© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to Q3 FY '23 Earnings Conference Call of Go Fashion India Limited. These conference call may contain forward-looking statements about the company, which are based on the belief opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gautam Saraogi. Thank you, and over to you, sir.
Thank you. Good evening and a warm welcome to everyone present on the call. Along with me, I have R Mohan, our Chief Financial Officer; and SGA, our Investor Relations adviser. Hope you will all receive our investor deck by now. For those who have not, you can view them on the stock exchange and the company website.
The company has shown strong performance in Q3 FY '23. Our revenues grew by 24% to INR 127 crores, highest ever quarterly revenues at Go Fashion. EBITDA in fact grew by 14% and 3%, respectively, to INR 59 crores and INR 24 crores, respectively. This has been on the back of high volume growth and improved product portfolio.
Our revenues compared to Q3 FY '20, which is pre-COVID level has decreased by 51% for Q3 FY '23. SSE for EU stood at 18% for Q3 FY '23 compared to pre-COVID levels, which is Q3 FY '20. SSE for EBO is at 10% compared to last year's quarter 3. For the quarter, our volume growth -- our overall volume growth has grown by 17% compared to last year. Compared to pre-COVID levels, our overall volume has grown by 28%.
Our product being core and essential to customers has enabled to operate us on a business model where we are -- where we offer limited discounts and the sale of our products is typically at full price, which is in our experience results in greater profitability. 96% of our sales in the 9-month FY '23 are at full sales. In addition, our EBO average selling price has increased continuously, primarily on account of value-added products that we introduced as part of our product portfolio.
Our ASP for the 9 months stood at INR 722. As mentioned in our last couple of calls, the company is investing in brand building initiatives, which will help us gain visibility and help us focus to grow our online sales channels to benefit the evolving customer trends in the market. During the last quarter, the company has had a brand champion, good to go. This activated 53 mega and macro [indiscernible] across 8 cities and reach 32 unique audience while including the marketing. The approach was to reach out to audience, which have affinity to the brand, so the audience who are currently in the concentration for [indiscernible] of purchase.
We reached 82 million audience and recall lift at 23% after 60 days. During Q3 FY '23, the company added 35 new store -- new EBO stores and the total of 101 stores in the 9 months FY '23. This takes the EBO to 604 as of December 31, 2022. As guided earlier, we will continue to add 120 to 130 stores in FY '23, which is in line with our growth expansion plans. So we are looking at omnichannel engagement for a seamless customer experience, building on technology-driven strategy to reach consumer [indiscernible]. We are leveraging technology to bring cost efficiencies and enhance customer experience. We intend to further improve our operating efficiency and ensure efficient supply chain management through global best practices.
We will upgrade our warehouse to optimize our inventory and supply chain management. Coming to the working capital front, we have reduced our working capital days to 151 days as on December 31, 2022 compared to 178 days as of December 31, 2021. We are further working to reduce it mainly on the inventory front.
On the cash flow front, we have delivered a positive operating cash flow of INR 60 crores for the 9-month FY '23. We look forward to continuing our innovative and creative approach and launch more designs while providing more brand destinations for our consumers, which will help us grow and gain market share in the coming years. Our focus will be to target customer acquisitions to drive sales to our website and online marketplaces. In addition, we intend to invest in content generation to build engagement with the younger audience.
With this, I would like to hand over the call to our CFO, Mr. R. Mohan for the update on the Q3 and 9 months FY '23 financials. Thank you.
Thank you, Gautam, and good evening, everyone. The company has posted strong performance for the quarter and 9 months ended December 31, 2022, backed by the increased demand across product categories. Our revenue for the quarter stood at INR 177 crores as against INR 142 crores in Q3 FY '22, a growth of 24% y-on-y. Gross profit stood at INR 104 crores, a growth of 21% y-on-y with a GP margin of [ 59% ] for the quarter.
Our EBITDA for the quarter stood at INR 59 crores as compared to INR 52 crores in Q3 FY '22, a growth of 14% y-on-y, our EBITDA margin stood at 33.5%. Profit after tax for the quarter stood at 24% to INR 24 crores. We have 3% y-on-y growth from Q3 FY '22. PAT margin stood at 13.8%.
Coming to the 9 months FY '23 performance, revenue stood at INR 508 crores as against INR 283 crores in 9 months FY '22, a growth of 78% y-on-y. Gross profit stood at INR 313 crores, a growth of 79% y-on-y with a GP margin of 59.7% for the 9 months. Our EBITDA for the half year stood at INR 162 crores as compared to INR 81 crores in 9 months FY '22. A growth of 19% y-on-y, our EBITDA margin stood at 31.8%.
Profit after tax for the 9 months stood at INR 68 crores as compared to INR 23 crores in 9 months FY '22. The growth of 192% y-on-y, profit margin stood at 8.2%. The ROCE and ROE, on an annualized basis, stands at 19.8% and 17.8% respectively.
With this, we will now open the floor for question and answer.
[Operator Instructions] We take the first question from the line of [ Ankit Kedia ] from [indiscernible] Capital.
Sir, just wanted to understand your volume growth for the quarter. Given that you have posted 17% Y-o-Y growth, but we also had a 27% [indiscernible] store addition. And ASP growth is also around 10%, 11%. So what is the volume growth in SSG? And how has been the niche toward impact on profitability and volumes?
Yes. Thanks, Amit. So from an SSE perspective, see this year, we had a 10% value growth over last year Q3 FY '22. So the value growth is at 10%, the volume, we have seen a [indiscernible] of minus 2%. But to our business, like I also mentioned earlier, it's becoming more of a cluster-based business. So this quarter, we have seen where our SSG stood at 10% and minus 2% on a volume level. Our SCSG, which is same cluster sales growth, has stood at [ 34% ] on a volume level and 11% on a volume level.
And this is y-o-y?
This is all y-o-y. I'm telling you as a comparison between Q3 FY '23 versus Q3 FY '22.
