Ladies and gentlemen, good day, and welcome to Q2 FY 2024 earnings conference call of Page Industries Limited. As a reminder, all participant lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. V.S. Ganesh, Managing Director of Page Industries, for his opening remarks. Thank you, and over to you, Mr. Ganesh.
Thank you. Thank you so much, and good evening, everyone. Thank you all for joining us in our earnings call today. I'm also joined by our CFO, Mr. Deepanjan, for the call. I hope you had a chance to review our press release and results. Before we dive deep into the numbers and specifics, I would like to provide an overview of the quarter that has just concluded. Though we are seeing some positive trends in consumer demand in the economy and rural segments, aided by the onset of festivities, we are yet to witness any noticeable improvement in the urban and mid-premium segment. However, we firmly believe that these challenges are temporary and will continue to invest in technology, brand promotion, and expanding our reach while ensuring comfortable operating margins.
However, macro headwinds and market conditions continue to pose some challenges, leading to year-on-year decline, reflected in an 8.4% decline in revenue and an 8.8% decline in volume in Q2. In H1, decline in revenue and volume were 7.6% and 10.2%, respectively. Demand in the innerwear and athleisure industry remained subdued in Q2. This was in line with our ex-ante expectations, which contributed to lower, lower sales volumes. However, it's worth mentioning that our industry has witnessed an accumulation of excess inventory, which has had repercussions on the overall ecosystem, resulting in certain unsustainable business practices in the market. We continue to focus on sustainable sales practices while taking measures to maintain operating margins and working on optimizing our inventory.
In line with the objectives, we will stay invested in enhancing consumer reach and experience, in diversifying and enriching product offerings, in operational excellence and digital transformation. To navigate through this temporary phase of market conditions, we have taken adequate measures to safeguard and improve our market share. Additionally, a diligent control over expenses have been instituted to protect our margins. Speaking on some key updates for the quarter, we are focused on improving productivity in our supply chain with clear focus to optimize operating expenses. I would like to highlight that our EBITDA margin for Q2 FY 2023 was maintained at 20.8%. Our distribution network expansion remains in line with our plans.
As of end of September, we have a network of over 110,000 MBOs, 1,370 EBOs, and more than 2,400 large format stores. We are strategically directing our attention towards metros and Tier Two and Three cities. Our e-commerce channel witnessed a substantial growth of 31% in H1. This actually reflects evolving consumer purchasing habits and a commitment to bolstering our online presence. We have taken several initiatives, some of which are being executed, to further strengthen our B2C channels. We continue to invest for attaining our long-term objective. Our strategic focus encompasses multiple trends, which includes intensifying geography distribution, expanding mass format stores and exclusive brand outlets, growing B2C business, improving customer experience, strengthening product portfolio, partner and consumer engagement, international business and brand building, and also ensuring a very robust supply chain.
While we acknowledge the cumulative volume and revenue decline challenges, we are committed to maintaining our strong margins and optimizing our inventory. We will remain vigilant and agile, always seeking the right balance between short-term adjustments and long-term strategic investments. We remain optimistic on the long-term outlook, and we appreciate your continued support and trust in Page Industries. We look forward to addressing your questions and sharing more insight into our performance during this call. Let me also take this opportunity to wish you all a season's greetings and a prosperous year ahead on behalf of all our associates. Thank you. And with this, I would request our CFO, Mr. Deepanjan, to take you through the numbers for the quarter.
Thank you, V.S. Ganesh. Good evening, friends. I hope you're all keeping well. Thank you for your participation this evening.
I'm pleased to report that Page Industries has delivered a reasonable performance in Q2 of FY 2024. To take you through the key financial highlights for Q2, we recorded sales volume of 51.8 million pieces, which is lower by 8.8% YOY, and resulting in a sales revenue of INR 11,251 million. Despite the lower revenue by 8.2%, EBITDA achieved was INR 2,235 million, a decrease of 1.8% YOY. Q2 EBITDA margins was maintained at 20.8% due to the operational expenses optimization and the stable, raw material cost. Profit after tax was INR 1,503 million, a decrease of 7.3% YOY. PAT margin is 13.4%.
Coming to the Innerwear revenue was INR 20,575 million, a decrease of 7.6% YOY, and volume decreased by 10.2% at 107.7 million. EBITDA was INR 4,754 million, lower by 11.2% YOY. Profit after tax was INR 2,086 million, lower by 16.4% YOY. Inventory shows that it is INR 13,619 million, as against INR 16,953 million at the end of Q4 FY 2023. Inventory days have increased to 105 days, which were 150 days in the end of Q4 FY 2023. This improvement in inventory days is in line with our efforts to reach optimal inventory levels by year-end.
