Electronics Mart India Ltd

NSE:EMIL

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Electronics Mart India Limited Q1 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Karan Bajaj CEO, Electronics Mart India Limited. Thank you, and over to you, Mr. Bajaj.

[Karan Bajaj, executive]

Thank you, Misha. Good evening and a very warm welcome to everybody present on the call. Along with me, I have Mr. Premchand Devarakonda, Chief Financial Officer, and Strategic Growth Advisors, our investor relationship advisers. We have uploaded our results and investor presentation for the quarter ended on the stock exchange and company's website. Hope everyone had a chance to go through the same.

The future for the electronic consumer durables business in India looks very promising. The growth of this industry can be attributed to several factors, including increasing purchasing power of mid-class and growing penetration of the Internet and smartphones. Other aspects like financial options and easy in availing financing for purchase consumer durables is expected to support the growth of the consumer durable industry. Our company is currently associated with more than 100-plus electronic brands with over 6,000 plus SKUs and has a long-standing relationship of more than 15 years with few brands, which operate in product categories such as large appliances, mobile phones and smaller appliances.

We started the year with a very strong performance with a 20% growth in the top line at INR 1,689 crores. EBITDA and PAT has grown substantially by 34% to INR 130 crores and 48% to INR 60 crores, respectively. Our margins have also grown and EBITDA margin stands at 7.7% and PAT margins stand at 3.6%, which were higher than the previous quarters.

In Q1 FY '24, we have opened 6 new stores. Currently, we operate 133 stores, 119 of which are MBOs and 14 are EBOs. Out of 133 stores, 111 stores are leased by the company, 11 are fully owned and -- 11 are fully owned and partly leased by the company today. As on date, we are present in 46 cities across 4 states. Mobile phone has been the fastest-growing segment with driving contribution to overall revenue by around 37% in the first quarter of FY '24. Large appliances are the highest contributing segment in terms of revenue. Large appliance contributes to around 49% to the total revenue today.

We have established relationships with the large brands in this space. Our interest lies in delivering a unique customer experience and fostering engagements. We offer an all-inclusive shopping encounter in a pleasing environment with the tactical store arrangement and ample checkout efficiency. We have implemented intelligent marketing to ensure our registry, customers stay updated on new schemes and offers that we keep on coming up with. EMIL recognizes the benefits of consumer financing as it allows to increase the average selling price without significantly impacting volumes.

To streamline the financing process, EMIL has invested in integrating with systems with financing companies to reduce payment realization time. The company offers consumer financing options through credit card, debit card, paper financing and EMI as well to select fintech companies and NBFC. By providing these options, the company aims to make it's products more accessible and affordable to a broader range of customers. The company steadily focuses on planning, sourcing our vendor management logistics, quality control, [indiscernible] control, replacement and [indiscernible].

We have improved our working capital days to 46 days from our historic number. Moreover, the company aims to enhance it's operational efficiencies and supply chain management. EMIL is well positioned to leverage these favorable conditions and continue delivering innovative and quality products to customers.

With this, I request Mr. Premchand Devarakonda, our CFO, to update you on the financial performance of the last -- of this current quarter, Q1 of '24. Thank you all.

[Premchand Devarakonda, executive]

Thank you, Karan sir. Good evening, and warm welcome to all the participants. Now I would like to present the financial overview of the first quarter ended 30th June 2023.

Our revenue for Q1 FY '24 stood at INR 1,689 crores as against INR 1,408 crores in Q1 FY '23 with a growth of 20% year-on-year. EBITDA for the quarter stood at INR 130 crores as against INR 97 crores with a growth of 37% year-on-year. EBITDA margin for Q1 FY '24 stood at 7.7% as against 6.9% in Q1 FY '23, shown an improvement of 80 bps. PAT for the quarter stood at INR 60 crores as against INR 41 crores at a growth of 48% year-on-year. PAT margin stood at 3.6% as against 2.9% in Q1 FY '23 with an improvement of around 68 bps. ROCE and ROE on annualized basis for Q1 FY '24 stood at 28.2% and 19.4%, respectively. The working capital days for Q1 FY '24 stood at 46 days. The gross debt-to-equity as on 30th of June 2023 was 0.2x, and net debt-to-equity was 0.1x, and our net debt-to-EBITDA stood at 0.3x.

Our cash flow from operations for the quarter stood at INR 129 crores, showing an improvement of 34% year-on-year. For Q1 FY '24, same-store growth rate stood at 13.6%. During the quarter, around 49% of our revenue came from large appliances, 37% from mobile and 13% from small appliances, IT and others.

On that note, I open the floor for question and answers.

[Operator]

[Operator Instructions] We'll take the first question from the line of Manoj Gori from Equirus Securities.

[Manoj Gori, analyst]

And congratulations for a strong set of numbers in such an uncertain environment. So my first question would be while we saw comparatively higher growth coming from the mobilephones this quarter, which was roughly around 48% and roughly around 12% from large appliances. So can you throw some light like what led to margin improvement? So was it because there has been improvement in Delhi NCR store metrics or probably anything else that you can highlight?

