Go Fashion (India) Ltd (NSE:GOCOLORS) Q2 FY23 Earnings Concall dated Nov. 04,2022
Corporate Participants:
Gautam Saraogi — Promoter and Chief Executive Officer,
R. Mohan — Chief Financial Officer
Analysts:
Manish Poddar — Motilal Oswal AMC — Analyst
Unidentified Speaker —
Bino — Suni Securities Finance Limited. — Analyst
Patanjali Srinivasan — Mirabilis Investment Rash — Analyst
Unidentified Participant — — Analyst
Ankit Kedia — Phillip Capital — Analyst
Rajiv — Dan Capital — Analyst
Vijay Chauhan — Wright Horizon — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Q2 FY ’23 Earnings Conference Call of Go Fashion India Limited. [Operator Instructions] I now hand the conference over to Mr. Gautam Saraogi, Promoter and CEO from Go Fashions India Limited. Thank you, and over to you, sir.
Gautam Saraogi — Promoter and Chief Executive Officer,
Good evening, and a warm welcome to everyone present on the call. Along with me, I have Mr. R. Mohan, our Chief Financial Officer; and SGA, our Investor Relations advisers. I hope you have all received our investor day by now. For those who have not you can view them on the stock exchange and on the company’s website.
We have started FY ’23 with a very strong performance in the first 2 quarters. Our revenues grew 48% Y-o-Y to INR166 crores. highest ever quarterly revenues at Go fashion. EBITDA and PAT grew by 40% and 44%, respectively, to INR49 crores and INR19 crores, respectively. This is on the back of high-volume growth and improved product portfolio by adding new products across all bottom by categories. Our revenue compared to Q2 FY ’20, which is pre covid levels have increased by 65% for Q2 FY ’22. — for EVO stood at 31% for Q2 FY ’23 compared to pre covid levels, which is Q2 FY’23. For the quarter, our volumes have grown by 34% compared to last year. And compared to pre-covid levels, our overall volume has grown by 37%.
Our products being core and essential to consumers has enabled us to operate on a business model where we offer limited discounts and the sale of products is typically at full price which is in our experience, results and greater profitability. 96% of our sales for H1 FY ’23 EVO are at full pay. In addition, our EVO’s average selling price has increased continuously primarily on account of value-added products that we have introduced as part of our portfolio. Our ASP for H1 FY ’22 stands at INR709 — as mentioned on our last call, the company has invested in brand building initiatives, which will help us gain visibility and help us focus and grow our own channels to benefit from the evolving customer trends in the market.
During the last quarter, we launched 3 films on a pan-India platform. Each of our film showcases the individual clients and journeys of the the links to all the advertisements have been added to the press release and presentation for your debt. During Q2 FY ’23, the company added product EVO stores and a total of 66 stores in H1 FY ’23. This takes our EVO store count of 569 as of 30th September 2022. As guided earlier, we will add 120 to 130 stores in fiscal year ’23, which is in line with our growth expansion plan. We are also looking at omnichannel engagement for a seamless consumer experience, building on a technology-driven growth strategy to reach consumers across all cities. We are leveraging technology to bring cost efficiency and enhance customer experience. We intend to further improve our operating efficiency and ensure efficient supply chain management through global best practices.
We will look to upgrade our warehouse tier inventory and supply management. Coming to working capital front, we have reduced our working capital days to 137 days as on 30th September 2022 as compared to 190 days as on 31st March, 2022. We are further working on it to reduce it. On the cash flow front, we have delivered positive operating cash flow of INR36 crores for the first half of the year. We look forward to continuing our initiate innovative and creative approach and launch more designs while providing more brand destinations for our customers, which will help us grow and gain market share in the coming years. Our focus will be to target customer acquisition to drive sales through our website and online marketplaces. In addition, we intend to invest in content generation engagement with a younger audience. With this, I would like to hand over the call to our CFO, Mr. R. Mohan for the update on Q2 and H1 FY ’23 results and financials. Thank you.
R. Mohan — Chief Financial Officer
Thank you, Gautam. And good evening, everyone. The company has posted a strong performance for the quarter and half year ended 30th September 2022, backed by the increased demand across product categories. Our revenue for the INR166 crores as against INR112 crores in Q2 FY ’22, a growth of 48% Y-o-Y. — gross profit at INR99 crores, a growth of 50% year-on-year with GP margins of 29.6% for the quarter. Our EBITDA for the quarter stood at INR49 crores as compared to INR35 crores in Q2 FY ’22, a growth of 40% Y-o-Y. Our EBITDA margin stood at 29.8%.