Sure. And the first one, from a cluster-based approach, how many clusters do you think or how many stores do you adding that cluster of how many kilometers is this cluster? And how much stores out of your 600-odd stores are in this cluster based strategy?
I would say about 60% to 70% of the stores about 50%, 60% of the store or a little more than that are in clusters. But how many stores we can have in a cluster is very subjective to that particular location. So every area, every locality is different. There are some localities where in the entire cluster, one store is enough. And some localities where the area is very -- the area of the cluster is very small, but multiple stores are required.
So it really -- like as given example. Let's say Mumbai, right? So linking road is 1 cluster, the Bandra cluster, linking if you have 1 store for the entire [indiscernible] is enough. But whether if I take the other market, the other stores in the small west, the other West area where the shopping is there, where there you can have a potential of 3 to 4 stores. So it really depends from market to market.
Sure. So going forward, is it fair to assume the volume growth on basis would be low single digit or flattish? While on the cluster base, it could be a higher growth?
See, though we are going to be a cluster-based model. But on an SSG level, we are going to continue aiming to have a volume growth of 4% to 5% on our SSG level. This quarter, the overall retail market was the overall refits little slow. That is why we've seen a de-growth of minus on a generalized basis, we are aiming to maintain that volume growth of 4% to 5% on SSG on a Y-o-Y basis.
Sure. My second question is regarding your working capital.
On an overall basis, we are more of a cluster-based growth model than a [indiscernible] one.
Understood. So my second question is regarding your working capital. If I look at on a quarter-on-quarter basis, the cash on books have actually reduced, while you're saying the operating cash flow of INR 60 crores, I believe that is mostly operating cash flow.
So if you can just help us with the absolute inventory number for the December-ending numbers, so that will help us understand the actual working capital.
Yes,yes. So I'll [indiscernible] absolute inventory is around INR 223 crores to INR 225 crores in the book, which is including finished goods and raw materials. Now very rightly, you pointed out the cash flow from operations, which you see at INR 60 crores, this is post-interim basis. If I take pre-interim basis, this INR 60 crores will actually be [indiscernible], because we have a rent outflow of about INR 60 crores to INR 61 crores.
So if we net off the rent from the INR 60 crores, the INR 60 crore become zero. So from a cash flow from operations perspective, it stands at [indiscernible] on a premium basis.
Understood. That's helpful, sir.
But what happens is the working capital also includes the inventory for the newer stores that we've opened. So this cash flow from operations 1 year, it is both the inventory what we've added for the new store.
Sure. Sir, if I look at September inventory was INR 215 crores. So approximately INR 8 crores, INR 9 crores of inventory has been added. And that event was also slightly on the higher side because [ nest ] cotton prices are falling. The wood using the high-cost inventory and securing low-cost inventory, should the inventory absolute amount decline?
See one, currently, we are at 4 months of inventory. And we are looking to optimize our inventory, and we have been doing it over quarters. And we are looking to bring it down to 3 months. So this optimization for 4 months or 3 months will take a few quarters, but we are aiming to bring it down to 3 months. And that is how we are going to be reducing our overall working capital.
We'll take the next question from the line of Mr. Devanshu Bansal from MP Global Financial Services. .
Sir, I wanted to understand the gross margin declining versus last year. So if your mix impact has improved, but your gross margins have actually dipped by about 160 basis points. So what explains that?
See, in this quarter, we've had some marketing offer debits from our large format store partner. And that is why, because it's come all in 1 quarter, that is -- and we say net of it against revenue, because of India is 15 accounting standard.
And because of that impact of those marketing or debit, our revenue has fallen to that extent, and this has led to the decline in the slight decline another gross margin.
So compare comparable gross margins you're seeing, so you expect it like to call out the impact of this on a related basis?
Usually on a steady-state basis [indiscernible] will maintain 60% to 60.5% of 50% to 50.5% gross margin constantly.
Sure.
But in the same final mix. If the final mix tomorrow, as the EU sales will increase, but taking the sales channel mix, we will maintain 60% to 60.5% of gross margin.
Got it. So -- and sir, with cotton prices sort of being at reduced level sustaining at the current level, how is the competition sort of taking it? Are they going for cutting the prices? So what's your plan on those plans?
See, we have not -- we don't have any plans to reduce prices. And even what we have studied from competition, competition has also not reduced prices. Currently, these reduced prices, we've reduced cotton prices, we have to see the sustainability for 2, 3 quarters. And then we'll have to see because cotton prices in the last 18 months have fluctuated a lot.
So want us to take a judgment on whether these prices will continue to be low, we don't know. We'll have to study for 2, 3 quarters. But having said that, we have not reduced prices, and we have also not seen anyone else in the industry registering the brand.
q
Got it. And sir, you indicated that this was a challenging quarter, and I should sort of give you good complements on maintaining a decent inventory levels. So what sort of helped does in maintaining the inventory levels despite shortfall in sales during the quarter?
I think, look, our inventory planning is very accurate at once. You see for us, all our inventory planning is through our ERP tabulation and EI, once based internally. Everything is based on sales and sales production. So we kind of very accurately plan our inventory in terms of how the quarter will move.
Now how -- so we have done about INR 177 crores of revenue. I believe as management report that we could have done about INR 184 crores to INR 185 crores already. So we have fallen short by INR 6 crores, INR 7 crores to what we thought would happen to be a good number to achieve.
And this INR 6 crores, INR 7 crores, so there is a general trend back that January is seeing relatively better performance versus what historical January have been. So is that same trend visible in your stores as well?
Yes. I mean we see vending has been pretty decent. So I mean initially, how January performed, we have seen similar trends in that. It's too early to comment because January is not concluded yet. But from what I understand, I see in the industry, it has been pretty decent, and it's been similar to past trends.