[Karan Bajaj, executive]

Thank you for the question. Yes, so what happens is broad -- on a broader level is that there was an improvement across our existing categories like large appliances as well, especially the Q1, which had a great improvement in air condition sales where the air-conditioner sales went up by 20% on Q1 FY '23 versus Q1 FY '24. And if you actually bifurcate the large appliance as a category, 30% growth came in from air conditioners, which contributes to one of the highest gross margins in the whole category. So I think that was 1 main reason for us that there was an improvement in the margins.

Number two, or most importantly is that the fixed costs that we have that were there, they were in line with what our expectation for a certain turnover was. So whenever we add up growth coming in from the existing stores or the threshold crosses up, so it directly adds up to the profitability of the company on an overall level.

Apart from that, extended warranty insurance business is what contributed to around INR 4-odd crores into the bottom line at the PBT level is majorly because we started doing insurance now. We started a few quarters back and then started showing us results. So there has been improvement across high profitable categories like extended-warrantee air conditioners. And definitely, there was growth coming in the mobile and IT category as well. So overall, it was a great product mix that gave us this number with a lot of control over our cash-back offers, our NBFCs, cost and all, try to renegotiate offers there as well. So it was a blend of everything, all the efforts put in to make sure that we increase our margins and our EBITDA levels.

And definitely, to answer your second part of the question on the Delhi operations. Q1 last year, we were just -- did a soft launch for one of the stores at Preet Vihar, whereas this year, we were operating with 13-plus stores in that division. So, definitely, we saw around a INR 75 crore top line contribution coming in Delhi. And Delhi, I could say very confidently that it is on the part of breaking even very soon so -- though there are some costs that are incurred there because we are operating better, larger places there today because it spreads across Haryana, spread across Delhi city and UP in Noida and Ghaziabad. So there are little more efficiencies to come into play with more productivity to get better in the coming times. So we are in part of doing that. So once we achieve that, I'm pretty sure you will see a much better result coming in from that region as well.

[Manoj Gori, analyst]

Right, sir. Sir, on -- just to continue on the Delhi NCR market, you said probably we are nearing towards breakeven. So probably like the initial time line that you had set for yourself to achieve breakeven, are we likely to achieve it relatively faster?

[Karan Bajaj, executive]

So sir, I would try to stick on the initial, I think it's given of 18 to 24 months that you would be achieving that number. So definitely, as operational breakeven would be coming a little more sooner than that. But, when we look at breakeven, we look at everything else. So we are on track on doing that. And this is irrespective to the summer season being real bad there, because it was pouring throughout the summer, and we could not definitely sell air conditions and cooling products [indiscernible] air conditioners and air coolers both. So once -- very soon once things get better there, with the numbers that we performed without contribution coming in from the cooling products, we are pretty sure that in the next coming few quarters, we'll be able to reach that goal.

[Manoj Gori, analyst]

Right, sir. Sir, lastly, on the demand front, can you throw some light like how do you read the overall demand? Obviously, South is relatively better this year as compared to the other geographies? But with normal seen demand environment, probably any revival you are seeing in Delhi NCR based on your feedback? And probably, if it normalizes, this should trigger further margin improvement at gross level. Is that understanding correct?

[Karan Bajaj, executive]

Sir, definitely, yes. So whenever there is an improvement in the productivity, the gross margin levels and EBITDA levels both go up. But there is always a threshold that we can't exceed because the market acts that way. There are seasonality factors, there are trends in the market which influence a lot of these things together. So on a whole, we would be tending on a similar line, and our expectation on the numbers will be very similar to what we have projected and definitely our efforts are going to be to make sure that we definitely cross them, increase the productivity, increase EBITDA margins or negotiate better with our vendors.

So it's a mix of everything, again, as I told you. So -- but now we see the trends being positive, especially across all categories. We don't see a downturn towards any of the category -- product categories that we're dealing with, it will be premium products, televisions, the air conditioners, mobile phones, IT products. So I think there's a huge demand coming in. And once we establish more stores, once we grow in the clusters that we usually grow in -- with the pipeline so that we have in the Delhi NCR region, in the Telangana up country market, Andhra up county market. Once we finish that, a few more stores coming up before Diwali, a few more stores coming up before the summer next year. So once we grow those stores up, I'm pretty sure that we'll definitely see better traction coming in.

[Manoj Gori, analyst]

Got it, sir. Got it, sir. That's all from my end. Thank you, and wish you all the best.

[Karan Bajaj, executive]

Thank you Manoj.

[Operator]

We'll take the next question from the line of Nikunj Gala from Sundaram AMC.

