Ladies and gentlemen, good day and welcome to the Q2 and H1 FY 2025 Earnings Conference Call of V.I.P. Industries Limited. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing the star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Patil from Adfactor PR, Investor Relations Team. Thank you, and over to you, sir.
Thank you, Steve. A very good afternoon to everyone, and welcome to the Q2 and H1 FY 2025 Earnings Call of V.I.P. Industries Limited. From the 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 financials 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 risk and uncertainties. Thank you, and over to you, Ms. Neetu Kashiramka.
Good afternoon, everyone. Thanks for joining the call. We just announced our second-quarter results yesterday, so before we get into the revenue and profitability, I would like to give you two or three highlights, which are the positives for the quarter and H1. B asically, in the past six months, we have been able to reduce our inventory by 174 crores. Also, our market share has improved, so two quarters ago, our market share between the three organized players had reached 36. Today, it stands at 40. F or this quarter, we are yet to get the numbers, but I'm quite confident that even this quarter, we will gain some market share. Moving on to quarter two P&L performance. While revenue value growth remains flat, volume growth stands at 18% for the quarter, and for H1, it is at 14.4%.
Moving to quarter two P&L performance, so overall revenue growth for the quarter was muted, mainly due to low uptake from the traditional channels, due to aggressive pricing by e-commerce during Big Billion Day and gold sale. If you have to talk about channel-wise performance, e-commerce continued to do a good performance at 54% growth. Offline channel, as I said, was under pressure. Institution again showed a 40% plus growth for quarter two, and similar for H1 as well. International business mainly suffered due to underperformance of key countries in Asia and GCC. O ur major sale actually in the international market is to these two continents, and therefore, their growth is under pressure and so for us. Value segment continued its growth trajectory, which was driven by e-commerce sale. Lower end continues to grow better. However, 50% of the portfolio still is premium and mid-premium.
Carlton actually showed good growth, so premiumization agenda on the back of Carlton is showing a positive response. V.I.P. also grew. Skybags is a brand which did not show a positive growth, mainly on account of lower mix of backpack. In case of ladies' handbag, Kiara collection did well. Now we are going ahead in ladies' handbag with GT expansion. I think going forward, this will definitely show good growth. Hard luggage again continued to be the fastest- growing category, contributing to over 60% of the organization's overall revenue. If you look at gross margin, I think this is where the major pressure was. However, sequentially, it grew by 80 bp s. If you look at year- on- year, there is a dip of 1,000 basis points, mainly on account of brand mix and channel mix, also coupled with soft luggage inventory reduction and lower production in Bangladesh.
EBITDA got impacted due to lower GC, and other expenses were higher, mainly on account of warehousing costs because of high inventory. I understand that the transformation journey, as we spoke, is showing slow visible improvements, in spite of a lot of work happening across each area. I'm quite confident that the result of these initiatives will start to be visible starting quarter three, and more so improving our profitability for H2, as promised earlier as well. If I have to talk about demand indicators, it looks fine with festival around and also upcoming wedding dates, which also looks to be very strong in quarter three and a part in quarter four. We are steadfast in our transformation journey, successful results of which we'll start showcasing in the upcoming quarters. Bangladesh factory is now running full-fledged, and from quarter three onward, it will also start showing profits.
New launches of backpack for the new upcoming season are also on track, and hopefully, this will start giving better results to our revenues. Some of the initiatives to also launch some products in V.I.P. and Skybags will start to increase gross margins. There are multiple initiatives which are happening across each area, specifically to improve our gross margins. I think it will start to see in quarter three onwards. With this, I conclude my opening remarks and open the floor for questions. Thank you.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use a handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Tejas Shah from Avendus Spark Institutional Equities. Please go ahead.
Hi. Thanks for the opportunity. Ma'am, first question is, as you called out in your opening remarks also, we have clearly made good progress in gaining market share. I t has come at the cost of profitability, even in this quarter, on YoY basis is a sizeable shrinkage. H ow do you plan to manage this balance between gaining market share versus going back to our gross margin profitability?
T wo things. One, we have taken certain calls for selling at a lower price, mainly because we were stuck with used stocks. It's not that we want to do this on an ongoing basis. Second, our thrust on V.I.P. brand will start to increase soon. T hat is another initiative which we are doing, so that our margins can improve. T he gross margin difference between an Aristocrat and a V.I.P. is more than 800 basis points. S lowly, you will see that our focus is more on V.I.P. versus Aristocrat, especially in offline channel.
