Good evening, ladies and gentlemen. A very warm welcome to the VIP Industries Limited Q4 and FY 22 earnings conference call. From the senior management we have with us today, Mr. Anindya Dutta, Managing Director, and Ms. Neetu Kashiramka, Chief Financial Officer. As a reminder, all participant 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 star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anindya Dutta, Managing Director, VIP Industries Limited. Thank you, and over to you, sir.
Good evening, everyone. A very warm welcome to all of you. Thank you for taking out time and joining this call. Given the circumstances now, I'm hoping that very soon we could be doing this call, not a call, a meeting in person. At the outset, I just wanted to remind all of us that the pandemic has been a very hard journey for industries like ours, which has to do with consumers going outdoors, and the revival has been nothing but a rollercoaster ride. We saw Q3, which had a rapid progress within the month in terms of the demand revival. However, we saw the wave three happening in Q4 in January and part of February.
While this wave spiked very sharply, thankfully, it was very short-lived also, and the impact of our business was significantly lower compared to any of the previous waves. In fact, the way the industry, our industry, industry's demand, withstood the wave, gives us a lot of confidence going forward on the sustenance of demand for our products. For the quarter, our revenues were at INR 356 crore. While this was lower than the previous quarter by 10%, possibly owing both to the usual seasonal swing as well as the impact of the third wave. However, compared to the same quarter in FY 2020, we were up by 14%. Even if you correct this for the pandemic that hit in the mid of March 2020, I would say we have come to parity to pre-pandemic levels.
In quarter three, our revival was at 92%, so therefore, steadily we have come to all the quarters of the year and ended the quarter with a parity to the pre-pandemic levels. In fact, the barometer that we use for our demand, which is the airline passenger traffic, also witnessed a sharp decline in January, February. It was almost 40% lower than November, December, and this was the first dip since June 2021 in the airline passenger traffic. Some highlights from our revenue performance. The first call-out would be on the value segment, represented by our brand Aristocrat. It had a great performance for Q4 and for the overall year. Aristocrat brand salience in our overall business now stands at about 36%. This was at 25% pre-pandemic.
We have seen the value segment growing much faster, even in the, even in the pre-pandemic time, and it has seen significant acceleration during the two years of pandemic, possibly also due to the conversion from unorganized. The Aristocrat brand portfolio has been growing faster than also the peer, peer companies or brands in the same segment. We saw in this quarter a year-on-year growth of almost 61%. If I look at the full year compared to just the previous year, it was 140% growth. The Aristocrat brand and the value segment has been a focus area for us, and several initiatives, including product engineering and making the right suppliers and the right manufacturing concepts is starting to work for us.
While we put a huge trust on value segment, it was always imperative for us to strengthen our core, which was the mid-premium business, represented by the VIP and Skybags brand. I'm happy to share that VIP and Skybags has also seen a very good revival in Q4 on the back of much improved availability, all kinds of demand activations that we did, and also through a large variety of new products that we launched in these two brands. In VIP and Skybags, this was the quarter where we came back with a lot of demand activations, both online, on-air, as well as offline. Lastly, it has been the digital campaigns that has worked very well for us. If you would have noticed, whether the VIP Workation campaign or the Skybags My Trip campaign got a lot of hits among with the consumers.
Q4 saw almost 40% of our annual advertising spends. Also, a call-out here would be the hard luggage PP strategy that we had, we were on, and that also in Q4 saw gaining traction. Hard luggage within the whole upright business now accounts for almost 60%, which was at about 50% just before the pandemic, and that's been a steady increase. And we are extremely well poised to drive that growth forward with the investments that we have done in expanding our hard luggage capacity. In the last quarter call, I announced that we spent about...
We had invested about INR 35 crore-INR 40 crore in capacity expansion of hard luggage in both our India, which is in Nashik and in Bangladesh facilities. Along with the back end, we have continued to invest behind the downstream improvements, which is in our distribution, and our number of points of sale has come back to the pre-COVID levels. And in fact, we have started very strongly rebuilding our own exclusive business outlets. And last point on revenue that I would want you to note, that our average selling price today stands about at 115% of what it was in the quarter pre-pandemic, and that also is helping us gain back our, our, our sales value as well as our margins. And on the margins, moving on, I am happy to announce our improvement in gross margin in Q4 over Q3 by about 4 percentage points.
This has happened based on some fundamentals, which is about improvement on our mix, and also our Bangladesh own manufacturing strategy is starting to show results here. While inflation was a spoilsport, but we had taken some price increase in November, which kind of helped us in the quarter, but really the high impact of inflation started happening towards the later part of the quarter, and therefore another price increase, which hopefully going forward, kind of should negate or large part of the inflation could get negated, which is the price increase that we have taken. We continue to focus on our fundamentals, both in brand and in channel, in building our revenues. We are extremely focused and poised to build our VIP, Skybags, and Caprese brand going forward. And also we are investing behind strengthening the channels where we were already quite strong.
