Stove Kraft Ltd (STOVEKRAFT) Q1 FY23 Earnings Concall Transcript

Stove Kraft Ltd  ( NSE : STOVEKRAFT) Q1 FY23 Earnings Concall dated Aug. 04, 2022

Corporate Participants:

Rajendra Gandhi — Promoter & Managing Director

Ranga Bhuvana Balaji Vijayan — Head –Operational Excellence

Analysts:

Praveen Sahay — Edelweiss Wealth — Analyst

Prithvi — Unifi Financial Services. — Analyst

Deepak Lalwani — Unifi Capital — Analyst

Ashish Kandla — Investments Advisors Private Limited — Analyst

Harshil Sethia — AUM Fund Advisors LLP — Analyst

Saurabh Shah — AUM Fund Advisors — Analyst

Arpit Agarwal — Capital — Analyst

Manoj — Carnelian Capital — Analyst

Rahul Ranade — GSM — Analyst

Kunal Shah — Carnelian Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Stovekraft Limited Q1 FY ’23 Earnings Conference Call. This call may contain some of the forward-looking statements, which are completely based on our beliefs opinions and expectations as of today. These statements are not a guarantee of future performance and involves unforeseen risks and uncertainties. [Operator Instructions]

I now hand the conference over to Mr. Rajendra Gandhi, MD. Thank you, and over to you, sir.

Rajendra Gandhi — Promoter & Managing Director

Good afternoon, everyone. I hope that all of you and your families are safe and healthy. On behalf of Stovekraft Limited, I extend a very warm welcome to all participants on the Q1 FY ’23 financial business discussion call. Today on the call. I’m joined by Mr. Rajiv Mehta, our CEO. Mr. Balaji AS, our CFO and the Orient Capital team who are our investor relationship advisor. We have uploaded our investor deck and the earnings press release on the stock exchanges on the company’s website. I hope everybody had an opportunity to go through them.

In Q1 of this financial year. We have seen a good growth of 28% year-on-year in top-line despite the slow start. Ours is a seasonal business with the first and the last quarter being smaller than the second and the 4th quarters. During the current quarter, we took a price hike of between 3% to 4% across product categories. The raw material prices are no longer as volatile as they were last year. We are hoping that they will continue to be at reasonable levels for us to be able to improve our margins, without any further price hikes for the festive season. We still maintain our annual guidance on EBITDA margins, which is to protect the 11%.

As you would have seen by our recent filing that we have forayed into physical retail and I am pleased to announce that we have opened our first company owned and company-operated retail store for the bidding ground in down Bengaluru. Since then, the Company has opened 4 additional stores in Bengaluru, taking the total count to 5 stores. The stores will offer the entire range of products, including cookware, cooktops, small appliances, and the LED products sold and then under the bidding ground. It is an important milestone in the growth journey of Stovekraft and will make us more accessible to the consumers, over the next 12 to 18 months. We expect the total store count to be around 40 stores spread across the state of Karnataka.

Now I will discuss the Q1 performance. The consolidated revenue stood at 275.1 crores versus 214.2 crores in Q1 FY 22. Registering a growth of 28% on the year-to-year basis, EBITDA for Q1 FY 23 stood at 22.4 crores versus 22.5 crores in FY 22. EBITDA margins reported was 8.1% as compared to 10.5% in the corresponding quarter last year. Profit after tax for the quarter stood at 8.1 crores versus 13.5 crores in the current corresponding quarter last year. PAT margins for the current quarter the Q1 FY 23 stood at 2.9%. Now I would request the moderator to open the floor for questions and answers. Thank you.

Questions and Answers:

Operator

[Operator Instructions] First question is from the line of Praveen Sahay from Edelweiss Wealth. Please go ahead.

Praveen Sahay — Edelweiss Wealth — Analyst

Yeah, hi. Thank you for taking my question. So the first question, sir. Related to the gross margin as you had already mentioned, that’s 3% to 4% of the price hikes you have taken and there is no further price hike you will take with the stabilization in raw material prices. So, do you believe this from this current level? The current quarter, turn around 33% of our gross margin to improve from here. Go back to FY 21 level.

Rajendra Gandhi — Promoter & Managing Director

Yeah. So if the current trend continues and if the prices continue to be as soft as they are the correct on base. Obviously, this will contribute to additional gross margin. We have already seen an improvement in the first quarter. It’s not that at the beginning of the quarter, all this softening it happened there have been gradually happening. So, we believe, of course, if the price continue — the input costs continue to be at the levels that they are, they are audited growth further down, there could be definitely improvements.

Praveen Sahay — Edelweiss Wealth — Analyst

Thank you for that. The second question is about the channel mix of sales, channel mix like how much is in an e-commerce versus offline contribution this quarter? And what your sense for an entire year. And is there any margin differential between these 2 channels?

Rajendra Gandhi — Promoter & Managing Director

I’ll pass on the, from your last question. We are actually a margin — margins are came across channels. We price our products on a cost-plus basis like we had maintained. So for us, the contribution, e-commerce for the Q1 FY 23 standard around 25%. General trade and modern retail put together is close to 50%. 20% is exports and then the rest of 5%, 6% there other brands, like black index.

