Vedant Fashions Limited (MANYAVAR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Vedant Fashions Limited Q4 FY '22 and FY '22 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Menon from ICICI Securities. Thank you, and over to you, sir.

Hi, everyone. Depending on the part of the world you are joining the call from, a wonderful good morning, good afternoon or a good evening to you. Representing ICICI Securities, it's our absolute pleasure to host the management of Vedant Fashions Limited today for the conference call. The company is represented by Mr. Vedant Modi, Chief Marketing Officer; and Mr. Rahul Murarka, Chief Financial Officer. During times like these when discretionary performance has definitely outperformed, I would say, FMCG or consumer staples, the results what we saw from Manyavar, in our opinion, has met or definitely beaten the consensus expectations. We were privileged to be part of the Manyavar IPO a few months back. Now over to the management for the opening remarks and the Q&A after that. Over to you, sir.

Good afternoon, and a warm welcome to all the participants. I'm Vedant Modi, the Chief Marketing Officer of the company. Thank you for joining us today to discuss the Vedant Fashions Limited Quarter 4 and Financial Year '22 Results. I am joined by Mr. Rahul Murarka, the Chief Financial Officer of Vedant Fashions. I hope everyone got an opportunity to go through our financial results and investor presentation, which have been uploaded on the stock exchange as well as the company's website. Vedant Fashions Limited is India's largest celebration wear company with Manyavar being a category creator and leader in the branded Indian wedding and celebration wear market for men's. We have multiple brands in our portfolio such as Manyavar, Mohey, Twamev, Manthan and Mebaz, which are positioned to target customers across different demographic segments. Our pan-India 595 exclusive brand outlets are dominant channels for the company. Despite the third wave of COVID, which had affected the first half of quarter 4, we are proud to announce that we had a good quarter in terms of strong retail sales, coupled with decent growth. We as a company have emerged stronger out of COVID. Performance of the fiscal year has been very encouraging. In quarter 4, we have opened net square feet area of around 57,000 square feet and 17 exclusive brand outlets. As of March '22, these additions bring the tally of VFL's EBO area up at 1.27 million square feet globally, spanning across 595 stores in 223 cities and towns nationwide. In addition to the network expansion, I would like to highlight a few of our marketing and branding campaigns with megastars like Sri Amitabh Bachchan and youth icon Mrs. Alia Bhatt during the quarter. The #TaiyaarHoKarAaiye campaign featured Mr. Amitabh Bachchan and was aimed at increasing brand salience and drive a behavioral change. The campaign has tried to capture the soul of an Indian wedding and position Manyavar as the preferred brand for wedding occasions. On the other hand, to improve brand recognition of Mohey, we created the campaign #DulhanWaliFeeling featuring Mrs. Alia Bhatt. This campaign was targeted to connect with the women of today, one who is independent yet has close ties to the Indian culture. The campaign highlights the range of emotions which a bride goes through various times in a wedding journey. On a branded level, we can say that the fundamentals of the business have been sound, robust and encompassing. During the first 40 days of this financial year, we are seeing robust performance in our store network. This will be the first quarter after 2 financial years in which the restriction on number of wedding attendees have been lifted. Considering this, we expect good market traction and promising outlook for the new financial year. With this, I would now hand over to Mr. Rahul Murarka, our Chief Financial Officer, to take you through the financial performance of the company for the fourth quarter and the year under review. Thank you.

Thank you, Vedant. Namaskar, and good evening, everyone. I would like to highlight the key financial performance for the fourth quarter and financial year ended March 31, 2022, based upon the consolidated financial statements of the company. Despite a COVID impact year, the company has reported strong financial revenue and return during FY '22. Starting from FY '22 update. The company reported revenue from operations of INR 1,041 crores during FY '22, delivering a very strong growth of 84.3% compared to FY '21. The company continued to report industry-leading gross margins of around 67% during FY '22. The EBITDA margins were around 50%, and EBITDA stood at around INR 521 crores during FY '22 with a growth of around 85% compared to FY '21. The reported PBT during FY '22 is INR 423 crores, which has significantly increased by 132.5% compared to FY '21. The company reported best-in-class PAT margin of 30%, and profit after tax stood at INR 315 crores during FY '22 with a significant growth of 137% compared to FY '21. The company also has reported industry-leading ROCE of 75% during FY '22. Now coming to Q4 performance update. During Q4 of FY '22, company has reported revenue from operation of INR 296 crores, delivering a very strong growth of around 55% over Q4 of FY '21. The EBITDA margins were around 50%, and the EBITDA should at INR 147 crores for Q4 of FY '22 as against INR 91 crores in Q4 of FY '21 with a growth of around 62%. The company reported PAT margin of around 30%, and the profit after tax stood at around INR 89 crores for Q4 of FY '22 with a growth of 86% over Q4 of FY '21. The net EBO store area which was added in Q4 was 57,000 square feet with total presence of 1.27 million square feet as on 31st March 2022. Sale of our customers were around INR 1,474 crores during financial year '22 and grew by 76% compared to FY '21 with SSG growth of around 65%. The sale of our customer during Q4 of FY '22 was INR 398 crores with growth of around 45% compared to Q4 of FY '21 with SSG growth of around 33%. We are very happy to share that the Board of Directors of the company at its meeting held on 9th of May 2022 have recommended final dividend of INR 5 per equity share, which is approx 40% of PAT of the stand-alone financial statement. With this, I would like to thank everyone, and we can now move to the Q&A session.

