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Dollar Industries Ltd
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Good day, ladies and gentlemen. I'm Pavitra, moderator for the conference call. Welcome to the Dollar Industries Q3 FY 2020 Earnings Conference Call hosted by SBICAP Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prashant Tiwari from SBICAP Securities Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. I'm responsible for the mid-cap coverage at SBICAP Securities. We are pleased to host this call and thank the management for this opportunity. We have with us the senior leadership of Dollar Industries. Mr. Vinod Kumar Gupta, Managing Director; and Ms. Shashi Agarwal, Senior Vice President, Corporate Strategy and Investor Relations.I will now hand over the call to Mr. Gupta for his opening remarks. Over to you, Mr. Gupta.
Good afternoon. A warm welcome to everyone on the earning call for quarter 3 of '19/'20 of Dollar Industries Limited. Honorable Finance Minister, Nirmala Sitharaman, presented her second Union Budget on 1st of February. The budget focused on aspirational India indicating the -- indicating that the government is committed to support growth and increase the purchasing power in the hands of the people, thus increasing the demand and the consumption. Addressing 1 of the major economic issues of slowdown in the consumption, the budget proposed a simplified tax regime, boosting increased disposable income in the hands of the common people. We are hopeful that with the effort of the government, we will see the weakened consumer sentiments stable over a period of time.I'm happy to share that the company have gained the momentum in sales, which was subdued in the second quarter. Overall, the growth in sales for 9 months basis was flat. However, on a quarterly basis, there is a growth of 4% in the sales in quarter 3. The company has also ensured that the momentum gained is accelerated in the current quarter, and we make good the losses in sales which happened in the second quarter. The company is poised to take on the challenge caused by the current market and the current economic conditions.After the successful pilot and learning from the pilot states in Karnataka and Rajasthan, the company is planning to start the replenishment model in Maharashtra, Gujarat, Telangana and Andhra Pradesh. This model requires a lot of structural and operational changes in the existing system and also needs implementation of information technology and automation. The company has already taken up the task of taking help of automated system to ensure a smooth flow of information all across the channel.We are also in the process of further strengthening supply chain system to ensure timely delivery and the availability of the products, both at the distributor and the retailers level, at all times. This structure would also require a decent manpower, which would mean building a stronger sales team at state levels. These changes require time and energy and will only start reflecting in numbers in next fiscal.Now moving on to the joint venture company Pepe Jeans Innerfashion Private Limited. The JV company continues -- is focused on placing its product pan-India. Currently, the JV has appointed 26 distributors in North India and 34 distributors in southern part of India. In alternate channel partners, the product is also available in 142 EBO stores of Pepe Jeans and 44 stores in LFS and 5 platforms of e-commerce. The product is selected to be placed in eastern and western part of the country in the coming fiscal.This is all from my side. And now I shall hand over it to Shashi to talk to you about the financial performance of the company in this quarter. Thank you.
Thank you, sir. Good afternoon, everyone. I shall speak about the financial performances of the company.The company achieved a total revenue of INR 255 crores for third quarter financial year '19/'20 whereas the year-to-date numbers were INR 733.13 crores as compared to INR 245 crores -- INR 245.62 crores in Q3 FY '19 and INR 732.46 crores for 9 months ended FY '19. The growth numbers were respectively 3.98% and 0.09%. EBITDA for the company for the same period stood at INR 33.94 crores, that is 13.29%, and 85.07% (sic) [ INR 85.07 crores ] for the year-to-date numbers, which was 11.6%, as compared to INR 37.9 crores for the last quarter, and INR 102.76 crores for the 9 months ended FY '19. EBITDA percentage for those respective numbers were 15.43% and 14.03%.The PBT for third quarter '20 stood at INR 26.62 crores, that is 10.42%, and year-to-date numbers for FY '19/'20 was INR 62.95 crores, that is INR 8.59 crores -- 8.59%, sorry, as compared to Q3 '19, INR 30.92 crores, that is 12.59% and 83.49% (sic) [ INR 83.49 crores ], that is 11.4%.Respective -- the PAT was -- stood at INR 18.82 crores, that is 11.37% and INR 45.6 crores, that is 6.22%, for this fiscal whereas the number for the last fiscal was 19.02% (sic) [ INR 19.02 crores ] that is 7.74% and year-to-date numbers were INR 52.07 crores, that is 7.11%.From the joint venture, the company has booked a loss of INR 0.75 crores this quarter, whereas the year-to-date loss was INR 0.97 crores for this particular fiscal year.Now moving on to the 9 months revenue breakup. Bigboss stood at 42%, Champion brands stood at 0.5%, Force Go Wear contributed 3%, Force NXT 2.5%, Missy 9%, Thermal 11.5%. Socks was 2% and the economy range of products stood at 29%.This is a small update from my side. Now I will open the forum for question and answers.
