Campus Activewear Ltd

NSE:CAMPUS

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Campus Activewear Limited's Q4 FY '23 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 achievement to differ significantly from what is expressed or implied by such forward-looking statements.

The Campus Activewear's management team is represented by Mr. Nikhil Aggarwal, Whole-time Director and CEO; Mr. Raman Chawla, CFO; and Mr. Piyush Singh, Chief Operating Officer; Mr. Krishna Kumar, AVP, Investor Relations.

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.

[Nikhil Aggarwal, executive]

Thank you very much, and welcome, everyone, for joining our fourth quarter of FY '23 Earnings Call today. FY '23 has been a pivotal year in our journey to realize our vision to create India's leading sports and athleisure footwear brand.

Delighted to share that our annual performance has been broadly in line with our growth expectations despite the inflationary macro environment and demand contraction that we have witnessed in the rural and semi-urban areas. Both our businesses, that is trade distribution and D2C are shaping up well with the trade distribution crossing INR 800 crore milestone and D2C surpassing INR 650 crores milestone during this fiscal year, while delivering an aggregate growth of 24% overall during the year.

During FY '23, we sold more than 23.5 million pairs at an aggregate level, thereby clocking a net income of more than INR 1,484 crores and a year-on-year growth of 24% versus FY '22, which was INR 1,194 crores. Both trade distribution and direct-to-consumer channels have delivered a profitable growth of 10% and 48%, respectively, versus FY '22.

With an annual sale of 23.5 million pairs in FY '23, we registered a year-on-year volumetric growth of 22% in comparison to FY '22, not only volume, ASP has also grown by 2% from INR 620 to INR 631 in FY '23. Despite witnessing a K-shaped recovery curve post COVID, where in Tier 2, 3, 4 and semi-urban and rural demand centers witnessed a down trading phenomenon. These centers normally contributed 68% of our FY '23 sales.

Balance sheet demonstrates the position of strength with robust return ratios such as ROCE and ROE of 23% and 24%, respectively. We are sincerely thankful to our end consumers, our channel partners, all our investors and stakeholders and our passionate team, which has helped us in delivering this performance, which earmarks the underlying strength and resilience of the brand.

As always, we thank you for your invaluable support and investment. I would also like to put on record the -- our outgoing CFO, Mr. Raman Chawla's, last day in the office would be as of 31st May, and our new -- and we would like to take on record his contribution to the company over the last several years. We thank you, Raman. And we are noting the incoming CFO, Mr. Sanjay Chawla to join us from the 1st of June.

Also, there has been another elevation in terms of Mr. Piyush Singh. He has been elevated from the role of the Chief Strategy Officer and Investor Relations head to a Chief Operating Officer and Investor Relations head as of immediate effect. And with this new role, he will be now responsible and looking -- and handling basically all the sales channels, including the trade distribution and not only D2C and finally, the P&L linked to all the sales channels. So we're looking forward to leading a very good growth from here on with these new roles coming in.

Thank you, and I hand over to Piyush for his remarks.

[Piyush Singh, executive]

Thank you, Nikhil and greetings to everyone. Adding on to what Nikhil just said, while sales growth and market share enhancement is of prime focus, our endeavor is to ensure margin protection above a certain threshold, which has been the essence of quarter 4 FY '23. In quarter 4 FY '23, our D2C business has demonstrated robust growth of more than 15% and our trade distribution business also is on certain path to recovery with the year-on-year degrowth narrowing down to almost 10% for this quarter for FY '22, which was on account of a higher base driven by pent-up demand and delayed macroeconomic recovery in non-metros.

In quarter 4, while being cognizant of market dynamics, we tried offsetting input cost inflation and transit increase in the rig cost with sales mix and premiumization. Our endeavor is to neutralize this downward impact with potential price increase, conversion cost optimization and enhanced operating leverage in our coming quarters. At the same time, we continued our planned investments towards brand building, D2C network and infrastructure expansion and talent acquisition, which is the key to our growth in the coming quarters, all of which is expected to generate margin accretive impact in the subsequent quarters.

In all our distribution channels, category cohorts and pricing segments, we have demonstrated robust growth both in terms of volume and value, despite sluggish macroeconomic recovery impacted by supply chain disruption and inflationary trends. Basis price segment, our sales trend in quarter 4 FY '23 has exhibited sustained premiumization vis-a-vis FY '22 full year, wherein sales contribution from semi-premium and premium categories, have increased from 64% in FY '22 full year to 70% in quarter 4 FY '23.

Similarly, on a category basis, revenue mix across men and women and kids and child have improved from 84% in favor of men and 16% in favor of the rest in FY '22 to 80%, 20% in FY '23, respectively. On a full year basis, revenue from operations increased almost 24%, 25% year-on-year to INR 1,484 crores in FY '23 as compared to FY '22 full year, revenue of finance INR 1,194 crores. While material margin in FY '23 stood at INR 730 crores at almost 49.5% vis-a-vis FY '22 material margin, at INR 590 crores, which was almost -- which was also at 49.5% compared to our net sales.

FY '23 EBITDA stood at almost INR 256 crores as compared to FY '22 full year EBITDA at INR 244 crores. FY '23 EBITDA margin stood at 17.3% versus 20% in FY '22. Margin compression in EBITDA is largely on account of sustained investments towards human capital, brand building and retail network expansion, which are expected to generate positive operating leverage in the coming quarters.

Now net profit during FY '23 full year stood at INR 117 crores with a margin of almost 8% as against PAT of INR 108 crores in FY '22 with a PAT margin of 9%. We continue to maintain a close watch on our input cost and are confident of restoring our trend line growth trajectory and margin profile in the coming quarters.

