Please note that this conference is being recorded. I now hand the conference over to Ms. Disha Shah from Adfactors PR. Thank you, and over to you, ma'am.
Good evening, everyone, and thank you for joining us on Vaibhav Global Limited Earnings Conference Call for the Q4 ended 30th June 2024. Today, we have with us Mr. Sunil Agrawal, Managing Director, Mr. Nitin Panwad, Group CFO, and Mr. Prashant Parakh, Head of Investor Relations. We will begin the call with opening remarks by Mr. Sunil Agrawal on the business operations, key initiatives, and a broad outlook, followed by discussion on the financial performance by Mr. Nitin Panwad, after which the management will open the forum for Q&A session. Before we get started, I would like to point out that some statements made or discussed on today's call may be forward-looking in nature and must be viewed in conjunction with the risks and uncertainties that we face.
A detailed statement and explanation of these risks is included in the earnings presentation, which has been shared with you all earlier. The company does not undertake to update these forward-looking statements publicly. I would now like to invite Mr. Sunil Agrawal to make his opening remarks. Over to you, sir.
Thank you, Disha. A good evening, everyone. Thank you for joining our Q1 FY 25 earnings call. I hope you've reviewed the results and investor presentation. I'm pleased to announce that we have sustained our growth momentum with a 15% increase in revenue. Our gross margins have improved substantially to 66.1% from 61.2% in Q1 of last financial year, thanks to focused pricing efforts and a favorable product mix. Our vertically integrated supply chain has also helped us to maintain gross margin above our 60% target. EBITDA margin was 8.7% of revenue, down from 10% for the same period last year. This decrease is primarily due to higher spending on digital marketing for new customer acquisition and higher spending on airtime for better channel position.
These investments are expected to sustain our growth momentum in coming periods. However, our overall content and broadcasting expenses will reduce as a percentage of revenue from the current level of 20% to approximately 18% of revenue for the full financial year. Now, let me take you through our key retail markets. In the U.S., we saw a 3.7% year-over-year growth, driven by favorable macro factors, which propel growth in the online retail industry. Our wide product range with quick turnaround times, owing to vertical operation integration, has also supported this growth. In the UK, revenue growth by 17.8% YOY. However, when adjusted for acquisition, it decreased by 6% YOY, owing to cautious consumer behavior amidst economic and political uncertainties. Germany continues to perform well, having achieved YOY revenue growth of 18% in Q1 FY 2025.
During the June and July months, trends were even more encouraging, with YOY growth of 30%. We believe we will sustain this growth momentum during the remaining period of the year and will be profitable at the operating level by H2 of FY 2025. Our 4R strategy: widening reach, new customer registrations, customer retention, and repeat purchases, has shown positive results. Our TV networks now reach 130 million households, and our unique customer base has grown by 37% year-over-year to approximately 636,000. Excluding acquisitions as well, the unique customer base has been improving quarter-over-quarter. Customer retention is strong at 40%. Overall repeat is 24 pieces per annum on a trailing twelve-month basis. In Ideal World, we upgraded our presence on the HD network now.
It is already profitable on a direct cost basis, and we expect to achieve profitability on a full cost allocation basis in next 3-6 months. Similarly, Mindful Souls continues to launch new products regularly and has created a base of 85,000 unique customers since acquisition. We expect that the utilization of VGL Group supply chain will further improve the profitability of this business in the coming months. Further, the company has discontinued its apparel manufacturing, owing to the lower margin nature of that business. Impact of the discontinued operation was negative 25 basis points on an overall margin on TTM basis. At VGL, community giveback is a core part of our business. We're proud to announce that we reached a milestone of 90 million meals being donated to school children under our flagship midday meal program, Your Purchase Feeds.
We currently serve approximately 57,000 meals every school day and aim to donate 1 million meals every school day by FY 2030. On the sustainability front, we generated 1.1 million kWh of solar energy this quarter, meeting 100% of the power needs of 2 manufacturing units in India. Our premises in U.S., UK, and Germany are also running on renewable energy. These efforts support our goal of achieving carbon neutrality in Scope 1 and 2 of greenhouse gas emission by 2031. We have also commissioned our third rainwater harvesting tank with a capacity of 600,000 liters. With this, we have built a total rainwater storage capacity of 1,100 kiloliters.
