V.I.P. INDUSTRIES LTD (VIPIND) Q1 FY23 Earnings Concall Transcript

V.I.P. INDUSTRIES LTD (NSE:VIPIND) Q1 FY23 Earnings Concall dated Jul. 27, 2022

Corporate Participants:

Anindya Dutta — Managing Director

Neetu Kashiramka — Chief Financial Officer

Analysts:

Karan Khanna — Ambit Capital — Analyst

Bharat Chhoda — ICICI Securities — Analyst

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Jinesh Joshi — Prabhudas Lilladher Pvt. Ltd. — Analyst

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

Ankit Kedia — Phillip Capital India Pvt. Ltd. — Analyst

Akhil Parekh — Centrum Broking Limited — Analyst

Chirag Lodaya — ValueQuest Investment Advisiors — Analyst

Kirti Dalvi — ENAM AMC — Analyst

Niteen Dharmawat — Aurum Capital — Analyst

Ankit Kanodia — Smart Sync Services — Analyst

Pulkit Singhal — Dalmus Capital — Analyst

Presentation:

Operator

Good evening, ladies and gentlemen, and welcome to the VIP Industries Limited Q1 FY23 Earnings Conference Call. From the senior management we have with us today Mr. Anindya Datta, Managing Director; and Ms. Neetu Kashiramka, Chief Financial Officer. As a reminder, all participant lines will be in a 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. Anindya Datta, Managing Director, VIP Industries Limited. Thank you, and over to you, sir.

Anindya Dutta — Managing Director

Hello and good evening. Thank you for joining this call late in the evening. We’ve been putting late evenings ourselves to bring out our results faster and I believe this is the fastest we have been till now, and hopefully, we’ll strive and we will improve further beyond this. Before we talk about the results, firstly, I would like to tell you that at VIP the whole team is very happy to have a disruption-free quarter one, the peak season quarter which we were eagerly awaiting for the last two years, which were completely washed out because the quarter ones were washed off because of the pandemic and with the conducive environment and more importantly with all the hard work that the team has put in, I’m quite delighted to announce the results.

Our revenues were at INR591 crore, which is the highest revenue quarter that we’ve ever reported. This is also a 5% growth over the pre-pandemic quarter one which was FY ’20. Just to contextualize the — the environment, on one side travel opened up in a very nice way we saw sequential growth in airline passenger traffic both in April and May. However, the level of domestic passenger traffic was not same as what was in Q1 of FY ’20 it was slightly lower and we also saw a slight decline in the month of June. International travel has also opened up. While it’s still gaining momentum.

We didn’t see much of a corporate travel coming back and that’s not something that we were expecting to happen. By and large, I think travel is coming back, and that’s quite helpful for us. The wedding season. We had no complaints there were enough wedding dates within the quarter and I think it was celebrated the way it should — should be, and we got the benefit of that. So did the schools and colleges opening helped us in terms of the sale that is dependent on the consumption because of schools and colleges. So, overall a very good conducive demand environment, but while we say that I think there were equal or newer headwinds that we’re facing one from the inflation side, we are dealing with an inflation that we have not dealt almost in one decade — for the last one decade.

We are almost at a 24% inflation over the same time last year. Inflation is not only putting pressure on our profitability but also could be a potential demand dampler. Besides inflation one more key call out here is — is the Future Group and the closure of stores and the transition. I think it had a big impact on us almost 430 stores of Future Group across all these banners, only 44 were operational in quarter one for our business. We have a high — we had a high dependence of on this one account almost 15% of our revenues, used to come from Future Group stores all banners put together pre-pandemic.

And that was, was extremely constrained in this quarter and we had to look at avenues to regain the demand that would have happened because of Future Group. We are expecting this revival to happen by quarter three hopefully. However, in spite of the headwinds, as you can see the result has been quite — quite good. Modern trade, if I were to talk about the performance in channels modern trade, which was the largest set in this whole thing because the Future Group did make-up at least 50% of the loss through other accounts within the same within — within modern trade and a large part of results was also made up by other channels. The retail in particular, when I say, retail, I mean my exclusive business outlets has performed very well. It has come back to the same revenue as it was in quarter one of FY ’20 with almost 100 stores, lower than what was in Q1 in FY ’20.

Even general trade expanded and got the business very well. In fact, one of the things that general trade is taken on is to see how do we penetrate further down cost data and we had in the quarter, 68 new town opening up for us. Equally, e-commerce performed well in driving the growth but e-commerce is a place where we always have much higher potential than what we are possibly getting largely because of coming from relatively lower share in e-commerce. So, by and large, I think all revenue categories, also, we had great performance both in the value segment as well as in the premium segment VIP and Skybags brand created good buzz in the market with high decibel campaigns. In fact, we were the only brands active on TV in the last three months. Campaigns like the wedding collection campaign using — with Protagonist Vaani Kapoor or change The World with Varun Dhawan really did well for us.

Even on Caprese we went back on-air with digital and print brand activation and the Caprese brand as well has come back to its pre-pandemic level. Besides the brand activation, many new launches were done in this quarter and I’m very happy to share that some of our new products, whether it is in the tech themes, which was — which was launched in the quarter or it is in the high fashion zone that we had launched, all the new products have done extremely well during — during the quarter for us. So overall, the revenue has been pretty good. When we look at the gross margin. That’s a bit of a dampener from what we were expecting largely coming from the inflation that we experienced. We saw gross — our gross margin, gross profit of 49%, sorry, is it 50%? gross margin — gross profit of 50%, which was sequentially lower than the previous quarter, largely because the previous quarter had price increase kick in.

