ARVIND FASHIONS LTD (NSE:ARVINDFASN) Q2 FY23 Earnings Concall dated Nov. 15, 2022
Corporate Participants:
Ankit Arora — Head, Investor Relations
Kulin Lalbhai — Non-Executive Director
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Analysts:
Sagar Parekh — OneUp Financial — Analyst
Ritesh Choudhary — Molecule Ventures — Analyst
Jay Shah — Capital PMS — Analyst
Kunal — Alpha Invesco — Analyst
Dhruv Shah — Ambika Fincap Consultants — Analyst
Shreyansh Jain — Swan Investments — Analyst
Presentation:
Operator
Ladies and, gentlemen, good day and welcome to Arvind Fashions Limited Q2 FY23 earnings conference call. As a reminder, all participant lines will be in a listen-only mode. And, there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Ankit Arora. Thank you and over to you, sir.
Ankit Arora — Head, Investor Relations
Thanks, Seema. Hello, welcome everyone and thank you for joining us on Arvind Fashions Limited Earnings Conference Call for the Second Quarter and Half-Year ended September 30, 2022. I’m joined here today by Kulin Lalbhai, Non-Executive Director; Shailesh Chaturvedi, Managing Director and CEO; and Piyush Gupta, Chief Financial Officer of Arvind Fashions Limited. 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 financial performance for the second quarter. He will be followed by Shailesh, who will share insights into business and financial performance. At the end of management discussion we will have a Q&A sessions. 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
Thanks, Ankit. Very good afternoon to you all. Thank you for joining us for the results. Q2 was a landmark quarter for us, where our strong execution helped us achieve record revenues as well as profitability. AFL saw an industry-leading growth rate of 46% year-on year. This was led by strong like-to-like growth of close to 25% in retail and the MBO channel, doubling its revenues on a year-on year basis. The strong top-line growth was accompanied by even stronger bottom-line growth with an EBITDA margin expansion of 2.7%. The bottom-line performance was driven by high productivity, lower discounting and operating leverage.
USPA has been a star performer for us this quarter, and is poised to become one of the largest casual wear brands in the country in FY23. Our hard work on working capital control is yielding results with meaningful reduction in net working capital days to 36 days during the quarter, thereby allowing healthy free-cash flow generation. This quarter has been noteworthy with the company achieving the milestone of going past the double-digit ROCE target which we had set earlier this year to deliver annualized ROCE of around 15% in Q2. We remain excited with the continued momentum and buoyancy in customer demand, which positions us to continue focusing on improving profitability further.
I would like to now hand it over to Shailesh to take us through the specifics and more details about our financial performance.
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Thanks Kulin. Good afternoon, everyone. With nearly INR1,200 crore topline, this is the highest-ever in a quarter at AFL and with INR136 crore EBITDA we saw a very good quarter in Q2 at AFL. The growth in top-line is 46% and growth in EBITDA is nearly 90%. The result is backed by some good execution of brand promises and activities in the market, both online and offline. We saw bumper sell-through in FY ’22 season and the good work on sell-throughs have continued in SS season also where we have maintained good sell-throughs and have continued to reduce discounting. The result of this good execution is very healthy, nearly 25% like-to-like growth in our retail and increase of nearly 3% in gross margins.
There is a thrilled[Phonetic] momentum at AFL and many of our businesses have become big, enabling growth in margins through operating leverage. USPA, US Polo Association, our biggest brand crossed INR1,000 crore NSV and end of October and has now clearly established its leadership in casual space. Footwear is another adjacent category that as far with business that two times pre-COVID numbers and a growth of more than 50% in Q2. Our portfolio footwear business is likely to INR250 crores NSV market this year with healthy profitability and market-leading position.