Got it. And one last question from my side. Generally, on an annual basis, we have seen about 10 to 15 store closures and this year, there has not been any store closure. So do you expect or closures to happen in Q4, or not?
Hard to say right now, but maybe 1 or 2 stores, nothing material. There was 1 or 2 airport stores, which are possible to shut. But we have not finalized that yet, but maybe 1 or 2 stores, maximum in the last quarter, nothing material.
[Operator Instructions] We take the next question from the line of Mr. Varun [indiscernible] from ICICI Securities.
So sir, as you highlighted that depending on channel mix, trajectory of gross margin would be taking shape. So just wanted to understand that in our current presentation, revenue contribution from online channels are close to 21%?
And if you look at your last quarter presentation, revenue contribution is around 3%. So from 3% to 20%, it is quite a big jump.
No, no, no, No, There is a small correction there. I think you've read it wrong. The online is this quarter been 2.5%, that 21% what you're paying is LFS.
LFS, Okay. So I think there's some edit in the presentation, right? understood.
Okay. Maybe I'd like to check the presentation, maybe the color pooling was wrong, I had to check that. But the online sales, which was earlier at 3% is currently at about 2.5%, 3%. So it's been maintaining a similar trend.
Got it. Got it. Understood, sir. Okay. And so how do you look at the revenue contribution from this channel going forward, for example, next 2, 3 years, especially from online channel?
See, we are looking over the next 2, 3 years, we want to ideally scale the EBO business and online business together. Currently, we are at about 76%. Both EBO and online together. We would really want it to be around 90% over the next 3 years or a little more than that. We are aiming to get to the 90% number. And in that 90% online would be about 8%, 9%. So currently, the online is about 3%. We would like to make it to 8%, 9% over the overall.
Right, right. And that should not be gross margin dilutive? I mean, I have a [indiscernible]
To further improve the gross margin, we currently are [indiscernible] current channel rate. We have a steady-state gross margin of about 60% or 60.5%. As the EBO and online sales contribution increases because that is direct to consumer, that will have a positive upside on our gross margin.
I'm saying only for online channel, gross margins should either be dilutive given the commissions that [indiscernible] have to pay, compared to [indiscernible].
No. See what happens with the online, the commissions are booked below gross margin. So the gross margin in online and EBO are similar.
Understood. Okay. And sir, second question is on marketing spend. So given the renewed thrust on improving visibility and brand perception, so how should we look at the overall expense as a percentage of revenue?
See, on a steady-state basis, Varun, you can estimate it to be between 3% and 4%. Usually, H1 will have higher spend than H2, which was even the case this year. Because we usually plan our advertising spend prior to [indiscernible]. So this year, we had about 4.5% in H1, which has now come down to 3.5% by 9 for 9 months because our spend in quarter 3 will last. So on an annualized basis, on a steady-state basis, you will see about between 3% to 4% will be RF.
We take the next question from the line of Mr. Nihal Mahesha from [indiscernible].
So three questions. First, the clarification on the cluster acres that you mentioned, just to understand that, right, you were basically highlighting that opening stores in the same cluster ends up impacting the SSG value and volume growth in a way. Is that the right understanding because the stores opening next to each other?
Correct. Correct. Sometimes it does. Yes, correct.
That's helpful. The second question was that if I look at your city expansion over the last 5 years, you've consistently around opened around 20 cities every year. And I think for this year also, it is 60. Maybe I think by '23, you will add a similar number. So is there a thought of accelerating that? Or that is the template we want to follow in terms of the number of cities that we keep expanding into?
See, it's very difficult to estimate how many cities we are going to add every year because it's all based on availability of stores. But what I can tell you is that whatever INR 120 crore to INR 130 crores we are adding, 50% would be from the top-tier cities. See our percentage of our top tier cities on a cluster-based model is about 56% to 57% that ratio will maintain.
Now how many new cities we'll add every year is very hard to estimate, sometimes 23, sometimes 25. This is all based on availability. But the mix of metro versus nonmetro which is currently at 57% by metro, [indiscernible] at 280.
Got that point. Just one last thing on the inventory side. Currently, we are at around 120 days of inventory, and that's a number that has stayed similar for the last couple of quarters. It has been a while, but I'm guessing that is because of what had happened due to COVID last year.
What is the road map from the 120 to 90 that you keep highlighting? What are the parts of the value chain that you will reduce inventory and that will help you raise some [indiscernible].
So let me clarify why 120 days, and why we are at 120 days. See, in our business, our sourcing model is such where we buy fabric, we buy our raw materials and then we convert it into a garment. So there is an element of raw material inventory in our book. So if I take the 120 days, my garment inventory days is around 90 days. It's because of my fabric what I'm maintaining of 30 days, I'm having 120 days of inventory.
So if I take in terms of real sense of finished goods inventory and still at 3 months of inventory in terms that the fabric is making it look at 4 months. Now of course, our sourcing model has stayed consistent right from the beginning. So pre-COVID you had 90 days of inventory, including fabric.
So the a little bit fine-tuning what we'll end up doing it to bring it down to 3 months is we are going to be fine-tuning the inventory at the warehouse. Here at the store level, currently, we are adding about 35 to 40 days of visbility on the overall scale. That will remain the same. The warehouse inventory in finished goods, we will fine-tune that a little bit, and we will fine-tune the fabric inventory. So automatically, just 120 days will come down to 90 days.
Including the fabric also?.
Yes, absolutely. But it will take some time because the fine tuning happens over a period of time. Maybe it will take 2, 3 quarters or a little more, but we will bring that down to 90 days, which was the number prior to COVID.
We take the next question from the line of Mr. Manish Poddar from Motilal Oswal AMC.
I have 3 questions. One is, would it be right that this quarter has the entire raw material impact? And let's say, incrementally raw material, let's say, sort of inflation you have taken up?
Sorry, Manish, can you come back to the question again? I lost you completely.
