Vaibhav Global Limited (VAIBHAVGBL) Earnings Call Transcript & Summary

Good evening, everyone, and thank you for joining us on Vaibhav Global's Q2 and H1 FY '22 earnings conference call for the quarter and 6 months ended September 30, 2021. Today, we have with us Mr. Sunil Agrawal, Managing Director; Mr. Vineet Ganeriwala, Group CFO; and Mr. [ Prashant Saraswat ], 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 will open the forum for a 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 we face. A detailed statement and explanation of this risk is included in the earnings presentation, which has been shared with you all earlier. The company does not undertake to update these forward-looking statements publicly. I would now like to invite Mr. Sunil Agrawal to make his opening remarks. Over to you, Sunil.

Thank you, Tal. Good evening, everyone, and thank you for joining us today for Vaibhav Global's earnings call to discuss Q2 and H1 FY '22 financials and operating performance. Before we begin, I hope all of you and your families are keeping safe and healthy. With the vaccine drive getting pace in most countries, we hope that this will enable us to lead an unrestricted and normal lives. COVID-19 has started down the path and will gradually become an endemic. Each of us has had unique learnings from this unprecedented event in our lifetimes. We, at Vaibhav Global, have used this challenge as an opportunity to learn and to excel. I hope you had a chance to look at our quarterly results and presentation. In Q2, you have seen our revenues at INR 635 crores, an increase of 6% Y-o-Y and 30.9% increase over Q2 FY '20. With the vaccination in both U.S. and U.K. reaching pivotal levels, severity of threat from COVID has largely reduced. As U.S. and U.K. economies are more or less fully opened, we have seen consumer behavior moving up -- moving to something we call revenge outings. This means substantially increased brick-and-mortar shopping and people going out for dinner, family gatherings and holidays. After a massive jump last year, overall e-commerce as a percentage of U.S. and U.K. overall retail sales has dipped in recent months. This phenomenon has led to relatively lower shopping for home shopping retailers like us. Retail revenue for us grew by 3.3% Y-o-Y. Our H1 revenue grew 14.6% over H1 FY '21 and 42.4% compared to H1 FY '20. We believe that these headwinds are transient, and we are well placed to continue our growth trajectory in the coming years. We are committed to our original guidance of 16% to 18% constant currency revenue growth for current full financial year. Let me now move to our operating performance. In Q2, our gross margins continued to remain healthy at 63.9%, expanding by 100 basis points. EBITDA for the quarter has been at 11.4% compared to 16.5% last year. Excluding German new venture, it has been at 13.5%. Margins during the quarter were adversely impacted by one-off external factors of higher shipping expenses linked to global supply chain issues. We continue to judiciously invest in Germany. In addition, we scrubbed at our digital marketing investments. We increased our investments on new TV OTA channels and OTT platforms. These investments have already given us 5.3% increased new customers in Q2 compared to pandemic-induced high new customer count in Q2 FY '21. When we adjust for our customers who bought essentials last year, the increase will be 33.9%. And compared to Q2 of FY '20, new customer acquisition increase would be substantially higher at 61%. In our business model, new customer takes 6 to 18 months to fully mature through our remarketing funnel, which bodes well for coming period performance. All these initiatives will give us long-term benefits and goes to our revenues in the coming period. We believe that the margin pressure is transient being linked to either strategic growth initiatives or near-term challenges in the operating environment. I would like to reiterate our -- I would like to reiterate that our business is driven by deep value proposition and with expanding range of products and deep penetration. We continue to gain market share across geographies. We also remain cash accretive in each evaluation period, financing all initiatives out of internal accruals. During the half year earnings, 30th September 2021, operating and free cash flow stands at INR 53 crores and negative INR 27 crores, respectively. During the period, we made investments in building our digital competency, automation and business expansion. Cash is also impacted to some extent by global phenomenon of the inflated sea freight and increased transit times. ROCE has been solid at over 50% on a trailing 12-month basis while we continue to invest for our future growth. Our recent launch of operations in Germany has got off to an increasing start with positive customer reviews for our range of products. We are available live to 21 million households out of total 38 million and on YouTube and digital platforms. We are confident that this market has a similar value proposition and a customer profile to the U.S. and U.K. With an encouraging customer response, our front-ended investments should create good return on capital over time. We are on track to meet our target of profitability within 3 years of launch and are extremely excited to the progress of this initiative. Some other key developments over the quarter were launch of our new apparel brand, TAMSY, an affordable, inclusive women-centric brand targeting customers of over 40 years of age. The tagline of the brand, "Design to fit, loved for value," jells very well with our purpose of delivering joy and for our existing demographic of 40-plus women. The brand is having a dedicated website with products also available on Shop LC and TJC website. We also acquired worldwide online brand rights of Rachel Galley, a multiple award-winning U.K.-based contemporary design jewelry designer. These online D2C brands will further accelerate our digital revenues in the coming years. We continue to take measures to improve efficiency. In this regard, we installed Geek+ robots in our U.S. and U.K. warehouses at an investment of about $5.2 million. These robots are extremely efficient and improve productivity by 3x, leading to reduction in delivery time and cost savings. We expect a quick payback period of approximately 2 years of this investment. Our vertically integrated model and a supply chain network of spanning 30 countries is the backbone of our business and a key differentiator vis-à-vis our peers. Most importantly, our highly motivated team worldwide make it all come together to clearly deliver joy to our customers and all our stakeholders. Now retreating our 4R's framework, comprising of reach, registration, retention and repeat purchases, which forms the basis for driving operating performance. We maintained top quartile levels on each of these 4 parameters translating into ongoing outperformance into home shopping space. The reach of our TV networks by the end of Q2 FY '22 was 110 million TV homes. We reached TV homes through cable, satellite, telco networks, and over the air antenna-based TV platforms. Our products are also available on digital channels, including all proprietary websites, smartphone apps, OTT platforms, marketplaces, influencer marketing and social direct response. New registrations during 12-month period continue to be strong and came in at INR 3 lakhs compared to INR 2.6 lakhs in the corresponding period of the previous 12 months. This reflects our ability to meet -- this reflects our ability to not only support changing customer preference, but also respond to them with agility. Customers bought an average of 30 pieces on TTM basis from us compared to 27 pieces in the corresponding period of the previous year. As the engagements with the new customer deepens, we expect to continue to drive bigger volumes. Finally, our retention rate stood at 44% on a TTM basis compared to 50% for the same period last year. This is partly impacted by high new customer addition to Q2 FY 2021, owing to essential items offered last year. Our retention rate of old customer base continues to remain strong. From the triple bottom line perspective, I'd like to share that we are now meeting 100% of our power requirements at all our manufacturing units in Jaipur from solar generation. It is also heartening to note that we have crossed a milestone of 58 million meals through our one for one meal program for school children with a run rate of 58,000 meals donated every school day. We continue to reward our shareholders. And keeping in mind our dividend policy, the Board has declared an interim dividend of INR 1.5... [Technical Difficulty]