[Operator Instructions] We have first question from Sivakumar from Unifi Capital.
Shashi, can you repeat the breakup of the sales across segments?
Okay. Bigboss is 42%, Force NXT, 2.5%, Force Go Wear 3%, Missy 9%, economy range of products 29%, Thermal 11.5%. Dollar Socks category we just previously used to club it with economy range of products, now we've started giving the numbers separately, that is 2%. And Champion Kids...
Sorry, what is this?
Dollar Socks. Socks.
Socks. Okay. 2%, right.
So previously socks was clubbed into the economy range of products, but now we've started giving it separately. So that's 2%. And Champion Kids for kids segment, it's 0.5%.
Got it. And in the opening remarks, some comments were made as to -- on the pilot project which will now be scaled up across 4 states, if I'm not wrong. Can you give more color on that as to what will be the size of this project now? And what is the time lines you're looking at? And how much percentage of sales are this 4 states contributing currently? And what do you expect? And what is the time frame in which we can see results? And what is the further course of action?
Sure, Siva. So this is in continuation with what we've been discussing over the last calls as well, and we've been highlighting that we have engaged with Vector Consulting over the Theory of Constraint -- implementation of the Theory of Constraint, which is basically a replenishment model which we talk about to increase the reach and range. The pilot was initiated by the company last year in Karnataka and in Rajasthan to test, 1 of the best-selling area and one of the weak-selling area for us, we started these pilots and we found the results satisfactory, and we were happy with the results. So once we have tested, now we want to definitely scale it up pan-India.Now the next phase which -- so definitely, the next step for us is to accelerate the rollout in Karnataka and Rajasthan and carpet the entire 2 states. Along with that, what -- to expedite these entire processes, what we have also thought that we should start parallel states together. And the objective is to -- the objective to start parallel state is to shorten the time period -- time frame as much as possible. But we do understand that it's a little complicated, and we cannot touch all these states in 1 go. But nonetheless, we have targeted 4 states, that's Maharashtra, Gujarat, AP and Telangana, so that we can take this forward in these 4 areas, along with Karnataka and Rajasthan.To your query that what is the sale which we are drawing now and how it would -- what is the future outlook and outcome. So I think that we just also mentioned last time as well that, currently, the number of [indiscernible] which we have been enrolled into this particular program and the results which are there is too miniscule for us to give you the numbers right now, to publish the numbers. We will be more comfortable talking about the numbers once we have completed or carpeted the entire state, so that we have a sample -- a better sample size to talk about. So yes, we'll -- growth opportunities in it, because what we are doing out here in the process is we're trying to reach the retailers directly through our set of system, and we are trying to work on the replenishments model which says that we will supply only what sells at the retail and the distributor level.So this is something -- this is the way forward, the future in which we needs to work because just focusing on the primary sales will not help you get into the secondary. The company has understood the importance of secondary and is going with that particular way and methodology. So sharing any kind of numbers as of now it's too early. Time lines, definitely, it would take some time. We keep talking about it. So 2 years is what we have in our kind of in time frame that we needs to cover up pan-India in 2 years' time frame. Probably that's the reason we are having parallel states run together.
Right. But Shashi, what is the percentage of sales contributed by these 6 states now?
So this 6 states put together in the current system?
Yes, yes.
It would be somewhere around about -- just give me a sec. Let me -- around about INR 200 crores, all these 6 states put together, it's around 20% -- 20%, 25%.
Right. And currently, the implementation would be statewide, right? It's not pilot anymore?
No, no, it's not -- it would not be a pilot. It would be statewide.
Okay. And what is the time frame -- time line you're looking at to actually do that in a particular state? How much time will it take to actually implement it at a state level? Because you have been doing pilots all this while. So how much time would a state level implementation take?