US Polo footwear is now the leading player in this segment in all key fashion portals and recently won award as the best footwear brand in its category on Myntra. Arrow has also gained further momentum as now grown at 50% in Q2 and has delivered positive EBITDA. Tommy Hilfiger and Calvin Klein have also grown really well at 50% with very healthy EBITDA margin. Q2 also saw growth across channel, retail has grown 70%. MBO trade channel has double its business in this quarter-over last year. Online is a very healthy 26% of our revenue mix and has delivered business of more than [Indecipherable] per month-in this quarter.
I’m also excited about growth in Southern market, which has been a focus area for company and in this Diwali we saw vibrant growth of business in key southern markets. The revenue growth is supported strongly by our only linkages and we have added 300 more stores on our Omni-network and stores with omni-linkages, see a high-single-digit sales contribution coming through the omni-route. This scale and gross margin improvement has come on the back of a whole audit, refresh of our key brands, which we have improved in terms of brand appeal and agile consumer-facing touchpoints and have developed smarter designs.
Our key focus remain improvement in profitability and I’m happy to share that we have delivered close to 15% and ROCE in quarter two on an annualized basis. In the previous quarter we had achieved high-single-digit ROCE and now we have reached close to 15% milestone in journey of reaching more than 30% ROCE in the medium-term. The increase in gross margin of nearly 3%, as flown into EBITDA margin and AFL has delivered EBITDA of INR136 crore in this quarter, a growth of 19% over last year same quarter, an increase of nearly 2.7% in EBITDA margin percentage over last year. This improvement EBITDA is due to reduction in discounting, high fell-through, high freshness of inventory, operating leverage and improvement in Arrow profitability.
The business has delivered a PBT of INR45 crores with a very healthy cash generation. This has resulted in net-debt reduction to INR383 crores through strong execution and tight controls we kept inventory in check and the inventory days have come down by six days right at the start of the season. We are ready for more than [Indecipherable] and in Q2 we have delivered 4.2 [Indecipherable]. There is overall focused on deleveraging of balance sheet and besides maintenance of net-debt level, despite of healthy 50% growth in top-line, our net working capital has come down by six days. Both inventory days as well as debtor days have shown healthy reduction. Q2 also saw strong collections from the market with tight control on trade policies. PBT of INR45 crore has resulted in a PAT of INR18 crores after minority interest.
Lastly. I want to call-out our mega brand, US Polo and its strong performance. Q2 saw the highest quarterly revenue for US Polo, now it’s a INR1,000 crore NSV brand at end of October. Its NFV grew with [Indecipherable] 45% like-to-like retail. It’s adjacent categories, including footwear and kidswear, have grown at more than 50% in the quarter. helping the brand continuing double-digit pre-IndAS EBITDA margin trajectory. In last one year, we have spent a lot of efforts in brand refresh in US Polo. You may have seen the new ad campaign on the concept of twining, featuring Bollywood actor, Arjun Rampal and his family. We saw a use of an Indian celebrity for the first time in US Polo campaigns. We also refreshed the brand store identity and energized product design including its denim division.
We are very excited about prospects of dominance of USPA in the casual wear field and we’ll continue to wholeheartedly invest behind these brands to support its reengineered profitability and growth. I see a growth momentum in our brands in the season ahead. And yes, I should cross INR4,000 crores top-line this year. Our focus will we to further improve EBITDA margin and ROCE through profitable scale build-up, sharp execution of brand activities in the market, tight control on-trade policies and de-leveraging of balance sheet. Thank you.
Ankit Arora — Head, Investor Relations
Thanks, Shailesh. Seems, we can open it up now for question-and-answer session.
Questions and Answers:
Operator
Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] We’ll take our first question from the line of Mr. Sagar Parekh from One Up Financial. Please go-ahead sir.
Sagar Parekh — OneUp Financial — Analyst
Yes, hi. Good afternoon, team and congrats for decent performance and good to see numbers finally taking shape. So congrats for that. A few questions from my side. Firstly, on sequential gross margin reduction that could be purely because of the EOSS coming into July, is that the reason?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Sagar, hi.
Sagar Parekh — OneUp Financial — Analyst
Hi.
