Stove Kraft Ltd (NSE: STOVEKRAFT) Q2 2025 Earnings Call dated Oct. 29, 2024
Corporate Participants:
Rajendra Gandhi — Managing Director
Ramakrishna Pendyala — Chief Financial Officer
Analysts:
Ronak Jain — Investor Relations
Omkar Rane — Analyst
Khush Gosrani — Analyst
Sharan Shankarnarayan — Analyst
Varun Ghia — Analyst
Natasha Jain — Analyst
Yash Dedhia — Analyst
Chirag Jain — Analyst
Hitesh — Analyst
Pritesh Chheda — Analyst
Naitik — Analyst
Harsh Shah — Analyst
Resha Mehta — Analyst
Shreyans — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Stovekraft Limited Q2 FY’ 25 Earnings Conference Call. As a reminder, all participants’ lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Mr. Ronak Jain from Orient Capital, their Investor Relations. Thank you and over to you, sir.
Ronak Jain — Investor Relations
Thank you. Good afternoon, everyone. On behalf of Stovekraft Limited, I extend a warm welcome to all participants on Q2 FY ’25 Financial Results Discussion Call.
Today on the call, we have Mr. Rajendra Gandhi sir, Managing Director, and Mr. Ramakrishna Pendyala, Chief Financial Officer.
Before we begin the call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements, which are completely based upon our beliefs, opinions, expectations as of today. These statements are not guarantees of our future performance and involve unforeseeable risk and uncertainty.
And with this, I would like to hand over the call to Gandhi sir. Over to you, sir. Thank you.
Rajendra Gandhi — Managing Director
Thank you, Ronak. A very good afternoon, ladies and gentlemen. And thank you very much for attending our Q2 FY ’25 earnings call today. Let me take this opportunity to wish everyone in advance a very happy and safe Diwali.
A detailed presentation and press release of our quarterly performance has been uploaded on our website. And I hope everybody had an opportunity to go through them. We closed the first half of the year on a positive note with robust performance in the last quarter, which confer our belief of setting up manufacturing facilities to overcome supply disruptions.
We achieved revenue growth of 33% quarter-over-quarter and 10% year-over-year driven by enhanced operational efficiencies due to our own manufacturing that has boosted both the gross margins and operating profits. With the start of the festival season in the Indian market and the geopolitical situation with China, we are confident in our ability to maintain our strong and established market position in the kitchen and home appliances segment supported by our diverse range of products in various categories.
As you know, the second and third quarters are typically stronger for our business. I am pleased to report growth in both volumes and realizations this quarter. Also, the balanced festive season looks promising, which was started with a strong monsoon, favorable economic conditions and government policies. We have consistently met consumer expectations by expanding our product offerings across all categories and introducing new categories to acquire new and young customers.
Our strategy of own manufacturing has started reflecting on our numbers in Q2 FY 2025. Stable raw material cost and operational leverage mainly due to own manufacturing contributed to an improved in our margins. With government introducing quality control order for different small appliances will help us to boost our revenue and margins in coming quarters, as we have already created the required infrastructure for manufacturing these products and avoid the supply chain disruption. This will serve us as an added advantage over competition.
The company is steadily expanding its footprint in the COCO and COCO retail models for the Pigeon brand. During the quarter, we added 22 new stores overall. We now have 213 stores in 13 states and 54 cities. Our efforts in marketing and launching Pigeon brand retail stores are beginning to yield dividends in terms of enhanced brand visibility. Over the last few quarters, we have concentrated on strengthening our presence across diverse regions nationwide.
We are confident that these consistent efforts will have a lasting positive impact on the Pigeon brand as we drive forward with our PAN India expansion strategy. Channel mix in Q2 was 28% from general trade, 40% from e-commerce, 13% from modern trade, 5% from corporate sales, 4% from our own retail. All the major channels reported double-digit growth over year-on-year basis, indicating strong widespread demand and successful brand traction. This robust broad-based growth across channels implies consumer acceptance of our products.
Now moving on to Q2 FY ’25 financial performance. In Q2, consolidated revenue reached INR418 crores, up from INR379 crores in Q2 FY 2024, representing a year-on-year growth of 10%. EBITDA for Q2 FY ’25 was INR49 crores, compared to INR40 crores in Q2 FY 2024. EBITDA margins improved by 120 basis points, that is 11.7% in Q2 FY ’25 from 10.5% in the same quarter last year. Profit after tax for the quarter was INR16.7 crores, up from INR16.5 crores in the corresponding quarter last year, resulting in a PAT margin of 4%, which is slightly lower than the Q2 FY ’24, mainly due to the notional impact of indirect lease accounting.
Moving to H1 FY 2025 performance. The consolidated revenue in H1 FY 2025 stood at INR732.8 crores versus INR677.5 crores in H1 FY 2024, registering in a growth of 8.2% on year-on-year basis. EBITDA stood at INR80.7 crores versus INR63.9 crores in H1 FY 2024. EBITDA margins reported 11% as compared to 9.4% in the corresponding period. H1 FY 2025 profit after tax stood at INR24.9 crores versus INR24.7 crores in H1 FY 2024. PAT margins for the previous year stood at 3.4%.
Now, I request the moderator to open the floor for questions-and-answers. Thank you.
Questions and Answers:
Operator
Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions]. We have the first question from the line of Omkar Rane from Emkay Global Financial Services. Please go ahead.
Omkar Rane
Hello, sir. Good afternoon. Am I audible?
Rajendra Gandhi
Yes, sir. You can. Please continue.
