Sai Silks (Kalamandir) Limited (NSE: KALAMANDIR) Q3 2025 Earnings Call dated Jan. 29, 2025
Corporate Participants:
Bharadwaj Rachamadugu — Senior Vice President
K.V.L.N. Sarma — Chief Financial Officer
Analysts:
Benayak Mullick — Moderator
Rishabh Gang — Analyst
Aradhana Jain — Analyst
Aniket Nikam — Analyst
Yash Kedia — Analyst
Sunil Jain — Analyst
Resha Mehta — Analyst
Presentation:
Operator
Hello, ladies and gentlemen, good day and welcome to Q3 FY ’25 Post Earnings Call of Kalamandhar Limited hosted by HDFC Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing the star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr Mullik from HDFC Securities Limited. Thank you, and over to you.
Benayak Mullick — Moderator
Thank you. Hello, everyone. Everyone. Welcome to Q3 FY ’25 conference call. From the management today, we have Mr Paradwaj, Senior Vice-President; and Mr K.V LM Chart Sharma, Chief Financial Officer. I now hand over the call to Mr for his opening remarks. Over to you, sir.
Bharadwaj Rachamadugu — Senior Vice President
Thank you,. Good morning, ladies and gentlemen. I wish you all seasons greetings. Thank you for joining us today to discuss Limited results for the 3rd-quarter and year-to-date FY ’24-’25 results. I am, Senior Vice-President, I presume that everybody has got a chance to review the financial results and investor presentation that we’ve uploaded in the company website as well as in the stock exchanges yesterday. I also have with me, Mr Sharma, our CFO of the company.
To begin with, I’d first like to throw some light in terms of what happened in the Indian retail ethnic market scenario. See, the overall retail market in the quarter showed a good sigh of release from the previous quarters on account of how actually ended in Q2 itself and kickstarted the festival season right from the beginning of quarter three.
With Dhashra Navaratri Festival season starting from second of October itself, we’ve seen a good amount of traction come into our stores, especially in the SLE segment. And the end-of-the month of — in the month of October also was followed upon Diwali and so that the entire October as a month had a good lineup of festives and events, festivities as well as events that helped us get good traction in the market. Further, in the month of November, on account of wedding mood comes and the wedding calendar demand picking-up, the same thing continued in the month of December as well. And in the month of December, we have also seen some more traction with regards to big events such as this festival such as Christmas Newar and buying purchasing already started.
So for the whole quarter, if you see the demand since the first two quarters did not have much of the auspicious more than dates and everything has shifted to Q3 and Q4. The same thing actually took place and we have seen a good amount of footfalls tractions coming into our stores and therefore, we have seen a good recovery when compared to the previous quarters. Addition to this, this was the overall market scenario. What we’ve also observed is in this particular quarter, we have seen good traction coming from Tier-2 cities compared to Tier-1 cities. This phenomenon generally occurs because the festivities are majorly prominent in the AP and Tamil Nadu region and also combined with the new-store additions also coming up in Tier-2 locations.
With respect to the numbers, in this quarter, our company did a revenue of about INR448.6 crores compared to last year of 32.5%, which is a growth of about 17.5%. Our gross margins this quarter stood at 41.8% compared to 39.9% last year, an increase of about almost 190 basis-points. Our EBITDA for the quarter stood at 17.59 compared to 15.22 last year quarter three, showing good signs of recovery and growth of about almost 235 basis-points. And needless to say, PAT actually grew by 43%, right? So for the whole nine-month period, we’ve achieved a revenue of about INR1063 compared to INR1014 crores last year, a growth of about 5% this year compared to last year. A majority of this recovery has come in-quarter three because the entire first-half of this year has been a weak half.
With regards to the store strategy and expansion moving forward, in this particular quarter, we have opened three Vara company-owned, company-operated stores totaling of about 15,700 square feet, which takes us which is the company’s total company-owned, company-operated retail square feet close to 6,86,000 square feet. And as of today, we have about 67 retail outlets. We are focused to open each and every store carefully assessing the demand and paving more emphasis on the location of the store. This is our part of our expansion strategy and we continue to do so.
Okay. As we currently stand at the middle of the quarter-four and as for the wedding calendar dates, we do have a good traction in terms of the wedding dates in the quarter-four as well. And these wedding dates also are distributed, not very confined to a particular month or so. And therefore this spread-out calendar generally, historically has worked in our favor and we believe that this same performance growth will continue in-quarter four as well and the same should be able to reflect in the entire Indian ethnic wear market as well.
I’d now hand over to the operator and I’ll be happy to answer any questions. Thank you.
Questions and Answers:
Operator
Thank you. Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on your touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handset 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 Rishabh Gang from Family Office. Please go-ahead.
Rishabh Gang
Yeah. Thank you for the opportunity. Am I audible?
Bharadwaj Rachamadugu
Hi, Rishab, yes, you’re audible, sir.
Rishabh Gang
Yeah. So a good set of numbers. Maybe if you can throw some light on the same-store sales growth as well. Also, I wanted to understand more on the strategy part, right? So women usually comes to shop Saudis with their family members, right, such as husband and kids. But for our stores except KLM, we are not targeting men and kids to what I can understand from the CPT. So the kind of Saudis you sell, most probably they are being bought for a particular event such as wedding, where the other family members also have a very specific use-case for buying clothes such as wedding. And most probably for the entire time the wife is in the store, other members of the family are in-store as well, but we are not monetizing that part of wallet share that would be spent by them, the other family members, right? So by putting some space for men’s and kids ethnic wear, like we can boost some SSG, right, and also the time they spend in the store. So what do you think about that? How do you think about this?
