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Vaibhav Global Ltd
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Ladies and gentlemen, good day, and welcome to Vaibhav Global Limited Q1 FY '24 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. And there will been an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. Disha Shah from Adfactors PR. Thank you, and over to you, Ms. Shah.
Good afternoon, everyone, and thank you for joining us on Vaibhav Global's Earnings Conference Call for the Quarter ended 30th June 2023. Today, we have with us Mr. Sunil Agrawal, Managing Director; Mr. Nitin Padwad, Group CFO; and Mr. Prashant Saraswat, Head of Investor Relations. We will begin the call with opening remarks by Mr. Sunil Agrawal on the business operations, key initiatives and a broad outlook, followed by a discussion on financial performance by Mr. Nitin Padwad, after which the management will open the quorum for a Q&A session. Before we get started, I would like to point out that some statements made or discussed on this call may be forward-looking in nature and must be viewed in conjunction with the risks and uncertainties that we face. A detailed statement and explanation of these risks is included in the earnings presentation, which has been shared with you earlier. The company does not undertake to update these forward-looking statements publicly. I would now like to invite Mr. Sunil Agrawal to make his opening remark. Over to you, sir. Thank you,
Thank you, Disha. Thank you all for joining us today on this earnings call. I hope you would have reviewed both our results and the presentation that supplies details on business operations and current market trends. Let me begin with operational highlights of Q1 FY '24. At group level, sales for the quarter were INR 658 crores, an increase of 4.8% over the same period of last fiscal year. Our 5-year CAGR stays healthy at 11%, suggesting robustness of our business model under various kinds of economic cycles. In Q1, our gross margins continue to remain healthy at 61.2%. Our in-house manufacturing capability and a global sourcing base provides us with a competitive advantage and enabled market-leading gross margins. EBITDA margin for the quarter has been at 10% of revenue versus 7% in Q1 FY '23. Similarly, our profit before tax margin was at 4.7% of revenue versus 3.1% in Q1 FY '20. Our sustained efforts towards cost optimization and better pricing have enabled us to improve profitability since last couple of quarters. We are confident of continually improving our profitability led by improved cost efficiencies and sales growth like in average. I would now like to touch upon each of our addressable retail markets. The consumer demand across territories was affected by macro challenges like high inflation and consequent rapidly increased interest rate. In U.S. and UK, consumer sentiments are still muted from a historic perspective, but are showing signs of improvement lately. Our efforts to outreach customers and household expansion continues in all the markets. We are augmenting our reach by adding more TV cable and OTA households. Additional marketing in OTT or connected TV homes also continues as such customers [Indiscernible] which is high versus traditional TV customers. Germany is faring well and clocking monthly revenue of EUR 1.5 million and gross margin of 60% plus. Recently, we added 13 million households through partnership with Vodafone, one of the largest cable TV service providers. With this arrangement, shoppers in Germany now cover almost 90% of total households in Germany and Austria. We are expecting to get additional distribution in Germany in Q3, which would get us over 95% of market penetration. As these airtime opportunities are not easily available, we will not hesitate to invest. With these investments, we now expect reaching breakeven in Germany by H2 of FY '25, we continue to gain market share across all the markets that we operate in. Further, the 4R's- widening Reach, new customer Registration, customer Retention and Repeat purchases are our key priorities for growth. The reach of our TV network by end of Q1 FY '24 was approximately 141 million TV homes, which is 11% higher Y-o-Y. We reached TV homes to cable, satellite, telco network and over-the-air antenna also called OTA platform. Our products are also available on digital channels, including proprietary website, smartphone apps, OTT platform and market platform -- market grade. New registrations in trailing 12 months period came in at 3.1 lakhs. Our customer retention rates are 38% on TTM basis, vis-a-vis 41% of last year. Customers bought an average of 23 pieces on a TTM basis. Both repeat and retention rates were slightly lower due to higher price point and broader macro challenges. Sustainability is at the core of everything we do. We are delighted to announce that recently, we issued our second annual ESG report. The report reflects our efforts towards value creation [Indiscernible] and ethical business practices. We are delighted to receive the Net Zero Energy Building certification by IGBC in India. Out of 3,600 nationwide green certified projects, only 16 projects across India have been recognized. Our organization is one of them. Also, it is my honor to share that this quarter, we surpassed the milestone of donating our 78 millionth meal to school children since inception of our mid-day meal program called Your Purchase Feeds. We are serving approximately 48,000 meals every school day. This initiative aligns with our commitment to make a positive impact on the communities we serve. We have a strong balance sheet. We are confident in our strategies and our teams. Our outlook for medium to long-term remains intact. We will deliver our original guidance of 8% to 10% revenue growth in FY '24 and mid-teens growth FY '25 onwards. We will gain strong operating leverage in current as well as next financial year. Our focus is on growth and profitability with prudent capital management. We have a robust cash flow model and a record of returning meaningful cash to shareholders. The Board has declared a first interim dividend of INR 1.5 per equity share for this year. With this, I now hand over the call to Nitin to discuss financial performance. Over to you, Nitin.
