Ladies and gentlemen, good day and welcome to Electronics Mart India, Q2 and H1 FY25 Earnings Conference Call. As a reminder, all participants' 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 any assistance during the Conference Call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bajaj, CEO of Electronics Mart India Limited. Thank you, and over to you, sir.
Thank you. Good evening and a very warm welcome to everybody present on the call. Along with me, I have Mr. Premchand Devarakonda, our Chief Financial Officer. We have uploaded our results and presentations for the quarter and half-yearly end FY25 on the stock exchange and the company's website. Hope everyone had a chance to go through the thing. In H1 FY25, our revenues stood at INR 3,361 crores, reflecting a growth of 13% year-on-year. Our EBITDA stood at INR 238 crores against INR 227 crores, also growing by 5% year-on-year. With EBITDA margins at 7.1%. In Q2, heavy rains in South India have impacted demand, but we anticipated that the consumer spend will rebound as conditions normalize. Additionally, Q2 tends to be a softer period for electronics retailers, and this year will face additional challenges as well.
As mentioned, the South Cluster, especially Hyderabad and Vijayawada, are key markets experiencing heavy rainfall, causing reduced footfalls and weakened demand. Air conditioner sales were impacted by the extreme monsoon. However, the category also demonstrated resilience as a consistent performer, maintaining steady sales for the first half of the year and showing a growth of 46% in Q2 FY25, a growth of 24% year-on-year. Large appliances contributed to maintain their spot as the largest revenue contributor. For H1 FY25, large appliances contributed 46% to the revenue, mobile phones contributed 42%, and small appliances, IT and other categories, contributed 12% collectively. In the first half of FY25, we continued to expand our store footprint. We have opened 18 new stores. Our store count as of September 2024 stood at a total of 177 stores, out of which 164 stores are the multi-brand stores, 13 are exclusive brand outlets.
We are present in 70 cities across six states currently. In the NCR region, we have reached up to 25 stores. We remain confident in our full-year guidance of adding 25-30 new stores. Going forward, our strategy would be to further strengthen our presence in the Delhi NCR cluster and the existing market at the same time. As we prepare for the upcoming season, we expect consumer behavior to evolve with an increased focus on premium electronics. Moving towards working capital, we typically see an increase in inventory during the September end in preparation for the festive period. As of September 24, our inventory days stood at 62. Going forward, our strategy will be to focus on optimizing inventory levels to drive higher cash flow conversions, which will further strengthen our balance sheet. Same store growth for H1 FY25. For H1 of FY25, it came at 6%.
I'm also pleased to report that our North Cluster has remained EBITDA positive for the three consecutive quarters, and we expect this improvement going ahead. Our goal is to steadily improve margins in the North Cluster, aligning them with the performance of the South Cluster. As India continues to move up the ladder in terms of GDP per capita growth, the increased disposable income is fueling great demand for premium consumer durables and electronics such as air conditioners and washing machines refrigerators. With increased purchasing power, more households can afford these products, transitioning from aspirational purchases to necessities in many urban and semi-urban areas. Additionally, a growing middle-class population, coupled with improved access to financing options and innovative product offerings, is expected to significantly boost sales in these three categories, driving further growth going forward.
At EMIL, we strategically partner with top brands and offer a wide range of products, positioning us to serve a broader base of customers. As India's GDP per capita continues to rise, we have been witnessing increased demand for high-quality consumer durables, with a noticeable shift towards the top five brands in key segments. Our comprehensive product selection enables us to meet this growth demand. While our focus on trusted brands drives customer satisfaction, this powerful combination of strong brand partnership and broad product offering positions us for significant growth going forward. With this, I request Mr. Premchand Devarakonda, our CFO, to update you on the financial performance. Thank you all.
