Ladies and gentlemen, good day and welcome to the Campus Activewear Limited Q2 FY 2023 earnings conference call. As a reminder, all participant lines will be in 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 and zero on your touchtone telephone. Before we proceed on this call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with our businesses that could cause future results, performance or achievement to differ significantly from what is expressed or implied by such forward-looking statements. The Campus Activewear's management team is represented by Mr. Nikhil Aggarwal, Whole Time Director and CEO, Mr. Raman Chawla, CFO, and Mr. Piyush Singh, Chief Strategy Officer.
I now hand the conference over to Mr. Nikhil Aggarwal, Whole Time Director and CEO, for his opening remarks. Thank you, and over to you, sir.
Thanks, Kathy. Good evening, everyone. Welcome and thanks for joining our Q2 of FY 2023 earnings call today. We appreciate and deeply acknowledge your trust in our vision to create India's leading sports and leisure footwear brand. I'd like you to share that our quarterly performance has been broadly in line with our growth expectations despite inflationary macro environment and transient demand contraction in rural and semi-urban areas. There's been a sustained improvement in our year-over-year quarterly financials, exhibiting marked improvement in our top line and profitable growth across all revenue streams compared to Q2 FY 2022, which had tailwind support of pent-up demand with markets opening up after 16 official lockdowns in India on account of COVID-19 last year. Because of seasonality seen across product mix consumption, Q2 and Q3 has been contributing 20%-22% of our annual net revenue.
During Q2 FY 2023, we sold more than 5.5 million pairs at an aggregate level, thereby booking net income of INR 334 crores and a year-on-year growth of 22% versus 42, which was at INR 223 crores. Both trade distribution and direct-to-consumer channels have delivered profitable growth of about 7% and 44% respectively on a year-over-year basis versus Q2 of FY 2022. With sales of 5.5 million pairs in Q2 FY 2023, we registered a year-over-year volume actually growth of 15% in comparison to Q2 FY 2022. Not only volume, our quarterly ASP has also grown by 5.3% from INR 577 in Q2 FY 2022 to INR 608 in Q2 FY 2023, despite a challenging inflationary environment.
Balance sheet demonstrates the position of strength with robust return ratios such as ROCE and ROE of 30.1% and 30% respectively. We are sincerely thankful to our end consumers, our channel partners, all our investors and stakeholders, and our passionate team which has helped us in delivering this performance, which earmarks the underlying strength and resilience of the brand. As always, we thank you for the invaluable support and investment. I will now hand over to our Chief Strategy Officer, Piyush Singh, for his remarks. Thank you.
Thank you, Nikhil, and greetings to everyone. Adding on to what Nikhil just said, we continue to uphold our paramount focus on sales growth and market share enhancement. As we have maintained earlier as well, just like FY 2022, while inflationary environment and supply chain disruptions result in a negative demand impact at an industry level, it also opens up interesting pockets of opportunity from a growth and market share enhancement perspective. I mean, just in line, we witnessed a robust growth in Quarter 1 FY 2023 and tried maintaining similar growth momentum in Q2 of FY 2023 as well, while being mindful of raw material inflation and direct and indirect impact of currency depreciation on our input cost structures. In Q2, while being cognizant of market dynamics, we tried offsetting input cost inflation in transit and indirect costs with sales mix-led premiumization.
Our endeavor is to utilize this onward impact with potential pricing fees and enhanced operating leverage in our upcoming quarters in the H2 of the year. At the same time, we continue our planned investments towards brand building, D2C network and infrastructure expansion and talent acquisition, all of which is expected to generate margin accretive impact in the subsequent quarters for the rest of the year. Now adding on to this, in all our distribution channels, category cohorts and pricing segments, we have demonstrated robust growth both in terms of volume and value amidst the challenging operating environment impacted by supply chain disruptions and inflationary trends, especially in semi-urban centers.
Versus price segments, our sales trend in Q2 FY 2023 has exhibited sustained premiumization vis-à-vis FY 2022 full year, wherein sales contribution from semi-premium and premium categories have increased from 64% in FY 2022 full year to 70% in Q2 FY 2023. Similarly, on a category basis, revenue mix across men, women and kids have improved from 54-16 in FY 2022 full year to 50-20 in Q2 FY 2023. On a trailing twelve-month basis, revenues from our operations have increased 22% year-on-year to INR 1,457 crores in TTM H1 FY 2023 as compared to FY 2022 full year revenue INR 1,194 crores.
Similarly, our TTM H1 FY 2023 EBITDA stood at INR 278 crores as compared to FY 2022 full year EBITDA at INR 244 crores, demonstrating a 14% year-on-year growth. Our TTM H1 FY 2023 EBITDA margin stood at 19.1% versus 20.4% in FY 2022, which is kind of transient in nature because of the lean H1 of the year. Net profit during H1 FY 2023, on a standalone basis, stood at INR 901.8 crores with a PAT margin of 9.6% as against PAT of INR 124 crores in FY 2022, with a PAT margin of 10.5%.
On the supply chain front, we continue to stay cautious on the challenging inflationary environment in the near medium term, ensuring raw material and semi-finished goods availability above anything else to maximize sales potential in the coming quarters. We continue to maintain a close watch on our input costs and are confident of restoring our headline growth rate and margin profile in the near to medium term in the coming year to go. I will now hand over to our CFO, Mr. Raman Chawla, to take you through more details on the Q2 and H1 FY 2023 performance.
