Please note that this conference is being recorded. I now hand the conference over to Mr. Snighter Albuquerque from AdFactors PR's Investor Relations team. Thank you, and over to you.
Thanks, Yashasree. A very good morning to everyone, and welcome to the Q3 and 9-month FY24 Earnings Call of VIP Industries Limited. From the senior management, we have with us Ms. Radhika Piramal, Executive Director and Vice Chairperson. Ms. Neetu Kashiramka, Managing Director and 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 may involve risks and uncertainties. Thank you, and over to you, Ms. Radhika Piramal.
Thank you so much. Thank you so much. Good morning, everybody, and thanks for making time for our call. I hope you would have had a chance to see the investor presentation that we have shared. I'll not run through the numbers in that again. Neetu will do that in a minute. I thought I would share some more general remarks about the company. I would like to firstly address the issues head-on. It has been a poor quarter for us. We recognize our underperformance, and we are not meeting our own standards. Having said that, I would like to reassure all our investors that in the quarter gone by, there have been many changes and many inputs. A lot of good work has happened in many different departments and in the company overall.
The output of that, in the form of higher sales and better margins, is not yet showing, but it will start to show in the current quarter, that is Q4, and then further in Q1, and there will be a sequential improvement as our MD gets more time to make decisions and then implement those decisions, and she is taking these decisions at a good pace. Here, I would like to add that Neetu and I, personally, are an excellent team. I believe that we have a very complementary skill set, and I also want to reassure the investor community that both of us are extremely committed to our shared common goal that we share with you all, which is shareholder value creation.
So the fact that the quarter's performance has not met our own standard and that our share price has not grown the way we would like since COVID is a matter of grave concern to everybody at VIP, and the main sort of way we are using to tackle this is a combined teamwork between Neetu and myself to make good, fast decisions on a number of different focus areas, which I will outline, and I'm extremely confident that there will be much better performance in the calendar year 2024. So which are these focus areas? Basically, there are four. The first is the product range. Neetu's going to talk about it in much more detail, and it should be visible improvement in the stores across the country, sort of more or less from this month onwards a little bit and then more and more from March and April onwards.
So the products are much better. The second focus area for us is premiumization. We all know that currently, Aristocrat is the largest brand in our company, but certainly, the company's goal is that Skybags of VIP should be the largest brand. We are not meant to be a value company. We are a mid-premium company, and we need to get back to those winning ways. The third area in which there has been a lot of work has been on the leadership team. Neetu will talk about this in more detail. There were some intimations made to the stock exchange towards the end of December, and we are happy to address that. The fourth and final piece that we are working on with a lot of focus is improving our availability and sale rates as well as the costs of our supply chain.
So there's good work happening on all four areas. I'll repeat the four areas. The first is the product. The second is premiumization. The third is the leadership team. And the fourth are sale rates and costs of supply chain. So with that, I would like to conclude my general remarks and hand over to Neetu, but I would like to reiterate at this time that the top management of VIP, as well as the promoters, are totally committed to shareholder value creation. In fact, we stand to gain the most as this happens, and we are confident of the same in 2024. Thank you, Neetu, and over to you.
Thanks, Radhika. Good morning, everyone. Thank you for joining the call. We announced our third quarter results yesterday, and before we talk about the results, let me just highlight as to what structural areas some of the things Radhika already spoke. I'll skip that. But what I started with so it's four months now. I visited 20 markets in the last four months to understand from my own eyes as to where we are and where is the competition. So two good things which I observed is our presence is across the length and breadth of the country. However, I think competition is slightly ahead on product from our standpoint. But the other thing which I realized is that the brand recall for all our brands is quite good, especially VIP and Skybags.
They are well-known into the market, and therefore, if we do our product right, I think we can win this game quite fast. I'm very happy to say that we are launching 37 new ranges between December to March. 5 to 6 are already done, and lots is going to happen between February and March. Definitely, if you go and see our stores around March, you'll see a striking difference. Even if you go today to what it was 4 months back, you'll see that difference, visible difference. The other thing, a lot of time I have spent in the last 4 months on having the right team to take this organization to the next level. 60% of my team is either new or handling a new portfolio. You must have seen that in the presentation which has been shared. A lot of fundamental changes.
So I think I spent a lot of time on all these things in the last four months, and these changes now will start to follow into the performance. You've already got the presentation, so let me just give a few highlights. I'm not going to talk very detailed on the numbers because everything is available with you. I will maybe give more time for you to ask me questions, and I can answer it in as much detail as you need. So quarterly reported a revenue growth of 4%. However, domestic grew 6%, which means international had an impact. This was mainly because of China coming back and also a slowdown in some of the Middle East areas. However, there is one good thing which has happened because our entire focus was on clearing the pipeline inventory. So our secondary sales for quarter three is a growth of 24%.
