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Ladies and gentlemen, good day, and welcome to TCNS Clothing Co. Limited Q1 FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, 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. Anant Daga, Managing Director. Thank you, and over to you, Mr. Daga.
Thank you so much. Good evening, and welcome to our Q1 FY '22 earnings conference call to discuss operational and financial performance for the quarter. I'm joined by Amit, our CFO; and SGA, our Investor Relations advisers. First of all, I hope you and your dear ones are safe and healthy. While the number of cases have sharply declined, we must keep up the guard and continue to remain disciplined and take all necessary steps to contain the pandemic. While Amit will share detailed financials, let me share some key highlights of Q1, our perspective on the emerging situation, and progress on key focus areas for FY '22 as shared in the last call. It's happening that in Q1, despite being a severely impacted quarter, it saw an all around sharper sustained recovery vis-a-vis last year Q1. Overall, the Q1 revenue grew to almost 3x compared to same quarter last year, though on a lower base, but with both online and offline showing strong traction. What's encouraging about this growth is that it's more evenly spread out across tiers of cities and types of stores. Overall, in offline, Q1 saw operational days of close to 48%. And for these operational days, the recovery was about 44% against pre-COVID levels. Our online business continues to see robust growth on a significant base that we have already achieved. Our online business more than doubled in Q1 with both own website and third-party marketplaces coincidentally. A key milestone this quarter is that our D2C contributed more than half of the revenue for the first time on secondary sales basis. As on date, most of our network is operational and the sales traction in the last couple of weeks have been extremely encouraging, being around 2/3 of pre-COVID numbers for like-to-like operational days. Though we continue to see disruptions across multiple markets from mall closures to time and day restrictions, the momentum from Q1 continues to build further. The reduction of cases, gradual unlocking of the country and increase in vaccinated population, we expect a strong festive season ahead. Now coming to key focus areas for FY '22. The first area for us is growth of online business. I've shared about the business continued to expand at a rapid pace, while we have continued to build on avenues of future growth. One of the key objectives of the last quarter was launch of omnichannel fulfillment model from our stores. It is now fully integrated, live and stable. In addition to the endless aisle and own website omnichannel capabilities launched last year, now we are able to use and view store inventory across multiple marketplaces, including Myntra, Flipkart, Amazon. This is a key step towards our strategy of single view of inventory across all online channels. On the product side, we are now creating digital-first products which will go live on our website and marketplaces in the next couple of months. This should further add to the D2C business growth. Second focus area this year is an accelerated store expansion plan, and we are looking to add a net of 60-plus stores this year. Our expansion program will be driven along 2 key initiatives: Project Rise, which is upgrading our flagship stores; and Project Bharat, which is entering into Tier 3, 4 markets through franchisee route. I'm very happy to share that we have already signed 40-plus stores to be opened in the coming months. I'm particularly excited to share that we have signed 15-plus stores for Project Rise at very attractive long-term leases. These would massively increase our brand presence and consumer experience across some of the most important retail markets across the country. Third focus area is cash conservation and cost control. Here again, we had cash reserves of about INR 140 crores compared to INR 125 crores in the same period last year. On cost front, we continue to engage with our landlord partners and are finalizing lease reduction for the year. The full impact of the same has not been considered in Q1, as many of the deals are in process of getting signed. From a full year perspective, we see at least 30% savings against our regular rent commitment and most of them will flow in the coming quarters. As we prepare for next level of growth, we continue to invest in people, processes and infrastructure, and hence, there will be limited savings on employees and overhead costs. On the focus area of swifter thought-to-shelf, I am happy to share that we are making the targeted progress on all fronts. Our automated inventory management system phase 1 has been implemented, and now we are rolling out the planning and allocation functionality of the same. With regards to our initiative on consolidating our warehousing operations into a single warehouse, we have already consolidated all the finished good warehouses and are on track to amalgamating fabric warehouse as well. The impact of this consolidation will be visible starting end of the year, both in terms of cost and much more efficiencies. Other initiatives of express replenishment, incubation sales are also fully operational. Overall, quickly implementing our learning from the last year, we have nimbly navigated the pandemic this year while embarking on investing in key levers for future growth. I will now request Amit to take you through key financial highlights for the quarter.