We are honored to receive the IGJ Award 2024 from the Gem and Jewellery Export Promotion Council , that is GJEPC, for being the highest exporter of cut and polished colored gemstones from India during FY 2023. This award reflects our global competitiveness and customer trust. It recognizes our contributions to the Make in India initiative over the past four decades. We are committed to creating long-term value for our shareholders, and thus, the board has declared the first interim dividend of INR 1.5 per equity share for this fiscal year, representing a 90% payout. Looking ahead, we will focus on growth and profitability with a prudent capital allocation. We reiterate to achieve 14%-17% revenue growth for FY 2025 with operating leverage. For future periods, we predict revenue growth in the mid-teens range with operating leverage.
I now hand over the call to Nitin to discuss the financial performance in detail. Over to you, Nitin.
Thank you, Sunil. Good evening, everyone. I would like to extend a warm welcome to you all at Vaibhav Global Limited's Q1 FY 2025 earnings call. While Sunil has provided an overview of our operational performance and key initiatives, I will now present a detailed review of our financial performance for the quarter ended thirtieth June, 2024. In Q1, we have achieved a revenue growth of 15% year-over-year, totaling INR 756 crores compared to INR 658 crores in Q1 FY 2025. We also recorded 20% year-over-year volume growth, with a 6% volume growth excluding acquisitions. In Q1 FY 2025, the gross margin was substantially stronger at 66.1%, reflecting the efficiency of our vertically integrated business model and product mix. EBITDA margin for the quarter was 8.7%.
Excluding Germany, the EBITDA margin was 11%. As Sunil mentioned earlier in his remarks, due to elevated investment in digital, EBITDA margin was slightly lower than expected. As a result, content and broadcasting expenses as a percentage of revenue have become 20% in Q1 FY 2025. We believe that this cost will around 18% of revenue for full financial year. Profit after tax for the quarter reached INR 27 crore, versus INR 30 crore in Q1 FY 2025. Now I will provide an overview of our revenue breakdown by geography. In Shop LC, U.S. experienced the growth of 4%, TJC down by 6%, and Germany saw a growth of 18%. Overall, our existing B2C businesses grew by 2.3% in U.S. dollars.
Revenue growth of existing businesses was dragged by softer performance in UK, where the broader macro indicators are suggesting sluggish consumer demand. In Germany, recent revenue trends are quite encouraging, and we are confident that the year-over-year growth of 30% will enable us to achieve profitability at operating level by second half of FY 2025. TV revenue for the Q1 was INR 440 crores, while digital revenue was INR 289 crores. TV revenue grew by 12.2% year-over-year, and digital revenue grew by 22%. Digital now accounts for 40% of total revenue and 45% of our volume. This growth is due to our sustained investment in digital marketing and technical infrastructure.
Additionally, our Budget Pay option, allowing customers to purchase products on EMI basis, has proven valuable and contributing 38% of our B2C revenue in Q1 FY 2025. Ideal World is already profitable on direct cost basis, and we anticipate it will achieve full cost allocation profitability within the next 3-6 months, surpassing our initial expectations. Mindful Souls is a profitable and margin-accretive business that continued to perform well. We are leveraging digital supply chain to boost group's overall profitability and strengthen our digital segment. We are pleased to report that we maintain a robust balance sheet position and net cash positive balance of INR 158 crore. However, our free cash flow and operating cash flows remained flat during this quarter due to increased working capital investment in preparation of upcoming festival season, primarily in inventory.
Currently, our ROCE and ROE is 17% and 10% respectively.
The board has declared a first interim dividend of INR 1.5 per equity share for this financial year, with 90% payout, reinforcing our commitment to long-term shareholder value. We continue to demonstrate resilience, agility, and strength to capture long-term opportunities. We are confident in our business prospects ahead of us and are investing in capture growth. We remain confident of our prospects and deliver our stated growth guidance of 14%-17% for the current year with operating leverage. For subsequent periods, we project revenue growth in mid-teen range with operating leverage. Thank you. Over to you, moderator. We will now open the line for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nirvana from Badrinath Holdings. Please go ahead.
Hi, thanks for the opportunity. Am I audible?
Yes, you are.
Yeah. Thank you, sir. So my question is regarding the content and broadcasting cost. So if I look at the history of this line item, from FY 2021, the cost has really ratcheted up. So in FY 2020, it was around 11% of our top line. FY 2024, it became around 17%, and this quarter it's around 20%. So from FY 2020 to now, if I see the CAGR growth in this line item is 23%, whereas our revenues have only grown by half of that, like, 12%. So I just wanted to understand, what is the reason for this bigger diversion between the two CAGRs? Is there some operating leverage sitting there, sir, or is customer acquisition getting really costly for us, and therefore, is this going to be a permanent drag on our margins?
