ARVIND FASHIONS LTD (ARVINDFASN) Q3 FY23 Earnings Concall Transcript

ARVIND FASHIONS LTD (NSE:ARVINDFASN) Q3 FY23 Earnings Concall dated Feb. 15, 2023.

Corporate Participants:

Ankit Arora — Head of Investor Relations and Treasury

Kulin Lalbhai — Non-Executive Director

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Girdhar Chitlangia — Chief Financial Officer

Analysts:

Pritesh Chheda — Lucky Investment Managers — Analyst

Unidentified Participant — — Analyst

Jatin Sangwan — Burman Family Holdings — Analyst

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Sagar Parekh — One-Up Financial Consultants — Analyst

Nishit Rathi — Chanakya Wealth Creation — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Arvind Fashions Limited Q3 FY ’23 Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Ankit Arora. Thank you, and over to you.

Ankit Arora — Head of Investor Relations and Treasury

Thank you, Mike. Hello, welcome, everyone, and thank you for joining us on Arvind Fashions Limited earnings conference call for the third quarter and nine months ended December 31st, 2022. I’m joined here today by Kulin Lalbhai, Vice Chairman and Non-Executive Director; Shailesh Chaturvedi, Managing Director and CEO; and Girdhar Chitlangia, our Chief Financial Officer.

Please note that results, press release and earnings presentation had been mailed across to you yesterday, and these are also now available on our website www.arvindfashions.com. I hope you had the opportunity to browse through the highlights of the performance. We will commence the call today with Kulin providing his key thoughts on our business performance for the third quarter. He will be followed by Shailesh, who will share insights into our financial and business performance. At the end of management discussion, we will have a Q&A session.

Before we start, I would like to remind you that some of the statements made or discussed on this call today may be forward-looking in nature and must be viewed in conjunction with risks and uncertainties we face. A detailed statement of these risks is available in this quarter’s earnings presentation. The company does not undertake to update these forward-looking statements publicly.

With that said, I would now turn the call over to Kulin to share his views. Thank you, and over to you, Kulin.

Kulin Lalbhai — Non-Executive Director

As well as an improvement in profitability.

Operator

Sorry to interrupt, Mr. Lalbhai. We were unable to hear your intro. If you could repeat that?

Kulin Lalbhai — Non-Executive Director

Can you hear me now?

Operator

Yes, sir. We can hear you now.

Kulin Lalbhai — Non-Executive Director

A very good afternoon to you all. Thank you for joining us for the Q3 results. Q3 was a very strong quarter for AFL, where we saw industry-leading growth and improvement in profitability. Revenues grew 17% year-on-year with strong like-for-like growth of more than 12% in the retail channel and more than 40% growth in the department store channel. Better full price sell-throughs led to lower discounting, which improved our gross margins and led to a lift in our EBITDA margin by 110 basis points year-on-year.

I would like to also especially mention the great work that is happening on the supply chain transformation, which was initiated last year. It has yielded strong results. And our stock turns continue to sustainably stay beyond four. And along with that, we see the improvement in gross working capital, which has led to cash flow generation and a quarter-on-quarter reduction in our debt. This is the second consecutive quarter where our annualized return on capital employed is at 15%, and we look forward to further improving this in the years to come. We enter quarter four with a re-energized brand portfolio and look forward to continuing momentum.

I would like to now hand it over to Shailesh to take us through the specifics and more details on our financial performance.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Thanks, Kulin. Good afternoon, everyone. Let me start with welcoming Girdhar Chitlangia, our new CFO, who is joining AFL investor call for the first time. Welcome, Girdhar.

Girdhar Chitlangia — Chief Financial Officer

Good afternoon, everyone.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

AFL continues its path of decisive focus, revitalizing performance of our exciting brand portfolio and making our brand bigger, really large and more profitable and making AFL a much stronger AFL. With no distraction, we continued our focus in Q3 FY ’23 on execution, more focus on sell through improvements, full price like-for-like growth, reduction in discounting, all leading to increase in GP margin and EBITDA and better EBITDA. With nearly INR1,200 crore top line, we saw the highest ever quarter similar to quarter two with EBITDA of INR136 crore. The growth in top line is 17% and much higher growth in EBITDA at 30%.

Fall holiday ’22 season saw continued good performance on our brands on sell-through, with industry-leading full price sell-through that led to healthy 12% like-for-like growth in our retail and expansion of gross margin by 160 basis points. EBITDA percent also has gone up by 100 bps with 60 basis point gain coming from lower discounting in retail channel and 50 basis point gain coming from scale leverage linked to efficiency and employee cost. The increase in power brand EBITDA is 140 bps.

At the end December, in the nine months of this financial year, AFL has reached nearly INR3,300 crore top line with 53% growth over last year. The EBITDA at December end is nearly INR370 crores is more than double of last year, and there is an improvement of 400 basis points in EBITDA percentage end December over last year. This fall holiday season spanned out very interestingly with equal business in Q2 and Q3.

With early Puja and Diwali dates, we completed majority of our wholesale billing for the season in Q2 itself, and Q2 saw 100% growth in MBO trade channel in Q2. Online B2B wholesale business also saw robust business in Q2 with more online tower events, which were lined up towards end September and early October. While Diwali retailing started by end September, majority of the Diwali retailing happened in October and the contribution of retail channel increased by a huge 10% in our revenue mix in Q3 over Q2 revenue mix, and this was an increase of INR110 crores in retail channel value in Q3 over Q2.

With wholesale peaking in Q2, we realized a large part of our margin in Q2 and our EBITDA grew by 90% in Q2. Subsequently, the wholesaling in our revenue mix within Q3 as expected with MBO trade delivering single-digit growth in Q3, because it had already shipped out goods in Q2 in turn for the festival season. But then, retail channel did very well in Q3 and our like-to-like retail sales grew by an impressive 12% in Q3. Two big quarters, Q2 and Q3. Q2 saw a bigger, larger growth in EBITDA of 90% due to early Diwali billing and Q2 also reached the same level of highest ever revenue and EBITDA value of the same INR136 crores, because of healthy margin gained from retail channels.

There was a slowdown in onset of winter season this year, winter started late, because of which the normal repeat orders of winter goods that we typically get in Q3 did not happen this year. Fortunately, winter finally arrived in January and all our brands eventually saw very healthy sell-throughs of the winter, whereby we resisted the temptation of going early with EOSS in December because we were witnessing good sell-throughs. We consciously decided to postpone EOSS, which helped us lower discounting in Q3, because of which we got additional 0.6% EBITDA in Q3. Thus, we have this unique situation of both Q2 and Q3 being similar level of top line and EBITDA. If winter had set in a normal time and we had not consciously decided to postpone EOSS, Q3 would have been even bigger in both revenue and EBITDA value.