Thank you, Sunil. Good afternoon, ladies and gentlemen. Let me share our quarterly financial performance today. During quarter 1 of financial year '23, '24 of our revenue reached INR 658 crores showing year-over-year growth of 4.8%. Our 5-year CAGR for overall revenue and B2B revenue is healthy at 11% and 13%, respectively, suggesting an overpass for our business model. As Sunil mentioned earlier, our addressable market in U.S. and U.K. are facing temporary challenges like inflation, muted consumer sentiment and macro uncertainties. In local currency, revenues in Shop LC U.S., Shop TJC U.K. were down by 4.9% and 6.9% respectively. The product metro indicators have shown some sign of improvement lately. We continue to perform well in Germany, particularly after collaborating with Vodafone to reach a stable TV network [provider]. We are also on a decision to get additional distribution in Germany by Q3 to increase our coverage in high definition to over 95% of households. As these opportunities are rarely available, we do not hesitate to invest. Hence, we are now testing reaching breakeven in Germany by H2 FY '25. This quarter, TV revenue grew by 1.5% year-over-year to INR 392 crores with a 5-year CAGR of 10%. While digital revenue in Q1 FY '24 increased to 7.7% year-over-year to INR 237 crores. It has shown much stronger 5 year CAGR of 20%. The digital segment strong performance is attributed to wider discovery potential. TV contribution to our retail revenue is 62%, while 38% account from digital revenue. TV customers accessing our products through our proprietary TV channels that [lease home] both conventional TV media as well as free to air channels [Indiscernible]. Retail includes online purchases on our own prices proprietary website shopping apps, OTT and social e-commerce. Budget pay revenue constitute approximately 39% of our total retail revenues during this period, providing a [Indiscernible] and affordable experience to our customers, especially in this current inflationary environment. Jewelry accounted for 73% of total retail sales, with 27% of revenue occurring from lifestyle products. We aim to diversify into non-jewelry areas to achieve a better revenue guidance. Additionally, it also improves our ability to take higher wallet share out of the same customer. Gross margin in Q1 continued to remain strong at 61.2%. EBITDA margin for the quarter was 10% versus 7% in quarter 1 last year. Better pricing and sustained efforts towards cost [ratiolization] have helped us to continuously improvement EBITDA margins since last year. Profit after tax for the quarter is INR 30 crores against INR 20 crores of last year. Operating cash flow was INR 0.3 crores and free cash flow was negative 10 crores. Cash flow numbers reflect impact of planned increase in our inventory for upcoming seasons. We expect this to revert to a normal level in upcoming quarters. ROCE and ROE of 15% and 9% respectively, reflects impact of subdued profitability on Q2. However, the ratio has improved sequentially owing to improved profitability during the immediate few dollars. As a company, we are committed creating long-term value through strategic development through trend investment and consistent payout as the Board has paid recommended an interim dividend of INR 1.5 per equity share. We are confident in the business perspective [headover] and are investing to capture growth and continued healthy [Indiscernible]. We remain confident of our prospects and will deliver our stated guidance of 8% to 10% revenue growth in current financial year and [lifting] growth from FY '25 onwards with a strong operating leverage in current as well as next financial year. With this, I hand over to operator.
Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions]. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question from the line of Sachin from Svan Investments.
Can you hear me?
Yes, sir. I can hear you. Please proceed.
Yes. So my first question is, could you give us some more sense on the improvement in EBITDA margins that we've seen. So there is an improvement of about 200-odd bps in your other operating expenses and the presentation, it has clearly mentioned that there is some improvement in the sense of logistics cost and advertisement. So just wanted to understand, sir, is it because of the -- we've seen some volume degrowth about 15 and 20-odd percent in U.S. and U.K. So is it because of that? And I just wanted some more color on the other operating expenses?