Profit before tax for the quarter stood at INR25 crores, a growth of 37% Y-o-Y, whereas profit after tax for the quarter stood at INR19 crores, we have 4% IRA growth from Q2 FY ’22. PAT margin stood at 11.6%. Coming to the H1 FY ’23 performance Hafele, revenue stood at INR331 crores as against INR143 crores in H1, a growth of 131% Y-o-Y. Gross profit stood at INR199 crores a growth of INR139 crores Y-o-Y with a GP margin of 60.1% for the quarter. Our EBITDA for the half year stood at INR102 crores as compared to INR29 crores in H1 FY ’22, a growth of 250% Y-on-Y. Our EBITDA margin stood at 31%. Profit before tax for the half year stood at INR57 crores, whereas PAT for the half year stood at INR44 crores. PAT margin stood at 13.2%. Cash flow from operations increased to INR36 crores, and cash and cash equivalent as on 30 September 2022 stood at INR131.4 crores. Our ROCE and ROE on an annualized basis stands at 20% and 18%, respectively. With this, we will now open the floor for the questions
Operator
Should we open up for questions?
Gautam Saraogi — Promoter and Chief Executive Officer,
So, yes, please
Questions and Answers:
Operator
Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants, I request that you use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Manish Poddar from Motilal Oswal AMC. Please go ahead.
Manish Poddar — Motilal Oswal AMC — Analyst
Yeah, hi, sir. Thanks for taking my call. Sir, I just wanted to understand between Q1 and Q2, is there a material difference in the mix which we offer?
Gautam Saraogi — Promoter and Chief Executive Officer,
You’re talking from a sales perspective Manish?
Manish Poddar — Motilal Oswal AMC — Analyst
Yes.
Gautam Saraogi — Promoter and Chief Executive Officer,
Yes. See, Manish, see, for us, generally, Q2 is weaker than Q1. See, for us, if you take the 4 quarters, right, Q1, Q2, Q3, Q4. Q3 is the best quarter followed by Q1, Q2 and Q4 are usually the weakest quarter in retail in general for apparel and that is why if I take to future present in Q1 and Q2, there will be a dip in revenue for those stores in Q2 because of of seasonality, your seasonality. So, the margins in Q2 will be weaker compared to Q1 — for us at the overall company level, our sales have not gone down because we’ve added new stores. But if I take the same stores which are present in Q1 and Q2, there will be a different revenue — that’s just because once the US gets over in July, August, September usually are [Indecipherable] the same thing goes with February, March in Q4.
Unidentified Speaker —
And is there a difference in mix of products also, let’s say, in terms of consumer uptick?
Gautam Saraogi — Promoter and Chief Executive Officer,
See, in our case, there’s no real shift in product — from a product perspective, our product mix sales are pretty similar in all the 4 quarters. So, there’s no real change in that. It’s just that the volumes dropped in Q2 and Q4 because of lower foot.
Unidentified Speaker —
So, what really explains the, let’s say, the pricing, if you see the sequential pricing, I think Q1 was in, and now first half, you said it’s about INR709. So Q2 would be, I think, 700 odd number. So, I’m just trying to understand, is this largely U.S’s led or you’ve taken price correction?
Gautam Saraogi — Promoter and Chief Executive Officer,
No, no, no. We have not taken any price correction. You see our sales, right? So usually, 3% to 4% of our sales, we do at US scale. So good amount of the case comes in Q2, and that is why it affects the ASP for that particular quarter. On an annualized basis, it will become the right number. It’s just that on that particular quarter, the TSC was because tends to be a little higher for us in Q2 and Q4, respectively.
Unidentified Speaker —
Okay. And that explains the gross margin correction?
Gautam Saraogi — Promoter and Chief Executive Officer,
Yes.
Unidentified Speaker —
Because despite a higher set of EBOs, the gross margin correction is largely because of that.
Gautam Saraogi — Promoter and Chief Executive Officer,
Because of that. Because Q2 actually, this is a little higher than other quarters because US usually happened the highest during July.
Unidentified Speaker —
Okay. Just a couple of them more. First is on the SSG part. So, I think the SSG still is about 30% odd and I think the pricing was about a 25% comp, the 31% was the SSG, I think. And so SSG still, the volume number is still in the 5% to 6% band? So, is consumer offtake not really there? What is the sense on growing from this?
Gautam Saraogi — Promoter and Chief Executive Officer,
So, Manish, we delivered 8% volume growth compared to pre-covered. And considering the way the consumer demand has definitely come back and look, it’s improving every quarter. since now we have 4 quarters of from Pobeda quarter the consumer demand, overall sentiment in the market is improving. So in that line, keeping in that line, we have done a 8% volume growth which as management, we feel is a very good number. Because at the end of the day, apart from the 8%, we’ve added so many other stores. We have reported an overall volume growth of more than 50%. So, keeping our overall number of stores, how much we have added, 8% for the like-to-like sold, which were present 3 years back, is a good number as management.
Unidentified Speaker —
Okay. And just one last one. So, let’s say, you folded into a number of cities in the last 2 quarters, the similar trend, which you’ve done in the past. So, from an LFS perspective, — just if you could help me understand, let’s say, you’re one of LFS, what sort of volumes do you keep in year 1 or, let’s say, from an office perspective? And how does that ramp up in year two or year three?