Net working capital was INR 8,799 million, as, as compared with INR 7,680 million at the end of Q4 FY 2023. Working capital days was 68 days, which was 69 days in the end of Q4 2023. Increase is due to improvement in our bank and cash balances. To summarize our financial performance, we remain focused in driving operational excellence and capitalize on growth opportunities. Our stable operating margin highlights our commitment to prudent cost management amid subdued demands. While this can-- With this, we can open the floor to any questions that you may have.
Thank you. We will now be beginning the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes on the line of Nihal Mahesh Jham from Nuvama. Please go ahead.
Hi, good evening. Am I audible?
Yes, yes, Mr. Nihal.
Yes. Good evening, sir. So my first question was that, if I look at our volume growth, it is still deep in negative territory, and while you did highlight the market situation versus last quarter, has there not been even some improvement in terms of the trajectory being improving? What is leading you in such kind of stress that even, say six months down, because I think this issue started at the start of the year, that we are still under so much of impact. And also, if you could highlight of the three segments, is there any one such segment that is leading to more stress than the other?
Yes, you know, market generally has not been very buoyant, and we should also keep in mind, if you look at quarter two, we last year, we actually performed well, and we were one of the few brands who actually grew very well in Q2 of last year, so we also have that base impact. However, you know, we have taken enough action to boost our sales, and we also have been taking enough measures to bring in discipline. We have never taken shortcuts to achieve sales. We have been working hard on having better tertiaries, improving on secondaries, keeping a close eye on the distributor inventory, and, well, we are helping the distributors in having a better health as far as in inventory is concerned. This is very important, the long term of the business.
These may have some short-term impact, but basically, if you look at it, we are now seeing that we have crossed those bridges and, things should at most probably, you know, we are all looking at the festive season. If you again look at it, last Q2, the festivities were during that time. Now we have a delayed festive season, so that has also had an impact from a baseline point of view. So we are looking forward to better days ahead. We have taken enough measures to bounce back the moment the market recovers, and we are very confident about that.
Regarding your question as to any particular category has done well, the impact has been across categories, because as I told you in the very beginning, in my opening statement, you know, the pressure as regards the economy and the rural segment, that though we are seeing some positive signs, it's all early days, and there has not been any noticeable improvement in the urban and mid-premium segment. But we are very sure this is not going to be a long-term thing, and we can already see that this can't last longer, and we are prepared to encash when the opportunity comes. Comparatively, I can say our women's innerwear has done comparatively better, especially the innerwear and bras categories, but the growth has been impacted across all categories.
Understood, sir. So my second question was, we've obviously had the benefit of low-cost inventory, I think, for the last six months, but, despite that, I think our gross margins are lower versus last year. Is this a case of maybe higher incentives, given how the situation is in the channel at this point in time, which you're highlighting why we are improving, but there will be a need from our side also to improve incentives? Just your comments on that. I want to-
Yes, when it comes to schemes and incentives, we have not done anything extra. We have been staying put with what we usually do. We have never succumbed to the pressures of the market to sweeten anything and go over and beyond what we usually do. So we have always done what is need-based, keeping a sustainable and growth, a hygienic sales practice, and long-term interest of the brand in mind. So, you know, the margin improvement which you are seeing is actually because of all the measures we have taken as far as cost controls are concerned. I don't see much benefit as far as low-cost inventory is concerned, because if you see, we are not priced twice for a long time, and therefore, you know, we don't have that benefit of a low-cost inventory, actually.
Understood, sir.
I mean, while the raw material prices has been reducing over some time, but given the fact that our entire costing is based on weighted average cost, the benefit takes some time to flow into our PNL. So that's why, as a material cost level, we are yet to see a significant difference. But as we usually pointed out, there has been improvement in our, I mean, efficiency, and which is resulting in a better gross margin.
Got that. I have a few more questions. I'll just come back to you. Thank you.
Thank you. Next question comes from the line of Ravi Naredi with Naredi Investments. Please go ahead.
Thank you very much to give me opportunity. You changed the company from underwear to full-fledged company for wear of youth and girls, with lot of deals to population of India, mostly well in supply chain. Since last few quarters, I am observing our main profit margin going to raw material, holding the raw material of stock, then finished goods. So now everything settle, or we may face more margin on these obsolete stock or raw material stock? This, this is my question.
Well, we don't have much obsolete stock. We do have inventories, which are on the higher side because the sales, which we planned in the beginning of the year, before the start of the year when we did our budgeting and plans and what later transpired in the marketplace didn't help. So the inventory bloated, but we have reduced. If you see this quarter, there is a reduction. We have been taking measures on that. So we don't have any concerns as far as the health of the inventory is concerned. And as you know, as a brand also, we make products which are relevant across the year, so we don't have that pressure of seasonality as far as our products are concerned.
We have taken adequate measures to control the inventories, and you can already see those results flowing in. As Deepanjan rightly said, as far as the price benefit is concerned, we take the three months weighted average, so there is always a quarter lag effect, and therefore, many of these benefits will keep flowing in as we move forward.
So, we may assume now no obsolete in inventory, in line with any distributor or in pipeline?