E-commerce has seen quite a heartening growth, 65%. So I think our decision to accelerate e-commerce growth has helped. We have opened 25 new EBOs during the quarter, mainly through FR route. Last time, we had spoken about a few airport stores coming up. I'm happy to inform that two stores at the Mumbai Airport are operational, and four additional in different cities are coming up before March, and 10 more in the FY25. One more good thing happened in quarter three. VIP has grown double-digit. So for the first time after a long, VIP has seen a double-digit growth, and this was behind our premium launches. So there were two new launches which happened in VIP during this quarter, which was a lightweight category. I think that's got a great response, and I'm quite hopeful now that our VIP and Skybags brand growth will start to come in.
Aristocrat also grew, and Aristocrat now is on a sustainable growth journey. The entire focus of my team going forward will be on the premiumization. You'll also witness a lot of launches, and because of these premium launches, I think the growth will also start to see. January is also showing some green shoots. We are growing double-digit now in January, and for the quarter, it should be upward of 15%. ASPs have started to grow. Our realization for pieces we saw in quarter three has started growing, and this should further see acceleration in quarter four. Basically, premiumization will be two ways: upgrading the existing customer and also adding new customers to our portfolio, which was either buying a competition product or buying something from outside the country. Our product portfolio is going to compete with everybody in the market today.
On profitability, one good thing which we have seen in the last 2 quarters, gross margins have reached where it should be. So we are in the range of 55%-56% already, and gross margin is actually more difficult than anything else. Once we have received the gross margin right, I think balance should follow, and also with premiumization and ASP improvement, this should further strengthen our position on getting into margin improvement. EBITDA definitely has seen quite a sharp reduction. This is mainly because of increased freight, accelerated investments in e-commerce channel marketplace activation, and professional fees for accelerating the e-com growth. If I have to talk about the market indicators, everything looks positive. The air traffic, passenger traffic, hotel occupancy remains positive, and therefore, I am quite confident that starting from quarter four, our sales numbers should start to increase.
So first, you will see growth in sales, followed by profitability, and me and my team can assure you that we are working tirelessly to make this happen. Also, understand that all of us have this ESAR program. If we do it right, the VIP share price improves, and therefore, we also gain. One more thing is that we have extended this program now to second level also. So basically, 50 people are part of this program. Earlier, there were only 11 people for this program. Today, there are 50 people, and therefore, I'm quite confident that together, the VIP team will make this company into a next level. Just give us some time, and I think your patience will help. In this quarter, quarter four, I'm assuring that we'll definitely have double-digit revenue growth and much better starting from quarter one FY25. Also, all the efforts which we have taken, I think the results are not visible in quarter three. It's invisible, but visibility will start soon. With that, I think I will open the floor for questions, and yes.
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 handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have a first question from the line of Jinesh Joshi from Prabhudas Lilladher. Please go ahead.
Yeah. Thanks for the opportunity. I have a question on our inventory. I mean, if I look at 1H, if I remember right, we were at about INR 763 crores, and I believe in this quarter, we have piled up another INR 122 crores. So any reason for not consuming the existing stock but building more onto it? And also, how should we see the warehousing costs move in the near term because of rising inventory?
So basically, you are right. The inventories have gone up. So there is one fundamental change which we are seeing. We have also alluded that into our presentation that certainly, we are seeing a soft luggage slowdown into the overall market, and that is the reason why you see this inventory. However, we already have some plans around how do we take care of reduction in this inventory. Warehousing costs, currently, whatever it is, I think in the next two quarters, it should come down because we have plans to reduce our inventory levels. From where it is today, it should be in the range of INR 600 crore.
Sure. And a second question is with respect to our revenue. I mean, in this quarter, is it grossed up for the performance marketing fee towards e-com? And if yes, can you share the quantum?
There is no change in the accounting because in the middle of the year, we didn't want to do that, and even auditors did not agree. Going forward, we'll see if we have to do that, but that has not been done.
Got that. One last question.
Compared to last quarter.
Got that. Got that. One last question from my side. I think in the PPT, we have mentioned that the other expense was high due to higher freight. So if you can explain the reason behind that? And also, our tax rate was at about 46% in this quarter. So any specific reason for it?
One, the freight is high because of multiple movements of goods. Because we want to liquidate the soft luggage inventory, it had had multiple movements, and tax rate is higher mainly because of deferred tax asset which got created. Because our profits are low, we created a deferred tax asset. However, for the year, it will be around 27%.
Thank you so much, and all the best for your future plan, Ma'am.
Thank you.
Thank you. We have our next question from the line of Lokesh Maru from Nippon Mutual Fund. Please go ahead.
Thanks. Hi, ma'am. Two questions. One is, are we also selling Uppercase in our retail outlets at this point, and why would that be?
No, let me answer that. We are not selling Uppercase in our retail stores. We consider Uppercase a new competitor on the market. Why that question, but did you see Uppercase in our outlet?
Yes. Yes. Yes. It was a VIP exclusive outlet. Okay. Thank you. My next question.
Tell me which outlet?
Let me ask that detail.
Yeah. Please send me an email.
