VIP Industries Ltd. (VIPIND) Q4 FY22 Earnings Concall Transcript

VIP Industries Ltd. (NSE: VIPIND) Q4 FY22 Earnings Concall dated May 17, 2022

Corporate Participants:

Anindya Dutta — Managing Director

Neetu Kashiramka — Chief Financial Officer

Analysts:

Tejas Shah — Spark Capital — Analyst

Amandeep Singh — Ambit Capital — Analyst

Manish Poddar — Motilal Oswal Asset Management — Analyst

Bhargav Buddhadev — Kotak — Analyst

Prerna Jhunjhunwala — Elara Capital — Analyst

Jinesh Joshi — Prabhudas Lilladher — Analyst

Pulkit Singhal — Dalmus Capital Management — Analyst

Sameer Madia — Edelweiss — Analyst

Niket Shah — Motilal Oswal Mutual Fund — Analyst

Ankit Kanodia — Smart Sync Services — Analyst 

Presentation:

Operator

Good evening, ladies and gentlemen. A very warm welcome to the VIP Industries Limited Q4 and FY ’22 Earnings Conference Call. From the senior management, we have with us today, Mr. Anindya Dutta, Managing Director; and Ms. Neetu Kashiramka, Chief Financial Officer. [Operator Instructions]

I now hand the conference over to Mr. Anindya Dutta, Managing Director, VIP Industries Limited. Thank you, and over to you, sir.

Anindya Dutta — Managing Director

Good evening, everyone. A very warm welcome to all of you. Thank you for taking out time and joining this call. Given the circumstances now, I am hoping that very soon we could be doing this call — lots of call, meeting in person. At the outset, I just wanted to remind all of us that the pandemic has been a very hard journey for industries like ours, which has to do with consumers going outdoors and the revival has been nothing but a roller coaster ride. We saw Q3 which had a rapid progress within the month in terms of the demand revival, however, we saw the wave three happening in Q4 in January and part of [Technical Issues]. While this wave spiked very sharply, thankfully, it was very short lived also and the impact of our business was significantly lower compared to any of the previous waves. In fact, the way the industry — our industry — industries demand withstood the wave gives us a lot of confidence going forward on the sustenance of demand for our products.

For the quarter, our revenues were at INR356 crores, while this was lower than the previous quarter by 10%, possibly owing both to the usual seasonal swing as well as the impact of the third wave. However, compared to the same quarter in FY ’20, where we were up by 14%. Even if you correct this for the pandemic that hit in the mid of March 2020, I would say we have come to parity to pre-pandemic levels. In quarter three our revival was at 92%, so therefore steadily we have come through all the quarters of the year and ended the quarter with a parity to the pre-pandemic levels.

In fact the barometer that we use for our demand, which is the airline passenger traffic also witnessed a sharp decline in Jan-Feb, it was almost 40% lower than — sequentially lower than November-December, and this was the first since June ’21 in the airline passenger traffic.

Some highlights from our revenue performance. The first call out would be on the value segment represented by our brand Aristocrat. It had a great performance for Q4 and for the overall year. Aristocrat brand salience in our overall business now stands at about 36%, this was at 25% pre-pandemic. We have seen the value segment growing much faster even in the pre-pandemic time and it has seen significant acceleration during the two years of pandemic, possibly also due to the conversion from unorganized. The Aristocrat brand portfolio has been growing faster than also the peer companies or brands in the same segment. We saw in this quarter, a year-on-year growth of almost 61% and if I look at the full year compared to the — just the previous year, it was 140% growth. The Aristocrat brand and the value segment has been a focus area for us and several initiatives including product engineering and making the right supplies and the right manufacturing cost is starting to work for us. While we have put a huge stress on value segment, it was always imperative for us to strengthen our core, which was the mid premium business, represented by the VIP and Skybag brand. I’m happy to share that we VIP and Skybag has also seen a very good revival in Q4, on the back of much improved availability, all kinds of demand activations that we did and also a few of our large variety [Phonetic] of new products that we launched in these two brands.

In the [Indecipherable] Skybag, this was the quarter where we came back with a lot of demand activations both online on year as well as offline and largely it has been the digital campaigns that has worked very well for us. If you would have noticed whether the VIP Vocation Campaign or the Skybag MyDrip Campaign, got a lot of it hit among the consumers.

Q4 saw almost 40% of our annual advertising expense. Also our call out here would be the hard luggage PP strategy that we were on and that also in Q4 saw gaining traction. Hard luggage within the whole authorized [Phonetic] business now accounts for almost 60%, which was at about 50%, just before the pandemic and that’s been a steady increase, and we are extremely well poised to drive that growth forward, with the investments that we have done in expanding our hard luggage capacity. In the last quarter call, I announced that we spend about — we had invested about INR35 crores to INR40 crores in capacity expansion of hard luggage in both our India, which is Nashik and in Bangladesh facilities.

Along with the back-end, we have continued to invest behind the downstream improvements, which is in our distribution and our number of point of sale has come back to the pre-COVID levels and in fact we have started very strongly rebuilding our own exclusive business outlets. And last point on revenue, that I would want you to note that our average selling price today stands about 115% of what it was in the quarter pre-pandemic. And that also is something that gained back our sales value as well as our margins.

And on the margins, moving on, I’m happy to announce our improvement in gross margin in Q4 over Q3 by about 4 percentage points. This has happened basis on fundamentals, which is about improvement on our mix and also our Bangladesh own manufacturing strategy is starting to show results here. While the inflation was a spoilsport but we have taken some price increase in November, which kind of helped us in the quarter, but really the high impact of inflation started happening towards the later part of the quarter and therefore the price increase, which hopefully going forward kind of should negate or large part of the inflation could get negated versus the price increase that we have taken.

