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Ladies and gentlemen, good day, and welcome to the Arvind Fashions Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Ankit Arora. Thank you, and over to you, sir.
Thanks, Gren. Hello. Welcome, everyone, and thank you for joining us on Arvind Fashions Limited earnings conference call for the third quarter and 9 months ended December 31, 2020. I'm joined here today by Kulin Lalbhai, Non-Executive Director; Shailesh Chaturvedi, Managing Director and CEO; and Pramod Gupta, Chief Financial Officer of Arvind Fashions Limited. We also have Suresh joining us for this call as well. Please note that results, press release and earnings presentation had been mailed across to you earlier, and these shall also be available on our website, www.arvindfashions.com. I hope you had the opportunity to browse through the highlights of the performance. We'll commence the call with Kulin, providing his key thoughts about our strategy and financial performance for the third quarter and 9 months ended December 31. He will be followed by Shailesh, who will share his key thoughts. At the end of the management discussion, we will have a Q&A session.Before we start, I would like to remind you that some of the statements made or discussed on this call today may be forward-looking in nature and must be viewed in conjunction with risks and uncertainties we face. A detailed statement of these risks is available in this quarter's earnings presentation. The company does not undertake to update these forward-looking statements publicly. With that said, I would now turn the call over to Kulin to share his views. Thank you.
A very good afternoon to you all. I'm happy to be here to take you through our quarter 3 results. After 2 very challenging quarters, I'm happy to report that the business has witnessed a strong recovery and turnaround. The company is firmly on the path of achieving pre-COVID levels of sale and profitability. The significant improvement in sales, along with the high focus on costs has ensured that the company was able to achieve a healthy bottom line. Moving forward, our focus will be to build on the strong sales momentum, invest behind growth, continue to manage our costs, improve our working capital turns and strengthen the balance sheet. This quarter witnessed a strong sales recovery with a quarter-on-quarter growth of 106%. The overall recovery in the retail channel was close to 70%, whilst the online channel continued on a rapid growth trajectory with a recovery of 230% over last year.Our power brands achieved a sales recovery of 91%, with a bottom line similar to the quarter 3 of last year. U.S. Polo has already achieved INR 1,000 crore revenue run rate with a double-digit EBITDA. Tommy Hilfiger and Calvin Klein performed exceptionally well and had their highest ever EBITDA, with a 30% EBITDA growth over last year. Strengthened by our Flipkart partnership, Flying Machine witnessed a 70% tertiary sales growth in the online channel in quarter 3. Unlimited, our value retail concept, achieved an EBITDA breakeven on the back of a good sales recovery and a significant cost restructuring. The emerging brand portfolio also performed well. Our innerwear and footwear businesses witnessed significant year-on-year growth. The direct-to-consumer part of our online business, which comprises of NNNow.com and the marketplace model, saw a 3 -- close to 3.5x growth over last year and now comprises of 38% of our digital sales.Our cost management efforts continued this quarter, whilst quarter 2 saw a 38% reduction in cost. Quarter 3, the costs were lower by 16% compared to quarter 3 last year. We remain confident of achieving our target of an overall 40% reduction in the annual cost for the current fiscal and a permanent cost reduction of INR 120 crores going forward.Our working capital has also shown a significant improvement. Quarter-on-quarter, inventory is down by INR 140 crores, whilst debtors increased by INR 80 crores due to the scale-up in the business. A reduction in the inventory for the year-to-date adjusted for the one-time COVID provision is INR 250 crores. As we end Q3, our inventory position is strong. And after inverting the spring/summer inventory in quarter 4, we hope to exit the year with a very healthy inventory position. As we look to exit the year with a 100% sales recovery, we expect an increase in working capital commensurate with the growth in sales. In order to invest behind this growth without increasing debt levels, the company has announced a rights issue of INR 200 crores. The proceeds of the rights issue will go towards funding working capital and slightly reducing the debt from current level. The release of cash from working capital and the rights issue funds will ensure that our debt at the end of the year will be over INR 200 crores lower than the debt at the beginning of the year.With a healthy recovery in the second half of this year, AFL is well placed to move towards a pre-COVID level of sales and deliver a strong bottom line due to our cost restructuring exercise. A concentrated portfolio of profitable brands will improve our operating leverage and working capital efficiencies will help improve return ratios and cash generation. We look forward to driving our 6 focused brands towards market leadership positions in their respective segments.As you know, Shailesh Chaturvedi will now be taking over as Managing Director and CEO of AFL. Let me hand it over to him to share some brief remarks.