We continue to focus sharply on balance sheet deleverage and we are ensuring tight control on working capital. Very happy to see reduction of further three days in GWC, with gains coming from reduction in debtor days. We saw a reduction of nearly INR200 crore of inventory value in Q3 as compared to Q2 end and the inventory levels remain healthy at 88 days with stock turns at 4.2, in line with our guidance of taking stock turns above four. Receivables also came down by nearly INR100 crores as our partners paid their dues as per credit norms with good consumption of inventory in the season. There was also a sharp reduction of nearly INR300 crores in payables, and this was done as per the payment terms with our vendors. For supplies in Q2, these payments were due in Q3 and we made payments to reduce payables by nearly 19 days over last Q3. Overall, good control on working capital on all aspects.

With increase in EBITDA and sharp control on working capital, we saw continued good performance on capital efficiency and we delivered ROCE — annualized ROCE of 15%. We continue to focus on our goal of improving profitability towards double-digit EBITDA for our power brands in the next year. We remain confident of this journey, because we are seeing higher efficiency and reduced execution. There is a reduction in discount coming from higher sell-through. There is an improvement in some of our brands’ profitability, especially Arrow. And with power brands EBITDA of 12.5% in — cumulative in the nine months of this year, we are very close to that double-digit pre-IndAS EBITDA objective for power brands, and we are confident that we are moving in the right direction.

With our portfolio of very strong brands and continued momentum in our growth engines, we remain optimistic about our guidance of 12% to 15% CAGR. The key growth engines include robust like-to-like growth through superb execution of store experience. We delivered industry-leading 12% like-to-like growth in Q3. The growth engines include store expansion, and we added nearly 60 new stores in Q3, in line with our guidance of opening 200 new stores annually. The growth engines include leadership in digital opportunity, and in Q3, online business was a very healthy 23% mix of our revenue. The growth engines also include build-up of adjacent categories, and we’ve seen more than 45% growth this year in kids wear and footwear.

The revenue contribution of adjacent category in our key brand, USPA, is in mid-teens percentage, and we continue to focus on developing adjacent category in each of our brands. With the presence of strong brands like USPA in our portfolio, which is likely to reach close to INR1,800 crore NSV this financial year, AFL is poised to deliver revenue growth of close to INR1,200 crore versus last year, this year surpassing INR4,000 crore NSV mark in this financial year. AFL also poised to deliver an increase in EBITDA of more than INR225 crores in this financial year 12 months versus last year. And the focus remains singularly on reaching double-digit pre-IndAS EBITDA in power brand next year. We are seeing continued momentum in Jan due to winter season and Pongal festival in south and also the energy of EOSS. There are good retail days ahead with wedding season in south in February and March. Then, there is Eid festival coming up in mid-April, for which the business will gain energy from mid-March. Hence, we remain optimistic about the momentum going forward.

With this, I hand over the mic to Ankit.

Ankit Arora — Head of Investor Relations and Treasury

We can open it up now for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We have the first question from the line of Pritesh Chheda from Lucky Investments. Please go ahead.

Pritesh Chheda — Lucky Investment Managers — Analyst

Yeah. Thank you for the opportunity. Sir, what is the operating cash flow that you would have generated for the nine months that has gone by?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Hi, Pritesh. How are you?

Pritesh Chheda — Lucky Investment Managers — Analyst

I’m good. How are you, sir?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Pritesh, the operating cash flow will be close to INR150 crores.

Pritesh Chheda — Lucky Investment Managers — Analyst

INR150 crores. And our debt — the net debt and the gross debt figure that would — this INR150 crore is after working capital, right?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Yes, yes, Pritesh.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. And what is the gross debt and net debt now we have as of nine months?

Ankit Arora — Head of Investor Relations and Treasury

Pritesh, Ankit here. We have a net debt of INR372 crores as of December end and a gross debt of closer to about INR570 crores.

Pritesh Chheda — Lucky Investment Managers — Analyst

So has this increased EOQ, the gross debt number?

Ankit Arora — Head of Investor Relations and Treasury

No, the gross debt number would have come down by about 20 crores Q-on-Q.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. I was trying to look at the pre-IndAS number or margin that we would have done now for the nine month and quarter four, but I think your presentation doesn’t tend to report it. So if you could share what will be the pre-IndAS margin that you would have done in the nine month and quarter four?

Ankit Arora — Head of Investor Relations and Treasury

Yeah. So Pritesh, we have guided to the Street in the past, and I’m sure as what you would be aware, there is 400 bps difference between post-IndAS reporting and pre-IndAS reporting, and that is something which is what stays constant around the similar levels and that would have been there for nine months as well and Q3 also. So Q3, we reported 11.6% EBITDA. You can subtract about 400 bps from there to arrive at pre-IndAS number and similarly for nine-month numbers as well.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. Lastly, so versus your old margins when you used to do at about 8% pre-IndAS, at about INR800 crore business, and now you have already moved to about INR1,200 — INR1,117 crore, INR1,180 crore, INR1,200 crore of business, but the pre-IndAS margin hasn’t changed. So on a nine-month basis, if you could help us understand this performance so far from a margin perspective of P&L, considering that the scale of operations have obviously gone up?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

See, Pritesh, if you really look at for the nine months, if I look at the post-IndAS EBITDA, there is 400 basis point increase in the EBITDA, Pritesh. And typically, the way the improvements are happening now and the EBITDA percentage improvements are likely to happen in the future are on two, three grounds. One is there is a execution where we are focusing on full price sell-throughs. So this quarter, we have received 1.1% EBITDA gain, 0.6% gain has come from lower discounting from retail channels. So that’s one focus that we want to continue to focus on full price sell-through and reduced discounting.

Second point is there is a scale leverage coming in. So in this quarter also, we’ve received a 0.5%, 50 basis points improvement in our EBITDA margin coming from scale leverage on the employee costs. So as the scales are going up, and if you look at last two quarter, our employee costs have remained flat and there is a 0.5% additional EBITDA going in, which is adding up to 1.1%. Third reason of this 400 basis point increase in last nine months is that a couple of our brands, for example, Arrow, have turned around. So compared to past, today, Arrow sell-throughs are very good. We started having positive EBITDA. Still, it’s in the low-single digit, but it is — last three quarters, Arrow has been EBITDA positive.