Thanks, so the improvement in EBITDA margin is partially, as we mentioned in our investor presentation, is related to our logistic cost improvement. So there is a reason of lower volume, but also internal control improvement related to orders clubbing and also renegotiation with the shipping partners that help to reduce overall [Indiscenible] cost of the logistics side. And in others, improvement in cost is mainly related to negotiation in our IT contracts and our marketing expense that we optimized in our digital as well as our traditional marketing. So that overall helps to improve our expenditures over last year.
Okay. But just when I see your annual report and when I see your other expenses break up, your IT spend and your advertising and marketing spends are not that big a number to significantly improve your EBITDA margins. So that's where the question is because 50% of your other operating expenses are largely content and broadcasting. So I don't think that would have gone down significantly, right, because you've added Germany also.
That is flat, excluding Germany. Germany is the 0.3% decline that we see in the profit compared to last year. [Indiscernible] cost to terms, it is flat. There's a low change in the over last year. And last year, we had some kind of contract with the IT side, especially the marketing clouds and the former clouds that we spend is [ forthcoming ]. That is now we optimize and going through the learning related to digital marketing has helped to improve our overall marketing cost.
Okay. Okay. And my second question is, sir, in the last quarter, the MD had guided for Germany operations to break even from H2 of FY '24. And in this presentation, we are clearly seeing that Germany operations would breakeven by FY '20, H2 of FY '25. So in some sense, are we postponing the thing that -- do you think it will get delayed by a year?
Yes. This is Sunil here. So as we mentioned, we are getting more opportunity for airtime. And we can also mention we're getting opportunity and a major player. So these 2 investments we have decided to make, and they will come into play in Q3. And with that investment, our profitability will be postponed because our new airtime takes 18 months to mature but we are continuing to make the investments. And with these investments in place, we'll be [ continue ] to delivering operating leverage over the last year continue 2 years on the financial year as well as exposure.
Okay. And my last question, sir, in both TV and digital, we're seeing a volume drop. But on the other side, we're seeing improvement in your ASPs. So could you give us some sense on both the volumes as well as the ASP where do you see it heading? And in such an environment, also ASPs have been going up. So just wanted some understanding on what is really happening on the ground?
In the current inflationary environment, we are seeing people buying more higher end like gold product or diamond product or certified product that pushes the ASP up. And with the ASP going up, the volume drops. But overall revenue is almost close to being steady in local currency class.
[Operator Instructions] We'll take the next question from the line of Pritesh Chheda from Lucky Investments.
Sir, this previous answer, which you mentioned about lower volumes and higher pricing. So generally, I couldn't understand, usually in a softer environment, people tend to downgrade. So here, there is a higher pricing. So is it that the offerings that we are focusing right now is higher price, it's a little bit difficult to comprehend what you mentioned?
Yes. In the current inflationary environment, people buying more gold products. Our regional offering was more silver product or base metal products. The current environment we are seeing like gold chain or certified diamond product or platinum product. So you're seeing more offtake of those products and that pushes up the overall average selling point. Once the inflationary environment subsides, we suspect that this kind of put maybe lesser on these, and we will level back to our regular or slightly lower ASP and the volumes will again go back up. Our current understanding of the market environment is modify, but we'll continue to look at the opportunity and modify our option appropriately.
So this is transitionally in nature, what has happened, right?
Correct. We see it as transitional.
Okay. My second question is on the reduction in the retention and the repeat purchases. So any comments there, what's actually happening?
Yes. So one is the macro environment. There are some people who just are not in the market to buy. So they are pushed because of inflation, for example in U.K., the mortgages have tripled or doubled [Indiscernible] because interest rates from less than 1% has now gone up to 6%. U.S., not all mortgages are variable [Indiscernible] costs, rental costs, the food cost has gone up. So why is that macro environment? And second thing, the higher price point that they have a lower number of customers from those higher price. And that would tell you about the number of customers in the repeat purchasing.
Okay. On the cost side, costs were largely stagnant for, I saw it for the last 7, 8 quarters after the Germany operation creation, whether we see the employee cost or whether we see the OpEx cost, it moves into INR 30 crores to INR 250 crores per quarter. So this number, how will it change once you add this more cable connections or reach in Germany?