Distributor inventory is a bit high, but it has come down from the previous quarters. This is also because we had a very, very buoyant quarters in Q1 and Q2. In fact, it started from Q3, Q4 of the previous year and Q1, Q2 last year. So with that, you know, they were stocking up, and then we took measures to bring in help, and that's where our ARS initiatives have also helped. So the inventories are normalizing there, and we can already see that. So this would all help the primaries as we move forward.
Okay. So quarter three onwards, we may see growth in profitability. Is it so?
That depends on how much tertiaries we can get, and how the market bounces back, and how the festival season would be. So we need to wait and watch for that.
But Diwali is three days away, so no line, no growth is there in the market for the demand of the product?
You know, you would not immediately see that because it will be the treasury sales, and then the distributor will have to fill the retailer, and then it will come to us, so there'll be a small lag. So, I don't think it will be appropriate for me to give you some insights about the last 2, 3 weeks.
No problem.
But what I can tell you is, you know, to your question as to whether there'll be a huge growth or a good growth in top line and bottom line, though we remain optimistic, it all depends on how quickly the market bounces back.
Yes, sir. Thank you very much, Ganesh, to give the satisfactory reply.
Thank you.
All the best, sir.
Thank you, Mr.
Thank you. Next question comes from the line of Avi Mehta. Before we take the question, a reminder to all the participants, please restrict yourself to two questions. Mr. Mehta, please go ahead.
Yeah. Hi, sir. Thanks for this opportunity. So I just wanted to better understand the initiatives that you have taken to ensure that our market share doesn't get impacted by these unsustainable sales practices. What exactly have you done? If you could kind of give us some ideas. Thank you.
Sure. So what we have done is, you might have seen we have not gone, we have not come down on any need-based expenses. So what we have done is we have made sure that we have, we have expanded on our retail footprint. Our marketing spend has been done in line with what is required. So we are no longer media dark, and these are very important things to do. And there has been a good engagement with the partners, be it our retail partners or our distribution partners. And we don't see any loss of shelf space or market share. In fact, our secondaries have done well. Sorry, our tertiary sales, sorry, so secondaries have done well, and there is a marked improvement in the distributor inventory health.
So going forward, all this should benefit the brand. So we are continuing to invest in enhancing the consumer reach and experience. We are also diversified in the interest of product offerings. We have taken enough initiatives on operational excellence and digital transformation. This also helps the market because this will help us to maintain prices, you know, by bringing in operational efficiencies, and that is one important aspect. And additionally, we have also taken all other initiatives to keep our sales force motivated and engaged. And, you know, we don't have much B2B distribution attrition or sales team. They're all motivated because they all understand the long-term prospects of the brand. They're all fully aligned. So we have taken enough initiatives on those aspects as well.
Quite a lot of initiatives have been taken on the garment side of the business as well, you know. Today, we... I can say we are like any new age B2C brands when it comes to customer relationship management.
Got it, sir. Got it. Very clear, sir. No, it's heartening to hear that, you know, we kind of ... It's just a second bit, sir, you know, better understand this discounting. So in, you know, how long in your view, you know, how much of inventory is degrading the discounting pressure versus one Q? Or how long will this inventory take to settle down? Because industry inventory, you know, it's been what, almost six months now. Do you think we are towards the end of this pressure, or how, how, in your opinion, how should we look at this, sir? That's all from my side.
Mr. Mehta, it's anybody's guess because we don't have full insights on the inventory of our peer brands. But I don't feel it is a sustainable long-term business practice. It can't last for long. So, I hope, you know, we have gone past all those challenges, and things should normalize as we move forward. That is my take.
So, have you seen any moderation from the first part, if you could just... Have you seen any moderation from 1Q levels in this quarter, or no, there is no change there?
Mr. Mehta, it was not clear. I couldn't hear you properly.
But have you seen, have you seen any moderation from the first quarter in the discounting pressure? That was what, was the first part, if you could kind of just give me some understanding. I hear you that it's difficult to take a call, but, on how long it will last, maybe that is your mind.
Even as we speak, it continues to be intense. It is not only the promotions and discounts, it's also the schemes which are being deployed in the marketplace. So it continues to be that way. But there is always a demand for our products. If you see, our degrowth has been in line with the general economy and the market trend. We are not lost out to competition because of that, because the brand has a respect, and we also powered by amazing products, and we also enjoy a very good distribution network and have a good shelf space, and our consumers always seek our products. In fact, if you see even in online, we have a 31% growth in H1, so it really shows the loyalty to the brand.
For us, we will continue to remain disciplined, and for us it's just question of time before we come back.
Got it, sir. Thank you very much, sir. Thanks a lot for this.
Thank you. Next question comes from the line of Ashish Kanodia with Citi. Please go ahead.