Thank you so much, Piyush. Good afternoon, everyone, and welcome to the Q2 FY 2023 earnings call of Campus Activewear Limited. During the quarter under review, Campus as a brand demonstrated a lot of resilience. Campus delivered profitable top-line growth and protected bottom line profitability while ensuring requisite investments in future capacity and brand building that is essential for sustained growth and margin recovery. Revenue from operations increased by 22% year-on-year to INR 334 crores during the quarter. Both channels trade distribution and B2C exhibiting profitable growth and premiumization in the quarter despite industry de-growth in mass and mass premium segments across select consumption cohorts across India. EBITDA was at about INR 44.2 crores as compared to INR 55 crores in Q2 of 2022.
EBITDA margins stood at 13.3% in Q2 FY 2023 versus 20.3% in Q2 FY 2022. Net profit during this quarter stood at INR 14.5 crore as compared to INR 28 crore in Q2 FY 2022. Our Q2 FY 2023 sales volume registered 5.5 million pairs as against 4.7 million pairs in Q2 FY 2022, thereby generating 16% year-over-year volume growth while Q2 FY 2023 aggregate ASP stood at INR 608 per pair versus our INR 577 per pair, thereby resulting in almost 6% year-over-year ASP growth.
On balance sheet side, and our net debt has increased marginally from INR 174 crores at FY 2022 end to INR 204 crores as at December 30, 2020 on account of working capital investment to ensure the optimal season preparedness. Our net debt to EBITDA ratio is constant at 2.7x in FY 2022 and in TTM H1 2023, despite the capital investment in the working capital to ensure our season readiness. Similarly, our return on capital employed has also gone up from 29.7% in FY 2022 to 30.1% in TTM H1 FY 2023, and we managed to deliver a robust return on equity ratio of 30% in TTM H1 FY 2023.
With this, I'll conclude and hand it over to the operator for the question and answer. Thank you.
Thank you very much, sir. Ladies and gentlemen, we'll now begin the question and answer session. Anyone who wishes to ask a question can press star and one on their 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. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Thank you. The first question is from the line of Jignesh Kamani from GMO. Please go ahead.
Hi, I'm on air?
Yes, you are.
Yeah. Hi. Just want to check on the average inflation sort of beneath inflation in the raw material basket and our ASP has increased by close to 5% year-over-year, so price hike been very low, you can say maybe around 2%-3%. To what extent additional price hike is needed to cover inflation?
You know, hi, Jignesh. Piyush this side. Great. Jignesh, there are two components to this, which has led to an impact on our gross margin in a transient way. First is raw material inflation, and second there was an increase in minimum wages at one of our plants. This was back to back increase in the months of August and September, which we are yet to pass on in terms of price increase. I'll just break it up for you.
While our gross margin has gone down by 4.5 percentage points on a quarter-on-quarter basis, almost 3.5%-3.75% is on the back of raw material increases for now, and the remaining 1.5% is on the back of our increase in conversion costs. Now, in order to offset all this, we would need a price increase of around INR 100 on our average MRP. So if our average MRP currently is around INR 1,200, we need to take it up to INR 1,300 in order to offset this entire thing.
This price increase is something that traditionally we have always taken in our stronger half of the year or for Q3 and Q4 , which is the H2 of the year. We are very mindful of how the market dynamics are, and at the opportune time, we would try and take this into our next season launch.
Understood. Second question on the demand environment. Is there any demand softness across the segment, be it a metro, tier one, tier two, or are we seeing more weakness in tier two and economy segment versus the premium and the metro?
Yes, Jignesh. There has been some softness that is being witnessed in the rural and semi-urban areas, especially the states of UP and Bihar. You know, we are also witnessing that softness. This is true for the entire footwear trade, not only specific to Campus. While you know, our west areas of Maharashtra and Gujarat, these states have grown remarkably well, along with even South. But just the North has sort of not grown in expectation and that's where you know, the West has sort of made up for the lack in the North, sales upgrade.
Understood. Thank you.
To accentuate the difference, on a portfolio level, all our segments, be it mass premium or premium, they have witnessed growth. It's just the geographical pockets where we kind of offset our offline sales with more double-digit growth in Gujarat and Maharashtra. Just to add to it, our distribution channel per se, despite all the softness at an industry level, has managed to grow at almost 8%. 7% out of the 8% is driven by ASP growth, by the way.
Sure, sure. Thanks a lot, and all the best.
Thank you.
Thank you. Reminder to all the participants to ask a question. You may please press star then one. The next question is from the line of Chirag from CLSA. Please go ahead.
Yeah, thanks for taking my question, and good afternoon, everyone. I have two questions. First, Nikhil, if you can just give a sense of the distribution expansion progress that you have seen in different parts of the country, and if you can break it down more geographically. The second question is more related to the online business. My question is, you know, is there any lumpiness in revenues that we have because our e-commerce revenues have practically grown from about 3% of the overall revenues to about 35%, today. That means that, you know, even in a hypergrowth phase, you will obviously have some very high base in the subsequent quarters.
Would that mean that it would be difficult to meet those numbers as we go ahead in the next few quarters?
Yeah. Hi, Chirag. In terms of distribution, let me give you a geographical split. North has contributed about 44% of the revenue. West has contributed about 20%. South again has contributed about 10%-11%. Central is 6%, and East is about 18%-19%. This is, like we said, you know, we've seen some dip in the North, thanks, you know, largely due to UP and Bihar, but that's been made up by the West.
Sorry, what I meant to say was, you know, in terms of the progress in reaching out to more number of touchpoints, what's been the progress in each of these categories except North? North obviously is very strong, but we need to increase the touchpoints in the balance part of the country.
