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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 the Khadim India Q4 and FY '23 Earnings Conference Call organized by Orient Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nachiket Kale. Thank you, and over to you.
Hi. Good evening, everyone. Welcome to the conference call to discuss results for Q4 and FY 2023. Today, on this call from Khadim India Limited, we have Mr. Siddhartha Roy Burman, the Chairman and Managing Director; Mr. Rittick Roy Burman, Whole-Time Director; and Mr. Indrajit Chaudhuri, the CFO.
Before I start the call, I would like to give a small disclaimer that this conference call may contain forward-looking statements, which are based on the beliefs, opinions and expectations of the company as on date. Actual results may differ materially. A detailed safe harbor statement has also been published in the company's investor presentation, which was uploaded on the stock exchange today. I hope everyone had a chance to go through the results and the presentation before this call.
Now I would like to hand over the call to Mr. Rittick Roy Burman. Over to you, Rittick.
Hi. Good evening, everyone. I hope you can hear me. On behalf of Khadim India Limited, it is my pleasure to welcome you all to this conference call to discuss the Q4 and full year results for the financial year '22/'23. On today's call, we will provide a progress report of our overall business and its execution. Secondly, we will give our financial segmental performance for Q4 and FY '23. And I will end with the outlook for FY '24. So during the year, we witnessed some inflationary pressure on raw materials. Despite that, we were able to maintain our margins. However, with inflation expected to come down, we expect softening in these prices in the near coming months. The company has maintained its strong quarterly business performance because of the increased demand for its product at affordable prices.
With changing demand scenarios across demographics, we continue to add more trendy and stylish products at reasonable price in our product portfolio. We recently launched a new campaign [Foreign Language] in Bengal to showcase the decade-old legacy of our brand that resonates with the indelible love of our consumers.
Our focus on expanding the reach, digital penetration, portfolio augmentation and customer-focused integrated communication approach has resulted in significant increase of sales across retails with contribution from e-commerce vertical as well.
We added Pan-India 18 new stores in Q4 and 91 stores in total in financial year '23, taking the total store count to 846 stores. In the distribution business, we are capitalizing to grow aggressively in footwear distribution and have a network of 700 distributors as of March '23.
To continue providing our consumers with wow experience, we aspire to establish ourselves as the family's first choice footwear brand.
Now moving on to the Q4 and FY '23 financial segmental highlights. Q4 '23 revenue is at INR 159 crores, which has grown year-to-year by 2%, and revenue for the full year stood at INR 660 crores, clocking a healthy growth of 11.7%. There was strong growth in retail business, was the key driving contributor to the overall revenue growth.
Gross margin for the quarter stood at 44.4%, up by 680 basis points year-on-year and higher contribution from retail led to favorable product mix. For FY '23, gross margin stands at 41.9%, higher by 470 basis points year-on-year. EBITDA for the quarter 4 '23 stood at INR 16.4 crores, up by 28.2%. And for full year, EBITDA is at INR 72.5 crores, registered a robust growth of 51.7%.
Our focus on cost optimization and brand premiumization led to a healthy EBITDA margin for the quarter at 10.3% and -- whereas at 11% for the FY '23.
Profit after tax for Q4 FY '23 stands at INR 4.3 crores, delivering a strong 66% year-on-year growth for the fiscal year. PAT was at INR 17.5 crores, doubling more as compared to FY '22 with spectacular year-on-year growth of 171%.
Now moving on to some segmental highlights. For the year, retail sales contributed 63%, while distribution and sales through e-commerce institutional channels contributed to 34% and 3%, respectively, to the total revenue. Our presence continues to strengthen in Tier 2 and Tier 3 cities as we continue to add stores in these regions. In this fiscal year, we opened 47 new stores in Tier 3 cities, followed by 17 stores in Tier 1 regions and 27 stores in metro and Tier 2 cities. Our retail business also generated a healthy growth of 5% and 12% in the quarter and full year, respectively.
We currently operate 74% of stores through franchise models, which includes EBOs, BOs and FRM stores while 26% of the stores are operated through company-owned outlets.
With a focus on product improvisation, expansion through all channels and enhancement of customer service through omni-channel approach, we are well poised for upcoming years.
With this, I now open the floor for question-and-answer session.
[Operator Instructions] We have a first question from the line of Viraj Mehta from Equirus PMS.