I will now hand over to our CFO, Mr. Raman Chawla, to take you through more details on the quarter 4 and FY '23 performance, especially on the balance sheet side.

[Raman Chawla, executive]

Thank you so much, Piyush. Good afternoon, everyone, and welcome to quarter 4 FY '23 Earnings Call of Campus Activewear Limited. During the quarter under review, Campus as a brand focused on preserving bottom line profitability while ensuring requisite investments in future capacity and brand building, essential for sustained growth and margin expansion.

Revenue from operations stood at INR 348 crores in quarter 4 FY '23 versus INR 352 crores in quarter 4 FY '22. Our net profit for the quarter stood at INR 23 crores as compared to INR 23 crores in quarter 4 FY '22.

On the balance sheet side, our net debt, excluding the lease liabilities, has come down from INR 174 crores at FY '22 end to INR 157 crores as of March 31, '23. Our net debt-to-EBITDA ratio has marginally come down from 0.7x in FY '22 to 0.6x in FY '23 end. Our working capital days have gone up marginally from 98 days in FY '22 end to 134 days in FY '23 end on account of the front-loading of inventory while awaiting clarity over the BIS inventory norms expected to come in effect from 1st of July 23 to ensure the season readiness.

That said, despite a very challenging macroeconomic -- macro environment, our receivable days have stayed constant at 39 days of the sales outstanding throughout the year, exhibiting sales and channel discipline. Similarly, we maintain a very robust ROCE at 24% and return on equity at 23% as of FY '23 end.

With this, let me conclude and hand it over to the operator for questions and answers.

[Operator]

Thank you very much, sir. [Operator Instructions]. The first question is from the line of Chirag Shah from CLSA.

[Chirag Shah, analyst]

Congrats Piyush for the elevation. Hi Raman as well. So my question is on the channel contribution in the last 4 years, Nikhil, we have also gone through a transformative change, right? How do you see this shaping in the future? How do you -- how should we think about the channel contribution? Of course, the share of online has gone up very sharply. And will this be even more prominent channel going forward? And how does the EBO channel also move?

Second, Raman, I think on inventory and working capital, if you can just throw a little bit of light around what are the measures that we are taking to improve the overall working capital cycle?

And then Nikhil, if you can just also spend some time on Slide 26, which is basically the prime vectors going forward in terms of growth and just explain that a little bit in more detail, please?

[Nikhil Aggarwal, executive]

Chirag, thanks for your questions. So in terms of the channel splits, while D2C has done extremely well, and both the online and EBO channels have grown consistently at a CAGR of more than 150% over the last few years, we believe that distribution is evolving in India quite rapidly given how the Udaan and Ajio's of the world and the O2O platforms have also shaped up.

But going forward, we believe that -- this is one of the reasons why Piyush also has been elevated, and we wanted to bring in all the sales channels under one group in that sense. And this should bring in a lot of efficiency into the system eventually is what we are targeting.

So we are looking at a good growth in terms of distribution as well in terms of catching up on the distribution side, especially from our Western and -- South and West markets, which have traditionally -- which has done really well over the last 2 to 3 years.

The North and East markets, which are a core market, they have suffered slightly, especially in distribution on account of lower demand and macroeconomic environment. But we believe that to be a short-term pain. So going forward, I see that the split should somewhat sort of stabilize at 50-50, eventually over -- for both the channels, be it distribution and D2C.

Any follow-up questions, please?

[Raman Chawla, executive]

Yes. Chirag, you asked a question on the inventory and the working capital. So essentially, as I mentioned in my opening comment, our current working capital is at about 138 days. And essentially, the 2 big elements. Number 1 is all around the DSO, which is we've maintained it despite a very soft macro or a soft macroeconomic environment. And as far as the inventories are concerned, essentially, there are 2 aspects to it. We generally build up our inventory during the first quarter and the second quarter really for the season readiness. And also, there is a big change, which is also likely to come, which is on the BIS and we are holding inventory also a little bit because of that.

On a full year basis, while we do not give any guidance all around these numbers, but working capital continues to be an important area in terms of efficiency and a priority point of view.

[Chirag Shah, analyst]

So Raman, as channel mix shifts, how will that impact our working capital cycle going forward?

[Raman Chawla, executive]

Nothing really drastically that much. Although for the D2C channel, there is a bit of a higher inventory requirement because we deal in pairs versus, let's say, in our traditional distribution where we deal in cartons. But on an overall basis, I think it doesn't affect too much there.

[Piyush Singh, executive]

Chirag, Piyush this side. Just adding to what Raman just mentioned, adding more flavor to the components of working capital. While Raman has covered the inventory piece, as B2C grows or accentuates further, our receivable days, we don't see any detrimental impact on those because the marketplace income kind of offsets any outright business that we are running. And similarly, our COCO model on the EBO side offsets anything on the franchisee side, because we are looking at a balanced rollout across both B2C online and offline.

So we expect the same kind of channel discipline to be maintained across all our formats, be it trade distribution, be it our D2C online or D2C offline or key account verticals with DSO days trending or receivable days trending at closer to 35 -- anywhere between 35 to 45 days as we have seen over the quarters.

Inventory, certainly, the position would improve from here on. We have taken a cautious view because BIS comes into effect on 1st of July, anything which is manufactured on 30th of June or prior to that is exempted from the regulation. And as we see more clarity on the norms, which needs to be followed for us attaining the testing parameters or the testing requirement for BIS. It's only prudent for us to have the requisite inventory covered in place in order to avoid any demand-side shocks coming our way. So that's -- we believe that's a prudent move to have a transient buildup in place.