We got NDAs for all the cable contracts, we can't disclose the exact number of that, Pritesh but we have guided that for this financial year as well as next financial year, we expect to have strong leverage because we believe that the cost optimization that we are in place as well as the revenue growth that we expect this year and for next year this revenue leverage will give us -- a revenue increase will give us margin decrease.
So despite the connection increases, there will be an operating leverage, which will flow.
Correct.
And when you say substantial, sometime back, we were, let's say, at about 13% to 15% margin. And then we created the Germany expansion. So how far -- so you gave us the volume growth -- revenue growth guidance. But how far are we from those 13% to 15% margin of the business?
Yes, we can't get -- we don't give exact guidance on the margin side, but we do expect leverage over last year and the next year over current year, this meaningful leverage that we just saw in this quarter.
Okay. And sir, my last question is ex Germany. So ex of Germany, what is the margin in the business. So U.S. and U.K. were our main operations. So either you can give us the impact of Germany on margin percentage, some idea?
[Indiscernible]
Excuse me sir, your audio is not clear on the management line. Can you please use your receiver?
Is it better now?
Yes.
So excluding Germany, our margins, Germany is impacting on 2.5% of our margins, EBITDA margins. So you can consider it like 10% we reported last quarter. It will be 2.5% additional.
Okay. So -- and for last year, that is March '22 through '23 fiscal, where we reported 7%. So there are also this 2.5%, 3% impact?
Yes. So slightly lower on that time yes, you can see pretty much similar sales numbers was lower as well. So somewhere this number. We don't have exact number.
We want a ballpark number, we don't want exact.
Ballpark will be similar like this.
2.5% negative impact. Okay. And sir, lastly, this 5% growth, which was reported in quarter 1, how much of it is, let's say, favored by the 5% decline, which was there in quarter 1 last year because there is some days, which I can see or should we just ignore that for your guidance of 8% to 10% top line growth this year?
Yes. So our guidance remains seeing 8% to 10%, but 5% growth this quarter, you see the improvement in our overall business in U.K., U.S. and accelerating Germany business is helping us to get the 5% growth, but full year guidance remain intact of 8% to 9%.
So there is a better business environment versus what it was in the last few quarters because, see, one way is that I look at this 5% as it is but one way I look at this 5% or minus 8% of last year. So that's the reason why I asked you. Is it -- do you see improvement in business in Vaibhav?
Repeat the question, please.
So one way is that I look at this 5% growth, which is reported in the year on an absolute basis, but the other ways I look at this 5% versus the 8% decline, which was there in the base quarter. So I just want to check, is there an improvement -- do you see an improvement in business environment? Or is just that you are favored by this 8% base effect?
So both things environment started with the war in Ukraine and the logistics problems and then resultant inflation and the fear of recession that was pretty tough in this economy. So we are seeing some improvement in the environment in recent weeks or recent months. But there is a base effect, definitely.
We'll take the next question from the line of up Suman, an individual investor. Please go ahead.
So I'm new to your company and just wanted to get an understanding of your business model. So if you could just help explain and throw some light on it, it would be very helpful.
That's a big question for this call. We have vertical business with manufacturing of fashion jewelry, apparel and sourcing of large products from India and Asia. And we all own retail -- electronic retail in U.S., U.K. and Germany. Predominant sales come from television, live television 24/7 and about 37% but 38% comes from these markets. We're focused on being value-centric and highly customer-centric retailer in these markets. And we have a high repeat purchase frequency. We have on average about 27 products customers buy [Indiscernible] and we have a cost model, our costs are mostly Asian, revenue are dollars, pounds and euros.
Okay. So essentially manufacture in India and Asia and you retail it in U.S., U.K., Germany. Is that correct?
Correct. And we own the brand. We own our retail grab, our brand is our own, we don't have third-party brands. The majority of the products that we sell is our own branded product or our own brand product. We don't have a fear of third-party having leverage over us.
You retail essentially on TV, you mentioned, right? And you don't have physical retail stores
We don't -- No, we don't have any physical retail. It is on TV network as live TV shopping and about 38%, 37% through website.
Okay. And sir, if I were to kind of understand your right to win and or more reviews you hold any more. Is there anything you could -- could you throw some light on that?