Gautam Saraogi — Promoter and Chief Executive Officer,
It’s very hard to say or you’re asking about new LFX, right?
Unidentified Speaker —
Right. So because the number of doors is added, when I take the volume per LFS, if I do the same thing for EBOs, your sequential trends are fine, but in the volume per LFS to take a rough number, that has dropped sequentially material by about 15% to 20%, if I compare it to the previous quarter. I’m just thinking a rough card numbers. So math can be wrong
Gautam Saraogi — Promoter and Chief Executive Officer,
You’re talking about inventory for so.
Unidentified Speaker —
Yes. So I’m taking the average pricing for the EBO and I’m rolling it across the channel. And I’m trying to get volume per EB and volume per
Gautam Saraogi — Promoter and Chief Executive Officer,
You can’t take the EVO average pricing to because what we realized in our book revenue is different.
Unidentified Speaker —
The margin.
Gautam Saraogi — Promoter and Chief Executive Officer,
So the ASP for the LFS will be different than the ASP of the ASP.
Unidentified Speaker —
Okay. Let me take that off. I think it’s a. Thank you so much.
Gautam Saraogi — Promoter and Chief Executive Officer,
I clarify Manish. No problem.
Unidentified Speaker —
Thank you so much.
Gautam Saraogi — Promoter and Chief Executive Officer,
Yes. anytime.
Operator
Thank you. A reminder to the participants, anyone wishing to ask a question, may press star and one. The next question is from the line of Bino from Suni Securities Finance Limited.
Bino — Suni Securities Finance Limited. — Analyst
A couple of accounting questions. What is the NDA impact on PBT for Q2?
Gautam Saraogi — Promoter and Chief Executive Officer,
That number, Mamoon, you have that number?
R. Mohan — Chief Financial Officer
No, it cannot be bisected to quarter-wise. Basically, this annualized figures on IndAS.
Bino — Suni Securities Finance Limited. — Analyst
Understood. So okay. annual, what would be the impact, if you could help me with that?
Gautam Saraogi — Promoter and Chief Executive Officer,
Around INR8 crores to INR9 crores would be the bottom-line impact saved in this.
Bino — Suni Securities Finance Limited. — Analyst
Understood. Understood, understood. And sir, the gain and loss on lease termination that occurs because of the IndAS accounting. Do you normally book it quarterly? Or is it booked in 1 quarter for the full year?
Gautam Saraogi — Promoter and Chief Executive Officer,
No, no. Every quarter, we’ll be booking, but that is an estimated, that is a status as on that quarter.
Bino — Suni Securities Finance Limited. — Analyst
Understood. Because when I look at your, so you have about INR130 crores of cash balance. And when I look at your other income, just which is inclusive of this gain and loss on lease termination, just too low. So that’s the reason I’m kind of a bit surprised.
Gautam Saraogi — Promoter and Chief Executive Officer,
The point is that this lease rental accounting, it varies even if you do a monthly, if you do a quarterly, if you do annualize, it varies. But at the end of the year, what would be the effect would be that it is total for the year because it changes based on the renewal changes based on the earlier closure something like a change in the terms, conditions all this.
Bino — Suni Securities Finance Limited. — Analyst
Okay. Okay. And sir, once again, if you could just repeat the volume growth Y-o-Y and same-store sales volume growth over Q2 FY ’20?
Gautam Saraogi — Promoter and Chief Executive Officer,
So the volume growth compared to last year is 33% Y-o-Y and compared to pre-COVID, 27%.
Bino — Suni Securities Finance Limited. — Analyst
Sorry, how much?
Gautam Saraogi — Promoter and Chief Executive Officer,
27.
Bino — Suni Securities Finance Limited. — Analyst
And what would be the like-to-like volume growth over Q2 FY ’20?
Gautam Saraogi — Promoter and Chief Executive Officer,
No, no, not 27%, 37% compared to pre-COVID quarter 2.
Bino — Suni Securities Finance Limited. — Analyst
Okay. But what would be the like-to-like growth? Like-to-like volume growth?
Gautam Saraogi — Promoter and Chief Executive Officer,
Like-to-like came to sales growth is 8% compared to.
Bino — Suni Securities Finance Limited. — Analyst
Okay. Okay. Got one question. On the ad spend part of the business, I believe we’ve robed in spring marketing capital for our campaigns. And I was just wondering the way they work is they do also pick up, invest in the companies in their client companies. So is anything of this sort of an arrangement is being looked forward to?
Gautam Saraogi — Promoter and Chief Executive Officer,
No. It was just a onetime association with spring capital or the creation of the accident. So pre-marketing has helped us create the film to a production. And it was only a onetime project. So, there is no ongoing association with. Just further correct on this we also consult many companies without investment.