Congratulations for the numbers. My first question is regarding the change in the management that we have had. In terms of, obviously, [ Namrata ] was leading the company for a reasonably long period of time, would this mean any shift in strategy in terms of the mix of retail and otherwise -- and gross margin improvement that she had always talked about, 100 basis points every year? I mean would you see any disruption at any level in your view?
Thank you for the question, Mr. Viraj Mehta. So, yes, now the company will be led by me, myself, Rittick Roy Burman, along with our CFO, Indrajit Chaudhuri. And as far as strategy is concerned, it will remain mainly similar. But one thing that we need to understand is that currently, there is some sort of a slowdown, especially in the wholesale business. So if I give very optimistic gross margin updates, especially pertaining to the wholesale business, at this moment, it would be wrong -- it would be a wrong guidance. So in wholesale, we'll have to be competitive in order to increase the volume and the sales whereas in retail, like [ Namrate ] used to say that we are focusing on premiumization and also increasing gross margin by few basis points every year. We will focus on that because in retail, we have the opportunity to premiumize at different sub-brands like Pro, British Walker and so we'll continue to do that, so that's our strategy.
Also, I want to add here that there are some price points in the lower strata of the retail where we were lacking the product. So we'll provide that product in the range of INR 399, INR 499, but the margin will remain the same.
Yes, in retail, we'll do that. Because in retail also, in the lower strata of the products, there is some sort of a gap because there is some pairage degrowth. And everything -- ASP is increasing, of course. But if we totally -- if we don't focus on the pairage degrowth, then what will happen is slowly, slowly might face some demand problems. So we are -- luckily, we have got sub-brands from where we can sell premium products and attain the margin. And even in retail, in the mother brand Khadim's anything below the pricing of INR 700, we are trying to remain competitive like we are introducing products at INR 399, INR 499, INR 599 as well, so that's the...
Sure. Sure. Just wanted to get some update in terms of -- we were always talking about INR 750 crore top line by next year. We ended this year at INR 660 crores. In your view, with the current slowdown that you see, will we be able to do INR 750 crores next year or that looks a tough stretch?
So we -- last year, we have -- gross, we have closed at INR 775 crores and net INR 660 crores. But this year, our target is to grow around 10% to 12% in retail and distribution 15%. So I think if we grow at 15%, then we'll be able to reach at INR 750 crores.
Next 900...
And INR 900 crores gross numbers for the next year.
Right. And in terms of opening of new stores, what's the kind of new stores both in franchisee? And I'm assuming we're not going to do much expansion in COCO. So what's the target for opening new franchisees this year, franchisee stores?
Last year, we have opened around 91 stores, comprising franchisee of 80 and 10 COCOs. So this year, our target is to open 100 total stores, out of that 12 to 15 will be COCO and balance would be franchise.
FRM one.
Sir, just one last question. This 100 new stores that we are opening, and we're only talking about 10%, 12% growth, that means SSG for existing stores is almost 0%. How do we think about that?
No. SSG, we are considering around 4% to 5%. And the stores are not opened in the first day of the year. So stores are opened during the year. So from the new stores, we can add a value of 6% to 7%. So both of them taken together, we are focusing on 10% to 12%.
Sure. And sir, this 35% gross margin that we did in distribution, do you think would you still remain under pressure for this year? Is that a fair assumption to have?
Yes, because there is a lot of price competitiveness in this business. And also, in order to have the volume and keeping every price at a competitive level, we cannot foresee margin growth in distribution.
We have our next question from the line of [ VG Jagannathan ], an Individual Investor. [ Mr. Jagannathan, ] we can hear you.
No, we can't hear him. I can't hear him.
Okay. Sorry, sir. Since there is no response, we'll move on to the next question from the line of Deepan Sankara Narayanan from Trustline PMS.
So firstly, on the retail side, so what is the price hike we have taken during Q4 and FY '23?
FY '23, price hike was around 5% to 6%.
Okay, okay. And so in terms of product introduction, so -- are we introducing more products in distribution and retail segment in the coming years to add to our product booking?
In retail, we are coming up as -- Rittick has told that we are coming up in the price range of INR 399, INR 499, INR 599. And also, there are new products in the sports segment and athleisure.
Yes, we are also doing like in retail, we are -- like I said, like in the mother brand, we are launching some products in the lower MRPs to arrest the pairage degrowth, keep the SSG and all at the healthy level. So we are doing that in the mother brand, Khadim's. But at the same time, in our sub-brands, Pro and British Walker, we are launching very -- like decently premium products.
