V I P Industries Ltd
NSE:VIPIND
V I P Industries Ltd
NSE:VIPIND
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Earnings Call Transcript
Other Earnings Calls
Ladies and gentlemen, good afternoon, and welcome to the Q3 and 9 months FY '25 Earnings Conference Call of V.I.P. Industries Limited. [Operator Instructions] Please note that this conference call is being recorded.
I now hand the conference over to Mr. Pratik Patil from Adfactors PR Investor Relations team. Thank you, and over to you.
Thank you, [ Ashishvi. ] Very good afternoon to everyone. From senior management, we have with us Ms. Neetu Kashiramka, Managing Director; and Mr. Manish Desai, Chief Financial Officer.
Before we begin the conference call, I would like to mention that some of the statements made during the course of today's call may be forward-looking in nature, including those related to the future financial and operating performances, benefits and synergies of the company's strategy, future opportunities and growth of the market of the company's services. Further, I would like to mention that some of the statements made in today's conference call may involve risks and uncertainties.
Thank you, and over to you, Ms. Neetu Kashiramka.
Good afternoon, everyone. Thanks for joining the call. We announced our third quarter results for FY '25 yesterday. Before we move on to the quarter revenue and profitability performance, I would like to give some broad highlights for the period.
We have been able to reduce inventory in last 9 months by INR 24 crores, volume-wise, 64 lakhs reduced to 47 lakhs, debt reduction of INR 86 crores. Further, as promised, we are at 6% EBITDA versus mid last quarter. Another positive in this quarter was a favorable judgment received from tribunal on CST demand of INR 374 crores.
Bangladesh turned positive for the quarter, as promised. We've also finished overall org restructure across the organization, the fruits of which will be visible in the coming quarters. New Carlton stores with renewed identity opened at Colaba. We have planned to open 25 such stores in the next 6 months, market share gain of 2% in last 1 year.
Moving on to the revenue performance. Volume growth of 13%, yes, definitely value has regrown largely on account of netting off of e-commerce price support, lower secondary and reduced ASPs amidst intense competition and liquidation of SL inventory.
If I have to talk on channel-wise, e-commerce continues its growth trajectory. However, it was slightly lower base as compared to H1. Within offline, modern trade was relatively better given the expansion of doors and better product assortment. Institutional sales were better, given the effective demand and opening of new B2B accounts. Institutional sales has been growing consistently for us and the saliency has improved. International business suffered due to underperformance of key countries like Asia and GCC.
Talking about brand. Value segment continues its growth story, largely driven by e-commerce. While the lower end offering growth, our premium share of business continues to hold 50% plus revenue.
Focus on Carlton has resulted in increase in its salience in the overall revenue, more in the pipeline given the new launches planned in the near future, along with more store -- exclusive stores coming up. VIP also continued to hold share on back of successful new launches and price calibration with online and offline.
Kiara collection continues its stellar performance during Q3. Expansion of category in GT helped us register higher single-digit growth for quarter 3 for Caprese. Hard luggage continued to be the fastest-growing category, having share of 63% in the overall performance.
Moving on profitability. Gross margin improved by 150 bps, giving confidence on various initiatives which are underway, further cementing on this front. Focus on cost rationalization and better absorption of fixed overhead, coupled with gross margin improvement, resulted in sequential improvement of 600 basis points in EBITDA. The complete benefit of all the initiatives will be visible only in subsequent quarters to come. The overall loss has further curtailed sequentially on reduced turnover.
Future outlook. Industry is seeing tailwinds on back of number of wedding days, religious travel, hotel occupancy, month-on-month increase in the percentage of travel numbers. We are on track for our transformation journey. The early signals are already visible in quarter 3 results, and more of the same will be visible in quarter 4.
As promised earlier, for a 12% EBITDA for exit quarter, I'm quite confident that we will deliver this promise. New launches across all product categories are on track and hopeful of some handsome contribution in the overall revenue during the upcoming season. Bangladesh operations are running without any disruption and capacity utilization is likely to exceed in the coming quarters, and it will start contributing positively to the overall results.
With this, I would like to conclude my opening remarks and open the floor for questions. Thank you.
[Operator Instructions] We'll take our first question from the line of Riddhesh Gandhi from Discovery Capital.
I joined the call slightly late. Could you just talk a little bit about how much of excess inventory you've been able to liquidate in Q3? And how much is, I mean, balance still? And overall, how much your debt levels are right now?
So basically, we have reduced our inventory overall by INR 225 crores. If I have to talk about the slow-moving, it is in the range of around INR 80 crores to INR 100 crores now. And hopefully, this should be meaningfully reduced in quarter 4. Second question, debt, we have reduced by INR 87 crores.