Thanks, Anant. Good evening, everyone. I'll be giving you an update on our financial performance in Q1. Our Q1 revenue was INR 94 crores, which is a growth of 189% over last year Q1. Our gross margin has improved by 500 basis points from 50.7% in Q1 last year to 55.8% this quarter. However, it continues to be significantly impacted because of skewed channel mix and impact of inventory dormancy on a lower sales base. With offline sales expected to recover in future, gross margins should gradually rise back to normalized levels. We have accounted for rent concessions of INR 3 crores under Ind AS 116 accounting in Q1. Many of the rent concession deals are in various stages of discussion, and we expect 20% in savings in rent expense for the full year FY '20. Employee costs and other expenses are in line with what we spent in our quarter. As Anant already mentioned, we expect limited savings on these heads for the full year. The company incurred a loss of INR 20 crores at EBITDA level in Q1, vis-a-vis loss of INR 26 crores in a similar period last year. At PBT level, the loss was INR 49 crores in Q1 versus INR 60 crores last year. And at PAT level, the loss was INR 36 crores in Q1 versus INR 45 crores last year. We need to look at these numbers in reference to the point that the rent savings accounted for in Q1 this year was only INR 3 crores versus INR 19.3 crores in Q1 of last year. As and when we conclude the rent concession deals, further rent savings would be accounted for in subsequent periods. During the quarter, we opened 7 new stores while we shut down 9 stores. We continue to remain focused and committed to the accelerated store expansion plan. And for the full year FY '22, we expect to open 60 plus new stores on a net basis. Our cash reserves as on date is INR 140 crores. This is in addition to the [indiscernible] bank permits. Thank you. We are now open to questions. Since we are the only listed entity in our segment, we might not be able to share granular details that could be competitive information. We request to understanding of the team.
[Operator Instructions] The first question is from the line of Manish Poddar from Nippon India.
So I have just 2 questions. First is, let's say, if you could probably -- I'm trying to understand how is now the demand environment looking around, given that, let's say, the discount season has started. So just wanted to get some, let's say, or if you could give some qualitative thing, that will be helpful.
Sure. So Manish, as I just mentioned, we started end of season sales slightly late this year compared to FY '20 and '21. So it started only in third week of July. And in the last 3 weeks, what we are seeing in the operational stores are recovery close to 70% against pre-COVID levels. Now this is the kind of recovery last year we saw somewhere around October. So the response is extremely encouraging. And if I have to give you some qualitative inputs on that. We have seen very interesting trends. One, after a long time, consumer is moving away strictly from a needs-based shopping. And there's a lot of in-store shopping that is happening. Second, we have never seen such high proportion of full price sales in an end of season sale, which we have seen in the last 3 weeks. So -- and third is a very, very even kind of recovery. So the most recovery is also very encouraging, which was missing last time. So these are some of the top things that we are seeing right now. And with constant vaccination and opening up, if they got COVID, if there's no examination, major wave or something, I think this is a precursor to a strong trending. This is what we see.
And this 70% is, let's say, like-to-like for those 3 weeks of discount, which you would have in FY '20. Is that how it is?
That's right. For the...
This is for July or versus July?
No, no, no. This is July. So this is last 3 weeks of this year versus last 3 weeks. So probably third week July onwards, fourth week July onwards.
Anant, so I'm just trying to understand, given your end of season, like you mentioned, end of season sales was earlier this year. So do you -- are you comparing the same end of season sale this year versus FY '20 or you're comparing just July versus July '20?
No. We said end of season sales started late this year, not early. And we started this sale, say, somewhere around 19th of July. So I'm giving you a number of 19th of July till, say, about yesterday versus the same period in FY '20.