Mr. Agrawal? Seems like we lost the connection for the main speaker. [Operator Instructions] Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you, sir.

I'm not sure where I got disconnected. Let me start with a paragraph before. We continue to reward our shareholders, and keeping in mind our dividend policy, the Board has declared an interim dividend of INR 1.5 per share. We look forward to maintaining fine balance between growth investments and quarterly payouts giving sustainable value for our stakeholders. As I conclude, I would like to state that we have demonstrated the resilience, agility and strength in our performance for the last quarter and years. I would like to reiterate our positive outlook for the business. We are confident of our business model, value proposition and our execution abilities. I retreat our full year guidance of 16% to 18% retail revenue growth in constant currency in geographies of U.S. and U.K. for the current financial year. With that, I now hand over the call 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 Q2 and H1 FY '22 Earnings Call. I hope that you and your loved ones are all safe and keeping well. I will now take you through our financial performance for the quarter and half year ended 30th September 2021 in greater detail. As Sunil mentioned, Q2 saw change in consumer behavior with home shoppers shifting to in-person shopping, and we also saw increased holiday travel induced by lifting of lockdowns completely. Amidst this, we continue to expand digitally and geographically. Overall revenues stood at INR 635 crores, growing at 6% year-on-year, with retail revenues growing at 3.3% year-on-year. In local currency, Shop LC grew by 2.3% year-on-year and Shop TJC reduced marginally by 1.7% year-on-year. However, in comparison to Q2, both Shop LC -- Q2 FY '20, both Shop LC and Shop TJC grew substantially by 22.1% and 24.5%, respectively. TV revenues have shown marginal improvement year-on-year at INR 389 crore, though a strong growth of 24.6% year-on-year over same quarter FY '20. While digital revenues in Q2 FY '22 increased by 8.6% year-on-year, over the same quarter in FY '20, it grew by 52.9% year-on-year to INR 226 crore during this current quarter. TV contribution to our retail revenues is now at 64% with the balance 36% accruing from the digital segment as the business continues to get greater traction there. As you know, TV includes customers 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, digital includes online purchases on our proprietary websites, shopping apps, OTT and social e-commerce. With omnichannel customers, our core focus remains to encourage customers to transact on both TV and digital platforms, which gives them a unique shopping experience. Such omnichannel customers relatively fetch us significantly higher lifetime value than customers that either buy only on TV or only digitally. In our overall product mix, revenue contribution from non-jewelry products was at 30% in Q2, which has significantly increased from single-digit levels a few years back. This clearly demonstrates our ability to expand wallet share by entering adjusting categories over time. Non-jewelry categories now include fashion accessories, lifestyle products, apparels and beauty products. This trend has also balanced our revenue streams. Our Budget Pay feature provides customers with the convenience of buying on EMIs. During the quarter, the products sold via Budget Pay contributed 38% of total retail revenues. This feature has added level of affordability, especially in high ticket-sized products. Gross margins in Q2 continued to remain strong and marginally improved to 63.9%. On an overall basis, EBITDA margin for Q2 is 11.4% versus 16.5% for the same period during the last year. EBITDA, excluding the Germany investment in Q2, is 13.5%. For H1, EBITDA margin, excluding Germany, is 14.4% versus 15.3% in H1 of last year. Slight drop in Q2 EBITDA margin, excluding Germany, was partly impacted by short-term increase in sea freights owing to global supply chain constraints, and our increased investment on new TV OTA channels as well as accelerated investment in digital marketing spends. We are confident that most of these are transient in nature, and we will rebound to our growth trajectory in the ensuing quarters. Profit after tax came in at INR 42 crores. Operating cash flow came in at INR 53 crores, and free cash flow was minus INR 27 crores. The disruption in global supply chain resulted in higher inventory levels and consequently increased working capital investment. We expect to revert -- we expect this to revert back to normal levels in the coming quarters. Free cash flows also reflected planned higher CapEx on warehouse automation, digital capability building measures and initial operating cost of Germany. We had front-loaded this CapEx in H1 of current year to get the full benefit in the upcoming season. On a TTM basis, ROCE and ROE continue to remain very healthy, and we're at 51% and 28%, respectively. The stability in these ratios signifying 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 an interim dividend of INR 1.50 per share for Q2 FY '22. Towards the end, I would like to reiterate that the group has made a robust start to its financial year in Q1. Due to some short-term aberrations I discussed above, growth momentum has slightly slowed down in Q2. However, we continue to demonstrate resilience, agility and strength and are a firm believer in investing in short-term headwinds to capture long-term opportunities. We are confident in the business prospects ahead of us, and we are investing to capture growth and continuous healthy cash generation. We remain confident of our prospects, and we deliver on our stated growth guidance of 16% to 18% for the current year. With this, I hand over it to the moderator.