Yeah. Hi, Chirag. Piyush Singh is right. If you'll recollect, that we had a differentiated go-to-market strategy across our base markets. North and East undoubtedly are our core markets. In North and East, our approach or endeavor is to go deeper into the market, gain more market share, gain more shelf space. That is the reason why we have seen growth at a premium in India, especially in these core markets. We are not looking at any further counter additions, meaningful counter additions in these markets. Our approach in emerging markets, which is essentially West India and parts of MP, Chhattisgarh, AP and Telangana, our approach is more hyper-aggressive in terms of adding more counters and distributors. Here we have added a meaningful number of distributors over the last six months.
Our distributor count has gone up by 10%, and our overall counter count has also gone up by, I'd say, around 500-600 counters. This is what has led to exceptional performance across, especially the western belt of India, that is Gujarat and Maharashtra, during these challenging times, which has led to an overall growth of 22%. Similarly, we continue to stay opportunistically in South India with online and our own store network as the beachhead for kind of continuing our growth momentum in South India. If you see our revenue contribution profile has changed meaningfully over the last six months. While earlier North and Central used to contribute 50% of our overall revenues, it has come down to...
It has kind of moderated at 50% while still generating growth. West India, which around six months back used to contribute only 14%-15%, has now gone to 20.6%. Similarly, South, which earlier used to contribute 9%, has now gone to 12.6%. East contributes the rest, which is 18%. East has kind of stayed static. Earlier it used to be 19%, now it's around 15.5%-18% for us. Which means that we are driving more growth from newer territories, emerging markets, frontier markets, while defending our core strength. Now, coming to your second question around online.
I'm actually relieved to tell you that, despite the hypersonic growth that we have seen in this channel, we still see a lot of juice left in the channel. On a quarter-on-quarter basis, our growth numbers have been kind of fairly above expectations. If you see, even in this quarter, we have grown at the pace of 30%. As far as lumpiness is concerned, FY 2022 was one full year for us, unlike distribution. In online we had a full complete year, so it was well holistically spread out.
Migrating from Q2 to Q3, in which case we have a fair line of sight that we will retain our growth momentum here as well. As far as a little bit of lumpiness is concerned, that is a transient INR 25 crore of sales, which kind of seen in either Q2 or Q3 , depending on the flagship platform events across Flipkart and Amazon festival. Last year, and this had a certain impact on our Q2 numbers this year, which is transient in nature in the sense that last year, BBD and GIF were in the last week of October. This year, they were there in the last week of September. Because of this, an incremental sales of around INR 25 crore has gotten shifted to Q3 in our case.
Because last five days of sales were not shifted from a delivery standpoint or a revenue recognition standpoint. Now, the impact that we have seen this time is while we had done all the pre-buzz marketing, specifically in this quarter, the goodness of that entire marketing would be seen in our Q3. Hence, we mentioned that our margin compression this time on account of online, which has not happened on an aggregate level, is only transient in nature. Just to summarize, we don't see any lumpiness in moving across quarters for the balance of the year.
We have a clear line of sight in terms of our growth across e-commerce, and some of the margin goodness will echo in Q3 because investments were done in Q2 in the month of September, while majority of the goodness is shown in Q3 in the month of October.
Sure. To Jignesh's question earlier, the amount of price hike needed to completely offset the margin pressure that we are almost into the middle of Q3, how much of the price increases have you already taken to offset the margin pressure?
We are still monitoring the market because it's not just about Q3, it's the H2 of the year, which is roughly 50%-60% of our revenues.
Yeah.
Once the market takes complete full throttle pace in terms of offtake at the end consumer level, that is the time when we typically take a price increase. Even if you see historical record, we have essentially taken price increase in the month of December, January. Historical benchmarks should not be taken as cast in stone so far as this year is concerned. Nevertheless, that said, there are two very important levers which we use to modulate margin in the H2 of the year, which is enhanced volume as well as ticket price increase. At the same time, it's the operating leverage which also starts kicking in into these quarters because most of our fixed costs, as you can see, are very much front-loaded in that sense.
All right. My last question, if I may. You know, can you just comment a little bit around the long-term A&P spend as well as you get into newer markets? Do you see that there will be a need to front end some of the A&P spends?
I mean, very, very valid question. If you remember that, six months back we had given, you know, guidance that we whatever operating leverage we have generated, 1.5%-2% of that we have reinvested in our A&P spend because our long-term objective is to strengthen the brand and own the customer mind share. Despite toughness in the market and negative 22% revenue growth, we have sustained on these investments, because we know that these investments are for the long term and will be revenue and margin accretive in the subsequent quarters. Not just for this year, but for the years to come. We are still maintaining that trend line of 6%-6.5% of A&P spend.
Some of the A&P spend was front ended in the way, as I mentioned, that a bulk of it for this quarter happened in the month of September. For the month of September, we have spent roughly around INR 30 crore. For the quarter, we have spent around INR 30 crore in A&P spend. Half of which was targeted in the month of September, both on the online side and the offline side. The entire goodness would be realized in the subsequent months. Take for example, whatever billboard we had done, whatever print media ads were done, or digital media that we did as part of this spend.
Their goodness and the offtake happened in the H2 of September or last week of September, followed by the early week of October. Similarly, the entire online spend that we have done towards the preparation of Great Indian Festival, which we planned for two months, and The Big Billion Days, which ran throughout September and October. Majority of its goodness is yet to be realized or rather got it realized in the month of October. In that sense, some bit of our advertisement spends were front loaded in this quarter, but the goodness has kind of rolled over to Q3.