Bino — Suni Securities Finance Limited. — Analyst
Okay. So are we planning to rope them for no, no.
Gautam Saraogi — Promoter and Chief Executive Officer,
No. No, that was only 1%. We are not looking to further associate. I mean if there is a need, we will do another project with them, but there’s no ongoing retainer in what I
Bino — Suni Securities Finance Limited. — Analyst
Understood. Understood.
Operator
The next question is from the line of Patanjali was from Mirabilis Investment Rash. Please go ahead.
Patanjali Srinivasan — Mirabilis Investment Rash — Analyst
I wanted to understand why your gross margin has not changed much despite higher EBO sales.
Gautam Saraogi — Promoter and Chief Executive Officer,
See, the EU mix has slightly improved if I compare to last year. And with that and also, like I mentioned earlier in the call, quarter 2 usually is the time when we do a little bit of exit on a certain colors on product. So that had a little impact, but also the main reason why it has seen at the 60% level is because our video mix has dramatically not changed. Our review mix has actually increased from 72% to 74%.
Patanjali Srinivasan — Mirabilis Investment Rash — Analyst
Okay. And could you just tell me what is the rent we paid for the first half of the year?
Gautam Saraogi — Promoter and Chief Executive Officer,
Sorry?
Patanjali Srinivasan — Mirabilis Investment Rash — Analyst
The rent we paid for the first half of the year.
Gautam Saraogi — Promoter and Chief Executive Officer,
Just hold on. It would be about, we would have paid about INR43 crores of rent. This is before IndAS, we would have paid about INR43 crores of rent
Patanjali Srinivasan — Mirabilis Investment Rash — Analyst
Correct, correct.
Unidentified Speaker —
Just regular
Patanjali Srinivasan — Mirabilis Investment Rash — Analyst
The regular rental
Gautam Saraogi — Promoter and Chief Executive Officer,
Payout rent payout was 43.
Patanjali Srinivasan — Mirabilis Investment Rash — Analyst
Okay. And any store guidance for the current year?
Gautam Saraogi — Promoter and Chief Executive Officer,
Sorry. The number of stores available worldwide?
Patanjali Srinivasan — Mirabilis Investment Rash — Analyst
Yes.
Gautam Saraogi — Promoter and Chief Executive Officer,
Yes. So we have given a guidance of INR120 to INR150. So we will be maintaining that guidance. So we have opened about 66 in the first half. We are looking to open another 60 to 65 in the second half.
Patanjali Srinivasan — Mirabilis Investment Rash — Analyst
Yes. Thank you, Gautam
Operator
Thank you. A reminder to the participants anyone wishing to ask a question may please press star and one. The next question is from the line of [Indecipherable] from Pisquare Investment. Please go ahead.
Unidentified Participant — — Analyst
I don’t know catch what we expected average selling size for the FY ’22 now? So I also wanted to know
Operator
Sorry to interrupt but there’s a lot of disturbance from your line.
Unidentified Participant — — Analyst
Is it better now?
Gautam Saraogi — Promoter and Chief Executive Officer,
Slightly, Yes.
Operator
Slightly
Unidentified Participant — — Analyst
So I wanted to know our guidance for top and most for and also the age selling for a further that you eating
Gautam Saraogi — Promoter and Chief Executive Officer,
Your first question was what is the? [multiple speakers]
Unidentified Participant — — Analyst
The top and bottom line for FY’23– so see, on the, we may is what is going to be the
Gautam Saraogi — Promoter and Chief Executive Officer,
On new products and new pricing of the newer products — so it’s very hard to say what is going to be our ASP at the end of the year Because that also depends on which product sales more than the Negate an same, very hard to estimate on that one to depreciate based on product — but we are at a monthly average revenue of INR55 crores to INR60 crores. So we are looking to do a revenue of more than 25 or more than
Unidentified Participant — — Analyst
And the bottom line, sir?
Gautam Saraogi — Promoter and Chief Executive Officer,
We will do a bag. We will share a 13 million to 14 million — and if possible,
Unidentified Participant — — Analyst
If I understand the PSC for the end of the what will be the 200 quarter — so it’s very difficult to estimate that because
Gautam Saraogi — Promoter and Chief Executive Officer,
So it’s very difficult to estimate that because Depends which product sells more. So I mean, it’s very hard to estimate that. But it will be — from what I understand, it will be in the range of to 740
Unidentified Participant — — Analyst
Okay. And any other guidance outlook for the —
Operator
May I request that you return to the question queue We are unable to hear you clearly.
Unidentified Participant — — Analyst
Okay.
Operator
Thank you. The next question is from the line of Ankit Kedia from Phillip Capital. Please go ahead.
Ankit Kedia — Phillip Capital — Analyst
Sir, my first question is on your pledges. You have highlighted 3 to 6 months of pledges would be reversed. Just wanted to know the status of that?
