Page Industries Ltd (PAGEIND) Q3 FY23 Earnings Concall Transcript

Page Industries Ltd (NSE:PAGEIND) Q3 FY23 Earnings Concall dated Feb. 09, 2023.

Corporate Participants:

V.S. Ganesh — Managing Director

K. Chandrasekar — Chief Financial Officer

Gagan Sehgal — Chief Operating Officer

Rahul Shukla — Chief Retail Officer

Analysts:

Avi Mehta — Macquarie Research — Analyst

Varun Singh — ICICI Securities Limited — Analyst

Devanshu Bansal — Emkay Global Financial Services Ltd. — Analyst

Gaurav Jogani — Axis Capital Limited — Analyst

Rishi Mody — Marcellus Investment Managers — Analyst

Sameer Gupta — IIFL Research — Analyst

Akhil Parekh — Centrum Broking Limited — Analyst

Resham Jain — DSP Investment Managers Pvt. Ltd. — Analyst

Ashish Kanodia — Citigroup Inc — Analyst

Vikas Jain — Equirus Securities Private Limited — Analyst

Ankit Kedia — PhillipCapital (India) Pvt. Ltd. — Analyst

Prerna Jhunjhunwala — Elara Securities (India) Private Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q3 FY ’23 Earnings Conference Call of Page Industries Limited. As a reminder, all participant lines will be in listen-only mode and there will be an opportunity to ask questions after the presentation concludes. [Operator Instructions] Please note this conference is being recorded.

I now like to hand the conference over to Mr. V.S. Ganesh, Managing Director of Page Industries Limited, for his opening remarks. Thank you and over to you, sir.

V.S. Ganesh — Managing Director

Thank you. Thank you, Vikram, and good evening, everyone. It’s always a pleasure to talk to all of you and thank you all for joining us on the call this evening. As you are aware, while we have reported a modest growth in revenue this quarter, we have continued our nine-month momentum. We typically have a long-term view of the growth scenario given the consumption, industry, and economic drivers. Therefore, our focus remains on intensifying general trade distribution, modern trade expansion including rapid expansion of exclusive brand outlets, growing our online business, improving our customers’ experience, strengthen the product portfolio, and ensuring a robust supply chain. Let me take you through some quick highlights before our CFO, Mr. Chandrasekar, details the financial performance for the quarter and for the nine months.

Our Q3 revenue has grown by 3% year-on-year, but has shown a degrowth of minus 3% quarter-on-quarter whereas volume has degrown 11% year-on-year and 7% quarter-on-quarter. Our margins have degrown this quarter mainly because of the higher material cost resulting from utilization of raw material, which was purchased at a higher price in previous quarters. As you know, we built strategic stock during those disruptive months and those stocks is what we were utilizing. There was also a lower absorption of labor and factory overheads. The lower than expected sale did not allow us to optimally utilize our production capacities. We also reinstated normal advertising spend as we are very confident about the long-term view of the growth and therefore, we are not holding back on that spend. A good share of that, however, was invested during Q3. As of December-end, we are present in 1,18,838 MBOs, 1,228 EBOs, and 2,967 LFS.

Our channel expansion continues to be in line with our plans. The market is not as buoyant as we expected and this is mainly what has impacted the overall performance. Moreover, with our inventory getting back to normal and having a good healthy inventory, we actually have reintroduced and rolled out ARS process across all product verticals to optimize inventory. While this is having a short-term impact on primary sales, we are confident that this will enable us to have a more robust and efficient distribution system over the long term. It is very important to note while primary sales declined in Q3, secondary sales volumes were not affected to the same extent. During the pandemic due to 1volatility created by changes in product demand mix and shortages in supply chain, we were compelled to pause ARS and distributors were free to order based on availability and based on the [Indecipherable].

This resulted in imbalance in channel partners inventory. This quarter we decided that it is better if we reinstate and implement ARS in full. This will help us to correct these imbalances as explained earlier. This not only streamlines supply chain, but it will also help in improving the ROI of the channel partners while improving order fulfillment to retailers. We look forward to your questions after our CFO gives you further insights on our Q3 financial performance. I would also like to inform you that we — today we have Mr. Gagan Segal, our COO; and Mr. Rahul Shukla, President and Chief Retail Officer; who has joined us in this call and who will be more than happy to answer any questions that you may have in their domain.

Let me thank you once again for joining into the call today. And I would like to pass on to Mr. Chandrasekar, our CFO, to give you further highlights.

K. Chandrasekar — Chief Financial Officer

Thank you, Mr. Ganesh. Good evening, friends. And I hope all of you are well and thanks for participating this evening on Page Industries earnings call. I will detail the financial performance starting with Q3. The revenues are, as now some of you would have read, that it is INR12,233 million comparing with year-on-year INR11,898 million, a growth of 3% on revenues and quarter-on-quarter it is a degrowth of minus 3%. EBITDA reported is INR1,928 million compares with year-on-year INR2,507 million. This is a degrowth of 23% and also quarter-on-quarter there is a degrowth of minus 19%. EBITDA margins are 15.8% compared with 21.1% year-on-year and 19% quarter-on-quarter. However, the 9 months OpEx are in line with the historical trend of 23% of revenues. Q3 PAT, profit after tax is INR1,237 million compares with INR1,746 million year-on-year and this is a degrowth of minus 29% and quarter-on-quarter there is a degrowth of minus 24%. The PAT margin we delivered are 10.1% compares with 14.7% year-on-year and 12.9% quarter-on-quarter.

The gross margins are about 2% less due to the absorption and part of the material cost as explained and this compares — the 37.5% for the quarter compares with 39.4% year-on-year. The nine-month volumes have shown a 23% growth from 141 million to 172 million. The nine-month revenues have shown 38% growth from INR27,754 million to INR38,195 million. The nine-month EBITDA similarly has grown by 41% from INR5,184 million to INR7,284 million. The EBITDA margins of 19.1% for this quarter compares favorably with 18.7% year-on-year. Nine months PAT has shown a growth of 42% from INR3,459 million to INR4,929 million. The nine months PAT is healthy at 12.9% compared with 12.5% year-on-year. The cash and cash equivalent has come down to INR408 million, it was INR833 million in the previous quarter due to higher inventory. Our inventory stands close to INR14,900 million, it was about INR13,600 million in the previous quarter. The net working capital is about INR8,045 million and compares with INR7,886 million in the previous quarter.

So I now request the Q&A session to commence.

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Avi Mehta from Macquarie, Please go ahead.

Avi Mehta — Macquarie Research — Analyst

Hi, sir. Am I audible?

Operator

Yes, you are. Please go ahead.

Avi Mehta — Macquarie Research — Analyst

Yeah, hi. Thanks for the opportunity. Sir, I just wanted to better understand this ARS hit that you have quantified. Would you be able to give us some sense on the quantum of the hit that we saw this quarter from this shift and whether the impact is more or less done or it will take another quarter or a few more months to kind of stabilize? Just if you could kind of share some details on that.