Praveen Sahay — Edelweiss Wealth — Analyst

Okay. Thank you, sir. All the best.

Rajendra Gandhi — Promoter & Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Prithvi from Unifi Financial Services. Please go ahead.

Prithvi — Unifi Financial Services. — Analyst

Hi, sir. Thank you for this opportunity. My question is on the guidance on the top line. I think it is growing, but in guidance for the [Indecipherable] that we want of it. And second question, can you see the cost [Indecipherable] any guidance on that? And thirdly, on employee benefit expense, I would like to know your [Indecipherable], because its uneven quarter-on-quarter.

Rajendra Gandhi — Promoter & Managing Director

You are not very audible. We’re not able to understand what you’re saying. Can you repeat your question please?

Prithvi — Unifi Financial Services. — Analyst

Yeah. So my first question is could you please give us a guidance on the top line for the coming years. And second thing is that the employee benefit expenses are not even for the year some at some quarter it’s 9% of revenue, at some quarter 11%, at some quarter is 8%, [Indecipherable].

Rajendra Gandhi — Promoter & Managing Director

Okay. So in terms of demand, I think we see that demand is back, we are expecting the year to have a good double-digit growth for us as a company.

Prithvi — Unifi Financial Services. — Analyst

Any specific guidance on that, like any number on that?

Rajendra Gandhi — Promoter & Managing Director

We’ll be doing slightly better than the industry average.

Prithvi — Unifi Financial Services. — Analyst

Okay.

Rajendra Gandhi — Promoter & Managing Director

And your second question more on employee expenses. Right?

Prithvi — Unifi Financial Services. — Analyst

Yeah, exactly.

Rajendra Gandhi — Promoter & Managing Director

So you should look at it on an annualized basis, because we have all our employees as the top up as a family. They are all part and we don’t have a single employee, who is on contract as a result of which our employee count — sorry, employee expenses are more or less even across all quarters. So depending on the revenue in the quarter. The percentage is fluctuate. That is what we were referring to.

Prithvi — Unifi Financial Services. — Analyst

Yeah, okay fine. Thanks a lot, sir. I’ll get back in the queue. Yeah.

Operator

Thank you. The next question is from the line of Deepak Lalwani from Unifi Capital. Please go ahead.

Deepak Lalwani — Unifi Capital — Analyst

Hi, sir. Thank you for the opportunity. Sir, I missed your comments on the channel mix. So if you could give —

Rajendra Gandhi — Promoter & Managing Director

So on Q1 — Q1 FY 23, [Indecipherable] 25%, general take was above 38%, modern retail was about 10%, export was about 20%. Deepak? Hello.

Operator

Yes, the line of Mr Deepak got disconnected. And the next in line is Mr Ashish Kandla was in the travel increased overhead,

Ashish Kandla — Investments Advisors Private Limited — Analyst

Sir. Yeah. Thank you, Sir. Wanted to understand, I mean, directionally, how we are looking at things, because on one side we just had very hyperinflation then we had some channel issues, probably on the e-commerce side also, and we have certain new ventures also adding to the cost plus the retail expansion. You are talking about. So how confident are you on the 11% EBITDA margin. And how does the topline topline look like in terms of growth, because there will be lot of the price increase. Related: top line contribution till I think Q1. So going forward, if the prices get adjusted, what kind of topline growth on a Y-o-Y basis. Are we looking at. So if some qualitative plus quantitative answers can be given it will help us.

Rajendra Gandhi — Promoter & Managing Director

Sure. Ashish. So I just like we said, demand is back saying that the markets have opened up all channels for us are doing very well, we can confidently say that we will do double-digit growth for this year and double-digit is like I said, a little better than the industry average.

Ashish Kandla — Investments Advisors Private Limited — Analyst

So that would be what 10-12% growth or is it going to be higher than that.

Rajendra Gandhi — Promoter & Managing Director

That’s our some specific number Of course, the business has its own intricacies. But currently, you would have already gone through our numbers for the last quarter, we have grown at 28%. So we don’t want to say that we will grow at minimum at the but we are seeing similar kind of growth. So we believe that will be a good double-digit growth. So it could be anything between 15% to 20% if you want a specific number, let’s say, yeah if those are all initiatives that we have already initiated all start contributing, obviously the growth rate.

Ashish Kandla — Investments Advisors Private Limited — Analyst

Sir, what is the price related contribution this 28% growth that we have.

Rajendra Gandhi — Promoter & Managing Director

17% is volume and 13% roughly is because of the price on Y-o-Y basis.

Ashish Kandla — Investments Advisors Private Limited — Analyst

Okay. And regarding the cost, I mean they have increased on at least on a quarter-on-quarter basis. I can see that there is a decent inflation on the cost. It’s really the employee, So any specific reasons for that?