[Operator Instructions] The first question is from the line of Latika Jetha from Concept Investwell.

Sir, 2 questions from my side. The first question was, if you see the number of household, it is around 110 million household currently. But if I've seen that in U.S., it has reduced from 77.5 million to 63.5 million. Also, if I had to relate with the TV revenues, the TV revenues have grown nearly 0.5% for the quarter. Whereas the volumes have degrown both on a quarterly basis and a half yearly basis. So I just wanted to ask that is this an indication that the industry is moving or, say, transitioning from teleshopping to, say, video social commerce or web commerce? And I would also like to your -- to get thoughts on whether -- what is your take on your target in maybe 5 years' time for your TV versus web revenue? And I have a second question, which is, how are you looking at the D2C brands, which is TAMSY and Rachel Galley, which one I believe is organic and one is inorganic. I just wanted to pick your brains behind launching these as a separate brand rather than selling it how you sell different products. So why -- what is the idea behind launching this as a brand? And going forward, can we expect more brands coming in?

Operator, is Sunil disconnected? Can you check again?

Sir, he's connected. Mr. Sunil Agrawal?

Sorry, I was on mute. Latika, this is Sunil. Thanks for your question. I'll take that one. So the first one is about the households. So it is not the cord cutting that has led to the reduction in number of houses. There was one operator one platform with whom we exited because they wanted to increase the price, and we didn't find it worthwhile. So we exited with them, and we have taken ordinate OT distribution to cover this household. So OTA may be the same homes that we already have with regarding duplicate broadcast in those markets, but at a much better penetration. So per household revenue will be much higher on them compared to some cable effect like homes. So these numbers that we see in the U.S. is regular negotiations with the cable operators, not as a trend phenomenon. Your next point is about 5 years of TV versus e-com. So we have given this guidance earlier also. We look at 3 years, we expect our digital revenue to cross 50% in 3-year time horizon, which is about currently 35%. Your third point was about the D2C brands, TAMSY and Rachel Galley. So these are something that we are experimenting with in the D2C brand, and we see that they have potential. So this is something we are experimenting and testing how they share. We don't have any guidance on them yet, this is a testing for us. Latika, does that answer your question or there's something still not answered?

Thank you so much.

Sure.

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

Vineetji, basically, the second quarter has witnessed a brunt of 2 main headwinds. One has been the German operation cost, which in any case was planned, and which is about INR 15 crore losses that have been incurred in the German operation. The second one has been the freight cost and the supply chain disruption that has recurred, which also happens to be about INR 15 crores. So this INR 30 crore additional cost clearly has impacted the numbers that we spend. Now when we look at the operating profit traffic/trajectory, we've been steadily improving over a period of time as scale is improving. And given the fact that of the total cost, about 40%, 45% is variable that allows us an operating leverage as the scale gets higher. So if we disregard German operation loss for the current year, despite the impact of the supply chain disruption in the second quarter, for the year in entirety, are we likely to match up to the kind of operating profitability and the margins that we had last year? Or we would still fall below that in the -- despite catch-up in the next 2 quarters?

Thanks, Bharat, for that question. And you are right, the EBITDA margin are impacted by 2 things. One was investment in Germany, which is planned. So that is exactly in line with the guidance what we gave, a $3 million to $5 million loss for the first year, breakeven in the third year. So we are happy that it's proceeding exactly as we envisage it to be. So 2% impact because of that. The other 2.3% impact from -- was from the elevated sea freight levels. We have already started seeing it softening. We expect it to continue to go down and reach a stable level in the short term. Having said that, we have also launched a lot of cost initiatives to counter some of these increase as well as the effort is also to pass on the increased cost to the customers and keep focus on the gross margins. So in nutshell, excluding the Germany losses, which will be there in this year, we expect the year to end at a flattish or slightly positive operating leverage only by the various cost initiatives, offsetting the elevated sea freight level, which...

Compared to last year because last year, we had about 14.6%, 14.7% kind of operating margin. So despite the setback of the second quarter margin, barring German operation losses, the year should end up with similar or better kind of margin, right?

Yes, Bharat bhai, that's what we expect to win with all the initiatives planned. And of course, we do expect this sea freight to stabilize, which we have started seeing some signs of softening.

Sure. And the second one, our longer range business plan has been kind of leveraging multiple distribution channel expanding range of offerings and not depending only on jewelry. And then given the nature of our activity on an outsourcing basis and multiple geographies and supply chain arrangements, there is a significant component of the fixed cost. And therefore, operating leverage as we get a scale and we keep getting ahead, it's something which is integral. And therefore earlier in various discussions over our belief is that over, let's say, next 3 to 5 years, steadily there should be uptick on the operating margin, probably because of the many cost initiatives as well as in terms of the operating usage. So that journey stays, right?

Absolutely, Bharat bhai. The business model is such that with increasing revenue operating leverage flows into the bottom line. We have seen that in the past 5 years, and we expect that trend to continue in future as well. This is a year of investment into Germany and other growth initiatives.

Right. And last question that I need to check. And do you -- while, Sunil, you did highlight about business model execution, resilience and agility, all the defining hallmarks of Vaibhav, they still intake. But the same, given rather near term or the shorter-term kind of customer behavior in terms of compound people when they get a chance, they kind of moved away from home, and it affected our second quarter growth rate in top line. But our core business model and all that we think about it, I suppose there is no intriguing in the long term what we visualize about our business, about on a long-term basis that healthy double-digit kind of a growth rate of the top line. That reason is not altered by anything that we have witnessed in the short term.