[Nikunj Gala, analyst]

Sir, first question on Delhi market. Sir, I think last year, in the month of August, when we started our operation in Delhi, and I just want to understand how those stores KPIs are working, whether expect -- your expectation in terms of consumer demand or offtake, which you had anticipated, it's going as per your estimation or some kind of a [indiscernible] which you can help us understand that better? That how is KPIs in those markets where you started 1 year ago are tracking?

[Karan Bajaj, executive]

So, yes, Delhi has been a very different market that we entered now from our historical markets that we've been present. And I would see Delhi very differently in the regions that you operate there in. So North Delhi is very different as a product categorization, price demand, or customer preferences are very different in Delhi itself, Gurgaon, it is different than Faridabad to North Delhi to South Delhi to East Delhi to West Delhi.

So we see that the learning has been really good. We were able to adapt -- make some changes on the floor very immediately. So that is what is needed in detail. So you can't take up a lot more time to grasp what the customer needs, what is going on in the floor there. We need to keep on changing. You can't be stuck to one idea or ideology that you do back home is going to be the same idea or success mantra there in that market. It has to be localized and that is what we adapting to and that has been working for us. And it would be too early for us to say that we have established ourselves and we become really big.

But we are on a trend path to reach our breakeven. We are in the path to achieve INR 25 crore to INR 30 crore benchmark for each store that we projected for and not -- so 13 stores today operational there in that region. And also, they are on par and performing that. A few of them might be a little lower than 10%, 15% than our expectation, but we're on track to fix that problem as well to make sure that the productivity of those stores also improve and an overall branded average number becomes what we expect there in the coming times.

[Nikunj Gala, analyst]

Yes, that's encouraging comment. Like as per earlier expectation of some categories, we might have anticipated we'll do well. But when you actually enter the market, the scenario can be very much different, right?

[Karan Bajaj, executive]

Very good, very good.

[Nikunj Gala, analyst]

Yes. And just secondly, the kind of the consumer discretionary across the categories, we have seen the weakness in the demand. In your southern market, I understand you are slightly on the premium side of cohorts. But are you seeing some kind of weakness in the consumer behavior in terms of down trading or any sort of behavior you can help us with?

[Karan Bajaj, executive]

So I would not say that there would be -- that we've experienced not us, but the market overall has not also experienced such a downtrend. Firstly is because if I talk about, yes, we have a little more leeway than the market because we sell a lot more of premium. But at the same time, our Tier 2, Tier 3 cities also started performing really well. So we've seen growth coming in from those regions as well where we would anticipate that there would be a little slowdown. But in fact, the growth has been excellent in that territory as well.

So overall, through affordability, through NBFCs, to the offers that we keep on running, EMI, credit card, debit card EMI, cash backs and all of that, I think it worked really well we didn't see a downturn demand. The only negative that we saw in quarter was a little slow down on the cooling product category because of the range across territory that we were operating in. But by the end of May, first week of June, it started picking up again, and that is what we could deliver a higher growth in that category during that quarter.

[Nikunj Gala, analyst]

Sure. Okay. And my second last question is on the competition. Have you observed any increase in the competitive intensity of late both from organized or unorganized players?

[Karan Bajaj, executive]

So our competition has always been a part of the show everyday. So there is something on other keep coming up through either a moment of store or 2 large LFRs or modern trade retailers. So it is part and parcel of the game. And you just need to counter it. Because at the end of the day, we are all selling the same product, you just need to differentiate how you sell it. And what offers do you provide your store with to compete against them. So that is where the whole game is that you have to be alert and make sure that you're comforting every offer that comes your way.

[Nikunj Gala, analyst]

Sure. Yes. And just lastly, the expansion plan, which we had earlier for FY '24 and '25, they are on track as per our current estimates?

[Karan Bajaj, executive]

Yes, yes. We are on track. We've opened 6 stores in the Q1 as we talked also. We've opened a few more stores, which were getting ready. So the plan of opening the decent number of stores, we were definitely touching them because we've negotiated for a few of the stores in Andhra, in Telangana, even in the Delhi NCR region. So today, our focus mainly is going to be to make sure that to cover up territories where we are not present and then deeply expand into the existing territories as well.

[Operator]

We'll take the next question from the line of Bajrang Bafna. from Sunidhi Securities.

[Bajrang Bafna, analyst]

Congratulations for a good set of numbers. Sir, just on the Delhi side, if you could just guide us I think we have opened 13 stores, which were up and running last quarter in Delhi. So what is the breakeven point that you are looking at cumulatively put together those 13 stores in Delhi and what is our experience. I think Q1 is relatively better because of the seasonality factor due to big summer. But going by the trend, we are already done away with the half of this quarter. So what is the sense on Delhi side and your experience, if you could share so far? And the expansion plan, especially in Delhi? That will be really helpful, sir.

