Dollar Industries Ltd

NSE:DOLLAR

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Dollar Industries Limited Q4 FY '24 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Prerna Jhunjhunwala from Elara Securities Private Limited. Thank you, and over to you, ma'am.

[Prerna Jhunjhunwala, analyst]

Thank you, Manuja. Good evening, everyone. On behalf of Elara Securities (India) Private Limited, I would like to welcome you all for Q4 and full year FY 2024 post conference -- post-result conference call of Dollar Industries Limited.

Today, we have with us the senior management of the company, including Mr. Ankit Gupta, President, Marketing; and Mr. Ajay Patodia, Chief Financial Officer.

Without much ado, will transfer the line to Mr. Ankit Gupta and post which we can open the floor for Q&A. Thank you.

[Ankit Gupta, executive]

Thank you, Prerna. Good afternoon, and a very warm welcome to each one of you. Before we delve into the financial results and operational highlights of quarter 4 and FY '24, I want to express my gratitude to all our shareholders, analysts and stakeholders for joining us today. Your continued interest and support are invaluable as we navigate the opportunities and challenges in our industry. I'll take you through the business and operational highlights of the quarter and the year gone by, while our CFO, Mr. Ajay Patodia, will share the financial metrics.

We are delighted to announce that our company has achieved its highest ever quarterly and annual income. These results are a testament to our unwavering commitment towards excellence, innovation and customer satisfaction in the ever-evolving landscape of the industry. At the annual level, Dollar Industries Limited achieved remarkable growth with robust revenue numbers driven by strong demand for our products.

For FY '24, total income stood at INR 1,577 crores, increasing by 12.7% year-on-year, in line with our target revenue growth of 11% to 12%. The total volume grew by over 21% in FY '24 and net profit for FY '24 was at INR 90 crores, growing by over 71.7%. We are pleased to see that the company has emerged stronger from the challenges of FY '23. Raw material prices have stabilized and high cost inventory is no longer within the system. This is evident in the gross profit margin, which has increased by 256 basis points year-on-year to reach 32.2% in FY '24.

Due to early onset of Eid and the continued penetration of Project Lakshya, we had a robust and promising Q4, leading to our highest-ever quarterly income. Quarterly total income stood at INR 502 crores, increasing by 23.2% year-on-year. The total volume grew by around 17.6% year-on-year in Q4 FY '24 and net profit for the quarter grew significantly by -- significantly to INR 33 crores.

The cash conversion cycle in FY '24 improved to 150 days, down from 159 days in FY '23, largely attributed to reduction in inventory days. This reduction in inventory days can be primarily attributed to the removal of high value inventory from the system. In Q4 FY '24, advertising expenses was INR 22.5 crores, whereas in Q4 FY '23, it was around INR 20.4 crores. For FY '24, advertising expense was around INR 100 crores, keeping in line with our annual target of 6% to 6.5% of top line.

Our strong revenue outlook coupled with stable raw material prices and strong push towards premiumization will help us sustain and grow our margins.

The reception of our Force NXT activewear and women's athleisure product during the past quarter has been extremely favorable. For the quarter gone by Force NXT grew 32% year-on-year in value and 53% year-on-year in volume terms, which reinforces our commitment towards growth in higher-margin segments. For FY '24, Force NXT grew by 42% in value terms and 52% in volume terms.

Missy brand grew by 10% year-on-year, both in value and volume terms in Q4 FY '24. In FY '24, Missy brand grew by 7% in value terms and 9% in volume terms. The impressive growth observed in the Force NXT portfolio assures us that the premium segment will continue to be essential for maintaining sustained revenue and profitability growth in the future.

In Q4 FY '24, the premium segment portfolio, Force NXT, Force Go Wear, Thermal and Pepe, increased by 28% year-on-year in value terms and 52% year-on-year in volume terms. For FY '24, the same segment increased by 18% in value terms and 26% in volume terms.

Turning our attention to Project Lakshya. In Q4 FY '24, we welcomed 10 new distributors into this initiative, increasing our total distributor count to 290 from 229 distributors we had as on March '23. We are happy to state that Project Lakshya's contribution to the company's domestic sales has grown from 18.6% to 26.3% in FY '24. We are targeting Project Lakshya distributors to contribute 65% to 70% of our revenue by FY '26.

To further spend our reach and range, we are excited to announce that in FY '24/'25, the company will launch Project Lakshya in 3 new states: Madhya Pradesh, Jharkhand and Himachal Pradesh. Modern trade and e-commerce sales accounted for approximately 3% of our total sales in Q4 FY '24 and 4% in FY '24. Our goal is to raise this figure to around 8% by FY '26. Despite challenges posed by market dynamics, our strategic focus on delivering high-quality products, coupled with operational efficiencies has allowed us to expand our market presence. Thank you all.