Sure. I will share that offline. Another point is on profitability. It's quite visible that our profitability margin structure has changed now given the freight costs and performance marketing spends, e-com expenses, etc. So that margin has come down to 1.2%. If you address for tax, it would be higher than that, obviously, but any guidance on earlier, if our band was 18%-20%, now it's certainly lower, but how do we perceive that going forward?
So we will still maintain our guidance of 18%-20% over the next 12-18 months. Whatever you are seeing currently is also because the sales growth is lower, and therefore, overhead absorption is not happening at the pace at which it should have happened. So you will start seeing improvement starting quarter one, and in 12-18 months, we will get back to whatever promises we have done. So 18% is something which definitely you will see in the next 18 months.
Okay. Ma'am, as our sales grew, would this commission that we have to pay to the e-com channel, the website, would that be proportionate to sales, or is it fixed in amount?
It is as a percentage to revenue. However, last year, it was first year of our acceleration, therefore, the percentage was high. It will come down as the growth happens.
Okay. Okay. Thank you.
Thank you. We have a next question from the line of Jaiveer Shekhawat from Ambit Capital. Please go ahead.
Sure. Thanks for taking my question, and good morning, team. Neil, the first question is in relation to the resignations that have happened at the management level, especially the middle-level management, especially post Anindya's exit. So one, could you talk more about your strategy to sort of stem this attrition, and have you already found replacements?
Let me take that on. I think Neetu has gone about things in a very organized manner. The change of leadership at the MD level happened in August. Neetu has taken time to assess the market, do market visits, to assess the team, and then in a very calculated and planned manner, there were some resignations in December. I think all the positions are full at the moment. We are expecting a CFO to join shortly.
Yeah. And so these resignations were planned? To somebody. Yeah. It's not that it happened because.
It's a mutual convenience of all involved.
Sure. And secondly, when I see your growth now, if I compare it versus the pre-COVID levels, whether you take FY19 or 20, I think growth has only been around 20%-25%, and a large chunk of that has come via higher realizations. So you're still growing your volumes in low single digits. So what really explains that, and what's your strategy to sort of grow your volumes from here on?
Volumes did grow. Basically, what had happened, value growth is low mainly because of the mix change, and Aristocrat grew faster than the other brands. Aristocrat price realization is almost 60% of what VIP or Skybags realizes. Volume growth is there. Going forward, I already alluded that we have a strategy for premiumization, and volume growth will happen because this year, we are not taking any price increases because we are at good gross margins, and we are not taking any price increases. Whatever growth you will see will be in volume terms only.
Right. And last quarter, I think you had also alluded about the margin improvement, and we understand it largely because of the higher inventory that you're carrying, that you are incurring that additional freight warehousing cost. So one, you did mention about the remark that your soft luggage sales are not taking place, and you already hold a lot of inventory. So what's your exact strategy to sort of liquidate that part?
I cannot talk about strategy on the call. However, we can meet maybe one-on-one or have a call. I can tell you. However, there is a plan that 50% of my slow-moving inventory I should reduce by March.
Sure. Lastly, if you could talk about the range of competitive intensity that you're seeing and whether your competitors are sort of resorting to aggressive discounting to push their sales. Is that what you're seeing in the market?
Not so much now. I would say it's a good healthy situation in the market with 2-3 larger players and then a number of new entrants, and it makes it exciting to compete in this market that has a lot of potential for growth. I'm not surprised there's a lot of new entrants.
Because in the past, what we have seen is we have, in some quarters, held onto our margins and compromised on the growth. There has always been a growth margin trade-off. What's your strategy going forward if they resort to higher discounting?
So with my premiumization strategy, I think the way I look at it is I should have profitable growth, and with premium strategy, it will automatically happen. So I'll go after profitable growth. Our brands, VIP and Skybags, they are very strong. We have experienced it in the past. If they are not showing their strength in the market right now, they will soon, on the basis of stronger product lines, better fill rates, and a more focus within the company on our mid-premium brands rather than our value brand. And over the next 12 months, you will definitely see some products which are first in India, then first in overall luggage industry, and then something out of the box. I think just wait and watch.
Sure. Sure. Wish you guys all the very best. Thank you.
Thank you.
Thank you. We have our next question from the line of Manish Poddar from Invesco Asset Management. Please go ahead. Mr. Manish Poddar, please unmute your line.
Yeah. Sorry. Am I audible now?
Yes.
Yeah. Thanks. So I just have two questions. One is, you spoke about product quality probably not meeting expectations. Just trying to understand.
Let me clarify. Not quality. Not quality. Attractiveness of the ranges. The product design is not the product quality.
Can you probably double-click and help us understand what are you doing to probably, in terms of interventions, not really get into the broader strategy, but if you can probably help me understand two, three areas where you've taken course correction?
So one, we are investing in the right team. I think design and development, innovation is key focus. Manish, you can come to office. I can show you my new ranges. It's all there. Come to office. You can see. I can show you the entire range which is coming up in February and March. You yourself will see the difference.