We continue to focus on our fundamentals, both in brand and in channel in building our revenues. We are extremely focused and poised to build our VIP Skybag and Caprese brand going forward. And also we are investing behind strengthening the channels where we were already quite strong. We continue our commitment towards our upstream strengthening. Our own manufacturing has scaled up to almost two-thirds of the total what we sell in Q4. And if I was to add the exclusive and dedicated manufacturing partners that we have, our control manufacturing stands at about 85%. As we look at a full scale growth potential in the coming financial year, I would like us to keep this 85% intact and as the benefit of this should start flowing in.

We’ve also streamlined and strengthened our supply chain and with a notable increase in our overall availability for the quarter and looking ahead. Most importantly, with respect to building our people capability and making ourselves future ready, our team and structure is almost where we wanted to be in terms of employee strength and talent. While we have sequentially added headcount, our ideal team size will be lower than pre-pandemic levels accounting for our efficiency efforts.

For the coming quarter and the way ahead, as of now in all indicators of consumption points towards the very positive demand environment with domestic travel coming back to pre-pandemic levels, resumption of international travel, pandemic free wedding season and school, college reopenings. I’ve heard, we can’t have it all, so there is enough headwinds — there are some headwinds at least that we need to navigate ourself through one of the bigger ones is the inflation in our commodity or in our input materials and navigating it through one — on one side price increase and the other side, keeping a balance, to make sure that it is not a demand spoiler. Also call out here would be relevant of the transition that is undergoing in the Future Group which is one of our largest account, almost 15% of our revenue would come from Future Group pre-pandemic and that’s something that we’re watching very closely in terms of the transition, but I think this is — we’re going to save through that as well. So overall, I think we are quite positive about the future and I think overall VIP Industries is quite poised well to make good of the opportunities coming ahead of us.

Thank you. That would be the opening remarks. And I would be happy to take all questions related to Q4 and for the annual performance.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital — Analyst

Hi. Thanks for the opportunity. My first question pertains to the price increase that you spoke about. So how much price increase you might have taken in 4Q and FY ’22 in total?

Anindya Dutta — Managing Director

So Tejas we took about 4% price increase in November and about the same in towards the end of March.

Tejas Shah — Spark Capital — Analyst

Okay. And you also spoke about inflation being higher than pricing we have taken. So what will be the RM inflation for the period?

Anindya Dutta — Managing Director

When you say for the full period you mean for ’22?

Tejas Shah — Spark Capital — Analyst

Yes.

Anindya Dutta — Managing Director

About 6%, yes.

Tejas Shah — Spark Capital — Analyst

Okay. And in this last [Speech Overlap]. Sure. And in the last question that we just spoke about this is the price hike that you said we’ll have to take again or is it the one which you have already taken and we need one more price hike to pass on the full inflation?

Anindya Dutta — Managing Director

As of right now, we’ve taken the price hike that we intended to take to get over the inflation that we have, but we are watching the inflation closely and it’s a continued volatile environment. So as of right now we don’t have plans to take further increase. But having said that, we will have to keep watching how the raw material and input cost goes ahead of us right now.

Tejas Shah — Spark Capital — Analyst

Fair enough. Second question was around GM inflation which is actually the highlight of the quarter’s performance at least to us. And then, you spoke about that the mass end of the market and the portfolio did very well. Price increases, both taken which were taken at least at the stagnant [Phonetic] of the quarter and inflationary pressure was heightened throughout the quarter. So three out of the two factors are actually not — or should not contribute to GM expansion, mix change or price hike, then product engineering or channel mix change, what actually contributed to such a healthy GM improvement?

Anindya Dutta — Managing Director

Let me first clarify on the price increase. So the November price increase did help in cover up the part of the inflation or large part of the inflation that kicked in, in our products in Q4. And the further inflation, because inflation is also not happening at one point of time it’s gradual. The next price increase in March is going to help us tide over the overall inflation that is going to get applied in the coming quarter. So that’s the perspective of price increase versus inflation. So this is kind of offsetting each other to some extent, to a large extent [Technical Issues]. The underlying shift in the GC has happened, let’s say, because of our Bangladesh manufacturing which was always an advantage over buying from China fundamental advantage and also the mix sequentially has become better with VIP and Skybag and other high-margin products starting to kick in.

Tejas Shah — Spark Capital — Analyst

Okay. And then you spoke about product engineering also Anindya. So is it moving from PC to PP? Is it also helping in hard luggage or that is yet to kick in, in numbers?

Anindya Dutta — Managing Director

No, absolutely, that is part of this, because even within Aristocrat as we have really propelled forward in terms of playing hard in the value segment, the shift in Hard luggage to PP, which is a lower cost raw material and making good and great products out of PP is actually helped a lot. And that’s what I was saying that we’re pretty happy with the PP strategy starting to play up in our results.

Tejas Shah — Spark Capital — Analyst

Sure. And then last one from my side. So we have exited after last two years on a healthy margins this year, but still much lower than what we have posted pre-COVID. So what will be our margin expectation for next 12 months and what are the possible headwinds which can actually derail and should speed up when discharged. So how much will be that target?