Bharadwaj Rachamadugu
Okay. So in terms of strategy, I’ll try to address the strategy part and then I’ll move to SSG. So first and foremost, I think as you rightly said, apart from KLM, everything the other three formats, major emphasis is towards women’s wear only. And even in KLM, there is a women’s wear component, but let’s just keep that aside for now. See, what happens is in an average consumer behavior when they come to store, they come not just one or two people, they come in a group. So let’s say mother, daughter or maybe like three to four people group is what they come. And what generally happens is people who come to the store generally don’t end-up selecting just one for the person who is willing to buy. But what they end-up is like they try to see a whole collection of, basically comparative analysis between one and another SARI a entire family goes on a discussion of which color, what blouse. There’s a lot of active discussions that goes on.
So with respect to who end-up buying, say, they end-up selecting three, four, five also and not just for the person who is selecting the SARI, but for the other occasions, let’s say, for example, the bride’s mother or maybe the bride’s friend, whoever is trying to come there will also end-up selecting for themselves as well. So in terms of the people who are sitting idle that generally doesn’t happen, most of our — see, the way we calculate our footfall is based on group footfalls, not just by individual footfalls. So when a group comes, there’ll be an active discussion because there are lot of discussion points with respect to what to be worn, what kind of matching needs to be there, what kind of jewelry needs to be there. When such active discussion comes, then generally, there is no such scenario where people are just walking out without having any selections.
To be honest, if you actually take the conversion metrics in terms of how many groups are coming versus how many people are ending up buying, our conversion metrics are — our conversion ratios are almost about 85%. If you take Varamal, it’s more than that. So we believe that this is going to be a comfortable way moving forward. Now majority of in these stores, men — the people who — men who actually accompany women are considerably less. And our stores, if you look at our store wives and store ambience, these are all small stores and these are all curated stores wherein like we have the entire ambience is as per a very, very, very divinity focus or very occasion focus with large number of SKU offerings. The moment we start adding menswear and will actually dilute the whole lessons of what we are trying to do. For now, we are comfortable with what we are currently going ahead with an average of about 5,000, 6,000 kind of a square feet store, we are able to monetize it much better. And the moment we start expanding and adding more categories into the store, it will actually dilute it.
We prefer all of the other KLM formats will be women-centric only because majority of these people who walk into our stores, maybe there’ll be a very few component of men who is coming and accompanying women to buy these. But mostly what you see is women who come and end-up taking active part in terms of the decision-making, right? So that’s with that. And if that answers your question, then probably in terms of SSGs, I think we have seen an SSG growth of about 6.8%.
Rishabh Gang
Yeah. But how do we get to a same-store sales growth of maybe a double-digit, right, because this 6.8% is a good one, I think. So like how do we boost it? I think adding some categories or something additional need to be done for double-digit, right? What do you think about that?
Bharadwaj Rachamadugu
See, currently, historically also our SSG’s growth were in around 4% to 5% was the average SSG growth on a year basis. I’m just talking about the full-year is the kind of number that we actually end-up targeting. See, the reason why this SSG growth is still fine and it doesn’t get crushed under the inflation is because the variable expenditure under this is very, very efficient. So for example, in the overall company-level, the employee component, the employee cost for us is around 8.5%. See, the rent to revenue ratio is around 4% or less than 4%. These are pretty much the cost that we oversee. And the moment, even if we have to take an SNG growth of about 4%, 4.5% on a year, the amount of impact that this will have is comparatively. So we are still — every store is still doing better. So achieving 10%, 11% kind of SNGs generally don’t happen in our kind of industry. An average of about 4%, 4.5% is fair enough and we will still be profitable year-on year because these costs, what we anticipate is foreseeable. It’s not a new random cost that comes up. We exactly — see the idea is our employee cost will range around 8.5%, 9% in and around because these are something that we always budget for. And we ensure that this kind of a healthy balance is actually maintained in any store and every store. So the moment we start moving the staff from one store to the store, thanks to the network of stores that we have, we are able to like ensure that the employee cost is met under certain capabilities. And even with respect to rent, we know the kind of appreciation the rent has year-on-year, it’s about a 5% appreciation year-on-year. Taking this into consideration also, even if we do a 4% growth in terms of SSGs, the store contribution to the bottom-line will still be positive.
Rishabh Gang
Also, I can see you are focusing on online mode as well now. So how are we using tools like Instagram and YouTube, right? So are we doing any influencer marketing and how much of our revenue is coming from online mode? And how does the margins compare to the offline sales?
Bharadwaj Rachamadugu
Yeah. If you talk about online e-commerce as a business, the entire online contribution is not going to be more than 1.5% to 1.7 percentage. So it’s a very small component in the overall revenue sense. But in terms of using digital market — digital platforms such as Instagram or maybe Meta or Google, we are very actively pursuing this as a method of communication. See, earlier, like two years or three years back or maybe even before COVID or maybe even last year also, majority of our emphasis was into print and radio advertisement as well. So this year, the conscious decision that we have taken is to reduce the overall offline spend, meaning print and radio advertising spends and focus more on digital marketing as well.
So with respect to influencer marketing, I think influencer marketing is helping us to a great extent. We are able to now focusly target a particular market, a particular geographical segment, which is stacked — which is targeting to a particular store and therefore run curated campaigns and we have been doing a great amount of work with us. And we’ve also been able to leverage Salesforce to help us narrow down, target the kind of segments that we need to focus on every — at any given point of time. So it’s actually helping us a lot. As a matter of fact, I think as I’ve also mentioned in my last earnings call as well, even in the last earnings call at the fag end of Q2, we started putting more emphasis on digital marketing and influencer marketing and using much more sophisticated tools to go online. The same thing has continued in-quarter three as well, and we will continue to see the same trends in Q4 as well.