Okay. Okay. And would it be right to say, let's say, when you first do your course correct and this inventory amount which you want to get it down in the next quarter, would it be right, let's say, when you look at FY25, that is the year where you look at probably build up sales again, get the right products at place, and probably margin is not one should focus on FY25? Is that how one should think about that year?
As I said earlier also that I'll be focusing on profitable growth. I'm not saying I will reach 18% EBITDA starting quarter one, but you'll see a journey. So sequentially, the margin improvement should be visible. But I focus on both. And revenue, you will start seeing better revenue growth starting from quarter four.
Yes. I don't want to put in a number, but what I'm trying to understand is, let's say, would internally, you already be happy with, let's say, 15% growth and, let's say, 16%-18% margin, or would you want 20% growth and 15% margin? Is that what I'm asking?
Manish, I think I need one or two more quarters to tell this because a lot of things are moving parts which I'm working on today. So just give me.
But okay.
I don't want to put in a number at this point.
No, I understand. I understand. Fair enough. Thank you. Thank you so much, and all the best.
Thank you.
Thank you. We have our next question from the line of Bhavin Rupani from Investec. Please go ahead.
Hi, ma'am. Thanks for the opportunity. My first question is related to your Skybags and VIP. Ma'am, we have been seeing that our focus is to increase the share of premium and mass products, but the combined share of both the products has been declining continuously. Can you please list down some of the corrective measures that we are taking over here apart from the new launches that we are supposed to make in the next couple of quarters?
Yeah. So as I mentioned, that we are looking at realigning our portfolio based on the competition, something which is better than competition, something which is not seen in the travel industry, and something out of the box. With that premiumization strategy, which is definitely on VIP and Skybags, you will start seeing. And actually, if you see in this quarter, quarter three, our VIP has grown the higher double digit, 20% after a long, long time. It is showing. And we launched just two or three ranges in this quarter, and that too mid-November means 45 days of new product has given us that kind of result. So I'm very, very sure that our new product portfolio also, we are focusing on VIP because earlier, I think I want to change the perception that VIP is an old, dirty brand. I think that's something which I want to change. If you go to our store today, also, you see a product which is Airtron Air. I think you can feel the difference. You can go to any VIP store launch today. You'll see this new product which are doing fantastic.
Got it, ma'am. Is it possible to quantify what incremental growth in VIP is from the new product in this quarter?
Entire growth is from new product in VIP for this quarter. So at any given month, typically, new products can be 20%-30% of our sales because that's the nature of our industry. It's possible that in the last, let's say, 18 months, the frequency of our new product launches was not good enough. Our products are getting dated. That is one basic thing we are getting back to. In any consumer brand, I think the strength of the product assortment really drives growth. It's what attracts the customer, and that is why we are focusing on product. Once again, it's the heart of the business. Just to add, travel is also becoming part of something which you are carrying, and it is becoming more fashion as compared to earlier. It was convenience. And that's why also, design, color, innovation makes a lot of difference.
We acknowledge that our product range was getting a bit faded and dated. We did not do good enough product development in the first 18 months after COVID, but Neetu has been working extremely hard on this for the last 4, 5 months.
Got it, ma'am. And on Caprese revenue more or less has been stable over here. What could be the reason over here, and what are the steps that we are taking here as well?
So 1, lots to do for me on luggage, which is 95% of the business, and therefore, maybe this got slightly ignored. It will take 2, 3 more quarters for you to see better growth increase.
Got it, ma'am. I understand your other expenses have increased by almost 7.5% of sales as compared to last year. Is it purely on account of freight cost?
One is freight, and the second, we are doing this accelerated e-com project with BCG, so that cost is also part of this other expense.
Got it.
Which should get over in March.
Got it, ma'am. If I can squeeze in one more on incremental capital allocation, what is our current capacity, if you can separate it between hard luggage and soft luggage, and what is the incremental capacity we are adding, and by when it will come?
In hard luggage, we have 94% capacity utilization. In soft luggage, it is around 70%. In hard luggage, we are looking at a few models whereby we will be doing a distributed manufacturing, and it does not require too much of a CapEx at this point in time. And also.
And also some incremental supplies from China.
Yeah. And also, as a strategy, all my new design which are something different are coming from China.
Got it. So what would be the capacity as of now, and any plans to increase over here?
I don't want to put that number, but it is 20% increased from last year on hard luggage. Soft luggage, we have not increased. In fact, we are converting our upright capacity into duffels and backpacks, which are large categories, and we have good plans for those two categories to grow.
All right. Thank you so much.
Thank you. We have our next question from the line of Tejas Shah from Avendus Spark. Please go ahead.
Hi. Thanks for the opportunity. Ma'am, first question is, based on your extensive market visits that you have done, how would you articulate the core problem statement for constructing the reliable plan?
It's all about product, product, product, nothing else. And premiumization and fill rates. Yeah. And fill rates. So right product at the right time to the right consumer, I think that's how I define it. And therefore, my first few months, I spend more on product. They just are our office.
Ma'am, even on Carlton, because as a consumer, we have always the.