Okay. But I mean I think initially, what you had guided towards in Q2, and at some of the conferences was that there was going to be a higher amount of liquidation of the slow-moving inventory, right, and a higher reduction in your debt levels in Q3, right? So just wanted to understand the reason beyond these slightly slower...
We had indicated INR 100 crore reduction in debt by March. We are at INR 87 by quarter 3. So we are there. Liquidation of inventory, yes, we had indicated that it will be in the range of INR 500 to INR 550 by end quarter. We are still striving to reach this.
Got it. Got it. And with regards to your EBITDA margin. Do we expect from Q4 onwards for it towards a double-digit EBITDA margin as well?
Yes. So that was part of my commentary also that we had promised 12%, and we are there to deliver that for quarter 4.
We'll take our next question from the line of Jinesh Joshi from Prabhudas Lilladher.
Madam, if I look at our other expense, it has come off meaningfully to about INR 150 crores in this quarter. So is it primarily due to reduction in the warehousing and freight cost, given the progress made on inventory liquidation? And the fact that you mentioned about INR 80 crores to INR 100 crores of slow-moving inventory is yet to be liquidated, what should be the new normal as far as your other expense cost is concerned?
Jinesh, Manish over here. Your understanding is right. The larger reduction of the overall part of my inventory-associated cost, including my warehouse as well as the secondary freight, what we used to incur between the 2 store locations. If I look from the -- going forward, the quarter 4, more and more the further inventory liquidation will help us out to reducing such kind of cost for you to keep in mind that we will be preparing ourselves for the quarter 1, which is a shubh muhurat in our off-line channel. So we may have to -- probably, the level of warehouse and the cost may remain same. However, the composition of the inventory in terms of slow-moving will substantially get reduced and we'll be having a larger share of the inventory catering to the new product launches for the upcoming season.
Sure. Is it possible to call out what is your excess warehousing cost in order to house the INR 80 crores to INR 100 crores of slow-moving inventory that we still have with you?
I would not like to do too much quantification, Jinesh. But to give a flavor of it, it could reduce around 5 lakh -- amount of 5 lakh square feet space in the last 4 months' time frame, and hopeful to go further down by another 1 to 2 lakhs minimum, keeping in mind that we may require some of the space for inventory buildup, which will take it for the quarter 4 for the quarter 1 preparation.
Sure. My second question is on our Bangladesh operations. Apparently, after 3 to 4 quarters, I think we were profitable in that region. So can you highlight what was the capacity utilization in this quarter? And given the fact that now industry is moving towards hard luggage and we predominantly manufacture soft luggage over there, do you foresee material improvement in the utilization to come through? And in that context, if you can also highlight what is your annual fixed cost of running the Bangladesh operation?
So Jinesh, for quarter 3, our utilization was at 60%. It is profitable because we have done quite a lot of work in reducing the overall cost there, including manpower because manpower is the largest cost. As indicated earlier also, last year, same time, we had 8,500 people there. Today, we have 3,500 with more capacity utilization because till now, we haven't started producing uprights. However, from January, we are starting to produce soft luggage uprights in Bangladesh. With that, our utilization will be in the range of 85%, and therefore, it will have a meaningful processing. But in case the cost structure is at 50% utilization, we'll breakeven.
Understood. Understood. One last bookkeeping question from my side. I think the inventory reduction number is INR 224 crores over the 9-month period. But if I look at 1 of your slides on the balance sheet in the PPT, the inventory for December '23 is at about INR 829 crores versus the March number of INR 916 crores. So if you can just highlight the difference part over here.
So when we are talking about a reduction of INR 224 crores, we are talking from the March '24 level, which is the peak INR 916 crores. Yes, the December inventory was on a lower side. Our expectation to go back to those levels in the near 1 or 2 quarters once we are through the slow-moving as well upright inventory on this quarter.
No, sorry. I think I did not put it across properly. The reduction from INR 916 crores to INR 829 crores is somewhere around INR 100-odd crores, some INR 100 crores.
It's different. INR 916 crores to INR 624 crores.
Yes, yes, you are reading it reverse.
You're reading in reverse, Jinesh.
We'll take the next question from the line of [ Bhargav ] from AMBIT Asset Management.
[indiscernible]
Bhargav, can you use your handset mode? Your audio is not clear.
Yes, can you hear now?
Little better. Please, go ahead.
Yes. So congratulations on the return back to profitability in 3Q. So my first question is on gross margins. So if we look at Q1, Q2, Q3, consistently, we've seen gross margin improvement. But this is on the back of significant pricing pressure. So how are we sort of managing this? Is it that the share of Bangladesh is rising and that is what is helping us to improve gross margin despite such pricing pressure?