Rajendra Gandhi — Promoter & Managing Director

We have actually all of our production capacities to meet the business plan for this year and total the employee cost more or less the same for quarter on every quarter. So there is a decrease, both in the number and of course there is increase in in what we price our a little more detail I think Balaji can believe it went up…

Ranga Bhuvana Balaji Vijayan — Head –Operational Excellence

But the actually on the employee you see Q4 we had because of about 248 million and in the last quarter’s call, it will, we explained that was also impacted by a annualized reversal of excess provisions that we had to take some of over $25 million. So if you adjust that the adjusted number for Q4 would have been 273 million some there given that our was in April. We’ve had average 8% increment on the topline. As part of the beefing up for the season.

In Q2, our labor count has gone up where there an additional cost of about 15 million and there is 4-5 million is operations across the company per se. So that 314 million that are seeing.

Ashish Kandla — Investments Advisors Private Limited — Analyst

Okay. And despite the increases for the full year, we are confident 11% EBITDA should be there.

Ranga Bhuvana Balaji Vijayan — Head –Operational Excellence

Yeah, so there again. What I want to highlight is that if you see like we will stretching upon in terms of the topline seasonality Q1 and Q4 are typically only about 20%. So our top line and the margins for Q1 on an annualized basis. Only 20%. So which means that the number that you’re looking at, what we believe still the story as the of the. What you see in Q1, is that largely remain of course in the larger quarters it will be slightly higher, but it’s not going to again go in proportion to the sales, so certainly for the year, we stick to our guidance of 11% EBITDA.

Ashish Kandla — Investments Advisors Private Limited — Analyst

Okay. So, can I ask further questions if there are participants. I can come back…

Rajendra Gandhi — Promoter & Managing Director

Sure.

Operator

[Operator Instruction] The next question is from the line of Deepak Lalwani from Unifi Capital Please. Please go ahead.

Deepak Lalwani — Unifi Capital — Analyst

Hi, sir. Thank you for the opportunity. Again sir, on the export order book, if you could give that number.

Rajendra Gandhi — Promoter & Managing Director

Yeah, so there was, I mean pending order that we are executing in the first quarter. So we are closer to where almost, particularly in the first quarter and we continue to have good orders definitely be fortunately good growth this year over the last year.

On the spot if you want to know that is the pending orders. I can say in this quarter, particularly pending orders that are…

Deepak Lalwani — Unifi Capital — Analyst

Okay, sir. So on an annualized basis, it would be 160 crores right pending orders.

Rajendra Gandhi — Promoter & Managing Director

No, it does not work exactly like that. So of course we have manufacturing CapEx please. And we’ve got limited capacity. It’s not that we have also better too if there is a very high growth in the domestic market. Not necessarily, but again that we do, and there is lot of demand from the domestic itself, so I cannot say that that could be the exact number, but there will be a very good from what we did last

Deepak Lalwani — Unifi Capital — Analyst

Okay, sir. Right. Sir. Got it. And sir, on our margin since the raw material basket has corrected quite a bit setting on any high cost inventory from before which might be liquidated in the next 2 next 2 quarters.

Rajendra Gandhi — Promoter & Managing Director

So there is a true and that people take of inventories that we carry raw material and finished goods. On an average, the company always, we have been 55 to 60 days of inventory. So we continue to have that inventory, but this price corrections are both basis keeps happening. The real impact of both the price hike and the price goes down, I can say it is a of 2 months that will see impact.

Deepak Lalwani — Unifi Capital — Analyst

Okay. So that gross margin will still be defended at 33%…

Rajendra Gandhi — Promoter & Managing Director

We hope if the price doesn’t go there is again no change in the trend, but currently we are seeing, definitely the current bundling sustainable there could be.

Deepak Lalwani — Unifi Capital — Analyst

And sir, what explains the negative number in the other income and what is the size of the ESOP cost in this quarter, Sir.

Rajendra Gandhi — Promoter & Managing Director

On the other income side, the that you’re seeing is largely on the Forex restatement emanating from a mark-to-market adjustment that we have done for the forward covers that you’ve taken so looking at the way the rupee has been moving against the dollar. We have taken some long-term forwards so before, not necessarily due to expire.

Let’s say in immediate quarter, these are, and you didn’t 6 to 12 months range forward that we have been taking. But however, all the 30th June we supposed to mark them to the market rates and given where the rates where as on 30th June against the 4 days that taken mark-to-market loss of roughly 11 million that is sitting inside the other income and plus the regular ForEx restatement on the payable side that you had, that is what you’re seeing as the negative number.

Deepak Lalwani — Unifi Capital — Analyst

On the other income side, what was the other and the ESOP cost in this quarter.

Rajendra Gandhi — Promoter & Managing Director

It would be roughly about 27 million sorry to pointed out on 2.9…

Deepak Lalwani — Unifi Capital — Analyst

Okay, sir. And sir, for this forward contract like what are these forward on foreign exchange contracts…

Rajendra Gandhi — Promoter & Managing Director

Based on our receivables. We have sold the dollar mean progressively whenever you are seeing that the dollar was something we are progressively. So these dollars, but as on 31st of $2 was higher than at the price that we have sold maybe today it is correct that that have we have then correct I mean provided for the difference. They uphold the standards required.

So we, the net exposure that we have liabilities net of imports and exports then either we like dollar we sell the donor. So based on that – But we’ll have to account for this. So maybe it is. I mean if the dollar. Again, if the rupee becomes stronger than maybe level positive.