We continue our commitment towards our upstream strengthening. Our own manufacturing has scaled up to almost two-thirds of the total, what we sell in Q4. If I was to add the exclusive and dedicated manufacturing partner that we have, our controlled manufacturing stands at about 85%. As we look at a full-scale growth potential in the coming financial year, I would like us to keep this 85% intact, and the benefit of this should start flowing in. We've also streamlined and strengthened our supply chain, and with a notable increase in our overall, overall availability for the quarter and looking ahead. Most importantly, with respect to building our people capability and making ourselves future ready, our team and structure is almost where we want it to be in terms of employee strength and talent.
While we have sequentially added headcount, our ideal team size will be lower than pre-pandemic levels, accounting for our efficiency efforts. For the coming quarter and the way ahead, as of now, in all indicators of consumption points towards a very positive demand environment, with domestic travel coming back to pre-pandemic levels, the resumption of international travel, pandemic-free wedding season, and school, college reopening. However, we can't have it all, so there is enough headwinds. There are some headwinds, at least, that we need to navigate ourselves through. One of the bigger ones is the inflation in our commodity or in our input materials, and navigating it through on one side, price increase, and the other side, keeping a balance to make sure that it is not a demand spoiler.
Also, a call-out here would be relevant of the transition that is undergoing in the Future Group, which is one of our largest accounts. Almost 15% of our revenue would come from Future Group pre-pandemic, and that's something that we are watching very closely in terms of the transition. But I think this is, this is, we're going to sail through that as well. So overall, I think we are quite positive about the future, and I think overall, VIP Industries is quite poised well to make good of the opportunities coming ahead of us. Thank you. That would be the opening remarks, and I would be happy to take all questions related to Q4 and for the annual performance.
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 the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who would like to ask a question, please press star and one at this time. 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 Spark Capital. Please go ahead.
Hi. Thanks for the opportunity. My first question pertains to the price increase that you spoke about. So how much price increase you would have taken in 2014 and first part 2022 in total?
So Tejas, we talked about 4% price increase in November and about the same in towards the end of March.
One in first quarter.
Okay. And you also spoke about inflation being higher than the pricing intuition we have taken. So what will be the RM inflation for the period?
For the full period, 6%.
When you say for the full period, you mean?
For 22, yeah.
About 6%, yeah.
Okay. And the last 4% that you just spoke about, this is the price hike that you said you'll have to take again, or is it the one which you have already taken, and you need one more price hike to pass on the full inflation?
So as of right now, we have taken the price hike that we intended to take to get over the inflation that we have. But we are watching the inflation closely, and it's a continued volatile environment. So as of right now, we don't have plans to take further increase. But having said that, we will have to keep watching how the raw material and input cost goes ahead, you know, goes ahead of us right now.
Fair enough. Second question is around GM inflation, which is actually the highlight of the quarter's performance, at least to us. And then you spoke about that the mass end of the market and the portfolio did very well. Price increases were taken, which were taken at the end of the quarter and inflationary pressure was heightened throughout the quarter. So two out of the three factors are actually not or should not contribute to GM expansion, mix change or price hike. Then product engineering or channel mix change, what actually contributed to such a healthy GM improvement?
Let me first clarify on the price increase. So the November price increase did help in cover up the part of the inflation or large part of the inflation that kicked in in our products in Q4. And the further inflation, because inflation is also not happening at one point of time, it's gradual. The next price increase in March is going to help us tide over the overall inflation that is going to get applied in the coming quarter. So that's the perspective of price increase versus inflation. So this is kind of offsetting each other to some extent, to a large extent in Q4. The underlying shift in the GT has happened, let's say, because of our Bangladesh manufacturing, which was always an advantage over buying from China, fundamental advantage.
And also the mix sequentially has become better with VIP and Skybags and other high-margin products starting to kick in.
Okay. And you spoke about product engineering also in there. So is it moving from PC to PP, is it also helping in hard luggage, or that is yet to kick in in numbers?
No, absolutely. That is part of, part of this, because even within Aristocrat, as we have, you know, really propelled forward in terms of play-playing hard in the value segment, the shift in hard luggage to PP, which is a lower cost raw material, and making good and great products out of PP has actually helped a lot. And that's what I was saying, that we're pretty happy with the PP strategy starting to, you know, play up in our results.
Sure. And then, and then last one from my side. So we have exited after last two, three, four years on healthy margins this year, but still much lower than what we expected before. So what will be our margin expectation for next 12 months, and what are the possible headwinds which can actually delay, if it has to see us to any charge from achieving that target?