V.S. Ganesh — Managing Director

Yes, Mr. Mehta. On the ARS front, we reinstated category wise. We started off with men’s innerwear and the last category where we [Indecipherable] ARS was the outerwear category. And as we speak, we have actually cleaned up around 7 million pieces of excess inventory which was there in the system and this is what has basically affected the primaries. But as I told you before, this is something which is very essential for the long-term growth of the business because it is very important. We have a very hygienic and healthy stock in the pipeline and we wire our systems in such a way that we go by the true demand as far as sales is concerned. Coming back to your question as to whether this is fully done, I will say it is more or less done, but there is little bit more of cleanup required, which is happening during the month of February.

Avi Mehta — Macquarie Research — Analyst

Okay. So it will take probably — fourth quarter also might see some impact. That is the understanding.

V.S. Ganesh — Managing Director

Yes, to that extent as far as primaries are concerned. But we are very happy to see that the secondaries are doing well generally. But if you see the general retail environment, Q4 to-date is not very different from Q3. So we are hoping that things will improve from Q1 of next year and we are all geared up. Being a dominant market player, we will be the first to take advantage of this and we are well prepared for it. In the meantime as you rightly said, all brands and if you see generally there is a slackness and therefore, we are taking all measures of tightening our belts.

Avi Mehta — Macquarie Research — Analyst

Got it, sir. So if I may paraphrase, you’re saying that a, there was a slowdown in the environment itself plus you had this required need that ARS had to be done. Both of which is the reason and out of that, that ARS might be at a lower level but the environment will probably take — we’re hopeful that it should kind of come back by 1Q.

V.S. Ganesh — Managing Director

That is what we are hoping. We hope it can’t last more than Q3 so we are closely monitoring that — sorry, Q4. So I think by Q1, things should normalize. That is what we expect. But we are closely monitoring and in the meantime we are taking all necessary measures to be very conservative as far as our spends are concerned for next year and make sure that we have only the need to have spends, concentrate on the core, and maybe watch how the situation turns out next year for making investments for future. However, our long-term view is very optimistic so we will be continuing to have our share of marketing spends as we usually do because that is very essential for the brand and our outlook — long-term outlook is very, very positive.

Avi Mehta — Macquarie Research — Analyst

Got it, sir. And sir, I have two 2 more questions, but I’ll just ask the second one and probably come back to you, was on the high cost inventory. this was — essentially the impact of this high cost inventory is done, sir, and hence fourth quarter should move back to the 20%, 21% EBITDA margin. Is that a fair estimate to kind of assume or is there any change in that expectation as well?

V.S. Ganesh — Managing Director

So as I told you before as far as the impact in margin is concerned, it is not only the high cost inventory or the material cost. It is also the lower absorption of the factory overheads and compared to last year if you look, our advertising spend normalized. We can’t be media dark forever. So we are facing those spends. But to answer your specific question on inventory, yes, now the inventory which we bought at overprice should start flowing in from Q4 and we should be able to see the benefits of that flowing into our system.

Avi Mehta — Macquarie Research — Analyst

And the second part, sir, is we don’t need price hikes. We’ve not taken any price hikes or have we in this quarter because of the factory overheads, because of the need for investment. Have you taken any product price hikes that we should be aware of?

V.S. Ganesh — Managing Director

No, we have not taken any calls as regards price hike is concerned.

Avi Mehta — Macquarie Research — Analyst

Okay, sir. I’ll come back for the next question afterwards. I’ll come back in the queue. Thank you very much, sir.

Operator

Thank you. We have next question from the line of Varun Singh from ICICI Securities. Please go ahead.

Varun Singh — ICICI Securities Limited — Analyst

Am I audible?

Operator

Yes, you are. Please go ahead.

Varun Singh — ICICI Securities Limited — Analyst

Okay. Thank you very much for the opportunity. Sir, I just wanted to understand that how much would be our revenue contribution from the EBOs?

V.S. Ganesh — Managing Director

KC, you want to take that?

K. Chandrasekar — Chief Financial Officer

Varun, we don’t share those product category information in detail on the call. Do you have another question, please?

Varun Singh — ICICI Securities Limited — Analyst

Yes. And sir, my second question is if I look at your total distribution so we see that there is a 13% year-on-year increase, but the revenue growth is only 3%. So, just wanted to know that how should we read these two numbers?

K. Chandrasekar — Chief Financial Officer

Overall on the store growth, the revenue per store is around INR1 lakh and that has been more or less maintained, maybe a little bit plus/minus across the quarters. So, the store growth and the revenue growth is more or less in sync.

Varun Singh — ICICI Securities Limited — Analyst

I understand that, sir. But like our current number, there is a big difference like 13% versus 3%; even EBOs, there is 19% increase year-on-year but compared to 3% revenue growth. So just wanted to reconcile that how should we kind of understand the difference between these two numbers?

K. Chandrasekar — Chief Financial Officer

There is always an age and gestation for every store to reach full scale or mature so one should use a lag. What we typically do is use same-store growth, those kind of metrics. I will request Mr. Ganesh to explain this in more detail.

V.S. Ganesh — Managing Director

Mr. Varun, just to clarify. You see that growth you’re talking about is only for this quarter, which is more of a one-off. If you see our year-to-date performance, our growth is in line with the retail expansion whether it’s EBO or MBO expansion, it is in line. So this particular quarter the primaries, this is mainly because of ARS also, the secondaries are in line. So, there is — it is not a big concern as this is a temporary blip which we are going through.

Varun Singh — ICICI Securities Limited — Analyst

Okay. Got it, sir. Understood. Thank you very much.

Questions and Answers:

Operator

Thank you. We have next question from the line of Devanshu Bansal from Emkay Global Financial Services. Please go ahead.

Devanshu Bansal — Emkay Global Financial Services Ltd. — Analyst

Sir, Q4 has several tailwinds like delayed winter as well as the base is low due to Omicron and GST hike that was there last year. So, still our commentary is not so encouraging. So, how should we see this? Have we seen a similar to Q3 kind of a decline in Jan. as well?

V.S. Ganesh — Managing Director

Devanshu, if you look at last Q3 and this Q3, the base itself there was a small challenge because the sales in December of last Q3 was so high because of the expected GST increase and that higher base. That also had slightly impacted us when we compare quarter-to-quarter performance. Of course the main reasons are the ones which I stated before. See, as I told before also if I look at month to-date, Q4 is looking similar to Q3 as far as the buoyancy in the market is concerned. It’s not as expected and we are watching for signs of recovery and closely monitoring. And in the meantime we are also taking necessary action in the long term to preserve cash, tighten our belts and to focus only on the core so that we can improve and maintain our margins in the long run.

Devanshu Bansal — Emkay Global Financial Services Ltd. — Analyst

Sir, still I just want to understand this in more clarity. You said in Q3 secondary sales were good, but primary lagged due to ARS implementation. And now in Q4, there is similar sort of a demand environment, but the primary billing should have helped us for Jockey sales growth, right? Why is that getting impacted in Q4?