Perfect. Thank you so much, and all the best.
Thank you, Chirag.
Thank you.
In order to ensure that the management is able to address questions from all the participants in the queue, we request you please limit your questions up to two. For follow-up questions, we request you to rejoin the queue, please. We move to the next question from the line of Aliasgar Shakir from Motilal Oswal. Please go ahead.
Yeah, thanks for the opportunity. You did speak about the online, you know, growth that we have seen, which has been pretty strong, despite the competition. If you could just share some more color, you know, in the last few quarters, we have noticed some of the players have, you know, got reasonable pre-funding and, is it correct? There's a lot of competition that has started over there in terms of price-led competition. I mean, just wanted some color from you in terms of, has the competition intensity gone up? Are you seeing any impact because of that in your business?
Hi, Ali. Great question. The way we have structured our e-commerce business, it's based on very robust fundamentals. Not to add more English to numbers, the way we have structured the business is across three or four verticals of your marketplace, managed marketplace, and our value addition and online to offline pieces. While there are some smaller players, we have recently received some bit of equity investment, and that's only because of the opening up of the sector and the insight that people have started getting into the sector once we got listed, and there were other players who were already listed in the space. That has not really caused any dent in our market share or in our position on the e-commerce side specifically.
Rather, over the last six months, we have accrued market share. We have accretively gained both market share and margin share in our respective P&L balance sheet over the last six months, which is reflective of the kind of growth that we have demonstrated. Last quarter, we did 150% growth on a year-on-year basis. This quarter on an aggregate level, this quarter on a year-on-year basis, we have still maintained that momentum. Even on a large base, we continued at a 40% growth year-on-year basis. On an aggregate level, the growth is still above 100%, composite versus top of this year versus top of last year. That said, we have still maintained our ASP growth even in the online channel.
On an overall basis, not only we have done revenue growth, but we have also done margin accretion in the channel on a year-on-year basis despite the increasing competition.
Got it. This is very interesting. Any reason you see what has helped us? Is it any increase in SKUs, any new launches or any? You know, you said price action is not, so what has led to this?
There are two prominent reasons. One is we enhanced brand pull, and the way we have designed our customer journeys and the way we handle our customers throughout the online and the omni-channel experience. Second is, we have deepened our partnerships with our key partnerships on the platform. We are not just a seller on the platform. We have increased our level of engagement with these partners. As you can see that this year also we ran a very successful third edition of Global Shopping Festival 3.0 . We launched some top of the line SKUs specifically on Flipkart and Amazon and Myntra and Ajio. We had Campus Day, and similarly we are appointing newer properties with other fashion verticals.
There are multiple other strategies and multiple other spokes into play right now, which just in the works and which I cannot discuss, disclosing to the public at large. Everything is focused on enhancing our partnership and strategic engagement levels with the platform and not just stay as a seller out there.
Understood. This is very helpful. Just last question on your, you know, expenses. You did mention that we have front-loaded our spends. The kind of increase we saw in this quarter, in other expenses, which as you mentioned, was predominantly because of the increase in A&P spend and that we have front-loaded. Should we expect Q3, Q4 now accordingly, you know, to kind of, see relatively much lower, increase or, you know, there should be some kind of, adjustment because of this factor?
Yes, Ali. Hi. This is correct. We should see some normalization there, as most of the cost is frontloaded, you know, in H1. For H2, anyways, you know, there are these other factors at play where we generate a lot of operating leverage, thanks to, you know, the cost being frontloaded. Certainly, this should bring in better profitability and better margin accretion.
Got it.
Around this, Ali, if you can see on a quarter-on-quarter basis, our expenses have increased by roughly INR 30 crore. The INR 30 crore increase is on back of our enhanced A&P spend, which goes towards long-term brand building and some of it is frontloaded in the month of September. Benefits are flowing in the month of October and November and subsequent months around that when the season actually kicks in. The other big expense is around retail stores, retail store expansion. If you recollect, last September our retail store count was around 50, out of which 48 stores were COCO and 3 were COCO. Now, our retail store count has gone up to 150 at the end of September 30, 2022.
The entire business has grown in excess of 100% year-on-year despite indeed the early vintage of the stores. Now, most of these stores in the initial part of the year were COCOs, and hence, most of the expense in terms of rolling out retail stores is frontloaded in that sense. Now, as these stores gain more maturity, our margin profile would further increase, and we'll see a normalization of these retail store expenses as well.
Understood. This is very helpful. Just to clarify the number here, if we have about 6%-6.5% kind of ad spend this year, it would be somewhere about approximately between INR 90-INR 100 crore. Last year it was about INR 70 crore. Is my understanding correct that H1 this year we did about 45 against, probably something, close to around what? 20 or so we've doubled. Now the coming quarter, therefore the increase will be much lower against the 40 last year. It could be something like approximately 40, 45 itself, so.
Yes, your understanding is correct. We have roughly done around INR 50 crore on a base of INR 60 crore. Hence the frontloading, the remaining part of the year, which is expected to generate another 55% of, 50%-60% of our revenues. The balance to go is roughly close to INR 40-48 crore. Then we expect things to fully normalize.
Superb. This is helpful. Thank you.
Thank you. The next question is from the line of Abhiram Eleswarapu from BNP Paribas. Please go ahead.
Hi guys. Just a couple of questions around the demand environment. Could you sort of recap first on what was the growth seen ex online. If we take your MBO, EBO sort of channels, what was the growth over there? That's question one.