Deepak Lalwani — Unifi Capital — Analyst

Right Sir. As a general policy, what percentage of our receivables, do we really hedge from we will add only the net of, there are 2 types of imports either exit dollar import has seen. So you see separately and the net of the dollar, because we are a positive export around dollar and in terms of dollars.

Rajendra Gandhi — Promoter & Managing Director

Okay. So we completely the receivables…

Deepak Lalwani — Unifi Capital — Analyst

For the next quarter.

Rajendra Gandhi — Promoter & Managing Director

The network any numbers case is a little longer than the quarter because we were seeing the dollar appreciating so it’s little more than a category, we generally have pending orders for 6 months about 6 months and minus likely and 4 where we, according to this dollar I mean imports. The net of that the hedge.

Deepak Lalwani — Unifi Capital — Analyst

Sure sir. Understood, sir. And sir, lastly on your, on the provisions which you’ve taken in this quarter is it largely done with large retail account We used to cater to.

Rajendra Gandhi — Promoter & Managing Director

Yeah, so as far as the is relating to the large retailer that you’re referring to, by Southwest modules. We have provided 100%. We will see a 7.5 million provision that we have created in the current quarter. This is more from the standard model of the expected credit loss, which we keep providing that. So you will see that whenever as the sales increases on receivables in basis. There will be a small provision that we create because the model requires us to provide for receivables right from the first day of the bidding even before the credit period is due. So that’s what the model was. So, these are small numbers that you’re providing more as an aberration matter of prudence and whatever that was leading to the larger of retail. That is all provided 100% by March itself.

Deepak Lalwani — Unifi Capital — Analyst

Got it. Sir. Thank you, sir. Those are my questions.

Operator

Thank you. The next question is from the line of Harshil Sethia from AUM Fund Advisors LLP. Please go ahead.

Harshil Sethia — AUM Fund Advisors LLP — Analyst

Hi, sir. How do you see the demand ramping up in the e-com channel for us.

Rajendra Gandhi — Promoter & Managing Director

So e-com demand is back to normal. This is start of the festive season, we expect that the second quarter should catch up for whatever shortfall we saw in the first quarter, we have had good discussions with both the platforms and we hope to recover whatever we did, we did short in the first quarter.

Harshil Sethia — AUM Fund Advisors LLP — Analyst

Okay. And going ahead with our goal exclusive brand outlets that we are planning, so what will be follow all the models be CoCo model. We will go for franchisee operations also

Rajendra Gandhi — Promoter & Managing Director

In the immediate basis, we see that we would like to establish the module ourselves. We want to do CoCo stores and like we mentioned, we will open 50 stores in and around Bangalore in Karnataka and once we have proven the, we are open to discussing with partners, but as of now, we believe that we want to do for customers.

Harshil Sethia — AUM Fund Advisors LLP — Analyst

Okay. And you know that the acquisitions that we made last year with power how our lead ramping up these acquisitions.

Rajendra Gandhi — Promoter & Managing Director

Both the carve-out tower has been well it now part of this whole crop team and you should see it is, it is going to have the same content as the LED, it will have the same channel. We believe that it will complement the current LED sales and as part of that from Q2, you should see some traction in CARMA.

Harshil Sethia — AUM Fund Advisors LLP — Analyst

As of now, are we seeing any meaningful number power units.

Rajendra Gandhi — Promoter & Managing Director

No, no, it’s very initial. We have just started manufacturing, you should see something comfortable.

Harshil Sethia — AUM Fund Advisors LLP — Analyst

Okay, thank you.

Operator

Thank you. The next question is from the line of Saurabh Shah from AUM Fund Advisors. Please go ahead.

Saurabh Shah — AUM Fund Advisors — Analyst

Okay. Question from Mr Gandhi as PJ acquisitions have kind of invested in, last year also in terms of now you’re investing in the workforce. So that you know your are being done. That’s slightly ahead of the coming in over the next year maybe not FY20 but for FY 24. Do you see a slightly higher growth rate at all?

So what should be before, but you see better levels of utilization, both for expansion and the acquisition.

Rajendra Gandhi — Promoter & Managing Director

So the overall business, but the plan is for a long-term growth. It’s not that for the short term immediate with Egypt and of course the business existing business takes care of the current book all the investments that we have done, whether it is in our manufacturing the channels that we are expanding the acquisitions, I can. All of these are long-term, the 3% US we will start seeing results.

Saurabh Shah — AUM Fund Advisors — Analyst

So from next year onwards, just to get a sense maybe not FY20 slightly for level of utilization, what kind of top line, should we expect from the current investment.

Rajendra Gandhi — Promoter & Managing Director

There is a continuous activity is not that the whole plan we keep on investing for the near future. So the current all the investments that we’ve already done now can take us repeatable growth but then it is not that we have stopped there is a continuous activity on spending and our capacities or on adding new lines.

Saurabh Shah — AUM Fund Advisors — Analyst

Right. And then just linked to that once you have full you variation of what you have say invested just now for the moment not considering what you would invest further what kind of normalized margin there, which should be see. I know you’ve been guiding 11% since the last 2 quarters, but given that now you are slightly over the investment phase and next few years, we should see more utilization versus investment how much kind of margins should be sustained we expect.