Thank you, sir. Good evening and warm welcome to all the participants. Let me begin with the Q2 FY25 financial overview. Our revenues for the quarter stood at INR1,386 crores as against INR1,303 crores in Q2 FY24, with a growth of 6% year-on-year. EBITDA for Q2 FY25 stood at INR84 crores as against INR97 crores, a net growth of 13% year-on-year. EBITDA margins for Q2 FY25 stood at 6.1%, as compared to 7.4% in Q2 FY24. Pre-Ind AS EBITDA for Q2 FY25 stood at INR54 crores, with a margin of 3.9%. PAT for Q2 FY25 stood at INR25 crores as against INR37 crores, a net growth of 34% year-on-year. Now, moving on to the H1 FY25, our revenues for H1 FY25 stood at INR3,361 crores as against INR2,987 crores in H1 FY24, a growth of 13% year-on-year.
EBITDA for H1 FY25 stood at INR 238 crores as against INR 227 crores, a growth of 5% year-on-year. EBITDA margin for H1 FY25 stood at 7.1% as compared to 7.6% in H1 FY24. Pre-Ind AS EBITDA for H1 FY25 stood at INR 178 crores, with a margin of 5.3%. Same store sales growth for H1 FY25 was 6%. PAT for H1 FY25 stood at INR 97 crores as against INR 98 crores, a decline of 1%, which is marginal. For H1 FY25, same SSG rate stood at 6%. ROCE and ROE on an annualized basis for H1 FY25 stood at 17.8% and 13.2%, respectively. The working capital days as of September 2024 stood at 66 days. The gross debt to equity stood at 0.4x, and our net debt to EBITDA stood at 1.09x. Pre-Ind AS cash flow from operations stood at INR 264 crores. This is a brief presentation.
May I now open the floor for questions? Thank you very much.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone phone. 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. We have the first question from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Yes, sir. Hi. Thanks for taking my question. First question, Karan, there has been some growth moderation in Q2 after a very good Q1. You alluded to some sort of operating challenges for that. I just wanted to check, has there been some postponement of sales into the current festive? So if you could just help us understand how have been the trends so far in Q3?
Okay. Hi, Devanshu. So Devanshu, so definitely, if you see historically, also Q2 is always a lower quarter compared to Q1 and Q3. So Q3 becoming a festive period quarter with Diwali and Dussehra as well versus no big festival, no big product launches during the Q2. So that definitely impacts. And then moderate rainfall versus the heavy rainfall, which we experience this time in a lot of geographies that we are present in, definitely impacts a lot of footfall. So that is not the only reason, but one of the key reasons for the lower growth, I would say. And definitely, what is happening is that trends over the years, whereas the festive period becomes like a go-to market for consumers to come and buy because they know there are heavy discounts, cashback, and offerings by all retailers and companies.
So definitely, yes, somebody buying a product during the last week of September usually would postpone it by a week or so because this year, if you see, we started the festival on the 2nd of October with the first Navratri on the 3rd of October. So that definitely, that kind of postpone buying is always there. So Q3 has been good, no doubt on that. The festive period was good. So no struggles in the festive period. But then how the Q3 pans out during November and December is majorly important because usually, you would see a little different sales post the festive period once all the brands and cashback offers would get reduced starting this week. So then you would see that impact coming in there as well. But overall, no complaints.
So this was always been a quarter where there is one of a quarter where the numbers go down a little bit because of a lot of external factors. But as expected, Q1 did well. As expected, Diwali did well. So that is in line with the numbers that you would expect. And then you have a lot of cost involved in running operations, especially for new stores that get launched during that quarter or new stores that are getting ready. So there are a lot of CAPEX involved. A lot of manpower already onboarded. So all of those things definitely bring down the margins a little bit.
All is under control and in alignment with what we had planned for the new store opening expansion season for the Diwali season that we had planned because we had to, from inventory perspective, also we had to buy out a lot of stocks in the last week of September. That was the time when iPhone 16 also got launched. There were a lot of reasons that we had to increase our inventory. That's why you would see 62 days of inventory on the books because the first week of October itself would be the beginning of the season starting from Navratri. We had to get all the stocks ready in our warehouses. You would see that cost also going up a little bit here.
Understood. Karan, just qualitatively, if you could indicate between Navratri and Diwali, which is a 30-day period, like-for-like this year versus last year, how have been the trends? Any qualitative or quantitative number that you can show here?