Now I would hand over the call to our CFO, Mr. Ajay Patodia, to talk about the financial metrics.

[Ajay Patodia, executive]

Thank you, Ankit Ji. Good afternoon, ladies and gentlemen. Many thanks for joining the FY '24 earnings call. I will give a brief overview of the financial numbers for the quarter before we open for question and answers. I hope everyone would have got a chance to look at the earnings presentation and the press release by now.

While Ankit Ji already covered the macro outlook, I will try to explain in a more granular manner the financial performance of the quarter gone by. Our revenue from operations rose by 23% year-on-year to INR 500 crores in quarter 4 FY '24 from INR 406 crores in quarter 4 FY '23. Gross profit for quarter 4 FY '24, which is INR 153 crores, witnessing a strong year-on-year growth of around 53.6%. Gross profit margin for quarter 4 FY '24 stood at around 30.6% against 24.5% in quarter 4 FY '23, expanding by 609 basis points year-on-year.

The year-on-year margin expansion is indicative of the stability in raw material prices, which has posed a significant challenge to the industry during FY '23. Gross profit in FY '24 was INR 506 crores, a year-on-year growth of 22.6%. Gross profit margin was 32.2% against 29.6% in FY '23, expanding by 256 basis points.

Operating EBITDA in quarter 4 FY '24 saw a strong growth increasing by 405.9% year-on-year, reaching to INR 57 crores. Operating EBITDA margin for the quarter expanded by 865 basis points year-on-year to 11.4% in FY '24. Operating EBITDA increased by 61.5% to INR 159 crores in FY '24. Operating EBITDA margin for the year expanded by 304 basis points to 10.1%.

Profit after tax for the quarter witnessed a substantial 5,912% growth on a year-on-year basis, reaching INR 33 crores with PAT margin at 6.6% for FY '24. Profit after tax saw 71.7% year-on-year growth, reaching to INR 90 crores with PAT margin at 5.7%.

I would quickly run you through the brand wise contribution for the quarter. Dollar Man Big Boss contributed around 39%. Dollar Always Regular contributed around 44%. Our Thermal Regular products contribute around 2.27%. Dollar Woman contributed about 8.17%, and our premium segment contributed 4.25%.

We remain steadfast in our commitment towards our strategic priorities and growth pillars. As we pursue our long-term objective of sustainable growth and profitability following a strong quarter and our focus on premise, we are confident in our ability to achieve robust revenue and profit growth, both in current financial year and in the near future.

With this, we will now open the floor for the question and answer.

[Operator]

[Operator Instructions] The first question is from the line of Ankush Agrawal from Surge Capital.

[Ankush Agrawal, analyst]

Sir, can you tell me what was the like-for-like growth for Lakshya for Q4 as well as for FY '24?

[Ankit Gupta, executive]

Sorry, Ankush, didn't get the question.

[Ankush Agrawal, analyst]

What was the like-for-like revenue growth for Lakshya project for Q4 and for FY '24?

[Ankit Gupta, executive]

So initially in FY '23 March, we had around 229 distributors. And currently, we have around 290 distributors contributing around 26% of our total revenue, which was otherwise 18.3% of our total revenue. And if we look at the distributor sales growth, who was present in the last full fiscal year versus this fiscal year, it stands somewhere around 26% to 27% kind of a volume growth.

[Ankush Agrawal, analyst]

What would be the revenue growth, sir? What is the revenue growth?

[Ankit Gupta, executive]

It was 26% of our INR 1,575 crores.

[Ankush Agrawal, analyst]

No, that I understood. I just wanted to understand like what has been the revenue growth for distributors who were there in FY '23? So our overall business is grown by 13%, but for the Lakshya as key [indiscernible], what was the growth?

[Ankit Gupta, executive]

It would be somewhere around 18% to 19%.

[Ankush Agrawal, analyst]

18% to 19% because this number was 10% as of 9 months FY '24, the number that you gave me last quarter.

[Ankit Gupta, executive]

Sorry?

[Ankush Agrawal, analyst]

You said 10% in Q3 FY '24 con call that for the 9 months the like-for-like growth for Lakshya project is 10% revenue.

[Ankit Gupta, executive]

Yes.

[Ankush Agrawal, analyst]

Okay. Secondly, sir, what led to this sequential reduction in gross margins?

[Ankit Gupta, executive]

So overall, if you look at the figures, we have increased our gross margin from 30% to 32.3% for the whole year basis. And if you -- if you look at a quarter-on-quarter basis, there has been a reduction because Q2 and Q3 are mainly are the seasons where thermal product gets sold, which is a higher EBITDA product, higher gross margin product. So that is the main reason why there is some amount of reduction in the gross margin in the portfolio.

