Khadim India Ltd
NSE:KHADIM
Khadim India Ltd
NSE:KHADIM
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Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call of Khadim India Limited, organized by Orient Capital. [Operator Instructions]. Please note that this conference is being recorded.
I now hand over the conference to Mr. Nachiket Kale from Orient Capital. Thank you, and over to you, sir.
Hello. Good evening, everyone. Welcome to this conference call to discuss the results for the first quarter of FY 2023. Today on this call, we have from Khadim India Limited, the promoter Mr. Siddhartha Roy Burman, who is the Chairman and Managing Director; Mr. Rittick Roy Burman, Whole-time Director; Ms. Namrata Chotrani, CEO; and Mr. Indrajit Chaudhuri, CFO.
Before we start the call, I'd like to give a full 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 of this call. Actual results may differ materially. A detailed safe harbor statement has also been published in the company's investor presentation, which has been uploaded on the stock exchange today. I hope everyone had a chance to go through the presentation and the press release. I would now like to hand over the call to Mr. Siddhartha Burman. Over to you, sir.
Okay. Thank you. Good evening, and [Foreign Language], everybody. We welcome you to this conference call to discuss the first quarter results for the financial year 2022, '23. We closed FY '22 on a firm footing, putting the worst of the pandemic behind us with a strong recovery in sales and profitability. We are happy to report that we are building upon the momentum with the strategic efforts. The impact is visible in our performance this quarter in which we have registered 190% growth in retail sales. Our continuous focus on product improvement and improved retail experience has led to renewed demand. We continue to strengthen our retail presence and expanded our store network of 796 stores with an addition of 25 stores. In the distribution business, we are especially focusing on the strengthening our foothold in the Eastern market.
Coming to our performance for the quarter. Revenue in Q1 FY '23 stood at INR 166 crore, growing by 88.2% from INR 82 crore in Q1 FY '22. The retail business has delivered an encouraging 190% growth. Overall gross margin stands at 41.3%, an increase of 596 bps year-on-year. Retail gross margin has improved from 50.6% to 54.1%. EBITDA stood at INR 17 crores, exhibiting an encouraging recovery from an EBITDA loss of INR 36 lakhs. In Q1 FY '22 (sic) [ '23 ], EBITDA margin at 10.3% has improved both year-on-year and quarter-to-quarter. While we had reported a loss of INR 10.8 crores in Q1 FY '22, we have now generated a healthy profit of INR 3.3 crore. While we continue to deal with macroeconomic challenges and volatility in raw material prices, we are confident in our ability to deliver strong performance going ahead and deliver value for all stakeholders. Thank you very much.
[Operator Instructions]. We take the first question from the line of Viraj Mehta from Equirus PMS.
Can you just tell me what would be the EBITDA in the [ full year ] so if you were to adjust for the rent?
It would be -- it's just -- rent is adjusted and it will be around 7%.
Okay. And in terms of -- if we essentially look at our gross profit margins this quarter, they were closer to around 35% with -- sorry, they were closer to around 41%, which is an improvement even in last quarter, whereas this quarter, we saw a hike in the raw materials. So can you throw some light? I mean what kind of like-for-like pricing did we take? Like how did we manage that? Or is it just all product mix change?
It's just a function of both. Viraj, it's function of price increases to adjust for the raw material pricing fees and the GST. And also the premiumization which we are doing in our product mix to ensure that the sub-brands sell more, which drives the ASP increase and the gross margin increase.
And mainly the gross margin increase is there in the retail segment, where from 50%, it has gone to 54%.
Got it. And in terms of retail segment, like what will be your aspiration gross margin?
So I think we are looking at growing on a year-on-year basis by approximately 100 basis points.
I understand. So -- but like is there an upper cap? Like do you think 57, 58 is kind of possible over 3, 4 years?
Sir, it's definitely possible, but I don't -- there'll be -- to put a minimum or a maximum does become tough. We are right now at our healthiest and the highest ever gross margin. And if you compare to the industry standard, I think we are pretty much there. In fact, as you compare any apparel or a footwear retail company, our gross margins are pretty comparable. So I think we've reached healthy numbers. The area from now on is to ensure that we are working towards -- on the range architecture to ensure the ASP increase, which will drive -- which will be driven through the premiumization which we are trying to do through our range architecture and also which will drive the gross margin increase.