Like in Pro, we are launching about 40 to 50 new sports shoes, which will have MRP starting from INR 999 and it will go all the way up to INR 2,699, INR 2,799. So like that will -- we are quite confident that once that comes in from the beginning of third quarter or by the end of third quarter, this thing -- that Pro will give us a huge -- will give us a good sale growth because sports shoes, we have not -- we had explored sports shoes like within the distribution segment last year.
But this year, we are doing the same in retail segment where the competition is also less because in retail the customer just walks into my store and then if he likes the product he [indiscernible] because he has come to buy Khadim's. He might go to another shop, but it's not like a multiband, right? Where he will see Khadim's and some other Y brand whose price is lesser. At the front of his eyes, he will not see that. So we are quite -- like our whole merchandising team, sales team, we are quite optimistic about the sports shoes range that is coming up and also the medium-priced pocket-friendly products that we are getting. So it should give us the desired growth as Indrajit da has said in the retail business.
Oh! that's great to hear. So what is the contribution of this athleisure segment now? And where do you see this contribution improving over the next 2, 3 years?
1 second, I just see that. [Foreign Language] 20% right now -- 16% to 20%, the athleisure segment business will be in the total retail turnover, the Pro. And so we hope to increase it -- similar cost, we hope to increase it because the kind of range that we are getting this year. And people -- and the strength of the Khadim's and the showrooms that Khadim has in each market, the locations, when people will come into these stores and they will see that Oh! Khadim's has also launched this type of sports shoes in their own store, I think that will give a lot of mileage.
And also, we have launched our premium British Walker, that was very old British Walker that was very popular in the market. It's code is 888540. It has come up with new effects. So we think that in the leather shoe segment also, we can increase the contribution.
Correct. Yes.
Okay, so -- does that mean that we will have a better gross margin improvement in retail segment also?
Yes, we will try, as Rittick mentioned, that in the sub-brand, the gross margin will improve. But since we are also launching some products in the lower segment, and also, if you realize we have a BO franchisees, which operate in Tier 3, Tier 4 cities where the product for INR 399 will go. That will be slightly in the same -- whatever growth will come in the premium would be slightly down by the lower segment. But we'll try to increase the gross margin by 1% to 1.5%.
Yes. Because this year, the strategy also is that like gross margin has to increase 1% to 1.5% by selling sports shoes, leather shoes, et cetera. But also there has been pairage degrowth for -- at the cost -- there has been nice ASP growth, it's still continuing.
But in the Tier 4 markets, those are also our markets. So there has been pairage degrowth in that. So limited articles. We are not like populating the whole -- our whole range with low value -- low MRP articles, but limited articles have to be launched to make sure that these Tier 3, Tier 4, we are expanding, if we do not make sure that some economical products are launched for them, then what's the point of opening so many stores and like... So we will increase the gross margin through premiumization, but there will also be introductions of not low-margin articles. We will maintain the margins through product, engineering, et cetera, and we'll have to tap into both the customer segments.
Because ultimately, there will be a sales growth, will be a mixture of both price and volume.
Yes. The volume degrowth needs to decrease and ASP also needs to increase. So now we want to do that.
Okay. Sir, lastly, from my side, what is the volume number of pairs sold in FY '23? And how is that compared with pre-pandemic number?
So last year, in retail, we have sold 76 lakhs pairs which in FY '22 was 70 lakhs and FY [indiscernible] was 69 lakhs. So there is a pairage growth, but also, you want the pairage growth because in the pre-pandemic we used to sell around 1 crore pairs.
We have our next question from the line of [ VG Jagannathan ] who's self-employed. [ Mr. Jagannathan, ] can you please check if your line is muted? Since there is no response, we'll move on to the next question from the line of [ Shreyans Jay from Svan ] Investments.
Hello, are you able to hear me?
Yes but please use your handset, it is not very clear.
So my first question is if you could help me with about 5% of SSG. So what will it take for our business to go to 10% odd levels? And when can we actually see that kind of number?
The 10% SSG in this scenario and this -- with the inflation effect is not possible for the next 2, 3 years. What we have already made a guidance of increasing the sales by 10% to 12% with opening around 100 stores, both COCO and franchisees and also doing our -- increasing the volume. So based on that, we will be able to achieve around 12% every financial year for the next 1 or 2 years. But obviously, if the inflationary pressure and the demand in the lower segment comes back, hopefully, we'll be able to do that SSG in future.
