Q1 21/22

Aug 6, 2021

Ladies and gentlemen, good day and welcome to Irwin Fashions Limited Q1 FY 'twenty two Earnings Conference Call. Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Arora, Head of Investor Relations and Treasury. Thank you and over to you, sir. Thanks, Zed. Hello, welcome everyone and Thank you for joining us on Arvind Fashions Limited Earnings Conference Call for the Q1 ended June 30, 2021. I'm joined here today by Kulian Lalwai, Non Executive Director Shailesh Chaturvedi, Managing Director and CEO and Pramod Gupta, Chief Financial Officer of Arvind Fashion Limited. Participants are available on our website, www.urbanfashions.com. I hope you had the opportunity to browse through the highlights of the performance. We'll commence the call with Kulim providing his key thoughts about our strategy and financial performance for the quarter ended 30th June 2021. He will be followed by Shailesh, who will share his insights into our business performance and key priorities for us going ahead. At the end of the management discussion, we will have a Q and A session. Before we start, I would like to remind you that some of the statements made or discussed on this call today may be forward looking in nature and must be viewed in conjunction with risks and uncertainties we face. A detailed statement of these risks is available in this quarter's earnings presentation. The company does not undertake to update these forward looking statements publicly. With that said, I would now turn the call over to Kulan to share its views. Thank you and over to you, Kunal. Thanks, Sanket. Very good evening to you all. Thank you for joining us for our Q1 results. The last quarter has been a very challenging one due to the severity of the 2nd COVID wave. The quarter saw widespread lockdowns and also was very challenging on the health front. We as a company did all that we could to ensure the safety of our employees through this difficult period. While the 2nd wave was much bigger than the 1st wave, our business has been much more resilient and has performed far better this time around. This has been possible due to the corrections we have made the year before, strong cost measures that we have been able to bring in, the scale of our digital sales as well as the strength of our portfolio of brands. Sales for the quarter was significantly higher than the comparable quarter last year with more than 3 40 percent year on year growth. The reported EBITDA is better than the previous year, even though we have booked lower future rental savings this year, quarter 1 FY 2021 included a INR 26 crores rental savings are for future quarters. As against this, future rental savings considered in quarter 1 FY 2022 is only INR 6 crores. Adjusted for that, the underlying improvement in the bottom line of the business is better than quarter 1 FY 2021 by close to INR 30 crores. This quarter saw much stronger off line sales compared to last year. The off line recovery compared to pre COVID stands at 30% visavis5% in quarter 1 of last year. Sales growth was further driven by the online channel, which grew 4 times are in the range of $1,000,000 year on year. Digital sales accounted for more than 60% of the total sales for quarter 1. This large sale of online revenues was made possible and the category expansion into new categories like comfort wear, footwear and women's wear. Our efforts on digital transformation should continue to bear fruit can ensure that our business is less vulnerable to demand shocks in the offline side of the business. The overall recovery is gathering momentum, and the recovery was nearly 80% in July of this year, July 21. We expect are in the range of $1,000,000,000 to significantly improve moving forward and expect our EBITDA post rental to be positive in quarter 2. Over the past few years, we had made significant progress in reducing the losses of our value format, Unlimited. Have decided to execute on the value of our shareholders. In order to best realize value for our shareholders, have decided to exit the value retail business by selling the unlimited retail network to Vmart. Through this transaction, will realize 100% of the net asset value of the network, which includes the store fixtures and the inventory. Expect to earn an additional INR 30 to INR 40 crores through an earn out based on performance of the retail stores over the next few years. This transaction allows us to exit the value business in an orderly fashion and will lead to a reduction in overall debt and losses. We are very happy to have found the right home for the business as well as the employees that are a part of it. With this transaction, we have almost completed the strategic reset that we set out to achieve over the past 18 months. We expect the gas business to fully transition out in quarter 2. While we cannot fully size the exit costs, we expect quarter 2 losses on the GAAP business and overall discontinued businesses to be slightly lower than that of quarter 1. From quarter 3 onwards, no further losses will be reported under discontinued operations. Participants have gone into reducing costs this quarter. Our overall fixed costs were reduced by INR 70 crores compared to our comparable pre COVID quarter. This large reduction in fixed costs has come from reduction in rental, optimizing supply chain costs and significantly reducing overheads and store running costs. The rental costs were reduced in line with the fall in sales, and we expect some savings on rentals in quarter 2 and quarter 3 as well. This cost focus has allowed us to minimize our cash losses for the quarter. With the exit from unlimited, the cost base itself will be lower going forward, and we will continue to drive structural savings on the retained cost base of the business. In spite of a large drop in sales, we were able to manage our working capital efficiency and reduce gross working capital by over INR 30 crores As compared to March 21, we have been able to keep our inwards in line with the lower sales so that the overall working capital remain balanced as we move into quarter 2. As we enter the autumn winter season, the fresh inwards will significantly enhance the overall freshness and support the business growth and better productivity. We continue to reduce our leverage quarter on quarter, and the gross debt at the end of quarter 1 stand at INR 913 crores. We have the following priorities for the current year: exit all non core businesses by H1 of the current here significantly scale up the Focus brand through better productivity and by opening more than 150 stores for the year, continue a strong momentum on the digital side and exit