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
You know, our business is very — our industry is very seasonal. So you rightly said that quarter one, which was largely a full-price season versus quarter two, the GP has gone down, but we are happy to say that our EBITDA at a pre-IndAS level has gone up sequentially. So from our quarter one EBITDA Pre-IndAS, the operating EBITDA to the operating EBITDA Q2, the Q2 EBITDA has gone up actually, while the GP there has come down because of the EOSS discounting, but for all the other leverage in our expenses, which have not grown as the same period, our GP has gone up by 15% and because of that our EBITDA has gone up by close to 1.3% pre-operating in that and it’s a similar post-IndAS same number. So EOSS discounting is a reality and we don’t really compare sequential EBITDA margin, but we are happy to say that our Q2 operating EBITDA is higher than Q1 EBITDA.
Sagar Parekh — OneUp Financial — Analyst
But that Q2 to Q1 EBITDA higher of 1.3% as you said is also because of higher other income, which is INR20 crores this year. So if I remove the other income, still the EBITDA is higher on a quarter-on-quarter basis?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Yeah. So I reconfirm, outside of other income also our EBITDA margin in Q2 is higher, Sagar. As far as the other income is concerned, it’s just an accounting IndAS entry. It doesn’t have a bearing, but our pre-IndAS EBITDA has gone up in Q2, whereas, normally it tends to come down, but this year because of the market condition and good performance, it has gone up. And, I can give you a little more color to that so that this whole question gets addressed squarely. See there is GP drop in this quarter compared to last sequence, but that’s because of EOSS. But our GP went up by 15% in this quarter compared to last quarter and I don’t want to again and again compared Q1 versus Q2, because not fair, but I’m — since you asked that question, I’m sort of saying that the GP has gone up in value by 16%, where our expenses compared to quarter one have not gone up at the same pace and because of that our EBITDA — operating EBITDA has gone up. It’s got nothing to do with the other income or IndAS. I’m talking operating business EBITDA, Sagar here.
Sagar Parekh — OneUp Financial — Analyst
Understood, understood. And this other income of INR20 crores, anything to read here, except –because it seems to be on a higher side?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
But it’s just an accounting practice, whatever is as per the accounting rules. So out of that INR20 crores, INR14 crores is the account of IndSA 116 adjustment, which is basically to reassessment of leases and fair valuation of security deposit. And there is a INR6 crore because coming from the interest income and there are some small provision of write-back. So frankly Sagar, don’t read too much into the other income. Our fundamental business operating margin in Q2 has gone up, but it’s unfair to compare Q2 margin with Q1. I think the right way to compare is Q2 to Q2 because there a large seasonality in our business, Sagar.
Sagar Parekh — OneUp Financial — Analyst
So if I compare H1 EBITDA, which reported EBITDA before other income of INIR208 crores for H1 FY ’23, how much would be pre-IndAS, so if — In the past you mentioned to about 4% to 5% — 4%, I think is a difference between post and pre, so fair to say that we would be at 6% EBITDA pre-IndAS on H1 numbers on INR2,100 crores…
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
At 11% EBITDA post-IndAS in H1 and there is a difference of close to 4%.
Sagar Parekh — OneUp Financial — Analyst
Got it. So it’s about 10%, just correcting because it’s — I’m talking about before other income?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
No, but — I mean that’s accounting entry Sagar. It’s 11% post-IndAS, yeah.
Sagar Parekh — OneUp Financial — Analyst
Okay, fair enough. And this is my last question. If I — so this year as you said, you’ll finish the year with about INR4,000 crores odd of top-line, where would you like to see the margins pre-IndAS, I’m saying and in FY ’24 as you have in the past indicated that we would like to grow our top-line at about 12% to 15% on a steady-state basis going forward. So how should we think of margins on a sustainable side Pre-IndAS EBITDA as we as we move ahead in FY ’24?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
See, if you look at Q2 Power brand, we are at close to 13.1% post-IndAS EBITDA as you can take your calculation of pre. We are very close to sort of another trajectory of double-digit EBITDA in Power brands and our first focus on profitability is to reach that stated guidance of reaching a double-digit EBITDA in our Power brands of now — now [Indecipherable] to say 12 to 18 months or 12 months because we have made that journey last six months. So, Sagar, I think our first goal on profitability would be to reach a double digit EBITDA profitability for Power brands in the next 12 months and we are confident that whatever we are doing through the scale leverage, through efficiency of our execution, reduction in discounting coming from higher sell-through, improvement in some of our branch profitability, overall we are guided towards that and we’ll have to work hard towards that and we are very committed to that journey of reaching double digit EBITDA in Power brands in the next 12 months.
