Ladies and gentlemen, good day, and welcome to Vaibhav Global Limited Q1 FY 2024 earnings conference call. As a reminder, all participant lines will be in the 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 Ms. Disha Shah from Adfactors PR. Thank you, and over to you, Ms. Shah.
Good afternoon, everyone. Thank you for joining us on Vaibhav Global's earnings conference call for the quarter ended 30 June 2023. Today, we have with us Mr. Sunil Agrawal, Managing Director, Mr. Nitin Panwar, Group CFO, and Mr. Prashant Saraswat, 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 financial performance by Mr. Nitin Panwar, after which the management will open the forum for a 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. Thank you all for joining us today on this earnings call. I hope you would have reviewed both our results and the presentation that supplies details on business operations and current market trends. Let's begin with operational highlights of Q1 FY 2024. At group level, sales for the quarter were INR 658 crore, an increase of 4.8% over the same period of last fiscal year. Our 5-year CAGR stays healthy at 11%, suggesting robustness of our business model amidst various kinds of economic cycles. In Q1, our gross margins continued to remain healthy at 61.2%. Our in-house manufacturing capability and a global sourcing base provides us with a competitive advantage and enabled market-leading gross margins. EBITDA margin for the quarter has been at 10% of revenue versus 7% in Q1 FY 2023.
Similarly, our profit before tax margin was at 4.7% of revenue versus 3.1% in Q1 FY 2023. Our sustained effort towards cost optimization and better pricing have enabled us to improve profitability since last couple of quarters. We are confident of continually improving our profitability, led by improved cost efficiencies and sales growth like leverage. I would now like to touch upon each of our addressable retail markets. The consumer demand across territories was affected by macro challenges like high inflation and consequent rapidly increased interest rates. In US and UK, consumer sentiments are still muted from a historic perspective, but are showing signs of improvement lately. Our efforts to outreach customers and household expansion continues in all the markets. We are augmenting our reach by adding more TV cable and OTA households.
Additional marketing in OTT or connected TV homes also continues as their such customers' lifetime value, which is high versus traditional TV customers. Germany is fairing well and clocking monthly revenue of EUR 1.5 million at gross margin of 60% plus. Recently, we added 13 million households through partnership with Vodafone, one of the largest cable TV service providers. With this arrangement, shoppers in Germany now cover almost 90% of total households in Germany and Austria. We are expecting to get additional distribution in Germany in Q3, which would get us over 95% of market penetration. As these opportunities are not easily available, we will not hesitate to invest. With these investments, we now expect reaching breakeven in Germany by H2 of FY 2025. We continue to gain market share across all the markets that we operate in.
Further, the four Rs, widening reach, new customer registration, customer retention, and repeat purchases, are our key priorities for growth. The reach of our TV network by end of Q1 FY2024 was approximately 141 million TV homes, which is 11% higher year-over-year. We reach TV homes through cable, satellite, telco network, and over-the-air antenna, also called OTA platforms. Our products are also available on digital channels, including proprietary websites, smartphone apps, OTT platforms, and marketplaces. New registrations in trailing 12 months period came in at 3.1 lakh. Our customer retention rates are at 38% on TTM basis, versus 41% of last year. Customers bought an average of 23 pieces on TTM basis. Both repeat and retention were slightly lower due to higher price point and broader macro challenges.
Sustainability is at the core of everything we do. We are delighted to announce that recently we issued our second annual ESG report. The report reflects our efforts towards value creation with and ethical business practices. We are delighted to receive the Net Zero Energy Building Certification by IGBC in India. Out of 3,600 nationwide, nationwide green certified projects, only 16 projects across India have been recognized. Our organization is one of them. Further, it is my honor to share that this quarter we surpassed the milestone of donating over 78 million meals to school children since inception of our midday meal program called Just Purchase Feeds. We are serving approximately 48,000 meals every school day. This initiative aligns with our commitment to make a positive impact on the communities we serve. We have a strong balance sheet.
We are confident in our strategies and our team. Our outlook for medium to long term remains intact. We will deliver our original guidance of 8%-10% revenue growth in FY 2024 and mid-teen growth FY 2024 onwards. We will gain strong operating leverage in current as well as next financial year. Our focus is on growth and profitability with prudent capital management. We have a robust cash flow model and a record of returning meaningful cash to shareholders. The board has declared first interim dividend of INR 1.5 per equity share for this year. With this, I now hand over the call to Nitin to discuss financial performance. Over to you, Nitin.