[Operator Instructions] We'll take a first question from the line of Percy Panthaki from IIFL.

My first question is on the women's wear segment. So with Manyavar, we've become a clear market leader in the menswear segment for wedding and celebration wear. But the women's wear segment is significantly larger overall, including unorganized, et cetera, in this space. What really do we need to do to replicate the success of Manyavar in the women's wear segment as well? And what are the differences in the challenges or the differences in the key success factors between the men's and the women's wear?

Thank you for your question, Percy. So we launched the brand Mohey in early 2016. And ever since then, when we launched, we launched with all women ethnic wear categories, and we understood that our nucleus would be lehengas and saris for the brand. We were testing out different categories, and we are a very bottom line-focused company and efficiencies in the backbone of the way we work. So the brand has been EBITDA positive ever since we started. And there have been multiple sort of workings that we did at a category level. When we understood that lehengas and saris will be the nucleus, we launched our independent marketing campaigns in 2019. And ever since then, we saw a very good growth in the brand with Alia Bhatt as the face of the same. Talking about sort of differences and challenges, I mean, the overall core learning that we've had is that we need to focus on a few categories, get them right, make that a proper category to work on and then move on to creating newer categories in the brand. And I think all the underlying fundamentals of the brand in terms of inventory management to the kind of conversion rates we see at the store level have all been very promising. And that is why moving on this -- the new financial year, we've also decided to open about 6 to 7 exclusive brand outlet doors followed by the first EBO, which we had opened in the new market area of Kolkata for Mohey.

Sir, Vedant, I understand that Mohey products are not available in all your 595 stores. They're available only in a fraction of that. So what's the thought process behind that? And why not just make at least the product available in all the stores so that whenever there is a couple walk in, et cetera, you can try and do the cross-sell there?

Percy, so the idea is that we open Mohey in every flagship store which we open for Manyavar. Otherwise, if you're opening a Mohey in any store which is less than 3,000 square feet, we won't be doing justice to the brand, neither would there be enough space for the brand to operate in. So in order to justify the space required for Mohey, it's -- the whole strategy is to open it in flagship stores, which tend to be more than 3,000 square feet of retail space. Currently, Mohey is available in across 99 doors of our Manyavar flagship stores.

And how do you expect this number to trend, let's say, 3 years down the line? This 99 would become what kind of number approximately?

I'm sorry, I won't be able to give you any guidance on that. But like we've been mentioning before, the overall strategy in terms of new retail expansion is to drive growth through more flagship stores. So you can expect a larger percentage of our fleet to have Mohey as we grow and move into the future.

Right. My second question is on the town opportunity for Manyavar. You're present in about 220-odd towns. Over the next 5 years or so, how many towns do you think sort of there is a scope for you to open a Manyavar store? So how many -- can you go from 220? Can you go to 400, 500? What's that number? And how do you determine that number? Do you sort of have at the back of your mind some kind of metrics saying that any town with a 2 lakh or a 3 lakh population plus can accommodate a Manyavar store?

Yes. So there's an overall logic. So we've come out with about 120 to 150 cities in India that we want to open our new stores in where we are currently not present. And there's a logic behind that. In some cases, the logic is a certain set of population. In some other places, the logic is the catchment of that particular Tier 3 city based on the kind of market it has and the whole catchment of that region. So that is how we've come up with that whole sort of calculation of about 120 to 150 towns that we want to enter in as part of our growth strategy of taking the overall retail footprint to 2.2 million square feet.

Right. And last question from my side, once the COVID base normalizes on a continuous sustainable basis, what's the kind of same-store sales growth do you think you can clock?

We would not like to give any guidance on that. But internally, as a company, we aim to achieve a good single-digit SSSG growth in a sustainable future. That is what we aim to achieve as a company internally.

We'll take a next question from the line of Nihal Jham from Edelweiss.

Yes. Congratulations, Vedant and Rahul, on the strong performance. Two questions from our side. Rahul, first to you. If I look at the conversion from primary to secondary sales, I do notice that there is a divergence, whether it is from Q3 quarter or versus, say, the similar quarter of last year. You did highlight that, obviously, there was some placement which has happened at the end of Q3. But if you could just highlight anything specific this quarter on how to look at this number going forward? I'll come to the second question after this.

Right. So typically, in our case, we are continuously reviewing and monitoring our secondary and primary sales, and all our replenishment happens based upon the sale to our customer from our exclusive brand outlets. So they -- both the primary and secondary sales and replenishment moves in the same direction. However, the difference you will find is because of the new store openings. So that is where you'll see maybe some higher percentage from a financial perspective in terms of primary sales growth over secondary revenue growth. So that is one reason, new stores opening, where you can see the difference. But otherwise, it moves in a similar direction as did more or less -- on a financial year basis.

Just to confirm, was there any impact of, say, the closing inventory last quarter or the Omicron impact in Jan, which could have impacted this number? Or that wouldn't be a consideration by the end of the quarter?