Yes. So number one is being a vertical model. It's very, very difficult to replicate. It could either be manufacture or mainly retailers. We are retail in our industry, which is highly competitive in a market which are highly competitive, and we are manufactures for the last 40 -- more than 40 years. So we understand the space of these areas very very well. The application of this vertical model is extremely difficult. And the low-cost structure all across the business, ether in Asia or in western worlds, that is also difficult. And the customers are highly loyal. As you could see from the repeat purchase. So the customer buys 27 products a year. And it is very difficult to take those customers away because of the loyalty and the grand [Indiscernible].
As the current participant has left the queue, we move on to the next question, which is from the line of Sachin Kasera from Svan Investments.
On the Germany, I just wanted a couple of your inputs. One is that this acceleration investment that we are talking of. So is it an investment that we now will have to make to meet our targets maybe from a medium asset example, you must have some inter targets on Germany for FY '26. So this additional investments are now expenses that are required to set FY '26 targets or '27 targets? Or will it mean that yes, while we will deliver breakeven by 1 year. But on the medium to long term, we are looking at a much larger operation than the larger profit [Indiscernible].
Yes. Good question, Sachin. So every time, it's very -- it's not something that you can go and buy. You have a network here to make relationships and you get offer those network positions because I would say they're limited channels in each platform. And those channels really come to the market. So we think those channels whenever they come, whether it is Germany, U.S. or U.K., in Germany, we got this opportunity for getting an HD on Vodafone. Vodafone has 13 million homes. So we already have a channel there. We're getting the second channel in HD. The first channel wasn't HD. It wasn't high definition. We're taking the HD channel, that will come to us in September. And there's another broadcaster called Tele Columbus, so we are taking that opportunity that will also come to us in September. Now these investments that we do, it takes about a year to a year and a half for this to become profitable. And that's why the revenue will accelerate because of these investment, but the ROI will start to come after 1 year. That's why we're postponing our profitability by 1 year in the expectation of scaling the business faster than our original plan.
So just again, so is it fair to then assume that internally, and I don't want to ask specific guidance or numbers from you. But internally is what you are budgeting for financial year '26 and '27 before we did this Vodafone deal. This very likelihood that we will do much better than that now internally, without setting a specific number. Could you tell us that, definitely very helpful.
Correct, because of the investment, our positions for '25, '24, '25. So '26, '24, '24, '25, '25, '26 will be higher most definitely.
Sure. And how will this work out in the sense that sales will be Germany losses because I believe it is accretion investment, we'll also start to see some revenue growth. Is it that the [Indiscernible] delay? And has the absolute EBITDA of will not increase? Or because there could also be again [Indiscernible] for the next 4 quarters in the absolute debit of Germany before we start to see some sort of a reduction or breakeven as you have mentioned?
Yes. So we are already seeing a year-over-year improvement into our EBITDA number, slightly almost flattish, but very little improvement in these recent weeks because of what we invested in earlier periods. But as we can on a new market, the initial period will have more negative because of the investment, it takes time to build that customer list and the customer repeat purchase is very high on TV models. So as time goes after 6 months or 9 months, it will be beneficial towards year-over-year in terms of EBITDA.
So H2, there could be some impact there because of the Vodafone deal, Germany as the overall number.
Sorry, can you repeat the question?
Second half of financial? Of course, there could be an impact on the absolute EBIT and some impact on margins because of the onetime step up in spend in Germany [Indiscernible]
So the spend is -- there's no onetime spend. We have to pay them every month. As it comes on board in September, it will come in the middle of September. One will come in beginning and one will come towards end of September. So we'll see some impact in that particular quarter. But each quarter, we expect overall for the group to have operating leverage over last year. Now operating leverage over last year, one factor, as Pritesh earlier mentioned, there's a factor of things being lower last year. And other lower cost optimization. Now for Germany, the cost is higher, but other in U.S. and U.K., they are cost optimization that is helping overall for us to be at the leverage year-over-year.
Sure. And sir, one question on the interest rate impact because I believe you also have an installment model. And as you mentioned that the rates have gone up. So did it also have some bearing on up because I'm sure somewhere there's a cost in built into the cost of interest in this installment model. So has that had any impact? Or is it that we have or the entire impact of the increase in interest rate installment model. If you could just give us some light on that.
Yes, sure. Sure. So our interest rate, our [Indiscernible] call it is -- there is no interest free for the consumers. We were the cost of financing for the consumer lays a low impact. However, consumer is taking a favorably this in current inflationary environment as the financing for the consumer is expensive now and a retail group that we are giving the item to the customer. There's no interest cost. So at a company balance sheet and company profitability, there is no impact on it. We're also having some sales that we are investing. That's why the other income has also increased. If you see in our P&L. Our interest income is also higher on that. But on the consumer side, our budget rate that we don't see an impact in our P&L for it.