So I would say that quarter 1, quarter 2, we know that Bangladesh was having negative results. Quarter 3 has just a breakeven in terms of it and contribution has come positively from the Bangladesh side. So one aspect on the Bangladesh turnaround.
Second thing is, as you recollect, we were working on various cost initiatives as well as benchmarking of our product with the competition. That helped us to calibrate our price in a more meaningful manner contributing to the overall gross margin improvement.
And there are some more actions which we are doing on the product as well.
And when we are guiding for the 12% exit margin in fourth quarter, is it primarily led by gross margin improvement? Or do you think there is a scope for further savings in the OpEx as well?
3% on account of gross margin balance on account of operating leverage.
Okay. And if you look at your other expenditure, the run rate are reduced significantly Q-on-Q, INR 190 crores to INR 150-odd crores. So on a sustainable basis, assuming that we grow at about 15%, 20% maybe next year, what can be the run rate we can look at in other expenses on a quarterly basis?
Other than freight, everything else is fixed, right, Manish?
Yes. And we do keep in mind that as we move forward, probably expenditure on our brand investment will slightly go up from where we are currently. So I would say that I'd rather look into the leverage which fix overheads operates. We need to see how quickly or in a meaningful absorbed expenditure in order to contain the overall percentage of overheads to turnover.
And lastly, is it possible to highlight what has been the operating cash flow and free cash flow in 9 months?
So if I look from the operating cash flow perspective, it is around INR 200-odd crores we generated in the period of 9 months. And the utilization of that is towards our repayment of the debt to the tune of INR 86 crores to INR 87 crores. Interest and moderate CapEx we incur of INR 30 crores to INR 35 crores. Remaining is in the cash and cash equivalents.
Next question is from the line of Ritesh Shah from Investec.
Ma'am, first question is, can you quantify what is the absolute quantum of inventory that we are holding right now, December end?
INR 692 crores.
INR 692 crores. And, ma'am, what will be our target, say, by March and then June end?
So as I just said to the other colleague that we have to -- inventory level is slightly on a higher side given our Q1 season. We hope to remain within another INR 700 crores to INR 720-odd crores by 31st March. But by June 2025, we should go back to a normalcy of INR 500 crores to INR 550 crores.
Okay. That's helpful. Sir, my second question is just if you could give us some flavor on we have appointed BCG. Basically, they are working on multiple variables, including revenue optimization, reduction in cost and optimization of supply chains. If you could run it from a top-down standpoint, what is it strategically that we are looking to achieve and if there's any possible quantification over there, that would be quite useful, ma'am.
So basically, we are looking at across all areas, how can we reduce costs and improve our margins. So basically, the project is to add INR 250 crores to the bottom line in nutshell. So we are 50% through, and it's working around to basically increase gross margins, reduce cost, supply chain, secondary freight, across all areas.
Specific to supply chain, are we looking to try a different model, hub and spoke, outsourcing? I think you had spoken about that earlier...
Not looking at a different model, but maybe optimize our network where and how we should have. And the second, we are also working on a fill rate because that is something which was a problem also to see our freight percentage as a revenue was higher than the peers. So these are the 3 things which particularly...
And more meaningfully, once my inventory level comes down to normalcy, probably some kind of leverage will certainly start going in.
Right. Ma'am, I think you had indicated on revenue optimization as well. Is there any internal benchmarks that we are at versus where the competition would be and we look to reach there? Any number that you can help us with.
As we said that the market share, yes, definitely, in last 1 year, we have gained 2%, but we are still below the industry growth. So that is something where we want to do better than industry. And that is the only part where the market share can go up. Today, we are at 38% market share. The idea is to have stable market share at 40% and then maybe 1% or 2% increase from this.
Any other operational parameters, ma'am, be it fill rate or sales velocity or store economics that you would like to highlight or call out for?
Each and everything is what we are working on currently. For example, in e-commerce, we are working on how we can increase our share on marketplace. In case of retail, we are working on how we can increase same-store growth. So like that each channel we are working on, also working on better assortment. Like for example, in CSD, we are listing other products which are newly launched. So like that each channel, we are having areas of improvement. In case of institution, we are adding more customers. So more corporates into the fold.
We'll take our next question from the line of Naveen Baid from Nuvama Asset Management.
So ma'am, I have a question on volume growth and price growth -- realization growth for next year. So this year, we've seen almost 15%, 16% volume growth, but almost entire amount has been taken away by either realization change or a change in mix. Can you throw some color on what the volume growth could look like for the next year? And are we at the bottom end of the pricing decline?