V.S. Ganesh — Managing Director

No. See Q4, we are only midway through Q4 so we need to closely monitor. What I’m saying is see generally in the market, we are not seeing any recovery in the market. It is not as buoyant as we expected and that trend which was there in Q3, we are seeing it even in Q4. That is what I meant. As far as primary sales are concerned, it all depends on how the secondaries take off from now and that is what we are basically watching.

Devanshu Bansal — Emkay Global Financial Services Ltd. — Analyst

Got it. And this demand slowdown is across categories or it is specific to some of the categories which we are facing?

V.S. Ganesh — Managing Director

Though I can say is across categories, we have been seeing some of our core categories like men’s innerwear has shown a double-digit growth. Growth of course is softer than past, but it has recorded a lower growth and that’s our core of the business so that is very heartening. Categories likes bras are well accepted, it has shown a very good growth. So it is not across categories. We have categories which has grown materially.

Devanshu Bansal — Emkay Global Financial Services Ltd. — Analyst

Got it, sir. And last question from my side. Sir, other players in the market are operating at very thin margins and some are making losses as well in this category. So how are we trying to protect our shelf space from such competition in the general trade?

V.S. Ganesh — Managing Director

I think the main thing would be that ARS itself can make smoother. The inventory turns are pretty high as far as the distributor is concerned and the distributors’ inventory health when it improves, it will definitely help him to serve the retailers. So I feel ARS is a very, very critical initiative which we have taken. And the second is we are the dominant player in the market so as far as retail is concerned, this is going to be a fast-moving product for them compared to others and that should really help. I think, Gagan, if you want, you can add more clarity to this.

Gagan Sehgal — Chief Operating Officer

Thanks Mr. Ganesh. One key thing, as Mr. Ganesh has said, that by implementing ARS, we are able to give the consumer exactly what he wants rather than the distributor placing the order as per his intelligence. So that is something we are far closer to the consumer in terms of placing right at the retail point what he wants. Second, our distribution. If you look at our entire network while you’re saying that there are players with lesser margins, but they do not have the kind of the distribution footprint that we have and which is serviced directly by our employees and by the distributor employees, right? So — and being the dominant player, the retailer obviously keeps the share of Jockey what is required as per the market so it cannot go to somebody else just like that. So because of that, we are very confident. And lastly, consumers do recognize our entire product quality. So it is not just on the margins which other players are playing on, but they truly believe in the quality of the product, both the retailer and the consumer. So as long as we are present near the consumer and we are delivering to the consumer what he wants and we are a value product though being premium — affordable premium, I don’t think there is any cause of worry there.

Devanshu Bansal — Emkay Global Financial Services Ltd. — Analyst

Got it. And just a small follow-up. Is the competitive intensity higher post COVID? Just a small comment here would be helpful.

V.S. Ganesh — Managing Director

Yes, it has become more intense because during COVID lot of players were not able to really supply at that point of time. So now everybody has come back, everybody has ample supplies. And also if you look at the athleisure category and all, there are more and more players who are entering into the space. So the competition has become intense, but then we are very, very confident of our product and we will continue to grow. So we are very optimistic of the future despite the competition and the competition keeps us on our feet, which is important.

Devanshu Bansal — Emkay Global Financial Services Ltd. — Analyst

Thank you, sir. That’s it from me.

Operator

Thank you. We have next question from the line of Gaurav Jogani from Axis Capital. Please go ahead.

Gaurav Jogani — Axis Capital Limited — Analyst

Thank you for the opportunity, sir. Sorry to harp — repeat this question, but my question again is more in terms of the demand. While we are recognizing that there was an ARS mismatch leading to a primary/secondary disconnect. But if you can qualitatively comment more on the demand front as in what is leading to this demand slowdown? Is it that there was a high base of some COVID products, which is now getting normalized leading to this Y-o-Y declines? Any color on this would be helpful.

V.S. Ganesh — Managing Director

Gaurav, what we see is generally the spends have come down and the basket size has also reduced. If somebody used to buy four pieces or three pieces, it has come down to two pieces. Maybe I think this is because of the general economic environment and it is bit sluggish and people are conservative, I think very, very tight on expense. I think the share of the wallet is a temporary thing. With back to office, back to work, there is also a huge spend when it comes to the outerwear. It’s the formal wear which people are buying now because they have to refresh their wardrobes and when you have a limited wallet, your athleisure will be something which would be postponed as far as buy is concerned. So, we do see that trend also as far as the outerwear is concerned. Even though over the year, for nine months it has shown growth, during this quarter we are seeing the trend which we feel is temporary.

Gaurav Jogani — Axis Capital Limited — Analyst

Sure, sir. Sir, and my other question is again with regards to the high cost inventory that is now getting over. So in terms of pricing if I remember it right, you had taken a 8% price increase around in December last year and I believe that is going to overlap now in Q4. So what kind of pricing are we looking ahead from Q4 onwards on a Y-o-Y basis and especially in the context where the raw material prices have come down sharply.

V.S. Ganesh — Managing Director

But Gaurav, when we looked at the pricing intervention last time, if you see, we didn’t touch the prices like everybody else because we took a long-term view because we wanted to continue to be a value for money brand for our consumers and we took a projection of how that raw material trend will work and then we touched the price accordingly. Things more or less have happened as we expected so this is something which we have considered. So as we speak, we are not looking at any immediate price interventions.

Gaurav Jogani — Axis Capital Limited — Analyst

Sir, but if I get it right, I mean you generally take a 3% to 5% price increases every year. So will the same trend will be maintained in the coming year as well?

V.S. Ganesh — Managing Director

You are asking whether we will be increasing the price by 2% or 3% next year. Am I right?

Gaurav Jogani — Axis Capital Limited — Analyst

Yes. The regular ones that you do usually.

V.S. Ganesh — Managing Director

We need to watch, it all depends on the raw material price movements. As you rightly said, it has softened over last year. So if the trend continues, we can be more conservative on that, but this only time can answer. We are just watching how the input costs are going to move. So, we will take appropriate call at the right time based on the input cost movement.

Gaurav Jogani — Axis Capital Limited — Analyst

Sir, just lastly, two more questions from my end. One is on the distribution front. Given that you have been aggressively expanding distribution over the last 1.5 to two years so in the wake of this recent slowdown in demand, will you also consider some slowing down in the distribution expansion as well?

V.S. Ganesh — Managing Director

We are looking at a normal expansion because we are not present everywhere. There is so much headroom and, as I told you, our long-term view is very, very positive. So we are actually not slowing down on those aspects because there is so much potential out there and we are continuing to be aggressive as far as retail expansion is concerned both in EBO and MBO space. Gagan, would you like to add anything more?