Okay. And one last one from my side, sir. I believe in a lot of the mall operators, when they have given you the concession holidays, they had a clawback clause saying that in FY '22 and '23, they will claw back some amount of rent in terms of, let's say, revenue share. So just wanted to understand when they had this clause, did they kept the hurdle as INR 100 sale itself or did they get the hurdle to, let's say, INR 80 sales and INR 100 is the normalized run rate?
No, Manish, you see, right now, all kind of deals have been negotiated. And I don't want to speak out of turn out here. But a lot of the clauses, which malls have given, are also not acceptable. And hence, we are not signing many of the deals yet. So all kind of models from revenue share to claw back to long-term sales related -- [ greatest ] sales last base rentals, all of them are negotiated, depending upon the location and the business that brands that they carry. That's all there is.
But would it be right, understanding, let's say, if you had rent concession already in FY '21. Some amount of that, I'm not sure if that gets covered by operating leverage, but some amount of that will get increased because of all this aggregated key properties would increase on a Y-o-Y basis. Is that a fair understanding?
No, no, no. It's not for prevalent. It's not that prevalent.
The next question is from the line of Nihal Jham from Edelweiss.
Three questions from my side. First is on the e-comm side. It's definitely an impressive performance that we've seen a growth even over last year. But only thing is that if I look at some of the other players that I have some numbers available, they have still managed to achieve what they didn't say a pre-COVID era or maybe close to the run rate that they were doing even until the fourth quarter of last year, that is to say 3 months back. So I just wanted to understand that, was it that -- is it the restrictions that maybe were there or some certain fulfillment issues, because of this, the channel was not able to reach potential or anything else you may want to highlight?
No. So I couldn't understand the question fully because I think even on year-on-year basis and all, we have been growing at a very good rate. And my understanding online, we are performing at a -- our performance has been better, barring a couple of weeks in July when we didn't go on aggressive discounting. So I don't know what number exactly you are comparing, Nihal. Sorry, if you could help me with that.
So Anant, if I look at the online business, it is around, I think, approximately INR 20 crores for this quarter. And if I look at the same corresponding number, even in, say, the Q1 of FY '20, it was around INR 34 crores. So it has stayed around 60% of the normalized level. If you are to say, then you were doing around INR 45 crores, INR 50 crores on a quarterly basis last year. So my question was coming from that was there a possibility that these e-comm revenues could have been, say, closer to the INR 30 crores to INR 40 crores range? Or is it that this is the best that could be achieved in the current situation, given the restrictions that we've had?
Yes. Nihal, so for the current quarter, the share of online channels that we have also kind of mentioned in the presentation is 50%, right? So if our revenue is INR 93-odd crores, 50% of that has come from online channels.
Okay. I'm sorry. Then maybe there to be some -- I'll just check that again...
We have grown well, and this is despite the fact that, for a few days, they were essential -- they were all nonessential items. So I think despite that, we have been able to grow meaningfully well.
Okay, sure. I'll just check that, maybe it must have been wrong from my side. What I wanted to also check on was that when we speak of the omni initiative that we are making an effort to, ideally, Anant, how is it that, that will end up helping drive sales further especially in terms of the fact you mentioned that now you'll be able to deliver even via your stores or you've got the other sales channels? So just a sense on that.
So what happens is, Nihal, see, a lot of time, consumers see a lot of products online, but especially in the fresh sales, a lot of the portals don't carry the entire inventory because their model is still slightly more old season merchandise. So what it does is, it doesn't expose the catalog only to the consumers. Now suppose if someone looks at an Amazon site or a Myntra site and they like the product, even if they don't have a stock, my store can ship it. So we don't lose on those sales at all. That's one. Second, what also we have seen is as the time to delivery reduces, your returns rate also come down. So wherever we have a localized inventory and we can reduce our time to delivery, that also will help the metrics in terms of sales. So that's the second thing. And third is overall, the sale inventory tool, irrespective of the location, can be used for multiple customers, multiple portals, just enhancing its saleability. So all these really helps in -- when you have a strong omni rollout.