Good afternoon, everyone. Shailesh Chaturvedi here. You notice there is significant improvement in key operating parameters, recovery, cost management, online growth in this quarter. So I'm -- as I take over, I'm very excited about the strength of our brands portfolio. We have 6 very high conviction brands. They are perfectly suited for the relaxed way of dressing that we are imagining in the post-COVID world. The entire AFL team led by Suresh has worked very hard to navigate this -- the company through the COVID challenge and to come out strongly that's clearly seen in the Q3 results. With a much improved cost structure and a healthy inventory position, we have a great platform to build on from hereon. Moving forward, our mantra will be profitable growth. I'm very keen to take this strong portfolio to the next level with the insights into global practices that I have through my working with brands like Tommy Hilfiger and Calvin Klein. And I'm really looking forward to interacting with you all in times to come. Thank you.
[Operator Instructions] The first question is from the line of Nishit Rathi from CWC.
Just a couple of questions from my side. So first is the power brands seems to have recovered really well, especially Tommy and U.S. Polo. If you could give a bit of insight how we -- so, I have a couple of questions. The question number 1, how should we think about this going forward into the next year? Second is even though the recovery is very strong, we are not really seeing the same flow through in terms of margins for the overall power brand portfolio. So where is the challenge there? And thirdly, if you could just talk about what kind of turns the power brands could see going forward, in terms of asset inventory turns? I'll ask my other question after this.
Sure, sure. So we are also very happy with the way the power brands have recovered in quarter 3. And I think the momentum moving forward should be strong. Just to remind everyone, in autumn/winter, we had severely cut down our buyings. So we actually were running the business with a much lower freshness than one would normally have.And even with that lower level of freshness, the performance has been very encouraging. And now as we come into spring/summer with the full buy coming in from Feb onwards, I think that will definitely improve the momentum and improve the business. So we do feel that coming out of COVID, that we are well placed. The stronger brands are seeing traction. And now with the concentrated power brands that we have, we see them getting the benefits as we emerge from COVID.Coming to your question on bottom line in quarter 3, I would think there are 2 or 3 reasons why the margins are not significantly higher. One is, as I mentioned, we did have lower freshness. And alongside lower freshness, we also were liquidating inventory. I mean we had high sales with a lower amount of fresh goods. So we did have kind of a GP impact because of that, around 150 to 200 basis points the GP was lower than if we had the fresher stocks available in the retail channel, that would be one of the reasons. The other is that we were seeing strong momentum in our power brands and especially the digital sales were so strong, the call we took was we should invest behind the power brands in this scenario. So actually, compared to last year, we had a higher advertising spend in the power brands in quarter 3. In fact, that's kind of 100 basis points impact on margin.And I think it was -- we felt it was the right time to invest since the momentum was just so strong, especially in the digital side. And lastly, whilst the overall recovery is very strong, the retail and department stores have not come back to 100% recovery. And in these channels, the last 10%, 15% will contribute significantly to the bottom line.As we see the months moving forward, we do believe that the recovery will move back towards 100% in these channels as well. So I think when you bring all of this together, we do expect to continue to see a strong improvement in the bottom line of power brands in the quarters to come.To your last question, working capital has been a very, very strong focus area for us. And you are seeing how quarter-on-quarter we are reducing it. And the idea is to -- this is a structural change and not just a onetime kind of a liquidation that we have done. And there are multiple initiatives. One, of course, the way we have been forecasting and working on our OTBs, we've significantly tightened all our processes around that.Another thing we've been working on for the last couple of years has been this idea of flexibility in supply chain. And today, the company is in a position to almost have a dynamic 20% OTB available in season, so that if there is a last-minute uncertainty in offtake, we are able to adjust our inverts dynamically. I think that has also started to show its impact. And lastly, I would say, in our case, one of the struggles we used to face is the inventory inefficiency in the smaller brands and the nonfocused brands, which are now kind of out of the portfolio. So as we have consolidated towards the larger efficient brands, I think the overall turns of the business will definitely improve because of that.