[Karan Bajaj, executive]

Okay. So sir, as initially projected, whenever we do a store predominantly in the existing geography, we would look at a much sooner breakeven than the new geography like Delhi NCR that we have entered. But the benchmark of every store that we calculate to breakeven, the range is between INR 25 crores to INR 30 crores. So we try to project a store at INR 25 crores to INR 30 crores in the first 12 to 14 months of operation, and then for it to set in breakeven at 18 to 24 months because it's being a newer geography. So we are on part of doing that. So to add a INR 25 crore average per store to 13 stores operational, we would look at a cumulative number of around INR 300-plus crores for year 1 coming in from that engine.

So the 14th of August this year, we celebrate our first anniversary where last year, we opened 8 stores on the 14th of August. So the stores are performing in Delhi with the first 8 stores out of the 13 that opened up. We signed up a few more stores that are getting ready, which are yet to launch in that territory. So by Diwali, we plan to add up another 3 to 4 stores in that region. And by next summer, we plan to add up another 3 stores, a total of 6 stores in the pipeline for that region. Idea is to reach around a store count of 23 to 25 stores by the next financial year.

So that is on track, sir. Definitely, yes, it is a very high demanding market in terms of the pricing there in terms of real estate. So we have to make sure that we negotiate correct for a longer lease on buying out a property or whatever the plan is. So we have to make sure that it fits into our budget. The area fits in, the property is really nice, clear title properties. So all of those things take up a lot of time, and we are on track on that number. So we're quite confident that once we establish ourselves by next year, further down with more number of stores because currently, we are not even present in the largest market where competition prevails in those markets like Lajpat Nagar, Janakpuri, Pitampura, Rohini, Gurgoan Sector 29.

So a lot of these markets we are not even prevalent today. Once we establish stores in those markets which are coming up in the next 6 months, we know that the brand is going to definitely reciprocate to those markets and help us grow better than that market.

[Bajrang Bafna, analyst]

Got it. Sir, have you achieved this INR 200 crore kind of those 8 stores which you opened last year? What is the cumulative number, just a ballpark number, if you could just guide?

[Karan Bajaj, executive]

Sir INR 20 crores to INR 25 crores I told you that is on track for the stores.

[Bajrang Bafna, analyst]

Okay. Those 8 stores that we opened last year.

[Karan Bajaj, executive]

It was the first plot, we opened on the 14 August '22 are on track of delivering that number, sir.

[Bajrang Bafna, analyst]

Got it. And sir, in the Delhi side, since it is a new cluster for you, what is that probably the top line number that you are looking at, which could take care of your entire logistics cost, the warehousing cost that you are building up there? Just from a broader margin perspective that you normally enjoying in the southern region. So what is that magic number that you believe that will take care of your -- the overall fixed cost that you're going to incur?

[Karan Bajaj, executive]

So sir, if I look at that number, it might differ quarter-to-quarter because Q1 would be a little heavy on the -- the cooling products where the margins are going to be higher versus Q2, Q3, Q4. But if I look at the total annual number -- annualized number on that cluster, it would be upwards of INR 300 crores, where we'll be quite comfortable on not burning too much money what we did initially last year because we're setting up stores and all it was a new market, we had to spend a lot of advertising on all and on marketing. So about INR 300 crores, INR 320 crores around that number is where we'll be quite comfortable, sir.

[Bajrang Bafna, analyst]

Got it. And sir, on the southern side, since we are half the quarter, so are we still guiding that we said that 20% is something that we will be comfortable to grow with so growth guidance remains intact and the margin you guided that will be closer to that 7% mark? So we stay by those numbers, which we guided in the next quarter.

[Karan Bajaj, executive]

Yes, yes, yes.

[Operator]

We'll take the next question from the line of Nirva Vasa from Anand Rathi.

[Nirav Vasa, analyst]

Would it be possible for you to share some data on the growth prospects that we have delivered across our Andhra and Telangana region?

[Karan Bajaj, executive]

Yes, sir. So if I give you a number from 25 stores last year in Q1, we've added 4 stores in that cluster in Andhra region to make it a 29 store count today where the revenue has gone up by 47%. So this is a huge SSG as well because the stores were new in the Tier 2 and Tier 3 cities, as we've mentioned in the previous calls. So those stores have also established, started delivering us, even the number of the targets that we usually have for our existing stores. A 47% was the growth coming in from the Andhra cluster getting so definitely, we didn't have a base last year. So the contribution of around INR 75 crores came in from Delhi towards -- in this quarter.

And Telangana Hyderabad City stores were up by 11%. So we got a lot of these stores, almost 95% of the stores here are the mature stores, which are over 5 years. We could see that [indiscernible] also performed really well, and we could deliver 11% growth in this existing mature store category as well. Around 25% growth payment from the Telangana up country market, sir, where we added up 3 stores from 17 Q1 '23 to 20 stores in Q1 '24, where the revenue was up by 25%. So these are again clusters where we add a lot of mature stores, which are about 3 to 5 years old. So you saw a good demand coming in from the existing markets. We were able to increase the productivity [indiscernible] there. We will improve our bill sizes and ASPs went up across category.

So I think it was a good sign that Tier 2 and Tier 3 cities also started adapting to high-end products, higher ASPs for categories like mobile phone, televisions, air conditioners and let me get these all put together.