Hi, Nikhil Aggarwal. Here's Piyush Singh. Glad to have you on the call. So, Nikhil Aggarwal, I'll give you a breakdown across all three channels. In our MBO network, the free distribution network, in this quarter on a year-on-year basis, we have grown at a rate of 8%. The entire growth is driven by ASP, which is our sales mix. In the e-commerce channel on a year-on-year basis, this quarter was an important quarter. We've grown at a rate of 40%. In our own retail network and key accounts, we have grown at a rate of 22% year-on-year.
If I think about sales growth, MBO, I mean, say MBO channels, et cetera, not growing by only 8-9%, was that like throughout the quarter a slowdown that you saw or that was pretty evenly how it was planned? I'm just sort of your growth, like you said, on a full year performance and e-commerce has been very credible. If I had to poke a hole, I would say MBO is a channel where you've grown a little slow. Just wanted to get your perspective on why there was a little bit of a slowdown over there and how are you thinking about growth in that sort of segment for the rest of the year.
Certainly, Nikhil Aggarwal, you know, the growth in the MBO has been slower than expected. You know, we understand that because there has been remarkable softness in the market, especially in the Hindi-speaking belt, you know, where we sort of dominate the market in a big way. It's impacted the MBO growth, which has been more than being made up by the other channels.
Going forward as well, we have a very robust plan in place where, you know, of course, while macros will certainly help, but at the same time, you know, we have taken a lot of actions within the channel itself in order to make sure that, you know, every counter service levels have gone up significantly, along with, you know, order fulfillments and coverage of all the counters in a meaningful way, in order to ensure that the growth sort of normalizes and comes back to its budgeted levels in the distribution piece.
Nikhil Aggarwal, just to add to it, even in the free distribution side, while the industry has de-grown because of the softness, we have still maintained this growth because of the network diversification that we have managed to achieve in terms of our enhanced footprint in Western India and parts of Southern India. While there was some bit of softness in the Hindi-speaking belt, especially in the states of UP and Bihar, we were largely able to offset it and make up through some regional sales, especially in the states of Gujarat, Maharashtra and Telangana.
Very little. Not to look for guidance, but just directionally, have you seen in UP, Bihar, demand pick up into October, November? Not really looking for a number, just trying to understand directional trends and demand.
Directionally, you are bang on because there are three main levers which leads to kind of enhance sales in the H2 of the year, especially in the Hindi-speaking belt. These three levers are the onset of festival season. Second, the onset of winter, and third is the onset of marriage season, weddings. This time, wedding season more or less starts with 24th of November, and it goes till 20th of December, which is the peak of the quarter, and then it resumes again in the Q4. The onset of winter is slightly delayed this time, but we are expecting another week or so of the winter would also be added for five.
These two factors, along with the festive season around the H2 of the year, has traditionally led to an enhanced demand and enhanced consumer uptake in the subsequent quarters of the year.
Okay. My second sort of set of questions are around pricing strategy. You know, your presentation talks about 5% higher ASP growth. Now, e-commerce is growing faster and gets higher realization as well. There is some mix impact on channel as well. Like for like it would seem that your realization growth will be losing a little bit. I don't know if there is a mix impact within the shoes that you're selling in MBO, EBO, et cetera, or that's the headline price increase that you've taken. In a year where general inflation is high, just love to get your thoughts on the reluctance to take, you know, maybe another 4-5% price hike right now.
Interesting question. Nikhil Aggarwal, I'll take your last question first in terms of when is the right time to make the price increase. We have seen that a few of our competitors took a price increase and then had to do a rollback. We are very cognizant of how the market reacts, especially in this segment. For us, paramount is to maintain our growth trajectory and to keep on gaining more and more shelf space and market share. Because once you have kind of established yourself in the network, both online and offline, it's easier for you to get the margins back so long as you're not doing a discounted sale.
What is comforting here is if you look at all our channel splits and our growth profile, all the channels are growing holistically and not on the back of a discounted sale. This is kind of triangulated with the help of ASP growth that we have demonstrated. The most comforting fact is that our entire traditional trade distribution network has grown purely on the back of sales mix and ASP growth in a softer market where volume kind of stayed muted or the volume growth was missing for the time being. So far as our overall ASP trend is concerned, you'll be surprised that e-commerce channel for now is holding its ASP despite our transition across premiumization category. The entire sales largely is driven by volume growth for now.
The entire ASP growth or the premiumization is led by both our trade distribution as well as our own retail. Which are very comforting levers for us for now because these levers actually give you that pricing power even in a difficult market. Had it been on the back of discounted sales and margin loss because of excessive discounting, we would have limited number of options to increase prices. I mean, just to recap the entire thing, what we have mentioned to Jignesh Kamani also from GMO. The overall price increase that we need to take at an opportune time in order to offset this entire transient hit of raw material inflation, which is now cooling down, is not more than INR 100.
Which, I mean, we believe we have the pricing power, but we are just being mindful of how the market behaves, especially in the offline side. Typically, once demand optics start in the peak of winters, we'll get a more opportune window to kind of exercise this option.
Okay. Right. Yeah. In just the last question from my side, sorry, last two questions. This is the last question. Was in terms of marketing spend, you know, we continue to focus on top line growth. Q3 could see some transitory impact of inflation as well. We should think about margin normalization. By normalization, I'm thinking more like the 2021 margins that you did last year by Q4 or early next year. Would that be the right way to think about margin?