Omkar Rane
Yeah. Sir, I just wanted to know that we were quite ambitious about reducing our working capital loan, as we mentioned in our Q1 call. Just wanted to know, what’s the status with that? Because I can see that our working capital loan has increased and impacted on the margin.
Rajendra Gandhi
On the overall basis for the year, we are continuously working on reducing our inventory and receivable days and also the flow from the cash flows. But this year and half year end coincides with the festival season. And so, relatively our inventory and the receivables also are in line with the business trend.
But overall for the year, we believe that we will be able to reduce it and bring it very close to zero. It may not be absolute zero, but we believe that we can bring down our borrowings considerably.
Omkar Rane
Okay, sir. My second question is around our COFO strategy. I can see in our PPT that we have mentioned that we have two new models under the FOFO model, which is Franchisee Operated and Owned. So, just wanted to know if there’s a change in strategy or just wanted to get a better sense of it.
Rajendra Gandhi
We have two models. All the stores are company-owned and we have a company-owned franchisee-operated model. A very small two stores, which we are trying. And these are on franchisee and franchisee-owned and franchisee-operated models. But the number is very small. It’s only two stores. We are trying this model.
Omkar Rane
Thank you, sir.
Operator
Thank you, sir. We have the next question from the line of Khush from InCred Asset Management. Please go ahead.
Khush Gosrani
Yeah. Hi, sir. Thank you for the opportunity. Sir, first I wanted to understand, what would be your depreciation number x and interest cost number x of the lease accounting for the quarter and first half?
Rajendra Gandhi
You want the total value of our depreciation?
Khush Gosrani
Yeah. So, out of depreciation of INR17 crores for the quarter, how much would be on account of lease liabilities for the stores that we have put?
Ramakrishna Pendyala
INR4.7 crores.
Rajendra Gandhi
No, for the lease. See, there are two assets under the lease liabilities. We have retail stores and we also have some capex that we have funded through lease liability.
Khush Gosrani
Sure.
Rajendra Gandhi
And the overall depreciation for this is INR4.77 crores.
Khush Gosrani
INR4.7 crores. And what would it have been in same quarter last year?
Rajendra Gandhi
Last year was INR1.87 crores.
Khush Gosrani
Okay.
Rajendra Gandhi
There is a difference of INR3 crores.
Khush Gosrani
And also — sure. And in the interest cost?
Rajendra Gandhi
Interest cost only on that is INR2.78 crores. And corresponding period last year was INR1.1 crores.
Khush Gosrani
Got it, sir. And sir, we have also taken in some other — there is some INR2.7 crores other loss. Could you explain what is that? Is there some provisioning around this number?
Rajendra Gandhi
Yeah. So, there is a one-time provision or we have written off. We acquired a brand called SKAVA and we wanted to strengthen the LED business. But as a strategy, now we have decided that the LED business remains where it is. And so, since we are not using this brand, we have provided for that. And we have written off. And there is also a supplier’s credit. We had bought some machines during 2021.
Ramakrishna Pendyala
This was in Swiss franc.
Rajendra Gandhi
And though we paid a little prepaid to two of those, otherwise, we end up paying next year. So, there was a forex loss because this was supplier’s credit. And at that time, we had not hedged this Swiss franc. So, to an extent of INR1 crore was that. So, this is about INR2.2 crores is only towards that. And the normal forex loss. Overall, there is an impact of INR2.5 crores.
Khush Gosrani
Got it. Sir, also, if I look at your product mix, in the induction cooktops in this quarter, we saw volume growth of 16.3%. But value growth is only 3.2%. And so, first half of the year has also remained like that only. Where with 13.5% volume growth, 2% value growth. So, is there a deep discounting happening?
Rajendra Gandhi
No, no, no. There is a considerable improvement in cost on the induction cooktop. So, induction cooktop, there was a volatility in particularly the glass. That input of glass had gone up. It was very volatile in the last two years. That has come back to normal.
And the second thing is most of these are electronic parts that go into the manufacture of induction cooktop. There is substantial improvement in our cost. Generally, as a strategy, most of the cost we pass on while we retain our margin. So, definitely, there is a lower cost, lower realization in the induction cooktop by unit value. That’s why you see that volumes have gone up and value has reasonably gone up.
Khush Gosrani
And same would be the case for gas cooktops as well?
Rajendra Gandhi
No. Gas cooktop, we have actually, the premium end, we have sold more of the lower end gas cooktops in this period. And we are augmenting our capacities on the premium end. So, there has been a sales loss in the premium end. So, overall, you will see, of course, that will come back. That is not a problem.
Khush Gosrani
Got it, sir. And last question is, sir, how many stores, what is the final count for the full year for the stores that you are adding? So, right now, we would be at 213 stores. So, by end of the fiscal year, where we would be this number?
Rajendra Gandhi
Generally, we are able to open between 25 and 30 stores. So, assuming for the next two quarters, you can safely assume another 50 stores. So, we begin the third quarter at 213. You add, 260, 270 stores is where we should end up.
Khush Gosrani
Okay. And for the next two years, it would continue to — you continue to aggressively add these stores or this will plateau somewhere?
Rajendra Gandhi
I think the next two, three years, we will be at least at this pace. It’s not accelerating. We are seeing very good outcome of this channel and all those things that we wanted to learn. I think the learning, there’s enough learning. And so, we will continue to be aggressive on opening the stores. And at the time being, we believe that we will continue to, I mean, expand the stores at about 25, 30 stores every quarter.
Khush Gosrani
Okay. Sure, sir. I’ll get back-in the queue. Thank you.
Operator
Thank you so much, sir. We have the next question from the line of Sharan Shankarnarayan from Yes Securities. Please go ahead.