But we also want to ensure that we are continuing to keep the products affordable. We -- our positioning is affordable fashion. We don't intend to become premium to ensure that we continue to remain affordable. We have -- this is a very healthy margin given that position that we're looking at.
No, absolutely. So if I look at our stores, which is around 796, even in last few calls, you've continued to maintain that there will be some store growth and there will be same-store sales growth. Is there -- are we -- like what will be our throughput per store? Or is there -- like is there today as where some significant amount of stores are at a significant disadvantage in terms of throughput per store per day vis-a-vis some of our older stores, and are we doing something to kind of change that? If you can talk a little bit about the strategy there because you're right in terms of margins, in terms of gross margin, we are right up there. But in terms of EBITDA, we are not remotely close to some of the larger players just because the throughput probably isn't there.
So number one, I think in terms of throughput, as you mentioned earlier, yes, there will be our core stores which will be overperforming very significantly and that applies to any brand. We will have some stores which will be overperforming. And there are some stores which are -- which will be performing lower than average purely because we're entering into new markets. We are trying to establish ourselves there and it's taking that amount of time. Having said that, we are constantly trying to figure on a regular basis, analyzing the stores which are performing lower than the average or a healthy EBITDA margin to ensure that we are working on the range architecture and we're working on the cost lever either/or, either to increase sales or to reduce cost to ensure that store continues to remain healthy, profitable. So that's an ongoing exercise by the entire team.
And in terms of reaching, we're not close to a lot of brands, yes, but we are also close to a few of them in the affordable fashion segment in terms of profitability. Having said that, I think one would appreciate that we last -- in the last 5 to 6 quarters, we have continuously given profitability in order to turn around despite COVID. I think at 10.5%, we are doing a good amount of -- doing good numbers. In fact, some of the industry -- some of the companies in the industry are at similar levels as well. So I think, yes, there is definitely an endeavor to perform significantly better, and we are definitely looking at doing it. But I think it's the process of time.
I think second and third quarter, given that will be significantly better, hopefully, given the festive is around the corner, margins should be better.
Just one request, Namrata and team. If you can provide in the future -- and you have been very kind enough to share a lot of data in the presentation. But if you can provide one number, which is especially in the retail, what will be the store level profitability, not only gross margins, but just to give a sense if I were to look at the QSR it's a store level profitability and then there will be corporate overheads, just to give some sense of profitability and ROC across 2 businesses. In fact, all you can do possibly in the future, it will be very, very helpful.
We take the next question from the line of Abhishek Jain from Iron Capital.
Sir, just 2 questions. First, how is July and August is there? I don't need a future looking, but how the trend, consumer sentiment? And second, if you can throw some light on the inventory side, how the things are shaping up currently right now?
So thank you, Viraj -- sorry, thank you, Abhishek for your question. Appreciate it. So I think the consumer sentiment is definitely improving. We are seeing a slow improvement in the consumer behavior. Yes, inflation is a reality. None of us can shy away from it, but consumer behavior is normalizing compared to the COVID period. We are seeing people purchasing the products across various categories, including work, festive, party, casual, sports shoes. I think so the offtake is good across every category, not only in retail, even distribution. So yes, we are hopeful that this quarter will be good. In terms of stock, I think.
Stock, our stock base was at 98 days in 31st March. So it has gone up slightly higher to 104 days. Second quarter also, the stock level will be high. But once the festive has gone, we -- the stock level days will come down.
Sir, on the sentiment side, can you say where, in which areas you are in like in the eastern part of our country and where exactly we are getting good feedback and where we still believe there are challenges are there, if you can throw some light? And second, if you can throw something on how in the product mix side, like which are the products like maybe ladies segment and all, where exactly we are getting good feedback? Last question, largely on the -- what I would say on the -- like we have seen some -- I'll finish the 2 questions and the third question. I'll take it, it will be a regular -- like will be a follow-up question for the other 2 right now. If you can do these 2 also, that will be helpful.
So in terms of region, we are seeing an overall improvement in sentiment across the regions we are present. 50% of our business does come from the East. So East definitely has a significant impact to our business. Around 20%, 25% comes from the southern part of the country. which is also significant. So we're seeing a normalized improvement across both the markets. We're not seeing significant difference across.