One state covering up, so the idea would be that at least we have some percentages of the state cover before we move on to the next state again. So I would say another 3 months to say startup -- have a 20% to 25% coverage of the state, post which we would leave it to the respective state head who will have to ensure that the entire state coverage happens, and then we will jump up to the next state. So this is basically, it would be a phase-wise implementation and we will not wait for the entire state to get over before we move on to the next state. Because covering the entire state also would take a lot of time. Because here, we are talking about the reach and range -- doing a mapping at the taluka in a ground level is kind of a bigger task here. And if you really wait for the entire coverage to happen and then move to next state, then it would really take longer than 2 years. Probably, our target is to say that by the time 25% of the state is covered in say around about 2 to 3 months' time, we move on to the next state.
Got it. And what are the takeaways from the pilot project in Rajasthan? Were they as encouraging as the results which we got to see in Karnataka?
Also, I would say, Shiva, that Bangalore was very, very encouraging for us. So 1 thing, kudos to South that they are much more organized than the northern part of the country. They understand systems. They understand the importance of system and we following the -- working within the framework is something which we do not have to harp upon them again and again, whether it be the distributors or the retailers. So once into the system, we are more or less likely to follow them. But yes, the technicalities of not are completely -- the nitty gritties and the nuances are quite different in the North. Number one, Rajasthan being, again, a state where you have a lot of wholesaling happening. Price cuts, price war is there. This is, again, 1 of the -- for us, it's been the highest selling area. So we have certain challenges, definitely, the challenges and the nuances which we faced here is completely different than what we would have -- what we faced in the South. Probably so 1 of the reasons that the pilot took such a longer time was that we ensured that we had all kind of learnings here, so that implementation pan-India becomes easier for us. So yes, number one was pricing, wholesaling part of it, that's there. Keeping the distributors within the framework is another challenge. Some of them understand, some don't. That is one of the another challenge which we're facing here. But probably, when they see the benefit and they understand, they also agree that this is the way forward for them as well because carrying a high inventory also increases their cost of carrying -- cost of carrying inventory, which in turn, impacts their ROI, et cetera. So those concepts, when you sit down and talk to them and it makes sense to everybody, any businessman would understand those concepts. So yes, it is a little more difficult to get it implemented in Rajasthan than South, but nothing which cannot be overcome.
[Operator Instructions] We have next question from [ Anand Jain ] from [ Anand Capital. ]
Ma'am, very good set of numbers. So quickly, I wanted to check a few things. What was our volume growth this quarter?
May I check, sir. Volume growth I would say -- for the quarter-on-quarter, numbers were kind of quite flattish. There was not much of a jump there. The ASP definitely has increased for us from -- for the 9 months ended last year, it was INR 54.85, whereas the quarterly was INR 58.12, which has moved on to INR 60.96 for the 9 months ended ASP -- overall ASP level. And for the quarter, the numbers have moved to INR 63 -- INR 64. So the major jump comes in from price growth [Technical Difficulty] flattish.
Okay. So we are flattish. And in terms of market share, would you say we have retained share? Or is there any share loss that we are estimating or expecting?
No, I don't think so. Because if you really look, again, the numbers -- so overall, I'm sure when all the results are out, we are very much similar kind of in numbers which we reported. There has not been any kind of a loss in market share.
Understood. And the last question, ma'am. What was your advertisement spend? Have we cut back on that? Or are we still spending in the same levels as we used to do?
Same level, so it's similar, at 9%, I would say. There has been -- there has not been major cut I would say that would be reflecting in my advertisement expenses. But definitely, I would also want to take this opportunity to address that 1 of the issues you might see in the next quarter, that is in the next fiscal -- the first quarter of the fiscal is an increase -- a little increase in the advertisement spend and precisely 1 of reasons to see that is that we have been working around our brand architecture and we revamping our entire look and feel of the Dollar logo. This has been quite a task where we were getting -- we had -- we've been working with a plethora of sub-brands. You are aware like it was Bigboss and we had Missy, and we have Lehar, Commando, Comfort. So there were a huge number of brands that we were carrying under the mother umbrella brand Dollar. So as a strategy, we are trying to rationalize these brands. And what we are going to do is, now you would see these as in kind of verticals. So these -- the brands would be -- the sub-brands would become more of a collection and you will have verticals as in Dollar Men, Dollar Women, Dollar Children, Dollar Thermal, these verticals would be there now. So this entire restructuring, redesigning, introduction of new concept here so that we can move up the value chain, these things are being worked upon. And once we take this up, we have to advertise that what we were and what we have become. So this change has to be communicated to the consumer. So when we start communicating these changes to the consumers, what would happen is this would require a lot attention, a lot of spend there. So probably the first quarter of the next fiscal, we might see some jump in the advertisement expenses. Otherwise, for this particular quarter, this particular fiscal, I think so we should be well within the range.
