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Earnings Call Analysis
Q3-2024 Analysis
Campus Activewear Ltd
Campus Activewear reported solid performance, weathering major business model adjustments by increasing marketplace potential and marketing efforts. Revenue remained at INR 472 crores, with the sale of 6.9 million pairs at an average price of INR 681. The company projected a quarter-over-quarter growth trend despite a stagnant appearance, boosted by festive spending and a boom in online sales. Gross margins indicated a healthy financial stance at 38.3%, indicating efficient management and lower material costs.
Marketing costs were elevated due to strategic promotional activities, amounting to 10% of the revenue this quarter, compared to a normalized range of 5-7%. However, they aim to stabilize these costs at 6-6.5% going forward. Increased performance marketing was temporary, implemented to counter the transition from O2O sales channels to marketplaces, which successfully recouped sales lost in Q2.
Trade distribution revenue showed no significant rise, however, the North region's contribution to revenue increased from 44% to 54%. Despite a flat revenue trend and muted consumer demand in the West, Campus Activewear was able to navigate without heavy promotions or discounts, thanks largely to effective brand building strategies that resonated well in the North region of India.
Campus Activewear demonstrated robust financials, with net debt reduced to INR 48.3 crores, leading to a decrease in the net debt-to-EBITDA ratio from 0.6 in FY '23 to 0.3 in 9-month FY '24. Return on capital employed (ROCE) and return on equity (ROE) were strong at 12.7% and 9.7%, respectively. Furthermore, the company reached a milestone of 250 stores nationwide, aligning with the growth and expansion strategy and reaffirming their commitment to innovation and customer satisfaction.
As the year of transition continues, the company's focus remains on research and development, aiming to innovate and launch premium products that align with their journey toward premiumization. With a strategic business model and a strong balance sheet, Campus Activewear is positioned well for creating long-term value for its stakeholders and maintaining a legacy of fashion excellence.
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Ladies and gentlemen, good day, and welcome to Campus Activewear Limited Q3 and 9 Month FY '24 Earnings Conference Call. [Operator Instructions]
Before we proceed on this call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with our businesses that could cause future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. The Campus Activewear management is represented by Mr. Nikhil Aggarwal, Whole-time Director and CEO; and Mr. Sanjay Chhabra, CFO.
I now hand the conference over to Mr. Nikhil Aggarwal, Whole-time Director and CEO, for his opening remarks. Thank you, and over to you, sir.
Thank you, and good evening, everyone. Campus Activewear staged a strong recovery in quarter 3 FY '24, overcoming the disruptions caused by our B2B and O2O channel's business model changes that have happened in quarter 2 FY '24. By focusing on marketplace potential and boosting our marketing efforts, we've managed to increase demand and restock in our primary distribution markets, which were previously suppressed in quarter 2 FY '24 due to destocking and inventory adjustments. Despite the revenue seeming stagnant with an amount of INR 472 crores in quarter 3 FY '24 due to shifts in channel dynamics, we did see a very positive growth quarter-over-quarter. This growth was facilitated by a lower consumption base, increased consumer spending during festive periods and a surge in online sales.
On the margin front, we benefited from the decline in material costs, resulting in healthy gross margins at 38.3% during Q3 FY '24. However, our marketing and advertising costs remained higher owing to several TVCs and online campaigns for promoting our wide range of campus, OGs, NitroFly Nitro Boost and Air Capsule styles. In our ongoing pursuit to fortify our financial standing, we managed to reduce the debt by INR 112.6 crores in quarter 3 FY '24, additionally by maintaining rigorous control over inventory and receivables. We've managed to diminish our working capital days from 150 to 68 days as of 31st December 2023 on a quarterly basis.
We continue to make judicious investments in the brand building exercise, positioning as a preferred one-stop family sports and athleisure footwear company for our esteemed consumers. I'm delighted to report that we are steadily progressing towards our planned growth and expansion phase. A testament to this is our achievement of reaching the 250 stores milestone across the country, with our newest store inaugurated in Seasons Mall in Pune during quarter 3 FY '24. Echoing our discussions from past calls, I'd like to emphasize that FY '24 is a year of transition for us. We continue to invest in R&D and design capabilities, leading to product innovation. It enables us to launch premium products resonating with our premiumization journey in the long run. The company remains committed towards its legacy of fashion excellence and customer-first approach and satiate the customer demand through its diverse trendy designs, captivating color styles and attractive price points for varied occasions.
We are very well placed to create long-term value for our esteemed stakeholders with a unique integrated business model coupled with strong balance sheet position.
I will now hand over to our CFO, Mr. Sanjay Chhabra to take you through more details on the performance.