However, the cost increase or the inflation really took place in this quarter. So price increase was designed to cover part of the inflation and we — it was designed to take a slight hit on gross margin this quarter, because as we go ahead. We would possibly with other cost reductions we will neutralize — we will hopefully neutralize the impact of the inflation. With all that very happy to say that our EBITDA is at 18.3%.

The control on all other fixed cost was in line with what we had planned. And therefore, it gave us, EBITDA of 18.3% and a PBT of INR100 crores, that we are reporting. We continue to stay strong on our fundamentals, whether it is building the channels or building the brand and more importantly, building our supply chain. We’ve often spoken about our own manufacturing and controlled manufacturing share as part of whatever we — whatever we are selling and that’s scaled up to a 79%, which was, which is quite heartening to see. Going forward, we are quite confident about the demand environment to remain stable.

While the inflation and the areas on some of the channel like Future we spoke about will continue to put pressure on us, but as the overall environment stabilizes we are more confident to work through these constraints and make sure the fundamentals that we are building helps us to continue to deliver good results. With that, thank you. And I would now open the session for questions.

Questions and Answers:

 

Operator

Thank you very much, ladies and gentlemen we will now begin the question-and-answer session.

[Opertor Instructions]

First question is from the line of Karan Khanna from Ambit Capital. Please go ahead.

Karan Khanna — Ambit Capital — Analyst

Thanks for the opportunity. Also, Anindya can you first talk about what’s been the volume recovery versus pre-COVID during the quarter and as a follow-up, what’s been the revenue loss, which the company would have seen during the quarter, given the impact on Future Group.

Anindya Dutta — Managing Director

So the volume growth. Karen is 8% on the base which is FY ’20 and the Future Group. While it’s difficult to quantify what is the loss because the stores were not open, but overall the consumer demand was caught in other avenues in other channels.

So we had a plan to look at the catchment area of wherever the store is shut and we activated our own stores or MBOs nearby, we also take took up fest and everything and whatever possible in all especially in malls where the stores were there. So, if you see overall I would think that we’ve kind of almost recovered or whatever the Future Group loss was in most of the other channels, but one cannot say for sure. There could be some loss overall I think given the performance that we’ve had, it seems that large part at least of what could have potentially happened through Future Group was captured in other channels and other stores.

Karan Khanna — Ambit Capital — Analyst

On the raw material front, Anindya, if you can just talk about how is the situation now versus the previous quarter, and what’s your take in terms of going forward there on what is the prices were to cool off, will that — will the benefit be passed on to regain market share, which has been lost over the last two years?

Anindya Dutta — Managing Director

Yeah. Karan, so it’s a mixed bag in terms of what we’re seeing in the market right now as far as raw material concerns. There is some softening that we’re seeing. But there is continued the same high inflation in many other components and raw material, material that we have. In the immediate quarter I think we are already covered for the raw materials.

So, we expect the inflated conditions to remain for us in the immediate quarter, however, slightly more in the long term. It’s quite volatile for me to predict right now what benefits could come in from where we are right now. And as the benefit comes in, I think our strategy on competitiveness and profit remains the same, where we continue to walk a tightrope, as long as we will continue to strive to gain share. While we have healthy gross margins and overall profit.

Karan Khanna — Ambit Capital — Analyst

And on the supply chain front while you’re dependence on China has reduced to around 11%. Can you give us some sense, if there has been any disruption with respect to raw material procurement, given the current lockdown situation in China, and also what happens with the supply for backpacks and handbags premium luggage, which are still imported from China?

Anindya Dutta — Managing Director

Yeah, so on the raw material front, yes, there has been quite a difficult condition in terms of disruption from China. Part of it was covered through a little bit of pre-planning and some of it has happened. So a lot of the way you deal with a volatile situation, right. We are trying to bend things here and there to make ends meet.

So that’s it’s going on but as China stabilizes, I think the flow will kind of will stabilize. As far as buying finished goods from China. Yes, on the high fashion portfolio which is Caprese and backpack, it will — part of it will continue to happen from China and barring the disruption of days and weeks whenever we have had in the past, or if they have happened in the future, we are trying to cover that with having extra inventory in some of the core areas that we believe will be high sellers.

Karan Khanna — Ambit Capital — Analyst

Sure, and lastly in the recent annual report, you mentioned you’re looking to add 120 to 150 EBOs this year via asset light expansion this roughly implies quarterly run rate of around 30, 35 stores per quarter with respect to this. Can you help us understand if you are on track for this and how much, how many stores would have opened since recruit?

Anindya Dutta — Managing Director

So just to reveal some numbers here in this quarter. We have added 21 stores and we have signed up 23 more stores within this quarter. So I’m quite sure that we should be able to maintain the run rate. Great, thank you, and all the best.

Operator

Thank you. The next question is from the line of Bharat Chhoda from ICICI Securities, please go ahead.

Bharat Chhoda — ICICI Securities — Analyst

Yeah, thanks for the opportunity. Sir, despite there is the raw material inflation. It is credible that you’ve maintained gross margin at 50% level. But if you look at EBITDA margins than probably it is at 17.4% compared to probably Q1 FY ’20 where we had a margin of around 22.2%. So what has been the reason for this EBITDA margin being lower?

Anindya Dutta — Managing Director

Firstly, I think. EBITDA margin is 18.3% if the number is correct. We have converted ourselves to our own manufacturing and that has added that has changed the cost line from gross margin to more overheads and fixed cost. So as we expand manufacturing, our own manufacturing that cost is more coming below the GC line. So really the pressure is not in the, in below GC. The pressure is really in the, in the gross margin line, and which is purely happening because of the completely unprecedented, very high level of inflation that we’re dealing with.