Rajendra Gandhi — Promoter & Managing Director

Actually the way you should understand this is we have always been guiding that we will protect post that heavy disruption that happened in the previous quarters we have been guiding that we will protect this 11% margin it’s not that we have guided the margin will be our business, we want to protect a 31% gross margin. And so that it believes with 11% EBITDA margin. Annualized. This is what we want to protect.

Of course, as the topline growth. And if I mean the costs remain constant definitely the margins will be better than this product. What we want to protect what we want to assure you that we will do all that is required to protect this market.

Saurabh Shah — AUM Fund Advisors — Analyst

Okay, sir. That’s question, any other areas you’re looking to add. Now, given that you’ve made a fair amount of conditions in the last one year. In terms of your mindset of what portfolio, the competition has. Are there any other major pieces missing now or you think now you are Okay. And it should be more of a volume growth from here.

Rajendra Gandhi — Promoter & Managing Director

So we keep it, like I said, there are. This strategy there are categories of products that we in either we innovate on them and we had some difficulties of, which we currently are maybe trading. And then I believe there is enough scale and size in the country, then we want to get leadership in that category. So then we keep investing on them manufacturing.

So, currently, of course, we are focused on all the categories that currently we are already on but there a line of innovations that have been lined up and you will see products being rolled out mean every quarter. So but another completely the like you don’t have any plan for diversification at the moment, we don’t have anything like the of the mobility trends that field. It’s but within our categories. There is a lot of promotion.

Operator

Okay, thank you. Thank you. The next question is from the line of Arpit Agarwal from Capital. Please go ahead.

Arpit Agarwal — Capital — Analyst

Surrounding countries matter for taking my question. I have a couple of questions, first is explain us the rise of other expenses. I think they look to have increased significantly both quarter-on-quarter and beyond. So is there any one-off or is there any specific reason why the other expenses have gone up because we’ve improved the gross margin, but the EBITDA seems to remain seen year-on-year and you after growing topline touch lower quarter-on-quarter explained on the other expenses, please.

Rajendra Gandhi — Promoter & Managing Director

Sure. If you looked at year-on-year, last year at the same time there was a lockdown, as a result of which our billing the e-commerce was much higher and large part of the billing was in the south, because of which the freight cost last year was lower, similarly, travel cost was practically lower, people were not traveling as much. Related to that, again, service costs were lower and because factories are also not working fully, maintenance cost was lower. So that is largely due to the last year and another chain was that last year in the same quarter, export number was lower and great for export is slightly higher.

In our case compared to domestic. As a result of all of this came from 270 million to about 367 million. And the last part was that the sales commission itself was higher because of exports. Similarly, if you look at Q1 we want Q4 FY 22 to Q1. The travel cost is now back by about 1.2 crores. We had savings from reversal of provisions in March 22, which is another 2 crores. And then of course like I said export proportion. So all of this, I think so 32.5 crores went up to 36.7 crores. That is on the big expense.

Arpit Agarwal — Capital — Analyst

So that is something, so our purpose is to be glad run rate of this unprecedented [Indecipherable].

Rajendra Gandhi — Promoter & Managing Director

Correct. It will be the run rate, the fixed expenses. This is [Indecipherable].

Arpit Agarwal — Capital — Analyst

Another question from my side. So like as a company, we have always mentioned that we have focused on manufacturing in housing, increasing the manufacturing which obviously lowers our asset because we have done a lot of CapEx on the capacities. The question is why it should not get reflected in slightly better gross margins than more competitive, because your fixed costs are higher otherwise ROCE will always be lower than the competitors. So it gives is in the broader understanding of what is the thought process. What — how eventually be leverage will play out because of your own manufacturing.

Rajendra Gandhi — Promoter & Managing Director

So I can only say that the volume will for all this revenue growth will dissipate for this and there we’ll see and also in our be opinion will be as good as what it has been. You should not look at our numbers in isolation because quarter because all these capacities and the fixed cost to be manufacturing the has been, but the business is seasoned and like Balaji said, the first quarter and the last quarter, 40% of the business. The majority of the business happened in the second and third quarter. When you overall — I mean — and we are not in the business of maximizing the margins we want to protect our current position that we have and we want to exceed the target customers that we are addressing too.

So we would still want to protect our 31% does not mean that we are — our business is done 31%. There are vagaries in this business there, sometimes the margins can move either ways. To protect that 31% obviously, margin levels are to be a little higher than the 31% and if there are any advantages that are coming out of this manufacturing capability or any other initiatives that we do. We pass on to the consumer and that’s we would want to have a higher market share, rather than on the higher margin. We believe the — it’s been protect with 31% is a reasonably good margin to get to the right [Indecipherable].

Arpit Agarwal — Capital — Analyst

So that would mean that your top line growth will be much higher than the industry, out of [Indecipherable].

Rajendra Gandhi — Promoter & Managing Director

We believe that the — definitely we have been growing at higher than the industry and continue to put higher than the industry.