So typically, Jan is one of very good months for us because there are a lot of weddings in Jan and Feb. So frankly speaking, yes, because of Omicron, we were expecting higher revenue in Jan and Feb. But despite of that, we have been able to have a very strong Q4 quarter, I would say. So yes, without Omicron, we would have had a better Q4 result, for sure.

Sure. The other question was one of the key initiatives that we are trying, other than the women's expansion of Mohey, is the fact that we are trying to increase the share of wedding attendees, obviously, which end up shopping for the brand Manyavar. So based on maybe the data of SKU pricing that you have, do you have a sense of how that has been picking up? And if there is an approximate share of that, how it has moved over the years?

Yes. Absolutely. So the tricky part with the whole #TaiyaarHoKarAaiye campaign, which was to drive a behavioral change in Indian men to dress up for the wedding, whereas when we did our research, we found that about 90%, 95% of the women dress up according to an occasion. However, only 5% of the men dress up according to an occasion for the wedding. So this was the basis of starting the #TaiyaarHoKarAaiye campaign, to drive more men to dress up in Indian wear. But the catch was that we only launched this campaign in 2019, and we were hit by COVID right after in 2020. So the last 2 years were extremely disrupted. However, when we look at the new financial year trends in April, the performance of the wedding attendees coming back to the stores are extremely encouraging, and I would be happy to share these numbers in our next quarter earnings call about how the whole #TaiyaarHoKarAaiye campaign is kind of phasing out for the wedding attendees.

Sure. I'll wait for that. Just one last thing, Vedant. You had shared the 2-year SSG last time. Now is it possible to share that? And I'll be done.

So are you looking at the quarter 4 FY '22 versus quarter 4 FY '20?

Yes. And if it's possible from Q4 '19, if it's handy with you.

So sharing Q4 FY '22 versus Q4 FY '20 is at 1.6% SSSG growth despite half of Q4 FY '22 going away in COVID, when January and Feb actually seemed to be the best wedding shopping season, which was quite heavily disrupted due to COVID. So we saw 1.6% growth still in terms of SSSG compared to pre-COVID levels.

We'll take a next question from the line of Gaurav Jogani from Axis Capital.

Congratulations on the good set of numbers. My first question is with regards to if you can share the consumer level change for your brands of Manyavar, Mohey and the other brands for the year FY '22 and also along with it, the contribution from the EBO stores for FY '22.

So the contribution from EBO store is around 90% as it has been there historically also on overall customer revenue. As far as brand wear details are concerned, all our brands like Mohey, Twamev, Manthan, they are all new brands. And all of the brands are doing very well. Strategically, we are not disclosing the brand wear details during calls and discussion. And we are happy to do that once we strategically decide to share those numbers once we achieve a particular size.

Sure. How do -- just if you can share anything from Manyavar, which is a big brand for you? I mean, you have shared that in the DRHP also. So if you can just share for that, it will be helpful.

On the Manyavar you are saying?

Yes. Manyavar consumer level change for FY '22, if you can share that?

The total was, as I was mentioning over my -- the presentation, it was INR 14,736 million. That was the company total. And it was -- it grew by 76%, the sale of customers compared to FY '21. Yes, and I would like -- I would request Vedant to also add upon.

Gaurav, so in terms of different brands, as Rahul here was mentioning, all of the brands' underlying fundamentals have been performing really well. With Mohey, we've been seeing good traction. In terms of Twamev, because of the aspirational consumers that were already walking into our premium stores, we've seen very good growth. And all these -- the brands such as Mohey and Twamev are ready for the next level of growth. With Mohey, we will be opening the 6 to 7 exclusive brand outlets. Similarly with Twamev, we will also be opening the 5 to 6 exclusive brand outlets in the upcoming financial year. And as far as the brand-wise numbers are concerned, we would be happy to share them once they've sort of scaled up to a number where we strategically feel it's fair to start giving out the numbers of those brands individually. But internally, we track them very heavily, and they've all been performing well.

Sure, sir. Maybe then my next question is with regards to the gross profit margin if I take the ex of -- if you take the job work charges. I mean, they have seen a healthy expansion if I compare it with the FY '19 levels of around, say -- FY '19, it was around 65% odd, and now it is around 67%. So how much of this is sustainable going ahead? Or is it because of this -- some advantage due to the Omicron -- I mean, due to this particular year? And how much of it is sustainable?

Gaurav, we always see efficiencies is the core of this company. So there have been a lot of work that we've been doing on our inventory replenishment algorithm in order to further optimize our inventory, lower our dead stock levels. There has been further work going on into a demand generation program in order to calculate demand even more better. So it's a result of efficiency. And we've seen very good gross margin levels of about 66%, 67% in the last 2 years. And we would like to believe that we would be on a similar path moving forward as well.

Sure. And just my last question with regard to the quarter. So I mean, if I see the other expenditure ex of the job work charges, they have hardly grown by around INR 3-odd crores if I compare it from Q4 FY '21 to Q4 FY '22. So if you can highlight what has been the key saving area here? And that will be from me.

So the other costs, if we exclude the lease cost, other than the job charges you were mentioning there?

Yes. Yes, ex of the job charge.

Right. So if we accumulate that, more or less, it has grown by around, I would say, INR 2 crores hardly. That's the increase Q4 '22 versus Q4 '21, right? It is majorly because of increase in revenue because of freight expenses, commission expenses, all those expenses, which are linked with revenue. Generally, it increases as the revenue increases. So you can see that our Q4 revenue compared to last year, it has increased by 55%. So as a result, a couple of those other costs have also increased like freight expenses, commission expenses and so on.