So as far as payables are concerned, payables are very much in line. It stays in the territory of 90 to 95-odd days, so far as all our vendors are concerned. So I mean, net aggregate, we expect working capital cycle to be closer to 90-odd days and improving from there on. Eventual expectation is to bring it down to, say, 80 to 75 days in the medium term.

[Chirag Shah, analyst]

And Nikhil prime growth vector -- sorry.

[Piyush Singh, executive]

Yes. So on the growth vectors, I'll take that up first one. There are quite a few things that we currently have in the pipeline given the current macroeconomic scenario. One, given the K shape kind of recovery that we have seen, where in metros in Tier 1s have seen premiumization of the portfolio, while Tier 2, Tier 3 and from there on semi-urban and rural have seen some kind of down trading. We believe that we need to address the portfolio gap that is currently there in our portfolio in terms of affordable price points -- on the triple-digit price point starting from INR 699 to INR 999. Very soon you'll see a portfolio filler coming in from our side offering similar quality standards, but as a sub-brand within Campus. That is very much necessary for us to address this market and this kind of scenario.

Second is the extension of the product portfolio, which you have seen over the last couple of quarters in terms of the launch of our casual range. The pilot has been satisfactorily successful for us, and we believe in expanding the portfolio further because we believe that this will add a meaningful chunk to our overall addressable market from here on. And this is the casual range that we have spoken about.

On top of it, we are also building a layer of [Technical Difficulty]

[Operator]

Ladies and gentlemen, we have lost the management's connectivity. Please stay connected while I try to reconnect them. Ladies and gentlemen, the line for the management has been connected. Over to you, sir.

[Piyush Singh, executive]

Chirag, Piyush again this side. I will just quickly summarize. We have concrete action plan across pricing, product, channel and markets. Now we have already covered the pricing piece wherein we'll be in -- where we'll be very soon introducing challenges up brand in order to address the lower-end price points, the triple-digit price point from INR 699 to INR 999.

From a product portfolio expansion perspective, while kids and ladies have been a key focus area for us, it is a low-hanging fruit. On top of it, we will accentuate our casual range and our -- and on the peripheral, we will also expand the premium open footwear collection from here on in order to address any product portfolio gaps.

From a channel standpoint, we are looking at holistically transforming our core markets where we have witnessed some degrowth during this K-shape recovery especially states of Utter Pradesh and Bihar. We'll be doing a deep dive RCA in these states from a trade distribution standpoint and we'll be transforming trade distribution from here on.

And from a market perspective, while India stays as a core focus for us, we have started looking for similar opportunities across some markets on a very -- I mean, on a very selective basis, so to say, in terms of exports as an opportunity in order to dehedge any macro shocks that may come our way in the coming quarters. So we'll be giving you more color around this in the subsequent quarters, while we gain meaningful traction across both markets and channel perspective of our overall strategy.

[Operator]

The next question is from the line of Aliasgar Shakir from Motilal Oswal.

[Aliasgar Shakir, analyst]

I hope I'm audible. I'm actually [indiscernible]

[Operator]

Mr. Shakir, I would request you to kindly use your handset.

[Aliasgar Shakir, analyst]

Okay. Is this better now?

[Operator]

Yes, sir, please proceed.

[Aliasgar Shakir, analyst]

Okay. So question is on -- first of all, on your distribution network. So 2 years before the -- I mean, around the IPO, we had started appointing small distributors and we had mentioned that the revenue per distributor, therefore, had come down. Now the strategy seems fair on the part of the company, as you know, this would reduce the dependence on per distributor, but last few quarters, there has been pain in this segment. So do you reckon this strategy in some way needs to be revisited? And I mean I'm also asking from the point of view that this segment of revenue has seen lower growth. So do you read something related to the strategy? Or is more on the industry factors, which has led to this impact?

[Nikhil Aggarwal, executive]

Ali, Nikhil here. No. So this is exactly the strategy that you laid out, and this is how we started with about 2, 3 years back. But overall, the strategy has generally done quite well, as you will appreciate that even in distribution in the West and the South market, we have seen growth. It's only the North market, especially the states of UP and Bihar where we've kind of seen a kind of degrowth and that is entirely due to the macro that is not to do with the kind of distribution setup that we have there.

Rather on the flip side, the number of distributors that we have increased, while they may be smaller in size for now, but we do see a lot of potential in growing them very fast and that is the strategy because we are able to now capture a larger number of retailer footprint over pan-India basis versus a bigger distributor in a bigger city, let's say, that would cover. So I hope that answers your question.

[Aliasgar Shakir, analyst]

Got it. This is very useful. Second question is just on the outlook and your commentary and what strategy we are adopting. So you mentioned that some northern parts of the country are seeing more accentuated impact. Can you just, I mean, kind of zoom in and tell us what really are the factors that is leading into this? Is it any specific category of customers that are seeing more impact industry-wide? And what do you see as a lever for this recovery? Do you see this raw material price cooling off, maybe to some extent passing off these prices to the customer will help. Just if you can share what are your thoughts on the current situation on the ground in April, May and beyond? And what is the strategy we're adopting to revive growth there?

[Nikhil Aggarwal, executive]

Sure, Ali. So we believe these are the same factors what we are going through and witnessing in the market is being witnessed by the other FMCG players in the industry and the other footwear players also. It's basically the -- we believe the discretionary spend of our TG has sort of come down because of the higher interest rates and the inflation that they are coping up with and this has been true for majority of the FMCG companies.

While there has been a buildup in anomaly on the premium segment because they have not faced that kind of impact on inflation and they are being -- they are basically spending, but we have seen a significant impact in the TG where they're highly dependent on their monthly income. Right? So that's the kind of impact we've seen. Piyush, you may want to add something.