[Ankush Agrawal, analyst]

Okay. And like in the coming years, do you expect this gross margin to improve? Because I think in Q3, you have guided for 14% to 15% EBITDA margin at a INR 500 crores revenue base. So though we have achieved the revenue, I think the margin is materially lower primarily because of gross margins. But okay -- otherwise, and lastly, on the working capital. So our working capital has increased this year despite the fact that the contribution from Lakshya itself has increased again this year. So again, we have not seen the benefits of Lakshya projects, including revenue on a working capital.

[Ankit Gupta, executive]

So, Ankush, the thing is that overall, there has been a reduction of 9 days at a company level. The debtor days have come down by 2 days only if you take the average of opening and closing. But if you look at it like this because of Q4 in our industry is always heavy, right, and in this fourth quarter, our total revenue was INR 502 crores vis-a-vis total debtors, which is outstanding was INR 482 crores. So it was almost 90 days given the revenue in Q4. But overall, at a company level, yes, I agree that there has been just 2 days of reduction from 109 to 107 days. There has been a substantial reduction in inventory days which was 108 days last year, March -- like March '23 versus March '24, which is standing at 97 days.

[Ajay Patodia, executive]

And also, Ankush, we assure you once the contribution of the Lakshya project increase from 50% to 60%, then you get the effecting all total receivables also. As it has contributed only 26% so it is not visible in the figures. But when we completed the project Lakshya and contributed around 50% to 60%, it get visible in the figures also.

[Ankush Agrawal, analyst]

Okay. So like again on this, so how confident are you that [indiscernible] 65%? Because I think in the last 2 years, you have gone from, say, 9% to 26%, right? So about 15-odd percent chance. And now you're saying you will more than double this number from, say, 26% to whatever, 60%, 65%. So how confident are you that you will be able to do that?

[Ajay Patodia, executive]

Actually, last year, we added only one state due to implementation for launch of the Lakshya project. Current year, we are already 3 new states included for our Lakshya project implementation, that is, Jharkhand, MP and Himachal Pradesh. So when we implemented the many states that the contribution transfer from the normal states to Lakshya contribution. So due to this we can cover our target QY FY '26. Within 2 years, we can cover 60% to 65% revenue from the Lakshya Project.

[Operator]

The next question is from the line of Amit Shah from Finnovate.

[Unknown Analyst]

First of all, congratulations for a great set of numbers. I have recently started covering this company, and I was going through your previous con calls and management interviews, to understand about Project Lakshya, but I couldn't understand. So what exactly are we doing with this project that is different from general trade? And how will this project help us to gain the market share?

[Ankit Gupta, executive]

So through this particular project, what we are trying to do is, we are trying to increase the reach and range in the market. So increasing the number of retail outlets, thereby increasing the visibility of our product in the market. Secondly, also increasing the range like the different product categories that we have men's, women's, innerwear, athleisure, activewear, Force NXT, which is our premium product. So what we're trying to achieve is, we are trying to take more and more of our shelf space of a retail outlet as well as increasing the number of retail outlets who can actually keep our product and sell it. This is one thing.

This particular project will also lead to decreasing the overall working capital cycle once a substantial amount of contribution starts coming in from this particular project. So what happens in this project is we installed a distributor management system, auto-replenishment system at a distributor's end. So we get the visibility as to what the distributor is selling, to whom he is selling and at what frequency he is selling. So today, I have a clear data that at a particular pin code level, how many retailers are buying my product and at what frequency and which products they are keeping and they're giving a repeat order of which product.

So although the market intelligence are being gathered in the software itself. And so this is how we create a differentiating factor as to how others also market their goods or how we also used to market our products with the general trade old model. So this is a major differentiating factor. Through auto-replenishment system, we are trying to create a pull model instead of a push model, wherein the distributors stock gets replenished on a weekly basis based on whatever we he sells in the previous week. So this is how we control the channel stocks also and optimize the stock level at our levels.

[Ajay Patodia, executive]

Moreover, Amit, in innerwear industry, generally in distributor segment, any distributor average retail strength is around 100 to 150 retailers. But in our Lakshya project, the distributor enrolled in the Lakshya system has an average retailer of around 200 to 300. So in this case, the distributor has a strength of -- reach of 300 retailers. So in our industry, if you want to share of other brands and gain our market share, we have to take the connect with the retailer also because retailer in our industry is the key milestone who change the preference of the consumer because every consumer -- retailer has his consumer base.