Anindya Dutta — Managing Director

So Tejas, I don’t have a number for you. It’s a goal that we are constantly changing to improve on the margins. We have fundamental tailwinds in terms of our own manufacturing, which should add a lot to the efficiencies and other areas that we’re working on. However, as we speak, the inflation is the biggest spoilsport and that’s again a very difficult thing to pinpoint for a period like for the full year. So it’s going to be — we’re going to be constant play and we are only using price increase to cover up for the inflation that we are not able to cover up through our own efficiencies.

Tejas Shah — Spark Capital — Analyst

Okay, that’s all from my side. I’ll try to come back in queue. Thanks and all the best.

Anindya Dutta — Managing Director

Thank you Tejas.

Operator

Thank you. The next question is from the line of Amandeep Singh from Ambit Capital. Please go ahead.

Amandeep Singh — Ambit Capital — Analyst

Thanks for the opportunity. So firstly in terms of recovery. So whilst FY ’22 revenue startup at 75% of FY ’20. Can you help us understand how much of this would have been recovery in terms of volume. And also on like-to-like basis, do you see complete recovery on the volume front this year versus FY ’20. Also how this would stack up in value terms given the price hikes and mix. Any sense so on these?

Anindya Dutta — Managing Director

So on the volumes just give us a minute and we’re going to kind of come back to you. So on part of the business, which is upright, the volume seems to have come back to the same level as FY’ 20. But overall volume was not equal to FY ’20 and it was lower. I could give you in some time the exact number in terms of the volume recovery. In terms of projection going forward, we would like to believe that the current environment that we see continues, there are no disruption and if that was to happen then we should be looking at, at least a demand environment, which is bringing us back to an FY ’20 in terms of value if not fully on volumes.

Amandeep Singh — Ambit Capital — Analyst

Sure. That’s helpful. So till the time the volume numbers specifically, can I continue on the second question.

Anindya Dutta — Managing Director

Please go ahead.

Amandeep Singh — Ambit Capital — Analyst

Yes. So secondly was on the supply chain. So since you have fairly high closing inventory. So will it be fair to say that the supply chain initiatives taken over the last two years are now showing results and consequently you are in a relatively better situation to cater the demand?

Anindya Dutta — Managing Director

Oh, yes. Compared to the last two years, we are definitely in a much better situation. At this stage, I think it’s important to realize that we took the hard way out of the pandemic revival. We have used this time to really go into the basics and make our own manufacturing work for our supply chain. So therefore instead of now buying for an forecasted demand of six to nine months period ahead in terms of FG, we are into planning our raw materials in a regular cycle and we are producing to demand with a certain lag, which is not as six to nine months. So from an availability point of view, we have the manufacturing capacity and capability to take care of demand. So therefore, we feel confident that depending on how the demand pans out going ahead, we should be in a much, much better situation than what we were in the last two years in terms of meeting the demand.

And Amandeep just to come back to your earlier question in terms of value overall — in terms of volume overall, we had a number of units basis, where we were at about 83% revival in FY ’22 compared to FY ’20.

Amandeep Singh — Ambit Capital — Analyst

So this was really helpful. And just coming onto the provision, which you took during the quarter. So will it be fair to assume this was largely on account of Future Group and also if you could help us understand how much amount would still be outstanding for which provisioning would be required? And any outlook on what would be the business for this channel here on?

Anindya Dutta — Managing Director

So in terms of the provision, this was entirely Future Group and 100% of that has been provided in the last financial year and a large part of it happened obviously in the last quarter. In terms of future, how it is going to look like with the account, I would not want to comment on it. We are watching out very, very intensely and eagerly to see how things unfold. It’s a very important account for us and we would hope for its full-fledged revival as we go ahead.

Amandeep Singh — Ambit Capital — Analyst

Thanks for this. One last bookkeeping question if I may. So, any update on the receipt of the insurance claim?

Neetu Kashiramka — Chief Financial Officer

So it’s in the final stages. Actually it should come in next one or two days.

Amandeep Singh — Ambit Capital — Analyst

That’s great. Congrats. Thanks. That’s all from my side, and all the very best.

Anindya Dutta — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Manish Poddar from Motilal Oswal Asset Management. Please go ahead.

Manish Poddar — Motilal Oswal Asset Management — Analyst

Yes, hi. Just two questions. First one is, this price increase which you have taken, does this offset all the cost inflation?

Anindya Dutta — Managing Director

Not entirely, I would presume. We — as I said, we took a price increase in November and to tackle the inflation which really started in September-October significantly high inflation was there prior to that also, but a sharp increase happened. Along with that the ocean freight went up very sharply around that time. So in November, the price increase that we took did cover for the inflation that was to get applied in our business in Jan, Feb, March. So that was covered largely to a very small percentage, it was not covered possibly. But going ahead as we speak in the quarter — coming quarter, with the price increase again and it covers most part of it, but we will not be able to put a number, whether it is 100% covering or 70% or a little bit more. So that’s something that we’ll be able to analyze only once the quarter is over.

Manish Poddar — Motilal Oswal Asset Management — Analyst

Okay. And in terms of supply, how is the situation now?

Neetu Kashiramka — Chief Financial Officer

Better.

Anindya Dutta — Managing Director

Sorry Manish, I could not get your question.

Manish Poddar — Motilal Oswal Asset Management — Analyst

Sir I am just trying to understand in terms of supply and given that last quarter, China was clean count and in the [Technical Issues] from there to Bangladesh, just wanted to understand, because in some part of the RM would come China, so how is the — in terms inventory for finished goods. How are we [Technical Issues]? Do we have enough inventory in terms of new RM [Technical Issues] for this quarter?