It's a little premature to comment on that. This actually will be kind of rolling over in the next fiscal year to kind of regain our margin profile. We believe Q3 would start seeing that normalization effect because raw material inflation has been softening a bit and operating leverage would start kicking in in a meaningful way because Q3 is a meaningful quarter for us. By Q4, I mean, it's a little premature to. Actually, yes, we'll see margin reversal happening in a meaningful way in the H2 of the year. Line of sight still stays the same, where we were operating in the last quarter. All our endeavors are towards holding the fort on that front.
Whatever compression we have seen in Q2, we can kind of comment on that this is transient in nature and part of the goodness would be reflected in a subsequent quarter, which is Q3. At the same time, we have been mindful of our operating leverage and working towards all the normalization efforts that we can take internally to kind of offset this impact.
Right. Perfect. Thank you. Thank you, guys, and all the best for the rest of the year.
Thank you.
Thank you.
Thank you. The next question is from Lina from Tencent Group. Please go ahead.
Hi. Thanks for the opportunity. My first question is on the EBOs. I think you mentioned that we have expanded our EBO reach from 50 to 150-odd stores in last 1 year. What kind of geographies we are looking at for EBO expansion and how different is the product portfolio in EBO channel versus MBO and omni-channel?
Our EBO footprint is largely driven by the fact that rollout is happening for premiumization of our distribution network, which you'll witness in our Q2 numbers as well. As I mentioned already, whatever growth we have demonstrated in Q2 in our trade distribution network is largely on the back of ASP premiumization, which again has happened because of our EBO rollout strategy. These EBOs are getting rolled out into the markets where we already have a meaningful brand presence and brand recall. From an overall penetration perspective, we are kind of evenly distributed on a pan-India level now. Our 150 stores are largely present across, say, 25-30 stores are based out of Delhi NCR. Another 20-22 stores are based out of UP.
Ten stores are based out of Bihar. Gujarat has almost 30 stores now. Maharashtra has another 20-25 stores. We are increasing our footprint very rapidly in the states of AP, Telangana, MP, Jharkhand. West Bengal is another state which we have added and Karnataka to that fact. As on date, our store count is 150. By the end of this calendar year, we expect the store count to reach 200.
With a mix of,
In terms of, you could say product profile. The product profile is highly premium in our stores, and that has led to a higher ASP realization in our stores. Our stores essentially keep so long as vendor trade is different, which is consistent with portfolio. Our stores essentially start at a price point of INR 300 MRP and goes as high as INR 2,500 MRP. The product profile is very unique so far as our stores are concerned. But that product you'll also find on e-commerce. We try and maintain price parity across all our channels in order to offer an omnichannel experience to our customers. I'd just like to add that the number of stores are marginally now higher in terms of foot counts of franchisee-owned, franchisee-operated than
Okay.
The focus is now on increasing our franchisee-owned stores going forward.
Okay, sure. Second, do you see from a consumer point of view?
Fareek, next question, please rejoin the queue for the follow-up questions. We have other participants waiting.
Okay, sure.
Thank you. Participants, we request you to please restrict your questions up to two. If you have a follow-up question, please rejoin the queue. We move to the next question from the line of Ankit Kedia from PhillipCapital. Please go ahead.
A few questions from my side. One, could you just quantify the volume decline you are seeing in UP, Bihar and the kind of volume growth you are seeing in Western, South market? Just to give a color on, you know, how intense is the pressure we are seeing in those markets. Second question is, you know, regarding the ASP, could you share the difference in ASP between online and trade distribution now? While I understand that the trade distribution demand is weak, so price increase could be difficult, but what is stopping you to take the price increase in the online market, given that, you know, the product is very premium, you don't sell it offline, so there, you know, it's more easy for you to take a price increase on an urgent basis.
Yeah. Hi, Ankit. Piyush this side. Ankit, I'll take the second question, and then I'll address your question around volume decline and volume enhancement. So far as our portfolio strategy is concerned, we don't do a vertical split in terms of segregation of portfolio across distribution, online and our own retail. We'd rather do a horizontal season split. At any given point in time, all our product would be available across all channels. Taking a price increase only across one channel and not across the other channel is actually not very customer experience friendly that we have seen.
What we have done instead is we have taken selective price increases in terms of new exclusive launches, especially during the month of September, when we did that exclusive Global Feetival campaign and the launch of our casual ranges. While the volume is still nascent, the response was very encouraging even on our higher priced product portfolio. The entire portfolio was priced at INR 1,929 and above and was exclusively available on the D2C network, and the sell-throughs were very encouraging from that aspect.
While it's just a small step in that direction, we are meaningfully working in this regard where exclusivity, special drops and collaborations become a meaningful part of our volume contribution and hence kind of give us a hedge against any kind of inflationary impact in the traditional network. Now, so far as your other question is concerned around the volume decline. The volume decline in UP and Bihar was close to 7% during the H1 of the year, which kind of got offset by Gujarat, Maharashtra and AP Telangana, where the 8%-8.5% volume increase was seen on a slightly smaller base. The volume offset was there.
Your last question was around the ASP differential. The ASP differential is roughly to the tune of 15% between our trade distribution and our online channel, and it stays as such. It was roughly the same even at the end of February 2022.
Sure. You know, just on the revenue contribution from-
Question, could you please rejoin the queue for follow-ups? Thank you. The next question is from the line of Harsh from Miraculous. Participants, we again remind you to please limit your questions up to two. Harsh, you can go ahead with your question, please.