Thank you, Nikhil. Good evening, everyone, and welcome to the Q3 and 9 month FY '24 Earnings Call for the Campus Activewear Limited. During the quarter under review, our revenues from operations stood at INR 472 crores. In terms of volumes, the company sold around 6.9 million pairs in Q3 FY '24. The average selling price stands at INR 681 versus INR 669 last year in the same quarter. Similarly, on a category revenue mix, the men to women and child ratio continued at 75:25 in Q3, driven by our continued focus towards growing this category. EBITDA stood at INR 57.6 crores in Q3 FY '24. On the balance sheet side, our net debt stood at INR 48.3 crores as of 31st December, showing a substantial reduction of INR 100 crores plus both versus last year and also versus sequential quarter. This has resulted into our net debt-to-EBITDA ratio reducing to 0.3 in 9-month FY '24 as against 0.6 in FY '23. Our balance sheet demonstrates the position of strength with robust return ratios such as ROCE and ROE at 12.7% and 9.7%, respectively, as on 31st of December.
With this, I will conclude and hand over to the moderator for questions and answers. Thank you.
[Operator Instructions] First question is from the line of Priyank Chheda from Vallum Capital.
Sir, my question is on, if I have to go back to your quarterly volumes. December 2021, you sold 6.6 million pairs, December 2022, you sold 7 million pairs, and December 23, you sold 6.9 million pairs. What has been the reason for almost no growth for the last 2 years now. And despite that -- despite all the sneakerization team, despite all the sports shoes, athleisure wear growing in India, what has been the key reason if you can highlight once again?
No, thanks for your question. So basically, we had a remarkable growth right after COVID in '21 and '22 and '23. We have seen muted demand over these last almost 18 to 24 months now. This has been seen across this entire value segment price category, and we fall into that, whereas the premium segment for us also has grown. So rather our product mix has substantially also changed in this volume where our premium product mix has gone up to almost 48% -- 49%, that is INR 1,500 plus and semi premium, which is INR 1,000 to INR 1,500 is 30%, and entry level is about 20% versus approximately 35% in December '21 for the premium. So it's been a significant shift. This is also the reason why our ASP has grown over these last 2 years. From December '21, I believe, would not be more than INR 630 or INR 620 and now it's about INR 680. So one is the product mix and also the channel mix. But yes, we have seen some muted demand in spite of all of these improvements.
So sorry, I missed out one figure, premium, which is above INR 1,500 is 49% of the mix. What was the entry level, which is less than INR 1,000?
It's about 20%.
And what was that 2 years ago?
That would be closer to 36% or 38%.
Got it. So sir, in that case, if premium segment has done well, why would our EBITDA margins remain so low. December '21, it was 21%. December 23, it's 12%. So -- what has then led to, in case the mix changes on to a premium size, we should have earned better margins, if you can help even dissect this.
This is Sanjay. Let me just take up that question. You're right that we are heading towards premiumization. However, it is not getting reflected in our EBITDA margin. So we are talking about a longer range of period wherein the channel dynamics have changed. The inflation has come up in our fixed costs. And when I say channel dynamics have changed, it also means that we have shifted from distribution-led market to the online. And within online, like in this quarter, we have -- the saliency of marketplace has increased, which has resulted in a higher performance marketing spend. Coupled with that, we have invested in TV and print media in this quarter big time to propel the growth in demand and also to create awareness of our all the new product launches during the quarter. So that is showing a sort of reflection in a subdued EBITDA margin. However, it's a long-term investment to create brand awareness and brand building. That's what is in the mind. We do have delivered a decent improvement in both material margin and gross margin, yes.
Sure. So just last question to entangle the complete the complete data points, what would be the ad spends in the current quarter versus what has been the normalized ad spends that we have done as well as what would have been the performance marketing spends in the current quarter versus what it would have been in the normalized space.
You can see in the current quarter, our ad spends or the marketing spends put together all performance and ATL spends are together roughly in the range of 10%. And in any normalized quarter, we do spend anywhere between 5% to 7%. So that's -- that's the differentiator between when we go into a sort of season, including the Big Billion Day stuff and all.
And what would be the pure brand level marketing spends that we would do out of this 10%?
It would be closer to 6-odd percent.
Got it. Got it.
Next question is from the line of Videesha Sheth from Ambit Capital.
The first question was, can you help us understand what led to the sequential decline in gross margin, is it purely got to do with the increase in marketplace things because that actually should have led to increase in your gross margin. Can you help out over here?
So gross margins have actually improved sequentially. We have ended the quarter 38.3% gross margin versus 37.6% last quarter. And even versus last Y-o-Y, it was 37.6% quarter 3 last year.