I think yes, we are at the bottom end of pricing decline. Next year, we believe that whatever is the volume growth will be the value growth because there are a lot of initiatives, which they are working on to make sure that our realizations improve from where we are. One thing on realization is also because of the liquidation, which is currently on post-quarter 4, I think that quantum will definitely come down, which will help us to increase our realization.
And you guided for a double-digit volume growth over the next year. So can you just throw some more color as to whether it's being...
I would say maybe Industry growth and industry is expected to grow 8% to 10%. So that's the kind of growth you can consider at this point of time.
Next question is from the line of Tejash Shah from Avendus Spark Institutional Equities.
First question pertains to, ma'am, your guidance or your comments -- opening remarks that our margins -- weighted average margins and gross level were largely dragged down by the SL uprights liquidation. So I was just looking at saliency of uprights is just 13% left now, which was 23% last year. So a commendable job there. But was just wondering that 87% -- the balance 87% saliency, is it operating at north of 50%? And this is like very U.S. kind of liquidation, hence, it must be at a very, very low level, or the gross margin delta is not marginally different from what average is today, which is 46.5% and hence, the 300 basis point guidance that you have said for the next quarter improvement will be largely driven by this 13% going to 0 and PAT itself will improve the number.
So 13% will not go to 0. There is always some natural demand. However, today, what we are doing is let's assume we are maybe operating at a 15% to 20% of gross margin versus the company average of 47%, right? Now that share when the liquidation piece comes down that gets into the delta.
The second piece is, as I said, we are working on improving the realization across the brands, so brand mix also. So we want to sell more of the VIP and Skybags. Last time also, I touched upon this that in the opening price point, set pricing today, we are focusing more on Aristocrat.
Going forward, we want to focus more on Skybags and VIP. What that will do is that will as additional revenue, which is like let's assume today Aristocrat set is sold at INR 7,000. Instead, I will sell a set of INR 10,000 more, which is VIP and Skybags. That will help me to improve my margins, also increase realization.
Sure. And, ma'am, your guidance on double-digit margin by fourth quarter. So how should we think about margins now sustainably going ahead in FY '26 and beyond?
So FY '26, I always said that we should be able to do 15% by spending more on the brand because whatever initiatives we are doing today to see brand visibility is low. Most of the spend we are doing today is on performance marketing in e-commerce. I think next year, we want to spend 2%, 3% more on the brand. Otherwise, we can do 18%, but I want to spend more on the brand. Therefore, 15% is what I want to do for the year -- next year with more spend on the brand.
And Ma'am, this 10% to 15% gap will be bridged by gross largely or operating leverage?
So today, if you see a lot of these initiatives. One is gross margin. The second piece is, today, whatever initiatives we have done, it's not fully kicked in. For example, I spoke about org restructuring. Now that benefit will start from January, but next year, it will be a full year impact.
Okay. And org restructuring...
For every line item, it is like that, for example, now warehousing costs. So as in the earlier question, Manish said that our inventory going forward from June onwards, it will be in the range of INR 550 crores. Today, we are at INR 700 crores. So that INR 150 crores reduction in inventory will automatically reduce all my costs associated with warehousing, loading, unloading, warehousing across.
Got it. And then lastly, we had some credit rating downgrade around December. So had it impacted -- has it impacted our cost of borrowing or -- and is the Board considering any equity infusion to improve the balance sheet situation inorganically rather than waiting for demand situation and other things to improve the balance sheet?
So if you look into it, our short-term borrowing rating remained the same at the highest level. It's the long term, which we are impacted. And today we are having all the working capital loans, and these are short term in nature. So the interest cost has not been impacted severely on this ground. Furthermore, once we have the debt reduction plan, which we already done it and more in the pipeline, furthermore with the improved results, I'm sure that in the next year, we look forward probably upgradation in our overall rating and more stable on the long-term perspective.
Next question is from the line of [ Niharika Karnani ] from CapGrow Capital.
Hello?
Yes. Go ahead.
Yes. Hello? Am I audible?
Yes, yes. Please go ahead.
Yes. Yes. So yes, I just had a couple of questions on the numbers. So we understand that there has been a value degrowth this quarter compared to volume growth of 13% and market share has been around 38%, which was there in last quarter as well, as far as I remember, which was around 200 basis points dip from 40%.
So I mean, I know we are moving towards premiumization, but that has been the talk for last 2 quarters. When would it start getting reflected in the numbers is the question that I would go for because I mean, not much major improvement has been witnessed in last couple of quarters.
I would say that you are saying that because today, the numbers are having a liquidation impact. As soon as I remove the liquation impact, which is maybe from a quarter end from now. So maybe first quarter of next year is when you will see a meaningful difference or improvement, when the gross margin goes above 50%.