Sir, only 2 follow-ups on that. One is basically the best power brand year we had was in FY '19, okay? And it had 2 things -- there were 2 problems -- there are 2 reasons -- the 2 issues we faced after that, right? There was a structural issue with respect to some part of the B2B business for Arrow, which has gone -- which will reduce that. And second was the fact that we had to adjust our inventory after FY '19, right?So when we look forward, what is the base that you -- what is the right base to think about FY '21? How should we compare recoverability? Because since then FY '20 and FY '21 have both been abnormal years. So when we look to FY '22, what should we think is the right base for comparing your power brands?And the second follow-up to this is that what happened in FY '19, right? How do we, as investors get the comfort that what are the checks and balances? And what are the data that you could share, which could help us understand that we will not see a repeat of something like that? We don't see something where we have to come and correct? Because the numbers might look good, but how do I get confidence that these numbers are the right numbers, and we will not need to make a correction after that?
No, you're -- I mean, that's a fair question. I think the first milestone that we would want to achieve is that we reach our top line close to the FY '19 levels or the pre-COVID in a sense, the levels that we had healthy top line in the power brand. So I think that is the first milestone. And right now, we are cautiously optimistic. We are not seeing a massive kind of potential COVID bout right now. So we do hope that we will move back towards that type of top line. And with an improved kind of structural costs, we should hope to also get the bottom line in a much healthier space. So that's where we -- what we think about the recovery.Coming to your point around the MBO channel, I think I talked about this last time as well. It's another major focus area where the company has spent a lot of time on systems and processes. We've got a distributor management system, a DMS in place so that we have full visibility over all the stock levels in the channel.We've now put in an app stack through which we even get a view on tertiary sales moving forward. We've remained -- whilst the demand is quite strong in that channel, we have stayed -- we've erred on the side of very cautiously feeding that channel. We are also working much more to actively kind of directly work with all the top doors in the channel. So it's been kind of a 360 effort because we see that as a very important channel for us to manage in a very, very tight way. And now for a couple of seasons, of course, this COVID season was a very odd one, the one that went by previously. But even before that, the kind of sell-throughs and inventory position of the season before that we saw in the MBO channel was extremely healthy. So we had had 1 read of our new ways of working paying off. And we are, again, cautiously optimistic as we come out of COVID also with all these efforts that have gone in, the channel will not only have healthy profitability, but a very controlled and healthy way of growth.
Fair enough. So when you said FY '19, you're saying more like INR 2,800 crore power brand is your first milestone to reach to, right, from where we are, right?
Yes. The -- we are still kind of not wanting to do too much long-term medium-term planning. We're honestly first wanting to look upper at a time on recovery because we believe it's not very wise to start doing multiyear projections right now. We are coming out of a very uncertain time, but fundamentals are looking good right now to come back up to where we were before.
Fair enough. If I may ask, I have a couple of more. Should I come back in the queue? Or should I just finish it off now? Whatever you say.
Why don't you go ahead if 1 last question you want to ask?
Fair enough. So just the only thing that I wanted to understand is this -- the progress on GAAP. GAAP was something we decided to give up. That was one. And second, just in case the rights issue, the rationales behind it, you said be good for growth? And secondly, in case it does not -- if others don't participate, again, are the promoters underwriting it? Just your thought on that will be very helpful.