I was referring to the reported numbers, which come to nearly 54.3% in 2Q and 51.3% in 3Q.
That's purely the material margin thing. So that's material margin would get influenced by the channel mix and also the product mix. So in which channel, we are selling what at what price point. So that drives the material margin. But eventually, at a gross margin level, we are positive.
Okay. Got it. And the second question was again towards [indiscernible]. Now in the current quarter, you mentioned that the spends were elevated at 10-odd percent. So going forward, in the near future over the next 2-odd years, where do you expect this spend level to be at?
So our endeavor is to continue to spend 6% to 6.5%, ideally. What happened in quarter 3 is because of the shift in sales in online from O2O platforms to marketplace, we had to spend additional on performance marketing. So if you remember, in quarter 2, we had lost out on O2O sales. So we have managed to recover all of that sales back in quarter 3, which is a very encouraging sign, right? And for that, but we had to spend additional on performance marketing. So I believe this would not be ideally a recurring event, and we would like to maintain our marketing spends overall at 6% to 6.5%.
Next question is from the line of Ankit Kedia from PhillipCapital.
Sir, my first question is on B2C online revenues. Despite the shift in Big Billion Day sale, Amazon sale, AJIO sale to quarter 3 from quarter 2, still our online revenues is pretty much flattish in the quarter. And you also just alluded to the fact that you have been able to recoup the revenues from O2O to marketplace, but that is not reflecting in our revenues actually. So can you elaborate what has happened in the online B2C space?
Let me just give some perspective here. The O2O and B2B in the online channels was a big chunk in the last quarter of this last year. And we have been able to sort of recover a large part of it through influencing the consumers in the marketplace, and that sale has got recovered. But there is also an element of O2O which caters to a very small sub dealers or distributors -- sorry, retailers, and that, they must be sitting on some inventory. So to recover that sales would take some bit of time and could be 1 more quarter phenomenon.
Yes. To recover that sales in the distribution channel, like we have mentioned earlier as well, the O2O sales would be recovered in the distribution channel eventually over the next few quarters.
Sir, we were made to get that last quarter itself. More than 80%, 90% of it comes in quarter 1, quarter 2. And quarter 3 and quarter 4 is a very small proportion of that. So how much would be that number? If you can quantify from O2O this quarter, you think that slippages would come?
All of last financial year, that number has ranged in between 10% to 20% and we can safely assume that 50% of that sales or that channel has shifted to alternative route, let's call it a marketplace or if it gets eventually integrated into the O2O portion, eventually will integrate into the distribution and demand will come from these channels in due course.
Sir, but on the quarter 2 con call, you have specifically given the number that quarter 1 and quarter 2 had bulk of that revenue. So if you can quantify the revenue, what was in the base quarter 3 and now how much is that? It will be really helpful to understand the flattish revenue growth.
Yes, that's what I said. It would be in the range of 10% to 20%, depending upon different B2B and O2O partners.
Sure. My second question is on the trade distribution part of the business. That number is also flat today. While at the same time -- while on the gross margin side, we are seeing on a quarter-on-quarter basis, some deterioration. So have we gone ahead and have heavy promotions in the market, which has resulted in flat revenue growth and impacted margins in the quarter? And [indiscernible] to that, what is the inventory in the system today, which we have? And how is that shaping up versus last year?
So as part of the optimization of inventory and this was the reason in quarter 2 that we did not push sales in some of these northern territories like UP and Bihar. We have very successfully navigated that in quarter 3, and we've been able to bring the growth back where the salience from the 5 territories, North has performed about 45 -- given a 45% of the revenue. I'll just tell you for trade distribution, North has been basically for 54% versus 44% last quarter. So there has been a significant improvement in both the states, UP and Bihar, in quarter 3. But we have not had to make any significant liquidation costs or discounting to achieve the sales. This was primarily driven by the brand building and the marketing spends in line with distribution budget.
Sir, if I have to look versus last year, if you can just share how much is the growth in the North region?
Versus last year?
Same quarter?
So last year, quarter 3, we did -- the growth would be in line with about 5-odd percent.
So the rest of India has actually declined then in the quarter?
That's right. Yes. So, West has slightly declined, which has been compensated by North. East has been flat as per quarter 2. So yes, the major difference is coming in West where we have seen some muted demand in quarter 3.
And sir, typically quarter 3 is a heavy quarter for you. And with the delay in winter, how is quarter 4, first 40 days of the quarter shaping?