In terms of category, as I said earlier, during the COVID period, there were some categories which were performing decently well. Some categories were underperforming significantly, like workwear was not -- there was no demand for workwear, there was no demand for school shoes, there was no demand for party wear. So there was more basic demand requirement. Home wear or sport shoes, athleisure very huge during COVID period, which continues to be significant. But now there is a demand of workwear. School shoes have come back pretty significantly. So -- but if you see on a normalized basis, there'll be parts of demand because of the pent-up demand which has come owing to limited shopping in the last couple of years. But then on a normalized basis, we are seeing all categories perform the way they were doing pre COVID.
We take the next question from the line of [ Rahul Jain ] from [indiscernible].
Congratulations for the good set of numbers for the last 3, 4 quarters. And just to understand, one, on the overall strategy to improve over [ end ] and also the average selling price. So within the strategy for sales growth, how do we look at it? And I would be happy if you can give more quantitative color to the pain. You have spoken about the various strategies earlier in terms of remuneration and also product mix changes, but if you could quantify certain things that will be helpful to us to understand the overall sales growth which you are looking for the current year and the next year. So typically, how do you look at the volume growth, the product mix changes, the slower addition and moving on the average selling price? That's my question number one.
So [ Rahul ], thank you for your question. I really appreciate it. So I think in terms of growth, at pre-COVID levels, we were approximately at INR 500 as an ASP at our retail level. We have gone up to approximately INR 600 in terms of average selling price, which is a good increase in the ASP, which is what is -- which is driven through the fact the premiumization that we're looking at, the price increase that we have also taken adjusting for the raw material and the GST. So that has been -- which is also reflected -- the improvement has also been reflected in your gross margins as well. So that is definitely something which has been a significant reason for even the recovery for our business.
But having said that, I think on a year-on-year basis, this is not the kind of growth one is looking at. There have been a couple abnormal years and the reasons also is that the inflations were there, the GST was there. And given that the GST increase was almost from 5% to 12%, which is in the below INR 1,000 category where now almost 80% of our retail product range is there and almost 100% of our distribution production engine. So the GST impact was quite significant.
But going forward, I think the ASP increase that we looking -- will be looking at in the range of around 4% to 5% and the balance coming through the SSG and the new store openings on an annual basis. We're looking at growing approximately INR 17 crores to INR 18 crores on a year-on-year basis across the markets that we are currently present and in new markets through COCO and franchisees, but largely driven through the franchising model.
Sure. So you were looking at the guidance, you had given a guidance of around INR 800 crores of revenue for FY [ '22 ]. Do we stand by that and with an EBITDA target of 12%?
EBITDA 12% annually.
Yes. In the previous call.
Yes.
And with regards to revenue?
Gross INR 800 crores.
Okay. So when you say that gross, at typically the reported number like [indiscernible].
No, is including the GST.
So just to give you a perspective, if you look at -- given that even in our investor report, just to give an understanding as to the pre- and the post impact of GST. If you remove the impact of the GST, the growth -- for the distribution business was almost 27% and the retail was almost 207%. Vis-à-vis the net sales is 90% and 190%.
Sure. And Namrata, with regards to the average selling side, I think one of the previous participants tried to understand the throughput for the store. I'm comparing to the other companies, which is where the difference probably the EBITDA margin could be one of the reasons for that. So typically, our average selling price on the retail side also seems to be low, of course, with the kind of products which we are into. But [indiscernible] also falls because on the distribution side, our average selling price comes practically very low. So how do we look to correct this or say what do we do so that we can move to around, say, 15%, 16% EBITDA margin in the next 2 years or so?
So it's going to be a function of -- see, I would -- it's going to be a function of the fact that the growth will come back, will normalize much more. If you're seeing that in the last quarter, also inflation and COVID was a reality. Having said that, so coming out of COVID was just beginning to come out of -- last year. But I think we are looking at growing in terms of sales, our retail expansion. The operating leverage coming in will definitely improve the EBITDA margins. That, there is no 2 ways about it.
On the distribution side, as you said, see, distribution is the very different business compared to the retail business. Distribution, the product mix is very different. It's very -- [foreign language], 80% of product mix or the product range is below INR 500. So there, the ASP increase is not something which we are looking at significantly looking at as much as looking at the volume growth because there the business is more -- you've grown in terms of volume, we will take more market share. And the operating leverage itself will drive the profitability improvement. So I'm hoping, over the next couple of years, we'll be looking at the number you're talking about.
And so the next 2 -- just one last...
Thank you. We request you to kindly get back into the queue. We take the next question from the line of Tejash Shah from Spark Capital.