So some of the brands, our profitability is going up. And also, in our power brands also, as the business scales up, the profitability is coming up. So through efficiency, through better performance of the brands where our profitability is little suppressed and it’s is improving like Arrow and through scale leverage, we want to take this. The cumulative power brands, for example, we are at 12.5% post-IndAS and to reach 14% or so, where it becomes double digit and that’s what the focus has been, Pritesh, now.

Pritesh Chheda — Lucky Investment Managers — Analyst

Shailesh, but from INR2,800 crores going to INR4,000 crore of business already let’s say on a annual run rate, or let’s say on a quarterly basis, let’s say from INR700 crores to now INR1,000 crores, the pre-IndAS margin has actually not moved. You were making pre-IndAS, say, 8%, now you’re making pre-IndAS 6% or 8% number, if I take on Ankit’s 12%, which is including the other income and minus 4%, then it is 6%.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

So now, if you really look at our pre-IndAS…

Pritesh Chheda — Lucky Investment Managers — Analyst

So my question — so Shailesh, the question is, has the — has the discounting increased, because of which the margin is not coming in?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

No, no. There are two ways, Pritesh, margins are coming in. There is a nine months 4% increase in EBITDA post-IndAS and that shows in pre-IndAS also. So assume that there is no margin. There is a significant margin increase, Pritesh. That’s point number one, Point number two, like I said earlier in this call, that discounting has come down in quarter three by 0.6% and that’s leading to higher EBITDA. So definitely there is a increase in EBITDA and there is a reduction in discounting as well, Pritesh.

Pritesh Chheda — Lucky Investment Managers — Analyst

My question was actually pre-COVID numbers. What you are comparing is last year number. I was actually trying to compare with the business margins pre-COVID at INR2,800 crore sale.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Yeah. Pritesh, what happens is that there were — in pre-COVID times, there was a large amount of rent waiver sometimes, and quarter-to-quarter, the losses would have been different than the rent waiver coming. Now, this year, there is no rent waiver and our profitability has definitely gone up by 400 basis points compared to last year. If I look at a steady growth in our business, we are far more profitable than we ever been, Pritesh. If you look at our PBT performance, you can see quarter-by-quarter second half of last year onwards, we started delivering PBT positive and that trend has continued to grow. And today in these nine months of this year — and you look at overall, I am saying in this year, our post-IndAS EBITDA will go up by almost like INR225 crores increase in EBITDA, Pritesh.

Girdhar Chitlangia — Chief Financial Officer

If I could just add one point here. One difference between many years ago when you might be comparing to today is that our retail mix has significantly gone up. And wholesale versus retail mix changing changes the percentage EBITDA somewhat. But at an absolute level, our EBITDAs are going up, which shows generally how much the profitability of the business is improving over time. So the kind of absolute EBITDAs you are seeing are amongst the highest the business has ever delivered. The percentage EBITDAs have changed because in that the channel mix four-five years ago was a little different from what it is today.

Pritesh Chheda — Lucky Investment Managers — Analyst

Has the retail increased in the channel mix? And has your own FOFO score increased?

Girdhar Chitlangia — Chief Financial Officer

It’s a 47% retail, which is the highest it has been and we generally have FOFO model. The percentage EBITDA…

Pritesh Chheda — Lucky Investment Managers — Analyst

So sir, your cost…

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Pritesh, I’ll give you another data point. If you look at the PBT swing in this nine months over last year, the swing is INR212 crores, Pritesh, PBT.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. Okay, sir.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

So I don’t know where — see, look at a little broad numbers, Pritesh. We are talking about more than INR1,000-odd crores increase this year. We are talking about INR225 crore additional EBITDA. We are talking about in these nine months already PBT saving of INR212 crore. So look at the way debt levels have come down, the cash has been generated. So I don’t know which part of the business we are looking at differently, Pritesh.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. Thank you very much, sir. All the best.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. We have the next question from the line of Shreyans [Phonetic] from Svan Investments. Please go ahead.

Unidentified Participant — — Analyst

Hello. Can you hear me?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Yes. Yes, we can hear you.

Unidentified Participant — — Analyst

Sir, just wanted to understand one thing, if I look at your Q-o-Q other expenses, your revenues are largely flat, but we see about 8% increase in your other expenses. So could you just explain what has driven this increase in the other expenses?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

So other expense, I’ll take little time to explain it a little more elaborately, because this is a point that’s been discussed regularly. So look at our quarter three, the other expenses is a value which is INR370.83 crores. Now what constitute this other expense? Now, two-third of this other expense is linked to the sales. Basically, it is largely related to retail sales for things like commission to the franchisee, royalty that we pay on the sales, the marketing costs that’s nearly [Phonetic] 3.7% or 3.5% of sales. There’s activity on warehouse and freight linked to the sales. So a large part of this INR370 crores, two-third is linked to increase in sales. So as the sales will keep growing up, this expense — other expense will also grow. And as the retail part of our business grows, the other expenses will go further because almost like 26% to 30% of our sales we pay as franchise commission. And so every INR100 increase in our retail sales, there will be 20 — let’s say, INR28 crores increase in other expenses.

Now, I will give you a quarter-by-quarter number on other expense. Look at quarter one, the other expense was at INR297 crore, which was 31% of our NSV. This, in the current quarter Q3, is INR370 crores, which is also 31% of our NSV. Now, wherever the retail sales are high, so like quarter one had high retail contribution of 46%, Q3 had a higher retail contribution of 47%, in these two quarters with very high retail sales, the other expenses remain around 31% of NSV. Now look at quarter two, which is a more wholesale-driven quarter, where the retail mix was only 37% versus 47% in Q3. The other expense came down from average 31% to 29%, because retail contribution was less. So in quarter one, the other expense 31%, quarter two 29%, quarter three 31%. At a nine months average, this NSV — this other expense is 31% of overall sales. And as the sales grow up and as the retail sales grow up, the other expenses will keep coming up. The other one-third is where we will strive for leverage.

Now, I’ll give you another example of Q2 versus Q3. In Q2, our other expenses were at INR342 crores, and in Q3, our other expenses at INR370 crores and the retail sales in Q3 was higher than Q2 by INR110 crores. Now if I take on this additional INR110 crores of retail sales and if I take a weighted average 28% commission, then it comes down to INR30 crores of additional commission and that is precisely the difference between the Q2 other expense of INR342 crores with Q3 other expense of INR370 crores. So there is a clear trend of close to 31% of NSV and it covers things like commission, royalty, marketing expenses, freight and warehouse and the retail staff costs in department store, et cetera, et cetera.