Thank you, Sunil. Good afternoon, ladies and gentlemen. Let me share our quarterly financial performance with you. During quarter one of financial year 2023, 2024, our revenue reached INR 658 crore, showing year-over-year growth of 4.8%. Our 5-year CAGR for overall revenue and P2P revenue is healthy at 11% and 13% respectively, suggesting a robust growth of our business model. As Sunil mentioned earlier, our addressable market in U.S. and U.K. are facing temporary challenges like inflation, muted consumer sentiment, and macro uncertainties. In local currency, revenue in ShopLC US, TJC UK , were down by 4.9% and 6.9% respectively. The broader macro indicators have shown some sign of improvement lately. We continue to perform well in Germany, particularly after collaborating with Vodafone to lead their cable TV network providers.
We are also under discussion to get additional distribution in Germany by Q3, increase our coverage in high definition to over 95% of households. If these data opportunity are really available, we will not hesitate to invest, and we are now expecting reaching breakeven in Germany by H2 FY 2025. This quarter, TV revenue grew by 1.5% year-over-year to INR 392 crore, with 5-year CAGR of 10%. While digital revenue in Q1 FY 2024 increased to 7.7% year-over-year to INR 237 crore. It has shown much stronger 5-year CAGR of 20%. The digital segment strong performance is attributed to wider discovery potential. TV contribution to our retail revenue is 62%, while the other 38% occurs from digital media.
TV includes customers accessing our products through our proprietary TV channels that reach their home, both conventional TV media as well as free to air channels, called as OTA platforms. Digital includes online purchases on our own proprietary website, shopping apps, OTT, and social commerce. Budget Pay revenue constitutes approximately 39% of our total retail revenue during this period, providing a carefree and affordable experience to our customers, especially in this current inflationary environment. Jewelry accounted for 73% of total retail sales, with 27% of revenue occurring from lifestyle products. We aim to diversify into non-jewelry areas to achieve a better revenue balance. Additionally, it also improves our ability to take higher wallet share out of the same customer. gross margin in Q1 continued to remain strong at 61.2%.
EBITDA margin for the quarter was 10%, over the 7% in quarter one last year. Better pricing and sustained efforts towards cost rationalization have helped us to continuously improvement EBITDA margin since last year. Profit after tax for the quarter is INR 30 crore, against INR 20 crore of last year. Operating cash flow was INR 0.3 crore, and free cash flow was -INR 10 crore. Cash flow numbers reflect the impact of planned increase in our inventory for upcoming season. We expect this to revert to normal level in upcoming quarter. RCE and ROE of 16% and 9%, respectively, reflect the impact of subdued profitability on PTM. However, the ratio has improved sequentially, owing to improved profitability during the immediate few quarters.
As a company, we are committed to creating long-term value through strategic development, prudent investment, and consistent payouts, as the board has paid, recommended an interim dividend of INR 1.5 per equity share. We are confident in the business prospects ahead of us and are investing to capture growth and continue healthy cash generation. We remain confident of our prospects and will deliver our stated guidance of 8%-10% revenue growth in current fiscal year, and mid-teen growth from FY25 onwards, with a strong operating leverage in current as well as next fiscal year. With this, I hand over to moderator. Thank you.
Thank you very much, sir. We will now begin the question -and- answer session. Anyone who wishes to ask a question may press star and one on their 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. We have the first question from the line of Shreyansh Jain from Svan Investments. Please go ahead.
Hello, can you hear me?
Please proceed.
Can you hear me?
Yes, sir, I can hear you. Please proceed.
Yeah. My first question is, could you give us some more sense on the improvement in EBITDA margins that we've seen? There is an improvement of about 200 odd bips in your other operating expenses. The presentation, it is clearly mentioned that there is some improvement in the sense of logistics cost and advertisement. Just wanted to understand, sir, is it because of the we've seen some volume degrowth about 15% and 20% odd in U.S. And U.K . Is it, is it because of that? Just wanted some more color on the other operating expenses bit.
Thanks, Shreyansh. Yes, the improvement in EBITDA margin is partially, as we mentioned in our investor presentation, is related to our logistic cost improvement. There is a reason of lower volume, but also internal control improvement is related to orders clubbing and also the negotiation with the shipping partners that help to reduce overall per piece cost of the logistics side. In other improvement in cost is mainly related to our negotiation in our IT contracts and our marketing spends, that we optimized in our digital as well as our traditional marketing. That overall helped to improve our expenditures over last year.
Okay. Just, when I see your annual report and when I see your other expenses break up, your IT spends and your advertising and marketing spends are not that big, a number to significantly improve your EBITDA margins. That's, that's where the question is, you know, because 50% of your other operating expenses are largely content and broadcasting. I don't think that would have gone down significantly, right? Because you added Germany also.
Yeah. That is flat year-over-year, excluding Germany. Germany is the 0.3% decline that we see in the profit compared to last year in rupees terms is related to only airtime cost. In constant currency terms, it is flat. There's no change in the over last year. Last year, we had some kind of contracts with the IT side, especially the marketing clouds and the promo clouds that we spent in last coming. That is now we optimize and also the learning related to digital marketing has helped to improve our overall marketing cost.