[Piyush Singh, executive]

Yes. Just to -- Hi Ali. Just to add to it, from a strategy standpoint and from an actionable standpoint, while we have seen Campus premiumizing over the years, we have also witnessed that during this macro environment -- inflationary macro environment, especially in Tier 2, Tier 3 and semi-urban centers, people have started down trading a bit while that part of the portfolio was no longer adequately serviced under Campus. We are not intending to bring down Campus price points, but we are trying to introduce or we'll be very soon introducing a newer sub-brand under the umbrella of Campus in order to address those price points so that there is adequate coverage across the entire pricing spectrum or the ladder, which continues to serve these markets also.

We believe by doing so and by extending the umbrella of Campus, we'll be able to capture this growth, which has so far eluded us on account of down trading while we will continue on our focus agenda of premiumizing under the flagship brand.

[Aliasgar Shakir, analyst]

Got it. Understood. This is very useful. Just last question is on this new quality and to a standard, which is being implemented from July. I mean how do you see that impacting us? Should you see any near-term impact because of that? And maybe in the long term because this market is very unorganized and especially in some of the northern region, where market is very unorganized, do you see long term any benefit structurally for yourself?

[Nikhil Aggarwal, executive]

Yes, absolutely, Ali, we see a lot of the organized players in the industry benefiting from this move. And we actually appreciate this move by the government, because this will deter and definitely impact the lower quality goods being imported from other countries and that is a very positive sign for the domestic industry in India.

But at the same time, there is still some clarity yet to be received from the government, which we believe should be coming any time now that will throw more color on the specific requirements in terms of testing procedures. But as Campus, we believe that we are adequately covered because we anyways operate on very high-quality standards. So we are very much covered in the BIS standards immediately, I believe, from day 1 of implementation.

But just to be safe, we have also built up a cover in terms of inventory in case there is some BIS standard that we might need to cover in -- after the implementation.

[Aliasgar Shakir, analyst]

So any risk of revenue disruption because of this in July or maybe inventory going up?

[Piyush Singh, executive]

Too early to comment on while there could be certain teething issues. By keeping this very factor in mind, we have built up the inventory cover to a satisfactory level that while we deal with any curveball that might come with introduction of a newer standard within the overall BIS protocol. We want to ensure that there is minimal or no revenue disruption or any demand side shock that could come our way.

[Aliasgar Shakir, analyst]

Got it. That's very helpful. Once again, congratulations Piyush for your elevation and wish you all the best, Raman, for your new endeavors.

[Operator]

The next question is from the line of Harsh Shah from InCred Capital.

[Harsh Yogesh Shah, analyst]

First of all, congratulations Piyush on being elevated as the Chief Operating Officer. My first question is that we spoke about investing behind human capital. And the press release also suggest that we have -- our current ESOP policy has been terminated. So was this more planned or abrupt? And do we have any other ESOP policy in place? Or are we in the process of constituting a new one?

[Nikhil Aggarwal, executive]

So -- Hi Harsh, Nikhil here. So we have terminated the old -- the first policy that was actually launched after TPG came in, this is ESOP 2018 policy. And this was -- this is the one that has been closed now because it's been fully vested, and since a long time, we have not had any comments on this policy from any of the stakeholders. So this is the one that we closed.

Currently, we are still running 3 ESOP policies. One is ESOP 2021 plan. And the other 2 is 1 is ESOP vision pool and the ESOP special grant. So we have 3 current policies that are going on for all our top-performing employees.

[Harsh Yogesh Shah, analyst]

Got it. And secondly, because of this letting up of distributors and even what we gather how much [indiscernible] is that we have disallowed our distributors to sell footwear of other brands, even though there are different categories, correct me if I'm wrong here. So has that resulted in distributor attrition, which is higher than normal by any chance?

[Nikhil Aggarwal, executive]

Not really.

[Harsh Yogesh Shah, analyst]

If we look at FY '23 and FY '22, it is the same at 425?

[Nikhil Aggarwal, executive]

Yes. So our idea is not to now continue to increase the number of distributors. We're also consolidating the number of retail touch points that each of these distributed service. So our idea now is to increase the wallet share and the sales at each and every touch point rather than increasing the distributor on an ad-hoc basis in each and every territory because now we have a sufficient base of 425 to 430 distributors, which is a very decent base to get us good growth over the next 1 or 2 years.

[Harsh Yogesh Shah, analyst]

Okay. And this addition of retail outlets, will that be predominantly in West and South or even do we even see some scope of adding outlets in core markets of North and East?

[Piyush Singh, executive]

Hi Harsh, Piyush this side. Predominantly, the addition of outlets will be more across Central India, West India and Southern India markets because these territories are the ones which we have recently navigated. Now on your previous question, adding on to what Nikhil just said, idea is to help the distributors understand and appreciate the kind of return on investment opportunity that they have with a brand like Campus.

So it's worthwhile for us to educate them and help them appreciate the fact that they can make a very robust ROIs on their investments with this brand with the kind of brand pool that we come out across our core and emerging markets. And while there is no such hard and fast restriction on them to keep other brands from other categories, it's only prudent for them to understand and appreciate the opportunity and deploy more and more of their capital towards something which is more accretive -- more ROI accretive than anything else. It's more of an education process rather than a strict binding condition on them.

[Harsh Yogesh Shah, analyst]

I still think binding, I think basically, let's say, if a distributor wants to sell, let's say, chappals of VKC, Lakhani they can, basically because it's not a competing category with us.

[Piyush Singh, executive]

They can very much do that, they are free to do so. While our endeavor is always to educate them and help them understand that in a sports shoe category, they can earn far better ROIs compared to any of the other open footwear categories.