Ma'am, if I have to narrow down the problem statement, there is a certain proportion of slow-moving inventory which we are liquidating at a slightly lesser margin, a nd that inventory is largely pertaining to Aristocrat and Alfa. O nce that is done away with, margins should revert back. Is that the right understanding?
Yes, you are perfectly right. I think, sorry, as I had promised, our gross margin should definitely be around 50%.
Yeah, okay. T here is one visible change in our mix, is also channel-led margin shrinkage, which is definitely online and institutional business now having higher sales. D o you see that fourth quarter, that the economics of this channel will change, or their contribution in overall revenue will change or go down, hence margins will go back to normal level?
It's a mix of both. Quarter two generally is a high e-com quarter, because all these Big Billion Days and growth is scheduled here, and quarter two is always high on e-commerce. However, H2 will be at a percentage of overall saliency. E-commerce share will come down in quarter three, quarter four, but we are also having initiatives whereby our e-commerce margin has to improve, and that's also some work in progress.
Okay. M a'am, this pressure on pricing, are we the source or are we responding to competitive pressure? W e had some slow-moving inventory, hence we are cutting prices. That is dragging down margin for the industry, or we are responding to some competitive pressure?
I think we are doing this for our soft luggage liquidation. However, in the other area, which is hard luggage, also there is a pricing pressure, which is, we are reacting to multiple things. It's not only one thing, but see, there is also a lot of B2C players which are coming into the market and starting to sell. Now, all these players have enough money to burn, which we don't have, s o that's where we are a little bit playing on the pricing.
Okay.
Just to add what M.D. said, where the competition becomes intense, price is the one point which plays a larger role in minds of the consumers, and it impacts the most of the organizers and the incumbent players. T his is the outcome of that, what we are seeing. I'm sure that over a period of time, the industry or the players may see a consolidation, and things come to a level playing field among the remaining players in the industry.
Also, as I told you, we want to focus more on V.I.P. E ven if I have to reduce a little bit price on V.I.P., that is better because my realization will be higher and profitability will be higher.
Now, ma'am, m y question was largely around that, with 40%+ market share. The pricing discipline should come from us. T he B2C players which you called out, I still think that there will be less than 5% market share overall. M ost of those players are actually at different price points, perhaps competing with Carlton and likes on the price point. I was just wondering that, in fact, we also picked up from media news that one of the competitors also indicated that the market leader is very aggressive on pricing, and that's shrinking the profit pool. I was just trying to understand that once we are done with this whole pressure on slow-moving inventory, should we build a very normal margin expansion for us and the industry at large?
Yes, y ou're right. That is what we'll be doing.
L ast one, you also called out inventory holding costs for the last four or five quarters, that is a drag on overheads. W e have done a phenomenal job on reducing inventory in the last three, four quarters. H ave we reached to a stage of inventory where the holding cost will go back to the normal level, or is it still at a higher end?
One more quarter to get to the normal level.
Okay, t hat's all from my side, ma'am. I'll come [back and interview]. Thanks, and all the best.
Thank you. The next question is from the line of Jinesh Joshi from PL Capital. Please go ahead.
Yeah, t hanks for the opportunity. Madam, I have a question on our channel mix. I f I look at e-com with the 45% share, we have done really well in this quarter. I f I look at our share of GT and MT, at about 11% and 18%, it is at a five-year low. Y ou mentioned in your opening commentary that aggressive pricing in online is impacting our off-taking, the offline trade, s o just wanted to understand the thought process behind this move because essentially, this has created a channel conflicted theme. W hat's the thought process behind such kind of aggressive pricing in the online channel, and how do you plan to resolve it?
O ne, aggressive pricing on the e-commerce channel is not done by us. It is done by the portals. T wo, three things we are doing. We are going to give additional warranty for offline players. Second, we are also looking at having a pricing guardrail, especially for V.I.P. brands on online portals. Otherwise, we don't sell to the online portals the V.I.P. product. T hese are two big initiatives which we have taken to reduce this channel conflict. T he share is actually reduced because last 15 days, they almost did not buy because of this. W e met everybody. We have sent letters, and we have made these two changes, with which they started buying from the first week of October.
Madam, if the portal is governing the price and if it is discounting heavily, then obviously your brand equity takes a big hit. W hat are our thoughts on that? D o we have some plan in place that from Q2 onwards, this will not [audio distortion]?
It will be a pricing guardrail for V.I.P. and Skybags, which is our premium brand. They cannot sell below a particular MOP. A similar thing which had happened some three, four years back in the mobile industry, I think that's where we are heading towards. W e are already in talks with them, to give this to us in writing before we sell going forward.