Okay. Okay, my second question is, sir, in the last quarter, the MD had guided for Germany operations to break even from H2 of FY 2024, in this presentation, we are clearly saying that Germany operations would break even by H2 of FY 2025. In some sense, are we postponing the thing that it will get delayed by a year?
Yes, yeah, this is Sunil here. As we mentioned, we are getting more opportunity for airtime. Nitin also mentioned we are getting HD opportunity and a major player. These two investments we've decided to make. They will come into play in Q3. With that investment, our profitability will be postponed because new airtime takes 12-18 months to mature. We are continuing making the investments. With these investments in place, we are confident of delivering operating leverage over last year, for continuous 2 years, financial year, as well as next financial year.
Okay. My last question, sir, in both TV and digital, we're seeing a volume drop. On the other side, we're seeing improvement in your ASPs. Could you give us some sense on both the volumes as well as the ASP, where do you see it heading? In such an environment, also, ASPs have been going up. Just wanted some understanding on what is really happening on the ground.
In the current inflationary environment, we are seeing people buying more higher-end, like gold product or diamond product or certified product. That pushes the ASP up. With the ASP going up, the volume drops. Overall revenue is almost close to being steady in local currency terms.
Okay, sure. Thanks. I'll come back.
Thank you.
Sure.
A reminder to all the participants, anyone who wishes to ask a question, may press star and one. We'll take the next question from the line of Pritesh Chheda from Lucky Investments. Please go ahead.
Yeah, hello, Sunil, and thanks for this call. Sir, this previous answer, which you mentioned about, you know, lower volumes and higher pricing. Generally, in a... You know, I couldn't understand, usually in a softer environment, people tend to downtrend, so here there is a higher pricing. Is it that the offerings that we are showcasing right now is higher priced? It's a little bit difficult to comprehend what you mentioned.
Yeah. In the current inflationary environment, people buying more gold product. Our traditional offering was more silver product or base metal product. Current environment, we are seeing, like, gold chaining or certified diamond product or platinum product. We're seeing more offtake of those products, and that pushes up the overall average selling price. As the inflationary environment subsides, we suspect that this kind of push may be lesser on these, and we will revert back to our regular or slightly lower ASP, and the volumes will again go back up. This is our current understanding of the market environment. It may modify, but we'll continue to look at the opportunity and modify our offering appropriately.
this is transitionary in nature, what has happened, right?
Correct.
Okay.
We see it as a transitionary.
Okay. My second question is on the reduction in the retention and the repeat purchases. Any comments there? What's actually happening?
Yeah. One is the macro environment, where some people just are not in the market to buy because they are pushed because of inflation. For example, in U.K., the mortgages have tripled, or doubled or tripled, even quadrupled for many people, because interest rates from less than 1% has now gone up to 6%. In the U.S., not all mortgages are variable, people are fixed mortgages, but credit card costs or the rental costs, the food costs have gone up. One is the macro environment. Second thing is that the higher price point that we are offering, there are lower number of customers from those higher price points, and that would tell you about the number of customers and the repeat purchases being lower.
Okay. on the cost side, you know, costs were largely stagnant for, you know, I saw it for the last seven, eight quarters, after the, you know, Germany operation creation. Whether we see the employee costs or whether we see the OpEx costs, you know, it moves in INR 230 crore-INR 250 crore per quarter. This number, how will it change, once you add this, more cable, connections or reach in Germany? Is it-
We have NDAs for all the cable contracts. We can't disclose the exact number of that today. We have guided that for this financial year as well as next financial year. We expect to have strong leverage because we believe that the cost optimization that we are in place, as well as the revenue growth that we expect it to temper in this year.
Mm-hmm.
-with the for next year, this, revenue, revenue leverage will give us, revenue increase will give us margin leverage.
Despite the connection increases, there will be an operating leverage, which will flow?
Correct.
When you say substantial, you know, some time back, we were, let's say, at about 4%, 13%-15% margin, and then we created, you know, this Germany expansion. You gave us the volume growth, revenue growth guidance, but how far are we from those 13%-15% margin of the business?
Yeah, Pritesh, we can't give exact guidance. We don't give exact guidance on the margin side, but we do expect leverage over last year and the next year over current year.... It's a meaningful leverage that you just saw this quarter.
Okay. My last question is, ex-Germany, you know, ex of Germany, what is the margin in the business? U.S. And U.K. were our main operations, either you can give us the impact of Germany on margin %, you know, some idea?
Don't have exact. Germany is roughly contributing 2.5% of our margin, impact pretty much.
Sir, sir, your audio is not clear on the management's line. Can you please use your receiver?
Is it better now?
Yes.
Yes, sir.
Yeah. Yeah, so excluding Germany, our margins. Germany is impacting on 2.5% of our margins, EBITDA margins. You can consider as like 10% we reported last quarter.