So, Tejas, I don't have a number for you. It's a goal that we are constantly chasing to improve on the margins. We have fundamental tailwinds in terms of our own manufacturing, which should add a lot to the efficiencies and other areas that we are working on. However, as we speak, the inflation is the biggest blind spot, and that's again a very difficult thing to pinpoint for a period like the for the full year. So it's going to be a constant play, and we are only using price increase to cover up for the inflation that we are not able to cover up through our own efficiencies.
Great. That's all from my side. I'll try to come back to you if time permits. Thanks, and all the best.
Thank you, Tejas.
Thank you. The next question is from the line of Amandeep Singh from Ambit Capital. Please go ahead.
Thanks for the opportunity. So firstly, in terms of recovery, so while FY 2022 revenue stacked up at 75% of FY 2020, can you help us understand how much of this would have been recovery in terms of volume? And also on like-for-like basis, do you see complete recovery on the volume front, this year versus FY 2020? Also, how this would stack up in value terms, given the price hikes and mix? Any sense on this?
So on the volume, just give us a minute, and we're going to kind of come back to you. So on part of the business which is upright, the volume seems to have come back to the same level as FY 2020. But overall volume was not equal to FY 2020, and it was lower. I could give you in some time the exact number in terms of the volume recovery. In terms of projection going forward, we would like to believe that the current environment that we see continues, there are no disruptions, and if that were to happen, then we should be looking at least a demand environment which is bringing us back to an FY 2020, in terms of value, if not fully on volume.
Sure. That's helpful. So till the time, the volume numbers, specifically we get, can I continue on the second question?
Please go ahead.
Yeah. So secondly, was on the supply chain. So since you have fairly high closing inventory, so will it be fair to say that, the supply chain initiatives taken over the last two years are now showing results, and consequently, you are in a relatively better situation to cater the demand?
Oh, yeah, compared to the last two years, we are definitely in a much better situation. At this stage, I think it's important to realize that we took the hard way out of the pandemic revival. We have used this time to really go into the basics and make our own manufacturing work for our supply chain. So therefore, instead of now buying for a forecasted demand of 6-9 months period ahead in terms of FG, we are into planning our raw materials in a regular cycle, and we are producing to demand with a certain lag, which is not as high as six to nine months. So from an availability point of view, we have the manufacturing capacity and capability to take care of demand.
Therefore, we feel confident that depending on how the demand ramps up going ahead, we should be in a, in a much, much better situation than what we were in the last two years in terms of, you know, meeting the demand. And, Amandeep, just to come back to your earlier question, in terms of value overall, in terms of volume overall, we are, in a number of units basis, we are, we are, we were at about 83% revival in FY 2022 compared to FY 2020.
So this, this was really helpful. And just coming on to the provision which you took during the quarter, so will it be fair to assume this was largely on the account of Future Group? And also, if you could help us understand how much amount would still be outstanding for which provisioning will be required, and any outlook on what would be the business for this channel here on?
So in terms of the provision, it was entirely Future Group, and 100% of that has been provided in the last financial year, and a large part of it happened obviously in the last quarter. In terms of future, how it is going to look like with the account, I would not want to comment on it. We are watching out very, very intensely and eagerly to see how things unfold. It's a very important account for us, and we would hope for its full-fledged revival as we go ahead.
Thanks for this. One last bookkeeping question, if I may. So, any update on the receipt of insurance, please?
It's in the final stages. Actually, it should come in next one or two days.
Okay, that's great to hear. Thanks. Thanks. That's all from my side, and all the very best.
Thank you.
Thank you. The next question is from the line of Manish Poddar from Motilal Oswal Asset Management. Please go ahead.
Yeah, hi, thanks for the call. So, just two questions. First one is, this price increase which you have taken, does this offset all the past inflation?
Not entirely, I would presume. As I said, we took a price increase in November, and, you know, to tackle the inflation, which really started in September, October, significantly high. Inflation was there prior to that also, but a sharp increase happened. Along with that, the ocean freight went up very sharply around that time. So in November, the price increase that we took did cover for the inflation. That was to get applied in our business in Jan, Feb, March. So that was covered largely, to a very small percentage, it was not covered, possibly.
But going ahead, as we speak, in the coming quarter, with the price increase again in March, it covers most part of it, but we will not be able to put a number, whether it is 100% covering or 70% or a little bit more. So that's something that we'll be able to analyze only once, you know, the quarter is over.
Okay. And in terms of supply, how is the situation now?
Sorry, sorry, Manish, I could not get your question.
I'm just trying to understand in terms of supply, you know, given that a large part of China was closed down and you took the RM from there to Bangladesh. Just want to understand, you know, because in some part of the RM would come from China.
Yes.
So how is the... in terms of inventory for finished goods, how are we stacked up? You know, do we have enough inventory in terms of both RM and FG for this quarter?