Gautam Saraogi — Promoter and Chief Executive Officer,
Yeah, so, thank you Ankit for that question. So right now, the status is the same, we haven’t been able to close the pledge it. We wanted to close it within 6 months, very which you rightly said — we are looking to close it as soon as possible. We, as a family is working on it. And it continues to be short term in nature, but hopefully, we will close it soon
Ankit Kedia — Phillip Capital — Analyst
Sure. Sir, my second question is regarding the fall in cotton prices — so currently, how much of the high cost inventory is there in the system? And when will the benefit of the low cotton prices start to come in? And while this year, we are putting in 4% to 5% of A&P spend, the cotton prices continue to fall next year. While on last call, you alluded, you will not take a price cut — but next year, the way cotton prices are, do you think you will continue to do A&P spends or keep the margins with us?
Gautam Saraogi — Promoter and Chief Executive Officer,
Yes. Okay. So, these are 2 separate questions. So first, I’ll clarify on the inventory. It’s very hard to say. I think most of our inventory would be at the older price. The price fall, which has happened has just recently happened. So now whatever we will be sourcing new inventory will be at the new price. So, this transition will take some time. It will take a few quarters for this transition to happen and provided the cotton prices stay as low as it is now, the advantage in the gross margins will eventually come. It will not come immediately because we have already, I have inventory in hand of the older price.
Now as far as A&P is concerned, we had about a 4.5% spend in the first 6 months. In the second — so next year A&P spend strategy we have really not bad. But I can guide for the next 6 months, next 6 months, the A&P spends are going to be considerably lower because as our advertising strategy was, we wanted to do majority of our A&P before festive because festive is our best quarter, right? So we wanted to do before tested. So in the second half of the year, the A&P spend is going to be considerably lower. So on a blended basis, for the financial year, I see our A&P spent between 3% and 4%. I don’t think it will cross-detween 3 and 4 because the second half the spend will be lower. As far as next year’s A&P budget is concerned, that is something which will be like to discuss or yet to strategy. So it’s very hard for me to comment on next year. But I can tell you one thing that we will not cross the 4.5%. 4.5% is the ceiling what we are looking at, whether it’s going to be 3 or whether it’s going to be 3.5 or 4, that is something which we have to strategize on.
Ankit Kedia — Phillip Capital — Analyst
Sure. Sir, just on the inventory side again, can you quantify the amount of high-cost inventory in terms of days which is giving the system from RMO finished goods — so we know that the gross margins would be slightly muted in a couple of quarters and then the benefit
Gautam Saraogi — Promoter and Chief Executive Officer,
No, Ankit, I tell you, look, the prices of the quarter was just recently come down. So I would say more than 90% of the inventory would be at the older price, obviously, because the pricing has recently only come down. So like I told you, the viewer in military, which will start coming into the system only we have will be based on the newer price.
Ankit Kedia — Phillip Capital — Analyst
And that would pretty much be utilized in Q4 or Q1 of next year? Is that assumption right?
Gautam Saraogi — Promoter and Chief Executive Officer,
Very difficult to make question because we don’t know. I mean right down the pricing has come down. yarn prices and cotton prices have been half.So it’s very difficult to comment.
Ankit Kedia — Phillip Capital — Analyst
Sure. That’s helpful. Thank you so much for this.
Gautam Saraogi — Promoter and Chief Executive Officer,
Thank you, Ankit.
Operator
Thank you. The next question is from the line of with Li from RW Advisors. Please go ahead.
Unidentified Participant — — Analyst
Thanks for the opportunity. So on S&P, the 30% figure that we see Y-o-Y, if I’m not wrong, that is 25% price and 5% volume, correct?
Gautam Saraogi — Promoter and Chief Executive Officer,
No. See, the what the S&P, what we have been talking about on the call is based on pre-covid level Y-o-Y. It’s not compared to last year because last year it was INR64. So the volume growth was 8% and SSD in value terms was 31%, compared to Q2 FY ’20 pre-covid.
Unidentified Participant — — Analyst
Understood. Okay. So Q2 FY ’20. Okay. And on the gross margin that we see, you said EBO mix has slightly improved from 72% to 74%. That is one. One other factor you mentioned, I could not get it. Can you please repeat?
Gautam Saraogi — Promoter and Chief Executive Officer,
No. Another reason why the gross margin has slightly gotten is because usually, as a brand or whatever little Stelo, majority of the ES comes in Q2.
Unidentified Participant — — Analyst
Okay. Understood.
Gautam Saraogi — Promoter and Chief Executive Officer,
It would have impacted the gross margin in
Unidentified Participant — — Analyst
And you said August, September in Q2 and February, March in Q4 are dull months, right?
Gautam Saraogi — Promoter and Chief Executive Officer,
Are dull months. Absolutely.
Unidentified Participant — — Analyst
Okay. And just one last thing. If you can repeat FY ’23 guidance. There was some background noise.