Yeah.
It will be 2.5% additional.
Okay. For last year, that is March 2023 fiscal, where we reported 7%, there also this 2.5%-3% impact.
Yeah. Slightly lower on that time. Yeah, you can say pretty much similar. Sales numbers was lower as well. Somewhere this number, I don't have exact number.
No, we want a ballpark number only. We don't want exact.
Ballpark will be similar, like-
2, 2.5% negative impact.
Okay.
Lastly, this 5% growth, which was reported in Q1, how much of it is, let's say, favored by the 5% decline, which was there in Q1 last year? Because there is some base which I can see, or should we, you know, just ignore that for your guidance of 8%-10% top line growth this year?
Yes. Our guidance remain same, 8%-10%, but 4.5% growth this quarter you see is an improvement in our overall business in UK, US, and accelerating Germany business is helping us to get the 5% growth, but full year guidance remain intact of 8%-9% to 10%.
There is a better business environment versus what it was in the last few quarters? Because, see, one way is that I look at this 5% as it is, but one way is I look at this 5% on minus 8% of last year. That's the reason why I asked you, is it, is it... Do you see a improvement in business environment?
Pritesh, can you repeat the question, please?
One, one way is that I look at this 5% growth, which is reported in the year on a, you know, absolute basis, but the other way is I look at this 5% versus the 8% decline, which was there in the base quarter. I just want to check, is there an improvement in business environment, or it's just that you're favored by this 8% base effect?
Both things, environment, it started with the war in Ukraine and the logistics problems and then resultant inflation and the fear of recession, that was pretty tough in this economy. We are seeing some improvement in the environment in recent weeks or recent months, but there is a base effect, definitely.
Okay. Okay, thank you very much. I'll come back if I have more questions. Thank you.
Thank you.
Thank you.
We'll take the next question from the line of Utkarsh Somaiya from an individual investor. Please go ahead.
Thank you for the opportunity. I'm new to your company, and, just wanted to get a understanding of your business model. If you could just help explain and throw some light on it, it would be very helpful. Thank you.
Utkarsh, that's a big question for this call. We are a vertical business with manufacturing of fashion jewelry, apparel, and sourcing of lifestyle products from India and Asia. We have our own retail on our electronic retail in U.S., U.K., and Germany. The dominant sales come from television, live television, 24/7, and about 37%, 30% comes from these markets. Our focus is on being value-centric and highly customer-centric retailer in these markets. We have a high repeat purchase frequency. We have on average, about 27 products customers buy at year from us. We have a cost model. We very efficient. Our costs are most efficient, and our revenue are in dollars, pounds, and euros.
Okay. essentially manufacture in India and Asia, and you retail it in U.S., U.K., Germany. Is that correct?
Correct. We own the brand. We own our retail. Our brand, our brand is our own. We don't have third-party brands, and majority of the product that we sell is our own branded product or our own umbrella brand product. We don't have a fear of third party having leverage over us.
You retail essentially, on TV, you mentioned, right? Like, and you don't have physical retail stores? How, how does that work?
No, we don't have any physical retail. No, we don't have any physical retail. It is on TV network, live TV shopping, and about 38, 37, 38% through website.
Okay. If I were to kind of understand your right to win and or moat, if you hold any moat, is there anything you could throw some light on that?
Number one is, being a vertical model, it's very, very difficult to replicate. It would may either be manufacturer or they may be retailer. We are in retail, in a industry which is highly competitive, in a market which are highly competitive, and we are manufacturers for the last 40, more than 40 years, we understand the spaces of these areas very, very well. To have a replication of this vertical model is extremely difficult. The low-cost structure all across the business, whether in Asia or in Western world, that is also difficult. The customer are highly loyal, as you could see from the repeat purchase. The customer buys 27 products a year, and it's very difficult to take those customers away because of the loyalty and the brand affinity.
Thank you, sir. As the current participant has left the queue, we move on to the next question, which is from the line of Sachin Kasera from Svan Investments. Please go ahead.
Yeah. Good afternoon, congrats for a good set of numbers. On this Germany, I just wanted a couple of your inputs. One is that this acceleration investment that we are talking of, is it an investment that we now will have to make to meet our targets, maybe from a medium perspective? For example, you must have some internal targets on Germany for FY 2026. These additional investments are now, you know, ex-extra investments that are required to achieve the FY 2026 targets or 2027 target? Will it mean that, yes, while, you know, we will delay the breakeven by 1 year, but on a medium to long term, we are looking at a much larger operations and a larger profit pool in Germany.