Navratri and Diwali, obviously, we will not be able to give you an exact number on that. But the flavor has been good, all positive. It has been in line with what we saw historically on the 15th of August this year, what we saw during other big festival days. Navratri and Diwali and Dussehra have all panned out to our expectation. There are no complaints there. In fact, few regions that we saw being flat, like for example, the Hyderabad cluster being flat during Q2, has also performed really well during Diwali. Though definitely, it is not that high of a growth from that region. But the base being very high, we still saw good growth coming in from that region as well.
Understood. Lastly, Karan, I wanted to check the company has done a good job with no major increase in working capital despite 18 new store additions in first half. Typically, in the industry, we see peak inventory levels at year-end because of all those air conditioners stocking that we have to do to sort of fulfill the season's demand. So I just wanted to check, what is your expectation on debt level for the company at year-end? So we may have to sort of invest in the inventory. So any thoughts on that?
So, Devanshu, actually, you did ask me a question a little further. So more than year-end, on 31st March, definitely, you will see higher, not higher debt levels, but higher inventory levels panning out because of the cooler ACs, which is the category being in demand during that particular season of summer. But if I give a comparative to our Q3 numbers again, it would be you would see a much drastic difference in terms of the number of inventory days and debt levels both panning out on 31st of December. So because it has already been so whatever inventory gets panned out for Diwali has already been sold. So we are not carrying a lot of inventory currently with us, except a few categories, which is part of the plan that we have where we have additional offers.
So we usually would end up buying a little more stocks for this quarter as well. They're able to support us on some margins. So apart from that, everything has been in line. And the debt levels also would be in line. It will not be far from historically what we would see right now comparatively if we keep on going down, not drastically, but a little bit going forward as well.
Okay. So even after these 12, 13 more additions with X2, you do not see any significant increases in debt levels, right?
Yes.
Okay. Understood. Fair enough. Yeah. Thank you. Thanks for taking the question.
Thank you, Devanshu.
Thank you very much. Participants, if you wish to ask a question, you may press star and one. We have a question from the line of Prafull Rai from Arjav Partners. Please go ahead.
Yeah. I just have one question. We have guided for a 20% kind of revenue growth for the year. And that is what the general guidance we have been giving. Do you think we'll be able to meet that kind of guidance given the sales in the festive period?
Hi, Prafull. So Prafull, yeah, we were looking at a 15%-18% growth. That is what we've been commenting about in the market every time we meet someone. So 15%-18% is what we comfortably achieve. That is not a problem.
So should we be able to make up for the low growth in Q2 in the latter half of the year, right?
Yeah. So if you look at the numbers there, what guidance we have given out or what numbers we would pan out, we are more or less at half a 50% mark of it anyway. So we don't worry about what has been behind us versus what is going to come in the future. So Diwali went well. Things are under control. So now the only delta that you will see in the higher number would be by the end of Q4, where summer sets in early, as early as second or third week of March, and we'll have the traditional, say, INR 100-INR 150-odd crore of sales happening during the last 10-15 days of summer. Apart from that, you will not see a major change. So there will be a delta of INR 100-INR 150 crore or more than that.
Secondly, on the margin side, see, when we started rolling out in NCR region, we saw some kind of a margin dip because of expenses involved. Now it looks like we are stabilizing there. Will you see some kind of operating leverage playing out for us?
Prafull, just to answer your question, what will happen is right now we are at 25 stores. We are adding up six stores in the next 20-40 days. So what will happen is because of the denominator being lower, additional seven, eight stores together adding up in the next couple of months or a month or so, it will automatically bring down the margin a little bit. But we are looking at that region to stabilize. We have to give it a little more time. But we are looking at that region to give us a similar kind of margin at least for the existing stores or the seven, eight stores that we opened two years back. So those kinds of stores will start giving us a similar number in the next 12 months or so.
So we are looking at that region growing in terms of giving us a leverage on our balance sheet in the next 12-14 months, nothing before that.
So you will start seeing some kind of inch up happening there in terms of the operating profits?
Absolutely. So we're not looking at a loss there right now. So that is what is more alarming if that would be the case. So right now, we're not looking at anything in the last three quarters. Going forward, this quarter did well. So looking at that number, we are quite confident that we don't need to worry about that region and just stabilize it from here on.
