Vaibhav Global Ltd

NSE:VAIBHAVGBL

Earnings Call Analysis

Vaibhav Global Reports Steady Revenue Growth Amid Strategic Investments

Vaibhav Global posted a 13% revenue growth for Q2, achieving INR 796 crores, while maintaining strong gross margins at 63.5%. However, EBITDA margins slipped to 8.7% due to investments in digital marketing aimed at acquiring new customers. The U.S. revenue saw a slight decline of 1.6%, but a robust 15% growth was recorded in the U.K. and 15.3% in Germany. For FY '25, the company reaffirms a revenue growth target of 14% to 17%, supported by its improved customer base of 682,000. Additionally, an interim dividend of INR 1.5 per share was declared, indicating strong confidence in future growth prospects.

Strong Revenue Growth Underpinned by Strategic Adjustments

In the second quarter of FY '25, Vaibhav Global Limited recorded a robust revenue growth of 13%, amounting to INR 796 crores, compared to INR 795 crores from the previous year. This growth aligns with the company's guidance and reflects ongoing momentum across its retail operations. The revenue growth was further supported by a notable volume rise of 9.3%. A vertically integrated supply chain has been instrumental in maintaining strong gross margins of 63.5%, which is favorable given the competitive landscape.

Investment in Customer Acquisition and Margin Dynamics

Despite the solid revenue growth, EBITDA margins experienced a slight decline, dropping to 8.7% from 9.5% year-over-year. This decrease is attributed to deliberate investments in digital marketing aimed at bolstering new customer acquisition. The company reported an increase in its unique customer base, which reached a record 682,000—an impressive 51% year-over-year increase. However, ongoing investments have raised operating expenses, illustrating a strategic pivot towards long-term growth rather than short-term margin focus.

Regional Performance Insights: U.S., U.K., and Germany

The performance across key geographies varied, with the U.S. experiencing a mild revenue decline of 1.6% year-over-year, attributed to distractions from election activities and the Olympics. In contrast, the U.K. saw a significant revenue uptick of 15%, bolstered by improving consumer confidence and declining interest rates, while Germany's revenue impressively grew by 15.3%. The ongoing expansion in these markets highlights the efficacy of Vaibhav Global’s operational strategies amidst a complex macroeconomic environment.

E-Commerce Acquisitions Yield Promising Results

Vaibhav Global’s recent acquisition of Racanelli in the U.K. has matured into a profitable venture, achieving EBITDA profitability within three years. This success affirms the company’s well-defined strategy to scale and profitably manage digital brands. Overall, this strategic acquisition aligns with the company’s long-term growth aspirations and points to a healthy track record in capitalizing on digital market opportunities.

Sustainability Initiatives and Long-Term Vision

The company is also making strides in sustainability, having generated 1.1 million kilowatt-hours of solar energy to meet nearly all power needs for its manufacturing units in India. This contribution is part of their mission to achieve carbon neutrality by 2031. Furthermore, they received a prestigious Climate Action Award that underscores their commitment to environmental, social, and governance (ESG) principles. The Board also declared a robust interim dividend of INR 1.5 per share, reflecting confidence in sustained growth and value delivery for stakeholders.

Guidance Illuminate Robust Future Outlook

Looking ahead, Vaibhav Global has reaffirmed its revenue growth target for FY '25, aiming for a range of 14% to 17%. This guidance is accompanied by a strategy that incorporates operational leverage, projecting mid-teen revenue growth in subsequent years. The company is poised for an exciting trajectory as it balances investments in growth and sustainable practices while maintaining a commitment to return on capital efficiency.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Vaibhav Global Limited's Q2 and H1 FY '25 Earnings Conference Call. [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, ma'am.

[Disha Shah]

Good evening, everyone, and thank you for joining us on Vaibhav Global Limited earnings conference Call for the second quarter and half year ended 30th September 2024. Today, we have with us Mr. Sunil Agrawal, Managing Director; Mr. Nitin Panwad, Group CFO; and Mr. Prashant Sarswat, 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 the financial performance by Mr. Nitin Panwad. After which the management will be open for the Q&A session.

Before we get started, I would like to point out that some statements made or discussed on today's call may be forward-looking in nature and must be viewed in conjunction with the risks and uncertainties that we see. 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 remarks. Over to you, sir.