No. That was -- actually, what I was asking was, there is hardly an increase of -- in the other expenditure ex of the job charges. You could see the -- as you mentioned, it increased only INR 2 crores to INR 3-odd crores. So I mean, which have been the key savings areas for you there?

So we are working on a variable model. If you will see our manufacturing process also, it's largely outsourced, right? And a lot of our other products are outsourced. So basically, other than that, we are left with very few fixed overhead costs. And that is the main reason when we compare -- and there are a lot of cost efficiencies which we always work upon on a continuous basis because improving cost efficiency has been the DNA of the company over the years, right? So from that prospect, if you see that we have been able to control our fixed overhead costs, and that is the reason you see very minimal growth in other costs compared to last quarter.

[Operator Instructions] Our next question is from the line of Devanshu Bansal from Emkay Global Financial Services.

Sir, congratulations on a very good performance in Q4 as well as in FY '22. I just wanted to understand, you have done about INR 1,500 crore of customer level sales in FY '22. This is despite Q1 and Q4 being impacted due to lockdowns. So just wanted to understand, is there an element of demand deferred during the year into FY '23 as well? Or FY '22 is a good normal base to base our projections on?

So that's a good question. It's a little difficult to answer on an overall level, but what we feel is that a lot of the demand that was deferred in Q1 was actually taken care in the other 3 quarters of the overall financial year level. However, we still saw that a lot of the wedding attendees were not entering the stores because there were still COVID-related restrictions. And overall, the last 8 quarters were disrupted somehow or the other. The first quarter, which is the ongoing quarter, is the first one we are seeing after 2 years where there are almost no restrictions in terms of COVID with all the wedding attendees returning back to our stores. So that will, of course, be a good lever of growth for us as we move on to the next financial year. In terms of the wedding numbers, it's difficult to comment, but we believe that a lot of the pent-up demand was taken care in the year itself. However, there will definitely be some of the other weddings that were postponed to this financial year.

Sure. That's helpful. Secondly, wanted to understand, we have added about 15% sort of retail space in FY '22. What is our target for FY '23? And you guys have mentioned that you have a target of doubling the retail space. So by when do we sort of plan to double this?

Yes. So in terms of our historical trends, we've been growing at a CAGR of about 16-odd percent in terms of increasing our retail footprint. So as a company, our internal aims are to achieve similar levels. Wherever there's the opportunity, we will seize on it. There's definitely no restrictions on the kind of growth we can achieve at footprint, and that is how we operate. In terms of any guidance, we would not like to give any particular number of growth for the coming years. We will continue to do what is right in terms for our business and grow in that particular direction. When I talk at a strategic level, there are 3 strategies that we follow for growing our retail footprint. The first one is entering the new 130, 150-odd cities, which we just spoke about. The second strategy is to enter in the new markets in our existing cities where we are currently not present. And our third strategy, which is the innovative strategy, which is true for Manyavar, is that there are certain key markets in India where there is room to further increase our market penetration. Take, for example, markets like Commercial Street in Bangalore and Park Street and new market areas in Kolkata, where we had about one store to start with in 2009. Now we're at about 4 stores in those markets. So we continuously expand in those regions and increase our market share. So those are the 3 strategies we've been following, and we are very confident of sort of delivering similar numbers as we have.

Sure, sir. That's really helpful. Lastly, I wanted to understand from the working capital point of view, our inventory receivable payable days have sort of resulted back to -- reverted back to the pre-COVID sort of level. But there is an increase in the other liabilities by about INR 50 crores. So what is the reason for that?

In terms of numbers, are you saying, INR 50 crores increase in liability?

Yes. It's in 2 line items, other current liabilities and other liabilities.

Okay. So there are 2 things which are coming in that other current liabilities. One is the refund liability, which is a provision which we make for a sales return. So that has increased by INR 10 crores around. So we make a provision for sales returned every year and every quarter. So that has increased with our increase in revenue. Apart from that, we also have received advance from our customers for one of our -- we had one land, which is appearing in capital advance, for which we are into a joint -- JD contract, joint development agreement with one of the developers. And we have received INR 10 crores of money in relation to that capital advance. So these are the 2 components because of which it has increased by around INR 20 crores.

So what do we expect for these items going ahead, sir? So these should also sort of grow with sales. How should we sort of project these line items?

So -- and -- okay. And apart from that, there were other liabilities also, which we were mentioning under financial liabilities. That has also grown because of security deposits. So that's around INR 12 crores again. Now whenever we open a new store, we receive security deposit. So as we grow, as our business grows, as we open new stores, franchisee like stores, the security deposit amount is going to grow in the future. It is going to increase in the future. So that is an increasing trend which we will see. In terms of advance from customers, which I had mentioned, that is a onetime -- it was a onetime project which -- and a onetime contract, which we are having with a pure developer. So we don't expect -- of course, there would be some inflow of money this year also. But from a future prospect, we don't expect any further advance amount come in this respect. As far as refund liability is concerned, which is provision for sales return, so that we are doing based upon historical trend of 8.2%. And that will also increase as we increase in our sales volume because that is a provision which we are making on a conservative basis. So it will increase its growth in business volume also, these 2 liabilities. One is security deposit, and another is the refund liability.