[Harsh Yogesh Shah, analyst]

Got it. Got it. And Piyush, in our IPO prospectus, we had disclosed the geographical salience of trade, right? So what would be that salience for, let's say, specifically for MBO and e-commerce now between, let's say, West, North, South and East for FY '23?

[Piyush Singh, executive]

First of all, I'd like to address this on an aggregate level and then maybe we can spend more time on the specific channels. At an aggregate level, we have started mimicking the share of the overall industry on a pan-India level. Our revenue contribution from North and Central India is close to 55%. South India contributes 10%, West contributes around 20% and East contributes 15%.

Now from an e-commerce standpoint, this mix is more holistic in nature in terms of pan-India contribution wherein North and Central contributes roughly 40% for us and remaining 3 territories contribute 20% a piece. And our trade distribution network has more or less a similar kind of footprint as the overall industry or our aggregate numbers.

[Harsh Yogesh Shah, analyst]

Okay. Got it. And just last question. On this challenger brand, which we are planning to launch, right, by when do we expect the launch firstly?

[Piyush Singh, executive]

In -- I mean, optimistically, in the coming quarter, we'll be -- in the coming quarter, we'll be doing a small pilot across some of the selected territories, and then we'll be -- during the festive season, we are planning to go more broad-based across -- on a pan-India level depending on the outcome that we get during the pilot phase.

[Harsh Yogesh Shah, analyst]

Okay. And will this be more targeted only towards distribution channel? Or will it -- will the salience be like across both e-commerce and distribution?

[Piyush Singh, executive]

So see, anything that we do at a company level is meant for all the channels. It's not channel selective or channel agnostic in any sense. It's more based on -- it's more targeted towards specific cohorts, specific markets towards addressing a gap that we see in our current portfolio. So I mean, customer these days is channel-agnostic, and hence, our offerings would also be more omnichannel in that aspect.

[Harsh Yogesh Shah, analyst]

Okay. Got it. And what -- let's say, on a long-term sustainable basis, would this -- the brand which we are launching. Would the margins be more or less similar to our overall margins? Or will it be a little bit dilutive on gross and EBITDA level?

[Piyush Singh, executive]

I mean that's always the endeavor, but too early to comment. We -- that's why we are conducting a pilot first. We don't want to do anything which is margin dilutive in nature while offering the best quality and the best product to our end consumer.

[Operator]

The next question is from the line of Bharat Gianani from Moneycontrol Pro.

[Bharat Gianani, analyst]

Just to understand more on the volume front in quarter 4, we are seeing the volumes to be a flattish kind of -- and that's a bit of a deceleration from the quarter 3 levels. So I just wanted to understand, like, have you lost any market share in the sports and the athleisure category since you earlier in your conference call highlighted that you have seen consumers down trading. So just wanted to check weather in the overall industry, have you lost market share?

[Nikhil Aggarwal, executive]

Hi Bharat, Nikhil here. So on the contrary, actually, we might have just grown our market share slightly because this macro environment has been specifically tough for the entire footwear industry. This has also been validated by the Bahadurgarh Footwear Association when they released an article wherein they've mentioned that in the first 9 months or the 10 months of FY '23, they've lost about INR 2,500 crores of sales on a base of INR 20,000 crores this year. So there's actually been a degrowth in that sense, especially in the unorganized segment. And in that sense, we've grown at 24%. So we've, I think, demonstrated very, very robust performance given the macro environment.

[Piyush Singh, executive]

Directionally, Bharat, we have certainly gained market share given we have grown by almost 24%, 25%. Looking at the commentary on a broad-based basis, we understand that the industry has either stayed mute or have slightly de-grown during 2 or 3 quarters of the previous financial year, which gives us a lot of confidence that directionally, we have built upon our existing market share.

[Bharat Gianani, analyst]

Okay. But my question was specific to the second half actually, so I guess you have kind of not lost actually. And another question is on the -- any guidance on the margin because we have seen margins coming off in this fiscal and specifically in quarter 4, so what would be your long-term guidance on the margin given that you have -- you are introducing some brand within Campus at a lower price point. So overall, any direction on the margin profile will be helpful.

[Piyush Singh, executive]

So Bharat, our material margins have largely stayed closer to 50%. They have trended in the direction of -- in the ballpark of 49% to 51% over the last many years. We expect material margins to stay the same. Beyond material margins, there is a conversion charge that happens, which leads to the gross margin profile of anywhere between 36%, 37% to 36% to 38% for us. Any increase in minimum wages, any increase in contractor charges gets transmitted with a lag but directionally, we have always stayed in this ballpark.

Beyond that, we expect our operating leverage to kick in as we gain more and more scale. And while our EBITDA margin is currently closer to 18%, we have normally trended anywhere between 18% to 20% in the near-medium term. We expect this recovery to happen in the near-medium term as price transmission happens over the coming quarters. And while we -- I mean we don't want to give you any hard guidance around this, but our expectation is to stay closer to this territory which we have navigated over the last 5, 7 years.

[Operator]

[Operator Instructions] The next question is from the line of Rahul from LionRock Capital.

[Unknown Analyst]

Can you hear me?

[Operator]

Yes, sir, please proceed.

[Unknown Analyst]

So a couple of questions. One is, in 3Q, you guys mentioned the direct to -- D2C volumes were up, I think, 45% or 46% and if I hear it correctly, you mentioned that this was up 15-ish percent in 4Q. So I just wanted to understand how should we read into this?