Gautam Saraogi — Promoter and Chief Executive Officer,
No, no. We are currently at a revenue — monthly revenue of about INR55 crores to INR60 crores right now. So FY ’23, we should do a number greater than INR625 crores to INR650 crores. On a conservative basis, we should be greater than that.
Unidentified Participant — — Analyst
Okay. And PAT margin wise?
Gautam Saraogi — Promoter and Chief Executive Officer,
PAT Margins, we are having the same guidance of 13% to 14% of PAT.
Unidentified Participant — — Analyst
Understood. Understood. Thank you, sir. That’s all from my side.
Operator
Thank you. A reminder to the participants, anyone wishing to ask a question may please press star and one. The next question is from the line of [Indecipherable] from Fidelity[Phonetic] Securities and Finance Limited. Please go ahead.
Unidentified Participant — — Analyst
Yeah, hi. Question on the store additions. So you’ve guided that we’ll do about 120 to 130 stores a year. In the past, you said that in order to open 120-130 stores, you’ll have to evaluate roughly 900 to 1,000 options. I just want to understand what is your in-house bandwidth? How many options your team can evaluate in a single year?
Gautam Saraogi — Promoter and Chief Executive Officer,
See, currently, we can evaluate about we are evaluating about options currently. — our team strength is set good. We have a big unit. So we are evaluating about close to 1,000 options right now. Now we are continuously adding new BD people in our team. So we are looking to increase the pool of options from INR1,000 to say INR1,500. The minute we made a INR1,500 crore to INR120 to 130 number.
Unidentified Participant — — Analyst
Understood. Okay. And by when can we see your bandwidth increasing to about 1,500 options.
R. Mohan — Chief Financial Officer
I will take over a period of time. It will take at least 1 year, 1.5 years or 2 for that kind of the second because BD is a very specialized role — so it will take over a period of time by the time that it reaches that number.
Unidentified Participant — — Analyst
Okay. Understood. A small point on the advertising. So you said about 3% to 4% of sales for this year, and it will not be higher than 4.5% next year. Historically, it has been roughly 2.5%, so let’s say, not in the coming year, but after that, do we see it reverting back to 2.5% kind of levels?
R. Mohan — Chief Financial Officer
We will always spending 2.5%, 3% on because we have a growing brand, where we are building sales channels by adding store products, you have to invest on the brand. And that’s a very important hiding point for any growing brand. So — from an advertising perspective, we will always want to maintain 2.5 3.
Unidentified Participant — — Analyst
Understood. Yes. But that’s why my question is that would you like to — would it revert back to 2.5%, 3%? Or would it stay elevated at, let’s say, 4-ish percent
R. Mohan — Chief Financial Officer
No, see, that we see that you have 2 really strategies. It’s very hard to poke — this year, we had experimented with advertising before said, which has worked well for us — and we’ll have to see the overall results and then take a call NBV. But on a blended average, we will be in the range of 2.5 to 3 and sometimes maybe 3.5%, it will be in that range up to 4%, it’s very hard to say whether it’s going to be consistently or it’s consistently to us. It’s very hard to give an exact name. Because every year’s marketing strategy and advertising strategy will be —
Unidentified Participant — — Analyst
Okay. Okay. So now coming to —
R. Mohan — Chief Financial Officer
One thing I can tell you out of certainty that we will not be crossing the point because that is something which we don’t look at it.
Unidentified Participant — — Analyst
Understood. Okay. Okay. The other point was on the inventory right now that you said that we have the old inventory and therefore there will be lag before which we start the benefits of lower prices, a yarn prices. But as a pricing policy, when you introduce new products or let’s say, when you’re pricing your products, would you retain this extra benefit? Or would you price your products also similarly so that the value close to the consumer is maintained?
R. Mohan — Chief Financial Officer
See, that’s a very good question. And I’ll put it this way. We’ll have to see steady sales prices, which have come down, how sustainable they are. So currently, I would not be — if I’m going to be pricing the product, I would take the older price only into account because that has been the higher price recently. Just right now, the cotton prices have come down. We’ll probably wait and see for a few months of sustainability of these lower prices. Will these prices turn out to be sustainable at these lower prices, then the future products that we are going to be launching. We are going to be taking the lower cotton prices into them. So we’ll have to see the sustainability of this price, which has reduced before we can start creating that as the benchmark for our newer products.
Unidentified Participant — — Analyst
Okay. Okay. And the last question is on the promoter share pledge. The loan amount is about INR150 crores. So it still remains the same? Or has there been any change in this loan amount?
R. Mohan — Chief Financial Officer
No.
Unidentified Participant — — Analyst
Is the same, right?
R. Mohan — Chief Financial Officer
Yes. Thank you so much.
Operator
Thank you. A reminder to the participants, anyone who wishes to ask a question may press star 1. The next question is from the line of Rajiv from Dan Capital. Plese go ahead.