the year with INR 1,000 crores annual run rate on digital sales optimize inventory turns and freshness and take the overall inventory turns to greater than 4 times, achieve a much stronger profitability in the second half of this year. We hope to achieve these milestones as long as we do not have a very large impact from any potential third wave in the future. With a focused portfolio of market leading profitable brands, strong growth levers in both online and offline channels, the exit of loss making businesses, the leaner cost structure and a healthier and fresher inventory, we expect the business to see much better performance going forward. I would like to now hand it over to Shailesh Chaturvedi to talk about the brand level highlights, market recovery and plans moving forward. Thanks, Kulin. Good evening, everyone. Shailesh here, While quarter 1 has been a COVID impacted quarter, I'm happy to share that have a very strong recovery than last year. So for example, if a channel in a particular month last year had x percentage recovery, that recovery is 2x percentage. So if it was 30%, then it becomes 60%. So this time, recovery is much faster and double the percentage of last year. In July, we saw business recovery of 80% and in Power Brands, this recovery was 90%. We are hoping that by September, right in time for festival season, recovery could be inching towards the near normal mark. Just to add that, this recovery of 90% in Power Brands has been done without Maharashtra malls, Bombay and Pune malls opening once they open. We hope to reach near normal mark very soon. We are encouraged by the fact that our Power Brands portfolio is very suitable are very suitably placed for post COVID work from home times where consumers are preferring our brands that have casual and relaxed appeal. Participants are on track to see the onset of COVID wave 2 and subsequent lockdowns required a focused work on cost control and cash flow management. Our team did a fantastic job on inventory control, which otherwise tends to swell during such lockdown with very low revenue. We had built in sharper process on inventory buys last year and that playbook came in handy in our response to 2nd wave this year. We reduced the inverse of inventory in line with reduced sales so that the inventory levels at end June were only marginally higher as compared to March 21 end, were sharply lower than June 2020 by over INR 300 crores. Continuing our stronger focus on collection from the market during this quarter, our debtors reduced by INR77 crores over March 21. With inventory control and debtors management, our gross working capital reduced by INR 32 crores compared to March 21, even though there was large drop in sales. Hence our debt levels continue to show a declining trend as we have seen in last several quarters. Puneet mentioned that we've been very focused on cost control and the cost base itself will be lower going forward. At the channel level, I will also add that here that with the receipt of final call of right issue of INR 94 crores in this quarter and with reduction in GWC of INR 32 crores, we've been able to fund COVID-nineteen losses in this quarter. At the channel level, we saw online scale up over 4 times business over last year quarter 1 and it was 60% higher than the normal quarter, which was the quarter 1 of FY 2020. This impressive growth in digital business has been enabled by strengthening of several capabilities at the back end. We connected additional 100 plus stores with Omni Tech Pack and now we have nearly 600 omni enabled stores across the country. This has resulted in contribution of omni channel increasing to mid teens of store sales in this quarter. We also increased the number of B2C warehouses, helping us fulfill marketplace orders efficiently and quickly. In order to spend in marketplace business, we are now connected with all major portals and that has significantly helped grow this business. Participants we continue to support online business with several merchandise assortments that are exclusively made for online. Going forward, we wish to build further on our leadership position in online business and enable channel to drive growth and are contributing to profitability significantly. Just to add a point, we increased this quarter revenue by additional INR250 crores. Out of that additional INR 250 crores, we got INR 150 additional crores from the online channel. So a significant part of the growth has come through online channel. Overall, July saw 80% recovery in business with 90% recovery in our power brands. We are awaiting further opening in Maharashtra and Kerala, which is expected to drive higher recovery. With faster recovery this time, we are moving towards post rental EBITDA breakeven in Q2 participants with divestment of unlimited retail business, our focus on can drive profitable growth moving forward. With rapid recovery seen in market this time, we expect rest of the quarter to deliver have a strong year of healthy profitability, except for a fear of any potential third wave. With improvement in momentum in quarter 2 and the festival season thereafter, we look forward to significantly improved sales and profitability during H2 of this year, FY 'twenty two. With that, we conclude our opening remarks and make it open for the questions. Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. First question is from the line of Akshay Sathija from Alfheimersco. Please go ahead. Hi, congratulations on great set of numbers Thank you so much for the opportunity. So what would be a release from the unlimited business in terms of capital employed? Participants, we have visibility that we get close to INR 150 crores from Sale of Unlimited. Okay. And this should happen till by early September. Okay. And Approximately what capital employed will be released from GAAP business? And how do we plan to use these funds? Will we be repaying our debt? Or will this be going As far as GAAP is concerned, we will plan our activities for quarter 2. So I'll we will wait and we can confirm the exact details of the capital that will get released in quarter 2 in GAAP. Okay. But unlimited would be INR 150 crores of capital release. So that would go towards debt reduction or further expansion? Yes. I mean, sure, Lee, significant part of that will be to reduce our debt further and part of that will be for funding of the growth. Also, if you could give an approximate numbers in terms of GAAP, maybe what amount of capital employed is currently stuck in GAAP? And we understand the number could be participants Can I take this question? Yes. So the total capital employed is about INR 70 crores, and