[Sunil Agrawal, executive]

Thank you, Disha. Good evening, everyone. Thank you for joining our Q2 FY '25 earnings call. I hope you've reviewed the results and investor presentation. I'm pleased to report a 13% revenue growth reflecting our continued momentum. Consistent with our guidance, we maintained strong gross margins at 63.5%, supported by strategic pricing and favorable product mix.

Our vertically integrated supply chain has also enabled us to achieve stable and market-leading gross margins. EBITDA margins came in at 8.7% of revenue compared to 9.5% for the same period last year. This decline reflects planned investments in digital marketing aimed at new customer acquisition, high realtime cost to secure notes position in the U.S. and airtime costs in ideal world.

These investments are expected to drive long-term gains in new customer acquisition as reflected in our record unique customer base of $682,000. Now let me take you through our key retail markets. The U.S. revenue declined 1.6% year-over-year in the September quarter affected by increased attention on the election activities and Olympics.

With consumer confidence improving and the elections now behind us, we expect demand to pick up in the upcoming holiday season. In the U.K., revenue grew by 15% year-over-year, majorly contributed by real world. With signs of improvement in U.K. economy like the consumer confidence in next icing up, consolation and interest rates going down, we expect a recovery in consumer demand in the coming months.

Additionally, Racanelli, an e-commerce brand we acquired in the U.K. 3 years ago has now achieved EBITDA profitability. This highlights our capability to scale e-commerce brands and achieve profitability, demonstrating our disciplined approach to growing digital businesses.

Germany continues to perform well, recording 15.3% Y-o-Y revenue growth in Q2 FY '25. Q-on-Q revenue grew by 25%, while operating losses declined substantially by 41%. We are confident of achieving breakeven at the operating level by second half of FY '25.

Our 4R strategy, varying reach new customer registration and acquisition, strengthening customer retention and repeat purchases continues to deliver positive outcome. Our 3 networks now reach 130 million households and our unique customer base has increased by 51% year-over-year on approximately to approximately 682,000.

Even without our new acquisitions, the unit customer base grew 6% Y-o-Y. Customer retention stands solid at 41%, with an average of 23 pieces per customer annually on a trailing 12-month basis. We have now completed 1 access acquiring Ideal World and Mitas, and I will provide a brief update on the progress.

IBM World operates 24/7, reaching 27 million U.K. households. We recently upgraded our Sky broadcast to SP network. The business is currently profitable on a direct cost basis, achieving GBP 17 million in sales over the past 1 year. We expect Ariana to reach full cost profitability from current quarter onwards.

So it's Q3 onwards. Minesense continue to perform well with PBT margin of 10% on a trailing 12-month basis. Mindset shows now has a solid base of over 100,000 unique customers, which we aim to grow further. Leveraging this year's group supply chain, we are further enhancing its profitability through better costs and are regularly launching new subscription boxes.

At this year, community in fact, remains a key focus. We recently launched -- we recently reached a milestone of 93 million being sold to school children under our year purchase fees initiative. We are currently donating 54,000 meals every school day. Our long-term goal is to reach 1 million meals every school day by FY '40.

On sustainability front, we generated 1.1 million kilowatt hours of solar energy this quarter. Nearly 100% of power needs for 2 of our manufacturing units in India. This aligns with our goal to achieve carbon neutrality for Scope 1 and Scope 2 emission by 2031.

We are honored to have received excellence in sustainability and Climate Action Award from into American Chamber of Commerce at the 20th into American Corporate Excellence confer. This award recognizes our contribution to Indus business and our commitment to ESG principles. We look forward to keeping a balance between growth, investment and quarterly payouts to generate sustainable value for our stakeholders.

The Board of Directors has declared an interim dividend of INR 1.5 per share for the quarter, representing 89% of payout and implying a strong belief in our business model and strong growth prospects. We remain vigilant in tracking the macro environment and market trends. I'm confident that our capabilities in our experience will allow us to sustain profitable growth.

We reaffirm our FY '25 revenue growth target of 14% to 17%, with operating leverage and mix and project mid-teen revenue growth in the coming years. with decent operating leverage. I will now hand over the call to Nitin to discuss the financial performance in detail. Over to you, Nitin.