Arpit Agarwal — Capital — Analyst

Correct. Okay. And sir, just last question on the stores, we have started going on your own [Indecipherable] to mentioned some comments in the earlier participants. So what kind of spend or do you plan to have about 40 stores in next 12, 18 months. What kind of spend will be there on those stores because on the CapEx and inventory side.

Rajendra Gandhi — Promoter & Managing Director

So of course it carried our inventory and the continued investment on each store between 15 to 20 lakhs, otherwise inventories all — I mean it’s moving very fast. So it’s not very, very large.

Arpit Agarwal — Capital — Analyst

Okay. So it’s not a lot.

Rajendra Gandhi — Promoter & Managing Director

Yeah.

Arpit Agarwal — Capital — Analyst

Thank you, sir. Thanks for taking my questions.

Operator

Thank you. The next question is from the line of Kunal Shah from Carnelian Capital. Please go ahead.

Manoj — Carnelian Capital — Analyst

Hi. Hi, Mr. Gandhi, Mr. Mehta, this is Manoj here from Carnelian.

Rajendra Gandhi — Promoter & Managing Director

Hi, Manoj.

Manoj — Carnelian Capital — Analyst

Hi. So just a couple of questions. As you mentioned in response to the question of large participant, that the current level of other expenses, as well as the fixed expenses have come back to the normalized level and this quarter like despite of you making around 33% kind of gross margin. Your EBITDA margin is at 8%. Now, if you have to deliver a yearly average of 11% kind of margin. I think your top line growth has to be significantly higher and in terms of run rate for remaining 3 quarter, it has to be significantly higher top line growth the gross profit margin remains at this level. So just wanted to understand, like with this kind of expenses and gross margins, if you can help me a walk through, from 8% to 11 same kind of margin, which you would — as a company, which you would like to protect while focusing on the top line growth. So if you can give some insights into that.

Rajendra Gandhi — Promoter & Managing Director

So we believe that our overall expenses for the company is in the range of 20% for the that we had planned for and — see the difference, the moment has been — there is a growth with 275. Even when [Indecipherable] growth from here will bring us to that 11%. When I say 32% of the 50% of last to the bottom line of the EBITDA. So, Manoj. This is a simple math, like we said Q1 is equal to 20%. So if you take the gross profit of 91 and multiplied by 5, that it gives you about 455 and you take the fixed expenses, which is about 68. Let’s take 75 as the fixed expenses and multiplied by 4. So you will come to 300, that will give you an EBITDA of 155 and go 275 times 5, we get 1,375. And if you [Indecipherable] is at 11.2.

Manoj — Carnelian Capital — Analyst

Right, right. No, that is helpful, Mr. Mehta. So the other thing I wanted to understand, like last couple of quarters. If I see the kind of impact which we had on our margins. And if I compare that with service your peer, larger peers who are there in the similar industry. They didn’t have this kind of shock where means when they were also dealing with this kind of commodity volatility. So is there something, which has gone wrong specifically, with us like where our competition was not that much impacted in terms of the margin shock with services.

Rajendra Gandhi — Promoter & Managing Director

For us there are 3 even — I can tell you is the combination of all these 3, we had a larger write off compared to the revenue that we have. The launch that we have to take on one of the pillars. The second thing was the inventory holding. The one thing we are holding inventory for a longer time than this volatility also relatively will vary from when it will impact and the 3rd most important thing is, we did we still took a price hike in the first quarter. I think there was a little lag in the middle. We are expecting the prices to stabilize in the 3rd quarter — I mean the 4th quarter, the — we had to take a price hike in the first quarter. So this [Indecipherable] medium, if you will see we will add, obviously, we had an exceptional 5 to 6 crores only for providing for the remaining portion of the unit.

Manoj — Carnelian Capital — Analyst

Okay. Okay. Okay, so that’s what like —

Rajendra Gandhi — Promoter & Managing Director

It was about Pike Rose, we wrote of all the inventory that we are holding from the [Indecipherable]. So all this actually contributed to a lower margin.

Manoj — Carnelian Capital — Analyst

It was the write-off of receivables or inventory, Mr. Gandhi.

Rajendra Gandhi — Promoter & Managing Director

Yeah. We have [Indecipherable] 100% of the inventory, we did about approximately 5 crores.

Manoj — Carnelian Capital — Analyst

Inventory. So I could not understand like in a rising price scenario why there is a provision on inventory.

Rajendra Gandhi — Promoter & Managing Director

So there was some certain inventory that we procured and we have both RM and FTE. This was related to the COVID same products.

Manoj — Carnelian Capital — Analyst

Okay.

Rajendra Gandhi — Promoter & Managing Director

…and we believe that we may not able to realize all of that in the near future. We have provided 400% of that inventory.

Manoj — Carnelian Capital — Analyst

Okay. So that was like, just a one-time thing, which has happened, which has impacted your margins. Right.

Rajendra Gandhi — Promoter & Managing Director

Yeah.

Manoj — Carnelian Capital — Analyst

One more question I have, if you can help me understand like your broader strategy in going through mills going to your own stores and now expanding and managing those stores. So if you can help me understand on that and like in 2, 3 years scenario whether you will be having this pan India stores or you will be having your stores in particular regions, how you are going to explain this.