So, and one other point I want to mention is not just in the core markets, even with respect to our Varmaha Lakshmi format, even in Tamil Nadu market. So digital marketing has helped us create a lot of brand awareness, both in terms of ATL and BTL.
Rishabh Gang
Yeah. No, got it. Sir, today we are largely focused on South India, right, where there is a sizable market. But what do we think about targeting very specific micro markets, right, in other parts of the country, country where people have a shopping pattern similar to our existing customers, right? Because that would also help in creating a lot of brand awareness across the country as well. So how do we think about that? Or have we like — like have we consulted any third-party to identify such specific micro markets.
Bharadwaj Rachamadugu
See, when we speak about our limited presence of e-commerce, we are getting a great amount of insights in terms of what micro-market is working for what kind of product. So these insights is something that we already have been capturing and we will continue to capture. But as a part of our strategy, we wanted to focus currently in a cluster model and adding few stores once in all, I think in a specific South Indian market. So now in the last one year, if you see, our focus has entirely been in Tamil Nadu. So the moment we start identifying these pockets, slowly we’ll start adding new pockets of.
And with respect to our demand, so we have been getting the kind of picks that we get on social media, the kind of analytics that we have. We already have identified three, four markets that we believe will be the next in terms of how we need to expand. So there is a good amount of data. We already have been identifying these markets. As we speak, we are also looking at two new states where we need to look at. But again, we are in very early stages of discussions. We will — we will start acting upon these things probably in the next one, two quarters. But yes, I think, see, when we try to advertise, right, we don’t try to advertise just for the sake of advertisement in pan-India because our entire focus is offline stores and these offline stores are located in the four, five states of South India. It makes sense for us to-market duru entire advertisement spends in this particular market. However, in terms of awareness, in terms of reach, our online e-commerce is one channel that basically targets not just India, but other countries in the world as well. So using the e-commerce, we are capturing a lot of data points and that has been one of our leading factors in terms of when do we expand, how do we expand into newer markets as well.
Rishabh Gang
Yes. Just one last question, right? On the cluster-based model, right, how do we ensure…
Operator
Mr, can you please fall-back in the question queue for further questions?
Rishabh Gang
Absolutely fine. Thank you so much for your insight, sir.
Operator
Thank you. Participants, please limit your questions to two or three. The next question is from the line of Arathna Jain from B&K Securities. Please go-ahead.
Aradhana Jain
Hi, thank you for taking my question and congratulations on the good set of numbers. The first question is on what has led to the improvement in gross margin?
Bharadwaj Rachamadugu
Yes. Okay. Aradana, thanks for the question. So see, I think we’ve been trying to address this point in the last quarters as well. So post the IPO, we started actively working in terms of efficiencies in terms of the procurement. So good thing is we — our payables — our payable cycle to our vendors has decreased. Therefore, we are able to get some advantage in terms of the overall discounting on the product itself and that’s directly giving us in terms of the efficiencies.
Now, so this efficiencies that we’ve bought in is entirely at the cost of the company and it does not actually translate to the customer. So this is one point that is helping us enable the margins. Along with this point, the new stores that we’re adding is Varmaha Lakshmi silk stores. As a format has a higher gross margin compared to LM format. This also is a major factor-in terms of the overall growth in terms of the gross margins. So these two factors on a whole is what is the reason why we are able to expand our gross margins.
Aradhana Jain
Understood. Could you throw some light on how has the working capital been in the last nine months?
Bharadwaj Rachamadugu
Yeah. Yeah, there has been a consistent improvement in the working capital status, mainly because of the better turnovers, better movement of the funds along with premium in the sense. And then the entire expansions are being done through the IPO project. So we have good internal generations which we were able to reduce the borrowings as such. And in fact, to tell you the broader figure, during this nine months, our debt has come down by approximately INR98 crores. And of course, the — among the working capital cycle, the payable days are also decreasing because one is by way of our own strategy of making earlier payments and getting cash discounts is one. And the second is compulsion on account of the staff compulsion on account of MSME is being paid within the statutory period and all that. So the working capital cycle also is improving, the borrowings have come down substantially. In fact, to give you the comparison, we have brought down the working capital borrowings from INR230 crores last year to INR125 crores as of 31st December. So company is moving towards a debtory status at this point of time.
So this in the balance sheet definitely is improving, which are — currently the working capital status is which is showing major improvement within the balance sheet also.
Aradhana Jain
Understood. That was helpful. Just on the previous participants’ question on SSSG, the 6.8% growth is in 3Q, right? So what would be the SSSG for nine months? And do we maintain the guidance of 1% to 2% guidance for FY ’25?
Bharadwaj Rachamadugu
SSG for the quarter was 6.8 that was sold was for the quarter. And still at this point of time because of the substantial reduction or in SSGs in the first-quarter and some part of the second-quarter, we are still lagging by minus 6% on the overall at the end of nine months on SSGs. We are hoping that since January also has a good amount, I mean the festival Festival and March, we are expecting that the wedding dates are there in good numbers. So by the year end, we are expecting that we would close at a neutral level on FSSGs and the growth will be delivered by the new stores that have come in.
Aradhana Jain
Understood. Just one last question from my end. How has the KLM store format performed during the quarter, especially the newer categories that we had into like innerwear and which would be the categories which are aiding for
Bharadwaj Rachamadugu
Currently, Q3, we are KLM on has come close to neutrality. If I have to give a specific figure, they just give us minus 1% and things looks to be better at least on KLM part, we should be able to come to — I mean, it should also contribute to the neutralization by the year end there. If you take overall picture, at least in the current year, the KLM should be neutral or slightly lesser may say 2, 3 2% to 3% minus on by the year.