Neetu Kashiramka — Chief Financial Officer

And just to add there were one or two additional expenditures like exchange rate fluctuations, which impacted the EBITDA margins — 2% of EBITDA margin actually impacted because of exchange rate flactuations. If you see the slide we have given other expenditure details, so you’ll get that.

Bharat Chhoda — ICICI Securities — Analyst

Okay and related to this probably for the full year, what kind of margin are we looking at, probably this quarter margin would be the number we are looking at that or we are looking at improvement in the EBITDA margin for this year for FY ’23 overall?

Anindya Dutta — Managing Director

We would love to maintain this for sure. But, Bharat, to be honest, it’s quite volatile for us to kind of predict right now, but given the conditions stabilizing. I think anywhere between 18% — and 20% is what we should aim for in the second half of the year.

Bharat Chhoda — ICICI Securities — Analyst

Okay. Sir, one question on this clarification about the volume growth you said is around 8% vis-a-vis Q1 FY ’20, is that correct?

Anindya Dutta — Managing Director

That’s right.

Bharat Chhoda — ICICI Securities — Analyst

But if you look at then the value growth totally further is around 5%. So, probably is my number correct, because we’re having —

Anindya Dutta — Managing Director

I think you’re absolutely right. The mix is in favor of the value portfolio.

Bharat Chhoda — ICICI Securities — Analyst

Okay. Which is changing the value volume equation to that extent.

Neetu Kashiramka — Chief Financial Officer

25% to 30%

Bharat Chhoda — ICICI Securities — Analyst

Yeah. Thanks for answering my questions, sir. That’s it from me. Thank you so much.

Anindya Dutta — Managing Director

Thank you, Bharat.

Operator

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

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Hi, thanks for the opportunity. Sir, in your opening remarks, you sounded a bit disappointed. I’m not sure if I read it correctly, but is it that there was a part of demand, which was there and we could not cater to, or were you slightly disappointed with the demand itself because you also spoke about air passenger traffic not going back to pre-COVID level in the quarter?

Anindya Dutta — Managing Director

Tejas, on a lighter note, I think you should see the time on the watch and decide. Is it a disappointment or fatigue. We just finished a long meeting but absolutely not disappointed, absolutely not disappointed. I think it’s a brilliant performance much awaited that we were wanting to get to. And this has added a lot of confidence in the team. Yes, there are many moving parts in the business and we’ve got to manage all of them. So the big, big, big good news is that as we speak right now, whether it is the fourth wave or not. I think their consumption of our products has become steady and this itself is going to multiply all the efforts that we have been putting in in the last eight quarters to stabilize our business. So, I am quite optimistic and confident about the future and quite happy with what we had happened, so please don’t read that —

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Yeah. That helps, sir, second I think Nitu ma’am also spoke about in the previous question that visibly I just look at Alfa has actually the contribution pre-COVID to post-COVID has actually picked up materially. And then as you also mentioned while answering previous question, that is the reason of margin dilution also. But just wanted to know is it — is this focus largely consumer demand driven also or we were highly under-indexed in the segment, and that’s why we have put a disproportionate focus on this part of the segment?

Anindya Dutta — Managing Director

No, I think it’s a brilliant question because, yes, it is coming from and under-indexed past in the value segment also what is happening is that there is a higher tailwind in the value segment which pandemic has brought in with maybe unorganized market yielding into organized. So definitely from every reason you see, it is very important to address that.

From a share gain and also from a growth point of view, because that’s where the market is growing faster. In fact, our approach and our strategy was to see how do we, how do we cater to this more profitably and therefore the hard luggage and within that the hard luggage out of polypropylene is what we went after and we’d put capacities. We invested capex behind it and that’s something is helping us right now to not only cater to that demand also maybe relatively of then what we would have otherwise done. We are doing it slightly more profitably.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Sure. And sir, similarly, bagpacks, if you see the saliency there, it has wide gap between pre-COVID to now. So very intuitively, we would have thought that the pent-up demand of school and back-to-school and back-to-office would have normalized in this quarter. But it is not visible in backpacks saliency going back to the pre-COVID numbers. So, any insights that you can share?

Anindya Dutta — Managing Director

So, yes, on backpack I think — no, you’re first of all, right. The demand with all the demand drivers has come back, I think what has happened. From our side, which is not really fully worked for us was the delay in the — in the launch of the new collection that we have. So then there was a miss from our side in terms of a slight delay in the launch of that and possibly we didn’t get enough of what the demand brought to us in the last quarter, but again fundamentals in place, I think this is just a correction and in the series of many correction this is slightly delayed correction that we’re at.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Sure. And sir, last question on the business model change that we spoke about that after almost 10, 15 years the focus is also coming back on domestic production and that also means that that part of the value chain profit will be captured in our P&L, but at the same time, how should we think about capital return ROC going forward because capex intensity should increase logically from hereon. So if you can share some thoughts there?

Anindya Dutta — Managing Director

Neetu?

Neetu Kashiramka — Chief Financial Officer

So, our business per se is not too capex heavy so payback is 18 to 24 months. So from that point of view, if you’ll see return on capital employed is around 30%. So it should not be.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

And ma’am, if you can share capex plan for this year and next if you have.

Neetu Kashiramka — Chief Financial Officer

So, this year we have a capex plan of around INR50 crores.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

And this will be for NASDAQ specifically or —

Neetu Kashiramka — Chief Financial Officer

I mean not the only NASDAQ. It is a mix of all Bangladesh NASDAQ Center, as well as some more.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Okay. Okay, that’s all from my side, and all the best. Thanks.

