revenues.

Okay. Okay, sir. Sir, if I remember from your last con call, you were quite enthused about your progressed and the marketplace as well as the social DR. So does that enthusiasm sustain? Is that still going after the expectations?

Yes. Social DR, for example, was INR 4 crores compared to INR 1 crore last year, so INR 4 crores in Q1 '22 compared to INR 1 crore in Q1 '21. But marketplace, which came down actually. It was INR 15 crores from INR 21 crore last year because last year, we sold quite a bunch of essentials through marketplaces, but the jewelry essentially gone up in marketplaces for us. Jewelry or other products have gone up. Essentially, there was a large portion of sales on marketplaces last year.

[Operator Instructions] The next question is from the line of Jai Tewani from Julius Baer.

I hope I'm audible.

Yes.

Yes. So sir, my first question is on the employee cost. We saw a rise in employee cost. Is this primarily attributable for Germany?

[Audio Gap] but to a large extent. And also we increased wages in U.S. recently because the wage -- there is pressure on wages in the U.S. going to innovation controls and other policies as well as the economy pint up. So Germany as well as U.S. wage pressure, even in U.K., there were some additional minimum wage introduced by government during the year. So that also added to the pressure.

Where do you see employee cost landing for the year, approximately?

We don't have projection on the employee cost that I remind what were the numbers of the top of my head. But as a percentage of sale, employee cost really continue to be as in Q1. Although as Q3 sales in the season time, the sales go up, the percentage will come down. But when you look at compared to last year's evaluation in this first quarter, the same percentage of sales will continue for the rest of the year. I don't see it coming down substantially. So let me take it back. if they come down somewhat because we're introducing robotics in our warehouses both in U.S. and U.K. So it may come down somewhat to that, but I don't know how much contribution will that be. Outside of that, I don't see any other changes coming in. We will make some investment improvement or we hired more than 50 management trainees in India during pandemic -- over the course of pandemic. So that is the investment we made in talent during the year and some other sort of investments we made like AI, ML, so those investments for Germany.

Understood. So my next question is amongst the new sales platforms that we are on, where are we seeing the most traction?

This is really broad question. So our own e-com platforms in mobile and mobile apps, our desktops, so those are having the most traction, followed by social DR influencers. Marketplace, as I mentioned, actually went down this quarter. The last quarter, we had very high essential sales. But I think as that essentially bump normalizes, our sales will continue to grow up in marketplaces as well. And then general impression. I don't have the data in front of me, I just mentioned an impression.

Next question is from the line of Susmit Patodia from Motilal Oswal AMC.

So my first question is on delivery for...

Susmit, your voice is not very clear.

Is it better now?

Still echoing. Can you use the handset mode, please?

I'm in handset mode. I'm in a closed room, so maybe because of that. If it's okay, I can go ahead.

Yes, please go ahead.

So my first question is on delivery cost. There's a sharp reduction. Anything specific or it's just because of the value increase. Is there initiative that is undertaken?

Susmit, can you repeat your question? I couldn't hear it.

Sir, on the delivery cost, delivery, distribution and packaging costs. So is there a specific initiative?

Yes. So we are negotiating our contracts with all the shipping companies. Last year was very disruptive because there was a shortage on the capacity. Our capacity is increasing across both the U.S. and U.K. So we are negotiating with them to reduce the cost and increase the velocity or the speed to the customer. So we have made some improvement during this quarter, the quarter Q1, and we expect to improve further in Q2. Now that has been offset to some degree by the shipping costs from supply chain, Asia over the U.S. So those shipping costs have really gone up, and the delays have gone up too. So those delays have built into our working capital and inventories as well as our costs. But over the course of the year, we expect that to normalize and help our shipping costs overall, the percentage of revenue. So I think over the year in coming quarters, this area should improve.

Okay. Got it. And sir, second question is for Germany. Since -- will there be a difference in broadcasting cost if you -- when you move to your own studio? Currently, it looks like it's about INR 7 crore, INR 8 crores a quarter.

So Germany, broadcast cost is not INR 7 crore, INR 8 crores a quarter. The total broadcast costs is substantially more than that, but our studio versus second street, that doesn't make a difference. But the third part is to really even claim and very sterile kind of studio. When we have our own studio, we'll have multiple sets, the bedroom set, the kitchen set, the living room set, the jewelry set. So our customer experience will be at a much different level.

[Operator Instructions] Next question is from the line of [ Sahil ] as an industrial investor. There is no response from the current participant. We will move to the next question that is from the line of Yash Joglekar from AMBIT Capital.

So from the investor presentation, what we understand is that the company has made a roughly INR 36 crore CapEx. So can you just let us -- can you just give us a clarity on what is the nature of this CapEx?