Maybe next quarter, year-end, I will do a physical analyst meet. We will show you what we have done, show my product range so that everybody can see what has happened in the last 6-7 months.
Sure. Then second, your guidance on 18% margin, considering the challenges that you are handling today, would you say that 18% will be an exit month or exit quarter guidance for next year, or do you think that?
It's not next year. I said 12-18 months from next year.
18 months. Yeah.
Which means exit of that quarter at the end will be that 18%.
Perfect. Ma'am, looking at the current debt situation and inventory situation, I was just curious what prompted the decision to declare interim dividends because we have a cash requirement in the business to fight or make all these changes.
Understood. I think we took a middle path, which is that we did not increase our borrowing limits in order to fund this dividend. At the same time, it also reflects our confidence in the future that we did not think this was such a big financial burden or impact on the company. We want to show some confidence, at the same time, take it in a measured way. We will decide about final dividends based on the final results only. We'll see whether there should be a final dividend or not.
Got it. Then last, if I may, in forming your new team, what talent and cultural gaps are you actively addressing through your hiring?
Speed of decision-making is our number one priority. Granular details and understanding of our business, industry, and company. Second, that's it. Not complicated.
Okay. And no baggage.
No baggage.
No baggage means, are you going outside your industry to hire talent, or?
Always have to do. Yes. But that is common because in our industry, it's a fairly small industry. We all know each other, our competitors fairly well. So we often go outside the industry as to our competitors. It's not unusual.
Got it. Thanks and all the best.
Thank you.
Thank you. We have our next question from the line of Shobit Singhal from Anand Rathi. Please go ahead.
Ma'am, can you please share the volume growth for this quarter and for nine months?
I think volume growth for the quarter was -4% and 6% growth for nine months.
Okay. What is the current store count we have, and what is the target for this year-end and next year?
We have added 25 stores in the current year, which is taking the overall number to 541.
Okay. What is the target for the next year?
Target is 600 for the uncertain, so we are looking at around 600.
Okay. So this year, we'll end by okay. Understood.
This year, we should end by 550.
Okay. Understood.
VIP stores are coming up, and.
Next year, so you are saying that we will be adding only 40 stores?
We'll be adding 50 stores. So 550, and then 600. So 50 stores. Next year.
Okay. Understood.
Next year, 60 stores.
All will be on the franchise, right?
80% franchise because certain places, large malls, they don't give it to other than the manufacturer or the brand company.
Okay. Got it. Thank you.
Okay.
Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Hi. Good morning, Radhika and Neetu. Thanks for the opportunity. I have one fundamental question. Over four months, you have walked the journey, and there is a lot of scope, and there is work which is done, which Radhika alluded to in the beginning. So task force members have become from 11 to 50. I was more curious, in your weekly, monthly, quarterly review, what are the things that are discussed, and what are the top three priorities the management is concerned about? I mean, though, Neetu, you said that product is one of the things which you are focusing. But I was more curious, what are the parameters we are measuring the performance of the team?
So we mentioned a couple of times. So one big thing is premiumization, which means NPD, which is new product development calendar. So if a particular product was supposed to be launched in February, is it getting launched at the same time or not is one of the parameters which I see. The other focus area is fill rates. So we keep a track of what is the fill rate because a lot of times, we are losing business because we are not able to fulfill the product on time. So I think that supply chain is something which is the overall overhaul is happening as we speak. And these are very little factors. These are the real, yeah, two important factors.
And then there's, of course, we'll deal with the leadership and management and mid-management changes to support this. Once you have a good product, once you have better fill rates.
Then I keep doing stand-up meetings. Okay. If you're saying, "What kind of review," I started some stand-up meetings, especially on the inventory. Inventory is something which is one of my other key focus areas. I do a weekly stand-up meeting. However, the team who is responsible, so we have created a cross-functional team. This is how we have started working. I have a PMO. There's an MD office,
Neetu was very fast. That is the main thing. She understands a lot of detail very quickly, and she's a quick decision maker.
Okay. Okay. My second question is that when you and Radhika stitched the new strategy for revival four months before, and there are changes in the manpower, middle management, in terms of supply chain, reorganization, in that whole journey, at this point of time where we are in terms of our ambition, is it 50%, 40%?
40. 30%.
Sorry?
I would say 30%. And you can say that's less. Neetu is saying, "No. She's frowning at I say it." And I'm saying it's 30%. And to me, that's not negative. It's positive, which was how much more potential we have to grow because I feel that Neetu has the capability to look at what I would call immediate performance improvements, which is for the current fiscal and the next fiscal, as well as second horizon, which would be 2025, 2026, etc. So on that front, I'm saying 30%. If Neetu wants to say 50%, I'm fine with that.
So, let me turn this into a follow-up question. If 30% is you're giving confidence that we will.
No, no, no, no, no, no. I'm 100% confident. You said how? Where are you on the journey of transformation?
No, no, Radhika. What I'm asking, with 30%, if you're getting this confidence, if you've been able to successfully drive that 100% strategy, what you have in mind, the performance will be beyond your expectation. That's what you're trying to communicate at this time.