Gagan Sehgal — Chief Operating Officer

Mr. VSG, sorry. It was on mute here. You’ve answered it. And as Mr. VSG said, that we are also building for the future. We are very, very optimistic. And wherever we see that there is a gap and an opportunity where we can be present and be nearer to the consumer, we will not hold ourselves back. This is temporarily one or two quarters, but we need to be near to the consumer so the distribution footprint expansion will continue. Yes, we will not go on a rampant drive thinking that we have to open x number of outlets and there is a certain target that we have to make. But we will go slow and steady in terms of wherever there is an opportunity, we’ll make sure that we move this faster than ever. So it will continue and this year also you have seen there’s been a 10% increase in terms of our distribution footprint. So there’s no reason this will not continue in the future.

Gaurav Jogani — Axis Capital Limited — Analyst

Sure. And just one last bit, sir, if you can clarify the volume in pieces for this particular quarter or maybe the nine months that you called out for nine months FY ’23? I just missed that.

V.S. Ganesh — Managing Director

You want to have the volume for the quarter?

Gaurav Jogani — Axis Capital Limited — Analyst

Yes. So fourth quarter and nine months exact volume in pieces if you can highlight?

V.S. Ganesh — Managing Director

The volume for the quarter is 52.8 million. I hope you can hear me.

Gaurav Jogani — Axis Capital Limited — Analyst

Yes, I can hear you.

V.S. Ganesh — Managing Director

And the volume for the nine months is 172.4 million.

Gaurav Jogani — Axis Capital Limited — Analyst

Thank you, sir. That’s all for me.

Operator

Thank you. We have next question from the line of Rishi Mody from Marcellus Investment Managers. Please go ahead.

Rishi Mody — Marcellus Investment Managers — Analyst

Hello. Am I audible?

Operator

Yes, we can hear you. Please go ahead.

Rishi Mody — Marcellus Investment Managers — Analyst

Yeah. So my question is on the attrition part, right? Your channel sales team seems to have decreased from 759 to 714 in this quarter. This is the Q-o-Q number. So just wanted to understand what happened here. Have there been layoffs? Has it been a natural attrition where people are going to our competitors?

V.S. Ganesh — Managing Director

Gagan, do you want to take that?

Gagan Sehgal — Chief Operating Officer

Yes. It’s a natural attrition that’s happened during the course so it’s nothing to do with the tertiary sales as such. So it is something that’s temporary and obviously as and when we’ll get the replacement. But as Mr. Ganesh had mentioned earlier also that we have been very, very prudent when it comes to our expenses. So whenever there is a requirement, we’ll obviously plug in the gap. So it’s a natural attrition. There is nothing by design and people do move during this time so somebody would have changed industry, somebody would have gone to competition. So, it is something that’s happened earlier as well so there’s no cause of worry there.

V.S. Ganesh — Managing Director

And can I add to what Gagan said. We also take a lot of initiatives on productivity improvement and with that initiatives in place, we may not have a one-to-one attrition replacement because we are seeing kinds of improvement on the actions which we are taking. The productivity of the sales team is improving and there is much more work which is happening on that front. So, we can afford to be more prudent as far as investment in people is concerned without affecting the business growth.

Rishi Mody — Marcellus Investment Managers — Analyst

Got it. So, basically your ARS should help you free up some resources?

V.S. Ganesh — Managing Director

Absolutely.

Rishi Mody — Marcellus Investment Managers — Analyst

Right. So staying on the sales line, right, I see that our LFS touch points have been volatile in the past four quarters wherein in Q2 we dropped down from 3,000 odd touch points to 2,700 odd touch test points and now we’ve got back some 225-odd touch points. So, could you explain the trajectory of what’s happening here? Are we not getting acceptability in certain type of LFS stores or what’s happened? Why is there such sort of a volatility in the LFS sector?

V.S. Ganesh — Managing Director

Thank you for asking that. Rahul Shukla, who is with us today, and he will be the right person to give you clarity on this.

Rahul Shukla — Chief Retail Officer

Thank you, Mr. Ganesh, and thanks for this question, Rishi. There’s no volatility as such. As an ongoing process, we do keep looking at critically evaluating our relationships and wherever there is a synergy which Page values and the aspirations, we continue with our expansion with this point of sale. They need to be profitable, viable and meaningful for both the partner as well for us. We are the preferred partner for expansion for practically every player in the LFS ecosystem. And coming out of the COVID, there was some rationalization that the LFS partners themselves had done with some of their stores which were probably not viable or not working. Because in the LFS ecosystem, we operate on the expansion that the partners do not stagnate [Phonetic]. So, we remain very buoyant and upbeat on the prospects of our growth in the LSS ecosystem. We are the preferred partners. We occupy a leadership position in the segment that we operate in the LFS. So there is no such concern of any volatility on that front.

Rishi Mody — Marcellus Investment Managers — Analyst

Okay. So, like what explains that drop in 280 LFS points in Q2?

Rahul Shukla — Chief Retail Officer

So, there are different types of large format stores. Without getting into the names of those partners, there are some regional players who might not be a viable proposition, they might be rationalizing their own stores. So wherever we don’t see synergies with the partners, we rationalize and we look at only those partners where there’s a mutual synergy between the two.

Rishi Mody — Marcellus Investment Managers — Analyst

Okay. So if I am to read into this, I’m guessing the value format is where we would be struggling because the customer base is not really at Jockey nowadays?

Rahul Shukla — Chief Retail Officer

Not necessarily. If you look at — no, not necessarily because with the value for money proposition that Jockey offers, even in the value format we are doing quite well. I’m talking about more some regional players that probably themselves might be finding it difficult to sustain their chains and hence would be rationalizing their own chain of stores not the national chains as such. With all the national chains, we have a very robust relationship.

Rishi Mody — Marcellus Investment Managers — Analyst

My next question is you mentioned that there’s been some factory overheads and hence we were underutilized on the factory front. Could you give more color or more details on that what happened?

K. Chandrasekar — Chief Financial Officer

I can take that. For example we produced last year this time about 38 million pieces and this time we produced about 42 million pieces. So, the production was less because the sales was less as explained by Mr. Ganesh. So, invariably we have an absorption of the standard rate into the COGS and we had last year a good absorption, which means that there was about a 3% better adoption of the labor and factory overhead. This time we didn’t have it, it was almost flat. So in comparison, there is about 2.8% lower absorption of the labor and factory overhead. If you don’t produce enough, what you’ll actually pay out in labor and factory overhead, a part of that remains in your P&L.

Rishi Mody — Marcellus Investment Managers — Analyst

Understood. Okay. So now that our ARS system is in place, right, and I think last quarter also you said that we are in line — our primary sales and secondary sales were largely flowing in line. So going forward, we should be seeing inventory reduction at our end as well as the retailers or the distributors end. So this quarter what has been the — what are the inventory days versus, let’s say, last quarter and Q3 FY ’22? Like how much of inventory day savings have we done because of our ARS?

K. Chandrasekar — Chief Financial Officer

You’re talking about Page inventory not the channel inventory?