Whenever retail contribution comes down like in Q2, it comes down to things like 29% of sales. When the retail is high like in quarter one and quarter two, it goes up to 31%, the delta is 2%. And Q2 to Q3, the entire delta is, because of higher INR110 crores of retail sales, which in terms of commission is higher by INR30 crores. So that’s the maths on the other expenses. It’s only going up in line with sales and there is no other reason of other expenses going up. As the business grows, the royalty will go up, franchisee commission will go up, marketing investment at 3.5% of sale will continue to go up. So it’s a part of the business that will show growth as the top line and as the retail sales are growing up.

Unidentified Participant — — Analyst

So sir, if I have to think about the future as you grow your retail business, so you should be building like a 29% to 30% of other expenses that will continue to be there. So the one-third that you’re talking about, the leverage that will come in, how will you drive that because those expenses are basically office expenses where there’s no room for a lot of leverage to come in? So just wanted to understand what will drive the operating leverage in the business?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

So that’s a — that’s very interesting question. If you look at one-third of Q3 — in three months, our other expenses are at INR1,000 crores roughly. So the one-third of that is INR330 crores. And if we strive for even 5% efficiency there, which is possible, you’ll see a lot of leverage coming in. So our entire focus — if you look at this year’s — this quarter’s results also, our employee costs, which don’t come in other expenses, it’s a separate row item, we have saved 0.5% of EBITDA coming from the people side.

If you look at our marketing cost, which used to be close to 4%, now we are at 3.5%, while we are actually spending more dollars of — rupees of marketing. But since the scale is coming up, we are saving — we almost got a 0.5% saving on marketing costs currently. Also as the scale goes up on warehousing, on transportation, we are able to negotiate better with our partners. So there is a — almost like two-third is a variable component, but the other one-third, which is large value, nine months itself is INR330-odd crores, we will strive to gain as much of leverage and efficiency there as possible.

Unidentified Participant — — Analyst

Okay. Sir, my second question is if I go back three years, I’m looking at Q3 FY ’20 where we used to do about — you’ve given in the presentation that we’ve grown about 40%-odd versus Q3 FY ’20. So if I just go back in time and look at your profitability then, and this is after adjusting for IndAS, so at that point in time, our operating profit excluding other income was INR113 crores and this number, sir, includes your Unlimited losses. And whereas you look at Q3 FY ’23, our numbers are ex of Unlimited. So what I am trying to really understand is even after selling of Unlimited, we haven’t been able to see a lot of the leverage the — what you’ve been saying in the past, those numbers don’t seem to come through. So I just — question is how is this going to change and when is it going to change?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

See, if I again repeat what I just said some time, this year, we are looking at at least like aINR225 crores additional EBITDA over last year in this financial year. In nine months, the swing in our PBT is INR212 crores. So — and every quarter, we have improved our EBITDA. These nine months over last year, our EBITDA has gone up by 400 basis points. So look at our scale of our brands, the way our top-line gesture [Phonetic] will cross INR4,000 crores. There are efficiencies kicking in every day in our business.

So I am not able to visualize minus Unlimited, minus Megamart. But if I look at existing businesses, the existing portfolio of power brands and the emerging brands, the overall portfolio, we are far healthy. Our stock turns are first time crossing four. Our working capital — I mean, there is improvement of more than 10 days in our business, therefore, tight on working capital. Our interest costs are — net debt levels are at close — below INR400 crores. They used to be more than — at point of time, it was close to INR1,400 crores. So all around, this business is very healthy, efficient and bigger and more profitable. So I’m not able to imagine a situation what you are looking at and what I’m looking at.

Unidentified Participant — — Analyst

So I’ll just explain, sir. We did about INR830 crores or INR836 crores in Q3 FY ’20 ex of Unlimited. Now from INR836 crores, you have reached about INR1,200-odd crores. So that’s almost a delta of about INR400 crores in top line. Now when I look at your operating profit, excluding other income, you used to do INR113 crores, including Unlimited losses. Now ex of those losses, we are at INR120 crores. So your profits have not really changed.

Ankit Arora — Head of Investor Relations and Treasury

We don’t know what — I don’t know which numbers you are referring to, but most of our numbers have been re-stated to make them apple-to-apple. So the number you are talking before would also possibly not have Unlimited.

Unidentified Participant — — Analyst

I’ll check with you offline. I’ll take that offline. And the last question is, sir, if I just look at your profitability for our parent, we’ve done about INR8 crores of profit this quarter. Now if you see the minority interest is INR14-odd crores, so broadly that gives you INR28 crores of profit from the CK and the Tommy subsidiary. So INR28 crores profit. And if you look at the PAT before minority interest, it’s about INR22-odd crores. So there’s a INR6 crores loss that you’ve done in the other businesses. And if you look at this Q-o-Q, it’s almost a INR14 crores delta that has come in. So what is really happening in the other subsidiaries?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

So let’s look at PAT number for the cumulative nine months, now if I look at the PAT number, which is close to INR60 crores and it’s more or less an equal split between the PVH business and the all other brands of AFL, so it’s a healthy sort of a 50-50 split between the two sets. In quarter two — quarter three, PVH brands, Tommy, CK, and I’ve been running those businesses for 16 years, I know that they are pure retail businesses, so they tend to do better in the retail quarters of quarter three. Also, this quarter three, when it’s a winter season, the winter was been late there, but then still the winter-end sale was coming through in October, November, the Tommy and CK do much better in winter business than the other brands of Arvind and also the industry.

So if I really look at the sum total of their strengths in winter season and also the fact that it’s a pure largely a retail business compared to our brands, which have a very healthy wholesale business, which had peaked in quarter two, like I said in my opening comments, if I generally look at normalizing, it’s more or less equal split. And I’m looking at quarter four now, I think quarter four, you will see normalization again. And on a full year basis, it will be a kind of an equal split, not the kind of skew you are seeing in the quarter three season.

Unidentified Participant — — Analyst

Okay, sir. That helps. Thank you.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. We have the next question from the line of Jatin Sangwan from Burman Capital. Please go ahead.