Neetu Kashiramka — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Jinesh Joshi from Prabhudas Lilladher. Please go ahead.

Jinesh Joshi — Prabhudas Lilladher Pvt. Ltd. — Analyst

Thanks for the opportunity. I have a question on exports. I understand the share is at about 3% to 4% currently, but given the fact that most countries are now looking to diversify their supply chain from China post the pandemic. Are we seeing any increase in inquiry over there, I mean, basically the reason I’m asking this question is because in the past export leads, so it will be about 10% to 12% of our topline. So can we expect to reach that level in the near future?

Anindya Dutta — Managing Director

So, Jinesh, firstly I think international business could mean a very large opportunity for us, which we haven’t exploited or explored in the past to that magnitude. But we would like to do eventually in the future, but we had a certain export business in the past, pre-pandemic. Firstly, I think in this quarter. We’ve not only come back to that level, but we have surpassed that level. Quarter one export stands about 40% of our revenues and this is not only the China and the supply, but also the export and the front-end team is working hard to reopen every country and every sector that we had. We have — we had about 20 odd countries to which we were selling in the past we have exceeded that in this — in the last quarter. So, two parts to that to see one is to reactivate what we had in the past, I think we have reached like in all other areas, reached and surpassed that base. With some gap from now, we would look at possibly going into international with a much bigger game plan.

Jinesh Joshi — Prabhudas Lilladher Pvt. Ltd. — Analyst

Sure. Any specific geography you would want to highlight?

Anindya Dutta — Managing Director

So in our existing business, I think, Middle East and largely GCC is where the core of what we’re doing lies. We had a change of channel partner in UAE. We have just about now entered the Saudi market. So GCC countries are yielding well for us in the, in the previous quarter and what we see in the near term we should be doing getting better and better there. And exports into many other countries in Southeast Asia or some European countries that also resumed what we had before.

Jinesh Joshi — Prabhudas Lilladher Pvt. Ltd. — Analyst

Sure. And secondly, I have a question on capex. I know this sounds a bit repetitive, but if I recollect properly in the last call, we had stated that we have plans to incur capex of about INR30 crores to INR35 crores, but in the annual report that figure was mentioned as INR65 crores and in response to the previous question, Neetu ma’am gave a figure of INR50 crores odd. So, I mean, I just want to kind of lead the numbers in a better way, with respect to what exactly and which area we spending into and the reason for divergence in numbers as well.

Anindya Dutta — Managing Director

Is is for the previous year?

Jinesh Joshi — Prabhudas Lilladher Pvt. Ltd. — Analyst

No. FY ’23.

Anindya Dutta — Managing Director

So we will come back to you with on the number part.

Neetu Kashiramka — Chief Financial Officer

Yeah, Jinesh I will call you.

Anindya Dutta — Managing Director

Yeah, on the difference in number in whatever sources, you are looking at, but what Neetu said, right now it is order of magnitude of INR50 crore is what we have outlet for this year.

Neetu Kashiramka — Chief Financial Officer

Yes.

Jinesh Joshi — Prabhudas Lilladher Pvt. Ltd. — Analyst

No problem. We’ll take it offline. One just small clarification, I think we have some exceptional gain of INR15 crores with respect to fire insurance claim, but I think total amount which we were supposed to receive was approximately INR48 crores. So any specific reason why we have received a partial payment and not full payment in this quarter?

Neetu Kashiramka — Chief Financial Officer

So the survey report is not completely out. This is an interim payment, which has come and we have accepted because at least now it justifies that the claim is legitimate. So we are expecting around INR40 crores to INR45 crores the amendments recovery on this, which will come only by quarter three, the balance money.

Jinesh Joshi — Prabhudas Lilladher Pvt. Ltd. — Analyst

Okay, okay, madam. Got it. Thank you so much.

Operator

Thank you. Our next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund. Please go ahead.

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

Yeah, good evening, team, and thank you very much for the opportunity. I think my first question is offsetting that —

Operator

There is some disturbance in the line. I request you to use the handset mode.

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

Yes, can you, can you hear me now?

Anindya Dutta — Managing Director

Yes, Bhargav, we can hear you go ahead please.

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

Yeah. My first question is that offsetting the loss of the Future Group which was about 15% of revenue has been a commendable effort. So if the Future Group comes back, do we see this as additional revenue or how should we look at it?

Anindya Dutta — Managing Director

No, it won’t be. See the way I said that there is an overall demand in the market and shifting between stores or channels is quite possible. So as I said, we’ve — the way we made up for it is by having a catchment area strategy when it comes back, I think it will reorganize itself to that but there is always, Bhargav, and it’s very difficult to quantify that always a particular retail chain as a store does drive the demand further. Overall for the category and yes to that extent when this is fully functional, I’m hopeful that it will add something more than whatever because wherever else we are getting that kind of attraction may also continue at a higher base. There is no perfect science to this because finally, it is a consumer demand met through various stores are — wise by — via different channels and there is a lot of fungibility between them. So when it comes back, it is going to be quite a — it will be a very welcome situation when Future Group fully becomes operational.

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

Certainly on the LFS side, we understand that VIP had — to continue for —

Operator

Buddhadev I request you to please repeat your question, you audio broke and —

Anindya Dutta — Managing Director

We couldn’t hear you.

Neetu Kashiramka — Chief Financial Officer

Yeah, your voice is quite disturbed. There’s a lot of —

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

Yeah, can you hear me now? Can you hear me now?