Yeah, thank you for your question. We make the investments where we see the opportunity, so this contains the airtime as well as the digital spend. There are different drivers for both. For airtime, we make the investment, especially the new acquisitions that we made. There is Ideal World, we took new airtime for that. In Germany, when we launched, we had to go in for the airtime, full-fledged, even though it takes time for business to scale up. Even in the U.S., we took some airtime, which is lower channel position. That will be productive in the next 12-18 months.
So the three investments that we made in Ideal World airtime, Germany airtime, and within U.S., a new airtime, has brought the cost high, but as I gave guidance in my opening remarks, that this line item will be approximately 18% of revenue for the full financial year. This would be, over the time, we would see this moderate a bit because of the start-up two businesses and some new airtime. But, we always look for opportunity and, for future growth prospects of the company.
Understood. But even if I look at 18%, that's a YOY increase of 30% plus. You had a INR 500 crore cost last year, and now according to this 18%, approximately it will be north of INR 600 crore. So again, you know, while top line growth is only 15%, planning to scale this line item by 50%. So this is what I'm trying to understand, sir. Like, is this the new normal for high-teen type of content and broadcasting cost? And therefore, our ROC or ROE, are they permanently impaired to that extent, or are you hoping to bring them back to the level where it was, say, pre-COVID?
Yeah. So the start-up nature of our kind of business is that the airtime cost and even the HR cost in initial years is relatively high. So as we saw in Germany and Ideal World, so those are relatively high. Now, in other geographies, whether it's UK, TJC or Shop LC, the these costs are relatively lower than the overall mix that you would see. Now, the other component is the digital spend that we do. So of ramping up customer acquisition for future benefit, we did make the investment appropriately. That may moderate over the time. There's no specific guidance for that. The current guidance we are giving is 18% of this item for this current financial year, and continued leverage for foreseeable future with mid-teen growth.
That would maintain, that would entail that this line item would have some leverage coming back in, and some leverage will come with some other line items as well. Some will come with HR costs and some other, small costs.
Sir, sorry, last question on this particular topic. So let's... Looking ahead 2-3 years, do you think that this number can come down to 15% or below? Are you in a position to sort of comment on that?
It's too long term to see in today's dynamic retail environment to give a three-year guidance on that. But the guidance what we feel comfortable giving is three-year term, you will continue to see the leverage coming in as our businesses mature in Germany, Ideal World, as well as the scale leverages in U.S., existing business of U.S. and UK.
Sure, sir. So my next question is on the leverage part. So, in the last call, you had mentioned that content broadcasting will not see any leverage. In fact, we'll see the opposite of that, as I pointed out, I think. So you had mentioned that HR costs and SG&A and shipping costs, these will be the potential operating leverage items on the cost base. So, it's a little confusing because SG&A, which line item are you talking about? That is not clear. So what kind of operating leverage are you hoping FY 2025 to play out? Or, or alternatively, if you can give us some understanding of what percentage of the cost base will see the operating base.
Yeah. So number one, we believe the margin, we will be having at least 200 basis point higher margin than last year, so there will be one benefit. And other, as I mentioned last earnings call, and I appreciate your memory, the HR will see about a little over 100 basis point leverage. The other component of SG&A will have some leverage as well. For example, the rent or the travel or some other areas will have some leverage as well. And shipping, we have negotiated some better rates for shipping in U.S. because of the volume getting higher, so there will be some leverage in shipping as well. So overall, to summarize, the leverage will come with higher margin and some lower cost in these three areas.
Okay. Okay. All right, sir, appreciate your answer. I'll get back on the line. Thank you.
Thank you, Nirvana.
Thank you. Before we take the next question, we would like to remind participants that you may press star and 1 to ask a question. The next question is from the line of Pritesh from Lucky Investments. Please go ahead.
Sir, just on this, content and broadcasting cost, so from Q3 of last year is where I see the spike coming in at about INR 300 crore+. Is there any organic... So basically, is there any content cost rise in your TJ, TJC SD and Shop LC business?
Yeah. Yeah. Hi, Pritesh. Yeah, so compared to Q4 , in our existing TJC business, actually cost is flattish. In U.S., we have taken some of the airtime, so the small portion is increased in U.S.
I was referring to, you started consolidating Ideal World and Mindful Souls from December 2023?
From Q3, FY 2024.