we expect good amount of that getting released in Q2 itself. Okay. So the final question, if you could help us what were the number of owned stores versus franchised? And How much of them were making money pre COVID level? How much were loss making stores and how much were making money pre See, in the wave 1st last year, we had corrected our store network very, very sharply and most of the loss making stores were already shut down last year. On that cleaned up base this year, participants need to close down too many stores. And if I remember, almost a small number between 30 to 40 stores is what we plan, which also happens on a regular basis in our life. So the number of stores that we shut down now was less and Our understanding is that post COVID with the normalcy restoring, most of our store network will be profitable. Okay. And how much would be our own stores and franchise? Yes. It's the same question. Sir, you may continue please. Yes. I was just asking what the number of homes to work is are in line. See, our network is largely franchised network and this year expansion of close to 150 stores, most of them, I would say, more than 1 these stores would be franchisees stores. So our network is becoming more and more franchise are led network and it's an asset light model. So Pramod, do you have an exact number? Somebody has an Exact number on No, I don't have the exact number. We can take this question back and Ankit can revert back to me. Yes. But I can tell you that our our store network is largely franchisee led and going forward, it will be I can use the word entirely franchisee led, like 95% of our store opening will be franchisee led. Got it, sir. Thank you so much. Thank you. Next question is from the line of Nishat Rathee from CWC. Please go ahead. Hi, team. Thanks for taking my question. So as you mentioned, Q1 is generally when we see higher purchases done before the festival, and this is second time in a row that we've pushed out our purchases. So just two questions on that. Does this in any way affect our ability to grow once the demand is back? And how does this affect participants As we stand today, July, our Good, as per our plan, what we wanted to bring in into our system and deliver and send to the market. So we are now on track after all the modification and improvisation that we did in the inventory for quarter 1 COVID time. And for this quarter, I don't anticipate any issue with our ability to service the inventory to the market. We are are extremely well poised on that and we will be able to fill orders in time for the season ahead. Participants So, Salish, the question here is, we were doing things a little differently, let's say, 2 years back. And you're saying that we have changed the way we're doing it. So does that mean that going forward, we are going to become more just in time in terms of doing it and you know or is there something else or was there inventory that was stocked up that were able to supply? I'm just trying to understand that, right? Yes. So there are two parts to your question. Sure. One is on the discipline on how inventory is built and second thing is on the response time agility that's what you used, right, just in time. So what we did is that we in the last year in our playbook, we tightened the discipline and we ensured that we were bringing it at the right time in the right quantity. So a lot of internal check and balance and discipline. Also, we played safe with the MBO channel because that channel used to throw up a lot of surprises on inventory because that's where the inventories to get sort of leftover or payment. So we reduced our reliance on the MBO channel. So all that brought in internal check and balances, the MBO less reliance on MBO channel that brought in lot of discipline in the way we buy, and that's a structural discipline that will help us going forward as long as we maintain and improve upon that. Second part is on the agility side. So we do a very large volume of production and we have a partnership with are back end with lot of good vendors in India and then we work with them on many methods to reduce the lead time with our production And we will be able to get goods on time in season because of the reduced lead time that we are working on currently. Participants Sorry, just to follow-up on that. So let's say, if historically you used to do 2 drops, 3 drops a year, Are you saying that you have reduced your order quantity and you will do multiple drops, you will do maybe 4, 5 drops? Is that the way The new supply chain is kind of geared up. Is my understanding correct? Or is that right? Participants Yes. So one thing is we bring in the goods right in time for the season launch, what is early in the season, we call it drop 0, and then we have multiple drops or the collections coming every 2 months into the are in the market that happens and we are working with the vendors so that the lead time required for producing these growth in different multiple flats also is reduced. Also, we are a leader, as Arvind has a group, on the are flexible manufacturing and there are a lot of new techniques of flexible manufacturing like digital printing or dry method of doing finishing on denim on 5 Pocket Jeans. So we have invested a lot on the flexible manufacturing where the lead times could be as low as 30 days, What is the traditional 90 days to 100 days lead time? So there's a lot happening at the back end to be more agile and flexible. That was very helpful. The second question is, if I understand it right, almost INR 60 crores of your sales in this quarter was B2C sales, right? So I just wanted to know what is driving this B2C sales. Is it because the stores are shut, you are getting more due to sales from brands like U. S. Polo, which any which will have very strong demand? Or Is it primarily driven by brands like Flying Machine, which are dry machine and smaller brands, which are bound to be more online and You intend to make it more online. So, I would love to get some color there. See, The online traction that we have seen is across the brand. It is definitely in U. S. Polo, surely in flying machine when we got into the special relationship with the Flipkart Group, it's in Tommy Hilfiger, Calvin Klein across brands, Arrow Online Business has picked up in this quarter. So it is not participants are in the market. It's an overall drive. We are a leader in online business in the country. Our current rate is going to be 1,000 crore annual business going forward. So we have a large business, which is spread across all brands. Participants are in the same position as the COVID and I mentioned that we have built lot of