Okay. Thanks, Devanshu. I think this is what I have for you.
Thanks.
Thank you very much. Participants, we would like to remind you that to ask a question, you may press star and one. We have a question from the line of Omkar Chitnis from Trade Brains Private Limited. Please go ahead.
Thank you for giving me the opportunity. Sir, I have a couple of questions. From last two years, I'm observing that from Q1 FY23, net sales per store is reducing. In Q1 FY23, the net sales per store was INR 12 crores. At present, it is INR 7.2 crores. Is there any rectification action we are taking for this?
Yeah. So Omkar, actually, you pointed out a right question where I think the right comparison would be that what are the additions of stores that we add up on that particular quarter or a year. So last two years, as you said correctly, we've been expanding drastically, and we've added new clusters, and we've added new space at a much higher rate than what we've been doing in the previous years or quarters. So that is why you would see that the average ticket size or the revenue per sq ft would be a little lower compared to our previous quarters. But if you look at the actual number of the sales generated from the existing outlets that we are there or the mixture of stores or the stores getting matured that we opened in the last 12 to 14 months, those stores have been doing really well.
And then we see that number compared to the number. But in the presentation and in the public market, we would actually have out a total store count versus the average per sq ft revenue or the revenue per store generated. So that is why because of the number of store count increases drastically, you would see a drop in the productivity per store. But we can give you a complete breakup of historical data as well, whereas you can compare it at a much detailed level where we will understand that the clusters that we've opened, stores which are matured or 12 months or 14 months older stores have also grown by 18%-20%.
Okay. Understood. So as you mentioned, there are 177 stores as of Q2 FY25. How many stores are profitable as of now, sir?
Sorry, how many stores are in profit?
Yes.
So, Omkar, so the thing is that so seven stores that you opened last quarter, out of which you can say that these stores will take another all stores these seven stores will be operationally profitable because they are in the existing cluster itself. So these stores are all profitable. Only, I would say, one store that we estimated for it not to be profitable is one in Hyderabad, one in the mall, which we would expect it to go into red in the next 12-14 months. So that is why we wound up that store. That is the only store that we shut this financial year till date. And I will not say that any store is in red. Operationally breakeven is other stores called out there.
But the only thing is that if you open a store last month or in the last 45 days, it takes up a little time for it to get matured, right? Apart from that, no other store in any region that we operate are in red. Only how we would differ it is that a few stores might make a blended EBITDA, say, store level EBITDA of 10%. Some would be at 11.5%. Some would be at 6.5%. So that is how the math would work out. But any NCR region on the whole, if you see, is a newer region where the EBITDA margin would be much lower compared to our southern cluster.
Thank you so much, sir. I believe the line for the participant got disconnected.
Okay.
Before we proceed with the next question, we would like to inform the participants you may press star and one to ask a question. We have a question from the line of Drishti from ThinkWise. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, can you help us understand what is the unit economics of the older stores that we have? And how do we think about the profitability of those stores? What would be the growth of those stores? What would be the wage inflation or tax growth in those stores? And of the 177 stores that we have, what proportion would be the older stores? And how are we thinking about the newer stores? Thanks.
And so the thing how it would work out is that we would look at a sq ft average of 10,000 sq ft in the mature stores. So that is an average sq ft that you take as a benchmark. And then so these stores would for the existing cluster because most of the mature stores would be in Hyderabad alone and few of them in the Telangana, Patancheru market, and Andhra Pradesh, and Guntur, Vijayawada, Visakhapatnam, and Tirupati. So these are the older stores that we opened, say, five, seven years back. So these kinds of stores which are in a cluster where they're already mature to, say, INR 50 crores, INR 70 crores, INR 100 crores. These kinds of stores would grow at a much lower pace compared to the newer stores that we opened the last 24 or 26 months.