And sir, the inflation impact we completely passed on? Or is there still some impact yet to be passed on?
No, there is inflationary impact in the lower segment of the product, especially up to INR 500, which we have already noticed in distribution business. And also we are facing the same in the Tier 4, Tier 3 cities. So I think by increasing the price or inflation to the customer only affects your volume. So we are trying to keep the volume and also slightly increase the price.
Yes. Actually, we have got many franchisees as you can see, so like now that we have come up with product -- pocket-friendly products, especially for the Tier 3 and 4, we have many franchisees of ours that are in the Tier 3 and 4 markets. So since the pocket-friendly products have come up with normal margin -- good margin. Now we accept that these franchisees will order more.
In last few years, it became so expensive -- like something became very expensive. So they were not ordering. We were just having ASP growth and these things. So now that we'll be launching some of these pocket-friendly products, we have already launched, we can see -- we can actually see that our franchisees are again, like getting energized and they're ordering because you need to understand the market also, Tier 3, Tier 4, how it operates. So there should be volume growth -- not growth like volume degrowth should reduce. And this -- what you call that gross margin will increase by 1%, 1.5%, like Indrajit da has said and retail sales will grow by 10% to 12%.
Strategy would be in the metro, mini metro through our COOs and sub-brands we will premiumize the product and increase the ASP, and through our BO and some EBOs in the Tier 3, Tier 4, we'll restrict the volume degrowth. Whatever volume degrowth has been done, that should be arrested and some increase from the last year's number to be done.
So sir, if I have to just break your growth of the guidance that you're giving of about 10% to 12-odd percent, so is it fair to assume that 8% to 10% would be value and maybe 1% or 2% would be volume growth?
Yes.
Okay. Okay. And sir, second is on the BIS standard. We understand that there are some new standards that come in from July 2023. So what is our status on that? And how well are we prepared for that?
Yes. We have our -- in our manufacturing segment, we have our own labs. So we don't have any problem as such in the manufacturing segment. In the retail segment, whoever is the manufacturer -- is a limit given of more than INR 50 crores in the manufacture. So the manufacturer who supply us of more than INR 50 crores will be registered in the BIS. We are also taking our registration for our distribution product, which we manufacture.
In case of the suppliers, outsourced suppliers whose capacity is less than INR 50 crores, they will not be requested to take in the BIS registration. However, we are trying for them to build a lab somewhere. We can get their product also tested so that in our retail, though there is no requirement. But there may be some products which are BIS standard based on the manufacturing capacity and some products which are not BIS compliant. But we'll try to make all the products BIS compliant, but it will take some time. However, there is no restriction from the government to have all the products in the retail store, BIS registered.
So do we envisage a situation where we will need to stock up more inventory before this standard comes in. And I mean do you plan to do that to stock up more inventory than normal?
We generally plan to stock in the first quarter due to our festive order for the next quarter, second quarter, that we are already doing. So we'll be building in the product. And for those manufacturer who was not required to BIS standard, they will come up because our standards that we follow is higher than what BIS has suggested. So we don't have a problem in that thing.
Okay. Okay. And sir, what would be a CapEx figure for the next 1 or 2 years? And where do we see the debt?
We have a CapEx of around INR 12 crores to INR 13 crores for our retail expansion, modernization of the retail and also our factory. And debt at present is at INR 116 crores. We expect to be by next 2 to 3 years around INR 80 crores to INR 90 crores.
You will repay? Or you will come to INR 80 crores, INR 90 crores?
INR 80 crores, INR 90 crores -- we'll come to INR 80 crores, INR 90 crores level.
Okay, okay. This is Sachin Kasera here. Just one question on the volume. You mentioned that in the peak you sold 1 crore pairs. So that is retail plus distribution combined or that you are telling only for retail?
Only for retail.
Retail, retail. Only for retail.
[Operator Instructions]
So this 1 crore to 76 lakhs, sir, is mainly a loss of market share? Or the market itself is corrected by 25%, 30%.
As market has corrected -- I mean corrected...
There is COVID also in between, so that effect was there. And...
Because in the COVID year, in FY '21, it came down to 68 lakhs. Now, it has had gone up to 76 lakhs. I mean next year, we'll see maybe it's going to 85 lakhs to 86 lakhs.