Congrats on a good recovery. Namrata, I just wanted to understand, we did very well considering that the pressure -- inflationary pressure that we had on gross margin. We actually did better than some of the other peers also. So just wanted to understand, how did we -- what are levers that we dialed upon to protect or improve gross margins?
[indiscernible] I appreciate the good wishes and hope you're doing well. In terms of the gross margin increase has been mainly driven through the ASP increase, which is driven to the entire premiumization and the requisite price increases to make up for the inflationary pressures and the GST increase. So I think this is a function of -- and the entire value engineering that we have done on the product to reduce cost and to ensure that we are able to provide fashion at an affordable price. So the way we talk about it internally is that we look at fashion the way it is working across the country, across the world. We analyze fashion, analyze color, Paris, analyze fashion trend, and we try figuring how to Khadimize it. That's the way we talk about it internally.
By Khadimize, basically, we try figuring how to source those products through the local vendors in a manner where we are providing quality products -- quality and fashionable products at the right price with the right margins. So I think we are very focused that every product needs to make that kind of gross margin. We -- the entire team personally looks at the product gross margin, and accordingly, we place the product on the shelf. So that is something which has been driving the improvement in gross margin and also which has led to the improvement and the recovery of the business.
So ASP increase and better sourcing. That's what -- those are the 2 drivers?
ASP increase and?
Better sourcing.
Better sourcing, Yes. So Namrata, just staying with this point. So this quarter was very difficult for footwear industry, especially for value retailers like [indiscernible]. There was a GST increase also, which we had to pass on along with inflation. And still, we actually did well. Even demand also did not got -- it also did not get impacted much. So just wanted to understand, how should we read consumer sentiment? Because the pure price increase and GST increase and the kind of cohort that we are servicing to, I'm assuming that it has to be price sensitive, but what worked for us? And do you think that we would have gained market share in the relevant market?
See, on the retail side, just in general, the kind of product mix and the price assortment that we have, and I've said this in many calls and conversations which I've had with the larger investor base, is that on the retail side, I don't think there's any other brand that is able to offer the kind of product mix at the price point that we are offering. It is an utmost modesty that I'm feeling that because we've done [ the rakee ] across most brands. The range that we're offering at the price point that we're offering, there are not many brands who are able to do that. And that's also the DNA of the organization, which has been built up over many, many years.
So because of this, the impact on the retail side has been relatively lesser in terms of the impact of inflation. I saying -- I'm not saying it's not there, but it's relatively better because our strength is our affordability and fashion. On the distribution side, yes, there has been an impact in terms of volume and price point purely because the consumer today, he has to juggle with, for lack of better -- a term, sugar, be at much higher prices than they were being used to. So then they today have, if they're earning INR 100, their pocket has -- their income has not increased significantly as much the cost has increased. So today, they have to make a choice of whether they want to go for a branded player, a nonbranded player because even if they want to go for branded play, does their pockets allow it. Maybe it's a short-term issue, but it is definitely a concern for most of the brands in the country.
Having said that, I think what we actually trying to do internally is the target trying to do a lot of work on material on the product. We're value engineering the product significantly to ensure that you are able to cater to that demand and not lose that demand despite and also maintain that kind of margin. So we are creating a product range to be able to cater to every demand so that we don't lose on market share and volume. And hopefully, we would have gained some.
Great. Great. And the last one, you spoke about adding some 70 EBOs, right, retail stores?
Yes, 70 to 80 stores per year, out of which almost 70 -- and 90% would be franchisees.
Okay. And any reasonable breakup of would you like to give, how much will be East, South?
So in terms of -- I'll just give you the number. So approximately 40% would be East, 20%, 25% would be South and balance would be North and West.
Okay. So why I asked the question, Namrata, when I see your retail penetration in a state like West Bengal, we have 250-plus kind of EPO. And obviously, we started a brand from there, so I want kind of understand the brand has also much more established. But when we do our channel checks, we have reasonable presence and brand equity now in Southern India, especially Tamil Nadu and Karnataka also. So just wanted to understand, instead of spreading ourselves too wide. And then these 2, 3 geographies in South India have chunk of many national established brands also, would you like to penetrate further in some of these existing markets aggressively and then add new states? Or will you already present in all the states mostly? But I just wanted to understand, would you have that kind of plan that you want to focus on, let's say, Tamil Nadu, Karnataka for next 1, 2 years? And then at least bring it to 100 store kind of stake each state, and then actually expand or move forward to other states? Just randomly asking this thought process behind your expansion plans.