So the newer stores that we would open recently would pan out to grow at, say, 18%, 20%, 30% depending on the lineage of that store. But the mature stores, especially in the clusters where we cannibalize by opening a newer store nearby, those stores would look at a growth rate of one or two, three percent, not more than that. Until unless there is a new technology change or new addition on the floor for new technology products. But these stores are all matured at, say, 70-80 crores on an average. So that way, the EBITDA margin for these particular stores would look at, say, nine, 10% kind of a number. And properties that we own where there is no cost of rental for the mature stores, then you would look at one, 1.5% higher than the rented-out stores.
That is how the differentiation would be. The newer stores would start panning out in the southern cluster at 5-6% initially for the year one, and then eventually stabilize at 6-8% going forward in terms of the store level EBITDA margins. And the growth rate, year one, year two, year three, would pan out to, I'd say, 50% depending on for the year one, depending on what quarter or what month we open. Year two would stabilize at, say, 30-35%. Year three then would be at around 20-25%. And then from there on, year five onward, it would be at 7-10% kind of a number.
Because these pockets are in Tier 3, Tier 4 towns, we do not see a big cluster of markets and a big growth coming up there at the same time. So it is all organic there. Whereas in terms of the mature stores today, out of 177 stores, you could count around 18 stores being under 24 months. And the rest of the stores, especially the MBO stores, are all matured over 24 months.
Sir, so is it fair to say that it takes typically two years for a store to mature, and after that, the growth expected in those stores would be just 1%-2%?
No, no, no. So it depends, so for example, if we cannibalize the store, so for example, if I have a store in Hyderabad which is 10 years old, which does pay INR 100-odd crores, and we cannibalize the store because it can't take up more people than INR 100 crores in turnovers for big days and a lot of delays and a lot of parking issues or a lot of those things, so when we cannibalize or we see that customers can't travel three or four kilometers or we need to open one more store in a similar cluster, then that's when we cannibalize. And once we cannibalize that store, then the growth rate is single digit there. But in case there's a market where the growth is, the store is in INR 70, 80 crores and still growing at 10%, so that is a different store.
So when we don't cannibalize it, then you'll see higher growth even for the mature store. But for the stores which are over INR 100 crores and all, we usually would open a few stores in the same periphery because there is a lot of demand or there is a lot of leakage during big days, weekends, summer, Diwali, Dussehra, Dhanteras. So that is how we would do. Those stores we would look at a number of 1%-2% kind of a thing, which are 10- or 15-year-old stores.
Understood. So why I'm asking this is because what I've seen is in the value growth that we've seen in our stores has not been more than 2-3%, which is why I'm trying to understand how the matured stores grow. Because volume growth, I assume, would be hardly anything in those matured stores.
So if I give you an example for quarter two, if you've seen INR100 crore growth on quarter versus quarter, that is quarter two last year versus quarter two this year, out of the INR100 crores, the majority of the growth has come in, see, the matured stores which are over three or five years have contributed to a flatter number, say, 0.5% or 1% kind of a growth rate. But whereas the stores which we opened last 24 months have contributed to almost 80% of that growth, whereas the eight stores that we opened up in that quarter have contributed to a total value of almost INR15 crore approximately out of the 100 crore stores there.
Understood. Sir, and these matured stores' wage inflation would be 7%-8%. So is it fair to say that these are EBITDA margin declining stores perennially, or how do you think about that?
Yeah. Absolutely. In fact, our industry, if you look at a lot of the major categories that we deal with or the brands that we deal with, we don't see a price increase. In fact, price for air conditioners has gone down by 2 or 3%. Air coolers have gone down. Kitchen appliances have gone down. Refrigerators, television, washing machines, the average pricing has gone down by 7-8%, actually, not increased. It's the other way around. Only apart from one or two brands, in fact, iPhone this year also got launched at a lower price than last year. So if you actually see the pricing for iPhone 16 Pro, Pro Max, which got launched in the last week of September, the pricing for the high-end models are down by INR 10,000 compared to last year.
So if you see the nature of inflation, there is a deflation of pricing, especially for high-end premium products, where, like, a 75-inch or an 85-inch, which is priced at INR 2.5 lakhs, which is at affordable at a price of INR 150, INR 175 this year.
No, sir. I was asking about the employee cost increase, the wage inflation.
Employee cost?