Rishi Mody — Marcellus Investment Managers — Analyst

Yes, our inventory, company’s inventory.

K. Chandrasekar — Chief Financial Officer

Overall, including raw material, we are at the highest point as I mentioned and from here, we will only see the inventory come down quarter-on-quarter and then at an optimum balanced level. So, right now we are carrying close to about 3.5 months of inventory.

Rishi Mody — Marcellus Investment Managers — Analyst

And what was it, let’s say, last year same quarter?

K. Chandrasekar — Chief Financial Officer

Last year same quarter was about half of that because we didn’t have inventory and that is why this buildup happened in the past three, four quarters. So, last year we had almost half number of days I’d say.

V.S. Ganesh — Managing Director

Because let me just give you the perspective here that last year we were struggling as far as the inventory is concerned. Because of the supply chain disruption and the huge demand which we had, our number of days inventory was very low. In fact we had some lost opportunities because we were not able to fulfill all the demand which was flowing in. So it is not comparable. So now we have additional inventory because we built some strategic raw material stock because it was very volatile out there. Even if we are willing to pay price, the supplies were not coming through. Those were times when the demand were also high and we actually invested in stock, which we believed is the right thing to do, and that is what is now getting utilized. So you will see as we move forward, the inventories reducing and normalizing.

Rishi Mody — Marcellus Investment Managers — Analyst

So, what would be our long-term target for inventory days like where can we be on a sustainable basis?

K. Chandrasekar — Chief Financial Officer

About 2.5 months on an average inventory on revenues. Just to add to what Mr. Ganesh said and clarified. So for example if you go back to last year Q1, we had about 110 days of inventory and then it came down to below 60 days because Q2 and Q3 last year were better than expected and we almost were very, very low on inventory. That’s why we came to that. So 2.5 months is about the right I mean number of days that we would plan. And more importantly, to have the relevant inventory to maximize the sales. So, those kind of efforts going.

Rishi Mody — Marcellus Investment Managers — Analyst

Understood. Okay. Final question.

Operator

Mr. Mody, could you please come back in the question queue? Thank you. We take the next question from the line of Sameer Gupta from India Infoline. Please go ahead.

Sameer Gupta — IIFL Research — Analyst

Hi. Good afternoon, sir, and thanks for taking my question. I have two questions. So, first question on the gross margin and this is the COGS line that you report in the reported SEBI format, I see that there is a contraction of 340 bps on a sequential basis. Now there is a higher price inventory which we had and which was getting normalized this quarter and there is more to go. I don’t understand why sequentially our gross margin should reduce unless there is a very adverse revenue mix that we have seen this quarter. But you also clarified during the call that the men’s innerwear, which I assume is the higher margin product, that has seen a double-digit growth. So I’m not able to understand why GM contraction should happen on a sequential basis. Thanks, sir. That would be my first question.

V.S. Ganesh — Managing Director

Again good question. Thanks. Let me take that. I explained, I think you may have missed, earlier in the call couple of questions before that we had about 2.9% lower absorption this quarter so that is why we are seeing this. So when the production and the resourcing, which is the labor and the factory overhead together, are balanced, then typically we should have — the production should absorb all the cost being incurred. That is the main reason I would say. Am I audible?

Operator

Yes, you are. Thank you. We take the next question from the line of Akhil Parekh from Centrum Broking. Please go ahead.

Akhil Parekh — Centrum Broking Limited — Analyst

Hi. Thanks for the opportunity. Sir, if I look our performance versus say an apparel retailer or a footwear retailer who is operating mid-premium, premium segment; they have continued to deliver very strong even in the third quarter and there is no sense of a weaker retail demand. So my question is our lower performance, has it to do with the increased competitive intensity in certain pockets and not much to do with the overall weaker retail environment. That’s my first question.

Operator

Hello. Members of the management, we are unable to hear you.

V.S. Ganesh — Managing Director

I’m sorry. Mr. Parekh, what I was clarifying was like when we look at the competition, we can see that we have done much better than all the competition. And I was just trying to clarify that it’s very, very important that we look at it at a category level rather than at an apparel industry level. If you look at it that way, you will find us performing much better than the competition.

Akhil Parekh — Centrum Broking Limited — Analyst

Okay. So, there’s no meaningful change in the competitive landscape as such. That is what you were trying to imply.

V.S. Ganesh — Managing Director

Yes, yes.

Akhil Parekh — Centrum Broking Limited — Analyst

Okay. And my second and last question is can you give some color in terms of demand slowdown across Tier 1, Tier 2 and Tier 3 towns? Is it same across all three or is it different across different tiers?

V.S. Ganesh — Managing Director

Mr. Parekh, your line was not clear, I couldn’t make out the question.

Akhil Parekh — Centrum Broking Limited — Analyst

My question is whether the demand weakness is democratized across different tiers of towns or is it more specific to say Tier 2 and Tier 3 and probably Tier 1 is doing relatively okay as compared to the Tier 2, Tier 3 towns?

V.S. Ganesh — Managing Director

It is — what we see generally across the board is we couldn’t see any particular rural or urban. But one thing we are seeing the premium — the consumers who are buying our premium product, we don’t see any slackness there. But overall if you look at it, there is no much difference between the tiers of town.

Akhil Parekh — Centrum Broking Limited — Analyst

Okay. Sure. That’s all from my side. Thank you so much.

Operator

Thank you. We take the next question from the line of Sameer Gupta from India Infoline. Please go ahead, sir.

Sameer Gupta — IIFL Research — Analyst

Hi sir. I’m sorry, I got disconnected. Just on that follow-up on the GM question. So when I’m looking at the 340 bps contraction, I’m basically looking at the raw material consumed line and the change in inventory line that you report in the SEBI format. So there the overhead absorption should not make a difference, right? This is purely the sales that you do and the raw materials that you consume.

K. Chandrasekar — Chief Financial Officer

Correct. This is what Mr. Ganesh explained at the beginning of the call that there is a higher price raw material which is coming in. And we had gone pretty low on inventory in Q3 of last year because the demand was better than expected and therefore there was an inventory buildup at a higher price during Q4, Q1. And so those inventories are now reflecting into the Q3 at the contribution level.

Sameer Gupta — IIFL Research — Analyst

Again sir, just a follow-up. So I’m looking at from 2Q to 3Q so if at all the consumption of high inventory is happening, probably it should reduce in 3Q versus 2Q, right?

K. Chandrasekar — Chief Financial Officer

Again the weighted average of the inventory has started reflecting more in Q3 than in Q2.

Sameer Gupta — IIFL Research — Analyst

Got it, sir. Second question, sir. So now we are seeing a general slowdown in discretionary consumption. This is across companies. This is not only with Page. So in this context, what do you envisage? I mean when can we get back to our double-digit growth trajectory? And I mean I would still assume that the macro or the consumption environment would need to pick up even with the primaries and the secondaries difference that you are having. Getting back to a double-digit growth trajectory would still require overall consumption pick up and what could be the drivers for that?