Furthermore, to add, quarter two is, as you said, it's an e-com-led quarter. That's why you've seen the higher share of business. If I look into the YTD H1, it is hovering around 32-35, in line with what the industry presents heavily on e-commerce portals. We would like to maintain those kind of revenue share. O ur objective is to have all channels working in our favour, not going at the cost of the others.
Got that. One last question from my side. I f I look at our inventory liquidation in this quarter, it was at about INR 40 crores, and this is lower than what it was in the previous quarter. Now, given the pilot that we have, especially on the soft luggage side, can you quantify, what is the current slow-moving SL inventory on the balance sheet, and by when can we expect full liquidation to happen?
T he entire liquidation has said, we need one more quarter to look into it. In terms of the overall inventory, INR 50 crores got reduced in this quarter too especially. Largely, we have to manufacture some of the items, because of the e-com specific [SKUs]. Otherwise, my liquidation would have been much on the higher side.
C an you quantify, what is the slow-moving SL quantum currently that we have?
Sales quantum in terms of the value numbers or the volume-wise, we are getting around almost 5 lakh units of the soft luggage upright.
[audio distortion]
I f I take the backpack and duffel also to some part of it, maybe around put together all units, it will come around 7-8 lakh units together.
Sir, I want the value number, sorry. I f I remember right, that quantum was INR 300 crores sometime back, and in the last quarter, we did a liquidation of about INR 80 crores. What is the current quantum?
C urrent quantum would be somewhere in the range of INR 180 crores, b ut I'll reconfirm to you once we progress in the process. Just give me a minute.
Sure. I n that context, especially our debt level, which is at about INR 500 crores, given we have about INR 180 crores which is yet to be liquidated, and this would mean that the working capital requirements will be high, will we still be able to reduce our debt by about INR 250 crores, that we had stated in our earlier call?
I f you recollect the earlier conversation, we planned for INR 100 crores of reduction. O ut of that, we've already done INR 35 crores, s o we are on the track. H opefully, we'll meet our targets. We're hopefully to exceed about the INR 100 crores, but INR 100 crores is given what we are targeting right now a nd we'll adhere to it.
Sure, o kay. W e should be at about INR 400 crores in terms of debt by end of 2025.
Yes. If I net out the investments, what we see in the balance sheet, it will again further give me enough cushion for me to play around on this.
Sure. Thank you so much, and all the best.
I'll come back to you on the numbers in two minutes.
Yeah. That 180 crores, if you can clarify and deliver it. Thank you.
Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Good afternoon, Neetu and Mr. Desai. Just two questions. In the beginning, you mentioned that 18% volume growth in Q2. Can you quantify the number of pieces we have sold? S pecific question here is that, if I look at the contribution from the e-commerce, it's 45% at this time, . W hat is the volume contribution from e-commerce and modern trade?
Overall, sale volume is 44 lakhs.
It's 4.4 million units on the overall volume for the quarter two, registering a growth of around 18%. I f I want to go on, because every selling price between MT and e-com largely remains the same, s o it goes as per the revenue growth or the revenue mix we have in terms of the volume as well.
Y ou're saying similar number for volume also?
[audio distortion]
Slightly. I said because my MT health didn't do so well, it has slightly a degrowth, whereas e-com has given a growth of 45%.
Okay. The second question on the overall momentum, as you mentioned that second half to be, the saliency for e-commerce will be lower. I n that respect, how will the second half volume growth and revenue growth look like for you?
B asically, today, if you see our volume growth is 18% versus a value growth of 0%. In case of second half, I'm confident that our volume growth and value growth difference should not be 18, but it should be between 8%-10%.
If that is true or if it happens, what kind of gross margin you already mentioned that you will maintain at?
I mentioned that quarter four, gross margin should be 50%.
Okay. No, I'm coming on the operating margin, because right now when you look at, the margins are collapsed.
Yes.
I'm sorry using this word, b ut then you know what are the things at the back end you are doing. A t least if you believe that 50% mark you have achieved in terms of revolutionizing the entire front end and the back end, what kind of operating margin we should build in second half?
A re you talking about the gross margin or the EBITDA margin?
The gross, you already clarified, 50%, but I'm talking about the EBITDA.
An EBITDA margin of 12% for the quarter four.
Second half, I said, V.I.P.
Second half should be [audio distortion].