[Operator Instructions] We have next question from Prashant Tiwari from SBICAP Securities.
Shashi, what percentage of our overall revenues can be attributed to the distributors where the TOC is being implemented? Like overall sales coming through the distributor channel and what is through the wholesale and direct?
Prashant, as a company, Dollar Industries, first of all, I would talk about my existing structure. My existing structure contributes around about 97% coming from my distribution channel methodology, and only 3% is coming from organized channels. Now when we want to further drill down and say that in my existing channels where the conventional method of working was followed, there, what is the percentage of contribution coming from my TOC. So currently, Prashant, we have more than 900 distributors on board. And out of that, I have implemented TOC across only 15 to 20 distributors. And that's a very small percentage that does not even count somewhere into my total revenue, not even 1%. So too early to comment on the numbers there, Prashant.
Okay. And is my understanding correct when I think that the TOC model can help where the distributors are involved and not on the wholesaler side of the business, if the business is driven by purely the wholesaler thing?
Let me put it this way, Prashant. So first of all, I would, again, want to go back to the method of working which Dollar adopts. So before -- Dollar is not into a kind of a wholesaling channel directly. What we do is we sell it to our distributors. And then it is the responsibility of the distributors to place it to the retailers. Yes, it might so happen that when they are placing it to the retailers, in the process, they might also get in touch with the wholesaler channel, which we just talked about a little while ago, the difference between the south and the northern working style. In Rajasthan, what happens is, these distributors at times go ahead and sell in bulk to the wholesalers. That is one of the challenges which we face there that we do not want to supply them because to have a tab on to the retailer landing price becomes difficult when you get the wholesalers in between. In case they are ready to follow the retail landing price for us, we do not differentiate between the retailer and the wholesaler then. But the only criteria for us is that they have to follow the retailer landing price declared by the company there. So yes, that's a little bit of a nuances there. But as such, we do not have a wholesale middle level into the entire distribution channel. For us, it is the company, distributors and the retailers. At times, distributors engage with the wholesalers to sell.
Okay. And the next question is about the cotton prices. Is there a margin CAGR available for the company because of the higher production of cotton this season like 13% is being projected?
Prashant, you're too low. I cannot hear you. If you can be a little louder?
Yes. So I wanted to ask whether there is a margin CAGR available for the company in terms of -- driven by the lower prices of cotton. It has been at a low and production of cotton in this season is also projected to be 10%, 12% or 13% higher than the last year. So can we expect a margin CAGR in terms of that?
Nothing has changed to the -- due to the low cotton prices and the yarn prices which was there only in the last quarter, that's Q3 till December. Going ahead now, the prices of it again started rising. So the price is on the rise now. So we are not passing out any margin CAGR to the distributors or the retail channels as of now. That's not something which we have --
So you are saying yarn prices are on the rise?
Yes, now the cotton prices have started rising.
We have next question from Pankaj Kumar from Kotak Securities.
My question pertains to the growth as such. So if you see this year has been pretty flattish, I mean, particularly the quarter. We have reported 4% growth, but overall, the growth has been on the flip side. So how do you see that trend going to be when we are entering in the next year? And second question is on the season as such, this Q3's winter season. So how this Thermals have performed in the season? If you can comment on that, ma'am?