V.S. Ganesh — Managing Director

Mr. Sameer, few things which we need to. One is to have a close look at the market and see because we need to bounce back the moment we get the opportunity. From our side, we expect things should normalize by Q1. But what we are looking at as an organization even if we have only a modest growth and if this continues even in Q1, Q2, how can we maintain our margin. So we are looking inward and seeing what all cost controls we can put in place and what all are the governance measures that we should incorporate in our system so that we can protect our margins and if the market recovers faster, then it is a bonus. So that is the outlook we have. So we are looking at the very essential expenses, focusing on the core of the business and postponing other investments which can be postponed so that we can maintain the margin, watch how the market recovers and invest for growth when the market normalizes.

Sameer Gupta — IIFL Research — Analyst

That’s very clear, sir. That’s all from me. Thanks and all the best.

Operator

Thank you. We have next question from the line of Resham Jain from DSP Investment Managers. Please go ahead.

Resham Jain — DSP Investment Managers Pvt. Ltd. — Analyst

Hi. Good evening. So just to clarify, you mentioned about INR5.28 crore of inventory. Does this mean that this quarter you had 11% kind of volume degrowth? Is that the right number I’m looking at?

V.S. Ganesh — Managing Director

KC, you want to take that?

K. Chandrasekar — Chief Financial Officer

We mentioned about 11% year-on-year. Is that the question?

Resham Jain — DSP Investment Managers Pvt. Ltd. — Analyst

Yes. My question was 11% volume degrowth. Is that the right number?

K. Chandrasekar — Chief Financial Officer

It is.

Resham Jain — DSP Investment Managers Pvt. Ltd. — Analyst

Okay. Secondly, my question is on EBOs. The ARS system which you have implemented in this quarter or you have reintroduced from last few months, is it applicable for EBOs also or this is more to do with MBOs?

V.S. Ganesh — Managing Director

Mr. Jain, this is more to do with the MBOs. EBOs, we’re always following this. So, it’s more to do with MBOs.

Resham Jain — DSP Investment Managers Pvt. Ltd. — Analyst

So can you — just to get a sense on how the secondary movement might have been, can you help us with the EBO growth number in this quarter?

V.S. Ganesh — Managing Director

>Mr. Jain, as Mr. Chandrsekar clarified last time, we don’t give channel-wise breakup. It is good for all of us to not share those information, which is competition sensitive.

Resham Jain — DSP Investment Managers Pvt. Ltd. — Analyst

Okay. So why I’m asking this specifically is because, let’s say, if EBO, secondary sales and ARS is implemented, then the MBO might have actually degrown much higher than — from volume perspective higher than what we actually see for the company as a whole because in the past you did mention about EBO being 20% of your sales. Is that statement correct?

V.S. Ganesh — Managing Director

Yes. The impact, as you rightly said — you are right in your judgment as regards impact is concerned because if you look at the primary, the secondary is what we need to look at when we are doing this correction. So secondaries has been now getting in line with primaries. That shows the inventory correction has more or less happened. But you are right, the impact has been more on the MBO side because of the correction which we undertook through the ARS system.

Resham Jain — DSP Investment Managers Pvt. Ltd. — Analyst

Okay. So, the last one is on in-house versus outsourcing mix because what we could see from numbers, and I could be wrong here, that your purchase of traded goods number as a percentage of sales has been going up consistently since last few years. So has your own manufacturing contribution has come down? If you can just give a sense of how it has moved over the last three years, that would just help to understand the trajectory? That’s it.

V.S. Ganesh — Managing Director

Mr. Jain, we always have been around 33% to 35% of what we sell has been outsourced. So we always maintain that, we have not increased it. There was a slight increase during the pandemic time because the demand was very high and the quickest way to augment capacities were through outsourcing. But we are back to the same 66:34 ratio. Long term we will continue to expand because you should also understand it’s a growing concern so while we internally grow, outsourcing also grows because the overall demand if you see the year-to-date growth also, it’s a significantly high growth which we had. And as the relationship with our supply partners improves and they are like extended arm of Page, we may look at a higher ratio also because they are just like another factory of ours. They are like franchisee factories and that’s the kind of relationship with which we have built this. So we’ll continue to look at that so that we have a good balance between in-house and outsourcing. This is very important to have agility with more and more volatility in the business. If there’s cyclic upside which we need to look at, we need to have both the levers in our hands.

Resham Jain — DSP Investment Managers Pvt. Ltd. — Analyst

Okay. Very well explained, sir. Can I squeeze one more, one last one?

Operator

Please go ahead, sir.

Resham Jain — DSP Investment Managers Pvt. Ltd. — Analyst

Sir, just one is on kids just based on what we understand from the market. Kids which we were expanding quite rapidly since last two, three years or two years specifically, we have seen some slackness there in the marketplace and some slowness. If you can just explain what’s happening on the kids side, has there been any change in strategy or are you seeing anything in the marketplace specifically? Thank you. That’s it. That’s all.

V.S. Ganesh — Managing Director

Mr. Jain. we are seeing good growth in kids. I’m not talking about Q3. But if you see year-on-year, we have grown significantly so there is no slackness as we see. Of course we are taking measures to see how we can further accelerate the growth of this category, but it has grown to our plan.

Resham Jain — DSP Investment Managers Pvt. Ltd. — Analyst

Okay, sir. Thank you. All the best.

Operator

Thank you. We have next question from the line of Ashish Kanodia from Citi. Please go ahead.

Ashish Kanodia — Citigroup Inc — Analyst

Yes. Sir, the first question is on the gross margin. So if I look at the 4Q ’22 gross margin, my understanding is it benefited because of the price hike you took in anticipation of the GST rate hike which never happened. So is that understanding correct that the 4Q ’22 gross margin was actually higher?

V.S. Ganesh — Managing Director

Not exactly. The price corrections which we took because of the input cost pressures because of the cotton price. There also we didn’t want to cover the entire expenses because of the input cost measure. We were looking at taking a long-term view and we were looking at how the projected cotton price is going to move and touched accordingly. So this price increase was not purely because of the GST.

Ashish Kanodia — Citigroup Inc — Analyst

Sure, sir. Secondly, if you can highlight what is the costing approach for raw material? Is it like — or for the COGS, is it first in first out or is it a weighted average?

V.S. Ganesh — Managing Director

The method is weighted average.

Ashish Kanodia — Citigroup Inc — Analyst

Sure, sir. And the last question is you talked about the lower absorption of overheads in 3Q. Now if I just weave through some of the earlier commentary so we are already at highest point of inventory and then there is some slowdown as well in demand. So, is it fair to say that when we look at 4Q maybe again because we are carrying some inventory so the product level would be lower than maybe sales purely because demands are expected to be slightly muted and you have already high inventory and we may see some lower absorbs in 4Q as well.