And secondly, I just wanted to understand a little bit better in terms of your growth outlook specifically over the next 12 months, as Piyush would be taking over all the channels, he will be rationalizing your trade distribution. So historically, you have always talked about growing volumes that on the overall company as mid-to-high teens. Do you see the macro as well as all the internal work you are doing supportive of that? Or you think fiscal '24 would be more of kind of a restructuring kind of a year and where you'll be working to set up the growth, set up the company for growth in the future years.

[Nikhil Aggarwal, executive]

Hi Rahul, I'll take up your second question first. So with Piyush coming in, the idea is that we wanted to bring in a lot of efficiency in terms of -- also in the inventory levels because now we will have a central pool of inventory rather than having it channel-wise, so one is that. Second would be that there would be a lot of efficiency in terms of central planning again through -- under one roof rather than having it channel wise. So there are a number of buckets that we see this move will significantly -- should impact the performance of the company going forward.

There could be some -- a quarter or two of handholding time. But beyond that, we should see some improvements coming in. And on the growth side, historically, we've performed at almost a 25% CAGR over the last 5 years. So -- and this year also, we have done 24% in an exceptionally tough environment. So we believe that we have sustained very good growth. Yes, we have done that on the basis of letting go a little bit of margins because of higher marketing expenses and some of the conversion costs that have gone up due to the increased labor expenses that we could not pass on to the end consumers this year.

But going forward, as soon as the macros get better, we are expecting to see some resurgence in the second half of this year. And from there on, we should be back on track with the growth and the margins immediately. Piyush, you may want to add something.

[Piyush Singh, executive]

Hi Rahul, I mean just filling in for the first half of your question around -- I believe that was more around D2C growth tapering down from 14% plus to almost 15% in the quarter 4. I can assure you that's more transient in nature. We have seen -- we are seeing a very good first quarter so far as D2C is concerned, and we will witness that change in trajectory in the coming quarter financials. That was -- I mean, it was done more on -- towards some consolidation that we had done on the D2C side, but nothing to flag out.

[Unknown Analyst]

So you would still expect the growth?

[Piyush Singh, executive]

We still expect a robust growth profile in our D2C segment and the resurgence in our trade distribution also with the improvement in macro. Our view is second half of this current fiscal year should be the pivotal time for this macro environment to improve.

[Operator]

The next question is from the line of Akshen Thakkar from Fidelity.

[Unknown Analyst]

Just a couple of questions. One around the BIS implementation. What do you think is the driving factor behind this? Is this just regular sort of government intervention to ensure quality? Or is there -- like we saw in toys, something similar happened where there was impact on imports? And if that were to play out, which is broadly we don't import directly, but we do import parts of the shoes. Just generally, what your thought is on how you are placed competitively? Would there be a -- like in toys, for example, particularly we saw large disruption. I don't know if that's something that you think could happen in this industry. That was question one.

And then question 2 was, I think Piyush you mentioned that you're looking at trade distribution changes in North, particularly in UP. Just maybe talk through what are the key things that you're trying to achieve over that. Those 2 questions.

[Piyush Singh, executive]

Sure. Hi Akshen, I'll take your first question first around the BIS thing. While we are highly supportive of this move by the government, we believe that it will give a lot of impetus to the domestic industry because BIS is not only getting implemented across finished goods so as far as footwear is concerned, it is also getting implemented across the various components, SFG and raw material that you import from overseas.

So the overarching idea that we can see in terms of government's vision is, they want to promote some -- especially human capital-intensive industries in order to make them export-ready as the China +1 strategy and the overall impetus on quality is more driven with that vision that we should eventually result in creative -- we should actually lead to the creation of an industry, which is, you can say, kind of ready for us to earn some ForEx dollars rather than being import dependent on some of our neighbors for raw material import and all.

From an industry standpoint, we believe that this is a big plus for the domestic players because eventually, the cost of doing business so far as imports is concerned, is expected to go up largely. I mean, holistically, across the spectrum, be it raw material imports, be it CKD imports, be it full-fledged footwear imports. So we believe that in the near-medium term, this is going to give us some tailwind. While more clarity is awaited from the government on the implementation of the BIS notes, but that's the directional flavor we have received so far.

[Nikhil Aggarwal, executive]

And Akshen, because our raw material imports is limited to not more than 15% of the overall purchasing that we do, we are not looking at any significant impact in terms of margins because of this BIS implementation.

[Piyush Singh, executive]

I mean, anyways as we have the setup to kind of get that imported materials certified in our own labs, which some of the international players do not enjoy as a competitive advantage. Now that's on the BIS side. Coming to your other question around distribution. See, in some of the territories, North-India-based territories like UP, Bihar, we have seen that K-Curve kind of recovery where people have started down trading, due to lack of discretionary income in -- specifically in the states of UP and Bihar.

Now for that, we have taken a two-pronged approach. One is addressing the portfolio gap that we currently see in our current set of offerings with Campus as a flagship brand. We believe that people have down-traded a bit in Tier 3, Tier 4 markets. And this is -- while it's a good market for us, UP has been a stronghold bastion for us. We don't want to vacate these price points. And hence introduction of portfolio pillars, which are not margin dilutive in nature, first of all.

Second, in terms of our overall distribution capabilities, we believe that it's time for us to do some bit of a consolidation because earlier -- see it is a cycle that you usually witness. Once you have to penetrate further in a saturated market, you appoint smaller distributors in order to get access to those peripheral counters. Once you have gained enough access with your feet on street getting acclimatized to these counters, there comes a time when you need to consolidate the overall distribution headcount in these markets in order to ensure that there is adequate capital available with our partners to deploy in these markets to go further and gain wallet shares.