Yes. So I would say that this particular season, I'll start with the winter season which we -- just gone by. Winters was okay, good. We've seen that growth is there, 4% growth was there for this particular quarter. On a yearly basis, the quarter has -- numbers have risen by 4%. But overall, the numbers are down because of the reason that we know that the second quarter was quite a dent for us. So that's the number -- that's the reason we are flattish. And going forward, we have put in all our energies and efforts to ensure that the fourth quarter mix, we can cover up as much as losses as we want -- as we have incurred in the second quarter in terms of the growth numbers. So we do not promise any numbers as such. But the company has put in all the efforts and have ensured that the numbers are not flattish for the fiscal ending. This is what for the fiscal -- current fiscal we're talking about. We might not be able to touch or give that growth numbers that we've been delivering, but at least we should want to be at a lower single-digit or lower -- higher single-digit and a lower double-digit kind of growth is what we are targeting now. And we are very, very hopeful for that as well because there's a lot of preparations going on within the company in terms of the way it has to be taken up with the distributors and the retailers. So we just conducted and we got over with our annual conference. We took the distributors into -- for this cruise in Singapore. It was a 5-day trip for them. And it was a business cum pleasure trip with them. And the response which came across when we discussed the entire replenishment model with them, and when we talked about disclosing the other advantages which the company was passing on to them, the response and the advance booking which we have got from them in really, really very encouraging, and we are very hopeful that the numbers -- we should be able to do a lot -- makeup in terms of what we lost in the second quarter. So we really look forward. Going ahead for the next fiscal, we are very prepared, and we are like taking it heads on with the replenishment model implementation in these 4 states going ahead. So it would have its own challenges. Every state and every region has its own nuances and challenges. So we have done with south and north. West would have a little bit of more nuances. But as Mr. Gupta says that if you have done Rajasthan, you have taken and tasted everything that's there in pan-India basis, so probably implementations would be much faster in these states now. So the numbers for Vector would start reflecting more towards the second quarter of the fiscal. Their stats, when I can maybe come out and talk about in bigger numbers, state-wide numbers that what we were, what we achieved, and I would be in a better position to share numbers at that point.
Okay, okay. And ma'am, regarding this distributor you have -- that in Singapore and all, so that cost is attributed to Q4 or Q3?
Sorry, sorry, Pankaj, I missed your question.
No, no. The trade shows which you talked about in Singapore which you did.
Yes, yes.
So that we did in Q4, in Jan, December?
Yes, yes, yes. So that's an advance booking for Q4, actually. Generally, as a practice, this is an annual conference which we conduct every January. We really make our introduction of new launches, we do soft launches of the new products or any kind of changes of designs, brands, et cetera. So whatever is there is being discussed, we talk to them. We take their feedback. And more so ever, we also take the production planning for the next 6 months. And probably, again, since the fiscal is closing, for the achievement of what was budgeted in the starting of the year, that is something which we also talk about.
Okay. And ma'am, any comments on the margin front, because if look at the gross margin, that has -- on a Y-o-Y basis, that has declined. And if you look at the subcontracting, that has -- that expenses has come down. So any shift from -- between raw materials prices, subcontracting that is witnessed in this quarter?
Subcontracting has come down for us in this particular quarter because of the main reason is that for Ludhiana, what we have done this time is that the premium products, the ultra products of Thermal which we procure, we have this time got it in kind of an FOB basis rather than putting it into the stages of production. So that's where we have actually come down in terms of subcontracting charges. And overall basis as well, I would say that there has been additional increase in my per piece of subcontracting charges which is just INR 0.20, that's not much of an impact there. But overall, the reason of it's coming down is more for my Thermal being purchased in FOB basis rather than kind of stages of procurement -- production.
Okay. And any comment on this working capital side? Was it then look good?
No, Pankaj, there has not been major changes yet. So nothing which -- to talk about, it's kind of what -- in a similar lines and ranges what we've seen in the last quarter, 6 months ended balance sheet is kind of similar.
Okay. So you still see the liquidity pressure in the...
Yes, liquidity pressure is there, I would say. So it's -- hopefully, let's see that this budget helps out and there is the sentiments at the consumer level and the disposable income goes up and people come out of that crisis in [ triumph ]. And we are hopeful to see that going down. That's what we are banking on. Apart from that, the regular task and exercises the company is conducting at its own level, that's also something we are taking it up on a regular basis at a war footing level. But that's -- I would -- having said that, it is more kind of an economic scenario which we are going through rather than a company-driven policies.
We have next question from Siddharth Rajpurohit from JHP Securities.
My questions are answered.
[Operator Instructions] Next, we have a follow-up question from Mr. Sivakumar from Unifi Capital.
I just wanted to know what is the share of modern retail and e-commerce in the current sales numbers.
It's 3%, Siva.
Sorry, Shashi. Can you repeat that?
3%, 3%.
3%, both put together, right?