As far as the growth momentum, currently, obviously you’ve seen our growth momentum is very, very strong, it’s industry-leading. And our guidance on the top-line growth is around 12% to 15% and currently it looks more like closer to 15% because there is a strong growth momentum in our brands. All these six brands are very powerful market-leading brands. So that will help us to reach the kind of top line growth. We are looking at all the growth drivers, be it digitalization, online business, be it adjacent category growth, be it same-store growth through better execution and also the expansion into the small tier towns, all are now becoming very live and green. So we are confident that we should be in that 12% to 15% growth in the short-term more like 15%.
Sagar Parekh — OneUp Financial — Analyst
Okay. Great. I have few more questions, I’ll come back in the queue. Thanks
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Thank you, Sagar.
Operator
Thank you, sir. We take the next question from the line of Ritesh Choudhary from Molecule Ventures. Please go ahead, sir.
Ritesh Choudhary — Molecule Ventures — Analyst
Hello. So, first of all congratulation on a very nice set of numbers and it’s actually good to see margin shaping up upwards. So my question is regarding the — there were several news articles floating around for the sale of [Indecipherable]. So what is the substance in this news?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
We never respond to market speculation, we have to focus on running the business. So, no comments from our side on this.
Ritesh Choudhary — Molecule Ventures — Analyst
Okay. So, okay, okay. First point. Well that was it. Thanks.
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Thank you.
Operator
Thank you. We take the next question from the line of Jay Shah, Capital PMS. Please go ahead sir.
Jay Shah — Capital PMS — Analyst
Hi. Congratulations to the management for walking the talk and boosting a good set of numbers. I’m actually relatively new to the company. So if you don’t mind, could you just throw some light that when it comes to these brands, what part of the supply chain do we control like? Do we control the entire manufacturing itself and even if it is that, then what are the geographies that we cater to with these brands? And even the manufacturing, is it like everything that is done domestically or we do even source something from other geographies?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
So. I think let’s break down our [Indecipherable] brand portfolio into three brands, US Polo, Arrow and Flying Machine. Now, Flying Machine is our own brand. We own the brand. We started this as first denim brand many decades back. Arrow and US Polo are licensed on international giants. In these three brands we do the complete designing as well as production sourcing, end-to-end everything we do and we pay royalty on Arrow and US Polo to the principal. But we do — well this is internationally known as a Licensing model where we have license to designing, produce, distribute these brands in our territory. Now Flying Machine, our brands, we can do what we want across the world. Arrow, we sell in India. We have couple of stores in Middle-East. We have three stores in Dubai. We have rights for many other countries, some small part of Africa, so, but the focus frankly remains on India, its largest opportunity and but we have some other geography.
US Polo, which is our biggest brand also is the license we design, develop the brand and very large adjacent category in this, we have put footwear, kids wear, women’s wear, inner wear and we sell all channel in that. And we sell in South Asia. We have business in Nepal, we have business in some neighboring countries but focus again remains on India. So that about the three brands. There are three more brands which international brands, so Tommy CK, it’s a joint-venture with the principal, it’s an equal JV with PVH Phillips-Van Heusen of US, headquartered in New York. And we’ve been doing the business of these brands. Tommy, 2004 we have very strategic, long perpetual license on Tommy and Calvin also has a very long term contract with PVH. And there we source good from their lines.