Yes. I hope beyond. I don't know. My expectations are high. As an organization, I'll tell you what is 100%. So today, we are known as a luggage company. I want this company to be known as a travel solution company. I think that's my long-term ambition, and that's what 100% is. So today, on that journey, we are 30%.
100% for me includes success in handbags. It includes success internationally.
That, for me, is 100%. Plus, as I said, not only luggage company. It's a travel solution company. Anything or everything about travel means VIP.
Okay. My second last question. When you see 9-month contribution from premium and mass premium, it's about 56%. In terms of actual market share, how does number stack in premium and mass premium segment?
It is very difficult to get this data because this industry is not tracked by A.C. Nielsen as it is done in the FMCG. What we do is we track an overall market share based on three large organized players because their data is available. There, today, our market share is 37%.
37?
Yeah.
Okay. Similar question on the follow-up. When you have GT, modern trade, and e-commerce, it's roughly about two-thirds of our business. Would you have been tracking some channel-wise market share in these three channels?
We track it, but we cannot share them. Okay. That is fine.
No. The question is that where it is deviating from the peak over the last 3-4 years, if I may ask?
I think in e-commerce data is available. We are tracking it. We will become number one soon in some of the channels, like Flipkart and Amazon. We are targeting to become number one. It is one or two quarters away.
Okay. The last question on the margin story. We are at close to about 10%-11%, and we are targeting to go to 18% over the next 15-18 months' time. What are the levers, and what are the short-term gains, and what are the long-term, medium-term gains which you think obviously, supply chain is one of the things which will give you the operating leverage, I can understand. But what are the things, because of the reliability management, you can fast-track that?
So 10/11 is not our normal margins. It's an abnormal thing. This is mainly because of low revenue growth. Once we do normal revenue growth, which is upward of 15%, this automatically will become 13%-14%, which is our normal margin. And from there, I have to grow. And those are a few things. One, premiumization story, which will add a little bit to my bottom line. The second one is rationalization. So I want to reduce my inventory, as I said, from 829 to 600. Once that happens, my warehousing costs will come down. I think these two things, plus rationalization on freight, looking at our overall warehousing structure, those are a few things which I will work on.
Yeah. I want to actually reinforce one point. We were certainly not reducing our product specifications in any way. Our quality will only improve from here. That is a very firm directive from my side.
Thank you. Would request you to join back the queue for follow-up questions. We'll take our next question from the line of Nihal Mahesh Jham from Nuvama. Please go ahead. I request all participants to kindly restrict to two questions at a time. You may join back the queue for follow-up questions. Thank you.
Yes. Good afternoon, ma'am, and thank you so much. My first question was that if you look at the growth of Aristocrat over the last three years and also say the growth of one of your competitors, is there a case that the market has shifted more towards the value segment? And in that context, maybe wanting to premiumize, just your thoughts on that.
So one, what has happened in post-COVID is that the unorganized sector has moved to organized. That's where you see Aristocrat and our competition doing better in the lower end. Also, the supply chain of China was disrupted, and therefore, the organized players took that opportunity. And once a customer is glued onto a branded range, I think their preference is more towards organized rather than unorganized. The other thing is, in the hard luggage, the polypropylene strategy also helped gain market share from unorganized because we were able to provide a product at INR 2,000. So branded luggage like Aristocrat and others were available close to INR 2,000, even lower, INR 1,899 and INR 1,999 types. And not the market. So India story, premium story, we are talking about every day, there's one or the other article in The Economic Times. So India is moving towards premiumization, and therefore, I'm also working.
So today, my highest-selling product in any of my lounges, if you go, it's INR 10,000. I'm upping that to INR 18,000. So by March, April, you will have few products which will be consumer price will be INR 18,000. So that's the journey which I'm starting. And not that Aristocrat will not be focused. It will also be focused, and it will play its own game in the place or the market where it exists.
Sure. Just to be understandable better, I would assume that majority of the product range and launches that you are targeting would be more in VIP and Skybags incrementally going forward versus an Aristocrat.
Nothing like that. We'll have to have relevant across, right, because Aristocrat is a INR 1,000 crore brand now. So I will have to play my game there also if I have to be relevant.
Understood, ma'am. The second question was that when you're focusing on creating such an extensive range, will it lead to an increase in inventory, or would there be more of batch manufacturing? How to look at the range versus, say, the inventory next year?
It will not increase the range as we move along. We are not increasing our range. We are improving our product attractiveness and design. We are not. And we'll discontinue our. When we launch nice new products, then we discontinue the old aged products.
Okay. So the number of ranges that SKUs would more or less remain the same, or will there be more refreshes that will be partnering?
Yes. Plus, I'm also working on a reduction in the ranges because rationalization of product itself is also one of the work which I'm doing now.
Fewer ranges are much more attractive.
Fewer and better.
Better, huh? Yeah. That is the goal.