So we don't give any forward-looking guidance, but we can tell you that we are trending in line with how the FMCG sectors have been reporting in terms of market sentiment. We do see pockets of growth and also muted demand from other pockets. So it's a mixed kind of guidance that we're seeing from -- for quarter 4. But it seems to be -- there is slowdown, but there is growth and value that we are seeing. Sanjay, do you want to add to this?
Yes. As we mentioned earlier that we continue to focus on retrieving whatever Q2 volume losses we had, and we continue to drive sort of higher reach and drive volume through our distribution reach.
[Operator Instructions] Next question is from the line of Jasmine Surana from VT Capital.
I wanted to ask a question on the margin side. I assume that the other players in the industry are doing margins north of 20%, while we are at around 11% to 16%. So do you see any headroom to grow and compete with the peers in the industry? And what would be the levers, which would drive the margin expansion ahead for us.
Did you say margin, are you referring to EBITDA margin?
Yes sir.
Okay. So yes, we have seen a decline in margins. We gave you the reasons for that. There was an increase in ad spends. That was a temporary increase, while we expected, honestly, the second half of quarter 3 to deliver higher volumes. We did see very good demand in first half of quarter 3. But second half, we saw a bit of slowdown again in the market. Therefore, we were unable to deliver the kind of volume that we had envisaged for quarter 3. Therefore, we had to spend some extra performance marketing, but we will not -- this will not be a recurring event, like I said, so that will add back to the margins in due course of time. And so that would be one.
And second, we will continue to improve on the margins and on the gross margin side in terms of both efficiency in terms of savings, procurement savings and capacity utilization, et cetera. So that should also bring in, and improve the margins over time, right? So these 2, I would say, are the biggest levers, also driven by the product mix and the channel mix. So this year has been a transition year in that sense where we have seen demand playing out in some pockets and some pockets being extremely slow. So it's been -- but we do see a normalized year going forward.
Sure. And another one is on the market share. You have been consistently reporting market share on the basis of FY '21. So if there could be some color on a Q-o-Q or on a Y-o-Y basis in terms of the SME category, how well are we doing? Are we gaining market share? Or is there a lot of local competition that you are seeing, which is keeping the market share suppressed?
So like I mentioned in last quarter earnings call, we have seen market share -- we did see some slowdown in some specific states like UP and Bihar, which we did call out, where we did lose some market share to probably competition and to some other new players that have entered. Because UP and Bihar is basically the first market, they all -- all the new entrants try to cater to and it makes the whole state extremely competitive. But in doing that, we have also gained a lot of market share in the West, the South and the Central states. So we -- therefore, we believe that we are pretty much at the same number as of 2 years ago, but we haven't done any recent dated study to quantify that, so if we can come back to you on this.
Sir, just one last question from my side would be on any category expansion that we're looking at.
So yes, we have been focusing quite a lot on the sneaker range. They are called the Campus OG, the originals. And they've been doing extremely well. We've gotten extremely positive response from both the online and off-line platforms. So that is something that continues to remain as a key focus category, along with women and kids, where also we have seen consistent improvement quarter-on-quarter for the last 4 quarters. So these 2 would remain our key focus areas.
Next question is from the line of Jayesh Shah from OHM Portfolio Equity Research.
Am I audible?
Yes, very much, Jayesh.
My first question is, since our premium mix has moved from 35% to 48% as you explained some time back, that has not materially helped our material margins or gross margin. Am I correct?
It has. But the problem is that we have not been able to take a price increase for almost the last 2 years now, given the market situation. There is a certain cost to making these premium products. So overall, yes, the margins have remained the same. There would not be an improvement because of our inability to take a price increase due to market conditions.
Normal price increase would be, what, 5% per annum?
Yes. That's right.
Okay. So if the gross margins remain at, say, 38% and 50% of your portfolio is close to premium mix. Where do you think is a realistic gross margin figure? I'm not talking of time frame. I'm just saying that let's say, your premium settles, let's say, around 60%. Do you see upside in gross margin? Or it still requires price hike?
No, I don't think we would be -- we will not be commenting on in terms of the outlook, but there are certain levers of optimization that we're targeting, and they include like continued savings. And again, as and when we get the opportunity to take a price hike, as the market macros improve, we will certainly do so. And BIS also now coming into play will definitely help as the imports are getting restricted from China now and the other countries. That should also help with domestic manufacturers eventually take their price hikes. So we are counting on some of these levers to eventually add into our gross margins.
I understand that, but my question was more from the point of view that any increase in premiumization doesn't necessarily reflect on the material margins. It needs again to be accompanied by price hike?
Yes. I would agree. It depends. So a higher premium product doesn't necessarily translate into higher margin. It depends on product to product and also the kind of strategy the company is following at that point, in terms of the product mix and the portfolio mix.