capabilities at the back end to support our brands right from linking more stores and those stores 100 out stores that we've added now in this quarter are spread across all our brands from flying machine to U. S. Polo to Arrow to every other brand. Also, we've linked up with portals like Myntra and the Agio and the Amazon and we are doing very large business with them. Our own website now is growing well. We have a lot of repeat customers in now.com. So through that and to other marketplaces, we are able to reach many customers. We have increased the inventory levels in our marketplace model so that we can service more. We can give are larger assortment to our customers. So if you really see the whole retailing of business on online through our own now.com and also through the marketplaces through all the portals and we also all that has gone up and we have higher number of B2C warehouses so that we can fulfill parts share more efficiently. So it is a strategic and very structural capabilities that we are building that will help us even post COVID. So for example, we mentioned that our omni business in this quarter was in mid teens of the store business. So the entire store team is now getting used to Servicing an omni order from the store. So there are a lot of these structural changes that have happened that will help us to continue to grow on our leadership position in the digital and in large size of almost INR 1,000 crores plus even as the market recovers fully in the time beyond COVID. Pune, do you want to add? Yes, I'll just come in here. Nishith, see, we are There are 3 broad transformations that are going on in the digital strategy. One transformation is that this business used to be an old good selling business, what you call OSM, which used to be sold on discount largely online. The new model is to actually create products which are attuned to online and they have much better sell throughs, lower discounting and a much better cash conversion cycle. So one big transformation going on is that the business is moving from what used to be this old goods to what we call specially made units, so units made for the online channel with deep analytics and flexible supply chain. So that is one transformation going on. The second transformation is that it used to be a wholesale business where you used to sell 2 quarters and then forget. And it's moving to a retail business, which is both our own.com, now.com and what we call the marketplace model where we set up the listing and control the pricing, promotion and delivery of the products that we sell on 3rd party marketplaces like Myntra, Flipkart and Agio. So in a sense, we are building muscle as a company to do direct are in the range of the 2nd quarter, and that is very powerful because you get customer connect, you get to control the quality and the way in which your product is sold. So we are every as we go on, right now it's in the mid-30s, but we expect our direct retailing will be able to keep increasing and that will make the business even more robust. And the 3rd transformation is how do stores not just remain physical stores, but we digitize our stores. So as Shailesh was saying, we're in the mid teens as the online contribution to store revenue. But as we keep connecting more and more marketplaces and building more and more omni channel journeys. I think participants will also keep enabling the digital sales more and more. So I think these are all three of the transformations are at work and That is why the online business is scaling up the way we are seeing. This is great. I have a couple more questions, but I'll come back in the queue if people don't have any other questions. Thank you. Next question is from the line of Vaishnavi Mandanya from Anandrati. Please go ahead. Yes, hi. Thanks for taking my question. What is our net debt as of the Q1? Pramod, do you want to take that? Net debt will be around INR 20 crores less than that. So it will be around INR 900 Okay. Got it. Also on the online channel, right, In terms of the current run rate, right, that we have, what exactly is the profitability of the Channel and what exactly is our current run rate of quarterly sales in terms of online? And how do we see this moving forward with Probably like stores opening up and offline also picking up in the rest of the U. S? Participants Yes. So if you look at this quarter, we did nearly INR 200 crores online business in quarter 1. And even online business was impacted in the second half of April and only in the 1st week of May, they started pulling back to the normal business in online. So this business also would have been slightly higher if the online was not also impacted by the are in the market. So this is our current rate. The way our order flow is currently, we are at a INR 1,000 crores annual rand rate and the growth is going faster. And I told you that this quarter, we added INR250 crores delta revenue for the company over last year same quarter. Out of that delta INR 250 crores, online delivered our delta INR 150 crores were bought the business in online was last year same quarter. So large part of that growth has come from online channels. Now a lot of capabilities that we mentioned and then Kulig just recently just mentioned in the previous question, a lot of these capabilities are going forward and our brands are also very suitably placed for the online business, all casual ish, relaxed feel brand at different price points from line machine, which is value to Calvin Klein is super premium, right? So we have brands of casual appeal at different price points and different product categories and those categories are doing better on online channel for the kind of consumers who are coming and shopping there. So we are quite bullish. We are are feeling that the business will continue to grow at a very good rate going forward and even the profitability of this business is fairly good. Actually just coming in here, the profitability of the online channel is actually are higher than that of the retail channel. It's historically been one of the most profitable channels. So Hello? Hello? Vaishnavi, does this answer your question? Yes, it does. Thank you. Thank you. Next question is from the line of Dhruv Shah from Ambuqa Finca. Please go ahead. Yes. This is Nishith Chai here. My question is overall company's direction. If you look at the 2 categories, which are relatively large in India, one is the Innerwear category. There are companies with significantly larger operations like Page Industries and all. What is our strategy in this area? Participants As far as the Innerwear business is concerned, 2 years back, we put investment behind