Yes, both put together. So for -- when we talk about it, we take e-commerce platform where we are actually present in all the platforms. And when we talk about large format stores, we are there mostly in all these [indiscernible] brands, Brand Factory, more, DMart, V-Mart and -- so that we have -- we have more than 900 outlets which we are present, all put together. And the work is on in terms of increasing those numbers and the presence across large managed stores are concerned, so...
Right. Because 3% looks on the lower side, right, given the potential and the distribution that you have got across large-format stores, right?
Yes, absolutely, I do agree, but see, again, this is more kind of an -- you have to renew these spaces every time -- every 6 months. So those are -- activities is also there, number one. Number two, most of these bigger brand stores like retail -- Reliance stores or maybe when you're talking about like Westside, et cetera, they started keeping their own brand, Shoppers Stop, they started getting into their own brands of their innerwears or the midwear kind of the products. So that is posing as a challenge to get an introduction into those -- their shelf space. Like even the Big Bazaar -- Fashion Bazaar and the FB (sic) [ fbb ] they are getting into more kind of their own space, like having their own manufacturing and their own brands. It's little challenging there. Yes, the scope is there in terms of increasing that number and the percentage but what we can see is, from the revenues which we have, but again, people maybe still prefers to buy innerwear from these stores where they can actually physically pick it up rather than going on the e-commerce platform. That's again the #1 thing which we have experienced. E-comm platform doesn't work that good in terms of the innerwears are concerned. But yes, large format, again, the challenge is these brand stores having their own brands coming up. We are taking it up in a slight but that's a space where we needs to pull our socks I would say.
Right. And how are the sales in Pepe, because it was INR 9 crores in the first half, right? What is it in 9 months now?
It's around INR 12 crores. We had a target of INR 18 crores, but I think we have touched INR 12 crores in Pepe.
And what's the bottom line?
Bottom line, we have posted a loss of INR 75 lakhs this particular quarter. In totality, it is INR 97 lakhs for us. So just in to -- so INR 1.5 crore for this quarter. And totality, it's a INR 2 crore loss till here -- 9 month ended.
Okay, INR 2 crores loss. Okay. And Shashi, what's the progress in that supply chain financing arrangement which you've got into with SBI? Are the distributors taking it up? Is there any resistance from their side? How are you tackling it from your side?
No, that is very slow. The momentum and the pickup speed is very, very slow as of now. They're still with the distributors. As I told you, as we discussed last time as well that we are -- they are getting pushed to the wall and they have no other option left. So yes, we are hearing the murmurs coming from them that they needed to get into this particular channel, organize themselves. So those initiation have started, I have people who're enrolling. But is that number quite enough for give me a push in terms of changing the balance sheet numbers as of yet? No. The numbers are quite small for us. So nothing very great to share right now at the moment.
Okay. But are you in a good position to make good use of the potential that you'll get from this pilot project which you are scaling up? Because if the supply chain is in shambles, how would you actually get to the full potential of that new pilot which you're scaling up?
So, for that, to be very honest, and I've been telling everyone when I actually meet them as well is that I'm very excited with those numbers -- I'm also a part of that particular project that we are putting it across, so this is -- this gets attention of 1 of our very key director, Mr. Binay Gupta, who is sitting in -- heading it out from Tiruppur. And when we see the numbers, it's like very, very exciting. I feel like sharing those numbers. But again, I understand that they get extrapolated immediately and the Excel work starts happening. So I don't want to share the numbers now because it's again too small a sample size. But the potential is immense and huge, probably, maybe once we are -- have covered 1 of these states completely and we have some good numbers there -- good numbers in terms of that the entire state is covered. So when we talk numbers there that what was the state before we did the particular model, rolled out a particular model, and what is the pre and post kind of comparisons can be done, that would be the time when I would come out with the numbers and talk about it. And then you'll see the change -- what kind of a change this can actually get to the company at an overall pan-India level.
But would that also make a difference to your working capital situation? In the sense, would you get more leaner?
It would improve my working capital situation tremendously.
Okay. Any numbers you can share as to what -- to what extent you expect an improvement in working capital once that pilot goes live?