That's helpful. Just one last question from my side, Anant, is that currently, of the 60 stores that we are planning to add, what is the proportion you think will be franchise-based? And if I understand right, out of the total store count of 550, approximately 30%, 35% would be franchise? Is that a right number?
Yes, Nihal. Yes. So see, I'll give you a ballpark number, but all this can change depending upon which final locations we are able to open. The idea right now is to have about 35%, 40% -- 35% to 45% of franchise stores and balance on stores.
That's helpful. Anant, I'll just correct myself. I had read the number on the online side wrong. So I take that question back.
Sure, sure, Nihal.
[Operator Instructions] The next question is from the line of Varun Singh from IDBI Capital.
So a couple of questions. First, on the online channel. I think the previous participant has asked regarding why we are not going as fast as compared to other companies. So if I can put that question in a more contextual form. 50% of INR 93 crores is roughly INR [ 47-odd ] crores revenue that we are enjoying from online channels. And we reached the peak of the revenue from online close to INR 55 crores, which is only in Q2 and Q3 of the last financial year, which is Q2 '21 and Q3 FY '21. So I mean, from INR 55 crore during current quarter, only INR 47 crores. So it's a lower number. So I mean, if you can help us understand that, during the lockdown period, wherein, really, customers should be shopping more. And even if I look at your Q1 FY '20 numbers, so that is also close to INR 40 crores. So reducing the seasonality, I mean, the quarter-on-quarter. So I mean, still we don't see a significant amount of growth compared to competition. So how -- if you can help us understand, how do you think about the online channel, the number that you are clocking?
So Varun, two parts to your question. So first is, as I just explained to Nihal also, this quarter, even from online perspective, was not operational for the full 90 days. There are restrictions in many of the [ PIN codes ] for not delivering nonessentials. And that is where some sales were lost. And this, I think, is a phenomena that everyone in the industry has faced. There are not a lot of [indiscernible], especially in the month of -- later part of April and early May, wherein things were disrupted. Second, coming to your point about growth rate. See, so growth rate is one that we'll also have to consider the base. At the base level, our sales are probably near -- I'm not very sure which other players you are talking about. But compared to wider industry, I think our base is also far higher and stronger. So we invested in this capability probably ahead of many of the other players. I think if you take that effect also into place, online, at least for the operational period, we thought we saw a very, very strong traction and good growth.
Okay. And for my second question is on MBO channels. So this is a channel wherein we drive this -- scale this business up to a significant level, and we were enjoying kind of INR 40-odd crores of revenue historically. But that INR 40 crores has now kind of vanished. And now, I mean, in presentation, I could not find relevant contributions from MBO. It must have been clumped with online and others because, of course, over the last 3, 4 quarters, it contributed hardly 0 to 3%. But how do you explain the kind of revenue that we were doing earlier? And why we are not able to revise this channel? And how do you think about milking this channel going forward?
So Varun, I think this is something which we have discussed over the last few calls also, but let me just reiterate. See, MBO, we started with the rationalization exercise, where we changed the business model, we changed the approach to the business. And if you look at it subsequently, entire industry, most of the players have rationalized this channel at some point in time or another. Now when this COVID hit, COVID wave 1 happened, the most impacted channel was MBO. And to take -- we didn't want to take an aggressive credit call and hence, we just simply [ downsold ] that channel. So there were a lot of secondary sales happening, but we were not booking any primary sales. The billing again started this year with spring/summer, wherein in Q4, you would see some build up. Having said that, the wave 2 hit. And typically, first quarter is not a very big MBO billing month also because they work on seasonal billing. So for festive, you should see some numbers coming back in Q2. From a long-term perspective, I don't think MBO channel would hit the same run rate that they were earlier because of all this movement from unbranded to branded and offline to online and this channel continues to be stressed right now. But you should see some good traction starting Q2 for the festive buildup. So earlier, MBO used to be probably 8% to 10% of the business. We earlier also mentioned, probably this channel won't be at those level. It could be at 4%, 5% levels. But at that level, it will come back, provided we get a good 6-month no disruption run rate.