Yeah, thank you. Sir, the first question is on the distribution side, right? When I look at your MBO network, it has declined, you know, versus last quarter, there's almost a 2,300 touchpoint reduction. And similarly, when I also look at the, you know, the number of distributors, that has also shrunk over the last two, three quarters continuously, right? So any specific strategy that you are driving? Because post-COVID, you know, there was a time when there was a rapid expansion in this retail touchpoint, distribution touchpoint, so what is driving this change?
So there is no substantial reduction, Mr. Ashish, as regards the MBOs are concerned. It remains more or less there. There has not been a much rapid expansion also because there has been some rationalization happening. You know, during the COVID, the market situation demanded that rapid expansion. Our consumers actually went to their hometowns to tier two, tier three cities, and we had to be there, we had to expand. And when it became back to office, they, they got back to metros or wherever their offices are. So what happened was, those outlets, even though it was recording some sales, it was not as profitable or viable for us to service those markets. So there has been some rationalization. There has been no, no other exits. And as far as distribution is concerned, our attritions are normal.
There has been no abnormal changes there. In fact, as we move forward, I hope, and, we all are sure, and that's what we get to hear from the partners also, this will reduce because with ARS kicking in, the distributor health, inventory health is going to really improve, and that is going to help them financially and from a viability point of view. So for us, our take is that the attritions will reduce moving forward, but as of now, as we speak, it's normal. There's nothing abnormal about it.
Sure, sir. That's helpful. And the second question is, you know, when I look at the base quarter numbers, it seems that the number has been restated on the revenue and cost side. So what led to this reinstatement? So this is for Q2 2023, there was almost a 2% reinstatement. And secondly, on the cost control side, right, this when we look at this quarter numbers, there's a significant decline in other expenses. So you know, on your earlier part, you said that, you know, you continue to make investments, so you're, maybe you have not, you know, kind of brought down the marketing spend, et cetera. So I'm just trying to understand, you know, what cost controls initiative you have taken in the last one, two quarters?
First question on the regrouping of the revenue from operation. The revenue from operation used to include what we typically sell to our outsource partners. So we typically supply raw materials, which they convert into finished goods and sell it back to us. So earlier, we used to consider that as income from operation, which now we have regrouped as part of our... We literally knock against our cost of the goods that we have supplied. So that's why we see a reduction in our reported revenue. As far as the cost rationalization measures that we have tell you in other expenses, the other expenses has a component of subcontracting expenses, which is a commission charges that we pay to our job workers and to our subcontractors.
So, in line with our reduced production, to manage our inventory and the demand, there has been lesser subcontracting in the current quarter. So that's some of the reasons why the other expenses is showing lesser. At the same time, the marketing expenses, there have been some several in marketing expenses. It's not exactly the same, but yes, compared to the Q2 of last year, there has been a lesser marketing expense in this quarter. So combination of these factors have resulted in other expenses reduction as a percentage of net revenue. Other major factor is our reduction in workers wages, because while we do not let go of our employees under any circumstances, as far as workers are concerned, there's a natural attrition. So that has happened, and that has benefited our EBITDA percentage.
Sure, sir. Very helpful. Thank you.
Thank you. Next question comes from the line of Tejas Shah with Spark Capital. Please go ahead.
Hi. Thanks for the opportunity. The first question, you have highlighted in your presentation that online business has done very well. So just wanted to know, the nature of the business that we have in terms of B2B, B2C, and D2C breakup, if you can broadly give?
... So we are, yeah, we are present in all the three segments that is B2B, which is outright sell to partners like Amazon and Flipkart. We are also present in the B2C segment, which is jockey.in, which is our own store, and then we are present in marketplace as well. So within these three segments, the largest share is the B2B segment, where there is a direct sale, followed by the marketplace segment, and then the last is jockey.in.
Got it. The second question was, so and then this is, like, just to understand, like, we noticed in some of the value retailers in the last 3-4 years that, whenever they discuss market share, it was largely among themselves. And then suddenly, an online player came from nowhere, and it was below the radar in the market share discussion. And then obviously, lately, lastly, they all have to pivot to kind of fight with that challenge. So in our case also, when we look at offline numbers, then definitely we have not lost market share to anybody that's visible.
But if we have to compare ourselves with, let's say, some below-the-radar online players or emerging players, are you, are you sensing some part of our premium customer we would have lost in this segment?
Tejas, we don't see that because there, there has been lot of initiatives taken by us also in customer acquisitions. And, and our D2C arm is, very, very strong, and therefore, you know, it has really helped. We have recognized the significance of D2C space, and, and we have, we are dedicated to nurturing our D2C business segment, you know. So we, we, we are very sure of, having much better customer acquisitions as we move forward. What we see is most relevant, the competition will be there. It, it is good. It keeps us in our toes. We are not left any white spaces as far as the product range is concerned, and, we have come out with very exciting products.