Yeah, good question, Sachin. Airtime, it's very, it's not something that you can go and buy. You have network, you have to make relationships, and you get offered those network position. For example, there are limited channels in each platform, and those channels rarely come to the market. We take those channels whenever they come, whether it is Germany, U.S., or U.K . In Germany, we got this opportunity for getting an HD on Vodafone. Vodafone is 13 million homes, we already have a channel there. We're getting second channel in HD. The first channel was in SD, that is standard definition versus high definition. We're taking this HD channel that will come to us in September, there's another broadcaster called Tele Columbus. We are taking that opportunity. That will also come to us in September.
These investments that we do, it takes about 1 year to 1.5 years for this to become profitable. That's why the revenue will accelerate because of these investments, but the ROI will start to come after 1 year. That's why we are postponing our profitability by 1 year in the expectation of scaling the business faster than our original plan.
Just to again reframe it, so is it fair to then assume that internally, and I don't want a specific guidance or numbers from you, but internally, say, what we are budgeting for fiscal year 2026 and 2027, say, before we did this Vodafone deal, it's very likelihood that we will do much better than that now, internally, without sharing a specific number with us. If you could just tell us that, that will be very helpful.
That, that is correct. Because of the investment, our projections for 2025, 2024, 2025, so, 2023, 2024, 2024, 2025, 2025, 2026 will be higher. Most definitely.
Sure. How will this call work out in the sense that will be Germany losses? Because I believe with this acceleration investment, you'll also start to see some revenue growth. Is it that, you know, the absolute, it is just a delay and hence the absolute EBITDA losses will not increase, or because there could also be, again, once again, a surge for the next four quarters in the absolute debit of Germany before we start to see, you know, some sort of a reduction or a breakeven as you have mentioned?
Yeah. We are already seeing a year-over-year improvement into our EBITDA numbers. Slightly, very little improvement in these recent weeks, because what we invested in earlier periods. As we take on the new markets, the initial periods will have more negative. Because of the investment, it takes time to build that customer list, the customer repeat purchase is very high on TV model. As time goes, after six months or nine months, it will be beneficial to us year-over-year in terms of EBITDA.
H2, there could be some impact there because of this Vodafone deal on the Germany as well as the overall numbers?
Sorry, can you repeat the question?
In second half of fiscal year, there could be an impact on the absolute debit and some impact on margins because of the one-time step up in the spend in Germany.
Correct. Correct. The spend is... There's no one-time spend. We have to pay them every month.
Yeah.
That's true. As it comes on onboard in September, it'll come in the middle of September. One will come in the beginning, and one will come towards the end of September. We'll see some impact in that particular quarter. Each quarter, we expect overall for the group to have operating leverage over last year. Operating leverage over last year, one factor, as Pritesh earlier mentioned, is the factor of base being lower last year. Other is our cost optimization. For Germany, the cost is higher, other in US and UK, there are cost optimization that is helping overall for us to get the leverage in over there.
Sure. Sir, one question on the interest rates and its impact, because we, I believe you also have an installment model, and as you mentioned that the rates have gone up. Did it also have some bearing on us? Because I'm sure somewhere there's a cost inbuilt into the, you know, cost of your interest in this installment model. Has that had any impact or, or is it that we absorb the entire impact of the increasing interest rate installment model? If you could just give some input on that.
Yeah, sure. Sure. Our interest rate, our EMI budget fee that we call, it is interest-free for the consumers. We bear the cost of financing. For the consumers, there is no impact. However, consumers are taking it favorably. This in current, especially in an inflationary environment, as the financing for the consumers is expensive now than as a VGL group, that we are giving the item to the customer, there's no interest cost. As a company balance sheet and company's profitability, there's no impact on it. We also having some spare parts that we are investing. That's why the other income is also increased. If you see in our PNL, our interest income is also higher on that.
From the consumer side or budget side, that we don't see an impact in our PNL for interest.
Sir, where do we book this impact of this funding, the easy pay model, the cost to the company, is it part of other expenses, or it is adjusted in the interest income? How do you account for it?
Yeah. As I mentioned, there is no interest cost for us because we do, we finance from our own funds. Only budget is the part of the PNL, if there is any budget. That is in our LG&A cost line item. On PNL side, there is no financial impact. Only balance sheet, if you see there's a data, we're spending somewhere around, maybe around $20 million-$30 million, but I don't have the number. Somewhere around that, only balance sheet you will see the data outstanding at the end of the season.
That is coming. To your point is, what is the cost of the fund that we deploy in my view? The $20 million, if we had bank today, so we would get 500% interest in terms of the income of that $20 million is a foregone kind of cost income. Got it. Sir, because of this inflationary environment and the higher cost of living, are you seeing any trends where your defaults or your bad debts of this outstanding amount of $20 million has been increased, and hence, this year or next year, you may have to provide more towards this bad debts?
Yeah. We have a team, kind of very robust credit giving to the customer model, that we, we constantly monitor this, and we don't, we haven't seen an impact in increasing our bad debts so far. We regularly review, that how they impact, especially in current situation. We haven't seen an impact or a higher impact compared to previous periods.