Understood. My second question is, again, on the EBITDA margin that we have dropped from 21% to 12%, of which I could understand that close to 500 basis points is due to SG&A -- ads and promotion at brand level. But the balance 5% is still something that is not explained. Is that general overhead than fixed costs?
Yes. So Sanjay, do you want to take that, Director of Finances.
Yes. I mean this quarter, of course, we get the volume leverage, but on a longer -- or on a subdued quarter, of course, the fixed cost would -- where we are unable to take the leverage benefit, the fixed cost would definitely impact the margins. And even on the current quarter, if we see then the organic increase is, of course, 10% inflation. There is increase in our number of EBOs. So that has resulted in a higher SG&A. And there is, of course, phasing of CSR spend. There is some bit of reclassification of the short-term leases, which has -- which is now sitting in SG&A, which was earlier sitting below as a depreciation and interest cost. So purely accounting stuff. And of course, there is some bit of inventory obsolescence write-off and a bit of expected credit loss provisions. So those all -- there are accounting-related reclassifications. There is inflation which is sitting in the numbers and that's sort of subdueing the margins apart from the marketing spends we did this quarter.
Okay. So is it fair to say that the new normalized level of EBITDA margins now would be at between 15% to 18% rather than 21%, which was there in the past?
We're taking a quarter at a time. We're not really giving a guidance for the next year. But what I can assure you is the company is very actively working on improving the margins with a lot of things -- a lot of initiatives that are happening at the moment. And one of the initiatives, as you would appreciate, is the reduction in our inventory days, which will also eventually help us recover the margins because we are able to now create inventory with also better margins, right, after you sell off the older inventory. So we are taking a lot of proactive steps in order to recover the margins and bring them back to normalized state.
Right. So as of now, given that price hikes are difficult, say, in the short-to-medium term, the margin recovery is predicated on overall sales or volume recovery, right?
That's right, yes.
Okay. And lastly, am I right in saying that why is 3Q on a Y-o-Y basis is flat, but current year 3Q had the base effect of the festivals while last year, the festivals were not basically in 3Q, they were in 2Q?
It was a combination of both. There were some festivities effect, yes, certainly in this quarter 3, but we did again see a very mutish second half of the quarter where just after the festivities ended, the demand suddenly dropped. And this was like pan-India that we saw. So it was a very mixed demand quarter in that sense.
Right, right.
Next question is from the line of Manish Dhariwal from Fiducia Capital Advisors Private Limited.
Am I audible? Can you hear me clearly?
Yes.
I basically wanted to understand how is the BIS situation emerging right? Our understanding was that from January 1 onwards, the product that was a cheap import from any of these countries, like China, Vietnam, et cetera, would not be able to be available in the market. But I don't think that is the case, so some clarity on this matter is [indiscernible]?
Sure. So from 1st of Jan, BIS has been implemented, and it is in full force. Therefore, if you do a market survey, you will find out that any containers of finished goods being imported from China or Vietnam are being held up at the port. They're not being cleared since the 1st of January. Therefore, whatever inventory is already there in the system, in the channels currently, will take some due course to be implemented [indiscernible] liquidated and consumed across all the players -- across all the companies. So that's the situation in terms of imports. While we have been manufacturing fully, 100% BIS compliance stock since December already, we were the first company to receive BIS certification in the sports and athleisure space. So -- but government has given some extension for a type 2 general category BIS until July for smaller players. Therefore, we are one of the few players that are manufacturing fully 100% BIS compliant products today. Not everybody in the footwear space is doing so at the moment.
Yes. But in the retail, you'll continue to see the inventory which is already in the pipeline. It will definitely take a few months to sort of sell all the inventory in the pipeline.
Okay. Could you also clarify about this smaller players. I mean, they have been given this extension until July, is it, maybe I couldn't understand that point.
That's right. So there are 2 types of BIS, type 1 and type 2. Type 2 is a more lenient specification of sports shoes where a lot of the smaller players are operating. And therefore, the government has exempted them given them time till July of this year to comply with type 2 BIS, but we've been the largest in the space and very, very organized, and we take pride in our products. We are fully manufacturing in type 1 category, which is the highest quality standard and we are supplying all the stock in that category today.
Yes, absolutely. Like the Campus product, the quality, I don't think is ever a question. So in fact, my complement to the team to ensure that. And to be able to -- you built that impression in the market as well that if someone is using a Campus product, then it's a high-quality product. But see, at the consumer end, how will he determine or she determine that the product is type 2 or a type 1? How can I distinguish if I go to the market.