Yeah, that is basically Q3 , FY 2024, right?
Yes.
Right. So can you tell us what is the content cost on account of these acquisitions?
Just give me-
Or you can tell us what is the growth rate in the content and broadcasting costs in your base business for U.S. and UK?
Yeah. So UK is containing cost, broadcasting cost is flat.
Right.
U.S., in Q4 to Q1, there is a 10% higher cost in Q4 to Q1.
Between Q3 and Q4?
Q3 and Q4 is flat.
Sorry, sorry, Q2 and Q3. Sorry.
Q2 and Q3?
Q2 and Q3 last year.
Q2 and Q3, the cost, because there is a new airtime that we have taken, the cost increase was around roughly, if I recall correctly, is around 6, around $1 million, in absolute terms.
Eight crores there and twenty. Basically on your base business, you added twenty-eight crores of content cost. You were running at about two fifty crores all these quarters for the last eight, nine quarters.
Yes. Yeah.
Okay. Basically, I'm including content plus, other GNA items. Okay.
Yes.
Okay. So, the Ideal World and Mindful Souls, at what operating margins these businesses operating at?
Ideal World, on direct cost basis, it is profitable. But if I allocate all the business costs back office staffing, it is, it is not profitable, but next three to six months, it is profitable. Mindful Soul is already operating around 9% profit margins, but we expect that the supply chain and the warehousing leverage will come in upcoming quarter.
Both these businesses versus the channel business of TG of U.S. and UK are both these business on a higher than the base business in terms of content and broadcasting costs as a percentage of sales?
Yeah. So, as a business run is differently, like Mindful Soul is pure D2C business.
Mm-hmm.
So their content and broadcasting cost is higher than our existing business because predominantly the nature of the Mindful Soul is digital, only just selling on social media and the platform. So their cost to sales ratio is roughly around 25% on content broadcasting in Mindful Soul, but we don't have other expenditures, higher expenditures, like SG&A or HR cost is much lower compared to our existing businesses.
Okay. Okay. Any reason why-
And just sorry, yeah, just maybe another point of Ideal World. Ideal World is now, as Sunil mentioned in the earlier remarks, this is a startup business phase. So initial phase, the cost to customer sales ratio in terms of airtime is higher, but pretty much 100% of the UK we have covered from Ideal World side, so no additional airtime we anticipate from Ideal World. So that the absolute terms, the cost will be fixed for Ideal World.
Okay. In U.S., it was an airtime increase or was it, content increase?
Yeah. It's a both area that we have invested.
Invested.
The airtime and also on digital side.
So in U.S., you guys were always fairly high household penetration in reach. Then why this additional requirement? Is it additional household addition or it is price hike which has happened in those markets?
Yeah, better channel position.
Better channel position. Okay. Okay, and my last question is, sir, on your customer side slide. So between Q2 and Q1 , you guys have given 452,000 customer going to 472,000 on the existing business. Can you give us a number, in this, Germany will also be there between the four quarters? So ex of Germany, what it would be? So basically, I wanted to understand your U.S. and UK original business, customer number.
Sure. Yeah. So just we'll add up, but just to, add on the Germany part, so in Q4 to Q1
Or you can just give us in Q1 , FY 2025, what is the Germany customer number?
Yeah, INR 59 thousand.
59. So INR 472 minus 59, so INR 413. So basically, in the last five years, you have moved from INR 350 to INR 413?
Yes.
Okay. In your original business?
Yes. Yeah.
Okay. Okay. Thank you, and all the best to you, sir.
Thank you, Pritesh.
Thank you. The next question is from the line of Ravi Teja from Taj Capital. Please go ahead.
Hello.
Hello, Ravi.
Yes, hi. Could you provide more insight into the performance and the growth strategy for the German market? Any plans, you know, how do you, you know, plan to achieve the breakdown towards the second half of FY 2025?
Yeah, we go by the unique customers, trend that we see in the business, and historically, what the repeat purchase and what is the AOV we get from these customers. So based on our cadence, we look at the number of unique customers we made so far, how many of them, historically come back, month-over-month based on historical cadence, and how many new customers we are expecting, and what is their revenue expected in H2. Based on that trend line, we see, on operating level, we become profitable in H2 for the whole period.
Okay. Also, there's another question that, you know, I had. You know, the reported revenue that we have is about 15%, this includes our recent acquisition. So what would be our growth rate ex of this acquisition without the impact of this acquisition?
Yeah, in rupees terms, ex of this acquisition, growth is 4%.