[indiscernible] those numbers, Sivak. It's like -- the extrapolation would not be justified out here because, see, as I told you that they are 2 different state altogether which we did. So south, where you do not have much of an exposure, Bangalore, Karnataka, whereas, vis-a-vis Ajmer, Rajasthan. Here the exposure is very, very high in terms of -- again, the penetration, the monthly sales, the monthly primary sales, the monthly secondary sales, they were all too different -- just totally different parameters in the numbers which we've come across. And the responses have been different there. So I can say that, yes, on the extreme good case, an extreme case where we need a lot of attention and focus, so that these 2 different parameters which we're working on across now, sharing those numbers would actually distort the entire picture. So I would have to complete a state and then come back to you with numbers. But yes, overall, I would say that the numbers are quite encouraging, and it would also impact and improve my working capital cycle.
Got it. One last question on the Chinese disruption which is happening currently. Are you seeing any increase in queries for more exports because of the disruption of the Chinese supply chain?
Exports has been constant at 6%, 7%, but any spike I would not say. But right now, see, the imports are disrupted because of the China, for sure. But as of now, the -- is there any spike coming up in terms of the orders and in terms of the export queries? As of now, we have not seen any spike there. See, Gulf countries impact -- maybe we have to evaluate in terms of how the import was happening at the Gulf countries from China. Probably, that's when you'll see an impact. But I would say that majorly Gulf countries take innerwears from India itself because of the size, the shape, the demand and the need and the make of the innerwears, they're kind of quite similar to what Indian needs is there. So you'll see most of the countries in India exporting to the Gulf for the similar reason because we don't need to alter them. When you export to other countries, the entire specification changes. So probably, I would say, as of now, we have not received any spike in terms of the export orders are concerned.
Got it. And what explains this rise in the cotton prices in spite of a slowdown in China? Because that could affect your margins going forward, right? I was just wondering as to what explains this rise because their imports will be down, right?
Yes. Right now, this cotton prices are stagnant but there were quite a rise in the prices of the cotton 2 months back because there were huge orders from China. But after this outbreak of this virus disease, say, in last 2 weeks, the demand from China has been almost, I mean, nil. Right at the moment, there is no further query because they are busy handling that particular virus problem. Now the prices are stagnant. There's not much of a movement. But we understand that in the -- maybe once this particular problem is settled, again you will see that there is a rise in the prices of cotton and cotton yarn.
Okay. But will you be able to hold this gross margin of about 39%, 40% for Q4?
Yes, absolutely.
You'll be able to hold it, okay.
[Operator Instructions] Next, we have a follow-up question from [ Anand Jain ] from [ Anand Capital ].
Madam, what was the revenue topline in JV business you mentioned?
[ Anand ], you're not audible. If you could be a little near the phone?
Hello? What is the revenue top line in the joint venture business?
Sorry, [ Anand ], but I could not get the question.
Hello?
Yes. Please go ahead, [ Anand ].
Yes. So what was the revenue top line in the joint venture business, Pepe?
INR 12 crores, sir.
INR 12 crores in the quarter?
Okay. So maybe I'm just rephrasing my answer. So in joint venture company, this is basically a 50-50 JV which we have. So we do not have any addition of my top line. What we do is, we just get the bottom line impact which is there, which gets added to my bottom line, that's a positive or the negative figure comes into my -- flows into my net P&L, but there is no addition of sale being added in my top line. But as such, the JV company posted a total revenue of INR 12 crores for 9 months ended.
Okay. 9-month revenue is INR 12 crores. Understood. And what would be the monthly run-rate, madam?
What would be the monthly?
What would be the monthly revenue run-rate that we're seeing?
Okay. So monthly run-rate is, as of now, for the 9 months, it's -- since it's well, but we would want to close this number around about INR 15 crores for fiscal '19/'20. So we are expecting another INR 3 crores to INR 4 crores this quarter.
Okay. And it has become profitable? Or do we expect the losses to widen?
So till now, we have posted a INR 2 crores loss for -- in totality for the 9 months ended. Probably, that would be a little more there in for this particular fiscal. Next fiscal onwards, we would breakeven and post that, you should have some profits coming in.
We have next question from Dhiraj Sachdev from Roha Asset Managers.
Shashi, sorry, I must have joined late and the issue on working capital cycle, how is the incremental working capital progressing for us?
Dhiraj, unfortunately, there has not been much progress in the working capital side is concerned. The numbers are quite similar to what we had in 6 months ended balance sheet plus/minus 5% here and there. So there's not much of a change, though the company continues with its endeavors to address the question -- the problem of the working capital issues. And actually, that -- when I say working capital, it's more focused on the debtors. Inventory, we are very well within the limit. That's 90 to 95 days currently. But coming at debtors, that's something which definitely needs to be taken care of. And to answer the question, it is more kind of an economic-driven scenario rather than a company policy matter, which is impacting the working capital.