[Nirav Vasa, analyst]

Sir, the other question is specifically pertaining to panels. So as we are -- we must be aware that the World Cup is expected to be hosted in India in the forthcoming months. So just wanted to pick, are you forcing an exponential demand for high-end panels, considering these kind of sporting events? And historically, whenever India -- whenever there was a Cricket World Cup, was there any statistical evidence wherein we reported an exponential increase in demand for panels?

[Karan Bajaj, executive]

Yes, sir. Actually, it's a good point that you raised. I think cricket is a religion in India. So whenever there is an event like this, especially at that scale, we would definitely see an increase in not only high-end televisions but also the sound bars and a little bit of audio category, the role of home entertainment on a whole gets the right. So we've already seen trend post-COVID where big screen or big size televisions have increased a lot.

So today, if I give you a breakup, only 6% of our contribution comes in from 43 and below category, rest of it is all 55 and above category only for us -- 55 inch and above category. So today, we strongly believe that, that is growing and there's a good technology coming in with OLED and 8K and all, I think the viewing experience is enhanced and people want to experience that in a big screen in their houses.

[Nirav Vasa, analyst]

Sir, the other question that I would like to ask is pertaining to the premium in-built appliances. So what we are seeing right now is that all the leading brands, which are there in the kitchen industry as well as in the FMEG industry, they are all rushing to get into the premium in-built category. So I believe we also have 1 store format, which is catering to the higher premium appliances. So just wanted to understand what's the kind of growth prospects that we see in this category? And how can we -- are we in the process of adding new channel partners among this?

[Karan Bajaj, executive]

Sir, built-in as a category is very new to other as well as to the market. On a whole, we have a specialized store format called Kitchen Stories.So what we do is we've learned a lot of input because kitchen appliance built-in category is not like an off-the-shelf category where customers come and pick up something and go, it has to do with back and forth with drawing what the kitchen sizes are, what the cavities are made in kitchen because everything was built-in so the cut of the product had to be fitting in properly in the kitchen wardrobe or the kitchen design.

So there's a lot of back and forth in this category. Definitely, it is growing at an accepted category. So people are ready to spend money when they're making a built-in appliance category, they are ready to spend money to put in a microwave or to put in a built-in house chimney and an oven. We have experimented and we've got good results on that. But the brands that we deal with are the same brand that will continue more to deal with the [indiscernible]. So these are the top brands that we deal with, and we want to continue dealing these brands only because they are masters in their product categories. And these product categories will have specialize technology that customers want. So that is where we see demand growing for these categories. At the same time, it is not going to be the quantum of what we would do for a freestanding appliance category.

[Nirav Vasa, analyst]

My final question will be pertaining to our Delhi [indiscernible]. So like as I understand, our Delhi [indiscernible] seems to be quite on track. So would it be possible for you to tell me what are the final count of stores that we intend to have across Delhi cluster in maybe by end of FY '25 and after which we would be looking at a newer cluster? Any finalization on the newer cluster or something that -- all like that would be really helpful?

[Karan Bajaj, executive]

So sir, as we had initially projected, we would be crossing account very comfortaby 25 stores in a cluster. So the biggest advantage in Delhi NCR is that we're not catering to 1 single location. So we will be catering to the extension from the Haryana side of Gurgaon, Faridabad, Greater Gurgaon, Manesar, that belt until the whole of Karnal and Ambala belt up till the GT Karnal Road to Chandigarh. So that is a huge opportunity available for us. On the other side, it is Noida, Greater Noida extension, Meerut. On the U.P. side, we have that belt also available with you. And then Delhi, Central Delhi, North Delhi, South Delhi, East Delhi, West Delhi where we had marked down 20, 24 locations out of which we are still only operating at 10, 12 locations where we need to expand where the newer stores are already getting made like Daryaganj, Janakpuri, Pitampura, Rohini, Lajpatnagar.

So there are a few pockets left in the existing market in Delhi. Once we cover up all these areas in and around Delhi, I think it's a huge potential for us to grow to at least a 30, 35 store count in the next couple of years.

[Operator]

[Operator Instructions] We'll take the next question from the line of Krisha Kansara from Molecule Ventures.

[Krisha Kansara, analyst]

Sir, congratulations on a very good set of numbers. Sir, I actually missed that number, which you gave for the contribution, which came from Dell NCR stores. So could you just repeat that?

[Karan Bajaj, executive]

The number is INR 74.4 crores for the Q1 came in from Delhi stores, 13 stores operations that is.

[Krisha Kansara, analyst]

Okay. Okay. So none of the store is currently at the breakeven level, correct?

[Karan Bajaj, executive]

Not at this quarter. But by the end of this financial year, we'll definitely be crossing the breakeven number.

[Krisha Kansara, analyst]

Okay. Okay. And sir, what would be the advertisement cost for this quarter?