[Operator Instructions] We have a next question from the line of Abhishek Getam from Alpha Invesco.
Yes. Sir, my question was on institutional sales. So out of the current receivables of [ 188 ], how much is from institutional [ debt spending? ]
Around INR 70 crores.
INR 70 crores. And have you like any plans to provide or what is the status on that?
In UP, we've actually got -- I mean the fund was transferred to treasury. But the treasury, there was -- server crashed on 31st so that's why we didn't give the payment. But again, we are following up because in government, if 1 financial year ends, then the next financial year, there are a lot of procedures and all these things. Hopefully, we'll be getting this payment in the month of July. .
Okay. Okay. So I just want to know what is our sort of view or way forward on this institutional business? Are we looking or has we completely stopped doing...
FY '22, we have exited out of this government institutional business.
Okay, okay. One more bookkeeping was what will be the volume in wholesale business?
Volume in our wholesale business was 2 crores, 42 lakh pairs.
And last year?
Last year, there was 2 crores, 80 lakh pairs.
Okay, so we have the degrowth. Okay, fine.
Degrowth or growth?
No, degrowth.
Degrowth [Foreign Language] degrowth.
We have a next question from the line of Rahul Jain from Credence Wealth.
Sir, going forward for next 2, 3 years, overall, what is the kind of strategy which we are having with regard to two things, one is volume growth; and secondly, the proportion of retail and distribution in our overall sales?
See, as we mentioned earlier that our main focus will be to increase the ASP in the premium segment in our sub-brands, in the metro, mini metro and Tier 1 and also to protect our Tier 3, Tier 4 cities, our EBOs and BOs market through products in the lower price strata. So these would be the 2. In one segment, we will grow by ASP pricing fees. And in one segment, there would be a volume growth. So the growth will be a mixture of both volume and price and will be ranging a growth of around 10% to 12% in retail business. And the proportionate of retail to distribution this year was 60-40. But in way forward the retail will increase -- the proportion of retail will increase and the distribution portion will be less.
And what kind of advertisement budget promotional expenses are we working on for next year?
Next year, we are working on a budget of around INR 15 crores for our advertising plan, but that will be a mixture of both online and some offline advertisements.
Okay. So sir, as a strategy, do we -- and since our distribution margin is a low-margin business and somehow it's been quite difficult to sell this half. So do you feel going ahead, our focus has been largely more, more in retail side, which can go up to, say, 5 years back, somewhere in FY '19, it was almost 72%, 73% of our sales which stands at 63% today. So in the next 2, 3 years, can we look at the retail being almost, say, 70%, 75% of the total proportion -- total sales?
So after 3 years, obviously, 70-30 ratio will come because we are focusing more on the retail business. Distribution will also be the focus. But as I mentioned, we will be -- not be reducing the price and increasing the volume, and we'll try to maintain the margin and make it a profitable business.
We have a next question from the line of Dhwanil Desai from Turtle Capital.
Sir, my first question is, I think, in earlier interactions, we were aiming to go to 15% EBITDA margin in FY '25, if I remember correctly. So are we on course and now raw material prices have softened. So are we likely to get any benefit in FY '24? And what kind of margin that we are looking for in FY '24?
Yes, we -- in FY '23, we have achieved 11% EBITDA margin. Roughly in FY '24, we'll try to increase it to 12.5%. The raw material level has softened, but the price pressure is in the distribution segment. So we'll try to increase the EBITDA margin through our retail business, where we are coming up with new products with premium product with higher margin or increase the volume in retail. Distribution also, we'll try to keep the margin -- the gross margin intact with the raw material softening and also taking some steps in manufacturing, we'll try to increase the EBITDA there also. Both of them, taken together, we'll try to achieve 12.5% in FY '24. And if all things remains the same, then the EBITDA margin of 15% is obviously there for FY '25.
Okay. Sir, this change of 400 bps that we are [ indicating, ] will it come largely from the gross margin improvement on the distribution side mainly and then some on the retail side, that is the right way to look at?
Distribution side, the gross margin improvement is difficult, as Rittick has mentioned, because there is a price competition. And if we increase the price, the volume also gets impacted. So mainly, we will focus on retail business from where we will try to increase the gross margin, increase the volume so that the volume of sales in value terms increases, and if the volume of sales in value increases, obviously, with the cost optimization, the EBITDA margin in retail business will be increasing more than distribution.