V.S. Ganesh — Managing Director

What we are doing is we have raw material and see, as I told you before also, long-term outlook is very robust. So, what we are doing is to utilize the capacity and produce what is safe. So we are looking at the core products, the 80:20 rule, that 20% of the volumes gives 80% of the revenue. Those products we are producing so that we can utilize the capacity which we have installed and we have also worked with our vendor partners from the outsourcing side and since most of them work for multiple buyers, they are able to manage their capacities and we are in a position to slow down the offtake from there. So this is where, as I told you before, it is very important as a company. We have both the levers in our hands so that we can manage this well.

Ashish Kanodia — Citigroup Inc — Analyst

Sure, sir. This is very helpful. Thank you.

Operator

Thank you. We take the next question from the line of Vikas Jain from Equirus Securities. Please go ahead.

Vikas Jain — Equirus Securities Private Limited — Analyst

Thank you, sir. Thank you for the opportunity. Sir, my first question is with respect to your outlook and the growth that we estimate for FY ’24. Can you maybe elaborate as to like which segments will deliver the growth for us in FY ’24 as a whole? And also color as to like how — so will it be like women’s wear or kids wear that will be the key frontrunners or will it be equally contributed by the men’s wear as well as athleisure also? Some color there, please.

V.S. Ganesh — Managing Director

Vikas, it definitely has to be across the board because if you look at the market share which we have and the headroom we have, there is tremendous potential to grow in all our categories and that has been the case. If you look at year-to-date, all our categories have grown and that will be the trend going forward as well.

Vikas Jain — Equirus Securities Private Limited — Analyst

Correct. Sir, but wanted more so from the perspective of men’s and athleisure wear as well, right? Because last year in FY ’23, we have seen a very good growth in athleisure as well as the men’s wear category whereas we are making incremental efforts to grow in our women’s wear as well the kids wear category. More so from our perspective will it be like a base effect that will be coming here and the growth will be much higher on the new emerging categories or it we like even in terms of percentage wise also men’s and athleisure will be growing at a similar pace [Technical Issues].

V.S. Ganesh — Managing Director

I feel the emerging categories like outerwear, especially women bras, they should have an accelerated growth because we have less penetration and there is much more headroom. But overall, all categories should grow. Athleisure, yes, during the pandemic as the consumption pattern was such that there was a higher demand for it and it softened post pandemic. But long term that should definitely grow because pandemic was a great opportunity for many of our consumers to discover our product on athleisure and it was something wherein we were able to engage lot of new customers. So this is definitely going to help us in the long run.

Vikas Jain — Equirus Securities Private Limited — Analyst

Correct. And sir, and some color with respect to the current quarter that is 3Q of ’23. Any color as to like which category did well and which category was like under pressure?

V.S. Ganesh — Managing Director

As I told you, men’s innerwear category did comparatively well, it’s recorded a double-digit growth. Our bras category is well received, it has also shown a good growth softer than usual, but it has grown.

Vikas Jain — Equirus Securities Private Limited — Analyst

Sure. And athleisure?

V.S. Ganesh — Managing Director

Athleisure if you look at year-to-date, it has definitely shown a decent growth in line with our expectations. Yes, quarter three was challenging.

Vikas Jain — Equirus Securities Private Limited — Analyst

Sure. Sir, and the last question. In last call we did mention that we are now focusing on the exports market as well. So any meaningful progress that we have achieved this quarter?

V.S. Ganesh — Managing Director

Sorry, Mr. Vikas, was not able to make out question.

Vikas Jain — Equirus Securities Private Limited — Analyst

I was talking about that in last earnings call, we did mention our increased focus on growing in the Middle East and other export markets. So any meaningful progress that we have achieved there.

V.S. Ganesh — Managing Director

Yes. So in the last call, what I was saying is we are concentrating more here. And as far as overseas market is concerned, we are concentrating more on the Middle East because with the economic situation in Sri Lanka and Nepal, it’s not so buoyant, Therefore, whatever effort we are putting in, it’s more focused on the Middle East market for the time being and we are closely watching how these markets are recovering in the other territories.

Vikas Jain — Equirus Securities Private Limited — Analyst

Right. Okay, sir. Thank you so much.

Operator

Thank you. We have the next question from the line of Rahul Jain from PhillipCapital. Please go ahead.

Ankit Kedia — PhillipCapital (India) Pvt. Ltd. — Analyst

Hi. This is Ankit here. Just wanted to understand, sir, our new capacities from Orissa is expected to come in in the months of April or May. From the usual distribution side, we have done a lot of good work and broadly this going to be for modern classes. How are we looking at distribution to take care of this capacity and would we initially start with double shift or single shift only given the current demand environment we’re having for this capacity?

V.S. Ganesh — Managing Director

So Odisha when we commence operations, it will be in single shift. We always will have the option to go to double shift. But the commencement of operation would be on single shift because there is a huge effort required as far as training the operators and getting the efficiencies. It is much more easier to manage it if it’s in the general shift. And as we move forward if there’s a need, we can always explore the double shift opportunity.

Ankit Kedia — PhillipCapital (India) Pvt. Ltd. — Analyst

And sir, can you elaborate on the rural distributorship, what has been the progress and how do we plan to utilize this incremental capacity? Because few questions back you answered you want to be 65:35 in outsourced and own manufacturing. With own manufacturing share increasing significantly with this capacity coming in, where do you plan to use this product? Which product are you looking to manufacture from a distribution perspective?

V.S. Ganesh — Managing Director

Okay. So Odisha is going to manufacture the men’s innerwear product. And as far as capacities are concerned, Odisha capacities is more of a replacement of some of the capacities which are here in Bangalore as a modernization project because some of our units here are getting rationalized for the operations and we are moving some of our sewing capacity to Odisha.

Ankit Kedia — PhillipCapital (India) Pvt. Ltd. — Analyst

Sure. And sir, can you also talk on the rural distributorship?

V.S. Ganesh — Managing Director

Gagan, you want to take that?

Gagan Sehgal — Chief Operating Officer

Yes, Mr. VSG. So we currently have around 150 distributors who are purely in rural whom we call the DHQ distributor. So we have made some rapid expansion. This used to be almost half the number couple of years back. So currently we are present and we are servicing till the last taluka. And also if you look at because of these exclusive distributors for rural, in the last two years we have opened almost 50,000 new outlets, out of which 50% almost has come in Tier 3 and Tier 4 and in rural. So our focus on rural continues in terms of both our retail expansion as well as exclusive distributor who will focus on limited styles for the rural markets. And the journey will continue. We are very optimistic of continuing here and we have the markets already planned out where we’ll be opening more distributors as well — production as well as distribution.

Ankit Kedia — PhillipCapital (India) Pvt. Ltd. — Analyst

Sir, did I hear right? You have 150 distributors for the rural market today?

Gagan Sehgal — Chief Operating Officer

Yes. These are distributors who are only focusing on rural markets. There might be some other distributors who might be in the city and if there is a rural market nearby, they might be servicing. These 150 are exclusive only for rural.

Ankit Kedia — PhillipCapital (India) Pvt. Ltd. — Analyst

And typically they would be catering to 150 towns in their small geography wherever they are?