[Nitin Panwad, executive]

Thank you, Sunil. Good evening, everyone. Welcome to Vaibhav Global's earnings call. Following as overview of business performance I will now cover the financial results for quarter 2 and half year ending September 24. In Q2 FY '25, we recorded 13% year-over-year growth, totaling INR 796 crores, up from INR 795 crores received in Q2 FY '24.

On a constant currency basis, this reflects 10.2% growth, supported by 9.3% rise in our volumes. Our gross margin remained strong at 63.5%, benefiting from our vertical integrated model and favorable product mix. The EBITDA margin for the quarter was 8.7%. As Sunil mentioned earlier, the current margin profile reflects our ongoing investment in digital marketing, enhancements in the U.S. and airtime costs in Angelo.

Sequentially, continuing broadcast expenses as a share of revenue fell to 19.4% in Q2 from 20.6% in Q1 and we expect that dip to reach 18% for full financial year. Profit after tax for the quarter was INR 28 crores.

Looking at regional performance., U.S. revenue decreased by 1.6%, U.K. posted a 15% revenue growth and Germany revenue grew by 15.3% year-over-year. As noted earlier, the existing business growth rate was affected due to audience focusing more on the U.S. election, Olympics and cautious consumer sentiment.

In Germany, revenue growth remained strong, with quarterly operating losses sequentially decreasing by 41%, and we stay on track to achieve breakeven level at operating margins in the second half of the financial year FY '25.

For Q2, TV revenue reached INR 456 crores, while digital revenue totaling INR 294 crores. TV revenue grew by 12.3% year-over-year and digital revenue increased by 11.8% year-over-year with digital contributing 39% of total B2C sales. This growth reflects our continued investment in retail marketing and limited infrastructure. Additionally, our budget pay EMI option contributed 38% of total B2C revenue.

We have now completed a year since buying IdealWorld and Mindful Souls. IdealWorld remained profitable on direct codebase, and we expect that to achieve full cost allocation profitability from Q3 onwards. Mantos continues to perform well, achieving a 10% EBITDA margin over the past 12 months. redial supply chain now supporting mind consoles, we expect further improvement in its profitability.

Our balance sheet remains strong with net cash position positive of INR 100 crores. Free cash flow and operating cash flow were at INR 11 crores and INR 26 crores, respectively, which were affected by a planned inventory buildup for the upcoming festive season. Currently, ROCE and ROE was 17% and 10%, respectively.

We are also committed towards creating and sustaining value for stakeholders and are pleased to announce that the Board has approved second income dividend for the year of 1.5 per equity share, reflecting 89% part. Looking ahead, we stay committed to deliver strong returns to our stakeholders in the mid- to long term. We are confident in achieving our revenue growth target of 14% to 17% for FY '25 with operating leverage and project mid-teen revenue growth with decent operating leverage income. Thank you. Over to you, moderator, for Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Rushabh Shah from BagaldroPMS.

[Unknown Analyst]

Yes. Yes. So my first question is on getin U.S. and U.K. is high. So why give products on credit and why not take it upfront? Is it because of the nature of the people living in those countries?

[Nitin Panwad, executive]

So budget pay ratio we offer based on the customer internal credit score and customers can offer the budgeted option the different products based on the EMI available for the particular product. We are offering since 2016, and we have seen quite a good acceptance will be very low bad debt rate of the project. And we're seeing customer traction towards especially buying on the high-end products. we can buy for paying upfront as a full amount and paying an installment is it gives an ease to pay to the customer. So looking to the node rate and customer acceptance, we are continuing to offer in the buses within the internal credit assessment of the customers.

[Unknown Analyst]

Okay. So my second question is, sir, sir, where you allocate most of your time? Is it the program design is the most important part of the business? Or is this team building or customer acquisition?

[Sunil Agrawal, executive]

So this is Sunil. So I assume you're asking discussion from me. So initial years, I spent quite a bit of time in product development and strategy in the product per strategy. But last many years, a majority of my time goes in development. So I meet the team regularly buy back the costs and the mass skip levels and from outside stakeholders as well. And in addition to that, I read a lot I read trade publication and the books published by loaned businessmen or strategist.

[Unknown Analyst]

Okay. So my next question is, as we know, the people pay by invoice in Germany, and there has been a delay to get a breakeven in Germany. Now we had EBITDA level positive. So what has -- and what do you think has changed because you are interior also. So now what has changed that you have entered Germany again? Do you said the mindset of the people -- and how is it different from coin U.K. and U.S.?