[Karan Bajaj, executive]

So the advertising costs for this quarter will stand around INR 12.5 crores approximately.

[Krisha Kansara, analyst]

Okay. But excluding the sales promotion expense.

[Karan Bajaj, executive]

Sales promotion is something else. The sales promotion is not marketing, but it is directly linked to the NBFC costs and all the other costs that we incur while selling on the floor.

[Krisha Kansara, analyst]

Okay. Sir, what would be that number?

[Karan Bajaj, executive]

That is more -- sorry, INR 43.8 crores compared to INR 35.3 crores in Q1 FY '23.

[Krisha Kansara, analyst]

Okay. Okay. And like how much of this would be for Delhi NCR?

[Karan Bajaj, executive]

So this would [indiscernible] calculation, it would be around approximately INR 2.8 crores for that region in Delhi NCR.

[Krisha Kansara, analyst]

Okay. Okay. Like inclusive of the sales promotion expense?

[Karan Bajaj, executive]

I'm talking about sales promotion and advertising and promotion together for that region would be on INR 3.7 crores approximately for Delhi NCR.

[Krisha Kansara, analyst]

Okay. Okay. Got it. Got it. And sir, you mentioned the growth rate, which came from the AC segment. So was is 30%?

[Karan Bajaj, executive]

So the total -- the overall growth that came in from the large appliance contributes to televisions, refrigerator, washing machines and air conditions on a whole. The whole category went up by 11.59%, whereas if you actually break it down to each category, air conditioners grew by 50% in that category. So if I give an absolute number, the total is 11.59% in the large appliance category. But if I break it down to individual number, 30% was the growth that we saw in the air conditioner business during that quarter.

[Krisha Kansara, analyst]

Okay. 20 to 30. I just...

[Karan Bajaj, executive]

30.

[Krisha Kansara, analyst]

30, okay.

[Karan Bajaj, executive]

And this is after the slowdown where April, May, it was pouring and Delhi thing perform as well because Delhi was aiming throughout the quarter. June 1 to turn the game around where it started performing really well.

[Krisha Kansara, analyst]

Correct. That was my follow-up question also. So because in the last con call, you had mentioned about this slowdown. And it was especially related to the South geography. So like how was the situation in Q1? And also if you could guide us about the current situation? That would be helpful.

[Karan Bajaj, executive]

So March -- when we had a call after the March, so we've been discussing that the weather was not supporting it. It was -- we were seeing a little slowdown because of the weather across the region that we're operating in. But June outperformed our expectation in doing a bit really well especially on air conditioner, whereas you could see a little slowdown on the air-cooler business because it didn't pick up that well.

So there is always a seasonality that changes a lot during the summer quarter. So -- but by the end of June, we saw a huge growth coming in, especially if I just compare June to June month on a whole, the growth was very high. It was almost as is 80%, 85% for the air conditioner business in June on June, on a single month. So overall business grew up by 30% and that was a great help. And July also -- if you see the trends are in part with what we would expect for this quarter also going forward, especially in that category. Definitely, this is not the quarter for summer, but we would see a little reflection of spillover coming in from that quarter into this quarter.

[Krisha Kansara, analyst]

Okay. Understood. And sir, my last question is regarding the gross margin. So we saw an improvement in our gross margins in this quarter. So can we take this level of gross margin as a sustainable level?

[Karan Bajaj, executive]

Yes. So it can be a sustainable level going forward as well. But there will definitely be an improvement in gross margins, which would -- because there would be product differentiation where a quarter might be heavy on higher gross margin product category like appliances, refrigerators, or air conditioners versus another quarter where summer is not equal to the Q1.

So there would be different gross margin levels coming through, but it will be in line with what we delivered in the past. It will be in line with what we delivered in Q1. So there will not be a drastic change coming in the business until there is a seasonality or a special occasion like a Diwali Dussehra period, where you would see improvement in or growth in the large appliances or the television business where they contribute to higher gross margin.

[Krisha Kansara, analyst]

Okay. So leaving Q-o-Q gross margin aside, but I'm talking about the yearly run rate. So can we maintain this 15% kind of gross margins on a year like annual basis?

[Karan Bajaj, executive]

Yes. So I could just -- so I could just suggest to you that it would be in line with what we are doing right now. And at the same time, it could definitely -- probably there might be a change of a few basis points plus or minus, but not much on that. So it would be in line with what we are performing at now because we're trying to negotiate better with our vendors because the scale is going up, our operations are getting more efficient, our NBFC costs are coming down at the other side where we are negotiating with NBFCs is the biggest cost to us.

So those kind of things, so we're trying to improve our productivity also first. So all of this put together would give you that number. So we're definitely in line with going forward also on the same track.

[Operator]

We'll take the next question from the line of Drashti from Thinqwise.

[Drashti Shah, analyst]

I wanted to know it's okay to share what's the consumer product on finance for this quarter versus last quarter? What's the proportion of sales that happened on finance?