And sir, where do we book this impact of this funding the EZ Pay model, the cost to the company is part of other expenses or adjusted any interest income, how do you account for it?
Yes. So as I mentioned, there's no interest cost for us because we do finance from our own funds. So only bad debt is the part of the P&L if they are invited. That is in our SG&A cost line item. But on the P&L side, there is a low financial impact. On the balance sheet if you see there's a data is spending somewhere around the $30 million. I don't have the number on that. But on the balance sheet you will see the data outstanding at the end of the period. [Indiscernible]
And sir, because of this inflation environment and the higher cost of living, are you seeing any trends where your defaults or your debt debt on this outstanding amount of $20 million has been increased and hence this year or next year, you may able to provide more towards these bad debts?
So we have seen kind of any robust credit giving to the customer model that we constantly monitor this. And do -- we haven't seen an impact in increasing our CapEX so far. But we regularly reduce that housing impact is between current situation, but we haven't seen an impact or a higher impact compared to previous.
We'll take the next question from the line of Rita Pulsar from Concept Investwell Private Limited.
So I have a question regarding Germany. So we are making additional investment side. And currently, Germany contributed 6 percentage of revenue in terms of geography. So in 2, 3 years, where do we see Germany heading in terms of geography contribution? So that is my first question.
So thank you for the question. We have internal positions, but we are not sharing that as a projection where we see those growth rates as the current growth rates are very, very high, but how it will shape is to new market to be able to give a guidance on that. And we are only [Indiscernible] about that into good market. But what I can say from other players like curate groups and other players, Germany has more households than U.K. And for them, the Germany revenue is more than U.K. So we expect in longer term, maybe 7, 8 years term, Germany surpassing in U.K. by about 20% to 30%.
Okay. That is good enough. And second question is regarding your own brand portfolio. So like if you can give us some color like how your own brand portfolio is panning out in this environment? That is my second question.
Yes. So we have 2 levels of brand. One is the Aviva brand, U.S. and Germany we have Shop LC and U.K. we have TJC. So most of our customers know a wide umbrella brand. And then within umbrella brand, we have many suppliers with more than 30 sub-brands for different product categories and different price points. We have designer brand. We have a product centric brand. So overall, about 29% of our revenue comes from our own B2C brand. And there was 31 house brands within Vaibhav umbrella brand. And our target is to take it to 50% from 29% to 50% by FY '27 from house brands.
We'll take the next question from the line of Kimberly from Equentis Wealth.
So in our recent Analyst Day, we had guided that we are also targeting an increasing share from non-jewelry products like lifestyle products. So I think we had a target of 50% by FY '26. So how are we progressing on that? And also what will be the margin difference between jewelry and non-jewelry product?
Yes. Thanks for your question. So last earnings call, we had -- we have expanded extended lifestyle jewelry products revenue to be 50-50 to FY '28. The reason is that in the last 1.5 years, we have seen more uptake of jewelry, especially in the higher price point jewelry inflationary environment. We do not yet know how long it is inflationary environment will last, and we are seeing lower uptake of non-jewelry, especially in the U.S. In U.K., we are seeing still robust uptake on non-jewelry product. But because of U.S. being lower, we have given -- we have changed the guidance to 50-50 of RFP jewelry by FY '28.
Okay. And what will be the margin difference between jewelry and non-jewelry?
So margin is about similar. So what we do is to select that gives us higher margins. So we don't take any product whether jewelry or non-using which would give us less necessity margin. So margin is not a criteria for us to think that this is not it, what we look at that 60% and the pro should give us our targeted margin per minute of TV time or expected revenue from the website from the projects that we have. So we have a criteria in place and our product will give us the margin and we take it in otherwise, we phase it out.
We take the next question. [Operator Instructions] We'll take the next question from the line of Sachin Kasera from Svan Investments.
Yes. I'll just follow up on Kimberly. I'm understanding what is in the sensitivity of this investment that we are doing additional doing addition in Germany. So if suppose the investment is going to increase by 20%. So in FY '26, we will now get 20% higher sales? Or is there a leverage out there also so that planning is of INR 100 in FY '26 in Germany. But now that we are going to spend 20%, 30%, 40%, whatever the tax number higher, the sales would be higher and market be had by process age.