So I'm just trying to understand, let's say, the gross margin which you see during this quarter, does this make the entire, all this inflationary impact which is there, let's say, in the inventory, in the system? Is that how you want to lead on the gross line?
See Manish the inventory -- the cotton prices, which are [indiscernible] has actually not given the upside yet in the gross margin because we -- our inventory works on a weighted average methodology. So right now, the newer fabric, what we are posting is on the lower cotton prices.
So that was really not affected. The reduced prices have actually not got the positive upside on the gross margin yet. That will take some time for it to kick in.
So this solution referred by quarter 1, is that [indiscernible]
[indiscernible] That's very, very hard to estimate.
What I'm trying to understand here is the [indiscernible] prices which you've got in late December, that would be at least a 10% lower than what the quarter average would get. So that is still not the case.
No. See, the price increase that we have taken in December '22, 2022, is more or less like...
I'm talking about cotton prices, not product prices. I'm talking about, let's say, the quarter raw material that you get be it either in product or work in progress, has that started reflecting in lower prices? Because of the price correction which will happen in the other commodities.
Yes, I think that the price hike, what had happened in December '22 at the RMs [indiscernible], that has already impacted the gross margin. yes. So your question is right. So that increase, what has happened at that point of time has already started showing in the gross margin. But there's not so much because we have taken a price hike also at the same time.
And secondly, [indiscernible] now you're calling out, let's say, 3% to 4% for this year. So I believe at the beginning of the quarter 1, I think July, August, you mentioned was 4% to 5%. So is there a change in that?
No, no. I stand corrected on that. The 4% to 5% was moved from a guidance of quarter 1 and quarter 2, For a year or 2, we are looking at 3% to 4%, not 4% to 5%. 4% to 5% is more from an H1 perspective.
Okay. Just one last one. So let's say, this 130-odd store guidance ballpark space, internally, are you planning to open a higher number of stores in FY '24 and '25?
We are yet to make the plan, Manish. So probably we'll have better clarity maybe in the next couple of months. But it will be in the line of, more or less it can be in the line of 120 to 130 stores.
We take the next question from the line of Mitali [indiscernible] from [ Artemi ] Capital Management.
Just a couple of questions. One is on this [indiscernible]. Given that we have indicated that 96% of our sales was [indiscernible], could you sort of just help us a little bit in terms of what the U.S. during the quarter? Is it currently on? And what is the kind of response we are seeing?
See so we have 2 users periods effectively. We have 1 we run it during quarter, 1 and 1 in quarter 4. So currently, we have a [indiscernible] running. On certain articles, we are providing certain offers. But the impact of such articles are very less because the total inventory, which will be under those offers, will be less than 15% or less than 10% of the EBIT total inventory.
So the 96% of full-price sales still it continues to be. So because the offers are there at the store, but it is on very, very limited. Because in our business because in our business, most colors and products continue to the next season without getting discontinued. So we don't have too much of such inventory where we want to liquidate or discount.
Got it. And when did the [indiscernible] start for this?
We just started now in January 8. It will go on until February.
Also just wanted to see on this ASP increase that we have seen on the 9-month basis. How much of it is mix and how much of it is pricing increases per se, on a like-for-like outlook?
This ASP, what we have seen increased from INR 709 crores to INR 724 based on these products. Because the last price hike, what we were taken in was in December 2022. And ASP will be -- no, '22, look -- sorry, '21, I stand corrected. December '21.
So the last price hike we have taken was in December '21. And mostly after that, we have not taken a price. So this slight increase in average selling price of INR 709 crores to INR 724 would be on the basis of new products, largely driven by new products.
Got it. Just wanted to also get a sense from you on the outlook, which you had spoken about that there was a certain part of the sales which you expected the sales to be higher by INR 6 crores to INR 7 crores, which didn't finally occur.
What is the consumer sentiment in? Or could you just sort of elaborate a little bit on what you are seeing in the demand then? And what are you seeing currently?
I think, look, overall, the sentiment is decent. I mean, look, I will not call this a bad quarter. The sales were pretty good. But look, we had a management expectation of about INR 184 crores, INR 185 crores. We ended up with INR 177 crores. So the consumer sentiment has been pretty okay. We thought it could have been a little better. But otherwise, November was quite a fall, was quite a sharp fall. October and December were pretty good.
Got it. Also wanted to check with you on 2 other points. One is on your [indiscernible] -- while you have indicated your gross margins would be that 60% to 60.5% range, would you have a similar range which you are thinking for the EBITDA margin?
So on a year basis, we are looking to maintain EBITDA margins of about 32% to 33%, post-India.
Post-India, Got it.
Yes. On a year-to-date basis.
On a full year basis, some quarters will be higher, some quarters lower, got it. And in terms of the loyalty program, is there any further action which happened along that side?
See, we have already made the loyalty program. We are just in the final rounds of testing. Hopefully, we should be taking it live starting fourth quarter.
Okay. And my last question is on the pledge. Just wanted to get a sense of you that you had mentioned earlier that it would take 6 months to sort of get it out. Does that still stand in terms of...
Our original plan was to close it by September 30. It was -- and it continues to be short term in nature, the pledge. As family, as promoters, that is on our top of our priority list and we're looking to close it soon, as soon as possible.
But there is no time line that you are giving for it.
As of now, we're not giving a time line, but we continue to maintain saying that it is short term in nature, and it's on top of a [indiscernible]. But hard to give time lines right now.
I just get a sense from you of the rental to sales ratio that you are seeing currently for the 9 months of this year.
At the company level, we've had about 14% to 15% as [indiscernible] revenue ratio. On -- but that's an overall sales basis. If I look at an EBO level, EBO channel -- EBO level and EBO will be about 17%, 18%.
17%, 18%.
But at a company level, because at the overall company sales, it may be about 14% to 15%.
Got it. But coming to this opening more stores, especially in a cluster basis, we are now seeing some amount of this cannibalization happening on the volume side, that -- which earlier was not the case and clearly the market is a little more saturated than we might have expected.