Yeah.
Yeah. So if you see, that's what. If you see this quarter as well, that was a major hit that we had to take in our expense, the rental and the expense on manpower, housekeeping, and security all put together. We would see a higher cost involved there. So that is always, so you would always look at a 5% or a 4% kind of an increase in that cost every year. So you can't avoid that.
Understood. And sir, in your opening remarks, you mentioned that you've seen a noticeable shift towards top five brands. So what would be the contribution currently? I think it was 65% somewhere last year. So what is the contribution of top five brands this first half?
Yes, so it would be around a similar range, but acceptance of these brands is growing up day by day, so even in that tier three, four towns, the acceptance of, say, an Apple device or a Samsung television, so the customers, even in entry-level, say, the Dynacool refrigerator or Thermodynamic washing machine, air conditioners, so now people are preferring for bigger brands and better brands across categories.
So despite so many newer brands coming in, people are preferring the top five brands is what you're trying to say?
Yes. Yes.
Understood. Thank you so much, sir. This was excellent.
Thank you. We have next question from the line of Virat Shah from Shah Investments. Please go ahead with your question.
Hi sir. I just had one question. So within which segments we have seen outperformance in Q2? Any uptick in washing machine category because of rainy season?
So, usually you would expect that the monsoon would bring us higher seasonal drivers and washing machine. But this year it was more or less flatter or a little negative, I would say, down by 1%. Even refrigerators and washing machine, both categories were negative this quarter. So that was a surprise for us. But then a lot of reasons for that. The whole industry was actually down by a higher number in that category. But then especially in Hyderabad, where our base was quite high for washing machine as a category, where we saw almost a 1% dip from the numbers in last year.
Okay. Understood. Thank you, sir.
Thank you.
Thank you very much. Before we proceed with next question, we would like to remind participants that you may press star and one to ask a question. Next question is from the line of Amish Kanani from Knowise Investment Managers. Please go ahead.
Yeah. Sir, if you can give us some flavor of the growth on one which is a slow growth in the quarter and a slightly better growth post the quarter in the Diwali season. Within mobile large appliances versus small appliances, which one was a slow growth area in Q2 and which is the kind of, say, area or category which is picked up post Q2 where this Diwali season is looking fine for us? Thanks.
Great. So I mean, not only Q2, but last six, eight months, the major usually the growth that we've seen in the last five years, majority has come in from mobile phone as a category being the highest growth category individually. वहां पर थोड़ा slowdown है mobile. Mobile which is growing at 20%-25% in the last five years. Now we see a 10%-14% kind of a growth only. So that has reduced a little bit. But apart from that, larger appliances have been a little flat. Televisions have seen decent growth. Laptops have seen a decent growth. Kitchen appliances have seen a decent growth. Other categories have seen like audio, specialized audio, all of those things, hot chimneys. Those categories have seen a decent growth.
But overall, in the mobile phone in the last five years, there is a growth, especially after the 4G, 5G rollout. That growth we've not seen in the last six months. So that is a little slower compared to what our estimations on mobile as a category would be.
Okay, and that has kind of picked up post Q2. You were saying there's some sign of growth coming back.
Yeah. So, noting Diwali usually is a mix of all product categories. And it had the majority of the new launches during this period as well. So usually mobile things are driven with a lot of factors, especially new launches, new technology changes, or some new features in the phone. Like AI is a new thing that everybody's talking about now. And AI starting at INR 30,000, INR 40,000 in a basic phone also has become a good feature for it to sell better. So adoption of AI in the coming time or some better features coming in will definitely have that improvement in purchase of new devices. So mobile phone as a category runs on two major conditions. One is either a really good feature or a new technology change or the upgrade cycle has to get better. Whereas upgrade cycle, there might be a little delay.
And especially with the premium phones and the better quality of phones, you see the upgrade cycle being a little slower compared to the historic period of 12-14 months. Yeah. It is increased by a little more higher period this time.
Sure, sir. And sir, the second question is about NCR region versus Telangana and AP region. I understand there it's relatively newer stores. And you would expect to pick up any discernible trend change in, say, similar two- to three-year-old stores in NCR versus Telangana and AP region, or is NCR as a region as profitable as South region for us?