And sir, my second question is on the larger picture. So we are a well [ recognized brand, ] and we have such a large network and we have a mind share or in people's mind. So given all that, are you guys happy with 12%, 13% kind of growth year-on-year? I'm not talking about FY '24, where inflationary -- no pressure is playing out. I'm saying, in general, isn't there aspiration more to grow at much higher rate given where we are and the value proposition that we have been talking about? I mean aren't we undershooting ourselves?
One thing is that we can grow more by opening 200 stores per year, but I think that will not be a wise decision because your -- if you open 200 stores, then there will also closure of stores. So in order to open correct store at the correct place and see the volume in the mature store doesn't increases. So keeping the track and all the things, obviously, and also opening store needs CapEx for our COCO also. So based on our profitability, we have to plan out our CapEx plan. So based on that, for the next 2, 3 years, we'll be keeping our focus on opening around 100, 120 stores. But definitely, if the profitability increases, we'll try to open more stores and the increase in sales from 10% to 12%, maybe definitely top of around 15% to 17%.
We have our next question from the line of [ Aman Vishwakarma from Robo Capital. ]
My questions have been answered.
We have a next question from the line of [ Shreyans Jay ] from Svan Investments.
This is Sachin Kasera here again. One question around the volume growth. So you mentioned that this year we had 76 lakhs versus 1 crore pre-COVID. So what I understand, we also increased our number of outlets in the last 3 years. So that would mean that in terms of the per outlet volumes would have gone down even more. And we are not hearing such type of commentary from any other player that we are talking of like this 30%, 40%, degrowth in the market volume. So if you could tell a bit more granularity about what exactly has happened, why our volumes per outlet like 30%, 40% lower than pre-COVID?
No, that was due to COVID, there has been a degrowth. First of all, that is one of the reasons because when COVID struck, the footfalls reduced, okay?
FY '23, we are not getting any major impact or very minor impact from most of the players on the volumes. '21, '22 was fully understandable.
Volume for FY '23 definitely is more than [indiscernible] volume has increased around 10%. So what I am telling was in FY '19, what was the volume? At that time, our ASP was INR 420. And now the ASP is INR 650. So that's why -- Rittick was mentioning in the Tier 3 and Tier 4 cities where there are lots of volume, degrowth has come. So there, we want to try to provide some products for which we can protect the volume degrowth and increase the value growth in sales. And also, definitely, there are a lot of stores open and there are a lot of store closed during the COVID time. In COO, we have closed around 15 to 17 stores during this COVID period which were bleeding. And there were some EBOs closure during the COVID time. So there was a closure, and we are having 750 stores before COVID and now we are having [ 845 ], there is 100 net addition in stores.
So these factors have impacted the volume and also the inflationary pressure in the lower segment with GST coming in from 5% to 12%, there is an impact in the volume also. So that's -- all these reasons come up and reduce the volume. But definitely, 1 lakh pair is achievable, and we are exactly looking at that type of product, which can improve our volume also and protect the margin also.
Yes. And just let's stand corrected that from last year, we have grown in volume, the volume that you are talking about that, that 1 crore pair is when there was no COVID, like there's like pre-COVID.
And also the price was...
Price was also lower at that time. So I'm talking of that. So we are trying to reach that benchmark as soon as possible. We have already reached, how much?
76 lakhs.
76 lakhs. So we'll try to reach that benchmark as soon as possible. This is not -- from last year, we have grown. From last year, we have grown, we are talking about 3, 4 years back. Okay. If you ask some other players, maybe if everyone would not give the total [indiscernible]. But if you ask some other players about 3, 4 years back, 4, 5 years back, the scenario would be same. At that time, everyone's ASPs were much lower than what it is right now and also COVID was not there. So that is what we are trying to explain here.
Sure. Sir, secondly, you mentioned that in 2 different queries, 1 query you mentioned that this year, you're expecting 76 lakhs to go to like 84 lakhs, 85 lakhs. And in some other question you answered this 12% of the retail, will be 10% price led and 2% volume, so it's a little confusing. And in also another query, you mentioned that -- you said the share of retail will go up for next 2, 3 years but you again guided for 12% growth in retail, 15% in wholesale. So it's a little confusing if you could verify on both of these -- 3 points.