So before I answer the question, I mean which are the brands they are referring to in South India, which are very huge.
No, no. I'm saying national brands also, they have -- and then this not only footwear category, other categories also, we have seen that South India has a very reasonable [ chunky ] contribution because the per capita income and disposable income, both are very good for most of the lifestyle categories. So I'm saying, we have established ourselves as a very strong brand in Southern India. And at least in our channel checks, we figure out what we have, what a sample check could be wrong also. But we believe that we have a super brand equity in Tamil Nadu and Karnataka, Tamil Nadu in particular. So just wanted to understand, 63 stores, are we underindexed to the brand equity that we have in some of the states? And would you like to focus on some of the states where we have already established and then make discount, let's say, 8 out of 860 comes from some of these 2, 3 states, and then we actually move forward to add new states where we are thinly represented?
So Tejash, frankly, we've been in South India for almost 15 to 20 years now. And I think we -- and given -- and because of that, I think as you rightly mentioned, the brand equity in Tamil Nadu, all very high. In Karnataka also, we are doing well. In fact, amongst the last results that we had done, we are among the top 3 retail brands in the southern part of the country. So we definitely have a very strong brand equity. In fact, a few years back had gone to Mangalore, just as an example. And we [ did ] presence there.
I've gone to malls over there. This is -- and both the malls, despite the fact that we did not have presence in Mangalore, knew about the [indiscernible], very open to and encouraging us to take -- to come and open a store there. The point that I make is that despite the fact that some markets are not there, the brand equity is strong enough for us to be able to open either a COCO or a franchisee. And the potential of the market is very strong, and we are looking at capitalizing on the markets where -- so we've done a full mark-to-market analysis as to where we'll be able to open a COCO, where we been able to open a franchisee, a large format franchisee or small format franchisee depending on the market.
And based on that, we are deploying all our resources in terms financially and human manpower to be able to get those stores. When you're trying to open a franchisee, if you are too concentrated, in our experience at times, it becomes difficult because all your eggs are in one basket. We -- in our experience, we prefer to have a larger umbrella in terms of getting franchisees. And -- but we are also trying to focus in the states where we have good presence. We're not trying to start anew, enter a new state, particularly. But again, having said that, Northern and West part of the country is not something to look at expansion right now. We've been laying the seeds for future expansion because if we don't start now, in the next couple of years, we will struggle for penetration and growth.
So we're laying the seeds for expansion. In fact, we have a good presence in Gujarat, Rajasthan. As we speak, Punjab there opening up and then [indiscernible] opening up. So very good response also. So I think we are hopeful that it will come out, right? But to answer your question very, very particularly, Eastern is definitely a home market. We will continue to penetrate the existing market as well, but laying seeds for future expansion in the new markets.
Out of the total, 65% of store is opened in the East and South.
Got it, sir. So I was also looking from SKU operating leverage perspective. I believe our East and South will have more SKU operating leverage commonality in terms of servicing [indiscernible] fashion sense and all.
Tejash, East and South are very similar fashion sense. It's relatively more basic, more standard, more [ cool ] compared to the other parts of the country. So the expansion which we have started from the East and the South was owing to that reason also, and I think which has helped us and -- grow because the mindset is relatively similar. I would not say, same.
We take the next question from the line of [ Jagan Nathan ] an individual investor.
I would like to know what is the current ASP -- what are the ASPs currently at? And in terms of retail and in distribution?
So in retail, our ASP is approximately 600. And in distribution, it is approximately 100.
100. So we are blending that?
Sorry?
So the blended ASP would be?
It would be increase with the blended ASP because it's a very -- that's 2 very different business.
But if I have to say this many number of tags sold multiplied by average ASP, what would that number be?
See, the retail ASP that I'm giving you is something which we experience at our -- is the experience at our store on a retail -- at a COCO level. If you're looking at the distribution ASP, it's something which I'm selling to the distributor native, net of the distribution margin. So again, it's a very different comparison. It will be a wholesale rate versus a retail rate, so it's not the right way to look at it, sir, because...
Because there is no concept of a blended ASP. I understand. Okay. So what is the price increase we have taken this quarter on the ASP, on distribution and on retail?