Great question. So as per BIS norms, every company is supposed to certify whether it's a type 1 or type 2 product. Therefore, like in all our packaging, we are certifying that it's an ISI product, certified type 1. Whereas any type 2 manufacturer today, irrespective of the BIS getting implemented for them in July, they still have to certify from today itself that it's a type 2 product.
Is there a price differential as well on the products, from type 1 and type 2?
Yes, there would be. I mean type 2 is a -- there are many categories that fall in type 2 like DIP injection process shoes and school shoes and so on. So there are different categories that fall in there, mostly cheaper shoes, but also some cheaper, some lower certifications. Therefore, there would be a price differential, that's right.
Okay, okay. Okay. I think that's fantastic. See secondly, in your scheme of things, you mentioned that this year has been a year of transformation. And you also made a lot of efforts. So -- and I'm, in fact, engaging right now at the highest level of the business team here. So I wanted to understand how much of importance do you give to the signage that is visible on any Campus store.
It's extremely relevant. It's -- we're eventually a brand, right, so direct D2C brand that's directly going to the consumers. Therefore, branding and imagery under perception and the signage, all of these are extremely important to the whole brand ethos and the philosophy that we operate by. That's the whole reason we are making these strides and investing so much over the last 6, 7 years consistently in branding and marketing. And we'll continue to do so, right? So it's a long-term objective. We do know that we are one of the most preferred and most in-demand brand in the market. Customers -- our consumers love the products, they love the quality, they love the designs, the latest innovation that we provide in the market -- the Indian market today. So that definitely is one of the biggest strengths of our brand and signage is an equally important aspect of that.
Okay. So here, I would just like to give 1 feedback because I did take downs of various stores, right? Without naming a typical or a particular store, I did find that there were cases where the lighting was not right. And then when I went in and spoke to the team where they said that [Foreign Language] But then even after when re-went, I found that things have not changed. That's why I wanted to clarify. So maybe some bit of tightening at the team that does the rounds that boss, how is the sign. Because I think that is the first thing that a customer sees. [Foreign Language] So that is -- that basically makes an impact, which you would rightly observe yourself. So one feedback please.
Thank you so much for pointing it out to us. We will certainly take action. While we do have [indiscernible] to make these rounds, but we will make corrections wherever required. Thank you for bringing this to our notice.
Thank you so much for taking this in the right spirit, and I really appreciate the response that you have given. Lastly, see, I'm [indiscernible] looking at actually [Foreign Language] maybe the margin in the next quarter or something. But at a very holistic level, on a longer-term basis, where -- there will be like pluses and minuses, you will have to basically do a retreat or expand in a particular quarter and that will be some XYZ in another quarter. So -- but at a holistic level, when I look at the Campus as a business, what EBITDA margin do you want your business to be at on a longer-term basis? Say the BIS norms will kind of call in, they will become most stringent. You will automatically start getting the benefit of that. Because there will be so many people who will basically be exiting out of the business. Because they'll not be able to meet the standards. So all those things will happen. Some new competition will come, maybe like this guy [indiscernible]. So he'll also try to get in competition -- but Campus, what are the normalized long-term basis EBITDA margins that you would be satisfied at?
So we would love to -- our aspiration is to get back to our previous ranges of EBITDA margin that we've delivered, let's say, 2 to 3 years back as well. That would be the aspiration for the brand, and that's what we're striving towards. Therefore, a lot of the initiatives -- I'd also like to call out that we have appointed, in pursuit of further trending the controls and processes which would also lead to also better margins in some sense, is a migration from Navision to SAP for which we've just appointed Accenture as our consulting partner. And this is again a 10- to 12-month project. So a lot of initiatives, again, would lead to incrementally benefiting the margin. So like I said, what we've delivered is our aspiration, in the past.
Fantastic response that was again. And -- so Campus is a very, very strong brand. Campus has a very strong quality of association -- and you have -- you've got a good thing going, and it will require a lot of mistakes to basically spoil the show. So I really hope that wouldn't happen and all the very best.
Thank you so much.
Next question is from the line of Ankit Kedia from PhillipCapital.
Sir, just wanted to know, historically, always alluded that the online margins are higher than the trade margins. Now given the shift in the channel where O2O pretty much doesn't exist, do you still vouch that the online margins will be higher, given that you need to spend more on the performance marketing, as not much as in the current quarter, but still the performance marketing spends will still exist going forward. So now the margins would normalize on online business as well?