50%?
Gross margin, yes. Today, it is in 40%. [indiscernible] 50%, once the liquidation piece gets reduced. And that is when the impact from premiumization will come. If you go to our store, please visit, you will know that a lot of premium products have been launched. But that is not visible because of the liquidation, which is continuous hang on us, which should get over maybe in next 3 to 4 months.
Understood. And just a follow-up question on this. As discussed today, we'll be sitting on inventory of around INR 500 crores to INR 550 crores even at Q2. So just wanted to speak on liquidation. So from the current levels of INR 693 crores of inventory to INR 550 crores of inventory in quarter 2. So liquidation will continue beyond Q2 as well? Or do you foresee it another 3, 4 months?
So INR 500 crores to INR 550 crores is a normal inventory, which as an organization we will always have. What we are talking about liquidation is only extended to mostly quarter 4, a little bit maybe in the April month.
However, for April, May, June, which is our largest quarter, we are getting ready. And then therefore 31st March, we are guiding for no reduction in inventory. However, the composition of inventory will be good inventory versus bad inventory.
And to add on what -- to just add on what MD said, you got to keep in mind that quarter 2, again, will be an e-com-driven quarter. So some level of inventory, INR 550 crores when we are talking about is keeping in mind the e-com seasonality. Given a choice to us and as we are planning today, the average inventory level should go down to INR 465 crores to INR 480 crores level as we come out from both the season of quarter 1 and quarter 2.
Understood. Understood. And one last question. So we were speaking about facing intense competition in both e-commerce more than retail space. So like apart from new launches, what steps, I mean, are we taking to counter this competition and, again, regain market share of 40%, which is the ideal market share?
So I actually answered this in my earlier somebody had asked. Each channel, we are looking at various initiatives. For example, in e-commerce, we are looking at how can we increase our share of marketplace and quick commerce.
In case of retail, how can we increase our same-store sales growth plus add more stores like I spoke about Carlton-exclusive stores, additional 25 to be opened in the next 6 months. In case of general trade, we will be looking at expanding the doors. In case of institution, we'll be looking at adding more corporates into the fold. So each channel, we have a strategy to expand, and that is where it will help.
Next question is from the line of Jigar Jani from B&K Securities.
Congratulations on a good set of numbers to both of you. So on inventory, out of the INR 692 crores inventory, I believe last quarter, we had said that INR 180-odd crores is a soft luggage inventory upright, which is slow-moving. This should -- number should be around INR 100 crores now. Is that a fair assumption?
Yes, INR 95 crores to 100 crores, absolutely correct.
And this should ideally, given your run rate, run down by Q4 and probably some part of 1Q?
Yes. That's what I said. Partly maybe April.
Okay. Understood. And the remaining is HL, right? I mean there is no [indiscernible].
There is an SL. There is a duffel. There is a backpack, which is a normal inventory, which as an organization to -- so 90 days' inventory is something which we'll always have for our kind of businesses.
Understood. And Ma'am, last time, you had mentioned 55% gross margin you are targeting for FY '26. Would it be fair to say it will be more an exit quarter guidance for Q4?
I never guided for 55%. I have guided for always 50%. 50% for exit quarter and then 52% to 53% in FY '26. 55%, it can never go because our mix has now changed for permanently, like Aristocrat is not going to go away. Only 2%, 3% mix can change. So therefore, 55% is a dream, 52% is something where best-case scenario in FY '26. And exit quarter I guided to 50%, which I'm still guiding for.
So FY '26 average, we should be able to do [indiscernible] for the full year?
Yes, correct. Starting with 50% and going upwards, right? It will be like...
Yes, yes. It will be a gradual up move.
Yes.
Yes. And lastly, on this e-commerce thing. I think last quarter, you had highlighted that you are entering into agreement with the e-commerce portals to not sell the VIP and Skybags beyond certain price. That is in place now?
That is in place for VIP. So if you see VIP, it is sold at MOP, which is the minimum price at which they cannot sell below that. So it's an MOP now for any product of VIP across all the channels, there is no discounting.
Right. And have peers also kind of adopted this strategy or they're still okay with e-commerce for this?
[indiscernible].
We'll take our next question from the line of Prerna Jhunjhunwala from Elara Capital.
I just wanted to understand the revenue forecasting methodology that was also a part of PCG KRA. So wanted to understand how it is improving the inventory position for you? And overall sales forecasting, how it has changed as an organization?
So it is a continuous process. We have put up some mechanism also use of technology, whereby for A class, we are moving into a replenishment model versus B and C, which will get into forecasting. Because one thing we have realized that 4 months -- before 4 months, it is very difficult to forecast something which is now more fashionable rather than convenience.