So it's not this quarter, particularly. I think the way we work is that the product introductions happen across 4 phases. We have the spring summer which comes in February, March. We have another -- even [ another ] season, which comes somewhere in April, May, then you have festive later, which comes in right now, then you have winter, which comes in November, December. So I think the idea is that we will take the requisite inflationary price increases and the range architecture which we developed for this year, this calendar year of adjusting for the 4 seasons, this will adjust for the ASP increase. So I don't think it's a particular quarter price increase.
Okay. So in the previous con call, you had mentioned that you have taken an ASP increase of approximately 20% to 22% on the distribution side and 14% to 16% of the retail side, in the previous con call. So just trying to understand that the increase in ASP on both distribution and retail has not translated into the increase in the top line. Even if it's not like-to-like, are we like losing market share in terms of number of tags sold? Because if it's basically my -- if my overall ASPs go up by 18% and if my sale remains constant as compared to, say, Q2 of FY '21, which is a normalized quarter without breaking for COVID or adjusting for COVID, so would that -- would it be fair to say that we are losing some market share?
In terms of the 25% growth that I have told you, which you have taken is purely because of the inflationary price increases and the GST impact which we had to take the price increases for that reason. So I think that is what I was trying to say in the previous call also, and which then the industry has taken those price increases to adjust for this increase in cost. That was number one. And number two, I didn't get your last question, compared to '21. Can you, in Q1 '21...
Not Q1, ma'am. Q2 '21. Q1 '21 was a COVID quarter so that's not a fair comparison. I thought Q2 '21. Q3 '21 is Pujo. So I can't compare Q3 '21 because that's a special quarter. That's the best quarter. I was just...
But Q2 '21 actually -- but Q2 '21 also would be a incorrect base to take because number one, it had just come out from a COVID period. And number two, it had adjusted for the Q2, have a maximum billing for -- pre-festive to your franchisees. So that is -- so I think it is a very incorrect comparison. And so talking from a distribution angle, if you go back to the COVID period, when you had just come up in the COVID period, the demand for open chappals and Hawai chappals was significantly high purely because the unorganized market in a lot of factories were shut across the country.
And if you see most of the branded players in the distribution business during that year have performed fantastically and showed fantastic growth in Hawai chappals, open chappals for that particular reason. Because a lot of the people had gone back to the villages and a lot of them are staying at home and which has increased the demand for Hawai chappals significantly because supply was restrained. So again, the base in both the end case of retail and distribution may be increased in '21 as well. And Q1 and Q2 work very differently. Because in our case, Q2, there's a lot of the selling which happens to the franchisee pre festive.
One data I can share, the last year, Q3 was the best quarter, Pujo quarter. There, in retail, we sell a 21 lakh pairs. And this first quarter, we have sell 20.5 lakh pairs.
Okay. Okay. So I mean if the ASPs are similar, then the sales should be higher. Okay. Even if I compare the FY '19, FY '18 or whichever and if there's an ASP increase and that commensurate top line is not increasing, that is what I just wanted to fill in, like how is it possible that ASPs are going up by 20%, 25% and the top line is stagnant at 160, 170? I don't know. Maybe I'm -- and the other thing is with regard to employee...
Sorry to interrupt, sir. I request you to kindly get back in the queue, please?
This is my first question, ma'am. Can I just finish this one?
Yes. Go ahead.
Yes. So -- and second thing is the employee cost and other expenses have gone up in this quarter from, I think again, INR 14 crore in Q2 FY '21 to INR 17 crores employee costs. Is this due to any onetime expense increase, any onetime increase in employee costs or other expenses? Or is it like -- is it going to be the trend going forward?
Employee costs last year, this quarter, the employee was even 75% of the salary because during the COVID time, we deducted salary from the employee 25%. And in the May quarter, last year, we have paid 50% of the salary. So that has been normalized in October 21, and this year, there was an increment. So that's why the employee cost has gone up. And other costs have gone up because there is selling costs, the sales has increased, other costs has also increased, and the traveling has also increased. So that's why the thing has normalized. So the cost has also increased and normalized in the like pre-COVID levels.
Okay. So it's normalized cost. And one last thing on the sneaker thing, which ma'am was mentioning that the sneaker sales are going up and athleisure is doing well. So just a comparison between, say, even 2019 where Khadim brand was a sub-brand, Khadim was at 46% and sub-brands was at -- Khadim was at 43 and sub-brands were at 57%. Now Khadim is at 46% and sub-brands are at 54%. So despite the market moving significantly into sneakers, where a lot of new players have come in and existing players like even legacy players have increased their sneaker sales, I mean -- or even the sneaker studios or as they call it. But in our case, the contribution of Khadim has increased vis-a-vis other brands over the last 4 years. Any particular reason?