Sure. Lastly, one bookkeeping question. So in the PPT, you have mentioned that in India, we have about 583 stores. So this 595 EBOs, this is globally or is this is in India?

The remaining 12 stores are in our global countries. So we have about 6 stores in the U.S. and the remaining in UAE. We are also about to open our store in Southall in London this year in the current quarter. And also, we will be opening a store in Chicago, U.S. this quarter.

And this includes 77 shop-in-shops as well, right?

Yes.

Yes.

And the retail area that you provided, it's only for EBOs ex of shop-in-shops.

It includes shop-in-shop also. The 1.27 million square feet includes shop-in-shop also.

Our next question is from the line of [ Shivam Saxena ] from ICICI Bank.

Just wanted to know, have you taken any price hikes to combat increasing cotton yarn prices, raw material costs, what I would say? And how much is the price hike to protect the margin?

So we have not had any price hikes as a company. We like to not increase the prices of any particular products. What we do as a continuous ongoing trend is to shift our product category mix. For example, if majority of our kurta offerings lies in the INR 2,000 to INR 3,000 range, we slowly start increasing our offerings in the INR 3,000 to INR 4,000 range. So coming to your question for price, when we compare quarter 4 financial year '22 versus quarter 4 financial year '21, we saw ASP growth of about 4.8%. And this was again primarily due to the shift in categories, in the category mix of different product categories. Also as a company, we work on what is known as perceived value. So we continuously focus on certain key products where we are able to earn extra margin compared to others. And those allowed us to offset the 10% to 12% sort of fabric cost increase that happened over the last 2 quarters. And even in terms of the increasing costs, when you look at our company and the nature of our product, fabric only makes up 10% of the MRP component of our product. So when we look at the price hike on an MRP level, it was only about 1% to 1.2% on an MRP level. So it was easy for us to -- relatively easy for us to overcome.

So basically, you are saying any -- if the fabric price increases by 10%, then it impacts your price only by 1%, right? It is not 10%, right?

Correct. We don't increase at 1% of all products. However, it will be based on -- with different product categories by changing the mix. And some products where the perceived value is very high, we make up for those margins in those certain products.

But how do you see, going forward, these prices -- fabric prices going forward, increase, stabilize? Or what you would do?

Sir, it would be difficult to comment on the pricing of fabric. It is something difficult for us to answer.

Okay. So you would be playing with the same strategy, you are saying. Like you will be shifting to higher cost...

Relatively, the overall idea is that our cost of goods sold, the major component is from the business of value addition. There is a lot of handwork that goes into our product in terms of stitching and embroidery, which is what forms the major cost of goods sold. And given the sort of long-lasting relationship we have with our vendors, those costs have been relatively stable. The major price hike has been in the 10% fabric cost, which is anyways relatively a lot lower compared to other apparel manufacturers or retail brands.

We'll take the next question from the line of Ankit Kedia from PhillipCapital.

Sir, 3 questions from my side. First is on the store size. This quarter, we have seen more than 3,000-odd square feet size each store. And our average store size, including shop-in-shops, is around 2,200. So going forward, are we opening more flagship stores? And will the store size be at 3,000-odd levels incrementally?

So sir, the overall strategy of the company is that we want a higher share of our business to come from flagship stores as we move forward. So that will definitely be the case that we will be opening more flagship stores, larger flagship stores as we move forward. But when you ask about, let's say, the median of a store, it would be difficult to comment on as we also continue to expand into Tier 3 cities. We opened a store in a Tier 2 city, [indiscernible] also this year and entered that market. So the amount of stores that we increase, it will consist of both relatively smaller stores and also the flagship and super flagship stores. So it will be a mix of all. But given today's averages, there will be a higher share of flagship and super flagship as we move forward.

Sure. My second question is on your receivable days. Can you just share, how does the receivables work with the franchisee? So when you -- a new store is opened, do you take upfront revenue from the franchisee or he's given 90 days period till the time sales happen and then after that, 30 days to recover the money? Can you just throw some light on how the flow happens with the franchise owner?

Sure. So when we open a new store, we take upfront security deposit from the franchisee. So that is based upon our internal policies. So that takes care of our working capital cost also on the very first day. And then accordingly, the replenishment happens, which is happening on a regular basis. We have an auto replenishment mechanism also. And on a weekly basis, we have a collection model that the products which get sold, we are recovering money from that. So that is our overall recovery and collection model which we follow.

And adding on just in terms of what you were asking, yes, when we open a new store, we book revenue on day 1 itself of whatever material we send to the store.

Sir, the receivable days, which being the system of 140-odd days, so if it's a weekly collection, where does this 140-day receivables come through then?

So in terms of receivable days, the manner in which we track and monitor is as follows, I would like to explain it a little bit. If you see our balance sheet, you'll find the receivable amount, trade receive amount. The way we monitor is, we are seeing a receivable days of 53 days as on FY '22 on revenue. And how we compute it, maybe I'll explain for a minute. We -- as I mentioned that we take upfront security deposit on the day 1, so that is something which is grouped under security deposit under liabilities as far as financial statements are concerned, right? We're also making provision for sales returns against our data based upon our historical trend. Now if we net out these 2 amounts with my receivable amount, then the receivable days -- net receivable days comes to 53 days on my revenue. So that is the right -- that is an appropriate manner in which we track internally and monitor the sales.