Okay. You know, one last question would be, you know, what are the key drivers behind the increase of these customer acquisitions and the retention rate? Are these momentums also sustainable for us?
Yeah, so we have four R that we focus on.
Mm-hmm.
One is expanding the reach, whether it's through television and digital properties. Then, registration, that is, acquire new customers within the reach that we have, again, through television, digital, OTT and, social, platforms. And then, retention of these customers. As you would have seen, our retention numbers are improving through the marketing efforts.
Right.
Repeat sales, so more product variety, better customer service, and better way of selling multiple platforms, getting one customer to other platforms, so that it will sell more to the same customer. So these are our four Rs, our drivers for business growth.
Mm-hmm. All right, I'll just come back in the queue.
Sure, Ravi. Thank you.
Yeah. Yeah.
Thank you. The next question is from the line of Chitra Joshi, an individual investor. Please go ahead.
Yes. Am I audible?
Yes, Chitra. You are.
Yeah. So, I just had one question that, how do you plan to diversify your product portfolio and, what will be the impact of that on your revenue and margin?
Chitra, we come up with about 100 new products every day.
Okay.
For our TV channels. And there's a large organization for product development in VGL Group, hundreds of people, whether the designers, the trend spotters, the moderators, the prototype makers and merchandisers. So, we score different areas of the world, our competitors, as well as the trend spotting sites, to look at those and bring them... and we bring relatively lower quantity, and if something hits, then we expand those quantities very rapidly through our own manufacturing or supply chain mechanism, and we scale them up. So, it's a constant exercise in different product categories, predominantly jewelry, but many different product categories. So, any specific answer to a particular product may not be feasible with such high velocity of newness.
Okay. So are you looking for any margin expansion in coming quarter?
Yeah. So we gave the guidance of about 200 basis point year-over-year margin expansion for this financial year over last financial year.
Okay. Thank you.
There is a gross margin.
Yes.
EBITDA level, we are giving a leverage growth guidance over last year, but we are not giving specific EBITDA margin growth guidance.
Okay, all right. Thank you.
Thank you, Chitra.
Thank you. The next question is from the line of Nirvana from Badrinath Holdings. Please go ahead.
Hi, sir. Thanks for getting me back on board. So, you just clarified that the leverage that you're talking about is at gross margin level. Did I hear you right, sir?
Yeah. So 200 basis points on gross margin and on EBITDA level also, we'll have decent leverage this financial year over last financial year. We are not quantifying the EBITDA because of our retail nature, but we are seeing the drivers coming in in Q3 and Q4 for these particular areas I mentioned earlier. And with Germany coming to EBITDA profitability, we will have decent leverage coming in on EBITDA level.
Okay, sir, you are confident of having, like, a good EBITDA leverage, operating leverage at EBITDA level, in spite of the broadcast and content cost line item actually contributing 1.5% negative leverage for you, right? Because if I calculate your predictions right, you are going up to 18% there. Last year you were 16.5%. So there's a negative leverage from that line item. In spite of that, you think there can be, like, a 100 basis point improvement in the EBITDA margin for you?
We expect it to be better because 200 basis points is just the gross margin leverage we are seeing. Then we are seeing over 100 basis points increase in HR costs and some other into shipping and other revenue line items.
Okay.
We expect the overall leverage to be better than 100, 100 basis points.
Got it. And so when you say HR costs, you mean employee costs, right?
Correct, yes.
So in Q1, there was no leverage. So, when do you think the leverage starts playing out strong in employee costs, and what is the driver for that? Is it simply increased revenue base or is there some optimization in the cost base?
Yeah. One is the revenue growth, and others, we have found opportunity in our warehouse operations to be to automate the processes and reduce the costs from there.
Okay, sir. And final question from my side, how do you see the demand environment shaping up in the U.S.? It is your largest market. Like, are you seeing some positive signs of maybe realizations also going up along with volume? Because in some consumer pockets, we are hearing good volume, hardship.
So generally, we see better economy in U.S. GDP continues to grow steadily, so that is good. Overall, jewelry market is seeing a negative growth in U.S. currently, but that is predominantly due to less people getting married because the dating scene is about three years, and COVID, the people delayed that. So but from our space point of view, we are seeing a positive momentum. Only, we moderated a little bit our guidance earlier was because of U.S. election. So we lose some eyeballs digitally as well as on television because of election news cycle every four years.