And here we connect with the retailer and retailer also through telephonic system, through logistics, here we have an SOP in our project Lakshya that whenever retailer required, the product should be sent at their shop within 24 to 48 hours. So a retailer has not to maintain the working capital, his working capital decreases. So increase amount of -- surplus amount of revenue, we can contribute in other products also. So when the retailer buying our one product and due to surplus in working capital, he can choose more product also. So in this way, our project Lakshya main motto is to make a retailer so that all the product -- all the innerwear product in their shop is related to Dollar only. So this is the basic concept in this project Lakshya.

[Unknown Analyst]

Okay, sir. Got it. And I have one more question. Is brands like Zudio, which have a strong penetration in the economic segment through EBOs, introduce innerwear to that product portfolio at a competitive price, will we face intense competition given that the majority of our revenue still comes from the economic segment?

[Ankit Gupta, executive]

So our overall ASP at the company level is somewhere around INR 65. So matching that and being a pioneer and we have been spending in the advertisement from past 20, 25 years. And it has been a huge investment also. People know our brand. So I don't see them posing a major challenge. But yes, if we talk about moving into a modern retail or a modern kind of a shop and not going to a mom-and-pop store, that would cause a problem for the people who goes to a modern retail for purchases rather than a mom-and-pop store. But overall, our industry is majorly driven through mom-and-pop stores and normal MBOs, small retail outlets that we have. So we don't see that kind of a threat coming in.

[Unknown Analyst]

Okay, sir. And sir, if last question, if I can chip in. If you can throw some light on our debt position. It has almost doubled from INR 161 crores to INR 300 crores now. What's the reason for this? And any guidance on finance costs for the next year?

[Ajay Patodia, executive]

Generally, Amit Ji, this working capital loan is taken for the increased requirement of the working capital for inventory purposes. We have to grow for 12%. We have to target for INR 500 crores inventory in quarter 4. So it is taken only for the working capital purpose, and we expect this by this year, we have normalized the situation and return back around INR 120 crores, INR 125 crores position.

[Unknown Analyst]

Okay. Sir, also any guidance on the finance cost?

[Ajay Patodia, executive]

Finance cost, basically around our average finance cost combination is around 7% to 8%, so -- to the company. And it is around 1% of the total revenue -- at around 1% of total revenue. So once the working capital requirement reduce through internal accrual, so we think that this is also reduced to 70% to 75% in the current year.

[Operator]

[Operator Instructions] The next question is from the line of Parikshit Kabra from Pkeday Advisors LLP.

[Parikshit Kabra, analyst]

I think in the previous calls, we have given a guidance that by FY '26, we're expecting to hit about INR 2,000 crores top line, which seems to imply about a 15% top line growth for the next couple of years. I was just wondering whether that is still the guidance for this financial year? Or would you like to revise that upwards? Are you hoping to get 20%, 25% growth in top line this year?

[Ankit Gupta, executive]

No. This year, guidance would be somewhere around 12% to 13%. And for FY '26 also, it would be somewhere around 13% to 14% itself. So we'll be able to mask INR 2,000 crores in a couple of years.

[Parikshit Kabra, analyst]

So that's the part that I'm trying to understand why our guidance is only 12% to 13%? Arguably, that is almost nominal GDP growth. And with our project Lakshya and increasing coverage and in the places where our coverage is there, we are expecting to gain market share more aggressively, shouldn't we be hoping to get much more than 12% to 13%? Where is this number coming from?

[Ankit Gupta, executive]

See, so this year, we are -- we don't see any upward trend coming in, in terms of our prices. So there won't be any ASP change rather some change might be there, like a 2% to 3% change might be there because of the product mix change. But overall, increment of price is not happening much. So it would be mainly driven through the volume growth that we are seeing. And the industry has been growing at a rate of 7% to 8%. And what we are expecting is to grow volume by 11% -- around 11%, yes.

[Ajay Patodia, executive]

So as per release the total growth in our industry is around 7% to 8% but we aspire to grow 12% to 13%. You are certainly right that through Lakshya project, we can achieve more than 15% target. But we have the conservative approach so that we commit less and given the result for more.

[Parikshit Kabra, analyst]

Got it. Understood. And I think this question was asked previously only -- also, but I don't think it was fully answered, which was that we had given a guidance of hitting around 14% to 15% EBITDA margin. And we are currently -- even in Q4, we would have been at about 12%. So how are -- where are we seeing that extra 3% coming from? Are we expecting gross margins to improve? Are we expecting some kind of operating leverage, but I'm not sure where that leverage would kick in from?