And sir, just one last question, if I may squeeze in. On store closures. So on a net-net basis, sir, as we observed over the last 4 quarters, we have been closing constantly. For example, in Q1 '21, 8 stores, and 13, 13 and then 10. And this quarter on net basis, we closed 2 stores. So we don't see this much amount of store closure in case of other competition. So how do you explain these store closures? And how are the analysts, who should be gaining confidence in terms of store addition that we are doing going forward? I mean [indiscernible] guidance that you have given. If you can help us understand this, the store closures compared to competition. That's all from my side.
Sure, Varun, a very fair question. So again, I don't know who you are comparing us with as competition, because as far as I know, in my trade, most of the guys have really curtailed on their store count over the last 5 quarters. And I think it was a very, very logical thing to do because, see, we took a very aggressive step, both in terms of what real estate and what price we can get now. And our stores typically are not high CapEx stores unlike a lot of the big boxes. So our cost of shutting down a store and then the opportunities gained that we can get from locking in better real estate at lower prices, it makes sense for us to go very aggressive on this. And this is what we have been telling last year also. So now we have rationalized the store base. There will be a few closures, 20, 25 closures, which will happen every year. Apart from that, COVID wave 2 would make it another 4, 5 stores. So those kind of closures will continue in future. On the confidence on new stores, so as on date, as we said, we have already seen 40-plus stores. By Q2 net addition, you won't see a very big number, but from Q3, you should see a 20-plus store addition every quarter. So all those are signed, all those are in pipeline. And I think we'll start to see the impact very soon.
That's very helpful, sir.
[Operator Instructions] Next question is from the line of Jasdeep Walia from New Mark Capital.
Sir, in your presentation, you mentioned that you will be introducing online first collection pretty soon. So could you please explain that, how would this collection be different from your usual collection? Are you trying to address different price points or different kind of style?
That's a very nice question. And see, what happens is, we are a mix and match spread, wherein consumers come to stores, they look at various stores, various bottoms and they mix and match and create looks. This is one thing, it is still slightly a challenge in online. And what we have seen is there is a consumer base who just want to buy sets, maybe a 2-piece or 3-piece. So what we are doing is we are creating those ensembles, which are easier to pick. Because we don't have this big challenge in the stores, we are not replicating the same thing out there. But this is essentially what we are doing on online. So some 2 pieces set, some slightly more entry price point dresses and those kind of stuff. But we look at being a missing part in that collection offline, this is not also required on offline but probably online could do more justice to the kind of consumers that come.
And how would the price points be different from your usual price points, which you have at physical retail?
So see, it's a different product category, essentially. So like-to-like comparison won't be possible. But yes, the prices could be in the range of 10% plus/minus. That's the kind of thing. We are not going down the line of a very, very, very low price point or anything like that. It's more about the way product is constructed.
Got it. Sir, as far as your omni initiative is concerned, so what's the status right now on the execution front? What has already been achieved and what is left? And whatever is led by when will the full initiative be rolled out?
So we have rolled out our omni initiative in close to 100-odd stores now. In the phase 1, we had just our website, our own website attached. Now we have 3 major partners also who are on both. In next 6 months, you will find more and more marketplaces getting integrated into the omni and the omni store count also will increase from 100 to probably 150, 175-odd stores.
Got it. And when would all your stores be covered under this initiative or that is not required?
So all the stores are not required because in every city, every geography, not all the stores are required. So we'll be slightly selective, because, see, it's an initiative which is good to talk about, but it actually takes a lot of effort on the ground, the staff training, the packaging, and it's a very different thing to execute. So I think we'll cover all the major geographies with required a number of stores, but the intent is not to roll out it to 100% stores in the near future.
Got it. And you said 3 major fashion portals have already been onboarded on your omni initiative and 6 are left.