No, no. That what I have told that 8% to 10% would be the value and 2% with volume. But what I told that it may achieve 80 lakhs, 85 lakhs because if the product becomes successful, and the demand comes back in the Tier 3 and Tier 4 cities, then we can achieve 85 lakhs pairs also, which is [indiscernible] growth will be on the higher side. So whatever numbers we are guiding that's what I believe the product does not reaches to the -- I mean if the product doesn't become hit, then the volume what we are expecting will not come. But whatever we are telling is that we are trying to go to volume level. We're trying to go at the level where we used to be in FY '19. And in distribution, we are guiding you around 15%. And in retail, 12%, with both of them will be around 13% to 14% sales growth.
But unless we achieve this 81 million, 82 million, 85 million volumes, the share of actually wholesale will go up this year, right, rather than reduction, which is our target.
No, if -- the share of distribution will grow, but if our sales in retail is around 10% -- retail, we have done INR 500 crores. So it will go to around INR 560 crores whereas distribution, we have -- we see a degrowth and come down to INR 260 crores -- INR 240 crores -- INR 235 crores. So in fact, if 15% increase you would consider, then our retail proportion will increase.
Okay. And sir, one question on this debt and CapEx and all. So we have very minimal CapEx [indiscernible] in that case and you're also talking that this year, we are looking at 12.5% and if things go well, in '25, our margins could even be 15% but even if you take like conservative 13%, 13.5% margin. My sense is that our cash flow should be quite robust, plus I think we are looking at monetizing certain noncore assets. So that's why I thought is your guidance on this net reduction of only INR 20 crores, INR 25 crores in the next 2 years, a little very conservative side?
So there will be growth in where we see our debt is mainly working capital. Okay, we don't have any term there. So the working capital requirement increases with increase in the volume of sales. On that basis, I'm telling that we'll reduce around INR 30 crores of debt. So there would be an increment in the -- in the ordinary course of business, there was an increment, increased requirement of working capital. But still, since we are doing a less CapEx, and we are trying to improve our profitability, we will reduce the debt to INR 30 crores. So already we have -- from last year, we have reduced the debt.
So sir, apart from this INR 13 crores of CapEx, what type of working capital increment would we require, say, in FY '24? How much do you think will be the requirement for working capital?
Whatever sales growth that we achieved, 20% of that working capital growth is also required.
But that is more on the wholesale side, right? Retail side that much is not required.
Retail, we have to keep our stock in our warehouse and also for the franchisee and also stock in our COCO outlet. So if you open 15 COCOs, then keeping INR 20 lakh stock, INR 3 crores of working capital is required for our COCOs.
Sure. And sir, just last question. You mentioned INR 15 crores as the advertisement and sales promotion budget including offline and online. Do you think that is sufficient and are you happy with that? Or ideally you want to spend more, but because currently, we are in a recovery mode and hence our profitability permits to spend INR 15 crores. So -- and suppose if you were to spend like INR 20 crores, INR 25 crores instead of INR 15 crores, you will see we could aspire to get a much higher sales?
No, that -- I think the reason is that the permutability of our pocket. So we kept our budget on the lower side because depending on what is the business growth, we will increase -- I mean we'll do the advertisement. If the business is really good, then we can have a few more crore of advertisement budget for that reason. But now seeing the business and seeing the inflationary pressure, if we increase from INR 15 crores to INR 25 crores, the volume and all this will not increase. So depending on the situation and demand, we will do that.
We have our next question from the line of [ Ankit Shah ], an individual investor.
Yes. I was looking at the cash flow statement. So last year, while your EBITDA was high, right? But again, we ended up investing a lot of capital in working capital, right? So the net result was that the cash flows were lower, right? Because, like, for example, our cash flow from operations were INR 39 crores and the money we have spent on lease, right, is INR 34 crores. So net-net, we made only INR 5 crores from a cash flow perspective. . And now again, you are saying that next 2 years we'll again invest in working capital, whereas right now if I look at your net working capital, it's already 5 months of your sales of INR 660 crores for FY '23. So I don't understand why do you need to again invest because you're saying INR 70 crores is stuck in government receivables. You have another INR 50 crores, INR 60 crores of GST receivables, right? So I don't understand this whole cash flow conversion because -- and next year, you're guiding for a 1% higher gross margin, 10%, 12% growth. Then that should also translate into a higher EBITDA, right? So I just wanted to understand how this...
Repayment of lease liability is mainly rental, okay.
I know, which is why I'm reducing it from your cash flow from operations to come up at your...