Operator
Ma’am, does that answer your question?
Aradhana Jain
Yeah, that’s all from me. Thank you.
Operator
Thank you. The next question is from the line of Aniket Nikom from ABN Capital. Please go-ahead.
Aniket Nikam
Hello, am I audible?
Bharadwaj Rachamadugu
Hi, Alike, you’re audible yes.
Aniket Nikam
Thank you for taking my question and congratulations on a great set of numbers. My first question was, know, we’ve seen a lot of commentary just generally in the news and so on just overall consumer slowdown and stuff like that. Obviously you sort of defied that a little bit. So can you tell us what have you experienced and what have you done differently where you’ve been able to achieve sort of quite — quite a solid set of numbers in the context of overall weak consumer sentiment?
Bharadwaj Rachamadugu
Yeah. So Anike, thanks for the question. So yes, still, as you rightly pointed out, there is still reports that consumer slowdown is happening and that’s what we are seeing. But generally, what happens is especially in ethnic and wedding wear market, the kind of impact that this will have is not to that extent. See, it does definitely have an amount of an implication on that. But generally, the majority of our product offering is catering to weddings as a target segment. And of course, festivities also have a major butt, but weddings are one single big component of what we try to do. So the impact of wedding date calendar, the auspicious date or mood comes as they call has a greater impact on our company’s performance rather than overall demand per se. And that’s — that’s one of the first points.
The second point is this quarter we have taken active decisions in terms of focusing on the advertisements targeting to a store. Historically, we had majority of our advertisement in the ATL activity itself. This particular quarter with the back-end of Q2, Q3, I mean, and the entire Q3, we focused more on specific stores, creating more segments and targeting people to drive-to stores. So if I have to give you probably in the 67 store format, more than 25 30 stores, we started doing focused campaigns by using influencers, by creating product awareness, by creating and showcasing the products. What we’ve understood is our category, our products generally in a shelf are actually stacked in a shelf. So because there is no such mechanism to go-ahead openly explain about what happened, what kind of products we host. That has been one of the limitation factors from the past. So this was the case till last year because most of our designs, majority of the designs that we have are very, very private to us are our own designs. The moment we wanted to showcase our designs to people, there’s a slight amount of competition that there is a chance of copying, but we’ve changed gaps right now and we focus on-target marketing. And ethnic segment in terms of the wedding buying generally go a little bit overboard. They don’t generally go too much in terms of the wallet size. They go a little bit overboard in terms of spending, in terms of the weddings. So that is one of the major reasons why we have seen some improvements. Additionally, one other improvement that we have done is we started actively focusing in terms of the shuffling. So we bought a new algorithm and new logic in-place to help us do more shuffling in terms of the product offering. So these are a few factors that has overall helped us to make sure the freshness of the stock is there in every store and therefore the conversions are also much more increased compared to last year.
Even if you have to talk about KLM as a format and other formats also, the conversions, the walk-ins versus the number of wins conversions have increased.
Aniket Nikam
Got it. Very helpful, sir. Very helpful. Just another follow-up question from maybe what a previous participant also asked. Sir, would you consider expansion into sort of specific high-income geographies around India where there would be demand for such products? So for example, we — I’m from Bombay and now there are three Nali stores here, there is a Sundari sales here, there’s a Tulsi sales here. And obviously there is a fairly large sort of South Indian community here. So have you thought about that? What do you — what do you think about such an expansion? Because obviously, there is a lot of purchasing power and people want to celebrate their occasions with a fair bit of traditionality.
Bharadwaj Rachamadugu
Yeah. See, absolutely, and Casey. The reason why I did not want to comment upon where exactly I’m going is because the focus had been in the entire since the IPOs next one, 1.5 years has come back considerably been in terms of the Tamilad expansion. As we speak right now, we have identified potential pockets, a few pockets in Karnataka, in AP, Telangana as well. But moving forward, as we speak, we are looking at Maharashtra at the stage, Orisas state and one to probably a new stage entry is what we will try to do. So the reason we — the way we want to go-forward is to probably open very, very select stores and see and understand the consumer preferences, purchasing patterns and capture a lot of data points and probably expand further. So the same strategy we have followed for Karnataka, we have followed for Kamil Nadu. We wanted to again the fifth state probably is not a state, but it’s a unity for, so extension of Kamilad. But we will try to do the same thing for this newer market as well. Definitely, yes. And when we try to move there, we wanted to be a little bit more careful and cautious in terms of what we do because most of our actually stores like 95% of our product offering is in only. The moment we start expanding our geographies, the composition of Sarees versus length or what that composition will change. So the plan is definitely that probably in the next one year, you should be able to see us entering into these new estate markets as well.
Aniket Nikam
Okay. Got it, sir. Makes sense. And just one last maybe bookkeeping question. Can you — can you share what was the operating cash-flow for this quarter?
K.V.L.N. Sarma
Approximately I think it is minus project, INR45 crores plus
Aniket Nikam
— so we have generated INR45 crores this quarter.
K.V.L.N. Sarma
It was minus seven last quarter and this quarter it is 38.5. So it is about INR45 crores for the current quarter.
Aniket Nikam
Okay, fantastic. That’s great. Sir, thanks a lot for taking my questions and all the best to you.
Bharadwaj Rachamadugu
Thank you, Anjit.
Operator
The next question is from the line of Yash Thedia from Maximal Capital. Please go-ahead.
Yash Kedia
Good morning, sir. So congratulations on a good set of numbers. So first question is that, let’s say for 9M, in your Varal Lakshmi format, you know, the EBITDA that you have got at a store-level without the corporate overheads, how much more it is compared to the company average.