Thank you very much. That's all.
Thank you. We'll take the next question from the line of Ritik Tulsyan from Concept Investw ell Private Limited. Please go ahead.
Yeah, hi. Thank you for the opportunity. We are making additional investment side, currently Germany contributes 6% of revenue in terms of geography. In 2-3 years, where do we see Germany heading in terms of geography contribution? That is my first question.
Thank you for the question, Ritik. We have internal positions, but we are not sharing that as a projection, where we see those growth rates. The current growth rates are very, very high, but how it will shape the... It's still too new a market to be able to give a guidance on that. We are only a year and a half or just, just about that into growth market. But what I can say from other players, like Curate groups and other players, Germany has more households than U.K., and for them, the Germany revenue is more than U.K. We expect in longer term, maybe seven, eight years time, Germany surpassing U.K. by about 20%-30%.
Okay. Thank you. That is good enough. Second question is regarding your own brand portfolio. Like, if you can give us some color, like how your own brand portfolio is panning out in this environment. That is my second question.
Yeah. We have 2 levels of brand. One is the umbrella brand. For example, US and Germany, we have Shop LC, and U.K. is TJC. Most of our customers know us by the umbrella brand. Then within umbrella brand, we have many sub-brands. We have more than 30 sub-brands for different product categories and different price points. We have designer brand, we have product centric brand. Overall, about 29% of our revenue comes from our own B2C brand. There were 30, 31 house brands within the umbrella brand. Our target is to take it to 50% from 29%-50% by FY 2027, from house brands.
Okay, thank you. Thank you for the opportunity. Thank you.
Sure, thank you.
Thank you. We'll take the next question from the line of Kimberly Paes from Equenti s Wealth. Please go ahead.
Yeah, thanks for taking my question. In our recent analyst day, we had guided that we are also targeting an increasing share from non-jewelry products, like lifestyle products. I think we had a target of 50% by FY 2026. How are we progressing on that? Also, what will be the margin difference between jewelry and non-jewelry products?
Yeah, thanks for the question, Kimberly. In last earnings call, we had expanded, extended the as lifestyle jewelry, lifestyle product, revenue to be 50/50 to FY 2028. The reason is that in last 1.5 years, we have seen more uptake of jewelry, especially the higher price point jewelry in inflationary environment. We do not yet know how long the inflationary environment will last, and we are seeing lower uptake of non-jewelry products, especially in U.S. In U.K., we are seeing still robust uptake on non-jewelry products, because of US being lower, we have changed the guidance to 50/50 of RSP jewelry by FY 2028 now.
Okay. What will be the margin difference between jewelry and non-jewelry?
Margin is about similar. What we do, Kimberly, is to select product that gives us our margin. We don't take any product, whether jewelry or non-jewelry, which would give us less than 50% margin. Margin is not a criteria for us to think that this will not be. What we look at, we get 60%, and the product should give us our targeted margin per minute of TV time or expected revenue from the website, from the pages that we have. We have the criteria in place and we, product give us the margin, and we take it in, otherwise, we phase it out.
Okay, thank you.
Thank you. Before we take the next question, a reminder to all the participants, anyone who wishes to ask a question may press star and one. We'll take the next question from the line of Sachin Kasera from Svan Investments. Please go ahead.
Yes, I'll just follow up on Germany. Can you give us some insight on the sensitivity of this investment in this sense?
Mr. Kasera, may we request you to kindly use your handset, so your audio is clear.
Is it clear now?
Yes, now. Please proceed.
Yeah. I'm just trying to understand the sensitivity of this investment that you're doing medicinal, doing additional investment in Germany. If suppose the investment is going to increase by 20%, so in FY 2026, will you now get 20% higher sales, or is there a leverage out there also, so that earlier this quarter planning a sales of INR 100 in FY 2026 in Germany, but now that we are going to spend 20%, 30%, 40% or whatever the next number higher, the sales would be higher and more profit would be higher by X + Y%?
Yeah, it's a good question. So the television revenue in Germany is about 70%, and their e-com is 30%. So if it, for example, if we increase our investment by 20%, the expected revenue after one and a half year is 20% higher on TV side. There's a high leverage business. The 20% higher revenue, large, large portion of the revenue outside the spend that we do on the airtime, falls to the bottom line. We, that is why we, we take the airtime opportunity whenever it comes within our pricing, we take it, because the leverage benefit is very high.
Sure. Sir, till the time Germany reaches a good level of profitability, we don't intend to take up any markets? For example, in the way Germany, we got an attractive opportunity, and hence we increase the investment in the business. Similarly, if another good opportunity comes either in the existing market or in a new market, we are still open to that because that would, you know, it would mean that, again, we are pushing the overall, you know, guidance or the number for 2025, 2026 again by a year.