So the principal does the design and the selection of the vendor and after that we take the goods directly from the vendor into our systems. And then we pay the royalty to the principal. There is a lot of localization through the help of the principal because they see India is a very big opportunity and we are a high-duty and depreciating currency regime. So we have gone and done very healthy percentage of localization in this brand, higher than any other international brand of similar repute. So it’s a very unique relationship and a very unique supply chain that we do. And our gross margin performance is very good in these brands. We are market-leading brand.
The final brand is Sephora. We are large — we are a distributor there and we saw with multi national brand, mega brands, like of the MAX and the Dior and all Huda, Pixie, we import them and we retail. So the role with Sephora is more of a distributor in India. Does that answer your question? Anything specific, more details you want, I’m happy to sort of throw some more light on that.
Jay Shah — Capital PMS — Analyst
No, no, that was really helpful. So I just wanted to know that in the geographies that when you say that you have all derived from designing to distribution, so then it is on your perusal that you can even get it manufacture from a third-party player also, right. I mean you would take it…
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Yes. There are global guidelines on production, so they have to be vetted in fact, Arvind, our own manufacturing standards are very, very high and we vet the factory on lot of parameters so that they need any international parameter because Arvind standards are very, very high standards, the AFL standard and we produce in the approved factory that we approve and sometime in Tommy CK, we source from approved vendors by the principal.
Jay Shah — Capital PMS — Analyst
Okay. And would it be safe to assume that the net figure of growth would primarily all be focused on India? Like and not in the rest of the geographies that much comparatively.
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Right now India is a very big opportunity and in times to, we will take the brand even more strongly but in the short-run, our principal focus is to expand in Indian and we see huge opportunity in small tier down like, I said earlier, and we have a lot more to do to really exploit the large potential and take us many, many years to reach to that potential, but we will be always open to other territory wherever we see opportunity.
Jay Shah — Capital PMS — Analyst
Okay. Thank you so much for all the answers and all the best for the future.
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
My pleasure.
Operator
Thank you we take the next question from the line of Mr. Kunal from Alpha Invesco, please go ahead sir.
Kunal — Alpha Invesco — Analyst
Hello.
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Hi.
Kunal — Alpha Invesco — Analyst
Yes. Good afternoon sir. Am I audible?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Yes.
Kunal — Alpha Invesco — Analyst
Yes. Thank you thank you for giving me this opportunity. So my first question is related to Arrow brand. I’m just wondering — I just wanted to know the progress in Arrow as just using one of the metrics is that in FY ’20 there were 286 stores of Arrow and in ’22, it’s down to 212, approx 74 stores have been closed, I assume in last two financial years. So what is management’s strategy for Arrow going forward and could you just let us know the Pre- and Post-India’s EBITDA margin of Arrow specifically?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
See, Arrow has been a big focus for us in the last two-year. COVID was not trying too many formal brands and we had to really adapt the brand to the new realities of post COVID world of work-from-home and we increase the proportion of it smart casual line called Arrow Sport. We made the brand more ceremonial. We got a new logo on the brand, design. We signed up with Hrithik Roshan as a big mega Bollywood celebrity to create demand for the brand. We created a new retail identity and which we have started opening door. So Arrow has now it’s turnaround really well and it’s one of the fastest-growing in our portfolio.
In the first-half, it has doubled the NSV in second-half — second-quarter it’s more than 50% growth in the Arrow business. Also, if I see the fall holiday the current season, the improvement in sell-through in Arrow is significant, almost like 10%. It’s like one of the highest in the industry. And because of this increase in sell-through, because of lowering of discount linked to that, Arrow has now turned around. It’s become EBITDA-positive and it’s a very good news and we are very excited about the brand where it is and with this energy that brand has, we’re getting a, lot of demand from the trade to open more stores of Arrow. And we targeting that how fast we can open the next 100 stores by Arrow.