So our industry is becoming more fashionable and priorities are changing. And therefore, we are following now A-class replenishment B and C will be forecasting. So yes, rates have improved by 15% to 20% in the last 6 months. It is further slated to improve as we move along.
To add what Neetu said, just to clarify the revenue fixation target was never part of the BCG exercise, more driven by the industry and our own aspiration to that.
Okay. Okay. So my apologies over there. I just wanted to also understand that eventually, can the inventory days that you mentioned right now that we should be 4 months and 3 months inventory we should keep. Can, with more India operations and more sales coming from India manufacturing, this number of days can reduce further? Can that happen?
We want to reduce it to 75, but first let us reach 90. And then definitely, aspiration is to be at 75 days.
We'll take our next question from the line of Karan from Keynote Capital.
The first question is on if you can share, are you seeing any meaningful shifts in consumer preference shifting towards off-line channels and mid-premium segment? If you can give some on-ground insights.
So basically, online share in our industry is actually increasing. However, we are -- we'll have to do something different to bring customers to our stores. And few of the strategies where we are following this is that some of the products exclusively available only in our stores, only in offline. Online it is not available and few of such things.
But there is a set of customers who will always touch and feel before buying. But consumer preference definitely moving towards online more people, maybe sitting at home in their inconvenience, they just want to buy. And there is an option to return as well. So call for three, keep one, return two. I think that's where it's happening. But we'll have to do meaningful changes to bring customers to our store, which is what we will be doing, like exclusive products available only at the V.I.P. lounges and so on.
Understood. And second and my last question is on your current competition landscape. If you can give in terms of categories like soft luggage and hard luggage, what is the current competitive landscape?
So basically, I would say that soft luggage, we do not have much competition as such. However, soft luggage demand per se has fallen. But hard luggage, definitely, there's an intense competition from not only top organized players, but there are new B2C players who have come into the market in hard luggage.
And in fact, I believe that every six months, there is one new player entering into this market, but which also gives us the confidence that the market is doing well and therefore, so many entrants. If we do right things, I think we can definitely do better.
Next question is from the line of Varun Singh from AAAPMS.
Yes, sure. My first question, Neetu ma'am, is given that e-commerce and hard luggage, these are the two, maybe Sunrise channel and segment. So with regards to the growth drivers, because, as you rightly pointed out, that in e-commerce space, it's all about pop colors, design and the price and maybe the customer reviews, et cetera, which customers are browsing at the convenience of their home.
So like as a category leader, what are the incremental hard work that we are doing to maybe tap on this growth opportunity. Because when I see over last six months, maybe data, et cetera, whatever is publicly available on Amazon, Flipkart, et cetera. Maybe I would have missed figuring out the extra work that we are doing. So if you can highlight some bit on that part.
Your voice was very, very feeble, some disturbance. But whatever I understood your question is that what are we doing differently to compete with the players in the online market, right?
I mean not just differently in terms of what are the growth drivers that we are tapping on these two -- on e-commerce platform and the hard luggage segment. What are the incremental...
.
Yes, we're working on a better portfolio, giving a better product to the consumer. Also, V.I.P. is known for its product durability and reliability, right? Like today also Aristocrat has a warranty of 7 years.
The other competition is at three years, we are at 7 and 5 depending on the model. So basically given a better looking products with better quality is something which is our forte, and we will be communicating this more and more to succeed. And if you see our product portfolio, I think we have done good work and it is actually better than competition today as we speak.
Yes, that's correct. Why I was asking this question is because on the e-commerce channel platform itself, it becomes tough for a customer to objectively conclude that which product quality is how much superior other than whatever customer review rating, they could just have a look upon.
So given that price becomes so much sensitivity variable in customer decision-making framework, I mean, don't you think that it is counterintuitive when we say that on V.I.P., we will not be selling at a maybe offering selling at a lower price. At the same time, trying to premiumize the entire portfolio, whereas the customers don't want to premiumize. They want to go down the value chain looking for just design and price and keep switching there.
[indiscernible] story. We will have to live with it and deal with it as it comes. The good part is that we have four brands to play with. And therefore, I need to give -- see, for us, offline is the largest portion of our business today also unlike some of the people who have only online business, some of the people have 60% plus business coming from online. And therefore, I have to protect my off-line.
This is the reason why one brand I am keeping away from stiff pricing that helps my offline channel to grow because offline is 70% of my business. And I can play a similar thing with Skybags, because Skybags is also premium. Carlton is one which I have. So that is the reason why from online, I'm not removing V.I.P. I'm only saying V.I.P. will not go below a particular price. That is to safeguard my off-line business.