No, no. I said a few others are left. So there are smaller marketplaces also, and 1 or 2 major players. So those are left.
[Operator Instructions] Next question is from the line of Devanshu Bansal from Emkay Global.
I have 2 questions. So assuming COVID impact to be restricted to FY '22 only, by when do we expect returning to our per store revenue run rate?
Per store revenue run rate?
Yes, that is -- which is...
I think the sales are building up. There's no major disruption. So here itself, you should see that coming back because it's been much better than last year. And I believe post-festive, if the momentum continues, then probably we are looking at -- even if not pre-COVID, very near pre-COVID, this year itself.
So my question was, can expansion into Tier 2, 3, 4 cities through franchisee route delay per store revenue recovery?
No, no. Sorry. Okay. So that's your question. See, if you look at it, it's a 2-pronged strategy, right? One, we are getting into Tier 2, Tier 3 -- and Tier 2 markets are very good. Tier 3 or 4, where the revenues could be slightly lower per store. But at the same time, we are having -- our target is to have at least 30-plus stores at Rise stores, which are all the biggest markets. So for example, one of the leading mall in Mumbai or the leading high street and deli, where we have all increased our store sizes by 2x. So I think that will more than compensate for lower revenue stores in Tier 3, 4 markets. If at all, I think at least for this year, it should increase once all these stores are rolled out.
Sure. Secondly, larger players like ABFRL also have indicated aggressive plans, but then create similar price points. And secondly, the focus also remains on increasing share of private labels in their stores. So I wanted to pick your thoughts on how are we guiding ourselves from these threats?
See, out here, as we always say, see, ethnic is one of the most attractive spaces right now and the momentum that we expect to see post this phase would excite all major players. So we are not very surprised that many other players would also want to enter the segment. Private labels, again, for as many in the industry, they have always been focusing on private label, but see, brands play a role and private labels play a role. And this is what I've always said, unless you have a strategy of 100% private business, particularly, you will have the strongest brands. And that's where, as a brand irrespective of whoever is coming into the fray or adding to it, you have to ensure that your brand pool, your differentiated product bouquet and your return metrics on the shop floor, all works in your favor. So I think we'll be investing. And as we speak, we are investing in all these things, in brand building and centering the product portfolio in the ways we are reaching our consumers, our back-end efficiencies. So I think this is where the brands compete and that is what we'll continue to do.
Sure. Since I have more questions, I'll come back in the queue.
[Operator Instructions] The next question is from the line of Varun Singh from IDBI Capital.
Sir, just one bookkeeping question. On other income, there has been a significant decline. So currently, it's only INR 3 crores as compared to the run rate of INR 17 crores, INR 18 crores that it was reflected in the books over the last 2, 3 quarters. So if you can give us some comment on why it has declined so significantly and what kind of number we should expect going forward given that we have more cash balances. So I was quite confused in terms of if we have so much of liquid fund, then why other income has declined by so much? If you can help us with that.
Varun, this is Amit. I'll draw your attention to the Note #5 where we have mentioned that last year, for this quarter, we recorded rental concessions under other income. So that was to the tune of INR 12-odd crores. So first, for whatever rental concessions we bought, we adjusted it against the rental expenses for that quarter and any remainder we had disclosed under other income. So if you remove that INR 12 crores from the last year's number, so it was about INR 4-odd crores against which -- this quarter, we have recognized INR 3 crores in other income. So it is fairly comparable if you account for the rental concession.
Okay. Understood.
The next question is from the line of Devanshu Bansal from Emkay Global.
Sir, for Elleven -- this question is for Elleven. So Go Colors has been expanding by about 100 and 150 stores per year in today's filing, their DRHP filing. So can we also see such a pace of expansion in this category once we achieve the desired unit metrics?
Yes. See, this is a very -- this is a category where expansion could be very, very fast. Because typically, they are like -- it sits well with high street, the local market, small. And again, the model is pretty standard. The product line has been very standard and the store got to be very standard. So you are right. Once we have the proof of concept, once we have one season going, the scale-up could be meaningfully faster. This, itself, could, on a consolidated basis, if everything works well, you can open 30, 40, 50 stores of this every year, like only Elleven.