Bharadwaj Rachamadugu
As against the company’s average is always higher at store-level, if you take it is approximately 3% to 4%. It remains at this level only because much of the store expansion has — I mean the square footage has come in during the current year, wherein we have also had expenses like store launching expenses, manpower, additional manpower, manpower training and all that. So on a generalized basis, the margin profile for Varma over the company average is around 4% to 5% and this year it is going to be in the same level.
By next year, perhaps because we will be underwriting the launching expenses and other store-level expenses, the premiumization should kick-in and then we should see a better margins from the format as well as consequentially in the overall company. And the estray format as it is become approximately 50% of the total revenue from what it was 40% pre-IPO. So as the premiumization is kicking-in continuously. This margin profile is improving even at the company-level
Yash Kedia
So this 400 to 500 basis-point is the actual achieved store-level EBITDA for Varama, Lakshmi for 9M, right?
Bharadwaj Rachamadugu
Over the company’s number.
Yash Kedia
Thanks. Okay. Okay. So that’s good. And secondly, can you comment on your store expansion plans as things stand now, because I think we have had a few instances where we had to adjust our growth plans. So where do we stand now in terms of store expansion. So let’s say for the 4th-quarter in next year?
Bharadwaj Rachamadugu
Yeah. So Yash, I think as per the plan, what we are anticipating in 4th-quarter is to open an additional about 18,000 to 20,000 square feet by end of 4Q and probably the remaining expansion will fall, will jump over — spillover to quarter one. As I rightly said, all these stores are COCO stores and we had a little bit of a setback in second-quarter with two of our top stores that we wanted to open in Tier-2 locations of Nadu. There has been some limitations there. So we do not want to go overboard and try to open into locations where we feel like just to open the store. So what we’re trying to do right now is carefully waiting for an opportunity to open it in the right market. So basically, we are having three, four teams trying to work-in terms of finalizing these stores.
For 4th-quarter, this is what we should be able to expect around 18,000 to 20,000 square feet. Our remaining everything will fall under Q1 of next year. But in terms of locations, as I did tell you, we have identified one to potential areas in Karnataka as well and in Tamil Nadu, we have and one or two locations in AP as well in Tier-2 kind of markets, the opportunities are there. We have not expanded into those stores and we see a very good purchase power in these areas. So that’s the case. Beyond this, we are also looking at expanding into new states that you say.
Yash Kedia
So by end of FY ’26, how much more square feet we want to have in FY ’26 apart from Q4?
Bharadwaj Rachamadugu
So from this point, as we — from Q3 onwards, from Q4 onwards, if you take, we should be able to add addition of about 70,000 to 75,000 80,000 square feet,
Yash Kedia
12%, 13% on the current base.
Bharadwaj Rachamadugu
Hello. Yes. Correct. Yeah.
Yash Kedia
And any — in Bharama, Lakshmi format your — how much approximately that is compared to the company average
K.V.L.N. Sarma
This has been Varma for the quarter is 6.5% there.
Yash Kedia
Okay. Okay. And sir, generally, what we have seen in the value fashion side that some of the players who are now reporting numbers, they have reported far superior numbers for nine months at least, although Q3 we have seen a bit of slowdown. So because in a bad economic environment, people also tend to downgrade and that’s where the value fashion players tend to do better. But the same is not exhibited in the performance of KLM Fashion Mall, where we have got negative SSSG. So what is — why are we not able to capitalize in a year when this was a year when because of lack of consumer sentiment positively, I mean, this was a year where we could have had a very good year in KLM.
Bharadwaj Rachamadugu
So yes, see, technically, when you say KLM, I try to highlight this again and again, we consider KLM mall to be an ethnic value fashion mall, not just a pure-play value fashion mall. The kind of offering still aid the KLM positioning is in a way where no other retail players have a kind of positioning like what we have. It still is dominated by in men’s, and women, all of that kind of a one-stop destination is a gap that we still feel. No other entrant in other geographies have played. However, KLM as a format is still showing times of recovery because end-of-the day, we feel the impact of the ethnic wear is still there in KLM. And when we talk about ethnic wear, what becomes important is the seasonality in terms of the wedding occasion calendar. So that has been one of the major reasons. Most of the other players in this particular market not to compete, but they have a very different model altogether. If we talk about any of the number of styles that they have, number of SKUs that they have versus the number of SKUs that I have are far more compared to the other competitors that are there in the market. So it becomes extremely important for me to me to balance out and give this entire one-stop destination for families to come and shop with us. And so that has been the case majorly. However, there has been one, two categories in KLM that needed attention, like for example, men’s wear and is one such or one or two such categories that had of a degrowth, particularly per se, it could be of various reasons, it could be new competition or maybe change in the merchandising structure that we have. So we are working on that and we’ll probably be able to show some results in the further quarters to come. But otherwise, KLM as a format as such is still doing better. See, the KLM average our revenue per square feet still falls under INR16,000 per square-foot, which is much higher compared to any of the other PAs that we currently have. It’s just that the efficiencies have to stay-in a little bit more and we are trying to consistently keep it. And in the next quarter we should be able to see some progress coming in there.
Yash Kedia
Okay. And you said that 4% to 5% we can sort of expect over the long-term. So I mean how much in general for the ethnic which sells in Southern Indian market, can you expect the inflation itself to be in that range so that we can be sort of — I mean in your business, what sort of an inflation per piece, for example, can we expect over the long-term? Is it similar to or how do you look at that figure?