Got it. And sir, when you say that you have spent extra in on broadcast costs to position yourself better in the U.S., what does that exactly mean? In business numbers, how do we see the impact of that better positioning? Like, your unit sales price has been going down in the TV category. Volumes have increased, but it's probably... To an outsider, it looks like it's because of some discounted sales. So what do you mean by better positioning, and how, as an outsider, should I see it getting reflected in the business?
Yeah. So our air times takes 12-18 months to mature with enough critical mass of customers to really make a meaningful difference. So having better channel position is long-term sustenance mechanism for us and leverage over the period of time. Now if assuming that our ASP will stay constant, then it'll translate into volume increase, therefore the revenue increase. And as we've given the guidance of mid-teen revenue growth for future periods, so these investments will play a part in those continued future growth.
... Right, sir. And once all these new acquisitions fully come into the base, say, when we are in FY 2026, do you think that you can still grow at mid-teen? I mean, there will be cycles also, but adjusting for cycles, do you think on a fully mature base, will you be able to keep growing at mid-teen?
We expect that because, Europe, Europe and UK we are still seeing negative cycle, partly to do with the high interest rate and high mortgage costs. Unlike U.S., U.S. we have fixed mortgages, in UK, we don't, and people are suffering because of that. And there was some election that impacted this. So we expect those cycles to fall off and economy going back into positive territory, both in UK and Germany. In U.S., after election cycle, we expect the economy to be at steady state. And the our business model is pretty robust. With that steady state, the investments that we made in airtime, as well as digital, will continue to do us great in coming years.
Okay, sir. Thank you so much. All the best.
Thank you, Nirvana.
Thank you. A reminder to all participants that you may press star and one to ask a question. The next question is from the line of Aditya Shah from Meteor Wealth Management. Please go ahead.
Good evening, sir. So my first question is, how are you addressing the macroeconomic challenges and competitive pressure in the markets? What trend do you see in shaping the industry in the coming years in all the three regions?
That's a very broad question, Aditya. And, I can only say from our observation, because I'm not an economist. My observation is that, as I just mentioned in Nirvana's question earlier, that UK, we continue to see a bit of a stress, in the consumer sentiment, as we saw with the numbers also. So, but we expect that to moderate, as Bank of England just cut the rate, yesterday, and that we expect to impact, mortgage costs positively and cost of living index positively. U.S., continues to be positive from, GDP growth point of view, with the election cycle also getting over by the end of this year, we expect U.S. to, get back into the, good, steady, positive territory. Germany, also, we expect...
Again, it is difficult for me to say, but we expect interest environment to be moderating over the year, coming years. So Germany should continue to grow well. Although last two months, June and July, we saw 30% growth year-over-year, and we are seeing similar growth in coming times as well. So we are overall positive for the economy coming in, unless some black swan event comes in, we are fairly positive.
Fair enough. So my last question is: How is digital and social integration in the business panning out for your business? And how impactful is Mindful Souls in leveraging the digital business to your company?
Yeah. So Mindful Soul is a native digital company, and the processes, the thinking process of the staff is completely digital and somewhat different than our hybrid business model. So we integrated a lot of the learning into our business, and that is already helping overall for the business. As you saw, the new customer numbers are spiking up within our main core business. And to some extent, that was a benefit of Mindful Souls. And on the other hand, the benefit to Mindful Souls is our supply chain. We bought all the supply chains for PL in U.S. and UK We bought that into our own warehouse in U.S. already, and we expect that to give us leverage in coming quarters. And our sourcing also, we bought in-house.
Initially, we had to send by air because of Red Sea disruption, but that is a matter of this particular last quarter and this quarter. But after that, we expect the VGL Group's supply chain leverage coming into Mindful Souls as well. So all in all, pretty positive experience for us.
All right, sir. Thank you so much. I'll follow up if you have any other questions.
Sure.
Thank you, sir.
Thank you. The next question is from the line of Rohan Mehta, an individual investor. Please go ahead.
Good evening, sir. So, regarding the new customer acquisitions that we've had, what would you point out as the top reasons or initiatives which have been driving these new customer acquisitions and the retention rates that we have? And can we consider these to be a sustainable level for the coming quarters as well?
Yeah, I expect the new customer acquisition velocity to continue for existing businesses as well as the new businesses. Now, let me take it back. The Ideal World customer acquisition was pretty robust since we acquired that company. So that may moderate a little bit, because as a new business, it takes especially on television, it slows down over the time. But for our steady state, U.S., UK, and even Germany business, we expect the current growth rate to continue.... And your other customer point question was about the retention rate?