Thank you. We have our next question from the line of Jigar Jani from B&K Securities. Please go ahead.
Yeah. Thanks for taking the time. So can you give me what is the performance marketing spend in the quarter and the total VAT spend? Hello?
It's there in the presentation, Jigar.
Okay. Okay. Any one-time payment to BCG done?
Yes. There is. When we say one-time, meaning we have, it's a 12-month contract. So yes, there is a fee paid to them in this quarter as well.
Okay. So this INR 6 crore will continue, basically, till the time which we had paid last quarter. So that's.
Till March.
Till March. Okay. Okay. And we had announced an incremental CapEx of almost INR 50 crores. I think last quarter, you had mentioned out of which INR 30 crores was already done. So is that CapEx now over, considering we are not adding any new CapEx?
CapEx is on hold. For new designs, we'll continue. However, there is no big CapEx in the next one or two quarters.
Okay. Okay. And so on freight, when do we actually start seeing normalization in these expenses? Would it be second half of next year where we could see some normalization in this freight and handling expenses or warehousing expenses overall?
Yeah. Because for this, the inventory has to come down. So one or two quarters. It will take one or two quarters.
Okay. Okay. Great. Thank you. That's all the questions. Thank you.
Thank you. We have our next question from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.
Hi. Thanks for taking my question. My question was, in terms of I can understand where your journey is going in premiumization, and India is going that way. How do you change the way consumer perceives VIP or Skybags so that it makes a journey from where you are to where you think the consumer should see where it is? It's not just the product and the price, right? So I just wanted to share a thought process.
So one thing I would say that what I have realized after seeing these 20 markets in my first 45 days is that customer has a short memory. When they visit the store, they find something which is very attractive, and they know the brand. They will pick it up. Skybags is known for youth. It's for the Gen Z. So you'll find more colorful. And so there is already a target audience defined for Skybags. VIP is something which we are working on. I agree it's not easy because people consider that it's some old brand. But to change the perception, you will see a lot of new ranges which are something different will all be in VIP. And it's a journey. But yes, that's a journey which I have to start.
I have started already with 2, 3 new launches, and lightweight happened in quarter three, and a lot happening in the next 1 or 2 quarters. But it's a journey, but we'll have to talk about it. We'll have to showcase. But brand recall is high. The TOM score of VIP is the highest in the industry, which is actually almost more than 2.5 times of any of our competition. And I have to capitalize it.
Yeah, ma'am. Thank you, ma'am, and wish you all the best.
Thank you so much.
Thank you. We'll take our next question from the line of Harsh Shah from Bandhan AMC. Please go ahead.
Hey. Hi, Neetu, and hi, Radhika. Neetu, when you spoke about product in terms of design, does it also mean that we are moving towards more frequent launches of new products compared to what previously the norm was?
Pre-COVID, we were good. Post-COVID, our new launches and the kind of product profile had deteriorated. I'm going to what it used to be pre-COVID, refresh ranges multiple times and give something attractive to the consumer for them to get excited about.
Okay. So really.
I will add one thing here that maybe will convince you all. Neetu has been saying all through 2022, 2023, sorry, yeah, that our product needed improvement. She has been saying it. At that time, she was the CFO, so she could not directly influence the new product ranges. Now she can. She will. She has. She already has.
Okay. Okay. No, no. My question was more in terms of frequency of new launches. Will that improve as well, increase as well?
That's what I said, that it will go back to pre-COVID where we were good. So it will go back to that kind of a frequency.
Both the frequency of launches as well as the percentage of new products that are launched that succeed, all of that will improve.
Okay. Got it. And secondly, since the focus is now on product, more design, and frequency, and also improving the sell rates, so when do we see our market share, which is now at 37%, go back to the levels they were before?
It should take at least 12-18 months.
Okay. Got it. Thank you, Neetu, and all the best.
Yeah. Previously, in the 1980s, we were 80%. So that's the.
No, I mean 45-50%, not about that.
50% cannot happen in 12-18 months. It will take three years.
Okay. Thank you, and all the best, Neetu.
Thank you.
Thank you. We'll take our next question from the line of Manas from Kotak Securities. Please go ahead.
Hey. Hi. See, e-commerce is picking up overall everywhere. My question is, what percentage of overall sales do you see from e-commerce going forward?
Currently, it is around 21. I think it will stabilize around 25. Maybe higher, I think. In the next 2, 3 years.
25 or better models may be a little higher.
Yeah. 25 to 30. Yeah.
And within.
Within 30, then we do think it's 25.
Okay. And within this, e-commerce, how many would be through your own web channel, and how many will be through Amazon, Flipkart? What would be the channel?
At this point of time, 95% is through portals. Ours is very small. However, in FY25, we'll be focusing on our D2C because first, we wanted to put the act together and write and then work on D2C. So that will be our focus area for FY25.
Okay. And.
Our intent is 20% should come from D2C.
Okay. And do you have an active CRM program?
Yes.
Do you intend to have one?