So it's a cycle, which we go through in every 5 to 6 years, where you first consolidate and then you de-centralize and then you consolidate again. So hence, we are at that turn or that crest of the cycle where we need to consolidate again in order to deploy more money in order to go -- in order to penetrate further and gain more wallet shares. So that's why it's a twin-pronged strategy, right product and adequate capital in order to go deeper into the market because smaller distributors have helped us cover a bit.

[Unknown Analyst]

Okay. And one last question for your D2C portfolio online specifically. Could you just help us with what the growth for this quarter was.

[Piyush Singh, executive]

This quarter, we have witnessed around 10% growth in D2C online. That was more of an aberration because our B2B businesses were restructured, especially the O2O business that we speak about the Ajio business and the Udaan. They have seen some impact of the slowness of trade. We've kind of substituted them with other high-growth businesses within the D2C portfolio, which you'll see in the coming quarter.

[Unknown Analyst]

Sorry, will that impact on Ajio and Udaan [indiscernible]

[Piyush Singh, executive]

They have repivoted in terms of their overall strategy. Earlier, they were more focused on the B2B side of the business, wherein they were servicing the retailers. Now they have repivoted and kind of consolidated the business with the overall Jiomart business and have transferred our account to that. Earlier, we were not doing business with Jiomart, so now the B2B flavor has shifted to B2C now.

The transient impact during the month of February and March was the one when they were not conducting any business. And hence, there was a slight blip in our growth.

[Unknown Analyst]

Okay. So Q1 onwards, that growth should normalize?

[Piyush Singh, executive]

Yes, yes, it's back on track. Now they have consolidated internally. They have repivoted in terms of their strategy. It was more partner-driven rather than anything happening at our end.

[Operator]

I'm sorry to interrupt, Mr. Thakkar, there any other participants who are waiting for their turn. The next question is from the line of Ronak Vora from AUM Funds.

[Unknown Analyst]

Slightly on a longer term is what I want to understand. In terms of revenue, what would be the whole difference in the organized and unorganized footwear industry as of today? And how is the whole mix trending going ahead?

[Nikhil Aggarwal, executive]

Yes. Hi Ronak. So the overall industry is pegged at -- the sports and athleisure industry is pegged at about INR 12,000 crores, of which roughly 50-50 is a split where INR 6,000 crores is organized and INR 6,000 crores is unorganized. This is split currently but it's past converting from unorganized to organized at a very fast pace. And the overall industry, if we take out the anomaly of this year, of FY '23, it's otherwise been growing at about close to 15% to 16%. This is the fastest-growing category and formals actually has -- is on a decline, that's in that sense in India right now currently.

[Unknown Analyst]

Okay. Sir, my second question is on the margin front. I want to understand what kind of margins do we own and kind of each trade channel from, say, B2B to from B2C and our e-comm and EBO stores?

[Nikhil Aggarwal, executive]

Right. So generally, margins are consistent amongst the channels. There is slight variation because of the dynamics of the channel specifically. So on the distribution side, we basically roughly work at about 17% to 18%, 18% kind of EBITDA levels. And on the D2C side, on the online, we have about 200 to 300 bps higher margin because of a different construct of the channel-specific partners. And on the EBO side, again, we work on a 24% to 25% 4-wall EBITDA. This is broadly the numbers that we've been doing for the past 2, 3 years.

[Operator]

Mr. Vora, any further questions?

[Unknown Analyst]

No. Thank you.

[Operator]

The next question is from the line of Mehul Desai from JM Financial.

[Mehul Desai, analyst]

My first question.

[Operator]

I'm sorry to interrupt Mr. Desai, your voice is muffled, may we request you to kindly use your handset, please?

[Mehul Desai, analyst]

Is this better now?

[Operator]

Yes, sir, please proceed.

[Mehul Desai, analyst]

Yes. So while you did allude that D2C online, the 1Q growth should be fine. Can you give similar commentary on trade distribution? Are we seeing a moderation in the decline rate in trade distribution channel in 1Q so far versus 10% to 11% that we have seen in 4Q, that's the first thing. And when do you -- do you see this channel coming back to growth from second half only? Or do you see that coming earlier also? That's the first question.

And second question is how big is this INR 699 to INR 999 market, which you are trying to address through a sub-brand?

And third question is typically a bookkeeping question to Mr. Raman, if you can just give a reason on quarter-on-quarter decline in staff costs? And what are the elements that have driven higher other expenses on Y-o-Y basis.

[Piyush Singh, executive]

Hi Mehul, Piyush this side. I'll take your first question first on how we see this trade distribution channel coming out of the woods. We believe that quarter 4 this year has been the inflection point where narrowing of degrowth has kind of completed. We don't expect to wait till second half of the fiscal year for growth to come back to the channel. While we are not at liberty to share the numbers right now, but we believe that in the first half itself, you will start witnessing growth in the trade distribution, specifically as a channel. Right? While D2C will maintain its own pace that we have demonstrated over the last year, that's the endeavor.

Now coming to your third question around reduction in employee cost. That is a one-off because last year, we had ESOP impact coming into play in quarter 4 of FY '22 on account of 2 grants happening in terms of special grant and vision pool grant, which is not there this year and hence, the delta that you have seen.

Now coming to your second question around how big is the market between INR 699 to INR 999, based on industry estimates and our own calculation, we believe that it's, I mean, ballpark, it's a INR 1,000 crores market wherein we believe that INR 500 crores to INR 700 crores is the relevant addressable market for us. it's a sizable one for us. And given we enjoy roughly 20% market share, so makes all the more sense for us to not leave this market unattended.

[Mehul Desai, analyst]

Sure. And just on the staff cost, while I got your explanation on a Y-o-Y basis, but on a quarter-on-quarter basis -- I mean, versus Q3 to Q4 also, there is steep decline. Is there something to read there or...