Okay. Thanks for the question. This is Sanjay. I just wanted to add like it would be -- it is a dynamic setup, and it will continue to evolve. The way the O2O and B2B businesses came from nowhere in the last 2 years and then now suddenly, they have tapered down. Likewise, I mean, we might have to -- just to propel the demand at one point in time, we might have to sort of invest disproportionately in performance marketing, but that does not become the benchmark. We are not just skewed towards 1 channel. We are also -- we did spend in the media and TV and print ads to create a larger set of awareness. Simultaneously, from a go-to-market perspective, we are sort of consciously working and driving our reach to the more unique retail outlets. And our active retail accounts are increasing, I mean, over the last 6 months, they have increased. So the -- it will be a broad-based approach and eventually the margins would converge and there would be -- there would not be a major delta, either on the positive or the negative side between all the channels.
So last 2 years, the margins which we enjoyed in online are behind us, and now the margin shift converged to around 18% to 19% -- that's what I would gather from your statement.
Depends, if the marketplace saliency continues to be on the highest side.
Sure. And just on the online part, what is the -- what was the mix, if you have to take last full year, in terms of O2O, B2B marketplace and own website. And today, 9 months scenario, what is this mix now, so it will help us understand these dynamics better.
Yes. If you see our full year annual report, so the online was roughly 38% of the mix. And as I said that different channels within the online space, in the B2B, would be anywhere in the range of 10% to 20%. So it's a mixed bag. I mean, I wouldn't be able to quote a particular number because there are multiple partners.
Sure. Historically, we have made -- given the sense there are only 4 channels in online which you had, probably I'll take it offline with the IR team.
[Operator Instructions] We have our next follow-up question from the line of Jasmine Surana from VT Capital.
I have just one last question on the volume front. You have given the sales split between the different price segments on the revenue. It would be very helpful if you could also provide us on the volume trend, how much is the premium, semi premium and entry level?
Can you drop us a mail, we can revert back to you on this, please.
Sure, no problem.
We don't have the numbers handy just now.
No problem. No problem. I can get back with the IR team.
Next question is from the line of Aditya Gupta from Tara Capital Partners.
Three questions. First, back on the margins again. Finding it a little difficult to understand, I know you mentioned to an earlier question, the gross margin movement -- and this is, again, going by the reported numbers, which is down 300 basis points quarter-on-quarter. If I look at your sales mix across channels. That's pretty much remained same at 53%, 37%, 10% for this quarter versus 2Q FY '24. I'm assuming this will not be the nature of movement in the commodity costs or your raw material costs in the last 3 months. So what clearly -- I mean, what explains this 300 basis point decline in gross margin on a Q-o-Q basis?
Again, let me just correct here. You're talking about material, not the gross margin and gross margin front...
I am going by gross margin, sir, the way it is reported on the exchanges.
Yes. So that's driven by the channel mix and the phasing of consumption. So whatever materials we have procured in last quarter gets consumed in this quarter and so on. So there is a cycle, right? So despite the -- sort of improvement in our procurement prices versus last year, there will be a bit of inventory impact. There will be a bit of channel mix impact, as to which channel we are selling what, at what price point we are selling. So all things put together is getting reflected in the margins.
The channel mix, unless I'm wrong, it's pretty much same, right? It was 53% for trade in 2Q -- I mean, 53, 37, 10 almost for the 2Q, '24 and 3Q '24. So then either your realization per pair is lower because you've given some discounts to your channel partners? Or there is a significant movement in the commodities, which were sitting on your book got consumed this time? And then what happens next quarter?
Yes. So if you can see, of course, there would be an absorption impact if we are looking overall from the margin front. So this quarter, we sold more versus what we produced and our fixed costs remaining same. So there will be a bit of absorption impact as well. And the channel mix, what I was referring to is the higher sale in the marketplace. So there, while we get a better realization, there are associated costs, direct costs, which means freight outward cost, which would influence your margins.
Okay. Okay. Second is on the flow through from the gross to the EBITDA. Now 3Q, '24 and 3Q '23, the volume is pretty much the same, but the other expenses are up by about INR 48 crores. You said the marketing spends were up from 6% to 10%. That's about INR 20 crores. We still have a INR 25 crores, INR 28 crores increase in other expenses when the volumes are flat. So what explains, which variable component went up by a significant amount, if you could please answer?
Okay. I did answer this question at the very beginning, like there are -- in the SG&A space, there would be routine inflation on an average of around 8% to 10%. Apart from that, we had certain accounting impact, roughly INR 2-odd crores related to lease accounting, which is now sitting in SG&A, which was earlier sitting in the depreciation and interest costs, we have a phasing impact of CSR spend, which we spent in Q3 versus last year Q4 and we have a bit of one-offs related to inventory obsolescence provisions and the expected credit loss provision on our receivables. So its by and large accounting apart from the inflation, phasing, et cetera.