Sharan Shankarnarayan
Hello. Am I audible?
Rajendra Gandhi
Yes, sir, please, sir.
Sharan Shankarnarayan
Yeah. Thank you for the opportunity. I had one question regarding the channel mix. Could you just please share that?
Rajendra Gandhi
Can you please repeat? I’m not able to understand, what you are talking about?
Sharan Shankarnarayan
Could you, I don’t know, if I’ve missed it, but could you please share the channel mix?
Rajendra Gandhi
Channel mix, yeah. So, 28% approximately is our general trade for the last quarter.
Sharan Shankarnarayan
Okay.
Rajendra Gandhi
E-com is, just a minute — 40% is Ecom, 13% is modern trade, 5% is corporate sales, 4% is overall retail, then we have exports at 10%.
Sharan Shankarnarayan
Okay, sir. Thank you so much.
Operator
Thank you. [Operator Instructions]. Next question is from the line of Varun from Equitree Capital. Please go ahead.
Varun Ghia
Hello. Hi, sir. A couple of questions from my side. Firstly, the volume growth has been really subdued at around 6%. Last quarter, it was 9%. So, where do you see this? And is there any challenge across products or channels?
Rajendra Gandhi
So, it also depends on the base. I think we had a reasonably good base in the second quarter of last year. And so, the volume growth is, I mean, it’s not — and also the value also. So, in terms of both volume value, I think we have grown at 10%. So, there is also a value improvement in the product — in the mix that we offer.
Varun Ghia
And where do you see this for the full year, volume growth?
Rajendra Gandhi
We believe that there is an opportunity for growing better than what, because we have seen the good demand for the festive season continuing post the quarter end.
Varun Ghia
Okay. And where can we see the depreciation and interest cost stabilize going forward? Since most of your retail stores…
Rajendra Gandhi
[Speech Overlap] capitalized for the capex. And for the store count, as we improve the number of, I mean, increase the number of stores, this will go up. Otherwise, for the overall, the capex plan is almost at the fag end.
Varun Ghia
So, for the full year depreciation, can we continue this run rate or it will increase quarter-on-quarter?
Rajendra Gandhi
I think, this is the current run rate is where I think it stabilizes.
Varun Ghia
Okay. And the other expenses had a sharp jump this quarter around INR64 crores or INR65 crores as compared to INR45 crores last quarter. So, what has impacted that?
Rajendra Gandhi
I can give you a break up of the other expenses. Of course, because of the larger revenue, we have also invested, I mean, comparably INR10 crores more on the marketing spend. And the rest of the other expenses are in line with the revenue growth.
Varun Ghia
INR10 crores?
Rajendra Gandhi
Sorry?
Varun Ghia
In the marketing spend, you mentioned how much?
Rajendra Gandhi
I mean, INR10 crores. Okay. If you want exactly, I will tell you. Other expenses, marketing spend, INR3 crores is over and above the normal. Freight, there is an increase of INR3 crores is linked to the revenue. Retail salaries also is about INR1.7 crores is linked to the revenue. And there is extra jobber charges about INR1.2 crores is also linked to revenue. So, those are the increment is in line with revenue growth.
Varun Ghia
Understood. And the last question. I missed on the write-off part, any other income loss which you mentioned?
Rajendra Gandhi
Two major items in that. One is we have written-off the brand cost that we had paid when we acquired this business of SKAVA. And the second is we had imported some machinery from Switzerland and it was in Swiss francs. This is about three years back, but it was on a supplier’s credit. And we had prepaid it a little. And there was a variance in the cost of Swiss francs. That is, there is a forex loss and accounting of this capital — capex. We have charged it to our P&L to that extent.
Varun Ghia
Okay. And for a full year, do you see the revenue growing at around 12% to 15%?
Rajendra Gandhi
We are very confident of better growth than the current 10%.
Varun Ghia
Understood. Thank you.
Rajendra Gandhi
Thank you.
Operator
Thank you. The next question is from the line of Natasha Jain from Nirmal Bang. Please go ahead.
Natasha Jain
Yeah. Hi, sir. Thank you for the opportunity. My first question is just broadly to understand, how the industry is doing in terms of kitchen appliances as a category now. How has been the demand pickup, especially in October? And how do you see the rural demand picking up in comparison?
Rajendra Gandhi
So first, let me tell you that as a company, we believe that we’ll be able to grow faster than the industry. And that is our overall objective. And regarding the demand, but continuing after the quarter, I can say, the season has planned out very well, festive season. And we are continuing to see better demand than the quarter itself. So we believe that overall for the industry, the demand should be good.
Natasha Jain
Sir, could you call out any number in terms of how the industry is expected to grow value wise for kitchen appliances as a segment in the third quarter?
Rajendra Gandhi
We will grow at least a delta of 10% over and above the industry growth. So we believe that the industry would have not grown to the extent one would expect in the first half. But then going forward, I think, there is — we are seeing good demand. So probably the industry also should be growing better than what it was in the first half.
Natasha Jain
Understood. And sir, can you give us a little bit color in terms of how the corporate bookings have been for Diwali? How your air fryer has done?
Rajendra Gandhi
Now, if you only talk about the air fryer, of course, we missed, I mean, we did not plan enough. And so we were a little stopped out for this item. But overall, I want to convey one that the demand has continued post the quarter and the season has spanned out. So I mean, the festive season has spanned out well so far…
Natasha Jain
Understood, sir.
Rajendra Gandhi
Whereas the very good demand.
Natasha Jain
Sure. And so would it be fair to say that air fryer as a category for you would be a high margin product compared to your overall vendor margin?