[Piyush Singh, executive]

Not really -- nothing.

[Mehul Desai, analyst]

And on the other expenses, if you can explain what -- I mean, how much would have been driven by the NP or any other element.that you would like to...

[Piyush Singh, executive]

I'll take up the other expenses piece because that certainly demands some more clarity given it's a consolidated lump sum number. There are 4 main elements to it. One is the increase in conversion costs. Now conversion cost on a year-on-year basis has gone up by roughly INR 30 crores, INR 35 crores for us largely on account of back-to-back increases in minimum wages across our assembly plants in Baddi and Dehradun.

While in this current year, we'll be able to -- and to a certain extent, while we have started transmitting this impact, but this transmission happens with the lag, as we have mentioned in the last couple of quarters also with price increase in our newer portfolio and legacy portfolio. So hence, the catch-up that we have played over the last 2 quarters.

So first impact is that. Second is because of maintaining our advertisement cost at 6%, 6.5% over the year despite seeing some -- I mean despite seeing some moderation in growth and finally, clocking in only 24%. We didn't cut down on our marketing expenses because we believe that it is a long-term investment.

Third element in here is our online commissions, which are largely in line with the growth of our Marketplace business. on the D2C online side. And fourth is increase in our freight cost, which is largely in line with the inflationary trend and the growth that we have witnessed so far. So these 4 major components cover almost 90% of our other expenses.

[Mehul Desai, analyst]

Understood. Got it. And last one, looking what is the CapEx plan for FY '24 and -- I mean if you can just give the CapEx outlook for FY '24.

[Piyush Singh, executive]

We don't expect any major CapEx outflow happening in FY '24 specifically. The only thing that we have done in FY '23 end is acquisition of one of the factories from Marico from Ponta Sahib. From a strategic aspect, we believe whenever we'll do our capacity expansion, this area suits us well given its proximity to both Baddi and Dehradun, but the expansion would only start once we outrun our existing capacities, which are -- I mean, which are comfortable in nature in terms of servicing our current growth expectations for the next 12 to 18 months.

[Operator]

[Operator Instructions] The next question is from the line of Alok Shah from Ambit Capital.

[Unknown Analyst]

The question is essentially on the scale-up of vergencies in the challenger brand. So in that sense, can we assume that the focus will be more on volume growth than on the ASP growth?

[Piyush Singh, executive]

Not really. I mean -- Hi Alok. See, first of all, it's just a portfolio pillar. Let's not start looking at it from a different lens altogether, whether it will be EBITDA accretive, dilutive or all that sense, it's just an opportunity that we see that we are unable to fulfill or do complete justice within the flagship brand of Campus because Campus is on a premiumization journey. We do believe that this is a decent enough market for us to not vacate at this point in time. But all said and done, this is going to be a pillar in the end.

Now from an ASP standpoint, from a volume standpoint or from an overall margin standpoint, we don't -- I mean while we'll do a holistic pilot in the coming quarter, we don't expect this brand to cause any blip to our overall growth plans or our overall outlook of P&L in balance sheet.

[Unknown Analyst]

Got it. So the point was to get a sense that, say, for example, in the next 2 to 3 quarters, we see a recovery like in the U.P., Bihar and the whole -- that sort of belt, then how do we internally focus on pushing the different brands or sub-brands at different price points? Or would you let the market forces determine the percentage share of each and every price point? Or would you have then a conscious strategy? That's what I was just trying to get?

[Piyush Singh, executive]

Yes. I mean we are always respectable of market forces in play. And we believe that this is not a tactical move, so to say, because the unorganized to organized shift is anyway is happening in the country. With BIS also coming into play, these Chinese imports will be curbed to a larger extent. And hence, it's not just about how the macro environment looks currently and comes across as a tactical way, it's a very well thought to strategy we have spent a good amount of time while deliberating on this entire approach internally before giving a green signal to the entire launch plan, because if you see at BIS also imports will become stringent, what has happened in toys, we expect something similar on the lower end of the spectrum to happen in footwear as well.

And cost of doing businesses obviously -- will obviously go up. So that economic strata will obviously shift from unorganized to organized. So you need a brand to handhold those first-time consumers before we pass on the baton from this challenger brand to Campus eventually.

So it's about owning the customer life cycle journey. So it's a thoughtful strategy. We believe that it's here to stay. While it's -- it will play the role of a navigator, but the mothership will always be steered by Campus.

[Nikhil Aggarwal, executive]

Alok, I will also just like to add that there is a complete focus in terms of premiumization as we've always done, and Campus has done extremely well as a brand in terms of premiumization. So even this year, we are planning to launch a significant more number of designs in the 2,000-plus category versus even FY '23. So we are continuously witnessing a very good offtake of Campus in the premium category especially from 1,000 to 3,000, where we've gained a significant revenue share versus last year.

[Piyush Singh, executive]

See, ultimately, the idea is we cannot crystal -- I mean, we can't do any crystal ball guessing in terms of how and when the macro would improve. We can only get rational signals. Endeavor is to stay prepared for whichever way the market goes, we should have the right offering for the right consumers, whether they downtrade, uptrade at the rise price points and should offer the best value proposition to our end consumers. That's how we'll stay relevant in the business, and we can offer sustainable growth.

[Operator]

The next question is from the line of Akshen Thakkar from Fidelity.

[Unknown Analyst]

My questions have been answered. Thank you.

[Operator]

Ladies and gentlemen, that was the last question for today. For today's Campus Activewear Q4 FY '23 con 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 [e-mail]. I repeat [e-mail]. You may now disconnect your lines. Thank you.

[Nikhil Aggarwal, executive]

Thank you, everyone.

[Piyush Singh, executive]

Thank you.