S econd, as we speak, it's a journey we have to progress. P robably from the 0% of EBITDA margin, we will move around 3%-4% via quarter three, and you'll find a significant jump getting into quarter four. B y then, by most of the initiatives, we will start taking the results [audio distortion] .
T herefore, the follow-up here is that, what are the drivers? What are the top two, three things which will help you to achieve this number?
O ne improvement in realization, which will in turn also add to the gross margin, s o gross margin improvement of 5%, which we spoke about. E very line item in the cost, we have already worked upon. E verything to come into the P&L, it takes three to four months. T hat is where it is, s o warehousing, people. W hat is the other big one?
You have the [audio distortion].
Rentals.
Rental costs.
Yeah.
Fixed overhead and the other cost, direct costs.
Each and every line actually.
Okay. The last question from my side on the depreciation and interest cost. What number we should be factoring? E ven this quarter, we have seen a depreciation has increased almost 24%. T he number, double-digit growth in the interest cost, s o you know the numbers well. You are saying that 100 crore reduction, which will happen in debt, b ut what is the interest cost we should build in for the full year and depreciation cost?
Chief, interest cost comprises of two factors. One thing is my fund-based borrowing, which I'm doing from bank. Another thing includes in some of my structured way of financing I'm doing on vendors, as well as from the customer side. On a bank borrowing side, definitely you'll find a good amount of reduction happening. I n terms of the structured finance, it almost means we can assume the same level of interest going within quarter three. Quarter four, you may find a reduction of almost 10%-12% than what you are seeing today in the overall value.
In terms of depreciation?
Depreciation should remain as, because we are expanding on our stores, but I'm sure we are taking certain calls based on the same sales growth of the existing CRN. Y ou should find the same number. Hardly leaving aside 5-6 crores, maybe exit March for that matter or exit quarter four on a higher side.
J ust to confirm what you've said, that if that is the number which you are building, so will we be able to maintain the profitability, what we delivered in FY 2024 or we will still book some loss at the quarter?
FY 2024, when I'm saying EBITDA improvement of 12% on turnover, so I should be able to deliver net result also on a positive one.
Okay, a ll right. Thank you.
Since you asked for the growth, sorry, I missed out on that question. I wrongly interpreted. On a volume side, the MT actually has seen a degrowth of 8% on volume. The e-commerce on a volume front has shown a growth of 73% for the quarter two.
Okay. Thank you.
Yeah. T his is on the inventory side, what you asked the question to me. We have moved around what we had in terms of soft upright inventory of INR 130 crores, and we are at less than INR 100 crores in September.
[audio distortion].
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
[audio distortion]. Yeah. Hi, ma'am. Thanks for the opportunity. Sir, ma'am, I have a very simple question. You did indicate that the concern around competitive intensity, and by design, we are looking to liquidate the inventory, specifically on the soft luggage side. If I had to take a 12- to 18-month tenure, what is the thought process on balancing growth and profitable growth? How do you approach it from an incremental ROC standpoint? Broader thoughts would be greatly appreciated, ma'am.
See, this year, I think all this cleanup of inventory is a must, because I can't hold it because my warehouse costs keep bloating if I keep this inventory. Also, if I keep it for long, there are chances of having to take some write-offs. T herefore, this was inevitable for me to take these calls at this point of time. However, for the next year, I think we don't want to compromise on profitability at the cost of gaining market share. That's very clear for us. Y eah, one or two more quarters, where I get to a reasonable inventory level. Today, also inventory level is INR 700 crores. Once I reach INR 500 crores of inventory, I think that is where I will start focusing more on profits than market share gains.
Right. J ust to press a little bit over here, you indicated profitability is something which we would not compromise, b ut market share could be a challenge because B2C guys operate in a different way. H ow are we looking to balance the portfolio, be it from a channel standpoint or from a mix standpoint, to ensure that we have profitability and market share, actually we can actually inch up on that particular variable as well?
When I'm talking about market share, there is nobody who is tracking the market share for this industry today. T he way we look at it is, three company market share, which is a three-organized player who are listed and the data is available in the public. That is one, so basically, market share increase between these three players is what we have been talking about. Secondly, we definitely are looking at increasing our premium portfolio, so today, which is around 54%, my aim will be to reach 60% over the next three to four quarters. T hat is where the profits will have a meaningful swing, because it's an 800-1,000 basis points gap between a gross margin for Aristocrat versus VIP or Skybags or Carlton, so that is going to be the strategy going forward. Once I'm done away with this high inventory, which is [audio distortion].