Bharadwaj Rachamadugu
Yeah. I’ll explain that. As we explained earlier, the store-level expenses at the company-level all formats put together for us is approximately 15% at. In fact, in Varma Rashmi, they are slightly lesser and KLM they are slightly more. But on a company-level, the store-level expenses are only to the extent of 15%, which includes those manpower cars, those are rental, all those things which are subjected to inflation and all that. So among this 15%, even if there is an inflationary trend of say 10% also. The net effect would be approximately 1.5% on overall so when — if we are realizing at 3% to 4% of SSD obviously the inflation part could be absorbed to the extent of 1.5% and the balance of 2% or 2.5% would add to the profitability. That is how we expect that in SSGs of 4% to 5% also will contribute to the growth of the company.
Yash Kedia
Sir, that is well-understood. But inflation, what kind of inflation do we see in our selling prices, let’s say, in the ethnic market in Southern India per piece, what sort of inflation history have we seen?
Bharadwaj Rachamadugu
Inflation.
Yash Kedia
I mean the increase in the price per piece that you are selling, if you are selling a today for INR1,000, do we expect next year to be for the similar piece to be sold at, 1,04050 or something like that, what’s been the trend, long-term trend?
Bharadwaj Rachamadugu
See on a three-year average, you should be able to see an inflation increase of about 10% is the average inflation that you should be able to see on a three-year average. Again, one year up, one year down, but we should average it out, this is the kind of numbers that we see. But I would like to highlight one point here is that we don’t — we only try to deal within the finished food stage. So therefore, kind of price that we get is the cost price that we receive considering all of these inflationary trends, and we try to pass the same thing back to the customer in whatever way we can. Okay.
K.V.L.N. Sarma
No, in fact, SSG is a combination of both volume and the prices. It’s not just that we are able to increase our price and then get the SSGs. It is a combination of both the volumes and increase volumes and price as well. And whenever there are new designs coming into the market, our designing group comes with latest ideas and all that, then obviously, we will have a cushion to be able to push a little better price there. And also because of the new designs that are coming in, which are our marketing getting fast-moving in the volumes are also increasing. So it’s a combination of volume and the price that we would push, right? We have a mechanism in the system where we make an equilibrium on — I mean, we try to achieve an on price vis-a-vis volumes and accordingly procure the merchandise. So this is the one particular pattern through which we will be able to achieve the SSGs of around 4% to 5%, which are satisfactory for us for the growth that we are.
Yash Kedia
Thank you, sir and all the best.
Operator
Thank you. The next question is from the line of Sunil Jain from Nirmal Bank Securities. Please go-ahead.
Sunil Jain
Yeah. Congrats for a good set of numbers, sir. My first question relates to KLM. Can you talk bit how you are trying to improve the KLM performance, what the steps you are taking
Bharadwaj Rachamadugu
Yes, sir. Hi. So with respect to KLM, I think the majority of the de-growth that we have seen is in two specific categories, as I mentioned, which is men’s wear and kidswear. There’s a lot of competition in this particular space as well. So what we’re trying to do here is to readjust the entire procurement strategy as well. So we are trying to bring in new talent to help us plan the person merchandising much better fashion and distribute across multiple stores. And also what we have seen is to focus a little bit more in terms of the advertisement and campaign that we’ve created. I think over the past, we have able to onboard Salesforce to help us do that. Last year, what also happened with respect to KLMM this year which did not happen is last year we did a few extra promotions in KLM during the Diwali time wherein they have vouchers that they can continuously come and buy-in the next every month. So this year, first time we have discontinued that keeping in mind the long-term brand value of the KLM, we did not — we’ve stopped issuing these vouches. This also had a little bit of an impact. So on the overall sense, there are three things on a broader perspective. One is to refocus on the entire merchandising and the product-line. Second thing is to focus on the product advertisement and store advertisement at a store-level. And the third thing is to ensure that the employee and employee — employees are taken care in terms of the trainings and everything. These are the three different things that we are doing. And additionally, I have also mentioned that we have added a category called innerwear. So there are still scope for one or two other categories that we would ideally add that can improvise the overall margin profile of KLM per se.
Sunil Jain
Yeah. Thank you. And second thing about Aksmi the next stores, which will be coming in the 4th-quarter will be all of Vermal. And how many wedding seasons are there in the 4th-quarter as compared to 3rd-quarter?
Bharadwaj Rachamadugu
. So yes, to your question, sir, I think all the new stores that are going to come in 4Q will be exchange only. And when you compare to 3rd-quarter to 4th-quarter, I think 3rd-quarter we — I think on almost of about eight dates extra we have in 4th-quarter. Okay. Okay, okay. So we have in 4th-quarter.
Sunil Jain
And what we see that you had a beginning of two of the stores towards the end-of-the quarter of three. So benefit of that will also be there in the 4th-quarter.
Bharadwaj Rachamadugu
Correct.
Sunil Jain
Yes, right. Okay. So generally, what we see that 4th-quarter is lower than 3rd-quarter, but this time can it be different?
Bharadwaj Rachamadugu
Yes, generally you’re right, sir. I think 3rd-quarter is the best quarter for the entire calendar year, followed by Q4, Q1 and Q2. This is how the sequence has been there historically. And this year because H1 has been weak, so the more emphasis will be there. But however, 3rd-quarter we have seen, I think we should be able to see a similar kind of trend in Q4 as well.
Sunil Jain
Okay. Great, sir. Thank you very much.
Operator
The next question is from the line of Resha Mehta from GreenEdge Wealth. Please go-ahead.
Resha Mehta
Yeah. Congratulations, firstly on a very healthy top-line growth and senior revival there. So on gross margin part, right, so while you did comment on the two reasons for the improvement in gross margin, but would it be possible to attribute like, let’s say, the 200 bps improvement in gross margins that you’ve seen of that, you know, how much is attributable to the early payments to vendors and hence getting discounts from them? And second, what could be the contribution from the premiumization?