Anindya Dutta — Managing Director

Yes, for this quarter, yes. The supply disruption that happened was largely the raw material, we were not buying finished goods. So that did create a disruption and therefore the inventory levels of RM has gone, has become has been volatile in this quarter, but we are working on it to streamline as soon as the things have opened up, whether it is in the ports or in the factories in China. It is starting to come back. But yes, we’ve had some disruption, but I don’t — as of right now have a quantitative implication of that but it will play out mostly, not in this quarter, but in subsequent quarters, if at all.

Manish Poddar — Motilal Oswal Asset Management — Analyst

Okay and just one last one, what does the capex outlook for FY ’23?

Neetu Kashiramka — Chief Financial Officer

Sorry, Manish, you were not clearly audible.

Manish Poddar — Motilal Oswal Asset Management — Analyst

Capex outlook for FY ’23?

Anindya Dutta — Managing Director

Capex outlook for the current financial year FY ’23?

Manish Poddar — Motilal Oswal Asset Management — Analyst

Yes, thanks.

Anindya Dutta — Managing Director

It will be anywhere between INR30 crores to INR35 crores as of now.

Manish Poddar — Motilal Oswal Asset Management — Analyst

Okay. And this new capacity which was coming up, is that expected in Q1?

Anindya Dutta — Managing Director

It is expected in Q1, both in India as well as in Bangladesh, towards the end of Q1, yes.

Manish Poddar — Motilal Oswal Asset Management — Analyst

Okay. Okay, thank you.

Operator

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

Bhargav Buddhadev — Kotak — Analyst

Yes, good afternoon. Thank you for the opportunity. Just continuing on the —

Operator

Sorry to interrupt you, Bhargav. May I request you to come on the handset mode and a bit closer to the phone.

Bhargav Buddhadev — Kotak — Analyst

Yeah. Can you hear me now?

Operator

This is better. Thank you.

Bhargav Buddhadev — Kotak — Analyst

So just continuing on the Future Group, so are we sort of doing business now or we are still continuing the business with the group based on payments or on aerial [Phonetic] basis?

Anindya Dutta — Managing Director

No, April was, you could say nearly zero. It was a very small part of the Group to Brand Factory and Central was operational. But it is as we speak it is opening up one by one at a very slow pace right now. So, April was nearly zero, but we are hoping that June would be better.

Bhargav Buddhadev — Kotak — Analyst

And then the payments, will we be taking advanced payment or how does it work now?

Anindya Dutta — Managing Director

No. So, part of the relationship move to Reliance in some of the Big Bazaar outlets that started. So it restarted with Reliance, with the payment terms that we had before, on the terms that we had. So it won’t be on cash or in advance. It will be having a payment term that we usually give to a chain like that.

Bhargav Buddhadev — Kotak — Analyst

And there is no risk of receivables right on the business which we do as of now?

Anindya Dutta — Managing Director

As of now we don’t see a risk of receivables. We have provided entirely for the risk that we saw which came on to the business for the last two years.

Bhargav Buddhadev — Kotak — Analyst

Okay, understood. In terms of market share gains versus Safari the time we have taken initiatives towards strengthening our e-commerce and also in sight of strengthening the value brand which is Aristocrat, you seem to be gaining market share versus Safari since the third quarter. So do you think this is sustainable? I mean, going forward, how do you read this?

Anindya Dutta — Managing Director

So certainly we’re focusing on fundamentals and rebuilding ourself. We have not fully come on to chasing market share as of now. So I would assume that as long as we kind of focus on what the consumer is looking for and deliver it better than competition, we should be on the right side of consumer preference.

Bhargav Buddhadev — Kotak — Analyst

In terms of procurement from Bangladesh, would that number be close to 40%. And we lost how much of this procurement can it be increased because you mentioned that it is margin accretive? Procurement from Bangladesh.

Anindya Dutta — Managing Director

Yes, so little excess of 40%. In fact about 65% to 66% is completely our own manufacturing, which is in the two sites in Maharashtra, Nashik and Sinnar and Bangladesh. These three accounts for almost two-thirds of our — what we sold, let’s say, in Q4.

Bhargav Buddhadev — Kotak — Analyst

So, the share of Bangladesh do you think will increase from here on as we enter FY ’23?

Anindya Dutta — Managing Director

No, the share won’t increase because our volumes are hopefully going to go up. So share will remain at that and — but the volumes from Bangladesh will grow. So in terms of salience it would remain around that similar.

Bhargav Buddhadev — Kotak — Analyst

Okay, understood. Because I was looking at your subsidiaries numbers in Bangladesh and employee cost has seen a significant increase in Bangladesh, almost 100% employee cost has gone up. So I was wondering how much more capacity are we adding over there. Is it possible to share more quantitative numbers?

Anindya Dutta — Managing Director

Well, I can share you with our monthly volume kind of a thing. In fact, March, we did our highest for almost 700,000 units in excess of that in the month of March. So the rated capacity there right now is about 6.5 lakh. And in the coming year with hard luggage coming in there and with some changes, we are further going to increase the capacity. So, the capacity now increase will get driven by what the demand numbers that we are seeking — seeing going forward and we are going to evaluate in terms of which location makes better sense to manufacture, whether it is Bangladesh, whether it is Nashik or whether it is any other facility within India.

Bhargav Buddhadev — Kotak — Analyst

And my last question is on your inventory days. So inventory days, it seems to be on a higher side as far as number of days is concerned. Is this because of expectation of strong revenue growth going ahead?

Anindya Dutta — Managing Director

Yes. So usually in quarter one, the demand is much higher than what capacities we would keep throughout the year. So there is an inventory buildup before preparing for quarter. In fact, this used to be always higher in the time when we would procure from China. So along with both RM and FG the inventory is usually higher in the beginning of the quarter for quarter one, especially.