I'll take that, Vineet. Bharat bhai, as I already stated in my opening remarks, I am more excited now than ever with our business model.

Can you speak up a little bit? Your voice is not clear, Sunilji.

Yes. Can you hear me now?

It is still faint, but continue.

Yes. Can you hear me now, Bharat bhai?

[Foreign Language]

Yes, Bharat bhai, can you hear me better now?

Yes. Yes. Yes.

Yes. So as I mentioned in my opening remarks, I'm more excited than ever with our business where we are in the business and various growth initiatives that we have put in place are all our confidence in the model and our confidence in the business. And there is sustained long-term growth potential of the trajectory that we've already seen in the last 5 years will continue for foreseeable future, and these initiatives will make sure that these continue the same way. So the top line growth as well as leverage should come -- should be there. So the top line should continue. The leverage will come back after the German initiatives are mature. German initiatives and the digital initiative that will mature, the leverage will come back. And the leverage will be there. In this financial year, it will be flat or leverage for the full financial year for years in the U.K. itself.

And Sunilji, just to check on this. What makes you say that you're more excited than before? What is it marching, what has got your attention that -- which makes you more excited than before?

So quite a number of things. One is the OTA. OTA is antennas broadcast into homes, which people don't pay anything, and it's a digital broadcast. OTA homes are increasing every year 4%. Whereas cable, which we pay, that is getting cut. And we found very good traction of OTA. So in H1, we've made an investment in OTA. And we are seeing good traction on that one -- that investment. Number two is OTT. OTT is like Amazon Prime or Roku or Hulu. So that investment we started making, and we are seeing a lot of customer traction in that. The lifetime value in OTT is even higher than TV. And third is digital. As we learn digital over the years, we are seeing traction of revenue growth and customer acquisition and being able to penetrate to the customer who would not normally buy on television. So as we are learning more about that, that excites us more. And the fourth is a geography. We went into Germany knowing that we were in Germany a long time ago in 2007. But going back in, in the last few weeks, few months, we found that customer behavior is very similar to U.S. and U.K., and we can scale there very rapidly. Our original position is 3 years profitability, but we may actually hit it even sooner. So we are seeing the traction there. For all these factors combined, gives me tremendous excitement of where we are in the business.

I see. So you are saying, German operation may turn out to result. What you envisage earlier than what you thought when we plan Germany operations?

Yes, that's a possibility. We are not giving guidance of earlier at this time, but that seems a possibility once we're seeing the cash in there.

[Operator Instructions] The next question is from the line of Ashish Kanodia from AMBIT Capital.

Sir, in your opening remarks, you have highlighted that you have onboarded new channels. So can you just talk about that in this geography on what are these channels? And are these channels 24/7?

So in Germany you're talking about? Or the OTAs?

Both. Both, sir.

In Germany, we have 20 hours live out of 24. In the U.S. and U.K., we are 24 live in both geographies. And OTA is -- OTA or OTT is the same broadcast of the same signal. So in U.S., in U.K., OTA and OTT, we're broadcasting 24/7.

No, sir, my question was, in your PPT, we have talked about adding new TV channels. So my question was, in which market this new channel has been added?

I see. They are mostly OTA channels. OTAs, over the air antenna segment, and this is a digital signal, and that was spread all over the U.S. So U.S. is about 210 different markets. So that's why I call TV markets. Of those 210 markets, there are about 80 markets of OTA full power OTA. So we still have about 140 markets to -- 130 markets to still go into in OTA full power. So they are spread all over the U.S.

Okay. And secondly, sir, just talked about how the customer acquisition has been. If we adjust for the customer who basically came only for the essential, would it be possible to share the retention rate also? Because if we look at the retention rate, it has come down to 46%. But of course, it has that element of customers moving out who just came for the essential. So if we carve out those customers, what was the retention rate for the quarter?

Good question. I don't have that answer right now because very micro detail. I'm sure Prashant should be able to give that to you later.

Sure, sir, sure. And lastly, my understanding was that because 70% of revenue is still jewelry and jewelry is not necessarily a voluminous product. So we are more dependent on air rather than sea. And that is why even if the sea freight has gone up, it should have not impacted materially. So I just wanted to check, is that understanding correct or if we are actually far more dependent on waterways rather than airways?

Sorry, I couldn't understand your question. Can you repeat that again, please?

Sir, my question was that my understanding is because jewelry is nonvoluminous, so we use air as a mode of shipment rather than sea for shipment. So I just wanted to check, is that correct? Or is it more dependent on sea?

Yes, you're right. Majority or most of the jewelry is sent by air, but some fashion jewelry from China or, say, stainless steel or brass jewelry from India, that is flown by sea, but majority is sent by air. That is correct.

Sure. And just last question on the D2C brand. So I think you said that this both -- D2C brand will be available from the TV channels as well as having their own website. So how is it different, barring the fact that they will have their own website? So what's the strategy on both these brands? And how is it different versus what we are already doing with our existing business?

Yes, very good question. The reason I mentioned that these are tests for us is because we want to see how the customer behavior is on dedicated stand-alone sites that project authority rather than sites that have multiple product categories. So for example, multiple product categories, then we are being seen as Amazon or Target or Walmart versus D2C dedicated site. So there is a test for us to see that the customer traction on dedicated site is better for that product or on multiple products. We see that initial response that we're getting, we see that there's a potential for -- to scale up these dedicated sites for higher value for these 2 products, for example, which are very -- we've been selling for 8 years now. Apparel, we also sell on main sites, but we are seeing that we may have a higher traction from customers on digital space, and we may be able to target some customers that we do not attract the general website.

The next question is from the line of Nilesh Shah from Envision Capital.