[Sunil Agrawal, executive]

Yes. So this television business, the costs are largely fixed -- so we have about 130 people there. Those people will be needed, whether you do EUR 1 sale or EUR 25 million sales or EUR 30 million that we gently have. And also the airtime that we contracted for about 35 million homes, you would pay them a respective of what revenue get. So the fixed cost nature of the initial cost nature of the business is such that once you start to get to a critical mass of customer with which has good high repeat purchase intensity, then the leverage of this model is very high. But initial 3 to 4 years that it takes for the business to assemble that critical mass of customers is needed for this particular business model. And opposed to the other models where we have 1 store and that 1 store becomes profitable sooner. In this case, we have a store in everybody's hearing room about, say, 35 million homes living room, we have stores there. So we have to set up that store cost right at the front. And that is why it takes time. And that model beauty is that once it hits critical mass da large portion of gross margin that starts to flow to the bottom line.

[Unknown Analyst]

My next question is on the call you mentioned, our revenue per household just $2 and that processed competitor is about $7, and the leader is at $50 -- so how has that evolved? And what steps have been taken to go near to liters?

[Sunil Agrawal, executive]

Yes. So we have gained market share over last many quarters, maybe last 4, 5 years, we continue to gain market share. So our current run rate is around $3.5. So something, I don't have exact number on but me. So let me take a per household, our current market share is about 4% compared to curate and shops that we calculate internally, and that grew from less than 2% a few years ago. We continue to gain market share over the years and I'm confident that we'll continue to gain market share for many years to come, owing to our vertical model. and agility to bring the blended products to the customer in a very short time because we are so closely aligned with supply chain.

[Unknown Analyst]

Just a thing on market share. Do you think we are gaining market share continuously. So we have gained market share at a more rapid pace since you only say we sell products at a 50% price of our customers. has the leader lost quite a bit of market share in the previous years? Or we are lagging some was.

[Sunil Agrawal, executive]

So I don't remember saying we said at 50% because many of the etailers sell the branded product, for example, we can boost or Apple or Samsung or other branded products. Our strategy is more like Lara, where we make our own brands in-house brands, and we sell product that seems much lower than their nasally branded products. Now we also have set the guardrails of 60% plus gross margin and leverage to Give shareholders. So if you were to go out and buy the customers that many e-comm companies have initially, then we can scale the business rapidly, but that will entail lower gross margins and maybe higher marketing costs. does dilute our EBITDA margins. So we keep our growth guardrails in place, continue to gain market share and continue to gain leverage at the bottom line. So that is our business model. Within that, that is, if you can achieve higher growth rate with. .

[Operator]

The next question is from the line of Saravana Laha from Badrinath Holdings. .

[Unknown Analyst]

Congratulations again are on a steady quarter. So the first question is more of a macro question. So any impact on our business model due to Trump getting elected as we import all our materials into the U.S. So from your past experience with the near-term administration and current developments, any comments on that? .

[Sunil Agrawal, executive]

Yes. Thank you for the question, Nina. We believe that we are the lowest cost producer and the tariffs would impact equally everybody. So we don't foresee us getting impacted any adverse. In fact, with our gross margin of 62% plus our cost will be lower than other competitors because their gross margins are lower. So will be an advantage if at all the tariff across the board comes into picture. .

[Operator]

[Operator Instructions] The next question is from the line of Rupesh Tata from Intelligence Capital.

[Sunil Agrawal, executive]

Okay. Sir, first question is on this budget pay or financing. So sir, very fundamental question is why do we finance these purchases through our balance sheet, is it not better to do some partnership and let the financing beyond someone else's balance sheet. Maybe I don't have historical context of it, but maybe if you can explain that a little bit? And then the second question is I see is related to that only in FY '23, we had INR 26 crores as impairment. In FY '24, we had INR 33 crores as impairment -- this is significant compared to our profit after tax. I mean if I look at it, it's almost 20%, 30% of our profits -- so maybe you can explain what kind of we make or what kind of interest rates which are and how are we covered? I mean, how are these impairments considered in our model?