It may take us probably two years but we are very committed now to take the distribution footprint of Arrow forward with a position of strength, where we have done well on the current distribution, our like-to-like growth in the business have been very-very healthy, sell-throughs have been very healthy, Brand has become EBITDA-positive and this is now the right time to accelerate and open many more stores. So maybe a year from when you ask this question, our store count would have gone up significantly higher. So we are very excited about what the short-term future holds for Arrow as a brand.
Kunal — Alpha Invesco — Analyst
Okay. Thank you. Sir, my second question is for US Polo. Sir, could you just tell me what is the sale of accessories as a percentage of overall US Polo sale? Also the management said once in their earlier con-calls that stock turns and margins are better in footwear segment. Sir, if you can just give me the quantification of what are the stock runs in footwear segment?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
So let’s start with the adjacent categories, US Polo we have [Indecipherable] but this category this is one adjacent category where we have invested ahead of the time. So we started with footwear business with a separate dedicated team. We set up a inner wear team, separate dedicated team again. We have a very large Kids business in US Polo. We’re launching other accessories as we speak things like belt and wallet and women line of footwear et cetera, et cetera. So accessories adjacent category is close to, I would say INR250 crore. This season we will cross INR300 crores of NSV of adjacent category, it’ll be north of that actually. And we are hoping that that number could touch INR500 crore NSV mark in two to three years. Because there’s a lot of energy going behind USPA and it’s adjacent category.
Coming particularly to the footwear, see, if we look at our foot wear portfolio, US Polo is the largest part of that footwear portfolio. We have good healthy footwear business in Tommy Hilfiger also and we are looking at designing some put their line for some other brands as we speak. This business is almost like this year should touch close to INR250 crores of NSV, bulk of it is will be from US Polo, which will be north of INR200 crore NSV mark. It’s a fairly healthy double-digit EBITA business. It’s grown really well. In fact, the quarter two numbers is almost two times the pre-COVID number.
In quarter two growth is a 50% like — it’s a business which is doing really well and it’s a market-leading position. It has a online-first [Indecipherable] so on all the fashion portals. If you look at Myntra or Ajio, it does very well. Last week there’s a event in Myntra for annual performance, and I’m happy to share that, US Polo foot wear won the best footwear brand this segment, so we won that award for footwear. The turn from that business are quite healthy. So it’s a profitable path growing category and we want to grow the footwear and you have done in the past for all the other forcing something. We don’t comment on such speculation, please.
Kunal — Alpha Invesco — Analyst
No, but is there a thought for you to like probably look to sell eventually or look to exit this venture or there is no thought process at the moment?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
I don’t want to comment on that side. Just please pardon. See Sephora is the business that we run 26 stores and we’ve done really well. If you look at the quarter two numbers like-for-like in Sephora is best-in the industry. We’re delivering one of the higher sales densities in the mall. Ask any mall, which is the best performing store and certainly Sephora will be like that. We’ve done a fairly good job, when we took over the Sephora from other distributor and it’s been a core part of our business and we’ll continue to sort of engage with women consumer in its premium offline driven appeal and that’s what Sephora role is in our — it’s a beauty brand for our portfolio.
Kunal — Alpha Invesco — Analyst
Okay. Got it. And my last question would be on the Arrow. So you mentioned that you are looking at overall Power brands reaching double digit pre-IndAS EBITDA in 12 months. So on Arrow specifically, once the portfolio reaches the double digit, like Arrow would be on a lower side and probably US Polo and Tommy would be on higher side for — is that like a fair understanding or even Arrow can possibly reach about double digit?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Arithmetically, you’re right because Arrow will also reach double digit EBITDA. We are very committed. It’ll take maybe a year more or one and a half year more to reach there, because it’s just broken even where brand like US Polo and Tommy are already double digit pre-IndAS EBITDA. So right now, it’s just broken even at early stages of EBITDA. But we see an acceleration at a higher pace in Arrow going forward and it should also reach where we committed to Arrow reaching double digit. But where the overall portfolio reaches 10%, maybe Arrow may be much probably less, but it should also then soon reach double digit EBITDA. Our ambition is on Arrow also is the same to reach double digit. It may take two to three years.