that business and set up a separate unit separate team, dedicated team for Innerwear and that business has really scaled up both online and through the multi brand Innerwear store, we do that business largely with U. S. Polo, which is a very strong brand participants in that along with the Innerwear, we've added some youth wear, loungewear recently, which is also received very good feedback both offline and online. Our plan now is to keep adding new categories on the Innerwear. Also, we will going forward add Innerwear in other brands. For example, Flying Machine, there is a requirement from the online because it's a very online first brand to add Innerwear to the flying machine also. In addition, we do very successful Innerwear business in Calvin Klein. And if you see Hulu of India, all the celebrities where Calvin Klein In a way, and they are the CK is one of the strongest In a way brand in the world. In addition, we have In a way brand in Tommy Hilfiger also. So slowly, slowly, we'll see our Innovair portfolio is TK at the top end, Tommy below that. U. S. Polo is the largest Innovair business for us, there is a plan to add Innerwear categories in flying machines. So overall, we will have a very large Innerwear in our brands. Yes. Thanks, Rajesh, for that. And what about the beauty and fashion? You would have seen have a very good reputation for the company. One of the companies going private public recently has got valuation of more than INR 30,000 crores. And you have a tie up with one of the best in the world brand platforms, yet we are not able to capitalize on it. So could you elaborate what is our plan on this? If I can, Kamil here, see on Sephora, One thing, it is a very, very exciting format. I think there is no question about it. It's one of the And in the Indian context also The franchise has been very, very successful. The one thing though that one has to understand is that it is a super premium kind of price point and positioning where the average ASPs of are typically above INR2500. So there is a certain, of course, market for that product and it is rapidly growing. So we are excited to be able to scale up that business. In fact, on the retail side, The productivity of Sephora in any mall that you will see Sephora in is by far the highest. We have a measure call PSFPD, which is the sales per square foot per day and Sephora sets the benchmark of productivity in the country. But because of the mix, there is a certain set of malls in India which can support the format of Sephora. Participants and as the affluence goes up, we believe we will be able to keep opening more and more stores. So this year, we will open more than 6, 7 stores of Sephora. Even in the Q1, the Sephora stores have really bounced back remain well. So I think as far as physical retail is concerned, it's a very, very successful format, but it is going to be Growing in line with the distribution. Now coming to online, definitely we see the opportunity to be bigger. Again here the price points are different. You mentioned another player. But in a sense, this Sephora plays in a slightly higher part of the prestige part of the market. And within that, we are definitely scaling up are in the range of our digital presence significantly. We have been consistently growing and we are going to the lever for us there is to keep expanding are in the next 12 to 18 months, there are more than 12 brands, which we will be launching, exclusive luxury brands which will be coming into the country. So as the offering keeps growing, it will help us bring And also we are working with the global team to see if we can bring in the Sephora storefront on the digital side as well. Globally, it has done very well. We have to work to bring that alignment into India and to capitalize on that. So I think the opportunity for Sephora is exciting. We have to work within the segment that Sephora is participants are in and really capitalize on it. So we are working with the partners to ensure that in the rapidly changing environment, Sephora continues to have its pride of place in the customers' minds. Yes, thanks. That's useful, Ghislain. Thanks. Thank you. Next question is from the line of Devanshu Bansal from MK Global Financial Services. Please go ahead. Sir, hi. Thanks for taking the question. So online has seen robust traction for us. So just wanted to check if you could provide profitability comparison versus last year for this channel, be it in terms of quantitative or qualitative terms. Participants This is basically to understand whether the new D2C and own website initiatives that we are doing are helping us on the profitability front. I can take that. As I mentioned, overall profitability in digital are in the range of 50% to 50% and between last year and this year, actually the profitability is holding up. In fact, for our own.com also, it is a positive unit economics model with a healthy unit economics as we speak. And the wholesale part of it obviously is has always been strong on unit economics. So there is no Okay. Secondly, you indicated D2C on websites gaining traction and currently, If I heard it correctly, 30% of online sales. What is the steady state mix between B2B and B2C sales that you foresee down the line? Participants So just a little clarification, when we are saying direct to consumer, we are meaning it more direct to retail, which is our own.com plus what we call marketplace where we control the sales process on even third party. So that put together is in the 30s. Right now, it looks like it will remain in this range for some time. As The market evolves, it is really tough to say whether the direct to retail can significantly go up from this, but we are going to play both sides, the wholesale side and the direct retailing side and ensure that both are maximized and as the market evolves, we will be able to see how the split will change. Sure. Lastly, any benefits out of preponement of end of season sales at major platforms like Myntra participants During this quarter? Ganesh, you want to take that? Yes. Yes. So if you really look at URLs and the events, they were little later this year than last year, almost participants typically, this year was in early July versus typically happens in June, mid. So, the big event in online world were later this year and that's a call of the online portal, right? How but since the lot of places the opening had not happened, So they wanted to give some time and then they did it later. And we participate with the portal dates because they pull in the customer, they do the marketing and we sort of work with them and partner them to get benefit from the traffic that they