Yes, for this quarter, yes. The supply disruption that happened was largely in our raw material. We were not buying finished goods. So that did create a disruption, and therefore, the inventory levels of RM's has gone, has become-has been volatile in this quarter. But we are working on it to streamline as soon as the things have opened up, whether it is in the ports or in the factories in China, it is starting to come back. But yes, we've had some disruption, but I don't, as of right now, have a quantitative implication of that, but it'll play out mostly not in this quarter, but in subsequent quarters, if at all.
Okay, okay. Just one last one. What is the CapEx outlay for FY 2023? Thanks.
Sorry, Manish, you were not clearly audible.
CapEx outlay for FY 2023.
CapEx outlay for the current financial year, FY 23?
Yes, thanks.
It will be anywhere between INR 30 crore-INR 35 crore, as of now.
Okay, and this new capacity which was coming up, is that expected in Q1?
It is expected in Q1, both in India as well as in Bangladesh. Towards the end of Q1, yeah.
Okay. Okay, thank you.
Thank you. The next question is from the line of Bhargav Buddhadev from Kotak. Please go ahead.
Yeah, good afternoon. Thank you for the opportunity. Just continuing on the-
Sorry to interrupt you, Bhargav. May I request you to come on the handset mode and a bit closer to the phone?
Yeah, can you hear me now?
This is better. Thank you.
Yeah.
So just continuing on the Future Group, so are we sort of doing zero business now or we are still continuing the business with the group based on payments on an immediate basis?
No, April was, you could say nearly zero. It was a very small part of the group through Brand Factory and Central was operational. But, you know, it is, it is, as we speak, it is opening up one by one at a very slow pace right now. So April was nearly zero, but, you know, we are hoping that June would be better.
In terms of payments, will we be taking advance payment or how does it work now?
No, so, you know, part of the relationship moved to Reliance in some of the Big Bazaar outlets that started. So it restarted with Reliance, with the payment terms that we had before, on the terms that we had. So it won't be on cash or in advance, it will be having a payment term that we usually give to a chain like that.
Okay. And there's no risk of receivables, right, on the business which we do as of now?
As of now, we don't see a risk of receivables. We have provided entirely for the risk that we saw, which came on to the business for the last two years.
Okay, understood. In terms of market share in versus Safari, since the time we've taken initiatives towards strengthening our e-commerce and also, sort of strengthening the value brand, which is Aristocrat, we seem to be gaining market share versus Safari since the third quarter. So do you think this is sustainable, I mean, going forward as well? How do you read this?
No, certainly, we are focusing on fundamentals and rebuilding ourselves. We have not fully come on to chasing market share as of now. So I would assume that as long as we kind of, you know, focus on what the consumer is looking for and deliver it better than competition, we should be on the right side of, you know, consumer preference.
In terms of procurement from Bangladesh, made that number be close to 30%, and at peak last, how much of this procurement can it increase to? Because you mentioned that it is margin accretive, procurement from Bangladesh.
Yeah. So a little excess of 40%. In fact, about 65%-66% is completely our own manufacturing, which is in the two sites in Maharashtra, Nashik and Sinnar and Bangladesh. These three account for almost two-thirds of our, what we sold, let's say, in Q4.
So the share of Bangladesh, do you think, will increase from here on, as we enter FY 2023?
No, the share won't increase because our volumes are hopefully going to go up, so share will remain at that, and but the volume from Bangladesh will grow. So in terms of salience, it would remain around that similar.
Okay. Okay, understood. Because I was looking at, your subsidiary's numbers in Bangladesh, and employee cost has seen a significant increase, in Bangladesh. Almost 100%, employee costs have gone up. So I was wondering, how much more capacity are we adding over there? Is it possible to share some quantitative numbers?
Well, I can share you with a monthly volume kind of a thing. In fact, March, we did our highest for almost 700,000 units, in excess of that in the month of March. So the rated capacity there right now is about 650,000. In the coming year, with hard luggage coming in there and with some changes, we are further going to increase the capacity. So the capacity now increase will get driven by the demand numbers that we are seeing going forward. We are going to evaluate in terms of which location makes better sense to manufacture, whether it is Bangladesh, whether it is Nashik, or whether it is any other facility within India.
My last question is on your inventory days. Inventory days, it seems to be on a higher side as far as number of days is concerned. Is this because of expectation of strong revenue growth going ahead?
Yes. So usually in quarter one, the demand is much higher than what capacities we would keep throughout the year, so there is an inventory buildup for preparing for quarter. In fact, this used to be always higher in the time when we would procure from China. So, along with both RM and FG, the inventory is usually higher in the beginning of the quarter, for quarter one, especially.
Okay. Thank you for your answers and all the very best.
Thank you, Bhargav.
Thank you. The next question is from the line of Prerna Jhunjhunwala from Elara Capital. Please go ahead.