[Karan Bajaj, executive]

So a, on average, we do a 55% to NBFCs. So it might defer to NBFC to NBFC like we deal with a lot of NBFC like Bajaj Finserv, IDFC, TVS Finance now, ICICI, then you have credit card, debit card penetration as well to HDFC, SBI Cards, ICICI cards. So that mix more or less remains at 55% on the total business. But internally, it might grow 5% a year and there with different NBFCs and Cards. But the overall business contributing to us comes at 55% from NBFCs or Credit Card Debit Card EMIs.

[Drashti Shah, analyst]

Yes. Specifically, I asked this question because you mentioned that you are seeing a Tier 2, Tier 3 city growth also doing very well. And it's also because of consumer finance penetrating in those cities, et cetera. That has increased or it's been stable like as 55%?

[Karan Bajaj, executive]

So if I give you a breakup there, initially, like if I compare it to 5 years back or 3 years back, definitely, yes, we had less number of stores. At the same time, there were only Bajaj Finserv or 1 or 2 other players there operating out of the region. Definitely if I give you a split, the metros like Delhi, Hyderabad will contribute to a much higher number on Debit Card or Credit Card EMI versus paper financing is much stronger there. So if I give you a split on that, it would be 75% of paper financing in my Hyderabad store versus 25% of EMI through Credit Card and Debit Card. Whereas it will be 95% in the Tier 2 and Tier 3 cities with paper financing and 5% only through Credit Card and Debit Card EMIs on the machines over there.

[Drashti Shah, analyst]

Okay. Okay. This is helpful. And my second question would be, do we -- what impact do you see because of the ban on imports of the IT products for your kind of commitment?

[Karan Bajaj, executive]

So anyway, so we usually have run rate stocks lying with us. So that is no problem. The brand manufacturers, vendors also have a lot of stock available with them. was definitely a temporary arrangement that was like a temporary scale that was out there in the market that they would be shorter to stock. But then the bigger brands, they all align themselves and everything is compliant. So for them, it is going to be no problem on procuring stocks and anything with us, we will not have any issues in procuring stocks going forward as well.

[Drashti Shah, analyst]

Okay. So you don't see any impact?

[Karan Bajaj, executive]

Not really, not really.

[Drashti Shah, analyst]

Okay. And my last question would be have you resorted to any discount -- have you resorted to any discounts in the June quarter for AC specifically because suddenly growth [indiscernible]?

[Karan Bajaj, executive]

So in our business, if there is a discount, you will see that in the reduction of the profit as well. But now the numbers are out there for you to compare it to the previous quarter and get your understanding on -- so the discount was not done, if I tell you there. So because June anyway is a part of the summer period that we operate in.

So we didn't see any de-growth or any desperate measures to be taken in any of the quarters not now, but even the previous -- even the COVID year for that matter, we were heavy on stock in the air conditioners, never discounted practically to liquidate our stocks. Because, these are all stocks that are negotiated well with vendors, they all make sure that they protect you. So there's never a discounting that helps us grow the business and it's always temporary and we don't usually want to get into that practice because it is not a healthy practice for us and even for the staff on the floor to get in the whole discounting process.

[Operator]

The next question is from the line of Naitik Mohata from Sequent Investments.

[Naitik Mohata, analyst]

And congratulations on the good set of numbers, sir. So most of my questions have been answered. Just 1 question regarding the inventory days. So I think that inventory days has gone down by 20 from 60 days to 40 days during the quarter. So if you could just throw some light on what has facilitated that? And do we see this number being sustainable in the future?

[Karan Bajaj, executive]

Yes. So great question. So if I just compare the number of days, definitely we've gone down, it is majorly a comparison from the March -- sorry, last quarter, if I look at the last quarter, mainly because of the sum of cooling product category, decrease in inventory majorly happened in the cooling product categories, which was refrigerator, air conditioner, and air coolers. So because it was pouring out here, we made sure that we don't carry that many air conditioners and air cooler that we usually would do during the summer period. Because the peak sales of summer actually did in second to the March, April, May period. So that is why you would see a reduction in inventory.

And only the quarter that inventory goes up in our calendar is during Diwali, Dussehra quarter, that is Q3. So again, you would see a higher number coming in setting in during that quarter, and then eventually reducing by the end of Q3 and then entering of Q4. The 2 quarters, you have to maintain inventory at higher levels. And then this year because it was strictly because of the weather that we had to control cost and make sure that it is in line with the sell-out that we do because the sellouts were lower during that initial period of the quarter beginning, we had to reduce and maintain, that is how it trended down to by the end of June.

[Operator]

The next question is from the line of Tushar Sarda from Athena Investments.

[Tushar Sarda, analyst]

I have 2 questions, they're related. I just wanted to understand your margin because I thought the Delhi store openings would have dragged the margins a bit. So if you can give details on the operating expenses and Delhi salary and the fixed cost? And is there a drag on the margins because of the Delhi store? Because they would have just probably reached about breakeven level of -- below breakeven level?