Jatin Sangwan — Burman Family Holdings — Analyst

Good afternoon, sir. Thanks for taking my question. If I look at quarter-on-quarter basis, your EBITDA has remained same, but there has been a lot of difference at the PBT level. So could you explain — please explain why that has happened?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

See, if you look at items below EBITDA, basically, it’s the interest costs and the depreciation. Now when I look at last year — last quarter interest rate, there is a 85 basis point increase in interest rates since there was announcement in September end and then there was a recent announcement. So the interest rates have gone up by 0.85%, and that’s the main reason why the below EBITDA, the interest component has gone up. And actually, if you look at pre-IndAS, the operating expense, the interest rates are not very different, it’s almost like a INR2.5 crores difference. Post-IndAS, there are a lot of entries. So that’s as per the accounting policy. But if you really look at our gross debt, there’s a small — it’s more or less the same number given the size of the business. And the impact of higher repo rate of 0.85% is coming into the interest, and that’s what is making the difference.

Depreciation, also if I look at the quarter two to now, it’s gone up slightly. In terms of operating depreciation of the real business, actually it’s slightly lower. But with IndAS entry, it is looking slightly higher from INR59 crores going to INR63-odd crores. So the sum total of these two things, that is the interest and depreciation, is what leading to a slightly higher minor over EBITDA.

Jatin Sangwan — Burman Family Holdings — Analyst

And sir, according to me, your gross debt would be around INR500 crores and you have mentioned that interest has increased by 85 bps, so that would explain the difference of INR1 crores in interest expenses. But if I look at overall interest expenses, they have gone by more than INR6 crores.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

If you really see, we are also taking over close to INR23 stores of PVH. We are buying back from the franchisee in order to improve our margins. So there is a bit of a block going there also. So that’s the immediate payment to the franchisee and the block coming in. So actually, if you really see the interest cost, it’s not going up. Also, there are some other costs, which what you call as finance charges, so there is a security deposit of the franchisee that we pay also that and then there are some commissions also come in. So it’s not just the block, but there are other expenses also in the finance changes.

Jatin Sangwan — Burman Family Holdings — Analyst

And sir, what would be the break-up of this depreciation of INR63 crores into amortization of ROU assets and depreciation of PP?

Ankit Arora — Head of Investor Relations and Treasury

So you are basically asking the break-up of interest on lease liability and normal interest. Is that your question?

Jatin Sangwan — Burman Family Holdings — Analyst

Yes, and the same — and the same break-up for depreciation.

Ankit Arora — Head of Investor Relations and Treasury

Yeah, right. So interest on the normal interest cost is close to about INR21 crores and normal depreciation is about INR20 crores and the rest is on account of interest on lease liability and depreciation from ROU assets.

Jatin Sangwan — Burman Family Holdings — Analyst

Got it. Thank you. That was the last question from my end.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. We have the next question from the line of Mythili Balakrishnan from Alchemy Capital Management. Please go ahead.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Sure. A couple of questions here. Just wanted to check with you on the…

Operator

Sorry to interrupt. Your audio is not very clear, ma’am. If you could kindly come closer to the microphone?

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Is it better?

Operator

It’s still the same, ma’am. If you could go off the speakerphone maybe?

Mythili Balakrishnan — Alchemy Capital Management — Analyst

I’m not on the speakerphone. I’m on the handset only.

Operator

Now, it’s clear, ma’am.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Okay. So just wanted to check with you on this other income. What is the components of it?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Yeah. So if you look at FY — the quarter three number, the total amount of other income is INR15.9 crores. Now almost INR8 crores out of that is what we call as the provision no longer required. So we had, for example, security deposit with the franchisee, which in the past, we had written off and we had some money lying with the landlord, which we had made provision in the past. And we’ve got a genuine recovery of those money in the deposit, et cetera. And so no more of those provisions are required. So the bulk of this almost INR16 crores, INR8 crores is the provision that is not required.

Second component of that other income is we have interest coming on some of our bank deposits. So we have a INR3.3 crores of interest income from the deposit that we have made. And there’s also a rent recovery of INR2.5 crores. So what happened in some of our businesses, we pay the rent to the mall and this goes as a rental expense in our books and then we recover from the franchisee later, so that recovery is at INR2.5 crores, where accounting-wise it comes as other income. But it’s not other income, but the way the accounting is done that we make the payment to the mall first and then we recover from the franchisee. So these are the main heads. Then, there is some assessment and then security deposits fair value, which is around coming to INR2 crores. So if I really make a summary of this, there is a INR16 crores of other income, out of which INR8 crores is largely the provision that we don’t require. There is a rent recovery of INR2.5 crores. There is a interest on our deposits with the bank. We’ve got INR3.3 crores of income on that. And then, there is a INR2 crores on re-assessment and fair value of security deposits.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Got it. But on a more recurring basis, then it is probably three to — this number would be INR3 crores to INR5 crores on a quarterly basis?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Currently, if I see, it’s more close to like INR10 crores than like INR3 crores to INR4 crores. Last quarter was a little higher because there was some gain on assessment, and this is a one-off — I mean provision will happen. I shouldn’t say one-off, because INR8 crores is a larger amount. But I think around INR10 crores of this kind of entry would be normal for the sales — scale of our business.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Got it. In terms of the raw material prices, are you seeing any pass-through in terms of lower cost inventory coming to us?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Sorry, I — lower cost?

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Yes. Basically, the…

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Do you mean reduction in the cost of goods?

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Yes, yes. Do you think…

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Yeah. So it’s a very…

Mythili Balakrishnan — Alchemy Capital Management — Analyst

I meant the perspective of the cotton prices coming off and — yeah.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Understood. Thank you. See — let me first answer the first part and then I’ll come to your point. See, our world, in this current quarter three, we have never seen the kind of cost push we ever saw. The cotton prices went INR1 lakh to candy, the China import shipment costs went up, the dollar depreciated, we had to take higher costs in imports. There are a lot of things in Q3 that are at a higher level and we are still able to improve our EBITDA by 1.1%.

Now I look forward, the kind of lead times we work on, our spring/summer goods were good where there was slight softening, not full softening. But after that, the prices — cotton prices have come down to maybe INR65,000 to the peak of INR1 lakh. So most of this reduction is likely to happen by fall holiday ’23 goods, which we are booking right now with the market, the road shows are on. So the lower cost structure likely to become material in our books from fall holiday deliveries, which will start from July onwards.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Got it. Also wanted to check with you on the state of Arrow. You mentioned the fact that it’s got a low single-digit EBITDA margin. Wanted to check with you on the trajectory that you see there, the quality of sales, what do you see as the more steady state for this business?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

In fact, we are very pleased with the progress on Arrow and where the Arrow is sitting today. Today, we have seen three quarters of positive EBITDA in Arrow. COVID was very tough for a formal brand like Arrow. And also it’s a pure retail — larger retail business, so it got impacted more. But in the last three quarters, the brand has come out very strongly. Now, we did a lot of things, and I don’t want to go back again, but I just want to say that we re-energized the brand, improved the product quality, we localized it, we got a new retail entity done, we improved the sports line which is a little more work from home or casual side, we got Hrithik Roshan, a new retail and we did many things which we have been talking about, and the results of that have started to come in now.