bring in through these special events. So it's not a It wasn't early this year. It was a couple of weeks behind and that's something online players decide on their own. So, benefit So, the physical stores in the malls, etcetera, also the U. S. Calendar this year was slightly later than normal. So the benefit should we should see a benefit of this in Q2 as well as in Because of postponement of these sales or the B2B sales have already happened for B2B? So see, the Discounted sale or the end of season sale happened in July this year and the big days also happened. So we got the online business filling in June July. And This year's this quarter results will cover and that's as per the plan. Sure. That's it. So this is a major Thank you. Next question is from the line of Sagar Parekh from Deep Financial. Please go ahead. Yes. Thank you for taking my question. Firstly, with this unlimited sale, what is the fixed cost base that will go away from our books? Ramoth, do you want to take that? One second. I think the way to look at it, EBT losses of unlimited were high at around INR 80, INR 90 crores. But in even a normal year, since the business had interest cost depreciation and was getting close to EBITDA breakeven, I think One can say that around INR 50 crores, INR 60 crores of the bottom line weight would go away. At PBT level, 50 crores, 60 crores hit in a normal year? Yes. In a normal year. Assuming EBITDA breakeven. So that was I think happening at around INR 650 crores kind of top line number at which you were participants are possibly doing it slide 4. I think we had significantly reduced the breakeven point. So at a much lower revenue, we were breakeven. In fact, the 2nd part of last year also, we were broadly breakeven at a much, much lower revenue point. So you can take around INR 50 crores as a great tech. And my second question would be, what would be so So now with the new everything all restructuring done, what would be the breakeven point for us now going forward? So in another way, What would be the fixed cost base for us going for the existing brands, continuing brands? I think as of now around Okay. And any INR 600 crores, right? Yes. Between INR 600 crores to INR 700 crores in the current financial year or we should be broadly similar? See, from the proceeds from the Unlimited around INR 150 crores, decent amount of that should go to reduce the debt further. Okay. And so that is assuming that there would be the recovery happens. So if there is like a 3rd wave in further lockdown, then it could possibly go into loss funding as well, right? So See, if there is a The whole cancellation will change, right? I mean, then focus will be on managing the wave than on debt reduction. But in case there is no 3rd wave or it's not like a strong 3rd wave, then we anticipate reduction in debt further. Okay, so participants are 100 and 20 crores, 1.30 crores is the reasonable debt reduction estimate for by the way of the business. 100 and 50 a good amount of that 100 and 50 should go into debt are action if there is no third wave. Okay. And for FY 'twenty two, Do we still anticipate like cash profits from the internal accruals like to happen or it will possibly happen in FY 'twenty three now? You have to break it up between H1 and H2. I mean, as you know, the Q1 is already are out there. And as we said that Q2 will be EBITDA positive and life will further participants have improved from Q2 to H2. So we are pretty positive about what we should be able to do in H2 participants are in Wave 3. Yes, but that's where I mean we are. We should be looking at a much sharper profitability in participants Okay. And working capital Is sustainable at the current level, the absolute number or with the sales growth working capital absolute number should also increase? I think the way I look at is to Ramod, on working capital, on the inventory side, we are on a major drive for improving our stock terms. So we have gone from this year, our budget close to 4%. And in the second half of the year, we should be reaching and crossing that mark. And efforts would be to look at moving towards stock turn of 5 in the next year. And there's a lot of strategic action happening and we as we do, we'll share it right now. We don't want to talk about future too much, but our entire are very committed to take our stock turns to 5 for the next year. Now when you reach just imagine a situation where your stock reaching 5 and you have, let's say, assume no COVID, very likely, and we have removed large amount of loss making businesses. So the result of the fixed high conviction brands are throwing up decent amount of cash. So the cash coming from operation, Stockton going from 4% and then to potentially to 5%, then you will see that our ability to get cash out of our business will increase significantly going forward. And that will have its impact on are not working capital on anything. So as the scale will go up, we will still add lot more efficiency to our working are in the range of capital as we go along because our stock trends are likely to go up and our businesses, the remaining 6 brands that we want to focus hard on and invest behind and grow them profitably, then you will see our working capital needs will are reduced significantly, structurally. Great, great sir. Thank you for answering all my questions. I am done. Thank you. Next question is from the line of Priyank So my question is with respect to gross margins. Now We are done with the portfolio restructuring. What can be a steady state gross margin that we can safely assume going ahead? Participants are in the quarter. Our gross margin for this quarter were close to 42%. Last quarter, quarter 4 of last year was at 41%. But then there is a seasonality because in the quarter 4 Jan March period, you get the impact of the end of season, so the margins come down a little bit. And this quarter despite COVID and despite all the issues linked to COVID, our gross margins have remained steady from that 41% to 42% risk. Participants are not talking too forward, I'm saying in near terms should reach 45%. So that's our sort of thing. So we are at a level where 41 has gone 42 also the online we mentioned our profitability is fairly good and this quarter 60% of our revenues came from online channel. So we held on to the gross margin to 42%. And once the COVID impact reduces and the malls, participants are open and we do more full price business, then our gross margins are likely to reach 45%. I'm assuming Novae 3. I mean, everywhere I have to put a caveat that don't assume there'll be no Nevae, but There's no third way, man. I think 42% right now could go to 45%. Sure, sure. We