Thank you for the opportunity. So wanted to understand your digital strategy, how much did online sales contribute to and how are you faring there as compared to pre-pandemic times, and what will be your strategy there going forward?
So online, and largely online, is the total sales that we have. For the year FY 2022, we clocked almost 16% of our revenue coming from there for the year. But this also in the last two years had a spike a little more than what it would be possibly going forward, because other channels are also coming up and, you know, people have resumed going to stores to buy. So we see a good increase even in our exclusive retail stores or in our modern trade stores. So what I think anywhere between 12%-15% is where the online sales should stabilize in the near future. This was as low as 6%-9% in pre-pandemic stage.
Okay, okay. And how much are you going to increase your EBO too? And what will be the expansion that you are looking at in the MBO channel?
So, in terms of EBO, pre-pandemic, we had roughly about 450 stores, both our own company, own company-run stores, as well as franchisee-owned, franchisee-run. We are roughly at about 400 right now. The idea would be to, by the end of this financial year, to surpass the numbers that we had in the past, which is a 450 number. Internally, we are gunning for the, for the milestone of 500, but that may take a little bit more than this financial year. So, so that's, that's the expansion, plan on EBOs. In terms of our MBO, obviously, there is that is more about, you know, how many MBOs are out there, who are not stocking us. And, there is a constant push if there is- there are any outlets where, where VIP is not stocked.
But, you know, there are not really a plan that we can have in terms of opening MBOs, so it is about converting an MBO, which is not today dealing in VIP products. And there are not a large population of such larger MBOs, but we continue to be watchful of any MBOs where we could, one, get if we don't have entry, and more importantly, what is the share that we have within the MBO?
Okay. Okay. And sir, my last question is on Caprese. What is your strategy going forward now that we are fully open as an economy today, so?
So to be honest, Prerna, we don't have a very big strategy on, on Caprese right now. In fact, what happened in the last two years, our supply was completely broken. And what we have first done is to get to mend that problem where we got our supplies right. As we speak right now, we have a new collection, and new supplies are fully available for us. We are working on the front end in terms of, you know, building back the consumer franchise, as well as building back the channels that we are selling. So first, in Caprese, it is going to be getting back to what we were, and then we will, from there on, take a bigger leap forward. But that is going to come in the next few quarters, not as yet.
So last question, a follow-up on Caprese only. You are looking forward to getting into the mass segment as well, because you are right now in mid-premium, premium when you launched the brand. And what about the luggage segment for a, you know, further expansion in Caprese? So how are you planning to get that onto you?
So, I see two questions there. One, we are taking the Caprese brand extension into the mass segment, and that's something that we will see in the coming quarter. That's part of the plan. However, taking Caprese into luggage or any other category, I think it is a little bit of distant future. We would like to focus Caprese on handbags and strengthen ourself really well there before we extend the brand. However, what we are doing in Skybags is actually launching a range and a slew of products, which is more designed in a way that it would appeal to possibly women more, and the younger generation women more than otherwise.
We're not calling it an exclusive women's selection or something, but there are products and designs that we have launched in Skybags, which are more designed towards appealing to a choice of women more.
Okay. Thank you, sir. I'll come back with the question later. Thank you.
Thank you, Prerna.
Thank you. The next question is from the line of Jinesh Joshi from Prabhudas Lilladher. Please go ahead.
Yeah, thanks for the opportunity. Sir, I have a question on our CapEx outlay. If I heard you correct, you guided for a CapEx number of INR 30-35 crores for FY 2023. Now, if I look at FY 2022, we have already spent about 36 odd crores, which effectively means that our expansion at Nashik is more or less complete. So just wanted to understand, I mean, where are we going to spend this additional number of INR 30-35 crores? I heard that we are expanding in Bangladesh, but is a further expansion at Nashik also lined up?
Yes, possibly, while we have budgeted that CapEx, but we are mindful of the fact that we may want to expand our hard luggage capacity even further. Also a part of this CapEx is a lot of maintenance CapEx that we spend. So roughly about 50% is gonna go towards capacity expansion, which is, you know, doing infrastructure and machines, which is for purely capacity expansion, and maybe about half of that is towards maintenance and all other activities.
Sure. And I also heard that the CapEx strategy is playing out really well for us. And you mentioned that from one Q the expansion will kind of actually play out in terms of production and all. So by when do we expect the capacity to be optimally utilized? I mean, will it be Q2 or Q3 of this financial year?
So Jinesh, capacity is already optimized optimally utilized as far as Q1 demand is concerned. So in fact, we don't have a headroom, and that's what we will need to create as we go forward. So optimized optimum utilization of capacity is not a concern. It is the seasonality that we need to always manage, because the seasonal swing between a quarter one and a quarter three is something that that reduces the capacity utilization, and that's something needs to be managed as we go along operationally.
Just to add, Jinesh, there are certain hard luggage cases which we are actually outsourcing, so that will become in-house.