Sure. But if we get a security deposit, is the inventory given to the franchisee 4 months apart from security deposit? Do we not take money from them for those 4 months, for those 120 days?

So let me just explain the way the whole statement works from a business perspective. We take an upfront security deposit from the franchisee when we open a store, which covers well more than the cost of goods we send to them. Now we book our revenue as a company when those products are shipped to the store and reach the store. And the franchisee pays us twice every week as and when the product is actually sold to the consumer on the ground level.

Sure. But if I look at last year's bank guarantee and security deposits, FY '22 data, I don't have, I have the FY '21 data, around 53 days of security deposit is there on our books as on FY '21. And even if I take the absolute amount of receivable days, it comes to 180. And if you adjust for that, it is still 130-odd days. So if we cover for the inventory which is paid, why are the receivables so high?

So on that, first of all, the amount of deposit which is appearing in the financial statement, it is lower than the gross deposit. So I'll just give you some example. Like around 31st March 2022, our actual gross deposit received is [indiscernible] around. But in the financial statement, there's a discounting which is done because of Ind AS adjustment. And as a result, the liability which is booked in the financial statement is around INR 125 crores, right? But the actual deposit is INR 150 crores. Now if I net out these deposits, with my receivable amount which is appearing, and if I reduce the refund liability, which is also appearing, then you will come to -- you'll arrive at a number, which is 53 net receivable days on revenue. And in FY '21, yes, because of COVID, the receivable -- the movements were impacted. So in FY '21, the receivable days were higher -- much higher compared to FY '22, I would say.

Sure. I'll take that separately again with you, sir. Sir, my second question is regarding your A&P spend.

I'm sorry to interrupt. Mr. Kedia, may we request you to please return to the queue. There are several participants waiting for their turn.

Sure, ma'am.

[Operator Instructions] We'll take our next question from the line of Yajash Mehta from Kotak Mahindra Asset Management.

Congratulations on a good set of numbers. I have 2 questions, the first 1 being, my apologies if I missed this out, what would be the total revenue contribution from the brand Manyavar for Q4 as well as FY '22? And the second question being, if you could just throw some color on the EBITDA margins of the other brands as in -- I mean, as per your comfort, if they're above the average or below.

Sure, sir. So as a company, like I've mentioned before, we are not declaring the numbers separately for all the brands. We are doing it at a company level. Brands apart from Manyavar are at a smaller scale currently, and it's a strategic call to not talk about those numbers at this given moment. Once Mohey scales to a certain level, then we will be sort of sharing those numbers independently. However, the underlying fundamentals of the brand have been doing really well, and all the growth levers are working to our advantage currently. Talking about the margins, in the newer brands, they are lower than Manyavar currently. However, the overall idea is that as the brands scale up, we will be able to get that margin similar to the current company average as and when the economies of scale kind of kick in for those newer brands as well.

Our next question is from the line of [ Amit ] from Stallion Asset.

My question is about Mohey's scale-up. You said that you'll be opening 6, 7 stores this year, right? That is a bigger market than the men's category that is more unorganized. While has that scale-up been so -- not been very aggressive? I'm just trying to understand what is the thinking behind it.

Sir, I think the overall idea is that we are an extremely bottom line-focused company, along with a lot of sort of focus on the efficiency that we are able to give to our franchisees. So we take all elements of growth in a very sort of conservative manner where we are able to also work on bottom line. And it's a calibrated approach that we've sort of decided to take. Whereas we feel that we've cracked the overall lehenga market, we've understood the overall nature. This year onwards, we are very confident about the sari market as well, which we've understood in terms of the wedding and celebration wear market. And slowly, we're also trying out different product categories. So the markets we are comfortable in sort of piloting with the new exclusive brand outlets, we will be entering those. However, in terms of the kind of fast scale-up that you are requesting for, we will definitely get there in the next few quarters, and we are very excited for this year.

And Vedant, what are the factors that will make you scale up? Like what will you say that, if I achieve this, this is the point where I start scaling up Mohey to like 500 stores as well?

The major sort of number that we will -- are chasing as a company with Mohey is that once the exclusive brand outlets sort of reaching a INR 10,000-plus sort of productivity numbers is what our team is to reach internally. That would be one factor in terms of going towards aggressive growth for the brand.

Sorry, sir, I missed that point. What did you say, INR 10,000?

INR 10,000 per square feet as an exclusive brand outlet of Mohey.

Our next question is from the line of Nikunj Gala from Sundaram Asset Management.

Yes. I just need clarification on the new store opening where you mentioned you booked the revenue on day 1. Sorry to harp on this question. So on the day 1, assuming INR 100 MRP product, you sell it to the new store. So the entire INR 61 or INR 71, depending upon the lease you have, you book on day 1, that entire INR 61 or INR 71 in the revenue?

Yes. That's right. So whatever margin which we give to the franchisee is reduced from the MRP cost. So based upon the replenishment which happens on the day 1 to the franchisee, that replenishment value minus the franchisee margin is booked as revenue.