Rajendra Gandhi
For us, we are agnostic on margin, whichever product or category of products it is and also the channel. But when we move to this completely manufactured status, that is, we do introduction of new products in three stages. Initially we trade in them, then we manufacture and we complete it. So air fryer is one category, where we fully make the whole product. And obviously, it will be a little relatively higher than our general business margin.
Natasha Jain
Understood, sir. And so you mentioned that exports as a revenue contributor is 10% to your consol revenues. So can you call out what has been the export growth on a Y-o-Y for 2Q?
Rajendra Gandhi
For the quarter, it was subdued because we are actually developing new products in line with the global trends. So for us, exports majorly contribute from the non-stick cookware category and the cookware is moving to a different coating category now. So we have equipped ourselves based on the consumer discussions that we have had. And we have set up new lines that into this new type of cookware. And we also have good orders. But all this will start delivering from the third quarter — I mean, I can say revenues will start recognizing revenues from the fourth quarter of this year, particularly in the cookware category. So there would have been muted growth in the export business in the last quarter.
Natasha Jain
Understood. And sir, how many stores would you have converted from the COCO to COFO model in second quarter?
Rajendra Gandhi
We have 12 stores. Only in the second quarter, this is September. See, of the 213, I can say 35 stores — 38 stores are COFO stores. We have 35 COFO and 3 FOFO. 38 stores we have converted.
Natasha Jain
Okay. And the remaining would be your COCO?
Rajendra Gandhi
Yeah, remaining 171 COCO. So we would want to cap this at 171. So the way it works is we continue to open stores under the COFO model. And stores that are matured move to the COFO model.
Natasha Jain
Got it. And sir, one last question before I get back in the queue. So what is your current touch point in terms of your distributor, dealer and retailer count?
Rajendra Gandhi
I cannot, as I told, have exact numbers, but we have about 75,000 retailers on the for the Pigeon brand through the distribution GT channel. And we have about close to 600 distributors, but these are not exact numbers. These are approximate numbers that I’m giving you.
Natasha Jain
Understood, sir. Thank you. I’ll get back in the queue.
Operator
Thank you. We have the next question from Mr. Yash from Maximal Capital. Please go ahead.
Yash Dedhia
Hello, am I audible?
Rajendra Gandhi
Yeah, yeah, please.
Yash Dedhia
Yeah. Thank you so much for the opportunity. So I just wanted to first ask you about the volume growth that we are projecting for the year. The guidance was around 14%-15% for the volume to grow. And incrementally, 3% to 4% would come from pricing, which is not in our hands. But sir, in at least first half, and my first half, it includes Q2, which is strong quarter for us. The volume growth has not been great, where we could project that 14%-15% volume growth is still feasible for the entire year. So does our guidance for the whole year change or we still maintain that and are confident of achieving growth more than 15% in second half to compensate the whole year?
Rajendra Gandhi
So we believe that the demand continues to be stronger than even the second quarter. So we are very confident of delivering better than the growth that we were able to do in the first half and definitely will beat the industry growth by 7%-8% definitely.
Yash Dedhia
Okay, okay. Thank you so much. And sir, the second question on the retail store side, what is our SSSG for stores, which are now older than one year on this quarter?
Rajendra Gandhi
They are definitely performing better than the new ones. If currently our average, I mean for the last H1, the average is 3.56 lakhs. Of course, it is improving. But our greater than one year stores are delivering upwards of average of 5 lakhs.
Yash Dedhia
Okay, so it has definitely grown from where they were earlier?
Rajendra Gandhi
Yeah, yeah, yeah. Yeah.
Yash Dedhia
And so incrementally, are they becoming EBITDA positive for us?
Rajendra Gandhi
For us, the whole retail channel is EBITDA positive.
Yash Dedhia
Even the new one? The COCO side? On the COCO side?
Rajendra Gandhi
So if we find any store, which is not only EBITDA positive, I can say, net cost positive, beyond six months, then we relocate. We would not want to continue that location.
Yash Dedhia
Understood, understood. Great, sir. Thank you, thank you so much.
Operator
Thank you, sir. [Operator Instructions]. We have a question from the line of Chirag Jain from Emkay Global. Please go ahead.
Chirag Jain
Hi, good evening, sir. Thank you for the opportunity and fairly strong set of performance in a challenging environment. Sir I just wanted your thoughts. I think in the media interview, you mentioned that our business could be in the range of the EBITDA margins could be in the range of 11% to 14% over the medium term. If you can share some thoughts around this. So how we see our business progressing, especially on EBITDA margins over the next three years to five years, that would be very helpful?
Rajendra Gandhi
Thank you, Chirag. Of course, very challenging question, but I tell you where we are heading to. We are improving both as the operational leverage gets in, our cost will get spread over the overall revenue. So operational leverage, we see that improvement coming from that. And of course, on our gross margins, because more-and-more products are now being manufactured within the facilities of Stovekraft, our gross margin also, we believe, will also improve. So with these two both totaling up, so the average number will hover between that 11% to 14%. We believe definitely in the medium term, between three years to five years, we’ll definitely hit that 14%
Chirag Jain
Okay, and in terms of your current set of infrastructure, manufacturing infrastructure, what kind of revenues we could do, let’s say, assuming there is enough demand for the next two years, three years?
Rajendra Gandhi
Revenue?
Chirag Jain
Yeah, yeah, revenue potential that we have from the current manufacturing set-up.
Rajendra Gandhi
If there is no new addition, with only operational, what you call, maintenance capex, we should be able to get to double the revenue of this year’s revenue.
Chirag Jain
Okay, so there is a big scope for operating leverage ahead, in terms of the infrastructure investments that we have done over the past few years.