Sure. Ma'am, you said it will take a quarter or two for this?
Yes, m aximum two quarters. We are trying to do best in the quarter three, whatever best we can do in quarter three.
Sure. L ast question, ma'am, if you can just refresh us on how BCG is actually helping us right now. A re all those initiatives already in play, or how are you thinking of probably their recommendations or is it like we are on the same track? How should we look at that?
B asically, the project is a 15-month project. It is divided into five waves, three-month wave each. Two waves are over. We are in the third wave. Whatever work we have done in the first two waves, the result will start from October and then a dditional third wave, fourth wave, fifth wave. Overall, it's a INR 250 crore benefit to the bottom line project, a nd we are on track. This is the projected wave. A s I said, whatever we do today will take three months to come into the P&L. N ow, the wave one and wave two benefits will start to come in October. W ave three, we will work now, which the impact will come in quarter four. W hatever we do in quarter four, the benefit will come in quarter one. [audio distortion].
Correct. Ma'am, possible to share, what were the tangibles that one can actually look out in the marketplace as benefits of wave one and two?
W ave one, so this project is basically a cost takeout, s o improving the realization, reducing the cost, e ach and every line item, basically warehousing, logistics, improvement in the fill rate, people cost. W e are also mapping the org structure, because if you look at our employee cost versus the employee cost of any other industry, similar industry, we are off. T hat's another big thing. T he actions have already happened in September, s o the result of that will start to be visible in December, January, b ecause everything has a notice period, and by the time we execute, it takes two to three months.
Perfect. M a'am, can I squeeze in one more question?
Yes. INR 40-50 crore, so I know what you want to know. INR 40-50 crore of the initiatives will come into P&L this year, a nd more of it in quarter four.
I can talk about two visible things, what you asked about it. See our sequential gross margin from June 2024 to September 2024, which is about 80 basis points. It's a start to have it. Second thing is our employee cost almost remains at the level of June 2024. T hat's another visible, I would say, about it. Third thing, as said by MD, it will follow the progressive way, what we factored into our project execution.
N ext quarter onward, you will see each line item, the benefits.
That's useful. M a'am, just last question. Anything, if you would wish to highlight on the effectiveness of E&P spends, where that number would be for the full year versus last year? S pecifically, anything specific that we are doing to improve the effectiveness of the spends?
The large part of these spends is actually going into e-commerce, which is not something which is great, but yeah, that's how that is happening across the industry. W e are definitely wanting to improve the effectiveness, by spending more on ATL rather than BTL. T oday, a lot is happening on BTL I think that we'll be able to do only in the next year. There is enough on our plate for this year.
Yes, t hat's quite helpful. Thank you so much for the answers. Thank you.
Thank you. The next question is from the line of Surya Narayan from Sunidhi Securities. Please go ahead.
Yeah. Thank you, ma'am for giving me the opportunity. Just a question, so I have an answer. Just
[audio distortion] could you please use your handset?
[audio distortion]. Okay, y eah. Am I audible?
Yes.
Okay, t hank you. T hank you, ma'am for giving me the opportunity. S ome of the questions have been answered. O ne of my pertinent questions actually I have, my question is around the gross margin level. W e are, let's say, last three years average around 51%, and we were down at around 45%. H ere, the question is that, time and again, you are telling one thing, that you want to play more on the V.I.P side and less on the Aristocrat side. Aristocrat has been a very essential element of VIP. H ow can we sustain the growth of Aristocrat, because that is a mass brand? I f you can give some color as to how the things will be moving more towards the V.I.P or Carlton premium side rather than Aristocrat side, so that the realizations will improve and so as the gross margins.
W e are not saying that we will restrict the growth of Aristocrat. We are saying that we will grow more VIP Skybags, s o that is where it will happen. Aristocrat growth will happen, but today, VIP Skybags is not growing as much as it should grow. That is where we will do more work. I can give you an example. Today, almost 30%-35% of the sale now is happening in three-piece set in Aristocrat.
Now, in V.I.P, we are planning that if in Aristocrat, I'm selling a three-piece set at INR 7,000, and V.I.P today is INR 12,000, I might look at selling a V.I.P three-piece set at INR 10,000. T herefore, I will increase my realization from INR 7,000 to INR 10,000, a nd that is what the focus will be. T hat's how I can get more margins. I just gave you one example. I cannot discuss too much on my strategy here, but similar to these, we are looking at doing certain initiatives whereby I can improve my realization.
S till, some cannibalization impact would be there on a longer-term basis. You agree?