Sunil, my first question is for you. This quarter, our revenues from the Lifestyle segment have fallen marginally, as a percentage of the overall revenues, whereas our aspiration is to basically take it up to above 50% over the medium term. So anything which essentially didn't work for us this quarter? I mean any reason why Lifestyle as a segment was soft, especially in context of its share in the overall revenues? Or if at all, that's just a temporary aberration?

Sure. So last year, we sold a huge amount of essentials, the masks, sanitizers, the COVID rolls, the food items and [indiscernible] items in the pandemic. And this year, that sales was not there. So that -- there was a bit of a lower uptick, but to offset that, some of the sales came from handbags or apparel or PPE or travel things to be going out. So those sold well. So it is just a temporary aberration of last year's high base of essentials.

Okay. The next question is around our medium-term trajectory, and you just mentioned that we aspire to have our digital revenues cross 50%. Now our realizations from the digital side, realizations per unit are lower compared to the realization while we sell it on the TV. So -- and there is a difference of about roughly more than even 10%. And as those revenues -- as the share of revenues from digital increase, does that pose some kind of a headwind for us in terms of growing our revenues in double-digit because that puts additional pressure in terms of growing volumes correspondingly to offset the impact on realization? So just wanted your thoughts on this.

Yes. So on the web side, the lower price point that you see is predominantly because of some clearance mechanism that we have is called rising auction, $1 auction on web side. So I think that position is relatively high right now. But as the sales on digital channels increase, that clearance mechanism becomes a smaller percentage of total digital revenue. So the overall average price on digital would eventually converge to our average price point over the longer term.

Okay. That's helpful. And last one, this quarter, our gross margins have inched up. Any specific reason generally, when there's been rising prices -- rising input prices? What has really contributed to expansion of gross margins this quarter?

So partly, we tried to offset a bit of the shipping cost of [indiscernible], and the shipping costs -- the shipping cost would be there. So we constantly look at trying to expand the margin to offset the shipping discounts that we give at the shipping cost that we incur, giving more and more shipping -- free shipping promotions in U.S. and U.K. Regarding the U.K., we have the TJC PLUS. At TJC PLUS, there's free shipping to the customers to subscribe to that monthly service. So to offset that, we try to increase the gross margins. And in the U.S. also, we're doing some free shipping for, for example, the $1 auction, rising auctions. Anybody who signs for the product gets free shipping. So to offset those promotions, we had to increase the margin. So we've been able to increase those margins slightly during the quarter. And in the coming quarters, our effort will be to increase it even further if we can. But there is not a guidance right now. Guidance is generally 60% plus, but that is our endeavor to increase to offset other costs.

Okay. And our share of revenues from the Budget Pay mode has now inched up to 38%. I remember on one of the earlier calls, you said the intent is to not have the Budget Pay revenues crossed 40% mark. So we seem to be approaching the 40% mark. Do we still kind of intend to kind of keep that at some kind of a red line? Or we would be flexible on that? Or does that pose any kind of an additional headwind for us in terms of our future growth?

Yes. So the 40% was a general guideline. It is not a red line for us. If the customer -- it may go slightly higher or it can stay slightly lower, but we don't expect it to move substantially either way. The reason is that the model of our price point, keeping at around $28, $29 kind of price point, where we don't give Budget Pay under $20. So that price point -- that kind of model leads to this kind of ratio. If the price point goes to, say, $30, it may slightly go $40, $41, but our endeavor is to stay above 50% of our competitors in average price point.

The next question is from the line of Jai Tewani from Julius Baer.

So my first question is you mentioned that home shoppers have preferred in-person shopping and holiday travel. Don't you think this trend would continue over the shorter term?

Yes. So we expect it to come back to the normal life in the very short term because people have been cooped up inside. So having figured or having taken cognizance of that is that we're giving this guidance of keeping to our target of our guidance of 16% to 18%. But in longer run, when we -- when people will settle down, we expect the similar kind of growth rate to come [indiscernible] 15% to 18% for U.S., U.K. But in longer term, when we include Germany or other initiatives, it may even be higher than that.

Understood. My second question is in your EBITDA margin walk, you mentioned accelerated investments in digital and broadcasting. Sir, wanted to know if this velocity of these investments would remain the same over the next few quarters?

Yes. For OTA point of view, maybe your perspective of why there's higher expense when number of homes were lower. So OTA homes is approximately 10x more expensive than the normal typical cable home. And the investment in airtime was mostly front-ended. You invest right away but the customer matures in 6 to 18 months' time. So it is more front-ended rather than back-ended. So OTA will continue to invest if you get the opportunity. In last quarter, the last 6 months, actually, we got good opportunities to get into 2 major OTA affiliates. We may not get those mature opportunities in coming quarters. We'll just take them when they come to us. They're largely front-ended rather than back-ended. Now the second part is digital. So digital investment will continue over the time, but -- and the result of this investment is shorter than the OTA homes. So digital lifetime is shorter than the OTA lifetime and the return is also quicker. So digital level will be relatively elevated, but the return will also be rather sooner on that one. So coming to overall, some of the questions, some of my comment is it may not be as high in coming quarters as it has been in Q2. But it will be there.

Understood, sir. Sir, could you just call out how many subscribers are there in OTA just for us to understand how big this space is?

Sure. So there are 2 types of OTA. One is a low-power OTA, one is a full power OTA. So there's about 20 million -- 20.6 million homes in U.S. who are pure OTA. The homes that take -- they consume TV only by antenna. There are many homes who have OTT that means the connected TV as well as the consumed by OTA. There are many homes who have cable and also consumed by an OTA. But pure OTA is about 20.6 million homes. Of the 20.6 million homes, low-power OTA that we've been having for a long time, they're already 18.7 million homes. But the full power homes, which is 10x more expensive than low-power or cable, there are only about 7.8 million homes of the 20 million. And even these 7.8 million homes are relatively low for us. So we still have about 16 million -- 14 million homes approximately -- 30 million homes sorry. There's 30 million more homes that we can potentially grow in OTA space, and they cost 10x more, but they're productive between 6 to 8x more than cable.