Okay. One last question from my side. I think a new brand called Uppercase was launched very recently, and I believe it is predominantly a D2C brand launched by one of our, its employees. So, just wanted to kind of get a sense as to how do you see the competitive environment shaping up post this launch, thoughts on that?
We know as much as you know about the upcoming launch. I would like to say that, not only this, there are several other, you know, D2C brands and brands that are coming up. So we have to be mindful and watchful of all new entrants into the industry. And our strategy has to take account of continuous buildup of competition in the sector. So I think we would be, you know, continuously work, you know, keeping that in mind and working towards it.
But will it have any impact on our e-com share, which was at about 16% in FY 2022, which you just mentioned? I mean, can it lower our e-com share, which is the fastest growing channel for the entire industry? So I just wanted a perspective on that side.
Well, I don't think so, and our attempt would be not to let that happen with every might that we have. So let me just put it that way, because right now we can't, we have very little information to know what exactly is going to be the strategy and how will they play. But yes, obviously, we are, we have to be apprehensive of such steps that will be taken by all kind of competition into the market and defend ourselves in e-commerce as well as in all other channels.
Sure, sir. Thank you so much, and all the best.
Thank you, Jinesh.
Thank you. The next question is from the line of Pulkit Singhal from Dalmus Capital Management. Please go ahead.
Thank you for the opportunity. So just to... The first question is just to understand the fourth quarter revenues. When I look at the three years preceding COVID, fourth quarter revenues have always been similar or if at all, slightly higher than third quarter. Whereas for us, this time it's almost 10% lower than the third quarter revenues, despite a price hike of 4%. So I'm just trying to understand, how much of this is because of COVID impact, which may have probably impacted January quite a bit, and how much of it could be maybe some market share loss?
So I think it's, I can't comment on the market share loss as yet. We don't seem to be further losing market share. Market share has been a problem area for us in terms of trying to gain back what we lost during pandemic, and I think we are kind of holding forth there. A large part of our quarter three to quarter four revenue shift downwards is to do with the pandemic and also a bit of correction we have seen last few years. So quarter four over quarter three is not a big drop. It is usually at parity or slightly lower in some of the years.
So as I said, it could be a mix of a little bit of seasonal downswing, but largely it is the third wave, which kind of took out, I think, about, i t's very difficult to kind of put a quantitative number on it, but our intuitive judgment is it took out about two to three weeks of revenues because of the demand disruption due to pandemic.
Two to three weeks of revenues is easily 20% of your quarterly revenues, right?
Yeah, something like that.
Okay. And just in terms of understanding this market share loss, so if I take out the top three players in the luggage industry, are we gaining share versus the other players, or they have bounced back quite sharply and their supply chain was actually not that badly impacted, and to that extent, we were impacted?
Pulkit, I don't think so. While there are no exact numbers and evidence to back it up, but I don't think the smaller and the regional players, barring a few, you know, e-commerce specific players, may have gained a lot of eyeballs because of the high level, high decibel activity on digital space that they're doing. But fundamentally, the supply chain was quite badly broken for the smaller players as much as it was broken for the larger players. So I don't think that would have played up, and we would have, you know, lost the share. Largely, our share loss happened from Q3 of the first year of pandemic.
That's where our supply really broke, and we changed our strategy from, you know, getting our pipeline filled from China, doing it ourselves. And that took us, you know, about 4 quarters at least to get back to some level of sensibility. And I think from there, from Q3 onwards, we are better off, and with every quarter going by, we are building up strength there differently from how we used to be before. So that's the underlying point that I have for you.
Okay. Last question, sir. I mean, if you could give some flavor as to how April and May are going, some quantitative flavor, because I, w e understand demand is obviously coming back up strongly. We just don't know how much is it, if even if it's for the industry, if you can talk about, or if not for VIP?
Yeah. So Pulkit, I can't share VIP numbers with you, but I can only tell you that we are feeling good about all the hard work that has gone in as far as April is concerned. And May and June should also look good. The only concern, if at all I have, is on the large accounts that I talked about in Future Group, in terms of how they will, how will that game unfold in the next four to, or whatever, six weeks that we have left. That, that's a big one that we have. It's not a small account at all. For the overall industry, not only for us, but we need to be mindful that we were a significant market leader in that particular group in the pre-pandemic era.
Right. Right. Got it. Thank you, Anindya .
Thank you.
Thank you. The next question is from the line of Sameer Madia from Edelweiss. Please go ahead.
Hi, Sir. Just a couple of-
Sameer, your audio is not very clear. There's some disturbance from your line. All right, you may ask your question, but please mute yourself while the management is answering your question. Thank you.
Hi, sir. Firstly, congratulations on the result. I just wanted to ask a couple of questions. How much is the exports of the total total sales reported? And, do you see exports a good driving factor at the current situation of what China is going through?