Rajendra Gandhi
Yes.
Chirag Jain
Yeah, yeah. Also, on the export front, you mentioned that we could be 16%-17% of the revenues over the near term, and especially with the addition of new players. Can you throw some light over here? I think, we already supplied to Walmart, so any new customer addition, major addition that is happening, or already in the process, if you can share some thoughts over there?
Rajendra Gandhi
Chirag, I want to tell you that Walmart is publicly announced that they would want to buy more-and-more from India, from their current $3 billion to $10 billion. They consider us also one of their strategic and important suppliers. They have also given us new lines, for which I mentioned that we are setting up, we have set up rather, facilities for the new coating lines, and with that, revenues will start pouring in from the first quarter, I mean, Q4 of this financial year.
And we are also in talks with a very advanced stage, it’s not that we have closed the agreements with them. It’s a very advanced stage of discussion with a large global retailer. And we are very confident that with these two additions, and with the growth that is already happening, we will be able to, on an increased revenue base, get a 16%-17% contribution from our exports.
Chirag Jain
Okay. Okay. Thank you so much. That’s it from my side. And best wishes for the festive.
Rajendra Gandhi
Thank you, sir.
Operator
Thank you. We have a question from the line of Mr. Hitesh, from Kosha Capital. Please go ahead.
Hitesh
Hi. Thanks for the opportunity. Sir, on the demand front, would it be possible for you to give a sense how the demand is across different product categories, like the cooker, the cookware, small appliances, if you can give some sense on how this demand has been in this festive season across categories?
Rajendra Gandhi
So, primarily, for us, these are three categories. The cookware contributes both the pressure cooker and non-stick cookware. The cooktop contributes gas stove and induction cooktop. And then is the rest of the appliances. The appliances definitely is growing faster for us because of the strategy that we have adopted. We have started manufacturing these. Most of the appliances are complete. We got to a stage of complete manufacturing within the facilities of Stovekraft. So, what used to be the largest category, the cookware category, is now replaced by the appliances category, followed by cookware, because the pressure cookware, of course, we have again started growing now.
In absolute numbers, we are already getting to leadership now. And the cookware, both with the new lines for our exports and the completely automated line for our cast iron, with our cast iron foundry, we will again, we will see good growth coming from our cookware category also.
On the cooktop, we have completely exited the co-branded business with the oil companies. So, today, we only cater to the consumers who are directly buying these gas stoves. So, but our induction cooktop, also, we are, by absolute numbers, we are at leadership position. Both these, the third category that is contributing to our revenue is the cooktop category. To answer your question, the highest contribution, the highest growth will come from our appliances category.
Hitesh
Sure. Sure. And does this have anything to do with the BIS standards which have kicked in? And if you can also comment, how the industry is trying to cope up with this standard? Are there a lot of inventory that has already been built up by players, and hence, the impact of this could come with a lag? Or do you see this benefit coming to you in the near term itself?
Rajendra Gandhi
I can tell you that we are fully equipped today. We don’t have to depend for any of these product categories that we wanted to be or we already are dealing in to depend on any completed built unit for our importing of this. So, today, we have BIS licenses for across all the product categories that we operate in.
Definitely, I’m sure it’s not only about getting advantage because of the supply disruption, but there is also an advantage that because we have the capability to make it within the facilities of Stovekraft and with the aggressive price point that we operate in, definitely, we have an edge over competition. There are some categories that we have, again, in the recent times, started manufacturing. I’ll name one.
That is OTG that we used to in the past import and sell. We are already doing more than 10 times of the business that we were doing in the past just because we started manufacturing them. So, there are many of these categories. Like you said, maybe people would have stocked them and all that, but in the days to come with the QCO order strictly being implemented, definitely, Stovekraft has the advantage of manufacturing them and we have a ready consumer in various channels to operate to cater to the consumer requirement.
Hitesh
Sure. And, sir, my last question is if you can also touch upon how the demand is for the premium vis-a-vis the mass economy segment, any change in the trend, any different trends that you’re seeing across the two segments, premium vis-a-vis the mass?
Rajendra Gandhi
Stovekraft makes premium products. The pricing is not premium. We make products with completely stat features, high quality. We don’t compromise on them. It is definitely not priced at the level of generally what so-called premium brands price them, but the products are not. So, we make, example is our air fryer or our new vacuum cleaner or the electric pressure cooker that we make or any of those products. They’re all feature-wise, quality-wise premium products.
So, today, the Indian consumer is very, I mean, we still believe the Indian consumer for a long time will be cost-consumer and if they see value in these products, the larger category will opt for this category of products. And so, we actually make premium products. These products are not sub-premium.
Hitesh
Okay, sure. And, sir, this whole export strategy that you are adopting, would this be sold under Stovekraft’s name or would it be white-labeled products that you’ll be supplying to Walmart and the other retailers that you are mentioning?
Rajendra Gandhi
The current exports to retailers like Walmart, these are all white-labeled. We also have our brand exports. This is catering to the Indian diaspora, but it is relatively small. Maybe in the future, when we start our exports e-commerce play, the brand exports will start contributing, but today, the arrangement with these retailers like Walmart is all white-labeled.
Hitesh
Sure. Thank you very much, sir.
Operator
Thank you. [Operator Instructions]. We have the next question from the line of Mr. Pritesh from Lucky Securities. Please go ahead.