Kunal — Alpha Invesco — Analyst
Right. And Flying Machine?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Similar. So — since Flying Machine is also at a scale where we will need to double the scale now just little south of probably INR500 crores odd. See the journey of these brands will be interesting when we can grow them in next three odd years to INR1,000 crores with new categories and Flying Machine we are focusing a lot on jeans and new categories being developed, including footwear, including inner, including kids wear in the next one to two years. It’ll take some time, but we have started thinking on adjacent category. We’re also looking at some regions where it can grow faster. We can look at some channels where it can grow faster. So, there’s lot of energy going on to see how we can grow the brand from a slightly right now sub-scale in that sense to scale where we can talk about a very-very healthy EBITDA.
Kunal — Alpha Invesco — Analyst
Right. So Flying Machine and Arrow will probably take some time to reach double digit, maybe two years out or maybe two and a half years?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
You’re right. And we are committed to that, but compared to Tommy Hilfiger and US Polo, they may take little longer time, couple of more years.
Kunal — Alpha Invesco — Analyst
Okay fair. That’s it from my side. Thanks.
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Thank you.
Operator
Thank you. We’ll take the next question from the line of Nishid Shah from Ambika Fincap Consultants. Please go ahead.
Dhruv Shah — Ambika Fincap Consultants — Analyst
Yeah, hi. This is Dhruv Shah. Thank you for the opportunity and congratulations on a good set of numbers. Sir, the question is pertaining to our US Polo store which we opened in Chennai, which was one of the largest to which we have opened. And if I’m not wrong, this is because we are weak in South market, so can you just tell us how has been the response and how we look the Southern market going forward?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Very good question and US Polo is strong in South also now. US Polo is also a INR1,000 crore value. It’s strong across channel, across markets. Relatively, yeah, I mean you can say a little more division but, there are pockets like Telangana, extremely strong. Bangalore City very — we opened five stores on the — in the same week in Bangalore. We opened like you said in Express Avenue, which is probably one of the biggest, most important mall in South. So we opened a very large store and I’m happy to share that US Polo now is the third biggest brand story in that mall. And that mall has all the brands. And so USP has become like a top three revenue store in that mall and I’m very happy with the progress there. If you go to the store, it looks quite nice. The standards of retailing are very-very high. And from here it will only grow — grow faster and forward. So US Polo now opened lot of stores in Kerala, Telangana and Andhra. In Bangalore we’ve opened five stores, Express Avenue stores so. When we want to go even stronger in southern markets, I think US Polo will be the first brand that will figure into that leadership or the strength position in South. So US Polo is doing fairly well.
Dhruv Shah — Ambika Fincap Consultants — Analyst
When you say that we are trying to go into Tier 2, Tier 3, what kind of store size would that be?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
See, we are very clear that, there store size will be similar to the current store size, maybe the smaller version of the current. We are not looking at necessarily a different format or a different smaller store, etc. Because what we’ve realized that the well-to-do, affluent and even higher middle class consumers in these smaller town, their aspirations are very similar to the big metros. And they otherwise — if they — the offer is different, then they end up going to the big metro to shop. So that’s a learning in all our brands that we want. We consumer to shop in their own hometown and not go to the nearest metro to shop. So our offer will be very, very competitive to an urban metro center in these counts also.
Dhruv Shah — Ambika Fincap Consultants — Analyst
Right. And do we intend to open more US kids separate stores or do you plan to merge everything in one and opened one large stores, going forward?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
No. In fact, we are open to both the formats. But, I think kids separate store is a very interesting opportunity and some of other brands like Tommy Hilfiger we opened very large number of kid stores. The largest in the world in fact number of stores that we have in Tommy in India. And US Polo also exploring that route and we’ll be open to — we have a multi approach, whatever work. So couple of stores will continue to open family stores together, but definitely there is a scope of opportunity for kids standalone store in US Polo brand.