Bhargav Buddhadev — Kotak — Analyst

Thank you for your answers. And all the very best.

Anindya Dutta — Managing Director

Thank you Bhargav.

Operator

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

Prerna Jhunjhunwala — Elara Capital — Analyst

Thank you for the opportunity. Sir, wanted to understand your digital strategy, how much did online sales contribute to and how are we faring [Phonetic] there as compared to pre-pandemic time and what would be your strategy there going forward?

Anindya Dutta — Managing Director

So online and largely online is the portal sales that we have for the year FY ’22, we topped almost 16% of our revenue coming from there for the year, but this also in the last two years, had a spike a little more than what it would be possibly going forward because other channels are also coming up and people have resumed going to stores to buy. So we see a good increase even in our exclusive retail stores or in our warrant trade stores. So what I think anywhere between 12% to 15% is where the online sales should stabilize in the near future. This was as low as 6% to 9% in pre-pandemic stage.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay and how much are you going to increase your EDU to? And what would be the expansion that you are looking at in the MBO channel?

Anindya Dutta — Managing Director

So in terms of VVO pre-pandemic, we had roughly about 450 stores both our own company, owned company run stores as well as franchisee, owned franchisees run. We are roughly at about 400 right now. The idea would be to by the end of this financial year to surpass the number that we had in the past, which is a 450 number. Internally, we are running for the widestone of 500, but that may take a little bit more than this financial year. So that’s the expansion plan on VVOs. In terms of our MBO, obviously there is — that is more about how many MBOs are out there who are not stocking us and there is a constant push if there is, there are any outlets where VIP is not stocked, but that’s not really a plan that we can have in terms of opening MBOs. So it is about converting an MBO which is not today dealing in VIP products. And they’re not the large population of such larger MBOs but we continue to be watchful of any MBOs where we could one get, if we don’t have entry and more importantly, what is the share that we have within the MBO.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay. Okay. And sir, my last question is on Caprese. What is your strategy going forward now that we are fully open as an economy today. So…

Anindya Dutta — Managing Director

So to be honest, Prerna, we don’t have a very big strategy on Caprese right now in the fact that what happened in the last two years, our supply was completely broken. And what we have first done is to get to mend that problem where we got our surprise right as we speak right now we have a new collection and new supplies are fully available for us. We are working on the front-end in terms of building back the consumer franchise as well as building back the channels that we’re selling. So first, in company details we are going to be getting back to what we were and then we will from there on take a bigger leap forward, but that is going to come in the next few quarters. Not as yet.

Prerna Jhunjhunwala — Elara Capital — Analyst

So last question, a follow-up on Caprese, and we knew you were looking forward to getting into the mass segment as well, because you are right now in mid premium when we launched the brand. And what about the luggage segment for a product expansion in Caprese? So how are you planning to get that?

Anindya Dutta — Managing Director

So I see two questions there. One, we are taking the Caprese brand extension into the mass segment and that’s something that we will see in the coming quarter. That’s part of the plan. However, taking Caprese into luggage or any other category, I think it is a little bit of distant future. We would like to focus Caprese on handbags and strengthen ourself really well there before we extend the brand. However, what we are doing in Skybag is actually launching a range and a sleeve of products, which is more designed in a way that it would appeal to possibly woman more and the younger generation women more than otherwise. And we’re not calling it an exclusive women selection or something, but there are products and designs that we have launched in Skybag which are more designed towards appealing to the choice of women more.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay. Thank you sir. I’ll come back to the question queue. Thank you.

Anindya Dutta — Managing Director

Thank you Prerna.

Operator

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

Jinesh Joshi — Prabhudas Lilladher — Analyst

Yes, thanks for the opportunity. Sir, I have a question on our capex outlay. If I heard you correct you guided for a capex number of INR30 crores to INR35 crores for FY ’23. Now, if I look at FY ’22, we have already spent about INR36 crores odd, which effectively means that our expansion at Nashik is more or less complete. So just wanted to understand, I mean, where are we going to spend the additional number of INR30 crores to INR35 crores? I heard that we are expanding in Bangladesh, but is a further expansion at Nashik also lined up?

Anindya Dutta — Managing Director

Yes, possibly while we have budgeted that capex, but we are mindful of the fact that we may want to expand our hard luggage capacity even further. Also a part of this capex is a lot of maintenance capex that we spend. So roughly about 50% is going to go towards capacity expansion, which is doing infrastructure and machines which is for purely capacity expansion and maybe about half of that is towards maintenance and all other activities.

Jinesh Joshi — Prabhudas Lilladher — Analyst

Sure. And I also heard that the PP strategy is playing out really well for us. And you’ve mentioned that from 1Q the expansion will kind of actually play out in terms of production and all. So by what — by when do we expect the capacity to be optimally utilized? Will it be 2Q or 3Q of this financial year?

Anindya Dutta — Managing Director

So Jinesh capacity is already optimally utilized as far as Q1 demand is concerned. So in fact we don’t have a headroom and that’s what we will need to create as we go forward. So optimum utilization of capacity is not a concern. It is the seasonality that we need to always manage, because the seasonal swing between quarter one and quarter three is something that that reduces the capacity utilization, and that’s something needs to be managed as we go along operationally.

Neetu Kashiramka — Chief Financial Officer

Just to add Jinesh, there are certain hard luggage cases which we are actually outsourcing, so that will become in-house.