Rajiv — Dan Capital — Analyst
Hi. Good afternoon and thanks for the opportunity. Sir, on the rental side, you said INR3 crores for first half, is it?
R. Mohan — Chief Financial Officer
Yes, absolutely.
Rajiv — Dan Capital — Analyst
And the same number for Q1 was?
R. Mohan — Chief Financial Officer
Q1, I said [Indecipherable]
Rajiv — Dan Capital — Analyst
This is the entire fixed part, right, which comes below EBITDA?
R. Mohan — Chief Financial Officer
Side. So yes, this is before India. This is range, what is state to the landlord at the moment. So Q1 was INR21 crores.
Rajiv — Dan Capital — Analyst
Okay. Okay. And on the markup strategy for your products irrespective whether it’s lean or Palazzo to typically work with 3x kind of market, right, irrespective of price point.
R. Mohan — Chief Financial Officer
Absolutely. That is a market rent. And all our products have the same kind of market growth
Rajiv — Dan Capital — Analyst
But as a –to protect, let’s say, an entry-level price point, an alternative could be I just wanted to take a mind on this part that already could be that you work with a lower markup on, let’s say, the entry-level products. And on the slightly premium categories, you work with a higher markup and the blended number still comes with the same thing, but is what you have chosen. I mean, is there a rationale behind why?
R. Mohan — Chief Financial Officer
No, that Ritas a good rationale. I think that is very true for many large formats brand large formats who have multiple product categories, they use that kind of a methodology where certain entry-level products are of a multiplier balance will be over 4 multiplier. But for our Bellinger brand, single category brand like us for us, we believe that a single multiple strategy would be better.
Rajiv — Dan Capital — Analyst
Okay.
R. Mohan — Chief Financial Officer
But that ratio stands good. However, it’s more true for the larger formats.
Rajiv — Dan Capital — Analyst
Okay. Okay. And I think there was a question on the LFS side. So if I simply do, for example, your LFS revenue divided by your average LFS store count, for Q1, that number was close to $0.25 million. And this time around, it is close to $0.19 million. So there is a close to 23% Q-o-Q drop and a similar number, let’s say, on the EBS side is 1.6% drop. So that 1.6% drop actually is in line with your ASP fall, but this 23% drop on the LFS side is, I mean, can you explain that what’s happening there?
R. Mohan — Chief Financial Officer
No, see, even on the EV front. The ASP cannot be linked with the fall in sales. In the no front also, I don’t have the exact number with me, but the fall of revenue for the same store, which was present in Q1 versus Q2, it will be a double-digit. It will not be a single digit cost.
Rajiv — Dan Capital — Analyst
Okay.
R. Mohan — Chief Financial Officer
It will not — so it cannot be looked at from an ASP perspective and then derive what is the fall in sales the ASC was more impacted because of the U.S. But if I take the absolute sales value, whether on a volume or value basis for the same store, which was present in Q1 versus Q2, there will be a double-digit cost. I don’t have the number handy with me right now, but there will be a double [Indecipherable]. And the same thing stands would even fall for large format.
Rajiv — Dan Capital — Analyst
So on the denominator side, what is taking the EBO count, I’m actually averaging for the last 2 quarters, for example, for while I’m doing for Q1, I’m doing Q4 plus Q1 combined and averaging that. And then for Q2 and, let’s say, first half, what is the average store count? And same thing I’m being for LFS. So kind of taking parity on mobile numbers. And that’s why the fall in LFS is slightly sharper.
R. Mohan — Chief Financial Officer
But I’m not very surprised with the 23% – I don’t know how you’ve derived the 23%. But at the outset, that number does not look wrong to me because there is usually a fall in from Q1 to Q2. So I’m not surprised that there is a fall.
Rajiv — Dan Capital — Analyst
Right.
R. Mohan — Chief Financial Officer
Or I don’t have the number handy right now for the call, otherwise, I would have clarified it. But at the outset, there will be a falls very difficult to exactly put the number. I don’t have it in hand right now. I’ll probably clarify with you after the call. I can send it through SGA and clarify around that.
Rajiv — Dan Capital — Analyst
Sure. And yes, that’s all.
R. Mohan — Chief Financial Officer
Thank you.
Operator
Thank you. The next question is from the line of Ankit Kedia from Phillip Capital. Please go ahead.
Ankit Kedia — Phillip Capital — Analyst
Sir, have you seen any divergence in demand in tire to 3 cities versus the top 6 or metro cities?
R. Mohan — Chief Financial Officer
Not really. We are seeing it pretty much in line with what we have seen in the last few quarters. I mean Tier 2, Tier 3 has been improving for every one detail. But otherwise, it’s pretty much inconsistent from what we have seen in the last 2 quarters. There’s no real shift as such.