Gaurav Jogani — Axis Capital Limited — Analyst

Yes.

Ankit Kedia — PhillipCapital (India) Pvt. Ltd. — Analyst

Understood. That’s helpful. Thank you so much.

Operator

Thank you. We take next question from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie Research — Analyst

Hi sir. Sir, I just wanted to check on the inventory bit. Now what drove the sequential increase in inventory? Was it more to do with demand being lower than what we were expecting or was it more due to ARS?

V.S. Ganesh — Managing Director

Mr. Mehta, I will say both and there is also a movement of inventory from raw material to finished goods because we are utilizing the raw material, which we have prepositioned as a strategic stock. But the demand has been lower than what we planned so that definitely is one of the reasons.

Avi Mehta — Macquarie Research — Analyst

And sir, but the finished goods were already high in 2Q. So if the finished goods inventories rose further and that was not working well. That is the way to understand it.

V.S. Ganesh — Managing Director

Yes. So the way we abide it ourselves, you will be getting reduced and normalizing in the coming quarters and we start seeing improvements from Q4.

Avi Mehta — Macquarie Research — Analyst

Okay. And sir, to ensure that the similarity doesn’t happen because we expected something similar to happen in 3Q. It’s just that you will watch how the demand pans out and that’s how the production continues possibly? I mean that’s how you would kind — that is what would be the reason that gives you more confidence in moderation this time, right, sir?

V.S. Ganesh — Managing Director

Yes, because we can always manage the capacities with outsourcing vendor partners also and that’s where we have done significant corrections as far as outsourced quantities are concerned. And this is why I said you would see us improving on this front. From Q4 onwards, you will see improvement.

Avi Mehta — Macquarie Research — Analyst

Okay, sir. And second, sir, just following up on the margin rate. The way we see inventory being, this could possibility be peak of the inventory. Would it also be fair that this is probably the bottom of the gross margin and EBITDA margin because things will only improve? It’s nothing incremental cost that is coming in, it’s the high cost inventory that is going away. Is that understanding correct, sir?

V.S. Ganesh — Managing Director

More or less because we have been utilizing the high cost inventory, but the main thing we need to see is also how the market recovers because it’s important we get our topline and that’s where we are working very, very hard on.

Avi Mehta — Macquarie Research — Analyst

Okay. So the margin performance will dependent on how the growth pans out is what we would kind of argue. Fair enough, sir. Okay, sir. That’s all from my side. Thank you very much, sir.

Operator

Thank you. We have the next question from the line of Prerna Jhunjhunwala from Elara Capital. Please go ahead.

Prerna Jhunjhunwala — Elara Securities (India) Private Limited — Analyst

Thank you for the opportunity. I had a question on penetration levels. With the increase in our distribution network over the last few years, would just like to understand the penetration levels across categories that you used to talk about prepandemic?

V.S. Ganesh — Managing Director

Gagan, you want to take that?

Gagan Sehgal — Chief Operating Officer

Yes, Mr. Ganesh. So as we have been mentioning that while we have grown, but we also see a lot of headroom because when it comes to penetration even when it comes to the men innerwear piece, we currently look at a 20% to 22% penetration. But when we look at athleisure and then when we look at juniors and when we look at women innerwear business, there’s a huge headroom because the penetration what we would have reached by now is around 7% to 8%. So that is the reason why we have expanded our presence in Tier 3, Tier 4 markets and also in metros as well. So because there is a lot of headroom because when it comes to penetration, I think there is a lot more to do and these markets [Indecipherable]. Hence we are very optimistic for our growth in the future as well.

Prerna Jhunjhunwala — Elara Securities (India) Private Limited — Analyst

Okay. And sir, my next question is on the women’s wear segment. How is the response in Tier 2, Tier 3 and rural area for the products that we are present and expanding in these areas? Because we know Tier 1 is anyways aware of Jockey as a brand in the women wear. But how is this response in the newer areas that we are penetrating?

V.S. Ganesh — Managing Director

Prerna, great question. In fact it is equally good and I should thank the initiatives we took as far as marketing campaigns are concerned, which has created a great awareness across Tier 1, 2, 3 and 4 cities. And when it comes to bras or women’s innerwear, see what we need to understand is our TV is the same. They just happen to be there in the rural, but they have the appetite to buy our product and they just geographically happen to be there. And therefore, it is very important that we are present closer to our consumers and that’s why we are having very healthy expansion as far as retail footprint is concerned. Coming to consumption, it has been increasing across the tiers. Of course there is higher affinity towards Tier 1 and metros, but the growth even in the Tier 2, 3, 4 cities are as per our expectations.

Prerna Jhunjhunwala — Elara Securities (India) Private Limited — Analyst

And do you find any resilience in terms of price points versus whatever is available in those markets?

V.S. Ganesh — Managing Director

Actually no, because if you see even during these tough times, our bra categories which is a high ASP premium product comparatively has done very well. It is well received. So, it’s a clear indication that the consumer expects the value for money proposition which we are offering.

Prerna Jhunjhunwala — Elara Securities (India) Private Limited — Analyst

Okay. And sir, I understand we’ve been talking on this call about inventory and movement of raw material to finished goods and stuff. So, just wanted to understand whether we can see sequential improvement in margins or it should be near to these levels only at least for a few quarters because we are not able to understand when this high cost raw material and finished goods that you are holding should actually exhaust?

V.S. Ganesh — Managing Director

See, I think you will start seeing that this is improving across the next quarters because we have almost consumed the high cost inventory. But if you look at overall margins, it all depends on how the overall market is. What is giving immense satisfaction for us is despite all these challenges which we are seeing in the marketplace, we continue to dominate and compared to the competition, we have performed exceedingly well. And we will continue to focus on that and will be obsessed with what our consumer needs and that in the long run should pay the dividends.

Prerna Jhunjhunwala — Elara Securities (India) Private Limited — Analyst

Sir, my last question is on ad spend and promotion spend. Any increase over there in this quarter and strategically are we looking at some increase till the time demand improves?

V.S. Ganesh — Managing Director

Well, this quarter, yes, there has been an increase because the marketing spend — the campaigns they have their timeliness, they need to plan it and therefore, the outlay was comparatively higher in Q3. As far as overall marketing spends are concerned, we are now normalizing it to pre-COVID levels so we used to spend around 4% of our top line for marketing. We are planning to be in that zone and there is no need for us to be media dark any longer.

Prerna Jhunjhunwala — Elara Securities (India) Private Limited — Analyst

Thank you so much, sir, and all the best.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session and I’d like to turn the call back over to Mr. Chandrasekar K, CFO, Page Industries Limited for closing comments. Over to you, sir.

K. Chandrasekar — Chief Financial Officer

Thank you. Thank you so much to all of you for dialing in and so many engaging questions and very educative and supporting the journey of Page. I hope you all have a good day.

Operator

[Operator Closing Remarks]