Bharadwaj Rachamadugu
We can — I mean, at this point of time, we can attribute the most almost everything to the premiumization because what happened in-between is that earlier we were having a credit period of 60 days, 90 days and all that where we thought we would be able to prepone payments, improve the payments date and get cash discounts, etc but in-between there is a statutory compulsion has come for us to make payments to MSMAs with its and all that. So slight part of that advantage that we thought we would have by improving the payment dates, etc., is because of the statute and now that we have to — we are in fact complying with that statute of paying a MSMEs and you would agree that in our case, the most of the — most of our vendors will be MSMEs only. So you can — that’s how that advantage is ministered at this point of time, the growth that is — that has come and that is going to come here going-forward also will be majorly on premiumization. Already format has come to approximately 50% of it. And as it grows, the component of grows in our turnover levels, the gross margin level should improve.
Resha Mehta
Okay. So just two follow-ups here. So one, what would be the payable days that we are at for nine months? And also earlier, we had spoken about the gross margin improving to, let’s say, 43% 44% levels are also being driven by the discounts that we were expecting from the vendors. But since now that is not expected to play-out, where would we see our gross margins going up from the current 42% kind of levels? Can we go up to, 43% 44% purely driven by premiumization?
Bharadwaj Rachamadugu
Yeah. We were — we were explaining that there will be two kinds of discounts on which we are banking upon. One is the cash discounts by improving the payable — reducing the payable days, et-cetera. And the other is that since we are going substantially on expansion in Varma, format, we would be procuring almost two years, three years of the current level of procurement levels and that we would be able to get volume discounts. So the story on the volume discounts is still is intact. So we would — we would be able to get those volume discounts in addition to the premiumization going ahead. Cash discounts as a small deterrent because of this that has come in. So since we have already almost positioned in ourselves in the entire Terminal doom, now the volumes have also gone up in this format. There will be a combination of volume discounts and premiumization that will drive the margin profile. And whatever we have said barring the approximately 0.5 plus 50 basis-points or so we should be able to achieve by the year FY ’26.
Resha Mehta
So you’re seeing by FY ’26, we should be at least 43% kind of gross margins. Is that understanding right?
Bharadwaj Rachamadugu
Should by the end of FY ’26, we should be at that levels.
Resha Mehta
Right. And on the inventory days, so for nine months, would it be possible to call-out what kind of inventory days are we — have we seen? Because earlier it used to hover around 180 days and we were targeting to reach around 135 140 days in two years. So where are we in that journey from 180 days to, let’s say, reducing it to 140 days.
Bharadwaj Rachamadugu
It remained at those levels at this point of time because Q3 being Q3 and Q4 particularly January also is high intense on wedding date Sunday festivities. So we need to maintain those higher levels of inventory by December — in fact, September end, December end and perhaps up to January end also, it will remain at the same levels. And subsequently, by the year-end, we are hoping that we would reduce it to approximately this time by around 160 days or so.
Resha Mehta
But what are the initiatives that we are taking, which will drive this kind of reduction from 180 to 160 days because as we see the core wedding season will be for about six months of the year, so where we’ll need to have higher inventory. And then also, in general, with the store expansion that we’ll keep seeing, we’ll need to keep adding inventory. So what exactly will drive the reduction in inventories from 180 to 160 days?
K.V.L.N. Sarma
One so as I told you on the value side, when we get a volume discount, the cost pursued yes will come down. Secondly, in Tamil Nadu, since we are expanding in format now, approximately to give you an idea, within Tamil Nadu itself, we have about 1 lakh square feet of Varma, whilst other three states, Ashmi has 1 lakh. So the cost of the Tamil Nadu itself was about 1 lakh square feet and the movement of goods between the stores would be easier. Second is the volumes by the procurement also, the procurement of silk, particularly is within south and the just-in-time approach is one aspect whereby we are able to reduce. And the inventory backup requirement at the because earlier in all other three states, we were maintaining good loans and all three states will have separate backup inventories, whereas in Tamil Nadu, since we are having 1 lakh square feet and going ahead, it would be about 1.5 lakh square feet and that will have a lesser backup inventory requirement. So these things improvement in cost of goods and then improvement in the volumes that we will have for a backup and the ability to move the products between the stores wherever we have a module as you are aware, where it throws as a suggestion as to which of the products are moving faster and which areas and all that and accordingly.
On a dynamic basis, we will be shuffling the products between the stores instead of buying the new products for each of these stores. So these two, three parameters would enable us to reduce the inventory levels on a company-level overall also.
Bharadwaj Rachamadugu
One additional point I’d like to mention here is one of the key metrics and the key KPIs that we look at is MBQs. So every quarter we do a revision of these MBQs, MBQs meaning minimum-based quantities. So what has happened is the moment when a store starts, especially in the last year, we have opened additionally about nine to 10 stores. We have done a revision of these MDQs because once we start putting up a store, these revisions generally don’t happen. So after seeing the store progress after three to six months, we start making these changes. So we are actively working on this particular KPI in a much better fashion. And for us to make sure the MVQ levels are adequately maintained, the importance of stock refillment as well as stock shuffling is a major piece here. So with the help of these two attributes is the reason why we are trying to bring it down.