So your question is the sub-brand contribution has reduced, or sorry, what is your question?
Yes, sub-brand contribution from others has reduced vis-a-vis Khadim, whereas the segment that's growing the most is the others where the sneaker segment is the fastest-growing segment, as you mentioned, athleisure and -- yes.
So if you see, the sub-brand contribution in maybe pre-COVID was approximately 51%, sorry, 50% approximately. And the Khadim contribution is 50% as well. So that has become approximately 60-40.
Okay. And just seeing from your presentation, it's mentioned 57-43, so -- 56-43.
56-43. So I think that has become -- that has moved from approximately 60-40 pre-COVID.
Okay. From what I see on your presentation, it's become lower in terms of other brand contribution. Okay. So your take is that the sneaker is being captured, the sneaker growth is being captured in our sales.
Yes, yes. The contribution -- our store shoe contribution in terms of -- the [ afford shoe ], the sub-brand is the largest brand after the mother brand, Khadim.
We will take the next question from the line of [ Dasha Taveri ] from Crown Capital.
Congratulations on a good set of numbers. I actually wanted to ask a bit about our long-term growth plans. I think ma'am said that we might try achieving 14%, 15% EBITDA in coming few years. So could we just have some kind of flavor or in terms of our aim for FY '25, how do we want to see our growth? Because I think we have a lot of operating leverage coming towards us with new increased retail stores and everything. So could you just have some kind of guidance whether by FY '25, we might be able to reach 14%, 15% EBITDA and what our revenue numbers could look like? Because we might achieve INR 800 crores revenue like our best revenue this year. So could you just give us maybe a layout in terms of what we want to achieve for the next upcoming few years?
So by FY '25, we are targeting approximately INR 1,000 crores revenue and the EBITDA margin in the range of around 14%, 15%.
INR 1,000 crores seems a little bit conservative, if I may ask that? Or because are you being a bit cautious, because INR 800 crores in FY '23 is we have a good base for that you would like to maintain INR 1,000 crores.
So I mean if you take approximately a 15% compounded growth rate, it'll come up about INR 1,050 crores. So if you can possibly think that as a number. But I mean the area is to reach to cross the INR 1,000 crores mark by FY '25 and achieve 14 to 15% EBITDA margin.
Okay. And if I may, can I ask one more question?
Yes, sure, please.
Yes. So I would just like to know a bit more about our unit economics in terms of our retail expansion. We are targeting 70 to 80 stores every year or so. What would be a payback period? And what kind of incremental revenue do we expect from our new stores or something? Any guidance on that would be rise?
In case of COCO, I mean when you open 1,000 square feet, the CapEx is around INR 25 crores -- INR 25 lakhs, and the working capital is INR 15 lakhs. So we expect a return for COCO in the Northern and Western area around 2.5 to 3 years, and in case of Eastern part within a year, Southern 1.5 years. And in case of franchisee, for 700 square feet, the unit economics is that the CapEx is around INR 15 lakhs and a stock of 10 lakh, and they get an ROI of around 22% to 23% in a phase of 5 years.
Okay. So sorry, sir, in franchise, do we just get a fixed amount of royalty every year? Or how does that work, sir?
No, franchisee sale -- we sell at the MRP less trade discount. And we sell the product to the merchants.
We take the last question from the line of [ Rahul Jain ] from Credit Suisse.
Sir, 2 questions. So going ahead, how do you look at the proportion of retail sales versus the distribution? So because in last 5 years, our retail sales have actually declined and so the distribution sales have gone up. Margin from distribution sales have almost remained the same. Whereas on the retail side, sales have declined but the gross margins have gone up quite sharply. So going ahead in the next 3 years, how do we see this proportion between retail and distribution?
So on the distribution side, sir, in the last few years, I hope you appreciate that the increase in raw material prices has been almost 60% to 70%. And despite that, we've been able to maintain our prices and maintain our gross margin and try to maintain our sales at a normalized level. Because in this business, you're catering to the [ SEC, BNC ], [indiscernible] markets at the ground level. So I think that's where -- that's why you're seeing this trajectory coming, and that applies to almost all the branded players in this country who are dealing in the segment of business.