Neetu Kashiramka — Chief Financial Officer

Yeah, better.

Operator

Yes.

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

Yeah, I’m saying that on the LFS side earlier VIP wasn’t that aggressive and they were giving our businesses to competitors, but now we understand that your team has become fairly aggressive, they have started the increase in the share on the LFS side. If you can sort of elaborate briefly on this side. In terms of what is the penetration and the opportunity over here?

Anindya Dutta — Managing Director

Can you help me understand LFS what do you mean by that?

Jinesh Joshi — Prabhudas Lilladher Pvt. Ltd. — Analyst

The Shoppers Stop and all such kind of malls.

Neetu Kashiramka — Chief Financial Officer

Go ahead.

Anindya Dutta — Managing Director

Okay, okay, the lifestyle stores you mean.

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

Yeah.

Anindya Dutta — Managing Director

So what I —

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

Hello?

Anindya Dutta — Managing Director

Yeah, no, I was just trying to understand your question. So I don’t have — I don’t share the same perspective that we were not very aggressive and we’re aggressive now we are aggressive across and the LFS side does represent for us the premiumization agenda that we have whether it is with Caprese or whether it is with luggage and therefore VIP and Skybags, that channel that sector for us is more the high yielding for premium and more fashion-related range within our brands. So we will continue to be aggressive on that and it’s more about segmenting it right and we’re now putting the right agenda, the right strategy behind each of these channels segments that we have.

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

Okay, my first question is which areas of talent in your opinion have just been shot off and what are we doing to sort of fill the gaps?

Anindya Dutta — Managing Director

Extremely relevant question. This is something that we’ve been working very hard in the last four quarters in terms of building up the team, we are at — I would say relatively much better position than what we were about a year back but we continue to look for better and more — hire talent in e-commerce. Definitely that’s one area and you could including also along with that in the innovation side and therefore design and product development side. So these are areas, which are very strategic and these are going to be our newer journey for us going ahead and therefore that’s an area, which is more under focus for talent build from here onwards and other areas that under priority has kind of been done.

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

And my last question is that now with the currency depreciation being so sharp and we’ve more sort of backward integrated and also sort of manufacturing mode in India. Is it fair to say that we are now fairly well placed as opposed to our competition both organized and unorganized?

Anindya Dutta — Managing Director

I would say we are relatively better. But there is, glass is still half empty. There’s lot to do in terms of our raw material in terms of finding out an alternate sources of raw material get still dependent on China for large part of our raw material and streamlining all that. So the agenda isn’t over I think we have made a very solid big start. We are — we could be ahead. But what we see is that there is still some more to go before we can really say that we have consolidated on this one strategic shift that we had done in the organization.

Bhargav Buddhadev — Kotak Mahindra Asset Management Company Limited — Analyst

Okay, great. Sir, congratulations once again and all the very best.

Anindya Dutta — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Ankit Kedia from PhillipCapital.

[Opertor Instructions]

Mr. Kedia. Please go ahead.

Ankit Kedia — Phillip Capital India Pvt. Ltd. — Analyst

Thank you. Sir, just wanted to understand how has been the online performance for the quarter?

Anindya Dutta — Managing Director

So, Ankit, the online performance was good both sequentially as well as on the base that we had both the last year and the 19%, 20% base we have handsomely grown by excess of 50% on all accounts. So as I said — while having said that, we think that it could always be better because this is where we are, we do not have the share that we have in other channels, or even our overall share in the market. So there is a catch up game that we’re playing as well as e-commerce is concerned, mostly in the marketplaces.

Ankit Kedia — Phillip Capital India Pvt. Ltd. — Analyst

Sure and sir my second question is what is the learnings from the Future Group, which we have had having a high dependence on one group so incrementally would the lines also have a high single-digit market share for us or revenue contribution for us along with continued sales, so are we derisking ourselves to a particular group or we continue to have high dependence on particular channel output?

Anindya Dutta — Managing Director

No, I don’t think we can see it like that because a particular retail chain depending on how big the retail chain is brings us a certain opportunity and the idea is to maximize in each one of these channels in terms of our share and salience. So it is not about in our hands to derisk by saying that if the chain is doing very well, we don’t want to have I share because we want to have low dependence that doesn’t make sense. So, yes, the situation that has happened in the last quarter is unfortunate, I could only say unfortunate, because of our high dependence but you one cannot have a strategy of lower dependence on a chain which would only happen if you decided to have lower share in that chain.

Ankit Kedia — Phillip Capital India Pvt. Ltd. — Analyst

And sir, what would be our dependence on Reliance today? Because a lot of the stores were be taken over by the Reliance now.

Anindya Dutta — Managing Director

Yes. So when that happens, we will get a sense of what volumes are stabilizing, what is this question would be more to Reliance in terms of where they are seeing the Big Bazaar volumes overall and for my category how much they will come back too, but that’s something only future will tell us.

Ankit Kedia — Phillip Capital India Pvt. Ltd. — Analyst

Sure. And sir, my last question is on the A&P spend the quarter, we had around 5.5% of A&P spend, do you think for the full year around 5% would be the ballpark number we would maintain our A&P stands at?

Neetu Kashiramka — Chief Financial Officer

Yes.

Anindya Dutta — Managing Director

Yeah, somewhat like that, yeah.

Ankit Kedia — Phillip Capital India Pvt. Ltd. — Analyst

And sir, just a feedback. Thank you for the excellent presentation and the annual report. I hope to continue getting these data points, if you can just add channel-wise data also in the presentation. It would be very helpful.

Anindya Dutta — Managing Director

Thank you, Ankit, I take that feedback. We’ll see what we can do.