Understood. 6 to 8x more. Okay. Understood.

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

On the revenue front, if you can talk about how things are shaping up now as we are nearing to the festive, new year eve over there? What kind of traction we are seeing currently? What are the trends currently compared to last year October rather than September because given the base is low as you rightly pointed out in the opening remarks? And follow-up on the guidance, if you can touch upon -- given the 16% constant currency growth guidance you're maintaining, the second half growth run rate -- required run rate would look 20% rate you have to grow to meet the 16% annual guidance. So what gives you confidence in the near term that we can grow 20% on a base of last year, which is already very high at 30% -- 25% to 30% rate? So if you can explain that part?

Yes. Sure. So first question, October. So October is a bit better than September -- July, August and September. It is a bit better, not where we need to reach right away. But last year, in the U.S., we had U.S. elections. So there was some impact of U.S. election while there was a tailwind of COVID, but there was a headwind of election. So we are comping against the election. So we have some room against last year on November point of view. Now we have looked at the numbers closely. And this time from the visibility that we have right now, we feel comfortably confident that we will be able to have H2 numbers to meet overall annual guidance of 16% to 18% constant currency growth.

And to meet that, are we changing our product mix in a sense that we are getting more trends which can help us to feed the market better than what we were able to do in the current quarter?

Yes. So product mix is a constant thing on a day-to-day basis or week-to-week basis as we look at what customer is pulling and given our ability to source so quickly. So we have this process continuously going in. In fact, last 18 months or 20 months, this has been phenomenally done very well across the whole organization. So there's a constant phenomenon.

Sure. And the CapEx front, we have seen a slightly elevated CapEx in the first half. So what is the guidance for the full year?

Vineet?

Yes. So Chintan, we don't give a guidance for the full year, but one has to see the CapEx of H1 also, including 2 one-off things. So one is Germany. So $2 million CapEx of Germany is also sitting in this H1 number. And the other $5.2 million of the warehouse robotics GEEK+, which Sunil mentioned about, that is also sitting in this H1 CapEx. So both put together about $7.2 million. So more than half of the CapEx you see is this one-off, which will definitely not be there in H2 this year. And we had -- and in that way to front-ended in H1 so that we get the benefit in H2.

[Operator Instructions] The next question is from the line of [ Sridhar from Business ]. As there is no response from the current participant, we move to the next question from the line of Rahul Ramakrishnan, an individual investor.

Sir, in one of your earlier con calls, you had mentioned that one of the differentiating factors between Vaibhav Global and the rest of your peers is average selling price that you have basically like a value for money brand. So how do you see the ASP shaping up over the next few years? Because right now, we are somewhere around 30.

Yes. So we expect the ASP to remain around these levels mainly. They maya move slightly up or down, but between 20 to 30 is an expectation for the coming years.

Okay. Sir, my second question would be, in the last quarterly call, you were pretty seemed excited about the fashion, the retail side of your business, which is relatively new. Could you throw some more color on that, sir?

Yes. We continue to stay excited with that as we have. In this quarter, we also had investment into acquiring an existing building -- actually existing factory for retail. And we now have approximately 300 people working for us in that building. And the retail is having great -- hello?

Yes. Sir, sorry, could you just repeat that number? You said 300. And I think last time was like 120. Am I mistaken?

I don't remember last time what number I gave, but right now it's approximately 300 people in our factory in apparel. So -- and the traction at both our TV channels is very positive for apparel. So we remain very excited with this prospect.

That's great, sir. Sir, my final question would be regarding the number of registrations or the new customer addition. Could you give me a breakup quarter-on-quarter last quarter versus this quarter?

Yes. So we had -- new registrations, we had 64,774 this quarter. And in last year same quarter was 36,734 registrations.

The next question is from the line of Abhilash, an individual investor.

So in many of the con calls, you have mentioned that the LTV value of a multi-channel customer is very high than in customer who buys individually through the web or the TV platform. So can you explain in detail why the multi-channel customer has such a high LTV?

Yes. So you see the TV is a push medium where we tell customer what to buy and then customer likes it, buys it. The web is the pull medium. The customer needs, they go out, look for that and they buy. When we can combine push and pull both, we find that the lifetime value of the customer goes substantially higher compared to TV or web. So something to do with loyalty develops when both push and pull combines.

Okay. Sir, so what is the percentage of our customers who are right now buying through the multi-channel medium? I remember in one of the con calls, you had mentioned that number somewhere at 11%. So what is it currently?

I don't have that data with me, Abhilash. But perhaps for [ Prashant ] can give it to you later. So right now -- yes, I got this, it is around 12%.

About 5%?

No, 12%. Sorry, I got 2 different data. One is getting 10% and other 12%. So 10% seems more data correct to me, that I could remember. Yes. So again, you're right. So anywhere between 10% to 12% is the number.

So it's 25%?

No. 10% to 12%. 10% to 12% of the customers are multi-channel customers.

Okay. 20 -- so I am not able to get the number, 20?

So 10% to 12%.

Okay. 10% to 12% Okay. Okay.

Yes.

And then what is the buying activity or how many products do these multi-channel customers buy in comparison to the normal numbers that we report in the presentation? Because I remember in one of the con calls, you had mentioned that number to be 100, something above 100 is buying activity that happens on multichannel. What is it currently?

I don't have that number. [ Prashant ], can you pull that? Yes, it may take time. But maybe if there's another question then I can share this number when [ Prashant ] pulls it.