We keep upgrading them without touching prices, and we stay relevant to our consumers as far as the offerings are concerned. And we have been actually taking lot of initiatives in improving the customer experience. So this, that has been central to our strategy in enhancing the overall customer experience. And the product portfolio, as I told you, and the consumer reach through marketing is something which we are working very hard on. And there the kind of spend we can afford to have is much better than many of those brands which are coming up. So we have enough muscle to tackle it, and we are making all the right moves to manage the situation, and we don't see any threat there.
So the last one, if I may. Sir, you spoke about that we had to respond in certain way during COVID and post-COVID in tier two, tier three areas, both in terms of the numeric footprint and perhaps expanding inventory also in those areas. And now, once we last two, three quarters as the things started normalizing, we have to have kind of call back on some of those initiatives because they are not profitable. You highlighted that as well. So should we believe that most of those kind of reversal is done, or you believe there is still some more reversal is pending as we go?
No, most of it is done. And what I meant is, it's not that we are not there in Tier 3, Tier 4, but you know, in a 10-50 thousand less than 50,000 population city or a 25,000 city, maybe you can have three or four outlets. You can't. There is no space for eight or 10 outlets, you know? So there is a rationalization required, and that is what has happened. And we are done with it, more or less done with it.
Got it, sir. That's all from my side, and Diwali wishes to you and the team. Thank you.
Thank you. Thank you so much, Tejas.
Thank you. Before we take the next question, a reminder to all the participants, please restrict yourselves to two questions. Next is Ankit Kedia with Phillip Capital. Please go ahead.
So on the employee cost, while you indicated that, you know, the normal attrition has not been, you know, again, got back from a manpower front, but there is a significant portion of the variable cost which you, you know, started couple of years back in the organization. Now, given this performance, has the provisioning for the variable cost, not taken care, in the employee cost, or that comes at the end of, quarter four? So how does that variable cost move?
No, the variable cost, based on our budgeted performance, we do provide for certain variable cost on a pro rata basis. The actuating of the variable cost, of course, takes place in the last quarter. But otherwise, yes, the provisioning of the variable cost is very much in place.
Sir, given this performance in the first half, you know, can partly the decline in employee cost also be attributed to lower variable cost?
No, nothing to do with that. Employee cost reduction is because of two reasons. As we said, one, we allowed the natural attrition in our workforce. At the same time, given the, I mean, considering all the conditions that we exist now, we are not, we have stopped recruitment. The recruitment freeze currently. So the normal increase or the normal increments that has happened during the year that has anyways flown in. Major reason for the reduction is the normal attrition in the workforce.
... Sure. So my second question is regarding, you know, the high inventory by competition. That inventory is predominantly for Athleisure, right, and not for Innerwear. So, if you can just break down the growth separately for Athleisure for us versus Innerwear, how it will be helpful for us to understand how much pain has already happened for Athleisure versus Innerwear?
Ankit, we see, you know, that inventory. Actually, the problem of that bloated inventory is across. It is there in Innerwear also. And there you can see the marketplace also. If you talk to the distribution partners of the peers companies and others, there are a lot of schemes to liquidate those stocks. There are a lot of promotional activities which are happening. So it is not specific to a category. It is across the category. So, you know, it is there for Innerwear and Outerwear.
Sure. And, sir, my last question is regarding the commodity prices. Now, with the prices stabilizing, do you see the need to take price action in next six months this year? Or you think, you know, you take a call only next financial year for any price action on it?
I think, with our current stability in the current prices as well as the operational cost optimization that we are, we have done and also it is ongoing, we don't see any requirement of any price touching in the current financial year. Of course, if the inflationary pressures across different parameters are beyond what we are planning, then there can be a different call. But as of now, we don't see any requirement of any price pressure.
Sure. And so one last question, if I can squeeze in on A&P spends. You know, we have seen your advertisement on the Cricket World Cup now. So if you can just say, second half of the year, can we see higher A&P spends in the system versus the first half?
Yes. There are certain advertising expenses planned in the second half, and with that, we will be in the usual range of 2%-5%, which we have, which we have been doing in the previous years. The first half, yes, our advertising has been on the lower side, but yes, second half, there it will be on the higher, higher side.
But Mr. Ankit, let me also clarify that all our spends on marketing has been in line with our budget, which we have kind of realigned, recalibrated the outlook which we have for the year. So as I told you, we have taken enough measures to protect the margins and all these relevant expenses, we are not going to tighten, but we are taking enough measures to protect margins.
So, between volume growth and margins, your first focus will always be on margins and then on volume growth?
Of course, we are looking at volume growth, but you know, we don't want to buy sales. You know, we want to have sustainable sales. So we are taking actions on that front. So as I told you, if the market recovers, we will be the first one to bounce back. However, it is always better to plan for the worst and deliver more than what we plan, you know? Otherwise, our spends and other initiatives may go on a very optimistic mode. We would like to tighten our belt, you know, by considering that you know, it may take more time for recovery, but we are prepared to bounce back to the market the moment, you know, the buoyancy returns.