So right now, firstly, the most important task there was to understand the market and deliver a similar stock report. So we were quite confident that first we achieve a benchmark of INR25-INR30 crores in year one in the NCR region. That is what we are looking at right now. And the productivity for the first set of few stores that we opened up in the last 24 months or last 18 months, which are matured now, those stores are in line with what we would see in the south cluster. But then we have Voltas as a brand being very new there for us.
We wanted to give it a little more time for it to start delivering us the numbers, which would be too high of expectation from our group to understand within the span of, say, three years or so. We start delivering a similar number that we do in South. Whereas the brand is quite new, the customer preferences are a little different there, so those things were a learning curve for us in the first 12 months, and we tried to fix them and tried to grow from them. We see a positive growth coming in there, so we will look at a very small base now, that's growing at 40%, 50%, 60%. It's still a smaller number for us.
We would like to create a bigger break in the growing time in that region as well and start dominating that market, at least with a bigger market share than what it is currently at.
Yeah. Sure. Thanks.
Thank you.
Thank you very much. Gentle reminder to all participants. You may press star and one for questions. We have a question from Rajiv Bharati from Nuvama . Please go ahead.
Yeah. Good afternoon, sir. Thanks for the opportunity. So regarding this North Cluster, so for the quarter, we'll be having a bit of pre-Ind AS loss, right?
Sorry? I didn't get you.
For the quarter, for Q2, at pre-Ind AS level in the North Cluster, there should be a loss, right?
AS level is exactly right, Rajiv. So there would be a decline in it because when we calculate the EBITDA post Ind AS, the interest, the depreciation or the rental would get marked post EBITDA. So there you would see a little decline there compared to the previous quarter. But looking at this quarter, because the productivity also was a little lower compared to the previous quarter of Q1 or Q4, so then automatically you will look at a lower number there. So that is true. What you said is true. But then spanning out for quarter three, quarter four, we are in line with our expectation of being positive in that region as well.
So when I compare this against, let's say, your South Cluster, where you mentioned that the SSG is low single digits, there we have still seen we kind of held ground on the cost of retailing bit, and the margins are largely stable. So this is, you think, purely the rental line item which is hitting that. Above that, everything else is.
So, Rajiv, what happened is that, for example, there are almost seven, eight properties which are not operational in Delhi as a region, for which we've already capitalized a lot of expenses. Their interest has been booked because we bought these properties out, and they're quite expensive properties. So if you calculate it, so the cost is higher than the actual operational cost that we without operation that we are bearing that cost on the balance sheet with the existing operational stores. So the non-operational stores are also very high in numbers versus the operational stores. So like in Hyderabad or in AP Telangana region, when you operate 130, 140 stores, even if three, four stores are getting made, the cost doesn't impact our margins drastically.
Whereas in the North Cluster, the base itself for operational stores is very low versus what is getting under construction today, are almost 40% of the same base, so then the cost also gets negative towards the operational stores.
Sure. And this because your North-South cluster is largely static, this 70 basis points drop in gross margin, it can be purely because of a mix of this North or, let's say, in South also we have seen a decline in.
I would not attribute it to North, South, or a particular category mix. So if you see, it was a one-time quarter where you would see that kind of a dip in the GP, whereas the product mix more or less was in line with what we expected. The mobile phone usually in this quarter go up a little bit. The productivity from other categories were also same. So we did not see majorly only large appliances like refrigerators and washing machines saw a little degrowth there. But apart from that, not major concern where we would try to tweak something or be worried about something. I think it was just one-off quarter where the margin got declined. Actually, if you see the whole half year also, it is down by 0.3%-0.4%, so not much of a concern area as well.
So the only bit is, as in when North Cluster's proportion increases, the gross margin would not dip either, say, because.
Because now, see, on a INR 1,400 crore base, the contribution from North Cluster was only hardly INR 80 crores. So if you look at it, a very small contribution is there.
Got it. Yeah. That's all from my side. Thanks a lot, sir.