Just wanted to get your thoughts on this, especially given that you are indicating that you want to be at the 4% to 5% SFT level at the stores. So how are you sort of thinking about it. And like on incremental stores, are there any metrics that you'll keep a close track on that if things don't work out appropriately, then you might look to even close some of these stores?
See, for us, closure of stores don't happen a lot because [ CBRO ], sort of newer than any market before we open a store. We typically wait for the larger retailers to open first. We see the budget performance. And then after that, we decide to open a store.
So closures in RPA is very limited because we are the core of the mover is in any market. But considering how we are growing in clusters, the right metric to be used in our evaluating our sales and obviously SCSG, which is same cluster same growth. But as management, we continue to aim that at an SSC level, we will want to maintain about 4% to 5% volume growth, we would want to at least aim and try maintaining that.
But our experience has been that even in the cluster, to do in a cluster multiple tools sometimes cannibalizes the first or the second store from the same cluster. It does not really reflect in the decline in margins because the incremental increase in revenue to the incremental increase in the rent and other expenses is far greater in revenues and the expenses. So the margin at higher notice at the cluster level pretty much maintained, if not yet better.
Got it. But you are closely tracking this margin at a cluster level including trend inquiry.
We look at cluster as one location, right? So we take out EBITDA, we take out gross margin at a cluster level and then see whether there has been a decline after adding most [indiscernible]. And that trend, we have not seen any decline.
We take the next question from the line of Mr. Vikas from Equirus.
Just a couple of quick questions. Sir, can you break this 10% expense that we go into a pricing or a volume and breakup and please do that.
Yes. So the 10% when it converted into volume, it is minus 2%.
Volume is minus 2%. And sir, I missed the Mark when you said that you expect the reason for the decline in the gross margin for this particular quarter. Can you please repeat that? What was [indiscernible]?
Yes, I feel this quarter, we have had some marketing and offered debits from some of our large format partners. And such debits are knocked off in the revenue. And because it is adjusted in the revenue line item, we have seen a slight decrease in the gross margin.
Sure, sure. So this is -- more to do with just to understand the nature of this item. It does usually happens every third quarter or these -- what is the time period?
No, it depends. It happens every alternate quarter but decent amount was a little more than normally. See what these opcos are basically, many of the large formats run many schemes in their tools. That's like on a big basket, they'll give a particular offer, they've done some marketing campaigns in years too.
So such initiatives are basically borne by the brand, external brands and also borne by their private label. Because proportionately, we have both our contribution.
Correct, correct. But this is a normal business at that's using anchor every quarter?
It is always in the normal course of this. It's not an outline.
Understood. Understood. Understood. Sir, with respect to the stores opening, you did reaffirm that around usually in [indiscernible]
Just want to confirm one more thing. This comes every quarter. But this time, because of it being a little more than normal, that's why we have seen a decline in this year.
Sure, sure, understood. [indiscernible] Sir, last question. With respect to -- you did mention that whatever store openings that would have on an annual basis, either 120 or 130 stores, around 57 of the [indiscernible] continue to be open in top 8 cities. Is that understanding correct?
Yes, about 50% to 55% in our existing [indiscernible] also, we are seeing a lot of [indiscernible]. So I think that 50% are coming from a top 8 city or top 10 city will continue.
Understood. So sir, in that case, can I ask a broad question is like we do mention in our presentation, that our revenue from a particular mature store will be around INR 85 lakhs to INR 90 lakhs, right? So out of this 600-odd stores that we have, around how much percentage of our stores would be clocking such revenue throughput?
See the INR 85 lakhs to INR 90 lakhs is not for metros, that's a blended number.
By blended.
Meaning it is also including the stores which are opened in the current financial year. The last is the blending number, the 85 lakhs to 90 lakhs. It's not for the metro totally.
So a metro store would be even clocking higher than this?
Ideally should be clocking a little higher than this. I don't have that number handy, but it will be clocking higher.
Sure, sure.
How do we measure maturity, any store which is greater than 18 months, we choose that as a mature store. So we measure maturity by time and not by revenue.
We'll take the next question from the line of Mr. [indiscernible] from [indiscernible].
My first question is on the demand trend, right? You might say October and December was good. Would you be able to bifurcate how different or similar they are in, say, tier 1 versus tier 2, tier 3, tier 4?
See, I think the real difference happens at the state level and not at the tier level. I'll give you an example. Now Delhi, for example, let us say, the Delhi region, right? And some of the Delhi, October, November, December start to decline because of big drop.
Now in South, the trend is very different. October does very well because of Diwali and then December around Christmas year the sale again picks up. So the trend really differs between [indiscernible] states and not at a level.
So yes, I mean you answered from a seasonality perspective to any, but I'm just saying in general, how the demand is there...
In general, what happened usually, festivals fall in October and even this year, it was in October. So October you see a sales spike. November, again, after festival, the sales slightly takes a dip in November. And then in December, because of New Year and Christmas and the holiday season, in December again the sales spike.
So usually, November is slightly lower than October, and December picks up better and it becomes -- December usually becomes on par with October. This is the usual trend. It depends on the individual on the month where it falls.
But my question where I was coming from was like we are seeing, right, the impacts of inflation are hurting the consumer segment, more so people who are in Tier 2, Tier 3 towns, which is evident from the numbers reported by some of the [indiscernible] companies. Are we seeing such kind of a discrepancy between the tier 1 versus tier 2, tier 3 stores in terms of demand?
See, in our case, we have not seen any such disparity as of now. For a fact, tier 2 is continuing to do as well as our tier 1. So we have not really seen too much of disparity between tier 1, tier 2. But having said that, we are more currently looking at our network, 50% to 60% of our stores are in top 8 cities. Currently, we are more to tier 1 from a macro perspective. But whatever we have in tier 2, tier 3, tier 4, we have not seen any [indiscernible] fall. I think no greater fall than what has happened in tier 1, let me put it that way.