Sure, sir. Thank you so much, and all the best.
Thank you. Next question comes from the line of Sheela Rathi with Morgan Stanley. Please go ahead.
Yeah, thanks for taking my questions. Hello, V.S. Ganesh. Hello, Deepanjan. My first question was, with respect to the cadence of online sales being so strong this quarter at 30%. Is it fair to say that we were under indexed on the online side, and that's why the growth number seems to be stronger on online versus offline? And are there any particular categories which are actually doing well for us on the online side of things? You know, if you could give us some more idea actually what's happening there.
Well, growth, online growth has been across categories. There is no specific category which has shown acceleration. It's, it's good to see it's across categories. It also shows the changing behavior of the consumer. Of course, many of the actions which we have also taken to bolster the B2C is also giving its results, and there is much more to come. There is a lot of work which is being done on that side of the business.
How should we think about, you know, in general, the growth roadmap for the overall business? Will the online be a much superior growth business for us going ahead? What I mean to say is that, in the next five years, should we think that online will be 20% of revenues or something, versus where we are today?
With the changing consumer behavior, I think we should be prepared for it. You know, I think as an organization, we should remain agile. That's how I would look at it. I won't be surprised if online is in high teens or late teens in 4 or 5 years' time... and we should take enough measures in taking and nurturing that channel to take care of that opportunity. But for me, I will say we need to remain agile because it is very volatile out there. So we are ready. In fact, the initiatives we have taken on the B2C side, we are very happy with the initiatives taken, both the quality of the initiative and the speed or the pace at which we have gone ahead executing it.
We are already seeing the results, and there is much more to come on that side.
Understood. The second question was, with respect to the women's, you know, where we talked about that selling better. So if you could give us some more insight in terms of any particular markets or what is driving a better growth there, and what is the delta in terms of growth of women's innerwear versus men's innerwear or athleisure?
I think multiple reasons. I think one is the product and the price we have positioned ourselves very sweetly there. The second is the campaign, you know, which we did, the Knows Me campaign . All these are paying results, you know, and, you know, I think we did create that awareness among our consumers on the category. Thirdly, we have done a lot of work as far as the store associates are concerned, because this is one category where you need your sales associates to be more of solution providers rather than salesmen, and especially for the bra category. And I'm proud of what the efforts, our sales team and our learning and development team have taken collectively to make them a solution provider to a consumer. And these all these are showing results.
Okay. And my final question was to Deepanjan with respect to the EBITDA margins. I believe that a lot of variable costs are not there at this point of time. So how should we think about the trajectory on margins once, you know, we start seeing some green shoots on growth recovery? Because I believe we, we still have uncertainty with respect to when growth will come back. But how should be the path for margins going ahead?
As we have always mentioned, we are very comfortably in the range of 19%-21%. Given all the operational cost optimization measures that we have taken and with the stability in the raw material costs, we are quite sure that range will always be maintained. But yes, at the same time, there are certain marketing initiatives being planned. There are also digital initiatives being planned, which have long-term benefits, but the investment phase will be starting now. So, these expenses can impact the margin to some extent. But yes, otherwise, we are very sure that the margins will still be in the range of that 19%-21%.
Understood. Thank you.
Thank you. Next question comes from the line of Manish Poddar with Invesco Asset Management. Please go ahead.
Yeah, just a couple of questions. So, first one is, have you given the reason for reissuing the numbers?
Poddar? Uh...
So you've rebased, the sales numbers in the, in the base quarter, right? So I'm just trying to understand what, what is the reason for the same?
As we explained that, I mean, the our revenue from operations number that we report has an element of sales to our outsource partners. So we typically supply raw materials to outsource partners, which they use and convert to finished goods and selling back to us. So earlier, this part of the operation, that is sale of raw materials to outsource partners, was captured as, as in terms of other operations. So, sorry, other income from operations. So, so that has been regrouped as, and method of, you know, cost of those supplies.
Why is this done now and not done earlier? What has changed? As in, why do you change the accounting?
It's more of an internal discussion and accounting standards applicability, because at the end of it, it is raw material costs which we have sent and it has come back to us. So, it makes more sense that it is grouped under cost of goods and netted off , rather than saying it as part of the revenue.
Okay. And, the second one is in terms of inventory. Have you given a split of, RM versus FG in an inventory? And how much of FG is in, let's say, athleisure?
Yeah, in the balance sheet, we do have a split of RM, finished goods and work in progress. So, yeah, I think in the published financials it will not be there, but yes, in the annual reports it will be there.
Would you be able to help me on the first half basis, how, what is the split between the three variables?
Uh...
Let's say just RM and FG. I'm just WIP is not what is of concern. I'm just trying to understand end products which are not selling, and you know, how much is, let's say, the inventory in the system from because of that, and both basis RM the margin benefits of it.
So, out of the inventory that we have reported, it is INR 1,361 crores. Finished goods is around INR 670 crores, and raw materials is around INR 270 crores.