Pritesh Chheda
Yes, sir. Good afternoon, sir. My question is with respect to the other expenses. First of all, congratulations for taking the GP up in the last 12 quarters that I have seen. You have obviously moved your gross margin from 32% to 38%, but it is surprising that nothing of it has flowed to the EBITDA. On the other expense line, if you could tell us on a Y-o-Y basis, the key cost item and what is your movement and why is it that this 600 basis point is not flowing through the EBITDA and this observation is not for this quarter? Let’s say, 12 quarters -13 quarters I am trying to assess and then ask you.
Rajendra Gandhi
Thank you, Priteshji. Of course, as you have well understood, we have improved on our gross margin. There is improvement in EBITDA, definitely there is an improvement from EBITDA. We were at about 8.4%. We have moved to 10.7%, but it is not reflecting on our PBT and PAT. Three major reasons. One, of course, in this quarter we have had some one-off cost that was linked to both some capex derailment I can say, I mean not capex, brand derailment and one forex loss on capex. That is approximately INE2.6 crores.
The second expense was we continue to open stores and we did some lease financing of our capex to the extent of about INR32 crores. This gets written-off completely during the period of the payment of this lease. This is less than five years. This is a little pre-ended cost, I can say. To the extent of about INR5 crores what you see, there is an additional notional cost that is being incurred in the post EBITDA number.
Pritesh Chheda
I am asking you everything pre-EBITDA, nothing post EBITDA. So, pre-EBITDA, if you could tell me the other expenses movement from INR52 crores to INR65 crores, same quarter in two years.
Rajendra Gandhi
Yeah, Ramakrishna?
Ramakrishna Pendyala
Se, the other expenses have gone in line with the sales growth. So basically, we have spent some additional marketing spend of about INR3 crores. And then, the outward freight had gone up by INR3 crores, compared to Y-o-Y basis. And then we also have — we are increasing the retail stores. Then, the retail stores had these salaries and expenses to the extent of INR1.7 crores. There is an increase. Then, as per the accounting standards, job of charges are reported as other charges. There is an increase in line with the sales growth. Overall, about INR10 crores of expenditure has gone up. But those are all we see that it is in line with the sales growth.
Pritesh Chheda
Sir, your expense is up 25%. You are making the account all the expense in line with sales growth. There is to be something which is not — which is outside the sales growth, right?
Ramakrishna Pendyala
The marketing expenditure, which we spent may not be for the month, of course, that the sales step realized in the subsequent months as well. Of course, I agree with you that it is not in proportion to the sales growth. But yes, these are all the expenses directly related to the sales.
Rajendra Gandhi
So let me broad [Speech Overlap].
Pritesh Chheda
So should I conclude this way that there is no operating leverage in your model at all?
Rajendra Gandhi
No, no, no, no. I think the understanding is not correct. There is an operating leverage in the model. There has been front-ended costs. Most of it will reflect in people costs because we have fully now fully all the manufacturing facilities will get fully operational, but we have invested on all of them. So definitely, there is a front-ended costs on the people cost. What Ramakrishna some investment has happened in marketing, additional marketing spend, but that is for the future. And in the one-off item is that to INR2.6 crores additional cost that has come in this quarter.
Pritesh Chheda
Okay. Sir, you beautifully managed your growth for all these years. You have created a very good backward integrated capacity. You have gone through the good round of gross margin expansion. The only thing which is probably left is to get operating leverage in the model. You’re far ahead in terms of competition in your thinking. I think, the last thing is that these things should now translate into operating numbers and operating leverage. So in your opinion when should it start getting fully reflected?
Rajendra Gandhi
I think you will start seeing immediately from this quarter, but this is not that it will be the complete stack that we want to do. If you really want to see that, I think you’ll have to have patients for the next four quarters to six quarters. But you will start seeing that operational leverage panning out immediately from this quarter, Q3.
Pritesh Chheda
Okay, sir. Yes. Thank you very much, sir.
Operator
Thank you, sir. We have the next question from the line of Naitik from NV Alpha Fund. Please go ahead.
Naitik
Hi, sir. Thanks for taking my question. So, my first question is on similar lines from the question of earlier participant. So when I look at your EBITDA margins, which is close to 11%, 12% for this quarter. And when I look back in 2Q ’23 and the 2Q ’22, you had done similar margins, but which was on a much lower gross margin base, say, 33%, 34% gross margin base. So now I want to understand this cost structure better below gross margin from gross margin to EBITDA margin. So if you could just explain, why are we not seeing this flow through? Because on 32%, 33% gross margin we have done 11% of EBITDA margin already. And now at even 38% gross margin, we are still at 11% to 12% EBITDA margin?
Rajendra Gandhi
So on the same line, but let me repeat so there is a one-off cost in this quarter. Definitely, that is giving you some drag on the EBITDA margin. Second is we have fully equipped the whole manufacturing facility. And that has — that while the capex is done, all that will start reflecting in increased revenue and increased gross margin. So that has to start, it is started, but is not that completely it is reflecting in our numbers. So there is a people cost increase. It is not in proportionate promotion to the growth in business, but that business growth is ahead of our costs.
Naitik
Right. Okay. Two follow-ups on the same. So can you just explain what percentage of your other expenses would be variable in nature, which would be linked to, say, sales?
Rajendra Gandhi
See, almost you can consider as we go forward, 2% improvement in our overall expense after the gross margin.
Naitik
No, sir, my question is what percentage of your cost other than the employee cost is variable or is linked to sales?
Rajendra Gandhi
Variable cost is not only the employee cost. In fact, employee costs…
Naitik
No, I’m saying except, except employee cost, all other costs. What percentage of that would be, say, variable in nature? And what would be fixed in nature?
Rajendra Gandhi
20% is variable.
Naitik
Only 20% is variable.
Rajendra Gandhi
Yeah.