So Sameer, exports is very small. It's about 3%, but I think, we are very close to where we left it in pre-pandemic as of right now, in terms of getting our scale back in whatever little exports that we had. For the immediate future, I don't think exports will be a big part of our strategy in terms of, growth. As I said, that we are extremely focused on the, on the fundamentals, extremely focused on the domestic market, to gain back our share, gain back our profitability. Yes, that's an opportunity will continue to eye, but somehow it's just not the right time to put our energy and resources behind, exports fully.
Okay, sir. Thank you. And just last question, you already mentioned this, but if you could repeat, if you could probably, you know, answer, what is the bad debts provision for this year?
So it is INR 21 crore for the full year. Out of it, INR 11 crore is for quarter four.
Thank you, ma'am. Thank you, Neetu.
Thank you, Sameer.
Thank you. The next question is from the line of Niket Shah from Motilal Oswal Mutual Fund. Please go ahead.
Yeah, thank you for the opportunity. I had two questions. So first is on the profitability side. Our gross margins have been extremely good in this quarter. Is it safe to assume that as a player, we aren't aggressively going behind market share at the cost of profit? And in terms of that, we are okay even if we lose 1% or 2% market share, but ensuring that our profitability remains healthier. So how should one think about that?
So, Niket, no, the philosophy is to do a good balance between profitability and market share. It is not one versus the other. In an extreme volatile environment like this, gauging, you know, the inflation and taking a corrective price increase versus taking the right price from, from market share point of view is always a tightrope walk. But as for what I can answer you in terms of our orientation and our philosophy, I think, a good balance is what we are seeking, and therefore, we constantly will keep on correcting ourselves in either ways, wherever it swings. So we will, we will gain market share, and we will be profitable as well. That's the idea.
Sure. And whatever market share we would have lost would have been in which segment or, or which channel?
Mostly the segment where we lost market share was larger part was in the value segment. That is the segment which grew much, much faster than the rest of it, pre-pandemic, as well as significantly accentuated during pandemic. So everything that we are doing in the value segment, Aristocrat brand, is helping us gain back toward what we lost. Also, the supply issues on VIP and Skybags also led to our possible share erosion in the mid-premium, which I would presume is easier for us to back, because that was a strength area before and we are, we have corrected the supply and we are, you know, going back in terms of exercising the strength that the brand had prior to the pandemic.
Got it. Just one question on the first quarter, which is underway. Obviously, you can't share numbers, which is understandable, but would it be possible for you to directionally let us know that was April, May still underway, was April month one of the best months ever for VIP? Because this is obviously there's some pent-up and some travel and all of that coming back. So what, qualitatively, can you tell us, was it the best ever April for you, or that's not the case here?
Well, underlying the word qualitatively, yes, and it could be coming from numbers as well as coming from how we feel about a difficult journey, and then finally, you know, you have a month which kind of makes you feel things are back to normal and you're back in the game.
Got it. So best April ever, and obviously, we have to monitor May and June as we go forward. Perfect. Okay. Thank you so much, and I'll come back.
Thank you, Niket.
Thank you. The next question is from the line of Smart Sync Services. Please go ahead.
My question, this is Ankit from Smart Sync.
We cannot hear you. Ankit, please speak up a bit louder.
Is it okay now?
This is better. Please go ahead.
Okay. First of all, before asking a question, I had one comment related to the presentation. In the last few quarters, you have been sharing your presentation, which is very helpful, and each quarter we see some really good data point which you add. But there is one thing which I would like to request, is that even in today's call, once the call begun, we saw the presentation on the exchange filing. So if you can release the presentation along with the results a day before, that would really help. That's just a request. Okay.
Yeah, it is being taken, and we will make sure that we do this going forward.
Thank you. Thank you so much. And moving on to question. So Q1 historically has been our best quarter, and in the last two years, because of in the first year it was because of lockdown, and then the second year it was because of the second wave. This Q1, FY 2023, is it fair to assume that there is a chance that we can reach to somewhere between INR 500 crore-INR 600 crore of turnover, wherein we were in June 2019?
Ankit, once again, I'll answer that qualitatively. I don't want to put a number there. But yes, I completely share the same thought that you have, that last quarter one is our best quarter for the consumption of the products that we sell. And the last two years has seen a washout of the quarter. We are definitely feeling far more confident, buoyant, and, you know, optimistic about how we are seeing this quarter going. With only one silver lining, which is, you know, the inflation. The future growth and the inflation, possibly, these are the two fallouts on, if at all there is a spoilsport there.
Yes. Thank you. And one next question will be related to our Bangladesh operation. So, from where do Bangladesh source their raw materials? Is it completely in-house, as in from Bangladesh only, or they resort to China, in terms of the raw materials?
No, Ankit, majority of the raw material comes from China. They are all input materials.