Retention
So retention rate with our marketing initiatives that we really augmented our marketing teams. So those initiatives are helping customer retain better and also to have better repeats as well.
Okay. Do we have a marketing budget, per se, as a % of sales?
Yes. So different brands have different budgets, and within marketing also there are different segments. One is the traditional marketing, which is email or flyers or discount offers, or buy one, get other one for 2%. Those kind of offers will be one segment of budget. Other is the digital paid, which includes social, it includes search, it includes affiliates, includes influencer, and also retargeting through Criteo and other tools. There are different levels of marketing and
Okay. Okay, understood, sir. And sir, I our revenue growth has been to the tune of 50-odd%, but that includes the inorganic initiatives as well. So just for the sake of a granular understanding, what kind of growth can be expected, excluding inorganic moves?
Yeah. So we are hoping that the economy will return to steady state next year. So we expect our steady state growth to be mid-teens with operating leverage.
Right.
So, because we have sufficient drivers in four R framework that we have, unless there is a macro environment, we expect growth rate to continue at mid-teen numbers.
Okay. Okay, sir. So this would be applicable to the U.S. and UK markets, excluding the impact of Ideal World and Mindful Souls. Is that understanding correct, sir?
So for next year, we won't have the acquisition period behind... under us. So for next year, overall for the business, we expect overall growth to be mid-teen numbers, including the new acquisitions as well. Now, new acquisition, Mindful Souls is already a decent-sized business, so this will... The growth there will be similar steady state as other businesses. Ideal World will be a little bit more elevated level, and Germany will be a little more elevated level than UK and U.S. But overall, we expect to be mid-teen numbers.
Okay. Okay, that's helpful, sir. Just if you could touch upon our supply chain related initiatives, if any, in terms of you know, improving efficiencies on that front and leveraging the manufacturing hub that we have at Jaipur. Is there anything if you could you know, shed some color on that, please?
It's a continuous process to learn and to implement the learning and make the operation efficient. Over the years, sometimes the leverage does loosen because we find some pockets of efficiencies in supply chain as well. I cannot point to one specific area that would give additional leverage in addition to what we have already mentioned.
Okay, fair enough, sir. Thank you. Thanks, and all the best, sir.
Thank you.
Thank you. Participants who wish to ask a question may press star and one. The next question is from the line of Parth Lal, an individual investor. Please go ahead.
Hello, can you hear me?
Yes, Parth. Go ahead.
Sir, about the U.S. election this year, do you see any impact? I think it will be around our, you know, best quarter, historically. So is there any impact that you see?
Yeah, we've already accounted for that in our guidance.
Okay.
So we expect our revenue to be overall 14%-17% growth year-over-year, with decent leverage for the year.
Okay. Okay, and the next question is, sir, about a couple of years back, we had this investor day or call where, you know, we had these all country level teams as well. I remember, I think U.S. team had a saying that, you know, they were increasing some investment around the same, I mean, number of PIN codes with the same day delivery or one day delivery, something like that. So how is that panning out? Has that, I mean, is that happening? The quick delivery has been happening in the U.S.?
I don't remember for U.S., because we don't have such initiative in place. The U.S. is pretty large operation, and we have only one warehouse in U.S. at the moment. But in UK, we do deliver some high, high-end items with next day deliveries. We ship same day and to customer, and that helps into better retention.
Okay.
But in U.S., we don't have such initiative in
Okay. So maybe I'm, I think I'm mistaking, by, by UK and not, U.S. Okay, got it. In the same call, I think we had this, I think there was one unit, you know, initiative, particularly for just the lifestyle products, if I'm not wrong. We had also hired some resources over there and all. So is it still going on? Or, I mean, is that line still ongoing for the lifestyle products?
Yeah. So we had bought a business which had apparel manufacturing as its main business.
Right.
that was in 2021. We've recently taken a decision to exit apparel manufacturing because we found that there is a low margin business, and we can source that apparel at relatively fair competitive price from Bangladesh, Pakistan, Vietnam, and India.
Mm-hmm.
As we went deeper into the space, we have decided to exit the apparel manufacturing.
Okay. So I think that was not disclosed on the exchanges, so we are not.
Yeah, in commentary, it's been mentioned about that, that VGL we are exiting, yeah.
Mm-hmm. Okay. And also one packaging unit or one small unit that we had acquired, a couple of years back, is there any advantage we are seeing from that?