I'll take that one, Sunil. So a part of this CapEx have gone in Germany, new Germany establishment. Like we stated earlier, this year, we intend to spend about $2 million of CapEx in that unit. So we have spent already about $1 million out of that. So that is what is going into that CapEx. The remaining part is largely towards IT. So we continue to invest in IT as a part of our growth strategy and towards our aspiration to become more and more digital. So some is significant IT CapEx, which are coming in this quarter is upgrading of our mobile website for U.S., mobile app upgradation for both U.S. and U.K. and the warehouse automation which Sunil was talking about. So we are automating both our warehouses in U.S. and U.K. and putting deep robots out there. So this is a larger across the CapEx, which you see in Q1 this year.

Okay. And so my next question is regarding Germany. So this quarter, Germany reported a roughly $62 million loss. So what would be the run rate of this loss going forward? Would it be in the same ranges?

Our total U.S. guidance is $3 million to $5 million for the losses for the year. So we're not going -- I don't have in front of me what is the quarter wise position and since this is already a quite big range to this new operation for us. So we are not giving guidance of a quarterly number. But for the whole year, we have to lift anything within $3 million to $5 million.

[Operator Instructions] We have next question from the line of [Sahil Sharma ], as industrial investor.

Congratulations for good results. What I wanted to understand is due to great ROCE of 60% plus. As the great free cash flow, we have INR 500 crores of cash on our book. And given that there's an OpEx-heavy business, not very CapEx heavy, how do we plan to utilize this cash and any timeframe for utilizing his cash?

Yes, I'll take that. So thank you Rahul -- thank you, Sahil. Our dividend policy is already stated of 20% to 30% of free cash flow, and we are adhering to that policy. And for the rest of the cash, if there is an opportunity for us for inorganic growth, we will take that opportunity. From organic point of view, we have Germany in front of us and then also, we will be suggesting our own premises in U.K. and the U.S. Currently, we are invented Macy's, but to increase efficiency, reduce costs, we will go into our own finances banded. So some of the cash may be utilized in adherence to that. And after that, if we see extra cash coming in or extra cash on the balance sheet, then we'll be happy to have extraordinary dividend specifically.

I see. So what's my second question is, if you look at how customer interactions work with platforms in our platform, e-commerce platform, platforms, which have more wider range of products can be better offered. Customers end up spending more time on those platforms and such platforms are able to grab a larger part of the customer project? So from that standpoint, like, do we have any plans of kind of diversifying the SKUs? Like if I understand or SKUs are jewelry, ascension and lifestyle products. So any plans on diversifying or like increasing the SKU themselves?

So our total items in our inventory is about 25,000 in June time in the U.S. and about 18,000 to 20,000 in the U.K. So we want to retain the total items around this number. It may go up some, but you don't want to go Amazon way with sort of long-tail strategy. We believe that us -- SKU direct to limit would create the value proposition. The strategy points that we can share with customer engagement is high. If you expect to change so far then that value proposition on the interest may go down. And you want to trade off rather than to call the Amazon.

[Operator Instructions] The next question is from the line of Amit Jeswani from Stallion AMC.

Really just wanted to understand more about the Budget Pay sales that we do. Do you take on the creditors because that seems that credit region and the contact, we get 1.5% as default risk. Is that right? Like is in the credit of company taking the default risk, no?

So no, we take that risk because there are a lot of companies who are to take the risk and the cost of taking that risk is the child substantial amount. And with our process of collection, which is very, very robust and cost-effective, we found it much better for ourselves to assume that risk.

Got it. So, assuming to sell something which is worth GBP 100 today, right? And after first payment, we, of course, collect the first payment upfront. But after first payment, if that person doesn't basically pay the second or the third installment that like is there -- like we do -- do we just call them? Or like how does it go? Like how does the recover program will go? Because the shipment is already done, right?

Yes. Shipment is already done. So we will -- first of all, we ship to the customer who has the credit card on file with us. So without any reference, we don't give out a single penny by debit card, we don't get the credit. So credit card has to be there. So if the credit card is there, we assume that the credit card company has done the check on the customer, whether it's Visa or Mastercard or Amex or Discover. That's number one. Number two, proof of credibility that this customer has the created the installment with shipping and taxes. So these 2 are sufficient for us to take that risk. And then once -- if the customer doesn't pay, we have multiple ways of following up: e-mails, phone calls, texts. And eventually, if the customer is large one, then we give it to the collection company.

Got it. Got it. Sir, my last question, on your accounting, how does like these numbers are coming on the receivable?

Yes.

So this INR 167 crores, which was part of like March 21 data, that is the total receivables we have, INR 167 crores, right?

So most of that is the Budget Pay receivable. Some maybe to our B2B business, very small portion, that might also be there in the total receivables.

Got it. Now sir, that we are expanding into new geography, a total inventory was about INR 450 crores. Would that mean for every new geography that we get into the capital employed except for the initial CapEx for studio and some people and the losses of $3 million to $5 million? How much inventory do you think we'll have to build up?