Jinesh Joshi — Prabhudas Lilladher — Analyst

Okay, one last question from my side. I think a new brand called Upper Keys [Phonetic] was launched very recently and I believe it is predominantly a B2C brand launched by one of our — it’s employees. So just wanted to kind of get a sense as to how we see the competitive environment shaping up proposed to this launch? Any thoughts on that?

Anindya Dutta — Managing Director

We know as much as you know about the upcoming launch. I would like to say that not only this, there are several other B2C brands and brands that are coming up, so we have to be mindful and watchful of all new entrants into the industry and our strategy has to take account of continuous buildup of competition in the sector. So I think we would be continuously keeping that in mind, and working towards that.

Jinesh Joshi — Prabhudas Lilladher — Analyst

But will it have any impact on our e-com share which was at about 16% in FY ’22 which we just mentioned. I mean can it lower our e-com share, which is the fastest growing channel for the entire industry? So I just wanted a perspective on that side.

Anindya Dutta — Managing Director

Well, I don’t think so and our attempt would be not to let that happen with every might that we have. So let me just put it that way because right now we can’t — we have very little information to know what exactly is going to be the strategy and how will they play, but yes, obviously we have to be apprehensive of such steps that will be taken by all kinds of competition into the market and defend ourselves in e-commerce as well as in all the channels.

Jinesh Joshi — Prabhudas Lilladher — Analyst

Sure sir, thank you so much. And all the best.

Anindya Dutta — Managing Director

Thank you Jinesh.

Operator

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

Pulkit Singhal — Dalmus Capital Management — Analyst

Thank you for the opportunity. First question is just to understand the fourth quarter revenues. When I look at the three years preceding COVID, fourth quarter revenues have always been similar or if at all, slightly higher than third quarter, whereas for us this time it’s almost 10% lower than the third quarter revenues, despite a price hike of 4%. So I’m just trying to understand how much of this is because of COVID impact which may have probably impacted Jan quite a bit? And how much of it could be maybe some market share loss?

Anindya Dutta — Managing Director

So I think it’s I can’t comment on the market share loss as yet. We don’t seem to be further losing market share. Market share has been a problem area for us in terms of trying to gain back what we lost during pandemic. And I think we are kind of holding forth there a large part of our quarter three to quarter four revenue shift downwards is to do with the pandemic. And also a bit of correction, we’ve seen last few years, so quarter four over quarter three, if not a big drop, it is usually at parity or slightly lower in some of the years. So as I said, it could be a mix of a little bit of seasonal downswing but largely, it is the third wave which kind of took out I think about — it’s very difficult to kind of put a quantitative number on it but our intuitive judgment is, it took out about two to three weeks of revenues because of the demand disruption due to pandemic.

Pulkit Singhal — Dalmus Capital Management — Analyst

Sir, two, three weeks of revenues is easily 20% of your quarterly revenues?

Anindya Dutta — Managing Director

Yes. Something like that.

Pulkit Singhal — Dalmus Capital Management — Analyst

Okay. And just in terms of understanding this market share loss. So if I take out the top- three players in the luggage industry. Are we gaining share versus the other players or we have bounced back quite sharply and their supply chain was actually not that badly impacted. And to that extent it was impacted?

Anindya Dutta — Managing Director

Pulkit I don’t think so. While there are no exact numbers and evidence to back it up, but I don’t think the smaller and the regional players, barring a few e-commerce specific players may have gained a lot of eyeballs because of the high level, high taxable activity or digital space that they’re doing. But fundamentally, the supply chain was quite badly broken for the smaller players as much as it was broken for the larger players. So I don’t think that would have played up. And we would have lost the share, largely our share loss happened from Q3 of the first year of pandemic that’s where our supply really broke and we changed our strategy from getting our pipeline filled from China to doing it ourselves, and that took us about four quarters at least to get back to some level of sensibility. And I think from there from Q3 onwards, we are better off and with every quarter going by we are, we are building up strength there differently from how we used to be before. So that’s the underlying point that I have for you.

Pulkit Singhal — Dalmus Capital Management — Analyst

Okay, last question, sir. I mean, if you could give some flavor as to how April and May are going? Some quantitative flavor because we understand demand is obviously coming back strongly. We just don’t know how much is it even if it’s for the industry, if you can talk about that. If not for VIP?

Anindya Dutta — Managing Director

Yes, so Pulkit, I can’t share VIP numbers with you, but I can only tell you that we are feeling good about all the hard work that has got in as far as April is concerned and May and June should also look good. The only concern, if at all I have is, on the large accounts that I talked about in Future Group in terms of how they will — how will how will that game unfold in the next four two or whatever, six weeks that we have left. That’s the one that we have. It’s not a small account at all for the overall industry, not only for us, but we need to be mindful that we were a significant market leader in that particular group in the pre-pandemic era.

Pulkit Singhal — Dalmus Capital Management — Analyst

Got it. Thank you. And all the best.

Operator

Thank you. The next question is from the line of Sameer Madia from Edelweiss. Please go ahead.Hi. Sameer your audio is not very clear. Can you — there is some disturbance from your line. All right. You may ask your question, but please mute yourself, while the management is answering your question. Thank you.

Sameer Madia — Edelweiss — Analyst

Hi, sir. Firstly, congratulations for the result. I just wanted to ask couple of questions, how much is the exports of the total sales reported? And do you see exports are good driving factor at the current situation in — of what China is going through?