[Karan Bajaj, executive]

Yes. So Tushar, sir, so Delhi on a whole, if you see, this contributed to INR 74.4 crores or INR 75 crores or roughly in that total quarter of INR 1,600-plus crores. So if I just give you a breakup, definitely, yes, there were other costs involved the breakeven level, a little higher number for that digit. But then there is a lot significant impact. If I say that even if they would have improved to INR 100 crore, INR 125 crore sellout, they would have performed [indiscernible] would not come into play.

There was a very nominal number of change that would have happened or dragged the margins of INR 2 crores here and there, not much of a major impact because the contribution itself is quite low. Once we reach a level where -- but the margins are in line because we performed whatever we sold there were in line with what we were selling in our existing markets. There were ever a discounting done or never difference in the vendor margins that we got from our OEMs. So that way, it was in line...

[Tushar Sarda, analyst]

That I understand, therefore, your gross margins would be lower because your sales are lower, but the fixed expenses, we are already incurring, right? Because you're paying the rent, paying the salaries...

[Karan Bajaj, executive]

Tushar sir, if I give you the exact number. So the overall operational cost there was an approximate burn of around INR 3.5 crores in that region.

[Tushar Sarda, analyst]

That's it? You have 13 stores, right?

[Karan Bajaj, executive]

[indiscernible] in store, that is operational is the 14 stores, which is the [indiscernible] store in Gurgoan.

[Tushar Sarda, analyst]

So only INR 3.5 crores for 13 stores for the quarter?

[Karan Bajaj, executive]

Yes, sir. Yes, sir. Yes, sir.

[Operator]

We'll take the next question from the line of Deepak Poddar from Sapphire Capital.

[Deepak Poddar, analyst]

And many congratulations as a great set of numbers. I have only 1 question around your EBITDA margin. I think in the previous call as well, we were of the view that 6.5% to 7% would be a benchmark EBITDA margin that we generally look at in our business. But now with this better product mix and higher AC sales this quarter, our EBITDA margin has gone up to 7.7%. I just wanted to understand how benchmark margin, are we moving it to 7% to 8% or 6.5% to 7% would be the benchmark margin we would...

[Karan Bajaj, executive]

I would like to stick to the older number only. So it will be in line with that. Definitely, as enhancement is going on, as I told you like we've added up extended warranty insurance business that has started doing very well, all the business picked up. AC did quite well. Mobile productivity increased. We've started negotiating better with our vendors with bigger brand like Xiaomi, Vivo, Oppo. So there also we saw a little improvement coming in -- so all quarters put together from NBFC to Credit Cards to Amazon Pay, we renegotiated better with them, better terms. So all at an overall level, if I look at that number, we would stick to that 7%, 6.7% to 7% kind of a range. So that we are quite comfortable delivering. I don't want to over comment on that. But definitely, yes, this quarter outperformed the previous quarters for us also.

[Deepak Poddar, analyst]

I missed it last line, sir. What will outperform?

[Karan Bajaj, executive]

It definitely cross our expectations also because there was an improvement entry there, especially sale-away contribution coming from the EW business, which is around INR 4 crore to the bottom line. So I think overall put together, there was an improvement in the EBITDA margin for Q1. But to be fair, we would stick to the 6.7% to 7% EBITDA in the coming quarters as well.

[Deepak Poddar, analyst]

Understood. Fair enough. That's very clear. And I missed that INR 4 crores thing. So what was the [indiscernible]...

[Karan Bajaj, executive]

Extended warranty with insurance business, right? With on-site [indiscernible] EW warranties with the banks and all that we started giving out on our products secondary products like mobile phones, televisions, large appliances. So that product category also grew for us. We did around INR 12-odd crores in the first quarter as the revenue from that business, which contributed to around INR 4 crores in the PBT level.

[Deepak Poddar, analyst]

But does we -- I mean, do we capitalize or amortize over the years or we just book as the revenue in this year itself?

[Karan Bajaj, executive]

So this is done by the third-party vendor. So what we realized is our profit only. So we don't realize -- so we don't take care of the insurance from our end. So we only -- we facilitate the product on our floor, we only booked our percentage revenue to it. We don't capitalize on it like an insurance company because we are only selling and servicing the product from their end on the floor to the liabilities of the insurance companies like on-site [indiscernible] all.

[Operator]

Ladies and gentlemen, this will be the last question for today, which is from the line of Ashwini Shah, an individual investor.

Ladies and gentlemen, as that was the last question, I would now like to hand the conference over to the management for closing comments. Over to you.

[Karan Bajaj, executive]

I would like to thank you all for joining in to the call. I hope that we are able to answer all your questions. And for any further queries, you may get in touch with us or SGA, and we'll be happy to address all your questions and queries. Thank you once again for having faith and confidence in us. Thank you very much.

[Operator]

Thank you, sir. Thank you, members of the management. Ladies and gentlemen, on behalf of Electronics Mart India Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.