And employee cost also has increased as per the expectations in terms -- in line with the 10% increment and so on. So it's also expected to grow.
No, employee cost is fine. I mean that's understandable as we've been in that ballpark, 5%, 6% range in the last 7, 8 quarters, except the seasonality. So that's not -- it's the other expenses, 20%. I mean, the other expenses are up by 42% year-on-year, which is what really standing out besides the marketing spend also. And then -- on the last question, Nikhil, in terms of the build back towards higher EBITDA margins, right, the last time you did 20%, 21% EBITDA margins, your gross margins. And again, I'm going by the reported numbers were at 49% to 50% -- 49% to be precise. Now 10 quarters from now, we are sitting on a gross margin of let's say, 51% to 53% in the last 3 quarters. So -- but the EBITDA is down due to cost inflation due to lack of leverage, et cetera. But -- how do you see this going back -- I mean, with higher gross, do you think the EBITDA on a normalized basis should go back to what we used to do earlier? Or do you think there is some change, there is more competition, there will be more investment and the EBITDA is probably not going to go back to that 21%, 22%?
No. Like I said, our aspiration is definitely to go back to the previous EBITDA ranges. So there definitely, this year, has been a year of transition again and a tough year in that sense from a demand outlook perspective for the entire industry. Therefore -- but we have taken in terms -- in spirit of transition, we have taken some one-offs like Sanjay just mentioned in terms of smaller amounts, but both inventory and receivables provisioning as well. So the objective for us is that by the end of this year, we should be fully transitioned and ready to go from FY '25 onwards. So that's the spirit with which we are taking this year, right? And I hope our long-term investor partners will realize [indiscernible] with us.
Last question. If I just do a simple math on trying to get to revenue per EBO, right? -- there also we have seen -- because a lot of these are new EBOs and they typically ramp up in a year after opening. There also we are seeing, let's say, for -- and I'm just doing an average over here, we are seeing a decline of mid-single digits, let's say, on a revenue per average in EBO in the last 3 quarters. So is this just market weakness or is it a function of the newer stores not coming in at a much higher -- a much lower starting point or is it a function of stores not ramping up? What is happening over here?
Like you said, it's a combination of actually all the 3 factors. There has been -- so the demand in the market immediately reflects in our EBO channel, it's a light deflection every day. And there, we have seen that it's trending in line with how the market is responding. So even for the new stores that we're opening, we have seen it being reflected by the actual demand in the market, which is a little bit muted at the moment. So that impact definitely is there in terms of -- in terms of store -- new stores' growth that you're seeing, but we still remain committed because it significantly helped us -- the stores as of today stand at 250 as of December end, and it has really, really helped Campus premiumize and build the overall brand perception to -- and upgrade the imagery of the brand, right? So it acts as a virtual showroom where it's also helped us increase our salience in the distribution market. in the key territories. So overall, as a strategy, it's worked really well for the brand, and we will continue to maintain and open the same run rate of stores that we've been maintaining for the last 3 years.
So that's about 100 a year is it? Is that a number to go with?
Roughly, yes, approximately.
100 a year, including the franchisee owned ones.
Right.
Yes, I'm just going by all the EBOs.
Yes. That's right.
Next question is from the line of Rajiv Bharati from DAM Capital.
Yes. One small bit. If you can specify what is the quantum of the inventory provision and the provision for the receivable bit for the current quarter?
Okay. Inventory would be close to around INR 400-odd crores, which includes our raw material inventory.
Talking about the provision for quarter.
Sorry, provisions. Provisions would be around INR 7 crores, both put together.
Great. And what is -- I mean, in the previous quarter also, was there any -- in the base quarter of Q3 of '23?
Yes, of course, there would be around INR 2 crores, INR 2.5 crores. I mean it's clearly aging base provision. So again, as I said, accounting shift between different age buckets resulting into a higher provision percentage.
Yes. But I'd just like to add that as the company, we have taken very proactive measures to consume and sell off this aged inventory. Therefore, that is also being reflected in our overall inventory days coming down significantly in quarter 3, right? So we will continue to maintain that momentum. And like I said, for this year, the objective is, again, to basically set the reset button from the 1st of April.
So by Q4 end, you will be done or there is more required?
Majorly, yes, I can put it that way.
Ladies and gentlemen, that was the last question for today's call. On behalf of Campus Activewear Limited, that concludes this conference. Thank you for joining us. And in case of any further queries, please reach out to Campus Activewear's Investor Relations team at ird@campusshoes.com. You may now disconnect your lines.