Okay. So SSG volume of minus 2% would be broadly similar across the tiers.
Yes, it would be similar.
Okay. Okay. Second question is on the ASP front. You said that you have seen kind of plus 10%, 11% of ASP increase probably on a y-on-y basis. Are we also -- are you seeing any trends where premium products are getting sold way more than what they used to be? And probably mass products or entry-level products are getting sold less currently as compared to, say, in the last 1, 2 years?
I wouldn't -- we have not seen any dramatic shift on that front. I think it's been fairly similar and consistent to what it will be. We have not seen really any big change on the premiumization front. The customer is upgrading and that's why our ASP is easing. But there's no dramatic shift.
Okay. Okay. Fair enough. And last question.
But to your question, there is a shift. That's why you have seen our ASP increase because of the new product portfolio. There is a shift, but it's a very slow and gradual shift.
Okay. Fair enough. And lastly, on the ramping up of newer stores, right? I mean, I'm sure the newer stores would be clocking only 30%, 40% of sales as compared to the very mature store sales. So how is -- how does the time line look like [indiscernible] I open a new store today, how many months or years it takes for that store to reach to the sales level of our very mature store?
See, as I was mentioning on the call, maturity for us we measure, not by revenue, but we measure it by time. See, we have some older stores also, which is well below the average of 85 lakhs. And we have some newer stores also which are well above the 85 lakh, 90 lakh number.
So for a store to be matured by time and not by revenue. So usually, between 18 to 24 months is when a store gets matured.
[Operator Instructions] The next question is from the line of Mr. Himanshu Nayyar from Systematix.
So first question, I mean, given that you said the demand recovery for you in both the metro and the larger and the smaller market. So just wanted to understand, is there any multiple or a significant difference in the store economics for your stores that you open in the top 8 cities versus your other stores?
I think -- and even if you open a significant proportion in your non-top 8 cities, would that impact our overall store economics or not much?
See, from a margin perspective, margins are very similar between Tier 1 and Tier 3, and I'll tell you why. So there will be a difference in revenue. So the top 8 cities average store revenue versus a Tier 3 cities revenue would be different. And Tier 2 levels would be lower. In our case, it is not significantly low but even lower.
But what happens is, even when these revenues are lower in Tier 3, our other costs like rental, staff costs and other expenses also are that much lower. So the kind of EBITDA will be generated at average to store EBITDA of 21% to 22%. Whether it is a Tier 3 or it is a tier 1, we ended up bringing the same 21% to 22% EBITDA. So there's no change in the margins as such, but the revenues would be different for our Tier 1 versus the Tier 2.
Okay. And a return ratio inventory that would again broadly be similar?
No, no. The return ratios in our Tier 3 would be slightly longer because the investment in order to put up a store as far as CapEx and inventory, whether it is a Tier 3 or the Tier 1 is the same. So your payback period is slightly going to be longer in a Tier 2 versus a Tier 1.
Got it. And the second bit was on channels. So can you share some details as to where we are in that journey. And if we have already started it in a significant number of stores, any initial data on how much is that adding to our store throughput or revenue per store, basically?
See, we have started only coming in a small way. I mean we've started seeing some success. It is still early days, so we have started doing localized deliveries from certain stores and it is filling up. We're also now making an omnichannel program where any customer who walks into a local store and if she's not able to find a color and size, we convert that customer into an omnichannel customer. So we are now starting to initiate it and right now, we have done it in a few stores. So it's very early on to say how the result is, but it has gone live in a select number of stores.
So any idea, I mean, how much do you think can I mean has a significant impact on our store throughput?
Exactly. So that was the idea. I mean, we are quite optimistic that we should improve the store economics and the sort. But since we have piloted in a few stores, even the staff are getting same how to use the omnichannel model. So it will take some time for us to really know how much is the output [indiscernible]. So we have done a small pilot in 4 to 5 stores.
So it's still a long time away that we actually start seeing a material.
Because there are so many integrations we need to go at a software level. So we have piloted in 4 to 5 stores to see how it would go.
We'll take the next question from the line Mr. [indiscernible] from [indiscernible].
My question is, some time back, you have talked about your repeat customer is around close to 30%, 35% of the total customers. If you can talk about how that has moved, and if your product or customer has also grown Q-o-Q or Y-o-Y.
Our repeat purchase was about 40% to 45%, and that has more or less maintained. From the other point, data, what you mentioned, whether the repeat customer is buying a lot more or not, that's data we have still not tracked in this quarter. Probably we will have a little more information on that we will circulate. But our repeat purchase at 40% to 45% mainly.
Understood, sir. But also, like you track whether a same customer with vintage, someone who is buying 2 years, 3 years back with us is buying more? Is there any evidence or data for that?
So that's some we are not tracking that data in the last couple of quarters. But what data we track, I'll tell you, which we have done very well in Q3. So we track how many customers have lapsed. So some data around the lapse customers, we send out estimates and we have been able to recall many customers back to the store and converted those lapsed customers into active customers. So we have done that agent. So for those customers, which are very old and not repeat have come back to the store.
Understood, sir, helpful. And secondly, I would want to know what are the parameters you trap for the brand recall as like old colors on all omnichannels. And how do you track that?
In offline, there is no real one way to measure it. But in social media and digital world, there are some third-party agencies through social media and digital they're able to tell what is the real one. There is no metric and not the use, but there are some third-party agencies doing that.
In the social media space and digital space, in the off-line space, there's not really any real way to measure the color, unless we conduct the customer survey.
Okay. And -- but do you -- can you quantify like what has been our brand recall for the third party purchases?
Yes. So in fact, we had a recall, we did a recent -- we did a small brand [indiscernible] also. So in the social media space and the new space, we had a brand post our campaign, it is [indiscernible] about 22%.