Yeah. We are still fulfilling our packaging from that factory, and we constantly review the product and pricing for that if it is competitively available from any other country or any other vendor.
Mm.
So we review it whenever we find opportunity, but right now we are fulfilling partially our packaging material requirement from that company.
Okay. Okay, fine. And the last question, again, a very long-term one. After, you know, Germany, is there any plan, I mean, any other region, territory, country that the management or the board is looking right now?
So not right now, because we still have, we would like to see Germany giving robust leverage to the group before we go next country. So possibly next country might be Japan, but it is at least, in my opinion, three years away.
Right. Right. Okay, sure, sure. Got it. 3 years. Of course, after that, even ... Got it, sir. Thank you very much, and all the best. Thank you.
Thank you, Parth.
Thank you. The next question is from the line of Nirvana from Badinath Holdings. Please go ahead.
Yeah, thanks again. So I wanted to understand, for your digital versus your TV, at a steady state, return on capital level, or unit economic level, is there any difference? I understand that in some cases, digital is still ramping up, so I'm talking about things that have already settled down in your legacy business, digital. The unit economics for the return on capital, is it any different from TV?
Yeah. So for us, it's difficult to break down the two businesses separately, Nirvana. The reason is that, we find the customer coming from television and then us migrating them on digital platforms to be very highly accretive, because lifetime value goes four times up when we are able to migrate the platform for the customer. So we look at the both as holistic business overall for us. Having said that, the digital paid, like, Google-paid or social-paid customer that we acquire, so that first customer acquisition cost is certain amount, and then we make money with the margin that we make from that customer in subsequent period for repeat, through repeat purchase. If you are able to migrate them on television, they are kind of very valuable.
But if they stay on digital, and very, very few people do go to television, but if they stay on digital, then we try to make sure to make them profitable within certain period of time. So there are different drivers from pure digital to television, to television to digital, or television to digital or OTT. They're different drivers, but we usually look at the business as a holistic business.
Right. Sir, I got a little confused. You said, the customer that you acquired through TV and migrate to digital, that kind of customer has a very large lifetime value or was it the opposite?
No. From television to digital, the lifetime value goes up by 4x.
Okay.
From pure, pure digital to television, the migration is very few every year.
Right. So from television to digital, so you are acquiring a customer via your TV channel, and then you are getting them to shop on your website. You are saying that the person is likely to shop four times more, compared to if he had only been a TV audience. Is that, is that the right understanding?
That is correct.
So why does this happen? Because I would assume for your TV, forming a connect with the salesperson, would also be important, right? So you are seeing even for your kind of TV, digital is giving you higher lifetime value.
Yeah. So we have pretty high lifetime value for TV, almost $800, as in just TV, pure TV customer. Customer who goes on digital property goes to almost $4,000 in lifetime value. Now, the reason you ask why that it, does it happen, our theory is that the television is only push marketing. We tell them what to buy or why they should buy this. But on website, we also address their want. If they bought, say, ring, a necklace ring on television, then on website they would want matching necklace or matching earrings. Then they would become more valuable because we are addressing their impulse purchase needs as well as their wants, their considered wants, and it helps overall.
Got it, sir. So also, if I'm understanding you right, you're saying that the cost of acquiring a customer on digital is higher than cost of acquiring them on TV, so the best kind of customer for you is somebody who is acquired on TV but then migrates to digital?
Yeah. So, let me rephrase that statement. On television, we have only one shop to acquire customer and as well as to sell. So it's difficult for us to ascertain what is the customer acquisition cost on television, because it, it's the same shop. Now, on digital, there is an acquisition cost that is ascertainable, so that's why we know what the digital acquisition cost on digital is. On TV, we don't really know the cost. If we look at overall, what is the revenue and what is the percentage of revenue we can afford to pay on to a certain broadcaster overall as a percentage of revenue over a period of time. So it starts with high percentage when we acquire a home.
Starts with about 70%-80% of revenue goes in airtime, but over 18 months it goes steadily down, goes down to up to 15%.
Okay. I'll write to you, sir, just to understand. Thank you so much for your detail.
Sure, Nirvana.
Thank you. As there are no further questions from the participants, I would now like to hand the conference over to Mr. Sunil Agrawal for the closing comments.
Thank you, Steve. I want to thank all the participants for your time and great questions. If you have any further question, feel free to reach out to Prashant Saraswat at CDR or Amit Sharma at Adfactors PR India, and we'll be happy to answer your question. Thank you once again.
On behalf of Vaibhav Global Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.