So when you really look at the forward number of deals. And from that perspective, our -- when you look at our overall working capital, it is comfortable from forward number of days. And we believe that this -- by the end of this financial year, I will forward number of this will come down as an overall company compared to last year's Q1.

[Operator Instructions] The next question is from the line of [Kapil Bagha ] as an investor.

Am I audible?

Yes, you are, Kapil. Go ahead.

Okay. Congratulations on the great set of results. I had a couple of queries. First is, you mentioned the guidance of 16% to 18%. What are the top 2 or 3 risks that you see could lead to under-achievement vis-a-vis this target possibly?

Yes. I don't see much risks except unless every customer leaves their home and goes to Caribbean.

Okay. So the entire -- sorry, you were saying Caribbean?

Yes. I'm just kidding that is the only way every customer goes on holidays and don't purchase, don't website and all that.

Contribution came in from -- am I audible?

Yes, you are.

Yes. Yes. So on a higher base, where certain contribution came in from health care products and just opening up people moving out, you still see this will -- will -- these variables will be able to 16% to 18%?

Yes. We are confident of overall 16% to 18% for the whole year. So from quarter-to-quarter, it may change. But for the whole year, we are confident of 16% to 18% constant currency growth of U.S. and U.K. over last year's elevated base.

Okay. Driven primarily by the core products?

Yes. So from a product point of view, we are very agile. If you will see, for example, right now, the end legs are selling crazy. We can't have enough in our inventory. And last year, nobody wanted handbags, I'm giving you an example. So we would -- we will quickly send that handbag, even by air, we will become by sea and get them by air, offer to the customer and address their needs. Last year was essential. So we scrambled all over the world together essential to our customers. So product-wise, we will address what the customer's need is and offer. But having said that, our core product will be jewelry and other home products or consolation products of beauty product, they continue to move. They have been slow, but they continue to be the core products. But other than that, I think our ability to get what -- to get the customer what they need defines at the largest end of our success.

Okay. Just that in last couple of quarters, there was a tailwind in the form of stimulus checks also and that could not be there going forward, that is an additional -- could be an additional headwind?

Could be. But we haven't really tracked that as much because they are still on Walmart or targets that are on yet? Or are we a much smaller player than them whome those checks impact. Market share is pretty small. So we should do able to handle these issues easily.

Sure. Second question is something that I had query earlier as well in some of the con calls. You have a great platform. You have access to U.S. households, households in U.K., which can actually be leveraged for further revenue-generating opportunities, opening it for advertisements, generating some ad dollars, et cetera. Any thoughts of using the platform because that will be a low-CapEx, high-ROCE business, additional growth opportunity? Obviously, fire stick when we switch on the TV, we use fire stick. We see all sorts of ads. Can that be sort of implemented with VGL's platforms?

So Kapil, the advertising business is conducive on marketplace platforms, Amazon or Walmart or all the marketplaces with the vendors to compete and advertise for their product and the best is coming out. Since we are all proprietary product, opening our channel for third-party advertisers would not make sense. Why would anybody advertise on our platform -- our product. Maybe on television, they may, but we agree that the noise would not justify the revenue that we'll get from that initiative. So we've talked about it a long time ago, but since many years, we have not followed that area.

Actually, whenever I switch on fire stick, like it's not a marketplace. It's media delivery platform. There's -- this thought always strikes me, can -- this can be done by VGL or not. Congratulations again on the great results.

Thank you.

Next question is from the line of Arpit Shah from Stallion Asset.

Just an organic update on the TJC Beauty channel. How many hours you have been operating on that? And what kind of revenues you started generating from that particular region?

Yes. Thanks for the question, Arpit. So we are live only 4 hours on Beauty channel. So the revenues, we are not breaking down separately by the channel. I don't have the number items entered. But from a business point of view in last quarter, it was profitable. By small number, it was positive from a variable cost point of view. And as we see more traction, we will expand air time for that channel. So right now, there's only 4 hours on that.

The margins would be on some of the lines as a company or would be a bit higher or lower? How does the margin look like?

Similar margins. So we -- in the front, I have the retail side, we ran between 50% to 65% margin. And it is in the same line. In fact, we don't take in any product in our our entire business, which should give us less than 50% margin. So that is why we can't go into both or Apple or Samsung or the words because regarding that you set for our business, new product will come in, which is below 50% margin.

Got it. And do we aspire to have different channels for different product lines across U.K., like we have in Beauty. Can we have a similar line for Beauty? Or can we have a different line for -- like different channels to the product line? Is that an aspiration that we already started?

It may be possible, but the product line has to be big enough, and we have to have such supply of product categories supplied to our main business first. And if we see overflow from the main business, then we will consider that. We will not bring in anything, which will compromise our main -- our sales storefront, so to say.