Okay. So this 50 would be still lower than what they are hoping, right?
I'm just saying, when you start scaling up from the pilot phase to the first scale-up, I think you also need to take into account the kind of entire supply chain, entire coordinates. So I was just mentioning to you, this is a lease that a brand like this can have. Obviously, the numbers could be far higher.
Sure. And do the store closures that we have been doing, do they have a bias towards any of company-owned or franchisee-owned models? Or it is secular across both?
No, it's not biased towards anything. So it's a mix between the brands, between the models.
Okay. Lastly, just on a competitive positioning only, peers, be it on the men's wear side or on the women wear side, have been raising capital to either fund losses or maybe to expand and several others have also filed DRHPs like Manyavar, Go Colors. So being -- having a stronger balance sheet, so how do you see these competitive moves? Or we -- also there might arise a need as in we may also go for a capital raise to expand aggressively going ahead?
See, we have a model which, in normal times, sales tended to generate cash. So I don't think, for organic expansion, we would need cash. Again, in terms of losses and all, we have a strong balance sheet. We can sustain it. I think that was the end of the COVID wave. And even last year, you would have seen despite the losses, without any fund raise, we've been able to deliver on a higher cash than what we started with. So I think we have some long-term opportunity in working capital, and we should be able to manage with that. The only time probably when we might need a fundraise or something is suppose there is an inorganic opportunity. So that, I can't comment on right now. But for organic growth and loss funding, I think we are well covered right now. We should not -- we don't need to look at a fundraise at this point in time.
That's helpful.
[Operator Instructions] The next question is from the line of [ Rad Joshi ] from A Securities.
Sir, I have 2 questions. The first question is on the rental part. Are you still negotiating with other vendors for the rental cut down?
Yes, there are a lot of negotiations which are still happening. There are a lot of discussions which are going on.
Okay. So on the -- as we are seeing in Maharashtra, there are still malls that are shut and the Maharashtra government has given the guidelines to open the mall. But the thing is that they have given the instruction that only the [ bought ] who has taken, they can only go. So how we are thinking about our current quarter and subsequent quarter will perform?
You are -- okay, so there are 2 things when you specifically spoke about Maharashtra malls. And second question is about overall performance. Is that -- are they related, sorry?
Both are related.
Okay. So see, most of the country has been operational, though there have been weakened lockdowns and timing restrictions. I think Maharashtra malls were the last to open, and you are absolutely right, with such kind of conditions, it's very difficult to do meaningful sales out there. So we all are in discussions also with various agencies to figure out how this can be made slightly easier and more favorable for consumers to come to the malls. Apart from some of these areas where the restrictions are. In other places, we are seeing a much healthy recovery, especially last few I was mentioning, things are looking much more positive. So we are very hopeful that if this trend continues and there is no significant third wave or something like that, festive could be a very strong season. See, unlike many other categories, which have gone through lockdown and then seeing pent-up demand and then people have been able to come and shop and take that out. I think with ethnic, it has not happened yet. A lot of business in ethnic happens because of occasions. And for last 1.5 years, there's no opening up of that. So I believe there is a huge pent-up demand. And as and when things open up, I think we'll get to witness the sale.
[Operator Instructions] The next question is from the line of Ankit Kedia from PhillipCapital.
Sir, couple of questions I have. First is on Nykaa Fashion. In 1 year or 2 years, they have been able to garner around INR 600 crores, INR 700 crores of GMV. And I see we are also present on Nykaa Fashion. Could you just share your experience, how is Nykaa Fashion compared to the other marketplace model? And is there a business model similar to some of the others?
See, Ankit, I won't be able to share too much granular data because it's also about the business model with these people, but we have also seen a very rapid scaling up in Nykaa. Having said that, see, Myntra based in Nykaa, these are just not comparable. So Myntra, even on a very, very large base, still growing at a very attractive rate. So I guess, Nykaa, right now, higher growth rate is also because of a very, very low base compared to Myntra. But our experience so far has been very encouraging on Nykaa as well.