[Ajay Patodia, executive]

Basically, in our initiative, we expect that 14% EBITDA margin is sustainable and we expect that current year, we had 100 basis point gain and next year, 100 basis point gain. So we achieved a 14% margin in around FY '26. The margin coming from the product mix also because we have currently 28% contribution from the high EBITDA premiumizing product, which we target to increase to 37%. And other than -- when your sales increase, your fixed cost is rationalized.

So our -- in absolute terms, we incurred advertisement of brand expenses of around INR 100 crores, that is around 6%. When your revenue increase to INR 2,000 crores, it is around 5%. So 1% is coming from the advertisement cost only. And like this, we have the -- another costs, which are rationalized when your revenue is increased. So in our industry, when you increase your revenue your cost is optimized accordingly. So according to this we had the project that might expecting INR 2,000 crore revenue, we have the 13% to 14% of available margin.

[Parikshit Kabra, analyst]

Got it. So because I was under the impression, of course, you're right that the employee cost as well as other expenses will get divided into a higher revenue number. But the advertising expense you are guiding to 6% of top line, right? So it's almost a variable cost.

[Ankit Gupta, executive]

So at a certain level, you don't need to spend 6%, 6.5% of your total revenue because I think INR 100 crores, INR 110 crores is good enough an amount to create visibility in the market and to -- is just enough like to be spent. And it's not that at INR 2,000 crore level, we'll be spending 6.5% of INR 2,000 crores, but it would be somewhere around INR 110 crores, maybe.

[Parikshit Kabra, analyst]

Got it. Understood. Sir, last question. In the last quarter conference call, you had mentioned that for Q3, your project Lakshya contribution was 29%. Can I get the same number for Q4, only for Q4?

[Ajay Patodia, executive]

It is around 21% in volume growth.

[Parikshit Kabra, analyst]

Not in terms of volume growth, in terms of contribution. See, I'm trying to compare the number if in Q3 the contribution was 29%, I'm hoping that number would be higher in Q4. That's what I'm trying to check.

[Ajay Patodia, executive]

One minute. Total contribution of project Lakshya is around 32% of the total contribution during the year in current quarter.

[Parikshit Kabra, analyst]

In current quarter, right? In Q4, 32% is project Lakshya.

[Ajay Patodia, executive]

Yes.

[Operator]

The next question is from the line of Resha Mehta from GreenEdgeWealth.

[Resha Mehta, analyst]

So the first question is that in FY '25, do you see volume growth -- value growth to be ahead of volume growth?

[Ajay Patodia, executive]

In FY '25, we expect volume growth mainly because currently, the price in the raw materials segment that is yarn and cotton is stable. And we expect more volume growth around 10% to 11% and value growth around 2% to 3% for this year.

[Resha Mehta, analyst]

And gross margins barring the high inflation period, we have been around 34%, 35% historically thereabout. So when do we go back to the historical gross margin? Will it be in FY '25 or FY '26?

[Ajay Patodia, executive]

By FY '26, we have the target to achieve that 34% sustainable gross margin.

[Resha Mehta, analyst]

Okay. And just a quick clarification. In your presentation at one place, when you give the revenue by general, it showed 15% for women while in some other slides, it is around 9% for women. So what's the correct number?

[Ajay Patodia, executive]

Actually, it is 15% for women. Basically, 9% is our Dollar Woman Missy segment and 6% contribution is added in our athleisure segment. That is a part of Big Boss -- athleisure segment, athleisure segment because we also launched the activewear in the Woman segment. So actually, if we take the contribution for Women segment, it is around 15% but 6% is from the athleisure and 9% from the leggings.

[Resha Mehta, analyst]

Got it. And would women and kids be higher margin versus the rest of your portfolio?

[Ajay Patodia, executive]

Yes, yes, you're correct. Our EBITDA level margin in women's and kid's segment is more than the men segment.

[Resha Mehta, analyst]

By how much, approximately?

[Ajay Patodia, executive]

If 12% to 13% EBITDA level margin in men segment, then there is 16% to 17% margin in women segment and kids segment.

[Resha Mehta, analyst]

Got it. And on the project Lakshya, so, can you please explain that why despite the increasing revenue contribution from project Lakshya, we are not seeing the improvement in the working capital. Because it was expected to reduce inventory and even receivables to an extent. Why is that not playing out? Because now 26% revenues from project Lakshya, certainly at the blended level, we should see at least some improvement on the working capital side?

[Ajay Patodia, executive]

Correct, you are very sure -- very correct. As it is contributed around 26% and figure is our 74% is our general sales -- general mom-and-pop stores. So our expectation is when we contribute around 50% to 60% of the sales from the project Lakshya then it is visibly in the -- our figures. And current year, we also implement from April '24 for S/4HANA. In S/4HANA, we also implement the production planning model. And production planning model, which is integrated with our Lakshya project server also, where we have the data for the last 3 years for every retailer requirement, every retailer buying trend.