My first question was around inventory. While our top line for the last three, four quarters is largely shown similar trends, however our inventory from Q4 to Q2 has increased from INR 350 crore to INR 500 crore. This looks a bit of leading by term. What explains this?
Yeah, you know, this is largely in line with what we had planned, because, you know, this is all transient inventory. We built up inventory for the season, for the H2. That H2 of the year contributes to about 55%-60% of the overall revenue. This is the normal trend, you know, that we see every year, in terms of inventory build-up, mostly during Q2.
Okay. This regarding the category of sports shoes, especially from the price range from INR 500 to INR 2,000. Now we are growing at a very healthy rate. However, at what rate is this category still growing in India at a pan-industry basis?
Harsh, the category itself is growing at a rate of around 15%-18%. I mean, barring these couple of bumps around demand softness and all on a holistic level. At an aggregate basis, we can easily assume that the overall category, including unorganized and organized players, is growing somewhere between 15%-18% as of now.
Okay. Okay.
The industry size is close to INR 12.5 crore.
Okay. Thousand.
INR 12,500 crore. My bad.
Okay. Okay.
Yeah.
Thank you.
Thank you. The next question is from the line of Ramakrishnan from Equirus Intelligence Private Limited. Please go ahead.
Yeah. Good evening, sir. Could you give me a breakup of sneakers and chappals? We have an average realization of around INR 600. I think earlier one of the answers you said that INR 1,200 is the price and you have to take a pricing mix of INR 100 for the margin correction. The second thing is the return on the e-commerce, what is the return? Because the other guys were talking about 20% return. What kind of return and breakup of your own online and the e-commerce sales.
Okay. Let me answer your first question first. In terms of the MRP you're looking at, our ASPs are exactly in line with our realization, right? That's approximately 50% in the case of trade distribution and slightly more in the case of other channels. That's why our ASPs trend at about 600-odd INR versus the MRPs of INR 1,200. In order to offset the inflationary impact, we need to take an MRP increase of INR 100 at INR 1,200, which will translate to roughly INR 50 on the ex-factory levels in terms of our ASP increase.
Okay.
Mr. Ramakrishnan, if I may give you an illustration briefly. On an average level, as we mentioned, our MRP is INR 1,200. Our cost to MRP multiplier on a basic level is somewhere close to 4-4.2x. That means the cost of manufacturing that shoe, which I sell it at average MRP INR 1,200 is close to INR 300.
Because of this, raw material inflation and increase in minimum wages across the plants, on back-to-back months, our cost of processing has gone up by almost INR 5, and our raw material inflation has led to an increase in raw material cost by another INR 20, which means my cost has gone up from 300 to 325. If I need to maintain the same margin profile, I need to increase my MRP from 1,200 to 1,300 rupees, so that whatever realization I get, which is incremental realization of INR 50, I'll be able to offset not only the increased input and conversion cost, but I'll be able to maintain my material margins at an additional INR 25 bucks.
Okay. Yeah, the breakup. I asked for the breakup of, basically sneakers and chappals and as well as the return on e-commerce.
90% of our portfolio is sneakers and sports shoes. Only 10% is open footwear, which is not only flip-flop. We don't do very basic Hawai chappals.
Okay.
We start with flip-flops, slip-ons, which are more premium in nature. Yeah. Starting at INR 499, INR 599, which is also premium range.
This return on e-commerce.
The operator, Mr. Ramakrishnan, may be requested to please rejoin the queue for follow-ups. Thank you. The next question is from the line of Jasdeep Walia from Clockwork Capital. Please go ahead.
Hi. Thanks for taking my question. Am I audible?
Yes, you are.
Yes, please go ahead.
I went to your showroom, I think in beginning of September, it was during, you know, online, the big online sale event. I checked the prices of your premium products, which are at around INR 2,000. Now, I checked the price on Amazon as well. All of them are available on Amazon at around 50%-40% discount. Now, my first question is what's your strategy on pricing in offline and online channels on a long-term basis? If this is the kind of discount which is going to continue on e-commerce, then it doesn't make sense for consumers to buy offline. Hence, the investments that you are doing in your offline channels, whether it's on expanding distribution or your EBOs, they could see a suboptimal return in future.
Look, great question, and I'll take this up. See, the thing is what, how we are actually segregating the portfolio. As I've already mentioned, we don't do a vertical split because that is suboptimal in nature so far as high spenders are concerned. What we have done is we have pegged our own retail and our trade distribution on the back of freshness. Now, this change is something that we have incorporated over the last one year or so. Whatever shoes you must have seen over there must be part of the phased out portfolio. That we kind of take out from our stores because September is the month when we do our autumn winter launch in stores and across our trade distribution.
How we try and maintain this, whenever we launch a new season, the launch is also not needed and the phasing out is also not needed because you have to kind of phase out the inventory, residual inventory, which is lying there at the stores, and make it available online and elsewhere, at slightly higher discount. The discounts are not at all funded by us. These are transient and funded by the platforms only during fest events. What we do is once we launch a certain product, say we are doing a September launch and an autumn winter launch, what we ensure is during the next three to four months, which is the kind of freshness phase of the product, we maintain price parity across all channels.
Whatever fresh launches we do in the month of September, you'll see that whether you go and find a product online or you find a product in a store or through our trade distribution, the maximum discount can be 10% and that too kicks in after the three months of the launch. In the initial month, there is absolutely no discount, and we only decide on freshness. This is the kind of discipline that we are trying to implement across all our channels. While, I mean, we are mindful that it's only the first year and there is some residual inventory, residual season styles which are still hot selling across all channels. This will take some time for kind of a portfolio segregation perspective on a horizontal state level. Otherwise, the strategy is very clear across all channels.