One of the most interesting points that we were able to understand is, though in the particular price range in a particular category, we still do have products, the importance of color availability and the importance of the product availability is at the topmost level. So we’re bringing in systems, we’re bringing in teams to ensure the color chart is maintained at any store in the way that we would ideally want us to have. So these are just on the operation front beyond whatever has been told on the operation side, these are also additionally the factors that we try to use on a daily basis to ensure the overall inventory holding in every store is reduced, and therefore not affecting the sales
Resha Mehta
Right and you know, on e-commerce website, right, so I went through your various different formats, e-commerce website. There was one interesting observation that you know the are not actually draped on you know the female models, right? So hence to that extent, I would imagine the purchase decision would become extremely difficult, right, just by looking at the website online. However, I do see at the same time that you have a video or appointment option as well. So just wanted to understand like in the SARI space, typically, what would be — how important is the e-commerce channel, especially for some — for a wedding ethnic SARI retailer like us, how big is it in the industry or do we expect this to remain a marginal channel and probably just use it as a tool to create awareness and probably get then after the video call get the customer actually into the store. So just your perspective on cost?
Bharadwaj Rachamadugu
Sure, sure. So as of today, in the entire revenue, 90% of our revenue is coming from social media where we use live commerce, using our Facebook, YouTube and Instagram, every day, we do two to three live shows which run about 20 minutes each to 30 minutes each, wherein a person is explaining the how it will look once you drape it. This is one of the most easiest way to drive a purchase because it actually gives you a look and feel in terms of the exact colors because there is somebody trying to explain this. So in terms of pure-play e-commerce where people find my website, go to the website and search for the products, the kind of revenue that we are seeing there is marginally less in the overall e-commerce space itself. So if you had probably gotten an opportunity to go to one of our — or Facebook or Instagram, you should be able to see hours and hours of content that we try to do and we are able to drive sales there. So today by using that our ASP, especially if you have to talk about one of our formats called Brand, the e-commerce ASP is also INR10,000, which is much, much higher to the average e-commerce ASP that are out there. Majority of the players, when you talk about the ASPs, if you talk about any marketplace as such is around INR750 to INR800. But I mean in contrast to that, our ASPs are almost INR10,000 when we come to these premium brands. So we will continuously focus on creating content. That will be the major purchase decision for people to understand how it will look once you drape it, how the body, how the looks like. On the other end, we have also had Kalamander website if you go through. We have used a software which basically does draping. So all we need to do is take a picture and that picture will enable automatically drape it to a model or something. And that’s what we showcase in the. One of the key essence here is our USP is offering a wide variety of products. So across-the-board in the company, we don’t have similar products in multiple quantities. We hardly have two, three quantities. So the challenge becomes to — for every product — for every product, you cannot take an image or a photoshoot done. So we are using this metric to navigate our way towards our e-commerce business. So now with this being said, the overall strategy, the overall consumer preferences, especially in Saria as a category is still touch, feel people come to the store, it’s more like an occasion, it’s more like a celebration for them that they spend a good amount of time in the store, trying to purchase, trying to figure out what are the different options, trying to mix, match, have a good chatter with the family. A lot more active discussions happen. Many of the cases, I also see people come and do their wedding discussions over there. So it’s an entirely different vibe altogether and that will continue to do so, not just with me, the industry per se itself, the presence of e-commerce and the growth rate where the offline expansion is versus the online expansion is, is online is much lesser to compare to the online and we believe that this will stay as own.
Resha Mehta
Understood. Very helpful. And lastly, you know, just on this employee bit, right? So typically for the industry in the stores, right, how much would be the fixed component and the variable component of the salaries of, let’s say, the store managers and the sales employees? And would that trend be similar for us also?
Bharadwaj Rachamadugu
So we as a company are very much focused on performance-driven pay. So I think on an average, our 20% is the variable component of the overall component. Majority of the retailers do have a variable component, but the way we are different is the efficiencies in how you disburse every bill, we know which salesman has sold, how many products, what’s the value is as much as I’d like to go in terms of which product is getting sold-in which store at what time, the same drill down I can also do in terms of the employee wise as well. And everything is systematically calculated and we disburse these incentives on a daily basis, weekly basis, monthly basis. And that has been one of the major instances where like we are able to recover or retrieve the top-performing employees and not stacking upon the lower-end of the pyramid. So that’s how it is. And this should be pretty much same in terms of the value-wise, but the details — I mean the way we are different is in terms of getting down to the bottom of it by identifying who exactly is the person who actually sold it and therefore give their incentive vice-versa to it. And not just the salesperson, the entire, the value chain gets incentivized based on the store, the sales and the supervisor, then the floor manager, the area manager, etc., etc. Everybody in this process gets incentivized.
Resha Mehta
Understood. And just a clarification on one data point that you all said. So Akshmi as a format for nine months would be contributing to 50% of revenues. Is that what I heard that correctly?
Bharadwaj Rachamadugu
Yes, correct. Okay.
Resha Mehta
And what was this, let’s say, three years ago
Bharadwaj Rachamadugu
So back then it was 40%, now it became 50%, 40% was KLM, 40% was, 16% was Kalamander, 4% was Mandhar. This was back two years back. Now Varamal actually is 50% and KLM component reduced. Kalamander and Bara pretty much are in the same lines. There’s no changes there.
Resha Mehta
Got it, got it. All right. Thanks a lot and best wishes.
Bharadwaj Rachamadugu
Thank you so much.
Operator
Thank you. Thank you. Ladies and gentlemen, due to time constraint, this was the last question for today’s conference call. I now hand the conference over to the management for their closing comments.
Bharadwaj Rachamadugu
Yeah. Thank you all for taking time to reach us — reach-out to us and being a part of this conference call. Looking-forward to a healthy Q4 as well and looking-forward to meeting you in the next quarter results. If you do have any questions, please feel free-to reach-out to us. Thank you so much.
Operator
On behalf of HDFC Securities Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.