So accordingly, we can optimize our production level. And accordingly, our inventory days also reduced, but it takes 1 to 2 years chance. For this, we have the target by FY '26, you visit -- you can see the effect of Lakshya projects in our overall working capital, whether it is receivable or whether it is inventory.

[Resha Mehta, analyst]

As of now, for the distributors which are onboarded onto the Lakshya platform, are you seeing a reduction in inventory and receivable days already? Or are we not?

[Ajay Patodia, executive]

Yes, yes. Already, our receivable days in Lakshya project is around 65 days. And then inventory days is around 70 to 75 days because in project Lakshya, we implement the ARS system. So inventory is required only as required by the retailer or distributor. We have said the SOP level and the economic order quantity for every distributor which is as per their service to the number of retailers. So it is basically a scientific model to reduce the inventory at distributor level and retailer level. So accordingly, our inventory days, normal is 97 days, but currently, if taken at project Lakshya level, distributor had the inventory of 60 to 70 days only.

[Resha Mehta, analyst]

This effectively means that while the improvement in project Lakshya distributors are happening on the working capital side, it's being more than offset by the work in working capital on the general sales channel. Then that is the only possible conclusion, right?

[Ajay Patodia, executive]

Correct. Correct. Correct.

[Resha Mehta, analyst]

Okay. And you're saying that we will see this slipping the -- substantial improvement in working capital only when the contribution from project Lakshya reaches the threshold of 50% revenue contribution, which happens -- around 50% to 60%, which happens hopefully by FY '26. Is that correct?

[Ajay Patodia, executive]

Correct. Correct.

[Resha Mehta, analyst]

All right. And also in the state, where you say that your project Lakshya, you have [indiscernible] distributors under project Lakshya. Typically what percentage of your distributors would be -- would have already onboarded onto this project Lakshya platform? And are you -- if some more color -- granular color you can give on are these distributors your large-sized distributors? Or they are largely small-sized distributors where you have a higher bargaining power and the larger distributors are still not wanting to onboard the platform for whatever reasons, I mean they don't want the data to be shared transparently or for whatsoever such kind of reasons. So can you just confirm some granular color on this of what kind of distributors are there or not there on the platform, large or small size?

[Ankit Gupta, executive]

So in project Lakshya, what is happening is we select a particular state, then we first start with the areas where we are weak, like on a district and a Taluka wise manner, right? So first, we try to control that particular area by appointing new distributors or requesting the old distributor to change to this particular model. First, we cover that particular area, then we touch the main feeding market where our big distributors or wholesalers are present.

So like what we did in Rajasthan was, Jaipur being the feeding market where almost 55%, 60% of our total revenue used to come from Jaipur itself in Rajasthan. So we covered the entire Rajasthan, we covered the outer area of Jaipur and then entered Jaipur and converted our big distributors into this particular project. So around 20% of our total distributors are already there in this project. So we have around 1,500 distributors at a company level, out of which 290, 300 distributors are already there in the project. So 20% of our distributors are covered and -- contributing around 26% of our total sales.

[Resha Mehta, analyst]

But most of the distributors who are [indiscernible], are they mostly mid and small size distributors and the larger distributors more or less are still staying away from this because they have a higher bargaining power?

[Ankit Gupta, executive]

No. See, if you want to cover the state, if we want to complete the state, ultimately, everyone has to come in. So the first set of refusal is being given to our old distributors and wholesalers. If they are okay with it, then we proceed. Otherwise, we appoint a new distributor. We don't give them any second chances. But yes, big distributors may cause a bigger dent. So we have been cautious over there. And initially, whenever we start a particular state, there is resident among the distributors as to -- because they have to change the entire infrastructure, the way of working is very different. And once we create 2 to 3 success stories, it's then that the distributors get more interested in coming into this particular project.

[Ajay Patodia, executive]

Also in case of big distributor, if there is -- they reluctant to join our project, then we cut their total area and appoint new distributor. So after some time, when they see that their growth history of the large distributor is more than their, so they self join our project.

[Resha Mehta, analyst]

Got it. And lastly, I missed the guidance for margins for the current financial year FY '25. So FY '26, you mentioned 14%. So what are we looking at for this financial year, FY '25?

[Ankit Gupta, executive]

So in revenue terms, it would be somewhere around 12% to 13%. And at the EBITDA level, it should be somewhere around 11.5%, 12%, kind of a thing.

[Operator]

[Operator Instructions] The next question is from the line of Yash Sonthalia from Buoyant Capital.