But just like Y-o-Y or something, it's hard to compare?
No, this campaign [indiscernible] we have not done before. This is the first time we have done it.
Understood, understood. And last question from my side is that you have talked about maybe around 120 kind of store additions every year, and we have a visibility of maybe another 500 stores. But in terms of we are seeing some bit of volume cannibalization within the stores of same regions, how our number of locations are going to grow in next 3, 4 years?
See, we are going to continue to grow in clusters. And that's why for us, in-cluster sales growth is a much better metric than sales-to-sales growth. So we are going to be continuing to grow in clusters because as the cluster base expansion model.
So over the next 2, 3 years, we will continue to add 120 to 130 stores and a good number, it's very hard to say how many will be coming from the existing cluster, but it's going to be back to the model.
[Operator Instructions] We take the next question from the line of [indiscernible] from Elara Capital.
One question from my end is how much of your sales would be new product sales versus old product? This is -- so understand the impact of raw material movement as well, because you've not taken a price hike in December '21. And there has been a material improvement -- your increase in the cost of raw material as well. So just wanted to understand these 2 factors.
See, for us, whether new product or old products, our gross margin structure and multiplier is the same. So even if our newer products are selling older products, or older product portfolios, our gross margin profile, which is being at the EBO level that we have of 68% to 69%, that maintained and that will translate, that will translate to 60% to 65% at a company level. So the margin profile is very similar in all our products. So we don't have that differentiating between the new and the old product.
No. It is from the point of raw material actually because if raw material prices have increased by 30%, 35%, 40% without price hike beyond December '21 I can imagine.
I'll tell you. I'll tell -- in fact, in fact, our material -- the raw material prices have increased twice. And around the same time, we had also increased the price of the product. So I'll tell you, increase has happened in April or March '21, whether there was a sharp increase in RM prices. And we had also immediately simultaneously increase our product prices.
The same trend happened in December '21, which I also mentioned earlier in the call, the RM prices went up in December '21, and we took the product price hike also in December '21. So when we're taking the hike with increase of the RM hike, it kind of counterbalances. So it's very hard to say that then is the fact coming because the newer inventories, even though when we are changing our prices, the newer inventory coming in is going with the new selling price. The older inventory in the channel has been selling at the old price.
So the increase in the RM and the increase in the selling price on finding what price. And the last increase of RM and the last increase of [indiscernible] happened in December '21.
Okay. And now if cotton prices come down, then what do you do to your ASP? Because -- just trying to understand on the core product, do you reduce your ASP?
No, no. For us, it's not -- it's not possible for us reduce the prices. So even if tomorrow the RM prices fall, and I think it's already fallen if it's consistently maintained, even in a scenario, in that scenario, we will not be reducing our price.
So your gross margin should increase then.
I mean, if these cotton prices -- these reduced cotton prices continue, then our gross margins should be.
Okay. Understood. And could you share the number between the core and premium product revenue shares, that will help.
Currently, it's the same ratio of [ 40-60 ].
Okay. And historically, maybe that 3 years back?
3 years -- 3, 4 years back, it was more 60-40, [indiscernible] 50.
The next question is from the line of Mr. Aditya [indiscernible] from [indiscernible] AMC.
Just wanted to understand this. So we have completely outsourced in terms of manufacturing. So can't we use the procurement can be done by the outsourcing companies to improve their outsourced and actually save around 60 days in working capital.
So as you talked about 30 days are in terms of inventories occupied by the RM that you're procuring. So that could actually in turn become payables and the company could actually have a much better cash flow from operations and much better working capital. So I just wanted to understand, are we prioritizing cash margins over cash flows? And can we actually implement this model?
See, I'll tell you, look, because of this model, what we look on margins definitely are better because we saw [indiscernible]. But having said that, see, the reason why we are sourcing our tablet directly and raw materials directly is because of the quality.
See, we as a brand, the fabric quality is very, very important role in the garment, and that is why our customers is coming back to us. So that quality, we want to have it in some clothes. And that is one of the reasons why we buy our fabric.
And now coming to a subcontractor, we see, we work with very small subcontractors in multiple subcontractors, but the very small subcontractors. Those subcontractors don't have that kind of financial strength to buy the fabric directly.
And because we are working with such small subcontractors, we are able to source a better rate on the subcontgracting policy. Whereas if we go to a larger export firm or a garment manufacturing firm, their cost of getting the conversion in PMT versus a smaller subcontractor will be far higher.
So we work with the smaller subcontractors, which gives us some upside in our CM budget, upside in the gross margin, upsize in our clothing. But the primary reason of doing this model is because we want to control the quality. More than margin, it's more from the region of controlling the quality on the product.
But we also can actually have our -- from where we are outsourcing, we can ask them to nominate from the -- from our supplier list, which...
No, we are doing -- we are doing that. But we just -- but there are many subcontractor won't be able to do [indiscernible]
So what has in our inventory, so we are having the same model, but before we had 90 days now, it's gone consistently around 120-odd days, while we were understanding that the RM prices have shot up, and there was a lever demand and probably that could actually result in such kind of high inventory risk.
So I just wanted to understand this inventory piece, like what has resulted in this higher inventory days from the previous years?
I think, look, during those periods of COVID, I think inventory planning, it all became very difficult at that point of time. And it was during the period of COVID where our inventory went from 96 down to as high as 130. So we've been able to bring it to 120, I think overall was that scenario in that situation. But now we're trying to now somewhat gotten down to wellness of 120 days, before further wanting to optimize it to 90. But it was COVID window when this happened.
So can we achieve this in a couple of quarters? Or what's the time line for this?
See, the idea and looking at 2, 3 quarters a little more to stabilize to 90.
We take the next question from the line of Mr. Rajiv Bharati from DAM Capital.
So can you still call out the rent and the FCF number for the quarter?
Just one. [indiscernible] The rent is we have paid INR 23.5 crores of rent in quarter 3.