Got it. What kind of app download we are seeing in Germany, U.K. or U.S.? Or any updates on what the strategy has in social idea?

I don't have a number of downloads with me right now, Arpit. But we are seeing the ratio of web app sales going up year-over-year business itself. So app is improving rapidly for us. I don't have the data in front of me.

The next question is from the line of Rahul Ramakrishnan from Vista Investments.

So my -- I had 2 questions, follow-ups. Last year, you set up a manufacturing unit for apparels. And I think you had about 50 or 100 people working there. So has there been any ramp-up over there? Or like are you seeing good traction over there?

Yes. Very well, actually. So we actually signed up -- in the process of setting up additional unit on that. So we already have about 250 group workers. And we expect to see this improve -- increase further to almost 400 to 500 before the end of this financial year.

So that's like a 5x increase in the employees count there?

Yes. That's growing very rapidly.

In fact, today, and this is very good to hear that.

Growth rates for us -- apparel is having best growth rates for us right now.

Really pleased to hear that. Sir, a follow-up to -- sir, yes, my second question is regarding, sir, as you've seen since FY '16, there has been a lot of technology-related upgrades that you've done to your platform, your app. Like you've been continuously investing in technology, automation and all that, and you kind of ramped it up even last year. So all those things have actually -- like those expenses, do we expect those kind of expenses to continue? Or are you finally like going to ease up on it? Has the major stuff been done?

No. IT is something that is constantly evolving and changing. I don't expect this to slow down. If at all, this may only accelerate going forward. I wish, it could slow down, but I don't think, it's just because the technology is so rapidly evolving, this should be ahead because it's not -- there should be no reason we should be behind the curve.

The next question is from the line of Kanwalpreet Singh from AMBIT Capital.

Thank you for taking my follow-on questions. And apologies, if this has already been answered. I joined 10 minutes late. Sir, on your gross margin, your guidance is always at 60%. And if I'm not mistaken, this quarter, it's around 65%. So any categories that you can highlight where you enjoy good gross margin? And any risk that this may fall back to 60% level?

Yes. So first of all, the -- any category that we've taken must meet this threshold. So we don't have any category that just stands out in a huge margin-wise. Every category has been in this threshold. And also category has another guardrail is per-minute margin that they must make. So nothing stands out from a margin point of view. But our guidance is at 60% and plus. So it's from 65%. It grows to 63%, now 62%. So don't get worried. When we look at the business, depending on per-minute margin against the target. So there is a minimum that we require the percentage, but if we look per minute margin or per square centimeter of our real estate on website. From that point of view, a portfolio has to meet the numbers.

Right. Sir, because when I look at your results over the last 4, 5 years, actually, it has always trended upwards. Like 60%, you say is the benchmark. That's always gone higher. So it was on 62%, 63%, and now it's at 65%. So any long-term focus that went into this to bring it to 65%? Or is just the nature of what products are being purchased and other leading to this margin increase?

Product being purchased, manufacturing are getting more efficient and also the shipping. So we are getting more -- more and more shipping discounts today in Amazon, and they're trying to build up that margin a little bit on the front end. So a lot of factors into play. But our -- as I mentioned earlier, if we could grow 60%, then is it something to be considered or something to be, attention is to be given. And I think over 60% is we are fine with.

Right. The last question would be another trend I have seen is that the differential between the ASP on the web and TV has continuously getting, is there some differential and I understand maybe that comes from your driving auction. So where do you see this tracking down? Would web ASP be similar as TV ASP? And if you could give a sense of how much as a percentage of total volume is rising auction?

Yes. Sure. So our rent has 3 channels. One is the rising auction, as we mentioned; other is fixed cash catalog. There is an entire our inventory is published; and the third is the TV screening, the live programming streaming through web for the customers who don't get to the signal. So all 3 have different price ASP. So the TV stream is seamlessly ASP. The rising auction is substantially lower. So rising auction is just around $11 or $12 ASP. And PC is slightly higher than TV. So what you see is a mix of all these 3. Now in the long run, from our visibility point of view, the ratio should be similar going forward because rising auction is the exit mechanism for items not moving to TV or the tails remaining on TV. Even on web, if the item is really struggling and not doing well, it could go into a rising auction. So the ratio should stay constant in the near future.

Right. So the differential between your TV and web ASP should be at similar levels going ahead?

Yes. That is what I see right now. Some new change or new opportunity comes, so that may change the mix. But with the visibility I have right now, it should stay the same.

The next question is from the line of Yash Joglekar from AMBIT Capital. [Operator Instructions] Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for their closing comments. Thank you and over to you.

So thank you, everybody, for your participation and your support to the business. If you have any further questions, please feel free to reach out to CDR or VGL, Vineet at VGL and Sunil at CDR. Thank you very much.

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