Sure. And sir, my second question is on the gross margins. While this quarter gross margins have been second best in last 4, 5 quarters. Do you think with the online share increasing, it is incrementally getting tough for us to go back to the old margins? While I know in the past con calls, we have always said that you should look at EBITDA margins on online and not at gross margins because they would be lower. So from our perspective, should we look at declining gross margins compared to FY '20, while the EBITDA margin would be similar? Would that be a good guestimate for us?
Ankit, your understanding is bang on. See, with online, because of the way structurally the cost are, your gross margins will get slightly impacted. Now it will also depend upon what kind of share website has, what kind of share third-party marketplaces have. So all that will evolve. But yes, historically, we have been delivering x. Obviously, with the channel increase share of online, it will come down slightly. And again, at the PBT level, I think all these get [indiscernible]. So probably that would be the best metric, if you ask me. Taking into consideration all the below-the-line items, cost items. So that should be a more fair comparison.
Sure. And sir, are you any change in the delivery cost for online with omni coming in now from more and more stores coming in? So are you seeing the unit economics for online improving steadily over the last 1, 2 years or it pretty much remains the same?
No, no, no. We are seeing an improvement. So if you look at our own website also, I think all these parameters are improving. Because as I just mentioned, with omni, the returns rate also dropped. And the movement returns rates drop, even at the same cost per delivery, your delivery cost comes down. We are also seeing higher number of repeat customers coming and much more repeat purchases happening, which gives us better ROI or our marketing inputs. So we are definitely seeing an improvement in the profitability on the online channel side also.
Sure. That's helpful, sir.
[Operator Instructions] The next question is from the line of Shivaji Mehta, an individual investor.
Sir, with competition heating up and a lot of listed players are now announcing entry into the ethnic wear space and also some of the private equity-backed unlisted players announcing plans to list in the next 1 to 2 years, do you feel that margins could be under pressure going ahead?
See, the thing is, if you ask me the discount, the one impact of this is discounting. We know how it manifests in discounting. If you ask me the piece, we have seen for last year. This year onwards, there is some more rationalization in that. Having said that, see, I don't think too many players are coming in the same area where we are. Competition is definitely heating up much more in the online value segment, which is where we don't play actually. So there, probably, it's much more sharper. The ranges where we play is about having a differentiated product at a slightly merchandise premium pricing. Out there, it's still very limited. And I guess, whichever player comes in, given our supply chain standard, given our product cost to MRP metrics, I don't think we are in a very -- we would be in an advantageous position, to my mind. Because scale and all also will help. So while I see there could be some players coming and discounting and all, getting more serious, but I think it will be restricted to some part of the business. That's our feeling that now.
Makes sense. Sir, and final question from my side is basically on the yarn and the cotton prices, which have been on a rise. So what could be the impact of this in terms of the price hike that we may need to take going ahead if they stay at these levels?
Yes. That's a question that we grapple every day with. And see, so far, because we do a lot of jump work of our fabrics and then we've been able to do some reverse engineering on our products, we've been able to mitigate the risk to a large extent for monsoon festive season. Next spring-summer '22, we are yet to place orders. I think because as a brand, we use multiple fabrics, and it's not just the yarn prices have increased across, we're still able to substitute a lot of fabrics that are slightly more reasonable fabrics. Some parts would be impacted. For that, probably in those specific product categories, you might have to take a slight price increase. So that we will see when we are placing orders for spring-summer.
[Operator Instructions] As there are no further questions, I will now hand the conference over to Mr. Anant Daga for closing comments.
We take this opportunity to thank you for joining on the call. We hope we have been able to address your queries. For any further information, please do get in touch with us or SGA. Have a nice evening. Take care. Stay safe.
Thank you very much. On behalf of TCNS Clothing Co. Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.