Going forward, the idea is to ensure that we are getting volume out of the existing distributors, increasing their wallet share through the same existing categories also and adding the new categories of products.which will help us drive the ASP and volume and the overall business growth. And that will also, on a larger scale, be driven by the entire unorganized to the organized shift. So I think that has been the case over there. On the retail side, again, owing to the last few years of the COVID impact, the retail business across all the entire industry has seen this kind of impact.
If you, in fact, see our performance quarter-on-quarter versus all the other brands or all the other retail industry, we are pretty much in line with them. So this -- you have seen this kind of -- we have worked on the entire range architecture and the product mix to be able to drive the ASP and the gross margin increase, which will hopefully continue. It will not -- and this has also been a little on the higher side, again because of the raw material price increases and the GST increase, which you have seen in the last 1 year itself.
Hopefully, in the next couple of years, the ASP increase, as I mentioned, will be approximately 6% to 7%. And the gross margin increase will be approximately 100 basis points.
Do we -- can we touch back about INR 500 crores of revenue from the retail side which came in pre COVID?
Yes. We are expecting that level of sales this year. And if you see the contribution, the retail this first quarter is around 63% of the total sales and distribution is at 33%. And online is 4%.
Okay. And lastly, on advertisement and promotional activities. So typically, do you have a permanent to -- so on the advertisement and the promotion expenses, do we have kept a kind of upper cap as a percentage of sales? The reason I'm asking is, in last 5, 6 years, we were juggling the band of about INR 17 crores to INR 20 crores. only in FY '19, we were at around INR 27 crores and FY '20 was a huge jump to about INR 49 crores when we had almost 3 brand ambassador in the same area of time. And then again, it has, of course, dropped down. But we need to understand because we were in pandemic times. Obviously, you must have cut down a lot on that investment and promotional activities. So going ahead, what kind of true budget do you keep for advancing promotional activities this year and the next year?
So thank you for this question. So in terms of sales and promotion expense, will be approximately around 4% to 5%, which will include your sales driven, the activities to support the sales increase, all your promotional activities and also the entire [ APL and BPL ]. So whatever distribution schemes or the sales base schemes at the retail level and a distribution level, plus your advertisement, your [ APL and BPL ] would be approximately around 5% to 6%. So -- but having said that, I think coming back to your earlier question was regarding the brand ambassador, we'll be -- we have evaluated. We have tried that entire exercise.
But I think the way the market is moving and way the customer is changing and the digital landscape is changing, we are looking at focusing on more regional influencers and celebrities to drive the kind of change that we are looking at in terms of products, in terms of retail experience. We're looking at doing it more digitally than the offline platform. And we have seen a good success of it in the last couple of years that we have experimented with. We're targeting uncertain -- you have the ability in the digital media to target at an age bracket, certain agendas with the kind of a tone that you're creating on the content that you're creating, which is going to be -- which is mainly product focus.
In our case, the way we are looking at it is the product is going to be our hero. And this year, we have launched the campaign of itself as well with Khadim, which is mainly a trinity of product, the change of product that we're doing and the retail experience and reiterating the price point of affordability. So I think that's how we are going about this entire thing.
We're not looking at doing a national campaign. We're looking at doing it in the markets that we have a presence, and we want to reiterate the brand recall in the mind of the existing consumer and also acquire new consumers by communicating effectively through the digital platform and through influencers who they will resonate with.
Sure, that's quite helpful. Just lastly, short time questions, if you can answer. So we are just probably at the time when the festive season starts in the next about 20, 25 days going ahead. And you have almost about 4 months of festive season across the country for next 3, 4 months. So how is the kind of ground level inquiries or the ground level environment? Or how is that shaping up?
So on the retail side, I think we are seeing a good -- we're seeing an improvement coming into the numbers. I'd say as of now, up to 15th August, discount sales will be [indiscernible] on across the entire industry, retail industry. The numbers have been healthy. And in terms of the festive, I think at least what we are hearing the festive will be good. But having said that, the Eastern side, especially Bihar and Bengal, they have been impacted by relatively lesser amount of rain this year. So the agricultural impact of it will have to be seen, but we are hopeful for a good festive season. And I think that's the feedback that we're getting from the ground level market.
As there are no further questions, I would now like to hand the conference over to Mr. Nachiket Kale. Please go ahead.
Thanks, everybody, for [indiscernible] this call. I'd also like to [indiscernible].
On behalf of Khadim India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.