This year, full year, pre-IndAS, the delta in EBITDA of Arrow would be close to INR65 crores to INR70 crores from losses of last year to positive almost low single-digit EBITDA. The swing is very significant, and that swing is happening because in fall holiday, Arrow saw the best or the highest improvement in sell-through. So the sell-through went up by almost like 7% to 8% and the discounting came down because of that significantly. So today, if you go to the market and talk to any big trade customer, Arrow is a strong brand and everybody will acknowledge saying that Arrow has turned around doing really well, the throughputs are good, sellthroughs are good.So a lot of changes were made.

We’re seeing the results for the last three quarters. This quarter, it had the highest improvement in full price sell-through. The delta in EBITDA this year will be very, very material for the company going forward. And from this place, where this brand now has crossed more than INR500 crores business and it’s reached early EBITDA low single-digit, the interesting part is what we do with it going forward and how do we now take it forward to the desired double-digit EBITDA in, let’s say, two years or three years. So I think the whole game in Arrow now is that in some part of Arrow it’s subscale. So for example, number of stores that Arrow has close to 200 compared to its competition, we are subscale.

And the most important thing in Arrow now is to how to open 100 good stores going forward. The earlier we can open those 100 stores, the better it will be for Arrow. It might take us one and a half years to do that, but that’s the journey that now all the efficiency and the aesthetic sides are in place, now we need to ramp up. We need to accelerate the expansion of Arrow fast. And wherever there is a subscale nature of the business, we need to bring the scale back to that business. And that’s what we are doing. We are increasing the product lines from suits and blazer to formal trouser doing really well, to the channel side where we believe it can open — it should open 200 more stores in the next two years or three years, so get to the scale that is required.

So we are — we feel very confident of what we have done with Arrow in the last two-odd years. And the recent performance has been very, very encouraging. And we will now focus on increasing the scale in the right way for Arrow and take that to double digit. Next year, I feel it should hit the middle of mid single-digit EBITDA, and that would again be a very large swing in EBITDA for Arrow and will help AFL improve its overall profitability. So Arrow is sitting on a very good wicket. And we just launched a premium line of Arrow, called 1851, that’s got very good response and it improves the revenue per square foot in stores. So a lot of good things going for Arrow right now. And our job now is to having done the job one-off turning around. We need to now scale up profitability reach 5%-odd, 6% EBITDA soon and then to double-digit EBITDA journey. That’s the game plan on Arrow.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Got it. Coming back to the margin question, which, at some level, we are all looking at. I just wanted to understand that in your view, what would be a more steady state sort of EBITDA margins that one should look at for a business of our size and scale and like by when do you think you can sort of like get there?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

So I think we have been really obsessed with that guidance ourselves. We are saying we need to hit double-digit EBITDA pre-IndAS in our power brands. And we used to say 18 months, now we are talking 12 months, now we are saying next year, because we have gone through the journey. Our EBITDA in — at the company level has gone up by 4%. And in power brands also, the EBITDA has gone up this year by 4%. Now, we are at 12.5% post-IndAS. And if we were close to 14%, we would be where we want to reach at 10% double-digit EBITDA.

So our game plan now, first step is to reach 14%-odd post-IndAS EBITDA in power brands, which we believe we should reach next year, next financial year. And that’s the first stage of improvement. And then, every year in our guidance as we grow business of — our guidance on revenue is between 12% to 15% as we keep improving the revenue and we keep turning around the brands like Arrow or make Flying Machine, Arrow big brands, higher scales towards INR1,000 crores revenue, we will get additional EBITDA. So those are the some of the things that we have to deliver, power brand, double-digit EBITDA, scaling the brands, and it will give us scale advantage. We will start getting leverage, like in this quarter, we got 0.5% additional EBITDA because of scale advantage on people costs. So there are a lot of such opportunities will keep coming as we keep growing the branding at 12% to 15%.

Mythili Balakrishnan — Alchemy Capital Management — Analyst

Got it. That’s all from my side. Thank you very much.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Sagar Parekh from One Up Financial Consultants. Please go ahead.

Sagar Parekh — One-Up Financial Consultants — Analyst

Yeah. Good afternoon, sir, and congratulations for a decent set of numbers.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Thank you.

Sagar Parekh — One-Up Financial Consultants — Analyst

My — actually, my question was on Arrow only, which you answered it quite elaborately. Just on this Arrow thing, at peak, we used to do about 700 — I think INR700 crores, INR750 crores kind of top line versus you mentioned that we will end the year this year at around INR500 crores. So when do you think we’ll probably reach the peak again? And when — once we reach the peak, do you think that we can like go to double-digit kind of pre-IndAS EBITDA margins in Arrow?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

See, next year, we should reach the highest ever revenue in FY ’24 and the double-digit EBITDA should be a journey one year later. So we are at a low-single-digit EBITDA, we should hit 5%, 6% EBITDA and then towards 10% EBITDA. So it will be like a 2, 2.5 years game from now.

Sagar Parekh — One-Up Financial Consultants — Analyst

So what will drive this margin expansion from single-digit? So apart from scale, anything else, which will…

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

So scale is very important. Also in terms of our channel mix, so what happens is that there is a certain revenue that’s coming from retail, which is a little higher. And some of the other channels, we need to increase the revenue of that. Also, the kind of brand Arrow is and the kind of prices on suit, blazer and 1851, the retail profitability also can go up. So a couple of things we have to do, scaling up; second, channel mix to be a little more rounded; third, the retail productivity, it has to go up; and overall, the way we are doing for all other brands, the discounting also has to come down in Arrow. Like most of other brands, we are looking at full price sell-through focus which should deliver lower discounting.

Sagar Parekh — One-Up Financial Consultants — Analyst

If I was to look at the overall full price sell-throughs for different brands, how would that be different from, let’s say, Arrow versus US Polo?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Arrow is now competitive. Arrow has now a good sell-through. It’s really in the last two seasons caught up with the remaining brands. So it’s now a healthy sell-through. But all brands can improve sell-through and reduce discounting, and that’s what our focus will be. Also, when we’re talking about the kind of scale in next two years Arrow should get, I think it will be a lot of leverage on cost will come from better employee costs, marketing costs as a percentage of sale will come down. So I clearly see advantage on higher channel margin in Arrow scale, better scale bringing in some more efficiency on leverage and higher EBITDA coming from there. So those are the things Arrow will have to do. And we are very confident, because, see, all the metrices, the KPIs we work on, full price sell-through, discounting, growth of business, it’s passing the test. Now, we need to scale up. We need to accelerate the expansion of this brand.