A few things which actually I'm doing to safeguard my off-line businesses, I can tell you. So I started our loyalty program. I've also started a buyback program for off-line customers. I've also started extra warranty if they buy off-line. So in fact, I'm doing the other way, I want my off-line business to also grow along with online.
Fantastic. And my second question is on the BCG 15-month project part. So over the last call, you highlighted that in five ways -- I mean, this is a five waves project. And from the October month itself, we should start seeing the benefits. And maybe by the end of fourth quarter, the result of the third wave will be visible.
Maybe that is what you are pointing out with regards to gross margin benefit expansion. But do you think that INR 250 crore bottom line improvement that you said, that is likely to take more time compared to the 15-month project time, which the guidelines which was given earlier. Anything you want to call out on that part?
It's INR 250 crores addition to the bottom line when we say it's a full year impact, right? Now each wave will have something which will add to quarter 2, then something to quarter 3, something to quarter 4.
So this 15-month project is getting over only in the next year. And therefore, some benefits will definitely be in the next year. And that is where I said that we have a potential to go up to 18% EBITDA. However, I want to spend 2%, 3% more on the brand. And therefore, I'm happy to have a 15% EBITDA overall for the organization.
Understood. And just one last question, if I may. When are these hyper discounts kind of situation is going to normalize as per your honest assessment in the hard luggage space itself?
It is difficult to comment on that because we are not seeing competition -- competition coming down or reduce making any efforts in that direction. However, if the coal price goes up things can change, but that is also not something which is on the cards are visible immediately.
What we can foresee was there any such kind of substantial reduction, what we have seen in the last 15 months is not...
It bottomed out now. Maybe this is the new normal.
[Operator Instructions] Next question is from the line of CA Garvit Goyal from Nvest Analytics Advisory LLP. Please go ahead.
My question is already answered. Thank you.
Next question is from the line of Akhil Gulecha from Hornbill Capital.
Yes. So actually, I'm new to the industry. So pardon me if my question is a little generic. But I wanted to understand what is actually happening in the industry. Why are the incumbents struggling with growth as well as margin pressure, because traveling by all other indicators is doing very well and it is growing. So what is happening? Is it that the whole market is struggling? Is it that it's a challenge because of the incumbent list. What is happening in this industry?
So multiple things. One good part is that demand indicators are good. Travel is happening. It's actually the industry which is still doing better than all the other industries.
What is happening is a lot of new entrants into the market. Now why new entrants? It was not there earlier and why they are coming now. In the past, a lot of these luggage, like 50%, 60% used to be soft luggage versus today, it is becoming hard luggage.
Hard luggage is actually easier to produce versus soft luggage. Soft luggage needs a lot of craftsmanship and whereas hard luggage it's a machine-driven injection molding machine. If somebody has, they can definitely look at reducing this.
Since this is -- market is doing well, a lot of the entrants are entering also, a lot of these garment industry. Actually, if you go to the market, you will see that everybody is starting with luggage. And that is where the competition, that is where the pricing pressure.
In soft luggage, our opening price never fell below INR 2,500, whereas in hard luggage now, we also have a product at INR 1,399 and INR 1,499. And consumer preference, consumer is habituated now to buy something at cheaper, more colorful, more good looking. And they don't mind buying something and then changing it after a year or two. So that is another big change.
In the past, the replacement cycle used to be 7 to 10 years. I'm talking maybe 5, 7 years ago, then it reduced to 3 to 5 years. Today, as we speak when I talk to consumers, they want to change their luggage every 1 to 2 years. So that's the big change which has happened.
And therefore, they want to shelve less money, buy cheaper, replace it maybe almost every year. The other thing is that hard luggage will get scratches, whether it is a INR 5,000 product or it is INR 15,000 product, because the way it is handled at the airport. Now that also makes the consumer feel that why spend more, buy something which is reasonable and then maybe change. So these are various factors which have changed for this industry in last, I would say post-COVID.
A couple of points. So replacement cycle reducing is actually good for us, right, because it's a bit positive. So the other part is you said that the prices have sort of gone down. So do you think this is going to be the standard now that the margins will reduce in industry whatever Pre-COVID.
Yes, it is like a new normal. However, there is a set of customers who also wanting to premiumize and go. So we'll have to do work for those customers alongside. So today, let's assume my share of Aristocrat is in the range of 55%. Now that is something which I need to keep intact. It should not know -- now I don't want this 55% to become 60% and go up from here. Sorry, 55% is mass premium. Aristocrat is around 40% to 43%.