So good question. So the collision revenue in Germany is about 70% and to eCom is 30%. So for example, if we increase our investment was 20%. The expected revenue after 1.5 years to higher on TV side. And there's a high leverage business. So the 20% higher revenue, last question of the revenue outside the spend that gives you on the wartime cost to the bottom line. So we do we take the time opportunity when it comes within our pricing, we take it because the leverage benefit is very high.
Sure. And sir, till the time German, which is a good level of profitability, we don't intend to take up any market or for example, in the way, Germany we got an attractive opportunity and hence, we increased the investment in the business. Similarly, another good opportunity from either in the existing market or in the new market, we are still open to that because that would -- would be that, again, we are pushing the overall guidance on the numbers for '25, '26 again by year...
Yes. So first question will we take that. We don't believe so because we are very cash positive. We have given dividends every quarter. So there is no need to take an in debt. in going into new markets, we do go well expand into new market after Germany becomes profitable and is steadily growing. Then we go into new countries. Now versus country, we have 3 growing and profitable businesses to support the market
The next question is from the line of Pritesh Chheda from Lucky Investments.
Sir, I just have a follow-up. So of term, let's say your stable operations of U.K. and U.S., there is a deterioration in profitability over the last 3 years for the flat sales or maybe a minor drop in sales. So if you could explain this deterioration over the last 3 years, what explains it? Have we added any cable households there, which has taken up the cost? Or any reason you want to highlight and explain us -- and the reference is, let's say, you were at the peak at about 13% to 15% margin. And from there, we have come down -- and Germany explains a part of it, but a larger part also gets explained by the fact that there is a deterioration in the U.S. U.K. margin?
Thanks for the question. So as you have mentioned that one of the reason was Germany that is reducing the overall EBITDA margin. But also that the operating deleverage came when we have seen a decline in our sales. In the scenario of improvement in our profitability, we invest really in our upcoming future quarter's growth. We invest to deliver digital marketing in our website late to upgrades in our shopping apps that we are confirming our future potential growth. So that was the investment that we have done on that -- it's also that came later on and then 2021, we have seen some pressure on the cost side. That has actually impacted the overall profitability in our U.K. and U.S. markets.
Which -- so you say there are 2 reasons. One is the investments in digital. And second is the cost increase in the operations themselves of U.S. and U.K. These are 2 reasons.
So let me clarify that question. So we made investments into new businesses, Germany to run a digital brand that [Indiscernible]
I'm sorry to interfere, your audio is not clear
And I'm sorry to inter... In addition to Germany. -- we invested into digital marketing that is through TMC, which is really those 2 brands as well as our -- all the 3 brands within U.S. U.K and Germany. We also invested a bit into digital marketing global Facebook TikTok these investments also. So to get the future growth on them. And also a lot of people for managing new businesses. And those people that we invested in are still there. So we did remove those investments in from the business because we see potential. So as we can those businesses have become profitable, our leverage recommended -- based on those decreases, we are now giving a guidance of because the euro is subdued. For example, now revenue growth is only 4.5%, but the subscription leverage that we saw this quarter 2 years. That came from some of those investments maturing and of course, optimization of volume initiative.
And what will be our tax rate?
ETR is 24% for the overall growth.
Thank you, sir. We'll take the next question from the line of Rohan Mehta, an individual investor.
I just wanted to ask about the digital revenue mix of about 38%, and that has come in. How has that impacted the overall profitability? And if we see over the last few quarters, how has the digital revenue mix changed? If you could throw some light on that, please?
So last 5 years, digital revenue CAGR was 20%. So it was very healthy. In last 5 years. And vehicle profitability side, would you like to add? So from digital opportunity within digital, we have 3 properties. We have live TV on e-commerce for the customers who don't get the signal -- the second is the cathlog. The third is the auction. So all the products that are left towards contraction, we caution in $1 and people bid again and capital. So as we're increasing our overall data revenue the auction model, which is margin is not increasing. -- dollar to is pretty flat. What is increasing is the catalog and the light elision live stream. And those margins, both gross margins are similar to TV markets. So as we are scaling our digital volume, our margin doesn't have been dilution. We'll still continue to give guidance of 60% plus, even though we are giving digital versus TV revenue to be 50-50 by FY '26. But our margin guidance is impact of 60% loss.
The next question is from the line of Sachin Kasera from Svan Investments.