During the current season and season minus one, we are trending on freshness and for legacy season and for SMU manufacturing and special collabs, we were kind of doing that value proposition in collaboration with the platforms, which might lead to some bit of discounting for a few days. Got it. I basically give you a number around this. Despite whatever portfolio discount you have seen on an average total basis, our overall aggregate discount even on our e-commerce channel has stayed within the realms of 17%-18%. It never crossed the threshold of 20% so far. Got it, sir. Basically that means that there will be exclusivity of SKUs available offline and online only during the launch phase. After that, broadly, when the SKU gets into the portfolio, we refresh our portfolio every six months.
In every refresh we introduce 150-200 new designs. Whatever is the current season offering you'll hardly find that on discount. Got it. Within six months we kind of refresh because for running the stores, be it MBO stores or be it our own stores, we keep that freshness because freshness is the only hook which kind of attracts the customer in. Got it. Thanks a lot. That's all from my side. Thank you.
Thank you. The next question is from the line of Archit Shah from Kotak Mutual Fund. Please go ahead.
Hello? Hello?
Yes. Hi. Please go ahead.
Yeah, yeah. Just wanted to understand what will be your margin looking like, let's say, for FY 2023. As you see, D2C margins have actually increased, let's say, from when we started increasing our share of B2C higher in our revenues, which were incrementally higher in terms of margin. If I see the margin, let's say Q1 and Q2, and these are the kind of margins where we actually reach 20% for FY 2023. Do you see that we at least maintain margin for FY 2023? Is that something that you can guide for?
Sorry, your voice is kind of getting phased out in between. While we can hear that, you have requested for some margin outlook for the balance of the year, but we couldn't really understand the balance of the question.
Yeah. I'm just talking about an outlook for margins for FY 2023, because if I see your margins have increased every year due to increasing share of B2C, which is incrementally higher margins. What kind of margins are you looking for FY 2023? Because B2C growth has not slowed down. The growth in online channel is 34%. Even at MBO channel grown to now 155 stores. What kind of margin are you looking at for FY 2023?
We are not giving any specific guidance around our margin profile. All we can say is that additionally we are heading towards the best part of our year, which is the H2 of the year. So far as volume delivery, top line growth as well as margin enhancement is concerned, right now we are looking at an opportune time to kind of offset the raw material inflation that we are seeing, in order to normalize our B2C margin structure of FY 2022. We are confident that with the right steps in place, we should be able to do it in the balance of the year.
Got it. Have you taken any price increase in Q3 as of yet?
No, not yet. Not yet. I mean, we are still five months until we are on a year to go basis. We'll look at the opportune time because for us paramount thing is to ensure that we continue our growth momentum. We keep on gaining more and more market share.
Got it. Because the marriage season broadly starts on the twenty-fourth of November.
Mr. Shah, may I request you to please.
It's just a follow-up. There's no additional question. Hello?
Yes.
Yeah. Because the marriage season starts on the 24th of November. It goes on till 20th of December. That's a very big season, which is in the north. Any price increase would have actually helped you to increase margins because half of the quarter is already done for, right?
Yeah. See, I mean, like Piyush mentioned earlier, you know, a couple of competitors tried doing that in the season, and they had to reverse the decision. So it has to be a very well thought through strategy. There are multiple other variables and multiple other levers available at play for us to not just ensure growth but also to recoup margins. I mean, directionally these are levers like every season or onset of marriage and the onset of business, but there is no hard peg or hard correlation between when we should take a price increase vis-a-vis the onset of these levers. As we mentioned, we are very watchful of the market dynamics and the kind of demand profile that we are seeing all across the country and specific cohorts and rural markets.
We'll do the same at an opportune time.
Got it. Thank you so much.
Thank you. Ladies and gentlemen, due to time constraint, we take the last question from the line of Harsha from InCred Capital. Please go ahead.
Yeah. Hi. Thanks for taking my question, sir. What is the proportion of discounted sales for us in second quarter, and how has it trended compared to, I mean, historical levels?
Our discounted sales have gone up significantly.
I'm sorry, sir, I cannot hear you, sir.
Sorry. Piyush is just listening here. Discounted sales have not actually gone up versus last year. We can come back to you with exact numbers. You can very well triangulate this from the fact that, despite a tough quarter for the industry, we have still managed to grow our ASP by 5%, which is actually our full year trend line on ASP growth. Margin contraction is essentially led by the raw material increase and the conversion cost increase. It's not so much by the discounts.
Okay. Just one clarification. What you said is that INR 25 crore e-commerce sales, right? That should have been recorded in 2Q, right? If we compare it with last year, it will grow for us in 3Q. Is that right, sir?
That sales last year was part of our Q3 numbers. Anyway, sir, because the major festivals, the flagship festivals started on 9th day of September and went to balance of October. This year they started on 23rd of September and kind of followed through in the month of October. The first flagship event happened in the first week itself and majority of its sales got rolled over. While on a BAU level, this is a normal phenomena across quarters. What you are seeing here is incremental sales that happens once a year, depending on when the event happens.
Okay. Got it, sir. Got it. Thank you so much.
Thank you. Ladies and gentlemen, that was the last question for today's Campus Activewear Q2 FY 2023 conference call. On behalf of Campus Activewear Limited, that concludes this conference. Thank you for joining us. In case of any further queries, please reach out to Campus Activewear Investor Relations team at investors@campusshoes.com. You may now disconnect your line.