Yes. On GAAP, we are actively working on transitioning the business out and we hope to have an update for you in the next quarter or so. So that's all that I can share at the moment. On the rights issue, we are going to see a big, strong bounce back on the growth of this business. And we want to invest in a strong way behind the growth with the kind of strong platform we had. And we want that growth to come without increase in leverage. So that's why we feel to have a strong balance sheet so we can invest in a strong way behind our high conviction bag. We wanted to bring in equity into the company. And the company is just recovering from, in a sense, to in shocks. So we thought that the equity if all the investors get a chance to participate, then it's an equitable way for everyone to also have an upside in the business as the business recovers.So that's why we felt that a rights issue is a more equitable way of bringing equity into the company. And the promoters will not only take their share, but will underwrite and participate in any potential shortfall in the rights issue.
The next question is from the line of Akshay Satija from Alfa Investment (sic) [ Alpha Invesco ].
Congratulations on a good set of numbers. Sir, I just had an accounting question. So could you elaborate on the depreciation that's lease based and the actual depreciation and the interest cost for 9 months?
Yes. I think Pramod, are you on the call? Could you take that one, please?
Yes, yes. The interest without the leases in INR 34 crores on the continuing brand, continuing business. And the depreciation is INR 32 crores.
And for 9 months?
Yes. For the 9 months, interest -- I mean, I don't have the numbers right now, but 9 months interest should be, I think, more like INR 115 crores to INR 120 crores. And the depreciation will be around INR 110 crores.
Okay. Okay. Sir, 1 more question on the sourcing part. Sir, you mentioned that a margin improvement was partly the previous new ways of buying. So is there any change in the government sourcing strategy? Like how much of it -- are we importing any of it? And do we have any duties -- impact of the duties?And also we targeted 50% of vertical integration via synergies with Arvind Limited. We were somewhere around 6%, 7% in 2017. Could you give us some idea, where are we right now on that level?
So on sourcing, what I was mentioning as a new way of buying has more to do with flexibility, which means that rather than buying all our goods 6 months in advance and then being open to the [ vagarities ] of the demand going up and down, we now are much closer to the demand.So first of all, we are shrinking the buying cycle from being very, very long drawn to much shorter. And secondly, we are doing a bit of real-time dynamic OTB by flexible manufacturing. So that if we need 100, we produce only 80, and the remaining 20 we produce in the season dynamically depending on the demand. So that is what I meant by new ways of buying.And new ways of buying are not necessarily a COGS reduction strategy. But I think we have a very, very strong sourcing team, and we work very, very integrated and strategically with our vendor. So I think as a company, we have a very, very sharp cost because of our scale advantage. And because of the way in which we work in a very disintegrated manner with our vendors. We have largely an India sourcing strategy. So we are not really exposed to China a sourcing base or things like that. Over time, we have even further derisked our sourcing base. So that with our India sourcing, we are broadly in a very comfortable position.On your last question, I'm not sure I've understood it. But Arvind Fashions has never had a cost synergy with Arvind Limited. These are 2 separate publicly listed companies that have a complete arm's length relationship. I guess the only synergy that is there is that the 2 companies work closely together on product innovation. So it helps us bring cool new concepts to the market. There is no cost synergy between Arvind Limited and Arvind Fashions. It's a client-vendor relationship.
Okay. Sir, could you give me just a broad number of what percentage would be imports? Are we sourcing entirely from India right now?
I think imports would be 5% to 7%. We can send you the exact numbers, but it's broadly in that range.
Okay. Okay. And that's it, sir. So 1 last -- sorry, sorry, 1 last question. Sir, in your presentation, you've shown the December recovery as somewhat lower compared to last year. So are we seeing a little held back again? Or is it something to worry about? I just wanted to...
No, that's a good question. I think this December was a little different in that Diwali was much later this year. So I think the first 10, 15 days of end-of-season sale did start out a little slower. But in January, we have seen, again, the recoveries have been very promising. We are actually getting back into the high 80s in recovery. So right now, it is -- the recovery is looking strong as we speak.