Okay. And just of this, of FG, how much is of Athleisure?
... No, that's data we don't do.
Okay. Okay, fair enough. Sir, sir, it'd be helpful, given, you know, you know, the environment where we are in, and it's just a feedback probably, and it'd be great if you take it in positive, you know, from a positive feedback response loop. You know, a lot of numbers are all over the place because of, you know, our interventions and the external market environment.
And, given that we are also seeing, you know, attrition at different levels, it will be helpful if you can just give us clarity on, you know, certain category level, you know, trends or, you know, channel level trends, region level trends, some sort of, you know, data on a quarterly basis or a half yearly basis so that, you know, one can appreciate the results much better. Because, you know, as investors, as investors, we are, you know, it just, it just roll over, you know, to be very honest, and I understand don't want to do it on the earnings call, but, it just, you know, roll, rolls forward our expectations, frankly. So, you know, it'd be great if you, if you can get some clarity there, that will be helpful.
Thank you so much.
Thank you. We take your feedback, we'll deliver on that, and if that helps in a better presentation, we'll definitely consider it.
Thank you so much, sir.
Thank you. Next question comes from the line of Sameer Gupta with India Infoline. Please go ahead.
Hi, sir, and thanks for taking my question. I have two, and I'll be quick here. So first of all, historically, you've seen kind of a seasonality in volumes. They tend to be higher in the first quarter, and then they decline sequentially. Typically, in Q3, it is 5% down versus Q2. Now, my question is that post-ARS implementation, which is now broadly complete, would you say that that seasonality element in volumes has now reduced considerably, or it is just a reflection of the end consumer demand, which is still likely to be there in our primary volumes that we sell?
Yeah, so there are two... And yes, you are right, historically, Q1 is the highest quarter, and I think, you know, it will remain so for some time to come, even if there is ARS, because that is when the distributor actually cleans up his inventory and that will continue, but it will be more democratic, you know, as far as the spread is concerned. So in the past, most of the money flows in some of the core products, and it has affected the discoverability of our hidden gems, the winners, which have not got the field of play. So now it will be much more democratic. And on your second part, yes, ARS is more or less done, but it will take time to...
For the hygiene to kick in, because even though almost majority of the distributors have signed into ARS and have made substantial progress, and it varies from category to category, the progress which we have made. But, you know, first is to correct the bloated inventory they have on hand, and it will take time for that correction to kick in.
Got it, sir. Second question, and this is on men's innerwear, particularly. For a category, and you said that trends are across, similar across the board. So basically, for a category such as men's innerwear, for a whole year now, I mean, volumes have been quite under pressure for, you know, for a whole year, and even this is adjusted for the ARS impact that we had re-reported in the last two quarters of FY 2023. Now, unless consumers have downgraded or we are, as a company, losing market share, what exactly—what else can, you know, this decline in volumes be attributed to? And if you could just help me, the sales growth or volume growth for the EBO channel this quarter? Yeah.
Yeah. So again, there are two parts on the innerwear side of the business. I don't think, you know, the consumers might have downgraded. I think the ticket size or the quantities they're buying has reduced. Because if you see, even our peer companies are under pressure as far as volumes are concerned. So there is generally a control on the spends, you know, and we can see this across FMCG and many other industry because, you know, many spends are gone up, the health, the education, rentals. We got a substantial increase in their salaries. In fact, IT sector is also under tremendous stress. So all this is having an impact. But again, with the overall economy and overall growth story, this can't last. So it is just question of time, as I keep telling.
But I don't think it is definitely not the question of losing market share. In fact, we are also seeing some premiumization happening. So people who have the money are actually spending. So it will come back, and you can see the peer companies are also under equal pressure. And it's an essential product, so it should recover faster than any other category.
Got it, sir. That's all from me. Thanks and all the best.
Thank you. Next question comes from the line of Vikas from Equirus. Please go ahead.
Yes, sir. Thank you so much, sir, for the opportunity. So, just only one question from my side. While in few quarters back, one of our key driver was the distribution expansion. But given the current environment, and of course, the numbers also, where in the earlier comments you said that some of the areas that we did enter into earlier were rolled back, because now the office works and others have resumed. So what is our view with respect to the expansion or the door addition right now, given the environment we are in? Yeah, that is my question.
We have a tremendous scope for expansion, because, see, as you know, we have huge headroom. We are keen as far as, as mentioned, our market penetration is concerned, single-digit in other categories in which we are. And if you look at the number 2, 3, in most of those categories, we are bigger than number 2, 3, 4 combined. So you can imagine the headroom which we have and how fragmented the market is. So there is enough room for expansion, and we will continue to expand there, you know, because we are very, very optimistic about the long term. There's no question about it. And we are going to go all out. These are temporary phases which any business will go through.