Ankit Kedia — Phillip Capital India Pvt. Ltd. — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Akhil Parekh from Centrum Broking. Please go ahead.

Akhil Parekh — Centrum Broking Limited — Analyst

Hi, thanks for the opportunity. My first question is on what is the share of PP based hard luggage and the PC based hard luggage?

Anindya Dutta — Managing Director

Sorry Akhil can you can you on that question, I didn’t understand what you were looking for.

Akhil Parekh — Centrum Broking Limited — Analyst

I’m saying the contribution of polypropylene on hard luggage for the total sale and polycarbonate-based hard luggage in the total sale.

Anindya Dutta — Managing Director

Total sale of hard luggage?

Neetu Kashiramka — Chief Financial Officer

No. Interim breakup —

Anindya Dutta — Managing Director

Or has the overall company sales?

Akhil Parekh — Centrum Broking Limited — Analyst

No, within that the breakup of polypropylene-based hard luggage and polycarbonate-based hard luggage.

Anindya Dutta — Managing Director

We can’t share that data, I don’t have it ready right now maybe offline. We could connect with you and give you the data.

Akhil Parekh — Centrum Broking Limited — Analyst

Okay.

Anindya Dutta — Managing Director

If you want a ballpark, I can give you some understanding. It’s roughly between hard luggage, it’s a 70%, 30% kind of a split. But precise numbers I’ll share at a delayed time with you.

Akhil Parekh — Centrum Broking Limited — Analyst

And if you can highlight margin differential between PC and PP luggage.

Anindya Dutta — Managing Director

Well, margin is price dependent variable but I can tell you, what is the per kg cost difference between a polypropylene and polycarbonate. That’s almost polycarbonate is almost 70% more than a polypropylene on a per kg basis of the raw materials.

Neetu Kashiramka — Chief Financial Officer

But margin wise it doesn’t differ much it is 1.5%.

Anindya Dutta — Managing Director

Yeah, because the pricing is different.

Neetu Kashiramka — Chief Financial Officer

I think is right.

Anindya Dutta — Managing Director

Right, so we are using polypropylene to more fight in the value game and polycarbonate more is in the Skybags and VIP and the premium segment. So margin is a derivative as I’ve said of pricing.

Akhil Parekh — Centrum Broking Limited — Analyst

Second question is in the difference between landed cost of a Chinese manufacturer is vis-a-vis in-house manufacturer luggage in India. How much that is?

Anindya Dutta — Managing Director

Again, difficult to give one number on that, but I could tell you from Bangladesh manufacturing and this I think I would be repeating. We’ve spoken about this in previous calls. In Bangladesh, the raw material and the duty arbitrage overall on apple to apple comparison is about 15% for us.

Akhil Parekh — Centrum Broking Limited — Analyst

Next question is on the value segment, growing at a faster pace, briefly alluded that there is transition it is happening from unbranded to branded. But with it also the possible — there is a downgrading happening where VIP consumer is kind of going for the Aristocrat product given that the RM inflation is very high and we are absorbing that in many of the categories value conscious consumer is moving towards the lower-priced products. So would that be a possibility by any, sir?

Anindya Dutta — Managing Director

Yes. I cannot deny a possibility and knowing that there is a possibility. We, from our side do everything in our, in our product mix that we create to make sure that looking at the target audience who should be buying a VIP and Skybags the features that we put on that and the way we sell it the way we market it, make sure that we retain the VIP and Skybags customer in VIP and Skybags. And we try and get the affordability segment consumer in Aristocrat bag. But that being the strategy, it cannot be 100% water tight, there could always be a possibility of cannibalization happening in terms of downgrading.

Akhil Parekh — Centrum Broking Limited — Analyst

Okay. Okay, fair enough. If I can squeeze last question, if you can mention or broadly allude to the average selling price of the basically VIP, Carlton and Aristocrat.

Anindya Dutta — Managing Director

No, Akhil, I won’t have that right now. It varies from channel to channel and from range the range though there is no one average number that can be put as a reference here.

Akhil Parekh — Centrum Broking Limited — Analyst

Okay. Okay, thanks a lot and best of luck to coming quarters.

Anindya Dutta — Managing Director

Thank you, Akhil.

Akhil Parekh — Centrum Broking Limited — Analyst

Thanks.

Operator

Thank you. The next question is from the line of Chirag Lodaya from ValueQuest. Please go ahead.

Chirag Lodaya — ValueQuest Investment Advisiors — Analyst

Yeah, thank you for the opportunity. Sir, my first question is understanding this gross margin improvement, because of structural shift to own manufacturing. And third, pre versus China sourcing. So what are the sustainable gross margins according to going ahead. I understand, currently there is bit of inflation, but in a normalized scenario, we have to assume versus pre-COVID what kind of improvement one should expect?

Anindya Dutta — Managing Director

So you are right. As of right now from where we are seeing the volatility, makes it difficult for us to put a specific number, but an underlying 53% to 55% GC is what we should, we are aiming at in a stable environment given the construct we have, which is I think 55% is quite possible on a consistent basis. Once the volatile situation eases out.

Chirag Lodaya — ValueQuest Investment Advisiors — Analyst

Okay. Okay. And you mentioned that Bangladesh manufacturing landed cost is 15% cheaper versus China sourcing coming to India. How it would be when it is compared to third parties in India?

Anindya Dutta — Managing Director

No. So, I’ll tell you how that Bangladesh 15% is coming. I gave you a very simple, very broad-based duty arbitrage when raw material comes into Bangladesh versus finished goods coming into India. The India duty is 15% whereas in Bangladesh raw material has no duty assuming that my conversion cost is same as China which ideally should be lower in Bangladesh than the 15% at least remains as an advantage over over over the China finished good important.