[Operator Instructions] The next question is from the line of Chetan Phalke from Alpha Invesco.
Yes. So we have mentioned a cost reduction of INR 120 crores on a permanent basis or on an ongoing basis. Is it sustainable going forward? Because eventually, the growth will come back. And how much of this -- can you give a broad idea about this cost reduction? I mean how much of it is due to rentals, royalties or employees? Because I remember last quarter, we mentioned something about lowering our royalty percentage as well.
See, the rental reduction is not really built into the structural piece because most of the rental reductions were COVID-related. So as we exit this year, those rental reductions will not really play out. The bulk of this cost reduction is in 3 buckets.One is on the -- just the headquarters -- the headcount cost, we have kind of restructured our business significantly. And so I think there is a permanent cost reduction linked to a reduction in headcount. We have restructured the business. I think today, we have a much more efficient back-end cost structure. That is one large component of this saving. The other large component is the supply chain cost side. We've, over the last 1.5 years, worked on significantly simplifying our whole warehousing operation.So rather than having multiple warehouses, we now have large consolidated warehouses, and we've also worked quite hard on getting cost advantages due to that, both in the warehouse and on the logistics side. So there is a significant cost saving coming from that onetime supply chain cost restructuring.And lastly, we have kind of worked on optimizing the selection in our retail, kind of doing a very deep benchmarking on productivity-based cost heads in the stores and in the department stores. And with that tight control, we believe that a part of the selects will not be coming back in the store.So it's not the rent, it is the other selects. So these, I would say, are the 3 main cost heads, which account for most of the permanent cost savings that we are talking about.
Okay. Okay. So going forward, what can be our quarterly or annual employee cost going forward, I mean, at least for the next 1 year or so?
So we would not want to give a employee cost forecast, but you can see our current cost structure that we are currently at. And of course, there will be the natural growth on it, but there will not be a dramatic growth on it. So we intend to keep our operations efficient and tight.
Got it. Got it. So on our continuing business, I mean, can you give a broad or an indicative idea on how many of our stores are generating cash vis-Ã -vis, how many are losing money as we talk today? Or let's say, what was the number in Q3 FY '20 vis-Ã -vis where it is today?
See, we shut down almost 70 loss-making stores in this COVID H1 of this year. And the idea was we would completely read out all loss-making stores. We would still possibly have 5% to 10% of the network today at some negative CBA, but those stores are that way because we've not still reached back a 100% recovery, especially in the big city malls. So we expect those to also turn black soon fully in the next couple of quarters.
Okay. Okay. So broadly 5%, 10% stores are still loss-making, I mean, out of the overall network...
Yes. Yes. I think we took quite a fundamental call to anything that we felt had a very long path to recovery. We actually have already shut down that part of the network.
Okay. Okay. So just a follow-up question on this. I mean with respect to Unlimited, this EBITDA is -- EBITDA breakeven is post rent? Or this is prerental breakeven I mean...
Yes. No, no, no. It is post everything, and we are talking about the fundamental rental -- I mean, the fundamental EBITDA and not the Ind AS definition. So after all rentals and everything, we are EBITDA positive.
Okay. So at this run rate, we will continue to be EBITDA positive for Unlimited going forward?
See, the 1 thing I want to point out is that it is still a cyclical business. So not all quarters will remain the same. The festive quarter, Q3, is the relatively the strongest quarter, and quarter 4 tends to be the weakest and then quarter 1 is again strong. So it will go through its kind of seasonality, but in all months where we will be close to this level of sales, we will, of course, be EBITDA positive. And that is because we've significantly reset our fixed costs in this business. So our breakeven point is much lower now post COVID.
So this INR 120 crore cost reduction that we spoke about, it includes cost reduction in Unlimited as well? Or Unlimited is on top of it?
Yes, of course. Of course, of course. No, no, no. It's within this.