Rajendra Gandhi — Promoter & Managing Director

… fine India brand only because we are closer to the place where we operate from, is there, we want to learn. So the initial phase is that we would want to set up these stores closer to the place that we are so that we learn from any of these experiences and obviously then the rollout will be much faster and we would definitely want to across the country on being without being the spoke of. We believe that the learning that been limited.

So across the initial scope. All the stores that we have initially planned. We want to do. Company-owned company operated, then obviously we will evaluate all, all the possibilities and also explore all. I mean, the other formats of the branches.

Manoj — Carnelian Capital — Analyst

Sure, sure. Thanks. Mr Gandhi. Thanks. Mr Mehta particularly questions.

Operator

Thank you. Next question is from the line of Rahul Ranade from GSM. Please go ahead.

Rahul Ranade — GSM — Analyst

Hello. Yeah, hi. Hi, thanks for the opportunity. Just one question. Most of them answered just on this company-owned company-operated stores that we are talking about. So what kind of products will be kind of sold. Will it be the higher end of even within the brand that will be sold through the stores that we own or what product offering will be there?

Rajendra Gandhi — Promoter & Managing Director

This entire range of products that we make, whether it is with the lower end or the premium end of course as we progress. We would also want to have an exclusive for to be sold to this exclusive stores but regularly that again that we manufacture and sell it through our various centers is also the advantages that we are able to mean that customer is that we access all these products in one place.

Rahul Ranade — GSM — Analyst

Okay. And just to understand pricing, how would it work versus if you sell the same product online versus in your store and there would be a difference. Right. How would that be kind of looked at?

Rajendra Gandhi — Promoter & Managing Director

We continuously work to manage the channel conflict. I think to a major extent. We have been very successful as a brand to monitor. I mean the channel conflicts. So we try to bring uniformity in any of the channels that it improves the retail channel that we have built it cloud similarity across for the consumer, the acquisition cost for the consumer, whether buy from a more the daily Jebel great are these stores in all be the same.

Rahul Ranade — GSM — Analyst

Okay. But just for a conceptual understanding would this exercise, be more of a brand awareness exercise or let’s say in the medium term, are you looking at driving…

Rajendra Gandhi — Promoter & Managing Director

It is to address that channel we did not have this channel in our distribution business, to address the channel and, of course, this also adds to the brand building exercise, but it is not limited to the brand building also a business for us and the initial insights on its rates for profitability.

Rahul Ranade — GSM — Analyst

Okay. Okay. All right, thank you.

Operator

[Operator Instructions] Next question is from the line of Ashish Kandla from Investments Advisors Private Limited. Please go ahead with your question.

Ashish Kandla — Investments Advisors Private Limited — Analyst

So we’re continuing on this format. If we are going if you’re going to. So what is the kind of top line contribution targeted from this existing play right now? And as you said, the profitability kind of view that so, is it a module where we’re still experimenting or we have decided that kind of going is reasonably higher numbers so, both are correct.

Rajendra Gandhi — Promoter & Managing Director

It’s not that we have firmed up on everything, but we have a plan on which we are setting up these stores and we believe that there could be some learning. But it is panning out the way we are, we are worked on these stores. And so it depends on the size of the store and location, the variables are the rentals and the people cost. It is a very large more people. And of course the rentals will be higher, it is in a very prime place the vendors will be higher, and it will demand for higher revenue. So the initial insights I said, it’s very short time is closer to a month that we would have started out faster and maybe one or 2 weeks when we have started the remaining. So the initial insights are when we do our math, it is quite profitable.

Ashish Kandla — Investments Advisors Private Limited — Analyst

That’s what I so actually it won’t be a burden on the overall P&L that’s what one can interpret that is no.

Rajendra Gandhi — Promoter & Managing Director

On the P&L if a positive

Ashish Kandla — Investments Advisors Private Limited — Analyst

Okay. So the economics maintained that the company has got 2 years.

Rajendra Gandhi — Promoter & Managing Director

Yes, from the students.

Ashish Kandla — Investments Advisors Private Limited — Analyst

Okay. Secondly, I wanted to understand, given the guidance on the top line that you check copies across plus you might be able to do this. So an 11% EBITDA margin would take us to the and 50 odd crores and we are going to be full-text copy this year.

So is it right assumption to make that we might be around justify 80 crores net profit this year as we did in FY 21, that’s the math that I’m…

Rajendra Gandhi — Promoter & Managing Director

So historically, our first quarter has been 20% of the annual year and the demand side, so far has been as normal. Every year we see for the second quarter, we are seeing very good demand from all the channels. So if everything goes as normal as it is course all those assumptions volume play. And with that, of course with an EBITDA of 150 because we’ll have all that. I mean we are almost at full tax regime, they can take all the that set that was there is already over so roughly…

Ashish Kandla — Investments Advisors Private Limited — Analyst

The numbers are correct 75, 80 crores of PAT with 150 crores.

Rajendra Gandhi — Promoter & Managing Director

Yeah that’s my around that is it.