[Nitin Panwad, executive]

Yes. Yes. So thank you for the questions. I'll go to your first question, the budget pay. So we have fairly good experience with the financing we initially started Initially, when we started, we explore the option to financing from a third party. But there are 2 things, 2 issues we have found where the financing cost was higher. Also, the customer experience while many the customers are not getting credit as we have created a location from the different financing companies were higher. So then we have find out that it's better to offer ourselves as we give a better experience as well as our bad debt in the financing costs lower than the third party. So over the years, we managed to keep the lower bad debt sale, even with the financing cost of, let's say, interest cost of 2, 3 months, even better than the other financing companies available out there. That is why we went for the option. And over the years, we optimized got pretty well, and we are pretty steady on our doubtful ratio and in the financing cost side. The other point you mentioned about impairment. I'm not exactly where you are mentioning that this number in FY '23 -- a 22, actually, we have a gain of INR 28 crores which was a PPA loan that we have shown in our exceptional items, it was actually gained a subsidy that we have received from the U.S. government on the time during the core I'm looking at annual report. Sorry to interrupt, sir. I'm looking at the annual report. There is a line in other expenses, impairment losses on financial assets allowances for or write-off of doubtful debts. There is a line item in other expenses in your annual report?

[Nitin Panwad, executive]

Yes, it is actually a bit is actually a bad debts on the budget the EMI options that we offer to the end consumer. It is roughly -- this is around 1% of the cost to sales ratio -- and it is in line with, I think, past many years, if I'm referring the current number, that's what you mentioned. .

[Unknown Analyst]

INR 132 crores in FY '24, if you that is 1%, then the total asset under management will be INR 200 crores. I don't think that is the correct number. .

[Sunil Agrawal, executive]

Yes.

[Unknown Analyst]

INR 32 crores, if I wrap erothe financial annual report, INR 32 crores is a 1% of about INR 3,000 crores top line. No, no, no. But you are financing 40%, right?

[Nitin Panwad, executive]

So this is roughly INR 1,200 crores, okay. I got upfront.

[Unknown Analyst]

I got a point. I got your point now. So our financing, 40% is the ratio of the customer who of the budget pay.

[Nitin Panwad, executive]

The budget pay varies from 2 installments to 5 different installments. So first, the installment, we collect upfront.

So that's why these outstanding is it different than the sales ratio, which I mentioned in my commentary, it is 39%. So outstanding it varies based on 2 months to 5 months, different installments. But the outstanding installment debt, as you have far in the financial.

[Unknown Analyst]

So what is the interest rate that we share, sir? I mean how -- because this number sounds really high to me.

[Nitin Panwad, executive]

So we don't charge an interest to the customers. It is an interest-free for the end consumer. That the -- and you can say that the balance should be the cost of interest. Customer don't need to pay. But the advantage is that customers get pretty well adoption of the wherever we offer to the customer a budgetary option. And many of the cases where we have opted to the third parties. So credit or third parties don't give to the good customer as in our in our internal credit score, but third-party don't give the trade to them. So eventually, we may lose the sales. That is why we went forward our own financing.

I also see in the financials, which is Sunil Rupee. So CMA financials about our H1 FY '24 the bad debt was $1.65 million for H1 FY '24. So the velocity of the bad debt is approximately $3 million a year in was $2 million in H1 FY '24 INR 16.5 crores of H1 FY '24. And for H1 FY '25, it was INR 13.55 crores for H1 bad debt. So what we might be seeing is just the doubling of that for the full financial year, about INR 32 crores of the debt amount or towards the getting. And that all the organization, all 3 U.S. usage. Yes. Is this that the number sounds really high to me, sir, I mean, INR 1,200 crores, let's say, I mean, I don't know, 40%, 50%, your financing on INR 1,200 crore financing, INR 32 crores is roughly 3% hit to the Margins and that number sounds really high to me. So that is my point. Maybe I don't know you can.

So let me give you one more reference. Any third-party financing company we go? There is 1 more company available like Flexity in U.K., hey charge trade about 7% of sales regardless of EMI options, which are 7% of sales. different financing companies that don't go below even when the interest rate will lower around 1%, 2% before the -- during the cover before Corti, the minimum financing cost from the different companies was 3% to 4%.

[Sachin Kasera, analyst]

But that is to the customer, right, sir, that is not to .

[Unknown Analyst]

No, no, no, no, that is to us because SP655845519 Crores for the .

[Sunil Agrawal, executive]

We can't age from customer because our competitors don't charge from customers. I see our balance sheet or we take it from outside factoring. .