And against which he has only given you INR 33 or INR 35 of COGS at the inventory and the cost as a security deposit, right? So the remaining amount would be set as a receivables in your book, right?

So the remaining amount -- so look, it's not about the -- so INR 100 is the MRP, okay? We have 2 models of franchisee margin model. One is 18%, another is 29.5%. And then there's a GST component also. On average, we consider 35% margin, okay? So on the day 1 on replenishment of INR 100 MRP of product, our revenue from operation is booked at INR 65. And our receivable is also booked at INR 65. And whatever deposit which we receive, which is dependent upon our internal policy and mechanism, that is appearing in my liability.

Yes. So he must have given INR 35. So the net amount is the receivables, right, in that case?

Yes. So if you monitor the receivable, I'll net out the deposits, which are receivables [indiscernible].

Yes. Right. Right, exactly. And what percentage of your, if I ask, square feet would be the stores where you -- the Vedant Fashions would be bearing rent?

60% of our revenue comes from stores where we bear rent. And this is a very strategic call that we take on a store-to-store basis. So these are the prime real estate properties of India that we want to have control on as a company.

So 50% of stores that you mentioned?

60%, 60%.

60%, 60%. So it's more skewed towards the 71% take rate, if I just take from the retailer's perspective. So it's -- finally, it should be 61% in the case where they must be bearing rent, in that sense, retail sense, I'm asking? And in the case where you must be bearing rent, it's 71%, right? So ideally, in 60%, it's more skewed towards 66%, 67%. But for the year FY '22, we are looking at 70% net sales to retail sales ratio. So this is on account of the new store which you have added. So that's -- that understanding is correct, right?

So yes, yes, exactly.

Okay. All right. And just lastly, out of 595 EBOs which you have mentioned in the presentation, how much would be shop-in-shop in this out of the 595?

77 stores are shop-in-shops out of these.

Okay. Sure. And lastly, if I can squeeze in the incremental square feet in Tier 2 or Tier 3 or the incremental number of towns you want to enter. The -- according to your experience, what kind of a model you are having? What -- are the franchise ready to bear the rent? Or do you want to bear the rent in that case?

In Tier 3, as a trend, it's mostly the franchisee that bears the rent. And that is the sort of model we follow for Tier 3 cities generally. But again, this call is taken on a strategic level based on the store rather than holistically for any tier or on a company level.

Our next question is from the line of Divya Balakrishnan from Wellington Management Singapore.

I was really surprised that you mentioned we don't expect margins of the newer brands to exceed the company average. It would seem like we should have a much higher pricing power once we go closer to the women's wear on the bridal market. So is there something I'm missing over there? Or are we just probably trying to be very conservative at this point?

So ma'am, I think the overall idea is that we are trying to take realistic targets. And the overall idea is that as these brands scale up and we improve our inventory replenishment systems for each of these brands, along with setting up a stronger supply chain that is more efficient in terms of producing these outfits for those particular brands, we are confident of scaling up to those levels. However, when we look at the longer-term trend, I think it is something we will be able to comment on later down the line what we're feeling about those particular margins for the new brands as and when they actually do scale up to the current company average.

Our next question is from the line of Jayesh Shah from Ohm Portfolio Equi Research.

Am I audible?

Yes. Yes.

Congratulations for a good set of numbers. My first question is on the SG&A. I believe that you have an outsourcing model. But basically, you're promoting brands. So the biggest component should be SG&A given your celebrity advertisements, IPL team and seminars. So could you just tell us as to how do you look at this expenditure? And how can we project this expenditure going into future? Is this related to a percentage of sales? Is it absolute amount with certain inflation? Or how does it work?

In terms of A&P, our outlook moving forward would be at a range of about 5% to 6% for the new financial year, which is the sort of number we are expecting based on the kind of efficiencies we've built over COVID. So I think COVID was a great boost in terms of moving towards digital, understanding how can we more efficiently target our consumers on the digital channel. And we are able to now understand that whole platform and reach our grooms and brides in a much more efficient manner. So that will help us bring down the 7.6% number in financial year '20 to the 5% to 6% number moving on into financial year '23.

I see. Given that you're looking to promote more women brands, won't we see the spend going up in the short term?

Not based on what we plan, sir. So for the current upcoming financial year, the 5% to 6% is the sort of number that we have in mind in terms of A&P.

That's very useful. My [indiscernible] franchisee model. Generally, what kind of money do the franchisees make? And how has been your experience with the franchisees since you work basically with most of them? And what are the key parameters? Is this linked to their ROI? Or how does it work?

Sure. So we have 2 models in terms of franchisee. The first one is the 18% model. In this model, the franchisee is responsible for making a very beautiful store that has a CapEx of about INR 2,000 to INR 2,500 per square feet, depending on the tier of the city. And they also bear all the operational costs of this store, apart from the lease cost. In the 29.5% model, the company bears -- sorry, in the 29.5% model, the franchisee also bears the lease cost. So these are the 2 sort of models which we operate in. The kind of payback periods we've seen at the franchisee level on average is about 3 to 3.5 years. So they have been making very good money with us, and they are extremely happy. As a company, we've been extremely stakeholder friendly, and stakeholder growth is one of our most important parameters. 77% of our franchisees have also operated with us for more than 3 years now, which is kind of a testament to these numbers. And we continue to expand with our current partners itself in the existing cities who have a good franchise scorecard.