We are going through that, but our long-term outlook is definitely positive. That's why we are also spending for the future as well as IT and other spends are concerned, because these are all essential to nurture and grow the bank. Expansions, right expansions will continue, and we are also taking enough efforts to make the distributors profitable so that we take it as our responsibility, and that is where we are working overtime on their inventory health and having a better management of the inventory. And that is very, very important. And that will actually help us to have accelerated expansion, because there will be more and more partners who see that this is a good business to be in.
Sure, sure. And so just an earlier participant asked: could you describe what would be the volume growth at an EBO channel level? That would be helpful.
Oh, yeah. I'm sorry I missed telling you that. We don't give the split, but I can tell you, EBOs have also recorded a degrowth, and this is where we say, like, this is more of market, not because of other factors of losing shelf space. And, you know, that is the right parameter or the indicator as to how the market is. So we are seeing that in EBOs also.
Correct. Correct, correct. Okay, but, but, on a broad basis, would that be significantly higher or lower than the company level, 8% that you have given?
Well, it is, it is negative growth, but it is comparatively lower compared to the overall. That is because, when it comes to EBO, EBOs has always been in ARS for a long time, so there is a much better inventory health in the system, and therefore, the degrowth has been softer. As far as the general trade distribution is concerned, this is where ARS is very important, and, now that it is reaching a maturity state, things, things should improve as we move forward.
Understood. Understood, sir. Thank you so much for answering the question, and all the best.
Thank you. Thank you.
Thank you. Next question comes from the line of Devanshu Bansal with Emkay Global. Please go ahead.
Yes, sir. Hi. Thanks for the opportunity. Sir, your commentary indicates that the team at least has done a good job, and whatever challenges are there are because of weak macros. So my concern was regarding the several senior level exits. First Mr. Shukla and now Mr. Sahgal. So wanted to check what are the reasons for these exits, and what are the key guidelines for new hires, and also who will be taking care of their portfolios in the interim?
Well, Mr. Sahgal has decided to move on for personal reasons, and he has been in discussion with us for some time, and there is also a proper transition plan planned, and we do have enough leadership bench strength, and we will be able to manage the business with the current management team even with this resignation. So, we can manage it. And this has been planned, and this is happening in a very smooth manner, and he's moving on for personal reasons. And Mr. Shukla left for looking at a better professional growth outside, and we wish him all the very best.
In the meantime, we do have our current team, which is managing, and we are also taking initiatives to hire a talent to manage the modern retail, and the transition is in progress.
Got it. Got it. That's it from my end. Thank you, sir.
Thank you. Next question comes from the line of Rishi Mody with Marcellus Investment Managers. Please go ahead.
... Hello? Hello, can you hear me?
Yes, yes.
Yeah, yeah. So was there any ARS impact in the current quarter?
Not much, because, you know, as I explained to you in the last meeting also, that was there in the very first quarter when the inventory was so bloated. Once it comes below the tank size, there is no impact. The only thing is, we will get a better width as far as the product portfolio is concerned. So I can say from a consumer discoverability part of it and, reaching our product to the market is concerned, there is only a positive impact.
Understood. But I think you referred to some disconnect between primary sales and secondary sales, so why is there a disconnect?
No, what I meant is, with bloated inventory for some time, you know, the secondary should be higher than primary so that the inventory of the distributor gets corrected. So that's where I'm saying it has not normalized fully, and we get the help of partners to have a healthy inventory. We cannot push products more than what we can ideally have, so we have been managing that. So it has been a more focused approach of improving secondary sales, you know, and our entire sales team is now focusing on secondaries, and primaries will automatically follow. Right.
So, for this quarter, was there a difference between secondary sales growth rate and primary sales growth rate?
Of course, secondary certainly is slightly better than primary. See, we have actually crossed that bridge, you know, so there has been a slight increase in secondary compared to primary, and that's where I'm saying the inventory correction is happening. And, and now going forward, you know, it should level out, you know? I think we have gone past the difficult phase as far as those corrections are concerned.
Understood. Can you quantify the improvement in distributor inventory? What was it in Q2, Q1, and Q2 of last year?
I can say there has been a substantial improvement in the number of days of inventory, which the distributors are now currently maintaining. The number of days may vary from region to region and also category to category, so I'm unable to give a specific number. But across our distribution, there has been a tremendous improvement, and we also taken enough and more measures in improving our logistics, reducing our lead time, which also helps the distributor to tighten his inventories as far as the number of days inventory is concerned. But what I can say is there is a excellent improvement in those numbers, and it is in line with what we expected, so the project is working as per plan.
Understood. Okay, thank you.
Thank you. Due to time constraints, we have reached the end of question and answer session. I would now like to hand the conference over to Mr. Deepanjan Bandyopadhyay for closing comments.
Thank you everyone again for joining this earnings call, and wish you and your family very happy and prosperous Diwali. With that, we can close this call.
Thank you. On behalf of Page Industries Limited, that concludes this conference. Thank you for joining us. You may disconnect your lines.
Thank you.