[Yash Sonthalia, analyst]

Congratulations for the good set of numbers. So there is a notable decrease in operating cost in the recent quarter, could you provide insights into the key factors or actions that contributed to this cost reduction? And how sustainable are these majors?

[Ajay Patodia, executive]

Yash, regarding cotton, it is now -- our MD has given interview on the morning on ET Now. And accordingly, our MDs already told that yarn and cotton market is more over currently stable position. And currently, we don't think any increase in the prices. So there is not any expectation that there is any cost increase in our model or any major changes in the cost structure.

[Yash Sonthalia, analyst]

Sir, my question is regarding operating costs. There is a notable decrease in operating costs this quarter.

[Ajay Patodia, executive]

Operating costs?

[Yash Sonthalia, analyst]

Other expense.

[Ajay Patodia, executive]

Okay. Other expenses is around INR 71 crores in this quarter -- INR 72 crores. With respect to December quarter, it is INR 57 crores. And last year, INR 67 crores quarter-on-quarter -- year-on-year basis.

[Ankit Gupta, executive]

So basically, it's driven because of the higher revenue levels. So last year, our revenue was INR 407 crores, and this year, our revenue is INR 502 crores on a consolidated basis. And that's why a lot of costs got optimized, like rent expenses, standard expenses, advertisement expenses. So last year, our advertisement expenses was around 7%, 7.5% vis-a-vis 6.5% this particular fiscal. So it's basically driven because of the revenue growth.

[Ajay Patodia, executive]

Basically, yes, we -- when the revenue is increased then fixed cost is optimized and rationalized. So current year, revenue is INR 500 crores, with respect for last year, INR 407 crores. But the other expenses is in absolute amount at same level only. So you see the decrease in the other revenue -- other expenses percentage.

[Yash Sonthalia, analyst]

Got it. And my second question is like going forward with the rampage of the project Lakshya, are there any material or impactful changes going to happen to our EBITDA margins like we are giving discount to retailers and incentive to retailers?

[Ankit Gupta, executive]

No, it will be at a similar level because even if we give some less schemes in Lakshya project, it has been compensated or taken over by the extra cost of people that we have to incur. We have to invest in the sales team, the infrastructure for the distributors, the DMS system, ARS and the tele callers. So all these things taken together, more or less, it's at a similar level. So no major impact would be seen.

[Operator]

The next question is from the line of Chirag Fialoke from RatnaTraya Capital.

[Chirag Fialoke, analyst]

Congratulations on a good set of numbers. Just one or 2 small clarifications. So this year, probably our advertising spend was close to INR 102 crores. Is that right? The full year?

[Ankit Gupta, executive]

This year about INR 100 crores.

[Chirag Fialoke, analyst]

INR 100 crores. And will be ballpark in the same region in the near, say, next 2 to 3 years? Do you think that's kind of enough to -- as a share of voice there?

[Ankit Gupta, executive]

Between INR 100 crores to INR 110 crores, we don't think it will increase more than that.

[Chirag Fialoke, analyst]

Much more than that. Understood.

[Ankit Gupta, executive]

[indiscernible] should be the apt amount.

[Chirag Fialoke, analyst]

Got it. Understood. And just a little bit of a drill down on some of the commentary from a few participants before me. Obviously, given that Lakshya has increased and Lakshya distributors deploy or use a lot less working capital, the x-Lakshya distributors have worsened and probably significantly in terms of their working capital requirements. Is there anything there which is a change or a departure from the way they used to work in the past. Could you just throw a little bit light on non-Lakshya distributors in terms of working capital, what have been the development? Why has it become a little worse in the last -- this financial year?

[Ajay Patodia, executive]

Pardon, can you repeat the last line?

[Chirag Fialoke, analyst]

The non-Lakshya distributors, their working capital drain on the system is obviously worsen, that's why the overall number is worse even though there's an increased share of Lakshya. So I'm just talking about the non-Lakshya distributors. Is there some one-off there? Or have they generally been on the trajectory of worsening working capital requirements, larger receivable days, larger number of inventory days that need to be held against non-Lakshya distributors. What is sort of going on there that is making that group of distributors perform worse than even sort of last year?

[Ankit Gupta, executive]

So Chirag, the thing is that at an inventory days level, if you compare it with the last year March '23, we have reduced it from 108 days to 97 days currently. And debtor days has been reduced by 2 days overall. But overall, if you see the non-Lakshya distributors, it's not that they have worsened. Yes, maybe in debtor days overall, we saw some movement happening in Q2, Q3 as well because the payments were slow in the market.