Thank you very much. We have next question from the line of Omkar Chitnis from Trade Brains Private Limited. Please proceed, sir.
Previously, I got disadvantaged because of network. My question was, how many stores are in profit as of now?
So Omkar, yeah. So actually, I didn't know that you had a call at 4:40 for that. So Omkar, so if you look at how the only store that you opened in the last six months or so, only those stores will be starting to do operational breakeven, whereas the cost for rentals and all would get covered at 4%-5% EBITDA margin kind of a thing. But overall, if you see, there are no stores in red. Only one store that we expected it to get into red in the next 12 months or so, which was in a mall because of the rental escalation going up drastically. We have shut that store. Apart from that, no other store of ours is into red where we can be burning money to run that store. So we don't run stores in that manner.
So all of us were positive. Only Delhi as a cluster or North as a cluster definitely is much lower in terms of profitability today because a lot of other expenses are getting added to that cluster where the base itself is so low. Apart from that, no other store, no other cluster is in red. I would say that no other cluster is in a worry of our concern where we have to start shutting stores or looking into the profitability of those stores.
Okay. Understood, sir.
So the margins would be like the mature stores in Hyderabad would give you 8, 9, 10% kind of an EBITDA, for example. The newer stores will start giving you 2, 3, 4%. So our blended would be at 8.1, 8.2% kind of a number.
Sir, as you planned 25-30 stores going ahead, so are you planning for any QIP to fund those stores?
Sorry, can you repeat your question?
As you guided for 22-30 stores for FY25 for going ahead, so are you planning for any QIP for them?
No, no, no, no. No, nothing of that sort, Omkar. So right now, with our internal cash flows and the lines of credit available with us, we are quite comfortable for the expansion. There are another INR 20 odd crores left for our CapEx money also that we have raised within our IPO back in 2022. So that also around INR 20 odd crores is left with us for our further expansion of CapEx. So money is there, so no worries on that.
Okay, sir. My last question is, on the slide six, I saw that there is zero sales from online. From the last two years, we are not making sales from online. Our competitors are going in online aggressively to tap a smaller market. What is our plan for that, sir?
So Omkar, historically, we also never were a direct seller for our consumers online as well. We never did sell from our own portal. So what we see online is on the marketplace of Amazon, Flipkart. So usually only when a brand that we sell, like a Samsung LG or a Sony or Apple, whoever it is, if only they authorize us to sell something online, we sell online. So not that we sell online throughout the year or we sell a lot of products. So there are hardly any listings of online category, and that is only after the approvals of the bigger brands. So we do not intend to go online and sell online until they ask us to do that.
Okay. What about tapping Tier 2, Tier 3 cities, sir?
Sorry, can you repeat your question? Tier 2?
How are you tapping Tier 2, Tier 3 cities audience?
Yeah. So with our stores, as you see, our stores which almost 50% are in Tier 2, Tier 3, and Tier 4 towns as well. So in a cluster where we are growing right now, we would see good growth coming in from those clusters, but probably a different strategy, a little more smaller store size, a little more aggressive or differential marketing there because not necessarily that print and radio would work in every cluster there as well. So all of those things are taken care of, and we see good demand coming in from those areas as well.
Okay. But as you mentioned, that is it, sir. In the case of exclusive brand outlets, are you going for any ownership and operation model type?
No, sir. So exclusive brand outlets will be only for brands like Samsung, LG, Apple. So only after they would suggest us to open in any of the regions, we would do that. But that is not a key growth strategy for us going forward as well. Probably you might see one or two stores opening up under the EBO format. Apart from that, we don't intend to open EBO format at all.
Okay. Thank you, sir.
Thank you, Omkar.
Thank you very much. Participants, if you wish to ask a question, you may now press star and one. As there are no further questions, I would like to hand the conference over to management for closing comments.
I would like to thank all of you for joining the call. I hope that we were able to answer all your questions. And for any other queries, you may get in touch with us or Mr. Deven Dhruva from Strategic Growth Advisors. We will be happy to address all your queries. Thank you once again.
On behalf of Electronics Mart India Limited, that concludes this Conference Call. Thank you for joining us. You may now disconnect your lines.