Okay. Sir, I had one other question, generally, the understanding that comes while analyzing the business is we are more of in-house manufacturing and develop our own brands and then sell it. But when I look at the trend of the purchases of stock in trade over the last 5 years, that is significantly increasing. So I just shared a number with you, sir. So for March '17, the numbers of purchases of stock in trade as a percentage of sales was somewhere at 16%. And now in FY '21 and FY '22 first half, it has gone to 33%, whereas the -- in FY '21, it was 25%. So why is it that our purchases of third-party products seem to be increasing?

Sunil, I can take that.

Sure.

As the non-jewelry share is increasing -- so we manufacture our own jewelry products but besides apparel, the other non-jewelry products are outsourced. So that is what you might be seeing over the last 5 years. The non-jewelry share increasing is leading to this increase in purchase of stock in trade.

I think other factor is the B2B. Also, B2B has reduced substantially. The stock in trade for B2B is 100%, it was [indiscernible], where in B2C, we also depend on third-party providers, especially on LSP product.

Okay. So as our non-jewelry share increases going forward, we will see this purchase of stock in trade also increasing, right? Because I see as, sir, you mentioned that we'd be going to 50% of the non -- the lifestyle apparel. So going forward, these numbers should increase, right?

That is correct. Unless you go into manufacturing, like we have gone into apparel. So in that case, we may capture that value additionally.

Okay. Okay. And sir, just one last one from me was understanding the employee cost. So when I look at the growth rates of sales versus the employee cost, I think that the employee costs grow line with sales growth over the last 3, 5, 7 and 11 years. Sir, just trying to understand that where are you deploying -- where is the investment and which domain more of these employees are? If you get some breakup of the total number of employees, how much are in the tech part? And why is that the employee costs are growing in line with sales? Why can't we see some level of operating leverage when it comes to employee costs specifically?

So we always saw some leverage because from B2B, we went into B2C pretty much entire business but still is in the growth of the business, growth of revenue. B2C requires more manpower than B2B, substantially more. So the growth is in the line of revenue growth. See, that shows the leverage. Now in long run, there were warehouse people, the customer service people, those grow with the need of -- with the growth of the business. The places that will definitely grow is these people because sales staff stays the same. But other areas, manufacturing will grow in the same proportion, the warehouse or customer service will grow in the same proportion. So there will come a leverage over the longer term. But so far, we have transitioned from B2B to B2C. That has not shown the leverage as of now. Some investments were there. And for example, in AI or in branding or LSP merchandising, which is front-loaded, the current LSP have all the merchandisers [indiscernible] in place, most have driven conventionally. But as that business scales up, there will be some leverage coming in from HR as well.

Okay. So sir, if my understanding is correct or whether going forward, as our investments in the tech part will be increasing. So is it correct to say that the employee cost will more or less will grow in the line of sales because we'll be having investments in the tech and then corresponding employees also needs to be hired? So will that be a correct understanding?

That partly -- also is partly in-house developed. And so if you bring that in house, that portion will grow up compared to the expense that we have. But overall, this shouldn't be a credit to the bottom line because in-house costs are lower than outsource. But from that point of view, so automation of the warehouse that we recently did that will lead to lower HR expense in long run, maybe in the coming quarters are going to be lower. So I see some leverage coming from HR points, from HR perspective in the coming quarters in U.S.

Okay. Okay, sir. And sir, one last question, if you may allow. In that, when I look at the TV channel expenses, they kind of divide it into 4 parts. So just looking at over the last 5 years, that our packaging and distribution cost within the mix has increased substantially, whereas a content and broadcasting cost has reduced from around 63% to 40%, whereas packaging has increased from 20% to 40%. So is it again to do because of the sales mix that we are going through to the non-jewelry segment and that requires much more of the packaging and distribution costs? Can you explain that in detail, sir?

Yes, good observation. LSP is relatively heavier, and the packaging cost is higher on that and the shipping cost is also higher. So that is one of the reasons. And the shippers have increased prices over the last 5 years. So that is one of the reasons. And distribution or broadcasting costs have reduced because we were able to negotiate better with some of the vendors over the last 5 years.

The next question is from the line of Bharat Shah from ASK Investment Managers.

Yes, given the fact that we operating thousands and thousands of SKUs and therefore, agility, supporting changes and good execution become very paramount, also given the fact that we are moving into more digital channels compared to TV channels over the period of time, lot of this will entail technology to understand customer, data analytics, data science. And a lot of things supporting so that the agility is not compromised is a key part of the business model. Therefore, I would like to understand in some length what kind of technology initiatives, internally and otherwise, are being done in order to remain at the edge and ahead? And Sunil, if you are answering this, I'll request, if you can stick closer to the mouthpiece because your voice is not clear at all to me throughout this conversation.

Okay. I'll try to be more louder, Bharat. I'm usually not loud enough, but I'll try to be. So your point about technology investment is very relevant because as the world is going rapidly towards AI, ML, analytics, machine learning, so these becomes paramount. We are making investments into these spaces, outside investments for our size of company. We recently hired actually -- almost a year ago, we hired a head of Nielsen's AI, machine learning, and he is now part of VGL. And he's building up a team. He's already built about 8-people data scientist team around him and creating different business models for different parts of the business, manufacturing, order management, customer behavior, product affinity. All these areas, they are building those more as and deploying across entire organization. From that investment's point of view, we just transitioned to one of the best web platform, Salesforce Commerce Cloud, for our U.S. business. And that investment has been substantial for the company and has been in the making for the last 6 months and has transitioned smoothly. And also, the automation of our warehouse in U.S. and U.K. has been staying ahead of the technology curve. So we are ahead of our size of the company in terms of technology investments, and we'll not shy away from making those investments, Bharat.

And internally, how is the staffing in the technology and analytical function, how it is done? How much of our technology spend and understanding comes from our investment in people within the firm? And how much of it is spent to acquire insights from the outsourced technology? So if you can describe the staffing in that area in a little bit more detail that will help.