Okay. Okay. And sir, any comments on the category extension in other brands as in, in U.S. Polo, we have successfully done it and demonstrated it over the last 5, 7 years. Anything of that sort? Do we see it happening in Flying Machine or in Arrow per se? Arrow is struggling at this point of time. So can category extension be the way forward for Arrow or Flying Machine or other brands?
Yes, I think category expansion is a key part of our strategy. I don't think the same categories are the focus areas for all our brands. Another brand, I'd like to point out which is extremely successful in its category expansion, is Tommy Hilfiger. In fact, more than 15% of our Tommy stores have non-app revenue, maybe I think it's actually close to 20%. So Tommy has also a strong franchise. Calvin Klein has a very powerful innerwear franchise.Flying Machine, the whole idea is for our digital-first strategy that we will be getting into new adjacent categories and building online-first revenue streams there. So that theme will also come up. And in Arrow, I mean, our first focus is to get the core business to a strong bottom line, which we are expecting next year Arrow to be also EBITDA positive as a brand. And then there are definitely some ideas we have on which category extensions make sense there.
Okay. Okay. Sir, just one last question on this. Royalty -- I mean, we spoke about reducing our royalty last quarter -- a couple of quarters back. Was it a temporary phenomenon because of the COVID slowdown? Or there is a permanent structural reduction that we have negotiated with the brands?
No. So maybe there was a confusion in whatever we had debated. There was no permanent royalty reduction strategy. Yes, there are some brands that would support you in a tough COVID environment. That's kind of a onetime support, but there isn't a structural reduction in brand royalties, nothing material or specific that one should take away from this.
Okay. Okay. So if I can ask one more -- just quickly squeeze in 1 more question. I think can I continue? Or should I come back in the queue?
Sure, sure. No, no, go ahead. One last question. So that others also have a chance. Yes.
Okay. Okay. This is specifically for Shailesh. For Tommy and CK, I mean, given the fact that these are premium brands, but if we look at globally, these 2 brands, they do some INR 10 million kind of a revenue. In India, we have not even INR 700 crore. What kind of potential do you see with respect to Tommy and CK going forward? Because you kind of -- you have nurtured these 2 brands over the last decade or so?
Shailesh here. Tommy, CK brands are doing really well. And one very special thing about Tommy and CK is that they're very well suited for post-COVID relaxed way of working. And we believe that growth will continue. We saw Q3 the recovery is very high, the profitability at the highest ever level. So I think Tommy and CK are so well poised with the consumers in India, they are definitely poised to grow fast here. In the super premium segment, India tends to have its own market size and -- compared to global world, and I know that Tommy, CK numbers are very large in Europe. But we are doing well, and we are very confident that Tommy, CK both will be very large brands in times to come in India also.
But the growth is mainly from the top-tier cities? Or we are witnessing some growth from Tier 2 smaller towns? How are the online sales for Tommy and CK for...
See, Tommy and CK both are available in 75 cities in India. People don't realize that because they are very urban and big city focused, but our distribution has already reached 75 towns through our own point-of-sale in India, which we manage directly. So already quite good footprint. And the online growth has been fantastic. And our growth has been more than doubled in the last 2 years, and the growth right now also is fantastic in online world. We saw some numbers in December. In one of the portal, the rank of Tommy is very, very high. So the traction is good in all the channels, including in online world.
Okay. Okay. And any ballpark number on what percentage of our revenues from online channel purely -- the third-party online or NNNow.com online channels for Tommy and CK?
See, brands are -- before the COVID, they were at -- around close to 15% to 20% range and with COVID, it went up high. As we come out of the COVID, it will stabilize at between 20% to 25% on that contribution.
The next question is from the line of Nishit Rathi from CWC.
Yes. Just 1 follow-up. Wanted to understand the debt bridge, right? What is the debt as at December? And if I take the INR 1,240 crore debt that we had pre -- by March 31, after which we had the rights issue and the Flipkart issue, we released some working capital and we paid for losses. So if I do all of that, where am I today, you could just help me understand that, that will be great.