Ashish Kandla — Investments Advisors Private Limited — Analyst

Okay. Okay. And sir, any qualitative comments on different channels, how we are seeing the traction in exports and domestic distribution in e-commerce something on that side, which the first to understand the qualitative aspects of look we have seen very high growth.

Rajendra Gandhi — Promoter & Managing Director

In the quarter in GP because also the 2011 I mean, in the Q1 last year had some disruption and general trade and modern trade stores and now that we have seen very high growth in General take, they are little bit back on the e-commerce side because they are correcting their inventories in that and we actually have, we had higher growth in the export business if you all more detail, I can. I think so.

E-commerce was about 24% contribution on the sales side, general trade was 38% modern retail was 10% and export was 20% and the growth numbers.

Ashish Kandla — Investments Advisors Private Limited — Analyst

Growth numbers for this?

Rajendra Gandhi — Promoter & Managing Director

If you see compared to last year, The general trade grew by 70% e-commerce as a de growth of about 20 because last year general trade was and e-commerce was on. So while e-commerce as a channel we maintained and gain market share in most of our categories. exports grew by about 40% and modern retail grew by about 100%.

Ashish Kandla — Investments Advisors Private Limited — Analyst

Okay. And the e-commerce, the European credit it to mostly phenomenon. And this is not something, which is due to the instrument will. So that’s started right.

Rajendra Gandhi — Promoter & Managing Director

Yeah. It has nothing to do Yeah.

Ashish Kandla — Investments Advisors Private Limited — Analyst

Okay, thank you so much.

Operator

Thank you. Next question is from the line of Praveen Sahay from Edelweiss Wealth. Please go ahead.

Praveen Sahay — Edelweiss Wealth — Analyst

Thank you for the follow-up question. So related to the channel your inventory for the e-channel is also on the similar line or is there a difference like e-commerce general trade modern how’s that inventory for us.

Typically, if you look like Mr Randy said that inventory for us in the channel you’re talking or you are talking about at the company. Level at the company level, like e-commerce, do you have a higher inventory level or things like that.

Rajendra Gandhi — Promoter & Managing Director

We have about 30 days of inventory and 30 days of SGN-30 days of RF typically anywhere between 50 to 60 days of inventory and that whatever the mix in the channel.

Praveen Sahay — Edelweiss Wealth — Analyst

It’s a similar.

Rajendra Gandhi — Promoter & Managing Director

Yes, sure. Yeah, it doesn’t vary too much okay.

Praveen Sahay — Edelweiss Wealth — Analyst

Okay. And the second question related to the inventory write-off or how much is the amount for the COVID product, you said inventory write-off.

Rajendra Gandhi — Promoter & Managing Director

That was 5.5 crores for Q4 FY 20 nothing in Q1 FY 20.

Praveen Sahay — Edelweiss Wealth — Analyst

Okay. And like earlier year also. We had seen related to some other issue, but there is a inventory write-off. So I can understand about the COVID product, but the earlier year also there is a write-off of inventories. Why…

Rajendra Gandhi — Promoter & Managing Director

Right. There was more write-off of inventory earlier if you are referring to receivable provision for a large retailer that was in Q1, Q2, Q3, Q4 of FY 20 every quarter, we took provision but inventory write-off of RMB due to the COVID related products in Q4 of nothing in FY22.

Praveen Sahay — Edelweiss Wealth — Analyst

No, nothing in FY21?

Rajendra Gandhi — Promoter & Managing Director

No.

Praveen Sahay — Edelweiss Wealth — Analyst

Thank you, sir.

Operator

Thank you. Thank you. Next question is from the line of Kunal Shah from Carnelian Capital. Please go ahead.

Kunal Shah — Carnelian Capital — Analyst

Hi. Hi, thanks for taking my question. Again this is Manoj here so Mr Mittal as we explained that this quarter. One is only 20% of your revenue. So you have to multiply revenue by 5 and then that will give you a 11%, but I’m sure that even in your expenses especially other expenses, but some portion. Even in the employee expenses like as your sales grew some portion of those expenses also will be variable like you mentioned freight costs coming back traveling costs coming back all that is variable.

So will it be proper to do that math, like just multiplying all expenses below GDP by 4 and taking everything fixed. So just wanted to get some more color on that. Our journey from 8% to down percent in reconsider some of that expenses as variable whether we’d be able to achieve that level or not.

Rajendra Gandhi — Promoter & Managing Director

The variable expenses are freight and marketing both are roughly 3% between 2 depending on and of course this masked a rough calculation. I think we are fairly confident running the business that we will protect our 11% and as we get go along the different quarters, you will see that.

Kunal Shah — Carnelian Capital — Analyst

Okay, got it. Okay, thanks. Thank you. Yeah.

Operator

Thank you. As there are no further questions. We have reached the end of the question and answer session. I would now like to hand the conference over to Mr Rajendra Gandhi for closing comments.

Rajendra Gandhi — Promoter & Managing Director

Thank you everyone for patiently listening to us and we hope that we able to answer to all of your queries. But if you have any queries you can always reach these about outdoor Investor Relations team at depth. Thank you.

Operator

[Operator Closing Remarks]