Sir, you have mentioned that you retain your guidance of mid-teens growth in the medium term. But you also mention that in Germany, now we are looking at a much larger revenue than what Italy were projecting. So is it that because of the changed macro environment, we are looking like compensating the higher growth in Germany in the medium term from the projected lower revenues in U.S. or U.K.? Or is it that because you are still not make the investment and you want to be consultant you may revisit the guidance maybe 3 or 4 quarters down the in. Once you see the [Indiscernible].
Yes. So next year's guidance of mid-teens to take into account of improved economic conditions -- we do not know at what level it will improve. So we do not expect it to improve. Germany will increase and a pretty very rapidly, but the bot is still very small. So it is how the overall business revenue for Germany is around 6%. It's still pretty small. Even if you're seeing a growth of 30%, it's still only 9% -- and doesn't add tenor overall growth we are looking at. But we are expecting economy to improve a bit and also the investments that we made into OTT digital operated in our own brand. They will also contribute around each other.
Yes. But sir, I'm sure you would not have budgeted the Vodafone investment and it's a revenue implication when we make this guidance 2 quarters back, right?
Yes. So we did 2 quarters ago, what we made was we made investment into Vodafone was already in the picture when we gave the guidance on next year or this financial year at. So that was a big investment that we're going to make in September that was not begin. -- those will push the profitability all through the next year. But we are also now giving guidance of our continued guidance of mid-teens for the next year. Again, what we did was, we can mid-teens for midterm, we specifically gain mid-teen for next financial year. the back of what we are seeing in Germany, and we are also seeing ratios in U.K. and U.S.
Sure. And just one clarification, one of the questions, you mentioned that is down the line, Germany would be 20% to 30% higher than that is as of now your assumption or that is what you can, as of now in the forecast.
That is correct. We don't exactly. It could be 7 years or years or 6 years somewhere around that.
Sure, sure. And any sense you could give us when do you expect Germany to start matching U.K. so that should be much earlier for the next 3 to 5 years.
Specifically, we are not giving that guidance that part of way. But what I can say is the market potential for Germany is larger than UK.
The next question is from the line of Nikhil Arora and Individual Investor.
Hello, sir. Good afternoon. Only one question I had. So considering the company's growth ambitions, are there any new markets or regions that are being targeted for potential entry in near-term future?
So we're not looking to enter a new country until we have Germany profitable and growing rapidly. So as we have many fully stable and one other entities and U.S. and U.K. are back to our double-digit growth. We only going into the country. We have Japan as our net target whenever we are ready from these perspectives. Having said that, if we get an opportunity to expand to the e-commerce space within these 3 countries, we will do that.
Okay, sir. But not in this financial year, right?
Yes. So we have -- if we get any of our and acquired business into these 3 countries, which is come and is growing and is profitable. We will -- so there's no fantasy for that, but we are open to those thoughts, and we should looking at the opportunities.
The next question is from the line of Pat Tealand Individual Investor.
So I joined today. So the question has already been answered, and [Indiscernible] Question is regarding Germany sir, when you said that we have already reached 90%.
I'm sorry to interrupt sir, there is a background disturbance.
Any better now?
Yes, okay. Perfect.
So when we say that 90% household we have already reached in Germany and still we see increase in investments over there. Is there anything that the management is looking any inorganic opportunity out there? Anything to create in that set?
In Germany, we are looking at the investments we'll make. One is on the HD platform on Vodafone. In March we made investment to grow as a standard definition to gain opportunity for high definition on Europe. There's another opportunity in Tele Columbus we are getting on [Indiscernible] footprint on the platform. These 2 opportunities we are going to take in September opening opportunities in Germany. We are also acting looking for Germany. But any opportunity comes in the U.S., U.K. or Germany probably U.S. or U.K., we will take it. So while we are conservative it has to be profitable.
Okay. So what you explained by September, that will eventually take up the household reach to 95%, right?
That is correct. 13 million homes homes.Got it, sir. So nothing on the table in terms of any inorganic opportunity in Germany right now? Not right now
Thank you. Ladies and gentlemen, as that was the last question. I would now like to hand the conference over to Mr. Sunil Agrawal for closing comments. Over to you, sir.
Thank you, operator. So I want to thank all the participants time and great questions. If you have any further questions, feel free to reach out to Prashant Saraswat or Sharma Adfactors PR India. We'll be happy to answer the questions. Thank you once again.