So how much is the [indiscernible] working capital now as we speak?
Total cycle would be similar, around about 100 days there and 50. So creditors we have increased. 150, 160 days approximately.
Okay. And we've also seen some observation across peers that operating out of the East region. I think their balance sheet strength suggest that their working capital cycles are lower. So what is the relative difference for us vis-a-vis them in terms of pushing your channel inventory or financing...
You're talking about which company, Dhiraj?
It could be Rupa & Company. It could be others. So...
What margins [indiscernible]. So if you -- okay. Let me put it this way. So for Rupa & Company, if it was -- with their trade of the terms, credit terms were around about 30 days, they had jumped into 90 days. For us, it was 60 days and we moved to kind of 100 days. So there has been shift for each 1 of us to what we were and what we are. So if you see the jump in percentage terms, it would be a similar kind of a scenario. But in overall absolute numbers, yes, there would be a difference. So it is basically -- even before the -- these kind of economic crisis, the numbers were different, and it continues to be different.
So are we seeing any sense for some financing improving at the channel end? Are we seeing some indications of this?
Financing is, we have -- with -- for channel financing, with the bankers, and we have that MOU done. So we have certain distributors taking those -- availing those facilities. They started working on that as well. But unfortunately, the momentum which we were expecting that it would spread with the mouth of word and people would understand the benefits and come into it completely, we don't see that happening in the very, very bigger level. Having said that, we still continue with the endeavors to educate our distributors and see whatever number of distributors can be enrolled under the channel financing scheme but there hasn't -- there has not been a major movement in terms of the enrollments are concerned which could impact my balance sheet.
And just last question from my side. How has the distribution franchisee changed for us. How have we expanded across channel partners?
So is it in terms of the numbers which you're asking here?
Yes, yes, yes. Just give me the numbers, that should be fine.
So it's around about 950 distributors approximately which we have. This number would increase tremendously now because with this particular implementation of increasing the reach and range, we would need to appoint distributors in the areas where -- so we have restricted the area kind of cut short in terms of the spread in which they can operate, each distributor can operate. So this would definitely want -- this would require more enrollment of distributors, and we have already started working on this side. So like Rajasthan, Karnataka, we need -- we have added approximately 10 new distributors across in those areas where we were previously being served by different distributors or have not been served. So these additions of distributors would keep on happening. And we will see good growth in numbers there as well.
We have next question from Tanvi Shetty from Axis Securities.
Ma'am, I wanted to understand what is the reason for the rise in prices of cotton? Like you mentioned, it has been increasing. So I wanted to know the fundamental reason towards it? As much as I now, India has been producing a surplus of cotton?
Tanvi, to take your questions, so till December quarter, till the end of December, the prices were reduced -- at a reduced level for cotton. January mid -- first to second week, the prices started moving up. And -- but this of course fragmented 2 weeks back because of the decrease in demand from China or no demand from China, courtesy, coronavirus, the outbreak. See, it's basically a demand-supply definitely, as everybody knows, we don't need to talk there. But it is also about the kind of an export we make and the demands coming from different countries. So as of now, the prices are stagnant, but we, again, expect this prices to rise because there would be a bigger demand coming in from China once everything is stabilized there. Then you'll see again the rise and the hike in the prices of cotton.
Okay, okay. And my next question was, ma'am, how much is your exports as a part of revenue? How much does it contribute?
It's around about 8% to 9%.
8% to 9%. And how has that been doing, ma'am, for the 9 months?
Similar level, they're at 8% to 9% itself. So we've been serving the Gulf countries majorly. But we want to expand into other parts of the countries -- of the globe as well. But as of now, it's majorly focused, the major demand, and the exports happen under our label itself because we do not do a third-party label for the exports as also. So that's around about 8% to 9% majorly focused to the Gulf countries, Middle East.
[Operator Instructions] There are no further questions. Now I hand over the floor to management team for closing comments. Over to you.
Thank you all for joining in for our earnings call for the third quarter financial year '19/'20. It was a pleasure answering and addressing your questions. So in case you have any further questions or queries, you can always reach me. Thank you so much. Have a good day.
Thank you, ma'am. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you and have a pleasant evening.