But at that point of time also, we stopped their billing, and we were not at all liberal with our distributors at that point of time as well. So yes, the debtor days is on a bit of a higher side. And with the increasing contribution from the Lakshya distributors, we should have seen more decrease in the overall debtor days. But it should improve in the near future.

[Ajay Patodia, executive]

More or less, Chirag, in Lakshya distributor, we have the DMS system and the ARS system implemented at the distributor level. So we have the knowledge of total inventory with the distributor or total receivable with the retailers. We have the knowledge at our distributor level. But in case of non-distributors, we don't have any of our distributor inventory and their retailers, deals and other things. And in Lakshya system, we support the Lakshya distributor through logistics through our salesmen -- exclusive salesman representative and through telephonic system. So that they get the better facility to reach the retailer more frequently.

But in case of non-Lakshya distributors, they have the limited capacity. Basically in moments of some distributors are proprietorship from our partnership. So there are only one or -- single or 2% there to manage the hold the business environment at distributor level. So for there, it is not possible to match the Lakshya distributor reach and space.

And more things like in -- for Lakshya distributor, we have the SOP. Accordingly, we have always tried to Lakshya distributors to pitch for the recovery from the retailer on a timely basis. But in case of non-Lakshya distributor, there is no such SOP. And as we have already seen Lakshya distribution system, we give the minimum guarantee to 18% to 20% of ROE for our Lakshya distributor. So that they have to follow our SOP to gain that 18% to 20% ROE. But in non-Lakshya distributor, there is no such requirement. So there is the debtor days and inventory days certainly some more than the Lakshya distributor.

[Chirag Fialoke, analyst]

Understood. Understood. And just to confirm, last year closing, the closing inventory was INR 357 crore, INR 360 crores. This year, that number is INR 486 crores, right? Is that correct? Is that the right number? Or am I getting that wrong?

[Ajay Patodia, executive]

Last year INR 357 crores. Correct, correct.

[Chirag Fialoke, analyst]

Understood. And there, on a stabilized basis, in say FY '26, when you reach the 60%, 70% coverage of Lakshya. What is your target inventory days, target receivable days at the system level? And also just define that for us, how do you look at basis on COGS or revenue?

[Ajay Patodia, executive]

Our target by FY '26, we have reduced our working capital days to 125 to 130. And out of 125, 130, we optimize our inventory at 90 days. Actually, in our industry, we have the inventory 90 to 95 days of optimum days and receivable days of around 65 to 75.

[Chirag Fialoke, analyst]

And inventory and receivables, in the denominator, we look at sales, is that right in terms of days or what is?

[Ajay Patodia, executive]

Right, right, right.

[Operator]

[Operator Instructions] The next question is from the line of Harshit Mundhra from Basant Maheshwari Wealth Advisers.

[Harshit Mundhra, analyst]

So congratulations on hitting exact revenue guidance that you gave and the EBITDA margins that you gave on the previous con calls. I wanted to know that -- on the previous con calls, you had told that you are focusing more on premiumization on athleisure. So right now, the revenue contribution of premium segment is 4.5% or so. So how much are we targeting to take it to?

[Ajay Patodia, executive]

Our total contribution from the high EBITDA margin product is around 27% in FY '24. And high EBITDA margin product we refer Force NXT, our premium product, our thermal contribution, our women's segment contribution and our kid's contribution. So currently, the total contribution of the revenue from the high EBITDA margin product is around 27%, and by FY '26, we have the target to achieve by 33%. So in 27%, athleisure contribution is also included. So...

[Harshit Mundhra, analyst]

Okay. Sir, the other question was, do we have a target of 125 EBOs by end of FY '26? And in the past 2 years after folding into EBOs, we have launched approx 17 EBOs, if I'm correct. So this year, we were able to launch just 3, if I'm correct. So are we not getting the traction or what is the issue because launching 3 EBOs...

[Ankit Gupta, executive]

Being ASP a bit low on a lower side, so it has its own challenges overall. And so we were trying to fix the problems that we faced in the last fiscal and we are very hopeful that we'll be opening up new stores. And by FY '26, we should touch around 100, 120 stores.

[Ajay Patodia, executive]

Basically, for average ticket size of the product is around 1,200 for breakeven in the EBOs. Currently, our ticket size is 700. So we are under thinking that when we premiumize our product, our ASP is increased. So by -- within 2 to 3 years, we can reach to open new EBO center accordingly.

[Operator]

As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Over to you, sir.

[Ankit Gupta, executive]

Thank you all for taking the time out to join the earnings call. I hope we have been able to address all your queries. For any further information, kindly get in touch with us. Thank you once again. Have a good day.

[Ajay Patodia, executive]

Thank you.

[Operator]

On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.