Sagar Parekh — One-Up Financial Consultants — Analyst

Got it. So when you say channel mix, you mentioned — you were trying to say that more of retail channels other than online or…

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Yeah. So for example, a competitor will be having close to 350 stores, Arrow has 200, so we need to add those 150 stores. And what happens in our business that when you open more right stores, you could actually theoretically reduce the advertising cost, because store becomes the brand advertisement. Also, Arrow could do a little more on online, so we are building marketplace model for online business. We are linking all the Arrow stores with only linkages, which will further improve the linkage and the visibility of the Arrow inventory online. So there are many things that we are doing to take Arrow forward.

Sagar Parekh — One-Up Financial Consultants — Analyst

Got it. And — so if I have to look at your overall portfolio of brands, let’s say, by next financial year, you will reach — obviously, Arrow was an outlier, but you gave a very broad elaborate answer to Arrow. But apart from that, the other two laggards are basically Sephora and this Flying Machine in terms of margins at least. So where — I mean if I have to look at the overall portfolio in double-digits, we need to scale up these two — the margins of these two brands as well, right? So where are we in that journey?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

So I think your point is very valid that — let me leave Sephora aside, but I would say first talk about Arrow and FM and both the journey. And then, FM also is close to INR500 crores business. And in our business, if we really want to be a double-digit EBITDA on a sustainable basis, we need to be much bigger and FM needs to be — we just did a strategy where we are looking at FM as a INR1,000 crores brand. And at that scale, FM also, like Arrow at INR1,000 crores, will deliver kind of — because there is a huge scale leverage in our business. Also, to do that in — let’s say for example in Flying Machine, we are looking at channel modification and the product modification. So on the product side, we are looking at adjacent category like what we have done really well in U.S. Polo. So we’ve just right now launched the first line of footwear in Flying Machine, selling online fairly well. We are encouraged by that. We are looking at inner wear, we are looking at women’s wear, probably kids’ wear. So there are lot of discussions going on with our partners to see how we can leverage new categories. And we are committed to that idea of making our brand bigger and more profitable through adjacent category. And FM will also follow that strategy.

Also in channel, FM is slightly weak in a couple of regions. So we are putting disproportionate energy in some of the regions. I don’t want to mention the regions for confidentiality and competitive positioning in the call. But we know some areas where there are regional gaps in Flying Machine. We are filling those regional gaps. Also, some channels are doing bit weak. For example, stores. We’ve done some new work on a new store identity for Flying Machine and opened the first few stores, and we want to now ramp up the store network for Flying Machine.

So in Flying Machine also, the whole opportunity for new categories, opportunity on regions side, opportunity on channel side that we can take it forward. This is our own brand, and this is where the opportunity to scale up in a sub-premium segment are enormous. And jeans is such a large segment in India that Flying Machine as an export on jeans gets a premium pricing. It’s very good opportunity. And now, we are going to try to exploit that opportunity for Flying Machine. So Arrow and Flying Machines would be a clear game plan for us to push it towards higher profitability and bigger scale.

Sagar Parekh — One-Up Financial Consultants — Analyst

And in terms of Sephora?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Yeah. So Sephora is a more niche high-price business and it’s offline, so that’s how the brand is worldwide. It has a offline appeal with women consumer in a more masstige, prestige — not masstige but prestige segment. And we have 26 stores in big cities and those stores do really well. [Indecipherable] malls ask which brand has the highest sales density, Sephora would come in the top brand for any mall in the big city.

Now, we are in dialogue with the principal to take it to the logical profitably in India. We’ll have to see how we can expand into slightly smaller cities in India and also add channels like online where we are currently not playing the game with Sephora. We don’t have the online rights. And we are in negotiation with the license or principal. So that’s a game where we have to sort of sit down and influence the principal. So that will take more time. In Arrow and Flying Machine, it’s a different ease to move forward. And here, we are actively in dialogue and we’ll see what comes out of those dialogues with the principal.

Sagar Parekh — One-Up Financial Consultants — Analyst

We are profitable at EBITDA level in Sephora?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Yeah, it’s a small, very low single-digit profitablity.

Sagar Parekh — One-Up Financial Consultants — Analyst

[Indecipherable]

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

It’s performing well. It is growing well. Like-to-like store growth is good. It’s growing good in those 26 stores. But both — it needs to be redefined completely if it’s online with smaller town expansion, et cetera, to reach a certain scale. That’s what would be — and we are in engage — we are engaged with the principal. Let’s see what comes out of it.

Sagar Parekh — One-Up Financial Consultants — Analyst

Yeah. I mean we have been engaging with the principal since a long time now, but nothing is coming out of it. And since it’s been a while, till what timeframe are you looking at probably engaging further before taking a call on what you did with other brands, which were not performing? So…

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

So we see value in this engagement because it’s a powerful brand. And we’ll indeed put in the harder work of engagement. And time has not come from our side to look at like that.

Sagar Parekh — One-Up Financial Consultants — Analyst

Okay. Some time away then before you take your call on that?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Yeah. I mean we are in active engagement. So that’s what I can say right now.

Sagar Parekh — One-Up Financial Consultants — Analyst

Okay. That’s it from my side, and wish you all the best for future. Thanks.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Thank you. Appreciate. Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Jatin Sangwan from Burman Capital. Please go ahead.

Jatin Sangwan — Burman Family Holdings — Analyst

Sir, during this time, there was a delay in winter and EOSS was also pushed to Q4. So should we expect Q4 similar to Q3?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

No. Q3, Diwali is the highest and the biggest quarter of the year. And in the quarter four, EOSS has a big impact, right? So January and till middle of Feb, EOSS done. So you cannot compare quarter to — in our business, sequential quarter-to-quarter, this is very difficult. In fact, right way we always do it is to look at even high seasonality compared with last year. So if you say compared to last year, quarter four, how do you see the performance, I can say. But if you compare a Diwali quarter with the EOSS quarter, it will not be really correct to compare the two quarters.