Which is fine, which is beneficial for the organization. I f I'm able to extract INR 3,000 more from the same customer, why not?
Okay. The second thing is that, your payables have reduced, and so I am expecting that maybe you could be getting bigger bargains from your supply chains and people. W hat is the scenario going forward, whether such kind of payables reduction in the payable will be continuing, so that we will be getting more discounts and that will be on the raw metal side, so that will be the gross margin?
B asically, if you see, during March, we were very high on debt and inventory, and we did not pay our creditors on time. However, we have started paying them on time now, s o it will be in the same range if you have to calculate by number of days.
Okay. M a'am, you earlier said that around 200 crores. Now, you are reducing the figures to 200 crores of reduction in the total debt for this year.
[audio distortion] for sure, we can do better.
INR 580 crores we had at date as on March 2024, what we said is INR 100 crores given by reduction in by March 2025, a minimum reduction, what we are aiming for in the overall end.
Regarding the Bangladesh claim, it has come very little. W hen can we expect major claims? J ust if we can indicate which quarter the insurance companies have given any indications.
They have not given any indication. We have been following up, and we are getting small, small amounts. Quarter three also, we are expecting INR 5 crores further. We know the political scenario of Bangladesh, so I don't want to see that, give me everything at once. I may not get this also. T oday, we are [audio distortion].
In the Ghaziabad case, we had to suffer a loss of around INR 7.5 crore, s o because of the political uncertainty in Bangladesh, are we fearing such kind of losses in a bigger way in case of [audio distortion]?
W e have been in talks with the insurance company almost every two weeks. Somebody from my office is visiting. It's a big focus area for us, and that is why we are getting at least those small, small amounts.
At least you have to appreciate that despite this kind of unrest situation, we could give the INR 5 crores in. Another INR 5 crores, what we discussed as in the pipeline. H opefully, the entire claim should settle in the next maybe eight to 12 months down the line.
[audio distortion]
Ju st last question, sir, if you can allow.
Yeah.
The Bangladesh, now the operations is fully there. W hether the manpower growth will be increasing because the reports were saying that the wage hike was there, s o is there any chance of rising the wage cost?
No, so we have reduced our capacity already there. In fact, we want at this point of time, a little bit reduction only. It won't increase from where it is today.
Thank you. The next question is from the line of Jigar Jani from B&K Securities. Please go ahead.
Hello?
Yes.
Yes, Jigal.
Yeah . Sorry, y eah. Thank you for taking my question. Couple of them, one is on the inside [audio distortion].
Your voice is not very clear. Yeah, i t's disturbed.
Is it better, ma'am? Hello?
Yeah, b etter [audio distortion].
Yeah. W hat I was asking was, on the gross margin side, I believe that the gross margin guidance we were giving for FY 2026 was 55%. T his would be more, exit FY 2026?
[audio distortion]
Yeah.
We said quarter four, you will find such kind of improvement, a nd we are still talking on FY 2026.
FY 2026, f ull year quite possible. Full year FY 2026, we should be able to do 55.
Okay.
[audio distortion] . Yeah.
S ir, if you could just give me some color on this INR 190 crores of other expenses, what is the split of these broad numbers of these INR 190 crores of other expenses in the quarter? W hat number can you expect in Q4? I believe Q3 still, it will remain elevated at similar levels because of the inventory that we are carrying. Q4, given that we have that initiative with BCG also running in, and we will see some benefits floating in.
[audio distortion] the analyst presentation.
W e did give some kind of break-up in the presentation, what we did, what we have uploaded. If anything remains unanswered over there, we can have a separate call on this matter.
Sure. W hat would be our guidance for this? I mean, how do we see these numbers panning out in Q3 and Q4?
A s I said, we are targeted to reach EBITDA of 12%, s o every cost structure has to undergo revisiting and optimizing it. W e'll not give you head- by- head what we have in mind, but keeping trust on that of 12% EBITDA, what we are targeting for.
Okay, u nderstood. Okay, t hank you so much for answering my question.
[audio distortion]
Thank you. 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 their closing comments.
Yeah, s o thanks everyone for participating in this call. I'm sure that some of the answers or some of the questions would have remained unanswered. We are just a phone call away, leaving aside the next three hours because we have certain work to do. I'm happy to answer each one of your call, and I'm thankful of your continuous support to the company. W e are hopeful of doing in line with our projections, and expectations what we have in mind. Thank you very much, and have a great day to all of you.
On behalf of V.I.P. Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.