Nishit, we are at INR 920 crores of debt as of December end.
Only question there was -- okay, I'll take this off-line. Yes.
Mr. Rathi, does that answer your question?
Yes, that answers my question. I'll -- yes.
[Operator Instructions] The next question is from the line of Nihal Jham from Edelweiss.
Kulin, 2 questions from my side. First is, first of all, congratulation on the recovery. I think an 86% recovery is very much commendable. Only thing, just to clarify on that is that would the tertiary recovery also be similar? Or is it that there was some gap, especially in the large format or MBO channel, which has been filled? And potentially the tertiary sales are still tracking a little lesser? That will be my first question.
No actually, we had almost no MBO. See, quarter 3 is not an MBO wholesale quarter, only some winterwear billing. So in fact, MBO sales would be much, much larger. The tertiary would be much, much larger than the primary in quarter 3. So it would be actually the other way around. I think -- and all the other sales in the other channels are actually tertiary.In online also, as we had mentioned, a lot of the sale, almost 40% this time is, in a sense, tertiary because it's on our own portal and through marketplace operations. So I think what you are seeing is actually the underlying scale of the business.
Sure. But even for large-format stores, there is a primary and secondary component as well. We do the billing and then they record it. So there also, you're saying that the momentum is as strong as the reported number?
So it's 10% kind of a recovery lower on department stores, but you know that the materiality of the difference doesn't change the overall numbers much. It's not a very large difference. And then if you look at something like MBO, there's a huge thing the other way, right? So broadly, that's why I'm saying that tertiary would be very much in line, if not slightly above what we've shown this time.
That's helpful. Kulin, the second question was, if I just look at the financials for this quarter, I'm trying to bifurcate the cash flow that considering we did a working capital reduction of INR 150 crore and there was an EBITDA of INR 30 crore, I would assume that we generated a decent positive cash flow and after paying the interest that we would for the quarter. So on the fundraising plan, just thinking aloud with you, isn't it that there could be, say, further cash flow, which will naturally get generated because of business operations, which would ideally be enough to fund our working capital requirement for Q4? Just so...
No. I understand where you are coming from. But see, I think what I was trying to even explain in the opening remarks is we are going to have a significant scale up. If you look at the base of this year versus where we will be moving next year. In a sense, almost across every channel, there is a big fill that is going to go in. The numbers you saw in quarter 3, a lot of the sales were from spring/summer stock and a very small amount of autumn/winter stock. And that kind of is a one time we took a correction in our buy. And that's really worked very well for us. Our inventory is at the healthiest it has been. And even though we had aged stock, we were able to get a good recovery. Now we want to invest behind growth properly. And this will be the first season that we will buy properly, assuming a full freshness in our retail. And that is why that will come as a first fill that will go into every channel. And of course, that will then follow it up with cash flow that will come once all those goods sell but we don't want working capital in a sense to go up as we start going back behind the fresh goods and go and get the revenue back up. So that is why we feel the rights issue is there, it will fund all the growth capital required for the spring/summer buy and the future buys, and it will keep the debt at this level or slightly better than this level. So I think having a strong balance sheet so that we can go and capitalize the growth opportunity because we are seeing the opportunity on the 6 platforms we're talking about, the inherent demand and the position of the brands is encouraging, and we want to go after the opportunity.
Just last question, what is the cash balance at the end of December?
Pramod?
Cash balance -- I mean, we are a net borrowing company. So therefore, we would have undrawn lines. So therefore, when Kulin talked about INR 920 crores, that is the net borrowing.
Well, ladies and gentlemen, there are no further questions from the participants. I would now like to hand the conference over to Mr. Ankit Arora for closing comments.
Thank you, everybody, for joining us on the call today. If any of your questions have remained unanswered, please feel free to reach out to me and I'd happy to take them off-line. Thank you for your time today.
Thank you. On behalf of Arvind Fashions Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.