Jatin Sangwan — Burman Family Holdings — Analyst

Got it. And sir, just one data-keeping question, what was the actual amount of rent that we paid in this quarter and for the nine months FY ’23?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Let me just check.

Ankit Arora — Head of Investor Relations and Treasury

Jatin, I — we don’t have the exact number right now. We will — I will probably will be able to connect it back offline.

Jatin Sangwan — Burman Family Holdings — Analyst

Yeah, sure. Thank you.

Ankit Arora — Head of Investor Relations and Treasury

Thank you.

Operator

Thank you. We have the last question from the line of Gautam Rathi from CWC. Please go ahead.

Nishit Rathi — Chanakya Wealth Creation — Analyst

Yeah. Hi. Hi, this is Nishit. Just one question. Just — I was just doing the math. If — you said roughly this year should be INR1,200 crore higher than — and last year, which was roughly INR4,200 crores, INR4,300 crores of revenue. And you said both Arrow and Flying Machine are around INR500 crores brands. And if I just work — back of the envelope, if I just think about it, Sephora [Phonetic] mostly around INR300 crores brand. The point I’m trying to make is roughly INR3,000 crores worth of brands that we have are more than double-digit EBITDA and the balance brands are all single-digit EBITDA, right? Is my understanding right? What I’m saying, is that all right?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

See, the — if you look at power brands, Nishit, we said we are at nine months 12.5% post-IndAS EBITDA, right? So clearly, Tommy Hilfiger, U.S. Polo, that zone is clearly is double-digit pre-IndAS, right? And it remains and growing in that base. But that’s how I would read the data.

Nishit Rathi — Chanakya Wealth Creation — Analyst

Correct. So — but broadly, the only brand left out there is CK, right, which is also doing really well broadly from whatever we see from the PVH balance sheet. The combined PVH brands are double-digit. So the point I’m trying to make, Shailesh, out here is that broadly if you see INR3,000 crores is 10% plus EBITDA and INR1,300 crores is low single-digit EBITDA, right? So it just — if I just do the math, it should roughly work out to be around INR300 crores, INR350 crores around that EBITDA on the pre-IndAS side, right, whereas we are at INR225 crores for the nine months. It’s impossible that we are going to do INR100 crores EBITDA in the last quarter, which is the only reason I’m just trying to understand there is something which I’m not able to understand in this, right? There is something which is not fitting into the math out there.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

So what happens is that this year, Arrow is a very low — like I said, like close to like 2% kind of EBITDA and you are comparing with an expectation of 10%. So there is a big drag. Flying Machine also…

Nishit Rathi — Chanakya Wealth Creation — Analyst

No, no, I’m not taking Arrow into that account at all, right? I’m saying 4,300 — INR4,200 crore which you mentioned, right, I’m taking out the INR500 crores Arrow, I’m taking out the INR500 crores Flying Machine, I’m taking out the INR300 crores Sephora. I’m saying all of them INR1,300 crores put together is a 2% EBITDA, INR25 crores at best. And I’m saying the INR3,000 crore EBITDA, the balance brands are only the Tommy, CK and PK — Tommy, CK and U.S. Polo, right, which are all 10% plus EBITDA, right? So if I do the math, it should be bare minimum INR325 crores, unless there is a loss somewhere which I’m not able to understand.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

So I’ll explain you that what is the missing piece here. See, we have in our business couple of brands which are now not active. We have shut down the operations. So that’s brand like Ed Hardy, there’s a brand Izod, there’s a brand Aeropostale, right? Now, till last year, we were doing small business and we used to get small GP and we were paying minimum guarantee royalties. This year, we have stopped that also. We were being focused on our efforts only on the six brands. We still have a royalty minimum guarantee, which is around INR5-odd crores royalty payment, roughly around INR20 crores a year on these brands for next couple of years. So that is a missing piece. And as we grow the business to much higher EBITDA going forward, like every quarter we are increasing, then this around INR18 crores, INR20 crores EBITDA will become a smaller percentage of our overall — this is not going to grow and this will go away from our life in couple of years. So that’s the only missing piece. Maybe that’s what you are looking for.

Nishit Rathi — Chanakya Wealth Creation — Analyst

Which is fair, which explains my point. So when do you think — when should we put a sunset date for these payments going out, whether by FY ’25, FY ’26, when do they become zero?

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

We have a two to three year horizon on this. And it’s a legal commitment, so we’ll have to honor. And we are actively in partnership with all these brands. And if there is a way to sunset in some model earlier or so, we will explore that option. But currently, this is a reality we are living with.

Nishit Rathi — Chanakya Wealth Creation — Analyst

That’s perfect. And just — and one last question. I know you guys are trying hard and trying to figure this out, right, and there has been a lot of stress about Sephora, even we have been hearing — we have been reading a lot of articles. Is it — how should we think about it in our mind? Is there some kind of a timeframe that can be provided or it’s just too vague and too…

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

See, we can’t respond to speculations. This is our business. We continue to focus on running the business. And like I said, we run these 26 stores quite well with the best productivity. This is our access to women consumers, beauty segment. So we continue to run. We don’t want to respond to market speculation. And if and when on any of our brand, something comes up, we’ll always engage with our investors. So right now, I have nothing much to add, Nishit.

Nishit Rathi — Chanakya Wealth Creation — Analyst

No, no, I was just trying to understand that since the good part is we are hearing that that speculation has been put to an end. So the question I’m trying to understand is, for us to get some kind of a response to take the brand to a logical conclusion, should — is there — can we expect anything in the near-term or is it still uncertain? That’s the question I’m trying to understand that could you get some kind of an assurance from the brand to take it to a logical conclusion in the next three to six months or is it very uncertain? That’s the question.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

We are in active engagement with all principal, including with this brand. We are always trying to better our business, deliver better profitability for our portfolio of brands, our AFL level. So we are in active engagement with all our principals, right? So that is what I can say. Sometimes discussions on way forward take time, but I can’t comment more than that for — on speculation. We are running the business and we’ll — my focus is on running the business.

Nishit Rathi — Chanakya Wealth Creation — Analyst

Thanks a lot. Thanks a lot. Yeah.

Operator

Thank you. I would now like to hand to — I would now like to hand it over to Mr. Ankit Arora for closing comments.

Ankit Arora — Head of Investor Relations and Treasury

Thank you, everybody, for joining us on the call today. If any of your questions have been unanswered, please feel free to reach out to me separately, and I’ll happy to answer them offline. Thank you and have a good day.

Shailesh Chaturvedi — Managing Director and Chief Executive Officer

Thank you.

Operator

[Operator Closing Remarks]