All input is from China?
Yeah.
Okay. So, don't we think that the dependency on China still remain even if we are having our operation in Bangladesh? Or what changes with our operations in Bangladesh?
Well, the dependency on China as a source for raw material continues, but raw material has far degrees of freedom in terms of what we can do in terms of efficiencies as far as sourcing is concerned. And the conversion of raw material to finished goods is a large part of it, and once we control that, we control that part of the cost efficiency. So that's definitely in play. Also somewhere in the future, we would also look at how we could look at. And it's not about just China as a source, because from here, as you are doing your own manufacturing, what opens up is what you can, your freedom of where you want to buy from could be any other country.
So, our sourcing philosophy would be to look at the cheapest source possible, within the realms of quality that we have. To just add to this, I think there is a point what you asked about, therefore, what is the benefit? When we bring into Bangladesh, there is no customs duty for the raw material, and when we bring in FG into India, there is no customs duty. So that's an underlying advantage compared to buying FG from any other source, especially in China.
Thank you. That really helps. So that really helps. And one last question, in regards to our competition and both from the old competitor and also from the new D2C brands which are here. So how do we—I mean, what is our strategy in that sense? In terms of other direct competitors, what we can see is that they are far more aggressive in terms of getting the market share and probably for them, number one is market share and number two is margin. Is it fair to assume that for VIP, it is number one is margin and number two is market share in terms of preference?
I don't think that is a fair assumption. What I would want-
Okay.
As a takeaway is that we are going to go for both. A balance is absolutely important because we are not here for a one year, one quarter business. So just having a margin focus is not going to help, or just having a market share focus is not going to help. So we are focusing more on the fundamental strengthening of the business, and that should play out both as we go along, right? It could be a little slower, but a steady gain back in market share, because that's what we have lost. And what you're seeing possibly is a faster scale-up in margins. But that, again, is to do with internal reorganizing of how we do business is helping us scale up margin, but it will eventually help us, you know...
Or, at least that's the ambition or that's the goal, where we would like to regain and grow over what we had before with a healthy bottom line.
Thank you. And, second part, the B2C brands, competitive intensity from there, the new B2C brands.
Yeah, that's a strong washout we have. B2C and e-commerce is not the largest part of it now, but definitely not undermining the possibilities there, and therefore, we will watch it very closely. And we are also building our e-commerce as well as on the portal, as well as otherwise business or at least the thoughts on that. So you will see, as and when things happen, you will see us preempting it or reacting to it.
Thank you. I would request Mr. Kanodia to rejoin the queue for follow-up questions. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi, thanks, I mean, a couple of followers. What will be the share of modern trade and CSD for the full year?
The share of modern trade and CSD in our business?
Yes, yes, the future.
Modern trade would be at about 30-odd%, and CSD would have to be about 15-odd%.
Okay. Even in FY 2022, modern trade was at 30%?
Yes, it would be.
Okay. And, you said last part of this was completely for us.
I'm sorry, I didn't get the last part.
You said that large part of this modern trade exposure was Future Group for us. Is that correct?
That, that's right. And it didn't play out in FY 2022 fully. It only started the issue, largely started in terms of complete store closures and all that towards the end of March, mid and end of March, yeah.
Sure, sure. And last question, in many categories where there is a large share of participation by unorganized players, we are seeing that their supply chain has got disrupted more badly than the organized players. So, the fact that organized guys, organized players are getting at least more relief in the unorganized competition. We've seen that-
Sorry to interrupt. Sir, your audio is not clear, Mr. Shah. We cannot understand your question clearly.
Is this clear? Should I, Hello?
If you can repeat your question and speak a bit, slowly, please.
Sure, sure. I'll do that. So my question was that in many categories, we are seeing that the supply chain for unorganized category has got disrupted very badly, and perhaps the impact will last longer than what it will last for organized players. Are we seeing any benefit of that in favor of mass and brands in our portfolio? And, and do you see that any of this disruption can be structural in nature for some of these unorganized players?
Yes, so I get your question, Tejas. I think what you're saying is should be happening. Not that we see a huge spike happening because of that, but logically speaking, the supply which was part from China, at least into the domestic market, through the unorganized sector, we know for a fact that it is not fully there where it used to be. And I think somewhere as the value segment of the overall category is growing, it's because one of the factors is that as well. How it plays out going forward is something that we need to watch, but what we decided was to be ready, if that was to happen, with both our products, our pricing, our whole mix, as well as the supply chain.
That's all from my side. Thanks. Thanks, and all the best.
Thank you, Tejas.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Ms. Neetu Kashiramka for closing comments. Thank you.
Thanks, everyone, for joining this call. Looking forward to see you after the quarter one results. In case you have any further questions, you can call me anytime. Thank you. Bye.
Thank you.
Thank you. On behalf of VIP Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.