understand that. Thanks. I mean, that was helpful. The other part to the question is on the expenses. Now the participant also alluded. So want to understand at this current state with these 6 brands, our fixed cost can be the quarterly fixed What has been reported in Q1, can we assume that this would be the fixed cost going ahead? Participants If you look at fixed cost as a percentage of NSV, then there's a lot of are not going to be able to see improvement possible because the top line will come back strongly if there is no way 3 and season time. But if you look at absolute number, As the business normalizes, then some of the costs will also normalize. But as in terms of efficiency of are in our cost structure, we have a lot of structural savings that we received last year, more than INR 100 crores, and we rationalized many things on supply chain, on manpower prints, loss making stores and the staff of that converting from own stores to franchisee store to work on an asset light model. So Lot of effort has gone last year and also this quarter from the Jan March base, we reduced our cost structure fixed by another 30 on rental, on employee cost and other things. So we are at a very efficient level right now and a lot of these structural advantages will be go forward, but when the business grows and post COVID top line is likely to swell very fast, then we'll have to support it with slightly absolute value fixed cost. But as a percentage of the NSV, will remain very, very efficient because the likely NSV growth should be higher than the likely increase in fixed costs. All right, all right. I understand that. And just to squeeze in further on the rental expenses, so now in the current quarter, it has been INR 30 crores participants that has been reported for Q1, is that the and we have achieved a significant savings versus previous quarter. Is that a permanent one or is that when the stores get opened, we are likely to see again slightly higher rental expenses also on that? These are rental for COVID tanks and lot of hard negotiation. But once the typical arrangement with a landlord is that when your business becomes close to 100%, then we'll have to pay the normal rent also. And they are partner in the business and it's a are a win win for both of us. We have to survive. It's a partnership. So once the business become normal and when we start growing our are in 2019 numbers, our rent will also normalize. I think quarter 4 was broadly a normalized rent. Maybe it was a little maybe 95% of what a normal rent would look like. Sure, sure. Participants Thank you. Next question is from the line of suhoorit Devorah from Paladin Capital. Please go ahead. Hi, good evening, everyone. I have a question on the margin. And I'm not sure if you've already talked about it before on today's call. I apologize in advance. On your Slide 10, The emerging brands are showing a higher loss this quarter versus the corresponding quarter last year despite higher turnover. So I was wondering participants Sorry, did you your question on emerging brands? Yes, the losses, the EBITDA losses increased this year. Yes, I get it. See, in the emerging brands, we've done a minor reclassification because now Sephora as the only earlier we used to call we used to have 2 buckets, one was emerging brand, other was the specialty retail. But in the Specialty Retail, we had Gap, Unlimited and Sephora. Now with Gap exit and the unlimited exit, there's only Sephora left. So what we have done is that Sephora has been clubbed with emerging brands. And what has happened in this quarter in Sephora being a pure are very, very low online business, the losses are higher and that was you will see the losses in the emerging brand because of Sephora. Now give you an example that 25% of Sephora business comes from Maharashtra. And the Maharashtra malls have not even opened today. So Bombay Mall, Pune Mall are still Sapura has really good business in these malls and 25% of the national business comes from Maharashtra. And unfortunately, Master government has not done the unlock and Sephora business has got impacted because of that. It's a temporary issue and Sephora does well when the market will open up and the Maharashtra open up that 25% business opens up the losses will reduce are in the same quarter because Sephora has got added to emerging brand cluster and because of the Maharashtra lockdown and also the overall lockdown in a pure largely pure retail business, COVID does impact significantly we are not able to reduce all the fixed costs in the same proportion of the drop in the sale. So the losses happened and Sephora has seen those losses and that's why the emerging losses are looking higher right now. No, but I'm sorry, if I compare participants But the sales have tripled and EBITDA is also tripled. The EBITDA loss is tripled. So what are we doing with Sephora? I understand that. But will that also apply to the same quarter last year? Yes. Also, there are these rent adjustments. So, we discussed earlier that this year, The rent we have blocked is only 6 crores versus 26 crores were booked last year. So some of those things are impacting the number right now. Yes, last year, almost all of Q1 Sephora was the entire network was shut. Have been able to provide a better understanding of the value of the company. Right now, as Shailesh said, those rental savings which we have booked in are a little less, which amplifies the losses of their products. Okay. And related question to this is that Could you help us understand your long term margin aspirations? Sorry, I lost you, Safi. What margin Sorry, what are your long term margin aspirations for the company as a whole? I don't know how forward can we go in a call like this and talk about it. Directionally, I mean, let's assume COVID is gone at the end of it by now, but directionally, where do you think after the losses of unlimited going away and all the non core brands being sold, what should we look to as a sort of margin Aspiration for the group, but all your whatever changes you all have made. Sure. See, if you look at our portfolio post GAAP, post participants are very well established, have decent scale already, very inherently profitable brand. Once we get out of the COVID times, which and we get rid of the discontinued brand from second half of this year, what will emerge is a portfolio of have very, very strong brands with fairly high potential for margin. And most of these brands in near term, if I would say like next 2 years, should be significantly close to double digit like U. S. Polo and that brand with its own strong appeal and the likely scale and a lot of new category