We have at this point of time, but we'll definitely have a lot of improvement plans around it. We are also looking at doing something around a loyalty program kind of a thing. But those are my second-level priorities, so.
All right. One final question. I saw GC trend going up, right, or stabilizing up. GC, I believe, is a guest count, right?
I'm sorry?
What is the GC trend you mentioned in the presentation?
I said it's going up. It used to be 49.50 for the last almost one year. We are now inching towards 55.56, the gross contribution. Gross contribution.
Gross contribution. What about the walk-ins that you see in your outlet? Have they improved as such? Is there a way to measure them?
I don't think I have that data. We don't measure walk-ins. What we see is a robust demand based on all our key indicators like secondary sales, passenger traffic, hotel occupancy. We don't specifically measure walk-ins only because we have a very distributed distribution system with multiple channels. So our retail stores are only a small percentage of the total company sales. And we have many different ways to track the secondary sales other than walk-ins. Within 12,000 touchpoints, and we are only having our own stores is only 150.
All right. Thank you.
There's robust demand. We feel there is robust demand. Is that your question?
Yeah. That was my question.
Yeah.
Thank you. We have our next question from the line of Richard D'Souza from SBI Mutual Fund. Please go ahead.
Yeah. Good morning, Radhika and Neetu. Just one question from my side. On the inventory front, what would be your strategy to handle it? And by when do you think we'll have a decent kind of inventory on the books?
Yeah. It will take 12 months for us to have a reasonable inventory. A lot of work has started, but it is something which is time-consuming
Yo u also don't want to sell too much at a discount. Yeah . So that actually adds time to it, but I feel it is a worthwhile time.
Also, soft luggage per se does not have shelf-life problems because you remember in the past, we used to use luggage for 7-10 years. So there's nothing like and most of these inventories, what I have, is 9-12 months old. Nothing is one year and above.
In the previous year, we obviously forecasted a much higher sales growth than what we achieved, sorry, in the previous three quarters. And secondly, we forecasted a lot of soft luggage whereas the market moved to hard luggage. So that is why the inventory is so high. However, going forward, with a systematic plan, it will come down. And that will improve the supplies of hard luggage so that we can also cater to the market demand.
We are looking at different GTM strategies for doing that, like I'm going to cities that I'm not there and some such things, which I can't talk in detail in this call.
Okay. Just two questions here based on this thing. On the soft luggage thing, while you said that life is not a problem for soft luggage, but is it a matter of concern that maybe the soft luggage which we have is not what is in demand by customers?
No. Because in soft luggage, there is not much color design issues like hard luggage. Hard luggage, you need freshness every time. Soft luggage is standard with few pockets, more or less. Some product will have three pockets. Some will have four pockets.
The underlying ranges and inventory is good quality. It's not changeable. If we feel it is slow-moving, we can use a range of discounts to make it fast-moving. But having said all of that, the key issue, I believe, is the speed to market of forecasting. That needs to improve. So if you have a given set of inventory, and it's subcategory, it ranges, it's brands, does that meet to the market? And if the market shifts, how quickly can we shift? That will determine the success. That's why I'm not so I mean, the inventory is a concern. Don't get me wrong. The inventory and the cash management is a concern. The borrowings are also not desirable. I do believe that Neetu's combination of CFO who's become MD will definitely address it.
Okay. The second question is on the forecasting front. I mean, we got the soft luggage thing wrong. We got the quantities which could be sold wrong. How have we corrected this thing going ahead? Now that we are looking at premiumization, do you think that's the way to go? I mean, is there any hardcore data which is telling you that premiumization is the need of the hour, or is it something which you feel that given your cost structure, you can't go below mid-premium segment?
I think it's about responding to the market. I believe there's sufficient mid-premium and value demand. We are lucky in India to have so much demand across so many segments. And so it's about the company's ability to respond to the market demand with good products quickly. What do I mean by quickly? I mean 3-6 months instead of 9-12 months. And with the changes in leadership that we've had, with those changes in leaders, and I mean that starting with Neetu, I believe the pace of decision-making is faster, the frequency of forecast revisions is faster, and the underlying processes underneath these forecasting will improve. So those are the changes I'm talking about.
Thank you. We are also going with a software which will do a database forecasting, and then there'll be a moderation which will happen.
When I said that, Neetu. I also. So Neetu's management style is detail-oriented and granular, and we need that to remake an excellent supply chain department.
Thank you. Due to paucity of time, we'll now hand over the call to Ms. Neetu Kashiramka from VIP Industries Limited for closing comments. Over to you, ma'am.
Thanks for joining this call. I can only reiterate that have some confidence. A little patience. I think patience is almost over. You'll start to see green shoots soon. And yes, I welcome all of you to come and see the new ranges if you want to have more confidence. And yes, please connect with my office, and we can meet. Thank you, and be assured. I think the organization is in the right hand. We are doing everything which is good for long-term. And I would say there's no shortcut to success. That's the mantra which I am following. And definitely, you'll start seeing results soon. Thank you.
Thank you, ma'am. On behalf of VIP Industries, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.