Dhruv Shah — Ambika Fincap Consultants — Analyst
Right. Great. Thank you for the opportunity. Thank you so much.
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Pleasure.
Operator
[Operator Instructions]. We take the next question from the line of Mr. Shreyansh Jain from Swan Investments. Please go ahead, sir.
Shreyansh Jain — Swan Investments — Analyst
Hello. Thank you for the opportunity. Sir, I just wanted to understand how has been the response for women’s wear in USPA?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Sorry, Shreyans, we missed that, what did you say, what’s the response in USPA?
Shreyansh Jain — Swan Investments — Analyst
How is the women’s wear response for USPA?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
You know we have discontinued women’s line in USPA couple of season, especially during the COVID. And then — we are now restarting the efforts on US solo women’s wear and it’s on the drawing board very early days of the effort. In times to see — in the couple of season, you’ll see we relaunching the women’s wear. So today if you go to any of our stores, you’ll not see women’s wear.
Shreyansh Jain — Swan Investments — Analyst
Got it. So, why I’m asking you is because fundamentally women’s wear, you need a lot of SKUs to stock, right. And you somewhere mentioned on the call, where you plan to get into footwear for women as well. So, what I’m trying to understand is the need for higher SKUs and design, will that not actually lead to balance sheet again getting bloated and higher requirement for working capital going ahead?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Yeah, so we’ll be — We’ll do it very smartly. That’s why we are very cautious right now. We are prototyping our thought process. Footwear is a different opportunity and online much easier to sell and we test launched women’s wear in last one month. Initial response was very good, but, still early days for us to comment. Apparel will follow after that. So right now, I’m not able to comment on what you’re saying about the width option that we are on the drawing board and we’ll come back with hopefully smart plant.
Shreyansh Jain — Swan Investments — Analyst
Okay. And sir, large part of in-builds that we’re opening would be company-owned, company-operated or are they franchisee stores?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
We have asset-light franchisee model-led expansion plans. So you look at our capex, not too much of investment going. Aon most of us for the majority of our stores will be franchisee stores.
Shreyansh Jain — Swan Investments — Analyst
Okay. All right. And we sell the inventory on an Sor basis or once sold, we don’t take it back, how is that — how does that…
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
We have many models. We have consignment model also, we have outright model also and it changes from franchisees-to-franchisee, market-to-market.
Shreyansh Jain — Swan Investments — Analyst
Okay. All right. And sir somewhere in the presentation you spoke about a model where you want to make — sell products, which are not sold at a discounted price. What is the model like you plan to open stores for that?
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Yeah. So, we have outlet — industry has very large outlet in physical stores which are linked to omni and we didn’t have that. So a year back we went ahead with that model and now we have these stores, which sell our five brands, only our prime brands dedicated to the five brands we have. And I don’t know, which city — which city are you from?
Shreyansh Jain — Swan Investments — Analyst
Bombay.
Shailesh Chaturvedi — Managing Director and Chief Executive Officer
Bombay. Okay, so we don’t have a store in Bombay, yet, but like for example Bangalore at the airport and at Marathahalli we opened large 3,500, and these are pure outlet model. There is no other model there. It’s not in other brands. It’s our wound five dedicated brands and it’s doing very well. It’s efficient way of liquidating all inventory in a controlled manner and this model is really working well for us. So we opened 20 of these outlet stores and by March, we should have posted 30 of these stores, which will help us liquidate old inventory at a faster pace in a very efficient way, a good margin.
Shreyansh Jain — Swan Investments — Analyst
All right. All right. That helps. Thank you so much.
Operator
Thank you. Ladies and gentlemen that was the last question for the day. I would now like to hand the conference over to Mr. Ankit Arora for closing comments.
Ankit Arora — Head, Investor Relations
Thank you everybody for joining us on the call today. If any of you have any further questions, which have remained unanswered, please feel free to reach out to me separately and I’d be happy to answer them offline. Thank you for your time and look forward to interacting with you again next quarter.
Operator
[Operator Closing Remarks]