Ankit Kedia — Phillip Capital — Analyst
Sure. And sir, on the LSS side, we have seen a strong growth in numbers of counters, nearly 18 counters in the first half. What is the target you have in mind for this year or next year? And what is the opportunity you see in LFS over the next 3 years? From from client perspective and ex-reliance also because dependence on reliance is very high.
Gautam Saraogi — Promoter and Chief Executive Officer,
So, I think this is a good question, and I’m happy to clarify this. We don’t have an outer limit number budget on how many stores you want to add on the LFS. Usually, from what I’ve seen in my experience, we’ve added about 100 to 150 stores maximum in a year any financial year. But many of our large former stores like Reliance Pantaloons and all are growing very fast. Now what LFS does is, what are lines kind of intimate similar does, it gives us entry into newer towns where we don’t have an. So, it gives us the entry into new markets. And that is why we selectively grow with these large format stores in the cities and told you want to collect. So, every year, wherever we find the right opportunity of acting new town or markets where we are weak, we can enter to a large format, so we will definitely explore those markets. Like in reliance today, our penetration reliance would be having close to about 2,000 stores. We have present in probably about 1,200 of them currently. We have an opportunity as understood. But that 800 also, we will selectively do what we feel is relevant to us the opportunity. Pantone is concerned, Pantone is concerned, see, the overall stores of more than 200. We are there in about 30 to 40 stores. With them also we will selectively grow. So, if I have to summarize LFS growth in the nutshell, it will happen, but it will be a selective growth based on which markets with peer to be what this area there are many formulations from it.
Ankit Kedia — Phillip Capital — Analyst
And sir, have you reclassified the numbers of stores across cities, T1, T2, T3, because Q1 presentation and Q2, the numbers are very different.
Gautam Saraogi — Promoter and Chief Executive Officer,
Yes. The overall number is the sale until what we have done is recently we just looked at population is, and we just reclassified in tire total because that was the old classification that we are following. Aand it was high time we changed the classification. So, we did a little bit of research internally. This is not done on an outside study. We have done this in a recent study, and we have reclassified what population goes for a PM. So, I’m happy to explain that. I think I’m on the call. So, any city which has a population of more than 2 million will be classed classified as year one, any city, which are having a population of 0.5 million and up to 4 million will be classified as and any population which will be year 2. Any term population will be 0.1 million to 0.5 million will be classified as year 3. And anything which is less than 1 million. Basically, anything with less than 10 lakh population will be classified as class or less than 1 lakh. Yes, yes. Sorry. My bad. Less than INR1 lakh, INR0.1 million, less than 1 lakh will be year 3
Ankit Kedia — Phillip Capital — Analyst
Sure. So incrementally, for the EBO expansion because we’re going to add 120-odd stores for next couple of years also, which year, where would these stores typically come in?
Gautam Saraogi — Promoter and Chief Executive Officer,
See, I would say it is very hard to say because we are looking to expand everywhere across all zones. But I would be getting 50% to 60% of them would be coming from Tier 1 and top 2 and top 50% of them.
Ankit Kedia — Phillip Capital — Analyst
Understood. Understood. Thank you so much, and all the best
Operator
Thank you. The next question is from the line of Vijay Chahan from Wright Horizon. Please go ahead.
Vijay Chauhan — Wright Horizon — Analyst
I just have a couple of questions. First is like, what is the elite EBITDA margin that we are targeting internally?
Gautam Saraogi — Promoter and Chief Executive Officer,
So we are looking at a steady state EBITDA margin post Ind-AS of about 31% to 32% on an annualized basis.
Vijay Chauhan — Wright Horizon — Analyst
And my second question would be like somewhere in this control, you mentioned the INR55 crores to INR60 crores of monthly run rate that we are maintaining. So, is it as of October month or the Q2 quarter end?
Gautam Saraogi — Promoter and Chief Executive Officer,
Sorry?
Vijay Chauhan — Wright Horizon — Analyst
The monthly that you mentioned of INR55 crores to INR60 crores per month. So, is it as of September, or is it as of, is it for the October month?
Gautam Saraogi — Promoter and Chief Executive Officer,
No, the quarter 2 trend is continuing in quarter 3 and getting better.
Vijay Chauhan — Wright Horizon — Analyst
Okay. So, for the October month, it has been higher than the August and September month, which is comparatively done
Gautam Saraogi — Promoter and Chief Executive Officer,
Absolutely because October is passed to the October month will be higher than September. Absolutely.
Vijay Chauhan — Wright Horizon — Analyst
Thank you.
Gautam Saraogi — Promoter and Chief Executive Officer,
Thank you, Vijay.
Operator
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.
Gautam Saraogi — Promoter and Chief Executive Officer,
Thank you, everyone, for joining us. I hope we’ve been able to answer all your queries. We will look forward to such interactions in the future. We hope to live up to the expectations of you all in the future. In case you require any further details, you may contact Mr. Devin Rover from SGA, our Investor Relations.
Operator
[Operator Closing Remarks]