Anindya Dutta — Managing Director

So Sameer exports is very small, it’s about 3%. But I think we are very close to where we left it in pre-pandemic as of right now in terms of getting our scale back in whatever little exports that we had. For the immediate future, I don’t think exports will be a big part of our strategy in terms of growth. As I said that we are extremely focused on the fundamentals, extremely focused on the domestic market to gain back our share, gain back our profitability. Yes, that’s an opportunity we’ll continue to hide, but somehow, it’s just not the right time to put our energy and resources behind exports fully.

Sameer Madia — Edelweiss — Analyst

Okay, sir. Thank you. And just last question, you already mentioned this, but if you could repeat, if you could probably answer, what is the bad debt provision for this year?

Neetu Kashiramka — Chief Financial Officer

So it is INR21 crores for the full year. Out of INR11 crore is for quarter four.

Sameer Madia — Edelweiss — Analyst

Thank you ma’am. Thanks a lot, sir.

Anindya Dutta — Managing Director

Thank you, Sameer.

Operator

Thank you. The next question is from the line of Niket Shah from Motilal Oswal Mutual Fund. Please go ahead.

Niket Shah — Motilal Oswal Mutual Fund — Analyst

Yes. Thanks for the opportunity. I had two questions. So first is on the profitability side. Gross margins have been extremely good in this quarter. Is it safe to assume that as a player, we aren’t aggressively going behind market share at the cost of profit? And in terms of that we are okay, even if you lose 1% or 2% market share, but ensuring that our profit remains healthier. So how should one think about that?

Anindya Dutta — Managing Director

So, Niket, the philosophy is to do a good balance between profitability and market share. It is not one versus the other. In an extreme volatile environment like this gauging the inflation and taking a corrective price increase versus taking the right price from profit share point of view is always a tightrope walk. But what I can answer you in terms of our orientation and our philosophy, I think a good balance is what we are seeking and therefore we constantly will keep on correcting ourselves in either ways wherever it swings. So we will gain market share and we will be profitable as well. That’s the idea.

Niket Shah — Motilal Oswal Mutual Fund — Analyst

Sure. And whatever market share we would have lost would have been in which segment or which channel?

Anindya Dutta — Managing Director

Mostly the segment where we lost market share was larger part was in the value segment that is the segment, which grew much, much faster than the rest of it, pre-pandemic as well as significantly accentuated during pandemic. So everything that we’re doing in the value segment, Aristocrat brand is helping us gain back towards what we lost. Also the supply issues in VIP and Skybag also led to our possible share erosion in the mid-premium, which I would presume is easier for us to correct because that was a strength area before and we are — we have corrected the suppliers and we are going back in terms of exercising the strength that the brand had prior to the pandemic.

Niket Shah — Motilal Oswal Mutual Fund — Analyst

Got it. And just one question on the first quarter, which is underway. Obviously you can’t share numbers, which is understandable. Would it be possible for you directionally, let us know that was April-May still underway, was April month, one of the best month ever for VIP because this is obviously there is some pent-up and some travel and all of that coming back. So, qualitatively, can you tell us was it the best ever April for you or that’s not the case yet?

Anindya Dutta — Managing Director

Well, underlying the word qualitatively, yes. And it could be coming from numbers as well as coming from how we feel about a difficult journey. And then finally, you have a month which kind of makes you feel, things are back to normal and you’re back in the game.

Niket Shah — Motilal Oswal Mutual Fund — Analyst

So best April ever and obviously we have to monitor May and June as we go forward. Perfect. Okay, thank you so much. And I’ll come back.

Anindya Dutta — Managing Director

Thank you Niket.

Operator

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

Ankit Kanodia — Smart Sync Services — Analyst

My question — this is Ankit from Smart Sync.

Operator

We cannot hear you Ankit. Please speak a bit louder.

Ankit Kanodia — Smart Sync Services — Analyst

Is it okay now?

Operator

This is better. Please go ahead.

Ankit Kanodia — Smart Sync Services — Analyst

Okay. So first of all, before asking the question, I had one comment related to the presentation. So first — in the last few quarters, we have been sharing your presentation, it’s very helpful. And each quarter we see some really good data point which you add, but there is one thing which I would like to request is that even in today’s call, once the call begun, we saw the presentation on the exchange filing. So if you can release the presentation along with the result a day before that would really help. That’s just a request. Okay?

Anindya Dutta — Managing Director

Yes, Ankit, feedback taken and we will make sure that we do this going forward.

Ankit Kanodia — Smart Sync Services — Analyst

Thank you. Thank you so much and one — and moving on to questions. So Q1, historically has been our best quarter and in the last two years because of — in the first year, it was because of lockdown and then the second year, it was because of the second wave, this Q1 FY ’23 is it fair to assume that there is a chance that we can reach to somewhere between INR500 crores, INR600 crores of turnover wherein we were in June 2019?

Anindya Dutta — Managing Director

Ankit, once again, I’ll answer that qualitatively, I don’t want to put a number there. But yes, I completely share the same thought that you have that last quarter one is our best quarter for the consumption of the products that we sell. And the last two years has seen a washout of the quarter. We are definitely feeling far more confident, buoyant and optimistic about how we are seeing this quarter going. With only one silver lining, which is the inflation, the future growth and inflation possibilities are the two callouts on if at all there is a spoilsport there.

Ankit Kanodia — Smart Sync Services — Analyst

Thank you. And one — next question would be related to our Bangladesh operation. So from where do Bangladesh source the raw materials? Is it completely in-house from Bangladesh only or they reserve to China in terms of the raw materials?

Anindya Dutta — Managing Director

So Ankit get majority of the of the raw material comes from China, they’re all import materials.