So I don't want Aristocrat to further move up from this 42%, 43% to maybe 50%. That will be our aim, which means I need to grow my other brands by doing different things. So launching something which is new for the industry, like I'm doing a lot of work on Carlton, so that my share of Carlton goes up. Today, the share of Carlton is 6, our intent is that how can we make it 10%. That will have a meaningful difference in our profitability as well as the overall stress on the -- reduce the stress on the P&L.
Okay. Okay. Understood. But the 17%, 18% EBITDA margin that you used to make pre-COVID, that is unlikely unless the premium segment does really very well?
So as I said, I want to spend more on the brand. So it can become 18%, but I want to spend more on the brand, and therefore, I'm okay to do 15%. Maybe the new normal from 15% it will be -- 18% will become 15%.
We'll take our next question from the line of Ritesh Shah from Investec.
A couple of questions. First was on the tribunal favorable judgment that you indicated. Can you help us refresh what this was exactly pertaining to? I think it was pertaining to some transfer claims? And when do we see a cash flow impact on back of this?
There won't be any cash flow impact. So this was in the contingent liability hanging on us. At any point of time, we could have like department would have come in and like paid INR 400 crores today. Now that is behind us.
And this was basically on stock transfer. So basically, we have paid -- this was in the VAT regime, right? Yes. It was in the VAT regime, where we have paid tax in the state where we sold. However, the department said that pay on the stock -- at the time of stock transfer also. But then it would have meant double taxation. But yes, there was a demand with penalty of INR 400 crores.
Okay. So it basically moves out of contingent liability, that's how one should read into the impact, right?
Correct.
Okay. Second is you made a very interesting point on MOP with respect to VIP and to protect the retail channel. Any particular reason on why we are doing it now and why only on VIP and why not some other brand of ours?
So basically, during the month of -- between September, October when all the online trade, like online platforms, reduce the pricing to a certain extent that it was unbelievable, our off-line partners got offended and they actually said that we will stop buying.
Now I had to find a strategy to -- see, I cannot leave e-commerce because that's a growing channel. Same time, 70% of our business is coming from off-line. So I had to devise the strategy to protect both. And that is when we decided that. We thought that VIP and Skybags are something which is in the premium segment, and we can think of doing MOP to protect my off-line customer, and that is what we did.
And why only we, I think because I can't do it with all the others. Because if I do with all, then my online will suffer. And online is a growing channel, which I can't -- not cater to. So this helps me to actually cater to both. This also impacted by revenue in October, November. And after implementing this, actually, I got good numbers in December.
Okay. So ma'am, VIP is around 25% of our revenues. What part of VIP will be ex-e-com?
E-commerce was a small portion, like overall e-commerce, it was 10%. And therefore, sacrificing that was easy versus sacrificing the off-line.
Okay. That's helpful. And ma'am, just for the sake of repetition, I think discounting has been pretty hefty in the marketplace. Would it be possible for you to give some sense on who's driving it and who's following it? So there are several D2C players, obviously, who are very aggressive in the marketplace. We also want to liquidate our inventory.
Yes. We are doing it only in soft luggage. We are not doing deep discounting in anything other than soft luggage. However, the online platform like Flipkart and Amazons of the world, they are doing discount.
In fact, some of the times -- sometimes, they are selling below their purchased price. Why? And so that is the big problem. And they are investing in the brand and not us. But yes, I think it has come down because they also have pressure on profitability now.
Sure. And lastly, you have indicated how the inventory will actually move into March into June. How are we looking at our production scheduling as we go into March into June?
This will be aligned with the requirement, the [ seasonality ] which is coming up. So our production will be slightly higher in the quarter 4, both at Bangladesh and our India factory.
Okay. And last question...
I [indiscernible] understand your question. So what do you want to know?
Yes. Ma'am, basically, we indicated that we'll reduce our inventory as we go into March and into June. So obviously, we have optionality...
As we said March it will increase. We said we will increase. This 92 will be 720. And then June, it will reduce to 550. This is what we said. No, I think quarter 1 is a big quarter, and we are getting ready for it. Therefore, it will increase now. The only difference will be that the inventory composition will be new inventory and not liquidation inventory..
Sure. And ma'am, lastly, any numbers that you would like to qualify on channel expansion EBO, MBO, where we are right now and where do we intend be, say, 12 months, 24 months out?
So we want to increase by 50 stores in next 12 months, and we'll be focusing mostly on the top 20 cities to start.
And ma'am, what's the count right now?
410.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Manish Desai from V.I.P. Industries Limited for closing comments. Over to you, sir.
Yes. So thanks to all of you for attending the call. I hope we have answered all your questions. If anything still remain unanswered, we are just a phone call away. Thank you, and wish all of you a good day. Bye.
On behalf of V.I.P. Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.