Yeah. Your first question, do we take a debt? We don't believe so, because we are very cash positive. We are giving dividends every quarter, so there is no need to take any debt. Going to new markets, we will go, we expand into new market after Germany becomes profitable and steadily growing, then we'll go into the new country. Once we go to new country, we have three growing and profitable businesses to support the fourth one.
Got it. Thank you very much, sir.
Thank you, Sachin.
Thank you. The next question is from the line of Pritesh Chheda from Lucky Investments. Please go ahead.
I just have a follow-up. Ex of Germany, let's say your stable operations of U.K and U.S. , there is a deterioration in profitability over the last 3 years, for the flat sales, or maybe, you know, a minor drop in sales. If you could explain this deterioration over the last 3 years, what explains it? Have you added any cable households there, which has taken up the cost? Any, any reason you want to, you want to highlight and explain us? The reference is, let's say you were at the peak at about 13%-15% margin, and from there we have come down.
Germany explains a part of it, but a larger part also gets explained by the fact that there is a deterioration in the U.S., U. K. margin.
Thanks, Pritesh, for the question. As, as you have mentioned that one of the reason was Germany, that is reducing the overall EBITDA margin, also that there is an operating deleverage came, when, when we have seen a decline in our sales. In the scenario of improvement in our profitability, we invest heavily in our upcoming future quarters growth. We invested in our digital marketing, in our website platform, where in our shopping apps, we are confirming our future potential growth. That was the investment that we have done on that time.
There is also... That came later on. Then 2021, we have seen some pressure on the cost side. That is actually impacted the overall profitability in our U.K. and U.S. markets.
You say there are two reasons. One is the investments in digital, and second is the cost increase in the operations themselves of U.S. and U.K. These are two reasons?
Yeah. Let me, let me clarify that question, Pritesh. We made investments into new businesses, Germany being one, and digital brands, and also invested-
Excuse me, sir. I'm sorry to interrupt, sir. Your audio is not clear.
Pritesh, In addition to Germany, we invested into digital marketing, that is through Tamsy, Rachel Riley, those two brands.
Mm-hmm.
As well as our, all the three brands within U.S., U.K. , Germany.
Mm-hmm.
We also invested quite big into digital marketing, Google, Facebook, TikTok, these investments also, so to get the future growth from them. Also a lot of people for managing new businesses. Those people that we invested in are still there. We can't remove those investments in from the business because we see potential. As we scale and those big businesses become profitable, our leverage will come into play.
Okay.
Based on those leverages, we are now giving a guidance of even if the revenue growth is subdued, for example, now revenue growth is only 4.8%, but there's a substantial leverage effect for this quarter compared to a year before. That came from some of those investments maturing and some cost optimization on volume and shipping.
Okay. Thank you. What will be our tax rate?
Well, EPR is 24% for the overall group.
Thank you, Nitin.
Thank you.
Thanks, Pritesh.
Thank you, sir. We'll take the next question from the line of Rohan Mehta, an individual investor. Please go ahead.
Good afternoon, sir. Just wanted to ask about the digital revenue mix of about 38% that has come in. How has that impacted the overall profitability? If we see over the last few quarters, how has the digital revenue mix changed? If you could throw some light on that, please.
Last five years, digital revenue CAGR was 20%, so it was pretty healthy in last five years. Digital profitability side, Sri, would you like to add?
From digital properties, within digital, we have 3 properties. We have live TV on e-com, that is through for the customers who don't get the signal on TV. The second is the catalog, and the third is the auction. All the products that have leftovers from television, we auction at $1, and people bid against each other and scale it up. As we are increasing our overall digital revenue, this auction model, which is zero margin, is not increasing. That in $ term is pretty flat. What is increasing is the catalog and the live television, live streaming. Those margins, both those margins, are similar to TV margin. As we are scaling our digital revenue, our margin doesn't have dilution.
We'll still continue to give guidance of 60% +, even though we are giving digital versus e- TV revenue to be 50/50 by FY 2026. Our margin guidance is in fact of 60% +.
Okay. Okay. Understood. All right. Thank you, sir. That, that was the only question from my end. All the best. Thank you.
Thank you.
Thanks, Rohan.
The next question is from the line of Sachin Kasera from Svan Investments. Please go ahead.
Sir, you have mentioned that you've retained your guidance of mid-teens growth in the medium term, but you also mentioned that in Germany now we are looking at a much larger revenue than what internally you were projecting. Is it that because of the change macro environment, we are, you know, going, looking like compensating the higher growth in Germany in the medium term from, you know, the projected lower revenues in U.S. or U.K. ? Or is it that because you have still not made the investment, hence you want to be conservative and retain and you may revisit the guidance maybe 3 or 4 quarters down the line once you see the benefit of it going forward?