Comparing with India sourcing, now, it all depends on whether the RM is coming from, if you were to assume the RM is coming from China, then the 15% definitely remains because Bangladesh production cost in terms of people and other cost is lower than India from where we are producing, but there could that the conversion is not always apple to apple because India sourcing could have India raw material sources depends on product depends on specification and many things like that. But overall, as I said I gave you the comparative numbers from largely coming from duty point of view.

Chirag Lodaya — ValueQuest Investment Advisiors — Analyst

Okay so basically are trying to say that Bangladesh manufacturing. We are as competitive as China despite China having massive scale is that fair understanding?

Anindya Dutta — Managing Director

Only on the conversion cost. if you keep the raw material aside. Because if you’re buying the raw material still from China and there is a freight cost. Right. That is happening for the raw material to come in. So that freight cost’s partially is getting offsetted by the labor cost advantage that we have in Bangladesh. But again,, given the current situation and the freight costs that equation does not work out in setting — netting it off completely, but pre-COVID freight cost to be be fair to say and the lower labor costs in Bangladesh. I think offset each other. And to that extent, it brings us at least to the parity or maybe slightly lower because we are still buying raw material from China.

Chirag Lodaya — ValueQuest Investment Advisiors — Analyst

Okay, got it, it’s clear, sir, and with current freight rate, what would be the arbitrage? Is there arbitrage today we are modifying that because of higher freight

Cost.

Anindya Dutta — Managing Director

No, the freight rate is higher, there is not a perfect setup that is happening.

Operator

Thank you, Mr. Lodaya I request you to join the queue for any follow-up as there are participants waiting for their turn. [Operator Instructions]

The next question is from the line of Kirti Govind Dalvi from ENAM AMC. Please go ahead.

Kirti Dalvi — ENAM AMC — Analyst

Good evening all just a couple of questions, first, if I see the tax rate on a console as well as on a standalone standalone level seems to be little higher. So is there any one-off. And second thing what is the sustainable tax rate. We are seeing it for the ’23 and ’24?

Neetu Kashiramka — Chief Financial Officer

So this is high on account of dividend, which we have received from Bangladesh. When we give dividend from VIP India this will get offset under Section 80M so that impact is 5%

Kirti Dalvi — ENAM AMC — Analyst

Okay. So for the year as a whole. Probably, the tax rate will revert to normalized rate 25%, ma’am?

Neetu Kashiramka — Chief Financial Officer

Yes, slightly lower because Bangladesh tax rate is 15% and India will be 25% so blended it is going to be around 22.5% to 23%.

Kirti Dalvi — ENAM AMC — Analyst

Okay, also, second question obviously for Q1 some base impact of last year, but would it be fair to assume a mid-teens kind of growth probably balanced here given in probably this all your Future stores will come back and we are seeing little uptick in travel as well, So we are looking at a similar growth if you take the base as a normal based on normal normalized base. Kirti, you got it?

Operator

Seems we have lost the line for Kirti. We will move to our next question. That is from the line of Niteen Dharmawat from Aurum Capital. Please go ahead.

Niteen Dharmawat — Aurum Capital — Analyst

Yeah, thank you for the opportunity. As you mentioned that we have shifted operations to Bangladesh. And we hear some economic issues over there. So what is the risk that we see in case there is some disproportionate economic issues faced by Bangladesh economy and what will be our fallback option in such scenario?

Anindya Dutta — Managing Director

Once again, this whole economic situation that you’re talking about in Bangladesh is not something that we are aware or what. In fact it’s all in the news that Bangladesh economy in the last 10 — decade has done the best rank among the highest. So overall, it seems like a very progressive economic environment. Yes, there, I mean overall any sorts of manufacturing or any country does have a risk and we will evaluate that risk and continuously prepare for that. China was would have been also a risk in a pandemic environment the sourcing that we were doing from China prior to the pandemic. So I don’t think the risk is high or something that needs to be addressed as of right now or in the near future.

Niteen Dharmawat — Aurum Capital — Analyst

Got it. Sir, thank you so much. It’s a very recent news. Actually, it has come to today only. So we might not have got the attention, but that’s okay, we’ll discuss it later on.

Anindya Dutta — Managing Director

Yeah. As we were talking I am being —

Neetu Kashiramka — Chief Financial Officer

A week ago, we read that is the fastest growing economy in the world over last one decade.

Niteen Dharmawat — Aurum Capital — Analyst

Okay, thank you so much.

Operator

Thank you. The next question is from the line of Ankit Kanodia from Smart Sync Services. Please go ahead.

Ankit Kanodia — Smart Sync Services — Analyst

Thank you sir, for taking my question. We have already addressed most of my questions. Just one question related to, if we step back and look beyond say maybe a couple of quarters on the four quarters. Looking at directionally where we are today and as we see currently for this quarter.

Our contribution from Aristocrat and Alfa is higher, which is a lower margin product, right, and maybe inflation pressure also ease out and by that time, probably some of our problems of Future Group also subsidized and if the travel reduction continues to be strong. So how do we see ourselves in that because they are also doing spending a lot on advertising and promotion. So how do we see that reflecting say when we look — I’m not looking at any numbers but directionally and any qualitatively if you’d like to see for a three to four quarters. Beyond how do you see VIP?