Right. And how has generally been the churn in the franchisees? How many would you have terminated agreements till now?

Historically, almost no franchisee has left us out of their own will. However, when franchisees fall below a certain metric in our franchisee scorecard, they are put on a training plan where we try to improve them operationally. However, even after trying for about 2 quarters, they are still not able to scale up, then we have churned out a few franchisees from the system, which number would again be extremely small, in the less than 2%, 3%, less than that sort of a range.

Our next question is from the line of Vinod Malviya from Union Mutual Fund.

Yes. Sir, sorry for I joined this call late. So can you explain the reason for dip in your gross margin when we look at on a Y-o-Y basis?

So the gross margins have been 67% around for FY '22. And last year also...

Sorry, for the fourth quarter compared to the last year same quarter.

So for the Q4 FY '22, the gross margin was 66.4%.

Yes. It was 67.4% in the base quarter. So there's 1 percentage point decline. So...

Yes. If you compare with Q4 FY '21, in Q4 FY '21, it was 67.4%. And in Q4 FY '20, it was 64.7%. Yes, Vedant, you would like to add something?

Yes. So I mean, there's been a 1% drop when we look at a quarter level. So again, a lot of those parameters have to do with the sort of category shift that we saw in the last quarter. So in the later parts of the quarter, we saw sales for different categories such as kurtas, which was slightly lower during the previous year-on-year quarter. So those are the main parameters. However, as a company, we feel all the underlying fundamentals have been very strong. And like we've been saying, it's the 66% to 67% sort of gross margin scale that we aim to achieve even moving forward.

Yes. But in your previous comment, you said that we have not taken any price hike, and your focus has been selling on more higher-value products. So ideally, that should have given you a better gross margin. But it is -- in the gross margin, when we see the reported numbers, there is a dip. So that strategy apparently, it looks like it has not really worked in this particular quarter.

Sir, I mean, all the sort of numbers that we work on internally has been performing well. It's more to do with the shift in category of the products. In the high-value wedding-related products, of which the sale was a lot higher in quarter 4 FY '21, which was more of a wedding-related shopping, we saw trends of more wedding-related high-ticket item purchases compared to quarter 4 FY '22 when we saw the slight bit of wedding attendees and festive buyers returning back to our stores to an extent. So it's a very marginal difference that we find in those sort of different categories.

Okay. The second question was on your -- the franchisee model which you said. One is 18%, the other one is 29.5%. So out of how -- much of the franchises are basically where you have the lease -- I mean, you have brought the property on your book and lease out to the franchise?

Yes. So like we've been mentioning, about 60% of our revenue comes from stores where we bear the lease cost. And almost similar 60% of the square feet area also which we pay the lease for is what it is.

But sir, when we compare the numbers between the consumer sales and the reported sales, the difference is almost 30%, sir, which indicates that almost all the properties are actually used by -- I mean, by the franchisee partner based on all the reported business of the [indiscernible].

So there was a similar question we were discussing like the average margin which you can consider is around 65% to 67%. However, the difference you're seeing is 70%. It is because of the new store openings, right, which is appearing as a part of my primary revenue, the revenue which I report in my P&L, which is not appearing in my -- the revenue. So that's the gap of 3% which you are talking there.

Our next question is from the line of Aliasgar Shakir from Motilal Oswal.

Yes. I have a quick question on the current market conditions. I think you did mention that for the full quarter, your like growth was about 1% despite the impact of Omicron. If you could just share the current situation on the ground, probably how was March, which was fully a stable month and also in the current month or probably in April, how are you delivering? And a quick follow-up question there is market feedback is that some of the regions or categories are doing better than the others. So what is our observation? Are we seeing the categories that we operate are doing better than some of the others? Are we getting any specific benefit out there?

Sure, sir. So of course, March was a very good month for us as January was quite heavily disrupted in terms of COVID, not as bad as what we've seen in earlier waves. But still, January was still quite affected, and a lot of those numbers were made back in March. It was definitely a very promising month for us. In terms of the kind of traction we are now seeing on the ground, it's very optimistic and very promising, and it's making us more confident as a business where we see a lot of trends coming in -- back in terms of wedding attendees and festive and casual buyers returning back to our stores. And again, this is also affected in terms of our kurta sales increasing as a category compared to what we were seeing in the last 2 years, which were quite heavily disrupted because of COVID. So all the underlying fundamentals are pointing us to a very confident new financial year.

So could you share on a like-to-like basis, how did we perform in March or probably in April? And also, the second question that I asked regarding those specific categories or regions that are doing very well.

Sir, again, any April number, we would be happy to talk in -- about in our next earnings call 3 months later. In terms of March, I think it would be good to see it at a quarter level because with January being disrupted, a lot of that demand would have moved into March. So it is to our benefit to look at it in terms of the quarter itself. March could be a little misleading.

Got it.

Ladies and gentlemen, that was the last question. I would now like to hand the conference back to the management for closing comments. Over to you, sir.

Thank you very much for all of you for joining us for this quarter 4 FY '22 and the financial year '22 investors presentation call. And thank you so much for all your support during and throughout the IPO process and being invested in the company. Thank you and looking forward to more of such calls in the future.

Thank you.

Thank you, members of the management. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.