Yes. next year's guidance of mid-teen do take into account of improved economic conditions. We do not know at what level it will improve, so we do, but we do expect it to improve. Germany will increase, and it's been increasing very rapidly, but the base is still very small. As you saw, the overall business revenue for Germany is, just around 6%. It's still very small. Even if you're growing, seeing a growth of 50%, you're still only 9%. That doesn't add meaningfully to overall growth we are looking at. But we are expecting, economic to grow a bit and also investments that we made into OTA, OTT, digital marketplaces and our own brand, they will also contribute along with Germany.
Yeah, sir, I'm sure you would not have budgeted the Vodafone investment and its revenue implication when we made this guidance, say, 2 quarters back, right?
We did 2 quarters ago, when what we made, what we made investment into Vodafone was already in the picture when we gave guidance on next year, or this financial year's H2. That was already baked in. The additional investment that we're going to make in September, that was not baked in. Those will push the profitability all to the next year, but we are also now giving guidance of continued, we continue guidance of mid-teen for the next year. Earlier what we did was, we gave mid-teen for mid, midterm. We're specifically giving mid-teen for next financial year on the back of what we are seeing in Germany, and we are also seeing the issues in UK and US.
Sure. Just one clarification, one of the questions you mentioned that six, seven years down the line, Germany would be 20%-30% higher than U.K. That is, as of now, your assumption, or that is what you can, as of now, in the forecast?
That is correct. We don't know exactly six, seven years. It could be seven years or eight years or six years, somewhere around that, yes.
Sure. Sure. Any sense you could give us when we expect Germany to start matching U.K.? Say, that should be much earlier, the next 3-5 years?
I guess, specifically, we are not giving that guidance that far away. What I can say, the market potential for Germany is larger than U.K.
Sure, sir. Thank you.
Thanks, Sachin.
Thank you. The next question is from the line of Nikhil Arora, an individual investor. Please go ahead.
Hello, sir. Good afternoon and everybody.
Yes, Nikhil.
Yes, sir.
Congratulations, sir. A good set of numbers. Only 1 question I have. Considering the company's growth ambitions, are there any new market or regions that are being targeted for potential entry in near-term future?
We are not looking to enter a new country till we have Germany profitable and growing rapidly more. Once we have Germany fully stable and the other, other entities, UK and US, are back to our double-digit growth, we won't be going to new country. Over the years, we have target, we have Japan as our next target whenever we are ready from these perspectives. Having said that, if we get an opportunity to get into expand to e-com space within these three countries, we will do that.
Okay, sir, not in this financial year, right?
Yeah. We have the cash. If we get any opportunity to acquire a business into these three countries on which is pure e-com and is growing and is profitable, we will. There's no timetable for that, but we are open to those thoughts, and we keep looking at the opportunities.
Okay, sir. Thank you so much, sir. All the best.
Thank you, Nikhil.
Thank you. Thank you. The next question is from the line of Parth Dalal, an individual investor. Please go ahead.
Hello, can you hear me?
Yes, sir.
Yes, good.
Congratulations to the team for a good set of numbers. Sir, I joined late, so the question has already been answered. I'm happy to check in the transcript. Question is regarding Germany, sir, when you say that we have already reached 90% household there?
Sir, I'm sorry to interrupt. Sir, there is a background disturbance. We are not understanding what you're speaking, sir.
Any better now?
Yes, okay. Proceed.
When we say that 90% household we have already reached in Germany, and till we see increased in investments over there, is there any, anything that the management is looking, any inorganic opportunity out there? Anything to read in that set?
In Germany, we are looking at the investments we make. One is on the HD platform on Vodafone. In March, we made the investment to go on SD standard definition. Now we are getting the opportunity for high definition on Vodafone. There's another opportunity we are getting on Tele Columbus for footprint on their platform. These two opportunity we are going to take in September. How many opportunities Germany, we are not just between looking for Germany, but any opportunity comes in U.S., U.K. or Germany, predominantly in U.S. or U.K. , we will take it. Provided we are conservative, we are conservative. It has to be profitable, it has to be scalable business.
Okay. So what you explained by September, that will eventually take up the household reach to 95%, right?
That is correct. Take HD on 13 million homes.
Mm-hmm.
on 13 million homes with a good turnover.
Got it, sir. Thank you. Nothing on the table, in terms of any inorganic opportunity in Germany right now?
Not right now.
Okay. Thank you, sir, and all the very best to you. Thank you.
Thank you.
Thank you.
Ladies and gentlemen, as that was the last question, I would now like to hand the conference over to Mr. Sunil Agrawal for closing comments. Over to you, sir.
Thank you, operator. I want to thank all the participants for your time and great questions. If you have any further questions, feel free to reach out to Prashant Saraswat at VGL or Amit Sharma at Adfactors PR India, and they'll be happy to answer your questions. Thank you once again.