Anindya Dutta — Managing Director

So that’s exactly is the space where we are wanting to reach given the situation that we have been dealing with. Yes, we have been focused on more difficult things like changing our supply chain and all that. The value end growing is a necessity for us right now, because that’s where the market is growing. That’s where share has to be given equally, we have to look at how do we get our cost.

Right, so that the value is played profitably as well relatively lower than the premium segment and finding the right balance because as we go ahead and in the scenario that you’re painting the — what was very core to us, which is represented in the VIP and Skybags brands should come back in terms of not relative salience but in overall absolute throughput and in growth terms. So that will be quite a good, that’s what we’re aiming for to get and hoping some of the environmental things will settle down as you go along which will settle down, I’m pretty confident in the Future. So I think we’ll emerge much more stronger than what we were before the pandemic, as things stabilize from here on.

Ankit Kanodia — Smart Sync Services — Analyst

Great. Sir, one last follow-up for this, how do we see competition evolved pre-pandemic and post-pandemic because post pandemic, I mean, you must have seen some of the unorganized players such as shops and is facing a lot of problems. How is the competition in the organized space right now and how different, it is from the pre-pandemic if you’d like to give some color there?

Anindya Dutta — Managing Director

No, I think the competition is only intensified given the one constraint in the demand environment that is bound to happen. And therefore, a lot of pressure on profitability and all that comes in, because in a constrained demand the large players put in everything that they have to get to revenue. So as that eases out I think overall, the industry profitability will stabilize, but competition, I would see will only intensify going forward in this space.

This is one of the, it was a faster — it is a very small category compared to if you see overall India and all other consumer categories. It’s a smaller category. The penetration was low given where we are, our country and economy is I think the penetration is only going northwards from here. And with that, I think as the as the overall industry growth. There is the competition will only intensify and I think whatever we are doing is to ready ourselves to participate in that with a better strength than what we had before.

Ankit Kanodia — Smart Sync Services — Analyst

Sure. Thank you so much, sir.

Anindya Dutta — Managing Director

Thank you. The next question is from the line of Pulkit Singhal from Dalmus Capital. Please go ahead.

Pulkit Singhal — Dalmus Capital — Analyst

Thank you for the opportunity. Sir, my first question is regarding the seasonality in the business. They used to be a certain level of pre-COVID second quarter was down 20%, 25% and then gradually picks up and for supporting this time around, do you expect it to be somewhat defensive given some kind of pent-up demand, etc. I mean, the level of seasonality to be lower or do you think it will be the same level as seen previously.

Anindya Dutta — Managing Director

I think the seasonality from a demand point of view will have a similar pattern. But just an interesting insight that if you were to really look at a slightly longer horizon the acuteness of the seasonality over time has kind of reduced and I think that’s also happening because let’s say one of the — one of the vectors of growth is holiday and travel and that has changed a lot from only summer vacation to many many vacations and marriage dates are becoming more free freer than what it used to be before, and all that.

So it’s a gradual change which has also been visible. If you see in our seasonality over the many over the years, but it’s, and just about the past pre-pandemic. I don’t think it will — I don’t see any reason why it will be very different for the industry overall.

Pulkit Singhal — Dalmus Capital — Analyst

Right. Second from a pent-up demand perspective as well because sometimes people may not travel entirely in first Q and look to probably travel in second quarter as well. So just wondering whether that is kind of playing out? So —

Anindya Dutta — Managing Director

I — we don’t know that but we will hope for that and we are ready for that first year.

Pulkit Singhal — Dalmus Capital — Analyst

Right, right. And in terms of market share PVC. I mean, last quarter we talked about low 40%. How are things progressing in the marketplace are we still around similar levels given the impact of modern trade. I mean Big Bazaar, Future growth Group and are they improving now or getting a share from there?

Anindya Dutta — Managing Director

So I think we’re definitely holding share overall, but it’s a feel and as numbers start coming out for the industry, we will also get a sense of how that is happening. So yeah I think definitely holding on to the share that we had is what we are hoping for, if not improving.

Pulkit Singhal — Dalmus Capital — Analyst

Okay and then lastly, I thought high inflationary environment. So typically bad for an organized players, I think that allows the organized people to kind of take share from them. Is that understanding incorrect, or they have kind of managed not better or are you seeing that kind of happened?

Anindya Dutta — Managing Director

Are you saying between organized and unorganized players?

Pulkit Singhal — Dalmus Capital — Analyst

Yes, yes.

Anindya Dutta — Managing Director

This market share that we’re talking about is, let’s say, in the top three companies relative market share basis.

Pulkit Singhal — Dalmus Capital — Analyst

Yeah.

Anindya Dutta — Managing Director

For specific data that comes out, so correlating number is difficult to what you saying, but yes inflationary environment disruptions and supply situations all favors large players always has been for all kind of all kinds of businesses and categories and to that extent, we would be having the tailwind. I have had the tailwind the organized players and may continue to do so because if China was a source of products for unorganized players directly or indirectly I mean finished goods or raw material that is going to go through some — is going through some disruption will be some time before it resumes fully on this.

Pulkit Singhal — Dalmus Capital — Analyst

Got it. Thank you and all the best.

Anindya Dutta — Managing Director

Thank you.

Operator

Thank you, ladies and gentlemen, that would be our last question for today. I now hand the conference over to Ms. Neetu Kashiramka from VIP Industries for closing comments.

Thank you, and over to you, ma’am.

Neetu Kashiramka — Chief Financial Officer

Thank you everyone for joining this call and sorry about being — keeping this call so late this time next time we’ll definitely try and make it to your timings. Thanks. In case you have any other questions you can definitely connect us. Thank you.

Operator

[Operator Closing Remarks]