Naitik
Okay. And my second question is in terms of employee costs, are we done with hiring, whatever employees we had to hire or we are still looking at hiring more and costs?
Rajendra Gandhi
Yeah. We have the complete team in place both for our manufacturing and other operations, corporate operations of the company.
Naitik
So this should not increase ex of just a yearly increment that happens, the employee cost?
Rajendra Gandhi
We believe that there is no other increase other than the inflationary increase that every year will have to.
Naitik
Okay, sure, sure. That’s it from my side. Thank you.
Operator
Thank you. Next question is from the line of Harsh Shah from Lira [Phonetic] Holdings. Please go ahead.
Harsh Shah
Yeah. Hi, sir. Good afternoon. Sir, can you give us the absolute volume data for current quarter, preceding quarter and Y-o-Y quarter?
Rajendra Gandhi
You want absolute numbers? Or do you want that…
Harsh Shah
Absolute numbers, — million units.
Rajendra Gandhi
Value, you want the absolute value, or volume?
Harsh Shah
No, million units, the volume which we have sold.
Rajendra Gandhi
Okay. While it is very competitive sensitive, still I will share it with you. There is no problem. For the quarter, we were at 14.8 lakh units for pressure cooker. For cookware, we were at 26.75 lakh units. For gas cooktops, we were at 2.5 lakh units. For induction cooktops, we were at 4.99 lakh units. For all the small appliances put together, we were at 55 lakh units. And of course, the LED, we were at — sorry, I am correct. The small appliances was at 31 lakh units. And for LED, it was 14 lakh units.
Harsh Shah
Okay, sure. And sir, can you elaborate it a bit more on the gross margin, dynamic. 13% peak margin or can we improve further from here? You said that will you do more in house manufacturing, but we are already around 90% to 93%.
Rajendra Gandhi
Your voice is tracking. Can you please repeat?
Harsh Shah
Is this better?
Rajendra Gandhi
Yeah, it’s better now.
Harsh Shah
Yeah. So my question was in terms of gross margin, can we take the 38%, 38.5 percentage, the peak gross margin or we can improve from here on as well because we mentioned that we will be doing more in-house manufacturing, but they’re already at 90% to 93%?
Rajendra Gandhi
Yeah. So we — when I say, complete manufacturing, to manufacturing, there is a difference. Most of the products we are getting to complete manufacturing. And we — our endeavor is to improve from here, is where we wanted to first get to. And I think we have achieved what we wanted to. But there is a scope for improvement, and we are confident to improve from here.
Harsh Shah
Okay. And sir, have we taken any price hikes or price cuts during the quarter? I joined the call late, so why I might have missed that.
Rajendra Gandhi
We have been continuously trying to adjust our price to get to the gross margin that we aspire to. So I think we are there. But we also believe that there is scope without actually penalizing our consumers, we can still have better margins. So we are working on that. I’m sure we — in the quarter ahead, you will see little improvement gradually on our gross margins.
Harsh Shah
Okay. And sir, is there any element of manpower cost that sits in your other expenses?
Rajendra Gandhi
No.
Harsh Shah
Yeah. Because you mentioned that…
Rajendra Gandhi
Small portion, one small portion. So the retail sales team, which are not directly on the roles of the company, this gets into the other costs, yes.
Harsh Shah
And roughly, how much that would be?
Rajendra Gandhi
I’ll give you a number exactly just a minute. INR1.7 crores for the quarter.
Harsh Shah
So is that incremental in this quarter? It’s been there always, this INR1.7 crores number?
Rajendra Gandhi
The incremental — yes, it’s the incremental for the quarter.
Harsh Shah
Okay, okay, sure. Thank you so much, sir.
Operator
Thank you. We have next question from Resha Mehta from GreenEdge Wealth. Please go-ahead.
Resha Mehta
Yeah. Thank you. So the first question is on the general trade channel. So — have you seen the pressure on this channel having eased or any change there because this channel has been under pressure for quite some time now. So how are you reading it and especially in light of still the current festive season panning out?
Rajendra Gandhi
Yeah. For the period that we have reported, we were seeing pressure on the channel, but I think the channel has come back strongly in the festive period post the reporting period also. So I think that is getting back to normal. It was experiencing some pressure it has actually a lower contribution. So our GT contribution for the period reported is only 28%. Normally, it used to be about 30% in the range of 32% to 35%, but we believe that as the festive season is panning out well, the GTs will — general trade channel is also contributing well. So the — I think the pressure is off now.
Resha Mehta
And what about the rural MFI channel?
Rajendra Gandhi
The MFI channel is going through — because of restrictions or pre and post-election period, it has to come back to the normalcy. It is not at the level it used to be.
Resha Mehta
Got it. And then exports, we want to enter the UK market in this financial year.so has that happened?
Rajendra Gandhi
So we have started working. We are — we have started working. We are working with the largest retailers there already.
Resha Mehta
Okay. So we have started exporting there. And on the balance sheet side, so I just wanted to understand that how many of our partners will now be covered under channel financing?
Rajendra Gandhi
Majority of the business, both for terms of safety, all our channel financing arrangement is without INR3 crores. And almost all of our business where mean our — are covered through channel financing. There could be some players — I mean there — we are very confident that we do business directly. But in the course of the business in the quarters to come, 100% of our domestic business will move to channel financing.
Resha Mehta
And what would that be at current level, we’re not yet at 100% so?
Rajendra Gandhi
No. So there are two types of customers that we were very short term credit, like seven days, 15 days, we have prepared that we catered to them directly. And so that could be almost, say, 50% of our business.