that we're adding could have even a higher EBITDA margin. So our intent is to unlock the potential of these brands in the near term and reach this kind of margin that we are talking about. And you on that, you participants are going to be talking about going from 4 this year, maybe to 5 next year, what it does to the ROCE could be very, very dramatically are positive. But I don't want to go too much into the future forecasting in this call. So please don't take these comments seriously. I mean, there is participants We still need to see whether wave 3 happens or not. We still need to close the discontinued band in quarter 2. But I think the way we see H2 this year itself, things look dramatically encouraging. And if we can deliver on the plan that we are talking about on stock terms, etcetera, then both in terms of margin and on the return metrices, we could be sitting on very, very good situation. Okay. Thank you for that. And last very small question is, when if If the country reopens, all the growth that you've been seeing from online sales, will some of that get cannibalized by offline? Participants It's very interesting if you really see the market share of any big brand in India, the size of market is huge. And the way the online is penetrating into new zip code, new consumers, the whole conversion from unorganized to organized, organized to upgraded, I mean, there is a lot of tailwind in our industry and we are able to execute. I think both can continue to grow significantly both online, which will grow shortly much at higher pace and offline, which also can grow through new categories, through distribution to new participants are in the same position. So I don't know that we have reached a point where it's like a 0 sum game between the 2 channel and one will Of course, in COVID times, the percentage of online sales this quarter was 61%. That percentage will not say We are on a secular basis, crossed 20% mark. We could be somewhere in between 20% to 25% of our fast growing top line. So percentage will stabilize, but I think there is enough probability of both the channels growing side by side. In fact, in quarter 1 itself, I think if COVID were not there, the absolute scale of the online business would have been even higher because during shutdowns, the usage occasion of apparel goes down, so irrespective of channel. So I don't think quarter 1 Absolute online business was due to offline not being there or any level of cannibalization. So I, in fact, see moving forward the as Shailesh was saying, there is a structural reason why digital and also our brands are gaining traction in the online side. I don't think there is any danger of business moving from online to offline. Both are going to independently Got it. Thank you so much for that. Thank you. Next question is from the line of Deepak Bodhdar from Saphyr Capital. Please go ahead. Yes. Thank you very much, sir. Sir, I just wanted to understand, like maybe from a 2 year perspective, do we aspire basically to reach pre COVID kind of a revenue level 4,500 crores to 5,000 crores. So, yes, any comment would be helpful. Participants I don't know how far can we predict and project the numbers and feel, but I would say participants have been very busy. This second half of this year, without going too far, we would be, I think clearly much higher than H2 of their pre COVID year, which was participants that's on the continuing brand and the way they can grow then all the other top line that we will be losing through unlimited sale or GAAP sale, we could cover very soon. So there is enough growth in the system and there are a lot of growth drivers which can take us to the scale and beyond. I mean, we'll not be happy only with that it has footwear, it has innerwear, client machine through it, mobile first, online first mindset is adding lot of new categories with participants are in the same position. So we are adding a lot of so we have digitalization. We have adjacent accessory category coming in that will drive the top line. Also, we are going in aggressively into smaller towns. And this year, our plan is we used to open around 100 stores a year. This year, despite COVID, we are still aiming to reach 150. We have 60 stores ready for opening in the next are in the 60 to 70 days. So we still are sticking to a number of 150 stores opening this year. And these stores will not be pure vanilla offline stores, they will be all only enabled, our footprint, digital footprint in smaller towns and not just Tier 2, 3, but even much smaller towns. We have a model call FMX in flying machines, which is called small towns and our target is to reach towns with 50,000 to 2 lakh population count, we have opened 50 stores in North and our target is to reach 100 stores participants are still modeling it and then potential of that FMX model alone will be very large, all digitally enabled physical. So if I just say all these growth drivers from digitalization to adjacent category to small town expansion through Omni Immelid Sur, we see a lot of opportunity for growing and revitalizing the growth of our top brand. Participants Understood, understood, understood. And you did mention that the second half of for 2022 adjusting for overcoming the sale that you have done, the second half of FY 'twenty versus second half of FY 2020, you can outperform, right? Even last year second half, we did better than the second half of the participants are in the FY 2020 period, when unlock happens like we see in July, our power brands are only at 90% recovery, even though Maharashtra is not open, Kerala is not I mean, even with those closure, We are near normal. So our brands are very well placed for the times we live in, work from home, casual, relax. So we have a very strong portfolio, which is very ripe for our times, casual jeans, open footwear, Athleisure, Innerwear, Kids. So we are very confident that with these strong brands, are very profitable brands, we can grow rapidly. Yes, fair enough. I got the point. I think, yes, that's about it. Thank you very much. Thank you very much. Ladies and gentlemen, that was the last question due to time constraints. I now hand over the meeting to Mr. Ankit Arora for closing comments. Over to you, sir. Thank you, everybody, for joining us on the call If any of you have more questions, please feel free to reach out to me and I would be happy to answer them offline. Thanks for your time today and look forward to interacting with you again next participants Thanks for joining. Appreciate. Thank you. Thank you very much, members of the company. Thank you. Ladies and gentlemen, on behalf of Fashion Fashions Limited, that concludes