Okay. So this is entirely the fixed rent, is it below EBITDA margin?
No, this is rent. Correct.
Okay. And let's say, the OCF number or the FCF number for the quarter, because of INR 60 crores is for 9 months, right?
Yes. So [indiscernible] the INR 60 crores is for the 9 months. So for the 9 months, the INR 60 crores is on basis of [indiscernible] 116. If I look at 3 [indiscernible] operating cash flow, it is [indiscernible], because we've had INR 60 crores of rent. And we had INR 60 crores of cash flow is basically -- has been basically [indiscernible].
Got it. But for this quarter, I just want to get...
[indiscernible] the cash flow for 9 months.
Okay. And one question on, let's say, on loyalty, I think it was asked before. Do you have a metric which you are, let's say, accumulating right now in terms of tracking the loyalty, the repeat part of the purchase?
See, loyalty product for us right now is not on live testing because we are making the program. Hopefully, loyalty should go live from Q1, that is what we are planning. But as far as repeat customer base is concerned, our repeat customer rate is about 40 to 45, which has been consistent over the last 1, 1.5 years last year.
We take the next question from the line of Mr. Gautam Radi from CWC.
The first one, actually, I wanted to understand -- so you said you took a price hike in December 2021, right? So generally, when you see your history of last 5, 7 years, whenever you take a price hike, how much impact does it have for your volumes? And how much time does it take for the volumes to come back to a normal level, right? Is there a correlation there?
See, usually, we have not seen a volume impact because of price hike. Because when we do a price hike, they're very nicely [indiscernible] December '21. Whenever we have taken a price hike, we've taken it to the entire industry. So it's usually that for a customer that experience of price hike is across all brands.
So we have not seen a volume impact because of price hike in our own experience. See, because we increase our prices only if there are long-term fluctuations in raw material prices. See short term, if there are any fluctuations, we absorb it because we have the gross margins to absorb. But any long-term fluctuation, that is when we increase. And then in such fluctuation, the entire industry takes along with it.
So that [indiscernible] next quarter, you will -- the price hike that you have taken in December '21 will come into the base, right? Then the impact that you were getting because of higher prices will also come into the base. And the question which you are trying to understand is your volume growth being where it is, is it possible that the growth will start to taper off a bit?
No. So you're saying -- can you come again with the question? I mean I didn't hear you.
Basically, there is -- there are 3 elements, which is [indiscernible] your growth. One is the volume growth that you're getting. Especially in your message, most of the SSG is coming from prices, right? You have around 10% SSG wherein volume growth is negative too, right?
And if the volume growth has not been impacted by the prices that you've taken, the next quarter onwards the prices will be in the base of the previous quarter last year, right? So in that sense, the quarter will be -- the growth will start to normalize, right? Unless you take another price hike now.
No, no, no, [indiscernible] We as a company, we don't want to increase our prices every year to drive growth. We will increase the prices only when there are changes in raw material pricing. Now as far as how are we going to be going growth is going to be at an equity level, we want to grow at 4% to 5%.
But having said that, our GSP will keep increasing because of the new products coming in. So we are looking at a value SSE of about 10% [indiscernible], 4% to 5% will be driven by volume. And the balance 4% to 5% will be driven by ASP, which is going to be driven by new product portfolio and not change in pricing of the existing products.
But your historical ASG, SSG was much higher, which now you're seeing -- you believe that the SSG should grow at 10%. And the second thing is, in this quarter, you were at negative 2%. So it will take some time. The question I'm trying to understand is it the negative 2%, 4% to 5% will take some time, right?
No, that's what I'm saying. So the minus 2 happened because obviously, this quarter was a little [indiscernible]. In our Business, the right way to look at it also is through the SCSG mechanism. In the SCSG data, we've had 11% volume growth in this quarter [indiscernible].
Which is fair, which is fair, which I understand, which is -- which -- okay, which is a fair. Okay. That's perfect. The second thing which we wanted to just understand is the seasonality bit, right? I'm just talking from our -- I think [indiscernible] conversation, you had mentioned that the way you think about seasonality is broadly 45%, 55%, right? 45% in H1, 55% in H2. Does that remain? Or is this year an exception to that?
I mean, these were the patterns prior to COVID. But this is the first full year after COVID, this is the first full year. So we'll have to see. But looking at the current year trends, it is looking at the same trends of 45% and 55%.
Even at 45% and 55%, which will mean that Q4 could see further acceleration. That is the only limited point, right?
No. Usually, quarter 4 is the weakest quarter of the year.
Exactly.
But usually 45-55 applies for us because we are adding new stores. So the stores which have opened in the first 6 months of the year, they normalize to a certain extent to give revenue in H2. and that is why the 45, 55 rule applies to us. But on a [indiscernible] basis, the quarter 4 is the [indiscernible]
Understood. And just one -- sorry, one last clarification. So when you say you're usually consider 18 months for the store maturity, right? So -- and when you call out these SSG numbers, are these also for those 18 months base? Or is it for a different period.
It's a blended number. It's a blended number right, from our stores to our newer stores. Newer stores want to qualify under SSC. The new stores. So let me clarify.
So now we had 10% SSC, Q3 FY '23 versus Q3 FY '22. Now what are the stores that are going to be considered in SSC? All stores which have opened before October 1, 2021 are going to be coming under SSC valuation. The floor has to be live for a full quarter in comparison for it to be evaluated in SSC.
Correct. So October 2022, right, before October 2022.
No, no, [indiscernible], all stores based on a Y-o-Y basis.
--
For the full year, full year. Understood. Okay. Thanks a lot.
Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for joining us. I hope we've been able to answer all your queries. We look forward to such interactions in the future. We hope to live up to the expectations of you in the future. In case, if you require any further details, you may contact Mr. Jalan [indiscernible] from SG, our Investor Relations partner.
Thank you. On behalf of Go Fashion India Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.