Sure. So our Head of IT, we have written off 20 years of TV and e-comm space, very well knowledgeable and highly intelligent person. And he joined us about almost 2 years ago. We're fortunate to have him join us and accelerate our digital investments and digital journey. Now from the people point of view, we have almost 100 people in IT development with us, just the development portion in-house. We also outsource IT development to third parties within India, some in U.S. but mostly within India. Recently, we subcontracted -- we took up some subcontractors in Eastern Europe, Ukraine and some other parts of the world where we found good developers. So we are looking at all areas in-house, outsourced, in normal software development, AI, ML as well, in-house as well as outsourced. The best part is that we have top-of-the-line people leading those initiatives for us. And then they are going into wherever area they can find the best talent and best technology for us.

The next question is from the line of Kapil Banga from -- an individual Investor.

I just wanted to get some more color on the revenue guidance part. One of the participants has already had a query around it. So given that there is a high base of FY '21, and there was also a contribution that was coming from some COVID-induced purchases, stay-at-home purchases, which will not be there this time around, and with the mobility continuing to increase, are you still confident of the 16% to 18% guidance? Or is there a case where you want to possibly give a more conservative expectation?

Yes. So the visibility that we have, Kapil, right now is of 16% to 18% guidance. So that is the current visibility that we have. And I don't see a reason for us to change this guidance coming -- in coming months. But if circumstances change, we will be up-front and always share with investors as we've been very proactive in all the U.S. So we'll be proactive in case anything comes up. But as of now, I don't have any visibility of any change in this guidance.

Okay. So as of now, you believe that Q2 was just a blip and H2 would be sort of 20% -- around 20% growth, leading to this 16% to 18% overall growth for the revenue -- for the year?

Correct? That is correct.

Okay. Okay. What's the traction on the app downloads, if you could share incrementally if you have that number?

Let me see if I have that number. I don't have that number right now in front of me. Our app right now is going through a revamp. Actually, iOS revamp just recently happened and Android is about to happen. So I don't have that detail right now. It will be shared with you in due course.

The next question is from the line of Sahil, an individual investor.

One thing I've observed is that we have a reach of about 100 million households, but only around 5 lakhs trailing 12-month customers. What I am working is why is the number of customers so low compared to the number of households that we have a reach into?

Yes. So the number may sound low, but you have to look at the sequential number of the customers that we acquire. And it takes time for customers to see us and become comfortable and to come to us. It's a relative number from the reach versus the customers that we acquire.

So examples [indiscernible] sorry these numbers.

So remember that all customers we reach may not necessarily watch TV. And all people who watch TV may not necessarily be inclined to buy on TV. So the percentage of that customer is relatively small. But what you have to look at in sequential number from what we did on a year-to-year basis what we are doing now.

Right. And so wondering if you could share some data around the number of customers who actively watch your TV channel. I don't know if it's possible to get that data. But if you could, that would be very, very helpful in understanding what the true reach is, is it the case that like ours is just one of the hundreds of channels and the customer does not even know about us specifically? Is that the case or what...?

Yes, we don't have the data.

Yes. No worries. And the second question I have is when we look at TJC PLUS, the membership that we have launched for U.K. If possible, could you share some metrics around how this has impacted the lifetime value or the retention rates for our U.K. customers?

Yes. So I don't have exact data on that. And also, it has not been 1 full year of that initiative. So at this time, the retention rate and the full lifetime value will not be fully visible to us. What we have seen is that the behavior of the customers, same customers who were buying from us before and now, so their purchase is higher. Since it is not full year right now, so I can't give exact data on that. But what I can say is the customer buying through TJC PLUS in U.K. is approximately 55% of our volume now goes through TJC PLUS and 45% goes through the normal customers who are not TJC PLUS members. So the uptake has been phenomenal, but the lifetime value data will take time to get.

No worries. Then I wish we would be very -- I would be very happy if you could share it after some time like when you think sufficient time has passed.

Yes, it's a good question, and we'll tracking it closely and we'll continue to monitor and share the data once we have confidence that will come with a period of time.

The next question is from the line of [ Sridhar Si from Business ].

So just 1 [indiscernible]. Instead of voice, is it possible for next call, maybe if we put that into video. It would be good to see you all. The second one is when compared to the last 7 to 8 months, so around 40% of the shares, 40% of -- the price has been reduced. So just wanted to know what is the management's view on this topic in order to help a small-scale investor segment.

Sridhar, thanks for the suggestion for video versus voice. We will definitely look at it and consider that suggestion. So when you think about the share price, the share price is depending on you, the investors. So I will put that question back to you of how you see it and how you would value the company in long term. We always request you and all the investors to look at the company with long-term prospects of continued growth and market share gains, not look at quarter-to-quarter or in the short term. We are confident of our business model. We are confident of the team. We feel that we are at the right time -- we have the right time with right opportunity and we'll create a phenomenal organization in coming years.

Yes, sir. We will look for sure. And the last question is, how do you foresee the new business, like the new management like Nykaa and other companies that is expanding [indiscernible]. So how do you look at this business, whether it is competitive for sale?

Yes. So, Sridhar, I have not studied Nykaa so closely to give a comment. I think many of the people in audience can give much better commentary on their business than I can. I can only say about our business that we feel very confident of our business position and our long-term continued growth momentum and market share gain. And I appreciate your support of the business and your engagement with Vaibhav.

Ladies and gentlemen, we take that as the last question. I now hand the conference over to the management for their closing comments. Over to you.

I thank all the investors for your support and engagement with Vaibhav. If you have any other questions, please feel free to reach out to [ Karl Kolah ] of CDR or [ Prashant Saraswat ] of VGL. And we'll be happy to answer any of them. Thank you very much.

Thank you. 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.