Whatever means in this government, we are not doing any sales, but INR 70 crores stuck. So once this government amount is released, we are expecting that. So once the government amount is released, definitely the loan will come down because that will come to our working capital.
Look but why are you expecting to reduce that -- I mean why are you not expecting to collect that in the next 1 year or even 2 years? You think 2 years the debt will release only by INR 20 crores, INR 25 crores, whereas you have INR 70 crores of government receivables, so you should be guiding for zero debt.
No. For government receivable, we cannot guide like that because it depends on a lot of -- because as I explained earlier that in market cost to treasury and then we come back. Definitely, if it comes, it will reduce to -- the loan will reduce to that much a bit, means from, say, INR 30 crores from -- I'm talking INR 30 crores, we will reduce by normal activity. But if the government receivables comes, then it will be -- whatever receivables come, the loan will be reduced to that extent also.
No, you have -- if I just look at your cash flow from operations, you've generated INR 170 crores in the last 4 years. And if I reduce your financial liabilities, which is basically your rent, that is, say, around INR 70 crore and INR 50 crores, INR 120 crores, right? So you are generating around last 3, 4 years on an average, you have generated around INR 20 crores per year net of your...
So they are all CapEx also, so we have INR 13 crores, INR 14 crores CapEx also we have done.
No, but you're already high at 5 months if you look at most of the other footwear companies, they are at a much -- if you look at their balance sheet, they are at much lower working capital. Net working capital is more like 2, 3 months for, say, some of your other peers, which are all listed. You're already at a high base.
So if you reduce that INR 70 crores of government from our side, that will reduce to 3.5 months. And we have both EBO franchisee and distribution business where the credit limit is more. If you see the other company, one is doing only retail business and someone is doing only distribution business. So we had a mixture of all the things.
Definitely, that is on the higher side. We'll definitely try to reduce the working capital debt with the government receivable coming in, that will bound to reduce.
Okay. The other question was what is your store level EBITDA for -- so we did around say, last year you did around INR 250 crores in the own stores, right? INR 250 crores in own and INR 195 crores in franchise, right? So here, what is your store level EBITDA?
Store level EBITDA is around 25%.
Okay. Okay. Okay. So basically around INR 110 crores is what you are generating at the store level?
Yes.
And what is your corporate overhead?
Again, I think that you can come up with this query at -- other things so that we can -- give a mail to us, we'll definitely come back to you.
Okay. Sir, just one last question. Are you tracking your market share in say, West Bengal and South India? And how is that done in the last 12 months?
No, West Bengal, we have seen an improvement, definitely West Bengal, the demand for Khadim product is much higher compared to other states. And in the Eastern part, we have definitely grown more from -- I mean the Southern also, we have maintained our sales there. But West Bengal, the growth is around...
I'm talking about market share, so...
Market share in retail, we are -- in West Bengal, more or less, we have a market share of around, say, means, we and Bata are more or less the two retail players that are having the higher market demand in the organized segment.
Yes, yes. Okay. But your market share has improved or not, and again, in South India, where you say...
I think if you see the -- as we have called the volume as...
So market share should have -- market share has increased, okay, think like that. Volume has grown from last year. So market share has increased. ASP is also growing, okay? So that is also -- it's not market share increase, ASP is not market share increase...
But there is no definite data from our market share.
People are liking our products that's why they are willing to pay more money to buy some better product.
That is very anecdotal that people are liking and market's ASP has gone up. But I mean if you're actually tracking...
Yes. One thing we can tell that volume has increased compared to FY '22. So we can tell that definitely, our market share has improved in West Bengal.
And South India? Like...
South India, the volume has more or less remained the same. So we cannot tell that market share has improved. But definitely, with new products line coming up, we'll expect the volume growth there also. We are trying to plug the volume degrowth.
For retail, this you're talking early from a retail perspective?
Retail, yes, yes.
But aren't there any agency who tracks the market share like...
In footwear, we don't have any such agency who tracks the market share.
Ladies and gentlemen, due to interest of time, that was the last question for today. I would now like to hand over the call to management for closing comments. Over to you.
Yes. So thank you. Thank you so much to all the investors for joining us for this year ending and quarter 4 ending con call. And I may or -- I'm Rittick and Mr. Indrajit Chaudhuri, CFO, we look forward to talking to you again soon. Thank you so much.
Thank you. On behalf of Khadim India, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.