Ankit Kanodia — Smart Sync Services — Analyst

All imported from China? Okay. So don’t we think that the dependency on China still remains, even if we are having our operation in Bangladesh? Or what changes with our operations in Bangladesh?

Anindya Dutta — Managing Director

Well, the dependency on China as a source for raw material continues, but raw material has part degrees of freedom in terms of what we can do in terms of efficiencies as far as sourcing is concerned and the conversion of raw material to finished good is a large part of it. And once we control that we control that part of the cost efficiency. That’s definitely in play. Also somewhere in the future also look at how we could look at, and it’s not about just China as a source because from peers as you are doing your own manufacturing what opens up is what you can freedom of where you want to buy from. It could be any other country, so our sourcing philosophy would be to look at the cheapest source possible within the realms of quality that we have.

To just add to this, I think there is a point, what you asked about therefore what is the benefit? When we bring into Bangladesh there is no custom duty for the raw material and when we bring in FG into India, there is no custom duty. So that’s an underlying advantage compared to buying FG from any other source, especially in China.

Ankit Kanodia — Smart Sync Services — Analyst

Thank you. That’s really helpful. So that really helps. And one last question, in regards to our competition and both from the old competitors and also from the new B2C brands, which we have. So how do we — what is our strategy in that? So in terms of other listed competitors, what we can see that they are far more aggressive in terms of getting the market share probably for them number one is market share and number 2 is margin? Is it fair to assume that for VIP it is, number one is margin and number two is market share, in terms of preference?

Anindya Dutta — Managing Director

I don’t think that is a fair assumption. What I want as a takeout is that we are going to go for both. Our balance is absolutely important because we are not here for a one year, one quarter business, So just having a margin focus is not going to help or just having a market share focus is not going to help. So we are focusing more on the fundamental strengthening of the business and that should play out both as we go along. It could be a little slower, but a steady gain back in market share because that’s what we have lost and what you’re seeing possibly is a fastest scale up in margins, but that again is to do with internal reorganizing of how we do business is helping us scale up margin, but it will eventually help us or at least that’s the ambition or that’s the goal, where we would like to regain and grow over what we had before, with a healthy bottom line.

Ankit Kanodia — Smart Sync Services — Analyst

Thank you. And the second part the B2C brands in competitive intensity from there?

Anindya Dutta — Managing Director

That’s a strong watch out we have, B2C and e-commerce is not the largest part of it now, but definitely not undermining the possibilities there and therefore we will watch it very closely, and we are also building our e-commerce as well as — on the portal as well as otherwise, business or at least the thoughts on that. So you will see, as and when things happen, you will see us pre-empting it or reacting to it.

Operator

Thank you. I would request Mr. Kanodia to rejoin the queue for follow-up question. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital — Analyst

Hi, thanks again. Couple of follow-ups. What could be the share of modern trade and CSD for the full year?

Anindya Dutta — Managing Director

The share of modern trade and CSD in our business?

Tejas Shah — Spark Capital — Analyst

Yes. In share?

Anindya Dutta — Managing Director

So modern trade would be at about 30% odd and CSD would be about 15% odd.

Tejas Shah — Spark Capital — Analyst

Okay. Even in FY ’22 modern trade was at 30%?

Anindya Dutta — Managing Director

Yes, it would be.

Tejas Shah — Spark Capital — Analyst

And you said large part of this was typically for us?

Anindya Dutta — Managing Director

I’m sorry, I didn’t get the last part.

Tejas Shah — Spark Capital — Analyst

You said that large part of this modern trade exposure was Future Group for us. Is that correct?

Anindya Dutta — Managing Director

That’s right. And it didn’t play up in FY ’22 fully. It only started, the issue largely started in terms of complete store closures and all that towards the end of March, mid and end of March, yes.

Tejas Shah — Spark Capital — Analyst

Yes, sure. And then last question, in many categories where there is a large share of participation with unorganized players, we are seeing that their supply chain has got disrupted more badly than the organized players. So — and the fact of unorganized guys organized players are getting at least [Technical Issues] competition. Are we seeing that…

Operator

Sorry to interrupt. Sir, your audio is not clear, Mr. Shah. We cannot understand your question clearly.

Tejas Shah — Spark Capital — Analyst

Is this clear. Should I — hello?

Operator

If you can repeat your question and speak a bit slowly please?

Tejas Shah — Spark Capital — Analyst

Sure, sure. My question was that in many categories we had said that the supply chain from unorganized category has got very badly and perhaps the impact will last longer than what it will last for organized players. Are we seeing any benefit of that in favor of mass and brands in our portfolio? And do you see that any of this disruption can be structural in nature for some of these unorganized players?

Anindya Dutta — Managing Director

Yes, so I get your question Tejas. I think what you’re saying is should be happening. Not that we see a huge spike happening because of that but logically speaking the supplies which was part from China at least into the domestic market through the unorganized sector we know for a fact that it is not fully there where it used to be. And I think somewhere the — as the value segment of the overall category is growing is because of what one of the factors is that as well. How it plays up going forward is something that we need to watch, but what we decided was to be ready if that was to happen with both our products, our pricing, our whole mix as well as the supply chain.

Tejas Shah — Spark Capital — Analyst

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

Anindya Dutta — Managing Director

Thank you Tejas.

Operator

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Ms. Neetu Kashiramka for closing comments. Thank you.

Neetu Kashiramka — Chief Financial Officer

Thanks everyone for joining this call. Looking forward to see you after the quarter one results. In case you have any further questions you can call me. Thank you, bye.

Anindya Dutta — Managing Director

Thank you.

Operator

[Operator Closing Remarks]