Resha Mehta
Okay. On the debt side, so I think I missed this. So we want to reduce our fund-based debt almost zero, I just…
Rajendra Gandhi
All of the capex so far, all of the capex has been funded from the balance sheet for the company. And so the contributions have been utilized for this. But we have — in spite of the growth in the overall size of the business, we have maintained the debt at the level. We will start seeing reduction the fund based debts in the quarters ahead.
Resha Mehta
And about the BIS certification, can you just elaborate, I mean, in terms of the industry, the entire industry’s readiness towards this compliance and how can it benefit us? And how can we leverage that? Because my understanding is that for a lot of the product categories that we are already in, there’s not much high import.
Rajendra Gandhi
No. Most of the appliances in this country, which would not have a very large scale, most of them, it was easy to import and sell is more of a kind of a trading commodity. Several of them were 100% imports. Most of them had both domestic and import content. Today, if somebody has to be serious in that category, the only way is they have to manufacture in the worst case, at least some of the product within the country only then they can have the BIS certification and sell.
Resha Mehta
So how would you say is the industry readiness, the local small manufacturing units or the smaller brands that are there, they already have these certifications in place?
Rajendra Gandhi
Not all the categories, there are some categories, where very less manufacturing existed in that country. To just mean some of them I’ll tell you, hardly any air fryer manufacturer. There was hardly any chimney manufacturer. There was hardly any OTT manufacturer — so it’s not only this, not limited to this, but there are several of these categories, which they of course, when we believe that as the need is arose now, there will be more-and-more manufacturers. But today, we are ahead of the curve. It’s not that we’ll be the only one to be manufacturing this product. And when we get into manufacturer, we get into the…
Resha Mehta
Hello? Hello?
Operator
Sorry to interrupt, ma’am. The line for management has been disconnected. Please give us a moment while we connect them. Ladies and gentlemen, please stay connected, while we reconnect the management. Ladies and gentlemen, we have the management online with us.
Resha Mehta
Yes, I was asking on the BIS certification part. And just this last one there that why is this expected to be enforced?
Rajendra Gandhi
So there are different products at different stages. It’s not that all of them are — but at the moment, the way it looks, unless it is extended in the next six months, all of these products, any of the kitchen appliances have to be under the BIS.
Resha Mehta
Right. And lastly, I just wanted to understand our sales model. So — is it that the same sales man actually goes to a GT channel and sell all the products that we have in our portfolio? Or have we defined some categories across our sales personnel?
Rajendra Gandhi
So for us, all these categories fall the same channel and the salesperson who is for that area, whichever area is getting to will go to all the stores that are dealing with our products, not necessarily every dealer will deal with the complete range. There could be different dealers within the different products. But for that region, he will be the salesman. We don’t have multiple salesmen for different products. At the moment, we don’t have that so much.
Resha Mehta
All right. Thank you all the best and Diwali wishes to the team.
Rajendra Gandhi
Thank you, madam.
Operator
Thank you so much, sir. [Operator Instructions]. We have the next question from the line of Shreyans from Svan Investments. Please go-ahead.
Shreyans
Hello. Festive greetings to the team. Hello?
Rajendra Gandhi
Yes, sir.
Shreyans
Yeah. Festive greetings to the team, sir. Sir, my first question is you spoke about improving gross margin, but I’m just trying to understand, sir, we are already at 92% in-house manufacturing. And we’re not increasing any capacity going forward. So how will our gross margins improve? I think there are only two ways out people you improve your product mix or you take price increases of premiumization, as you call it. But I think you’ve not spoken on those two lines. So how will we improve our gross margin, sir?
Rajendra Gandhi
Obviously, we definitely intend to improve — I mean, improve our price structure because we feel there is a lot of flexibility there. We are very aggressive in our pricing. We would definitely not want to tax our consumers too much, but a very small increase in our prices in whichever categories, we feel we have bottomed out on the cost. So we definitely have prices. And when we say 92% is manufactured. There is — these are just — we are getting there now about the there’s still improvement in getting to 97%, 98%. But as we manufacture more-and-more of that product within the facilities of Stovekraft, our gross margins will also see improvement.
Shreyans
But sir, because of these efforts, what kind of improvement can we build in? Like do you think we can improve from 38% to 42%, 44%?
Rajendra Gandhi
I don’t want to guide you to 42%, 44%, today in the short — in the next four quarters to six quarters, you can definitely expect us to deliver 40%, if not better than that, but 40% is what you should expect us to deliver.
Shreyans
Okay. And my second question is for the CFO. If you want to see your notes to accounts, Note number 3, sir, can you explain what does that mean derecognized INR132 crores, right? I’m not sure, if it’s INR13 crores, AS, 109 — sir, can you explain that note?
Ramakrishna Pendyala
That is — we are doing channel financing with the one of our channel financing partner. So that sale, which whatever we discounted through them, that is not part of the receivables. So that’s what is called.
Shreyans
So you — what — does it impact the P&L in anyway sir?
Ramakrishna Pendyala
No, it’s a balance sheet item. So to this extent, the reservable verses [Indecipherable] channel finance.
Shreyans
Okay. Okay. All right. Thank you so much and all the best.
Operator
Thank you so much, sir. Ladies and gentlemen, in the interest of time, we take this as our last question for the day. I would now like to hand the conference over to Rajendra Gandhi, sir, for closing comments.
Rajendra Gandhi
Thank you, all of you for your patience for listening to us. I hope we have addressed all your questions. But if you have any further inquiries, please feel free to reach out to us directly or contact our Investor Relations partner, Orient Capital. Thank you. Wishing you all a very, very safe and happy Diwali. Thank you again.
Operator
[Operator Closing Remarks]