[Unknown Analyst]

Okay. Okay, sir. And the second question, sir, is on the content and broadcasting piece. So that also is a very first principal basic question that we were doing INR 350 crore spending in FY '22. I think that number went to INR 415 crores in INR '23, INR 500 crores in INR in 2,now it's going to be INR 600 crores 25 million. So that number has gone up by 80% and adjusted for acquisitions, our revenue has grown by -- not even by same amount. I mean our revenue has grown by INR 200 crores, INR 300 crores, adjusted for, I mean, $35 million just between Idealold and mindful stores, the revenue hasn't grown. So I mean maybe you can start from your experience or whatever is your internal modeling, but this incremental INR 250 crore spending that you're doing on content and broadcasting. Can it bring, let's say, INR 1,000, INR 1,500 crores revenue to us? And then at what time frame at -- I mean, if you can explain that a little bit internally how you look at success of this spending? That is one. And then the second question is some other bringing platform company I track. And they basically don't do any ad spending if the sales velocity is good. They they basically do spending only when the sales velocity of customer acquisition numbers start going down. And over the years, it has worked phenomenally well for them. So at the first principal level, I mean can you justify this kind of spend to yourself and to probably to investors?

[Unknown Attendee]

Thanks for the question. This is in -- there are 2 components of content and broadcasting costs. So 1 is the airtime cost. So what is the airtime cost and other income marketing costs. So we look at a different criteria for both these costs. Now within the retime costs, we started Germany 3 years ago. So there's upfront fixed costs, as I mentioned in my earlier comment. And idealo, we started 1 year ago. So that is upfront cost. So Germany will break even in this current quarter and next quarter.

So in H2, it will be at the EBITDA level, it is breakeven. But the cost is already up there. for 35 million homes. For real world, the cost there for 27 million homes as it scales at a fully allocated basis, it is breakeven this quarter. So the upfront costs are there for the air time. Also in U.S., we took an airtime with a lower channel position that will give us a growth in coming years. So we made these 3 investments in data ramped up the cost for future sale. The second component is digital advertising costs. We started ramping up digital advertising about a year ago. And where you see the content broadcasting costs go up noticeably because of that. And we are seeing benefit of that in terms of new customer acquisition. And net customer less time value is 1 year latin value of the customer is higher than the customer acquisition cost for us at all the 6 brands that we have in invisalportfolio, at each brand, the 1-year margin is higher than the customer acquisition cost. So with that strategy is spending, ramping up the spend on the ag market. Now your third point was about the Indian companies who don't spend on advertising until they see the ramp slowdown. So our model may not be apples-to-apples with the Indian model, have not studied the company relation. But with our competition within U.S., U.K. and Germany, we don't see organic customers coming in at our scale. Maybe at Amazon scale or Walmart scale with their footprint or their momentum from earlier spend that they have done, we get a lot of organic. But within our space, from Google SEO that we do on being as we do. The sales is not as meaningful from organic services as there might be from the Indian companies that you're comparing.

[Operator]

[Operator Instructions] The next question is from the line of Milan Laha from Badrinath Holdings.

[Unknown Analyst]

So following up from what the last participant was asking. So the content and broadcasting costs this quarter has been a fall Q-o-Q. So has this number now peaked out for the foreseeable future? And for the coming quarters on an absolute basis, how do you see this number panning out? It was INR 154 crores in this quarter.

[Sunil Agrawal, executive]

Yes. So for television, this is Neal again. For television, we see this number to be -- this season numbers to be relatively flat unless we come across a major opportunity that we don't want to is but we don't have anything in offing. So we foresee this to be flat. For digital marketing, we will continue to gradually ramp up as we see productivity gain within our digital space. So -- but as a percentage of revenue, you won't see any meaningful increase. This year, we expect it to be 18% by the end of this financial year. And for going forward for the next few years, you can expect this to be may be slightly lower, but leverage will not come a lot from this particular area. The leverage will come from HR costs because our costs are largely fixed. Some SG&A and some from margin improvement as we scale the digital portion because the margin on this portion is the higher than television portion.

[Disha Shah]

So it [indiscernible] come from gross margin on digital. [Audio Gap]

[Unknown Analyst]

So for H2, you have to be at around 16% to achieve that 18% guidance. So you're seeing 2, you will be at 16% and then you'll again ramp up to 18 in FY '26.

[Sunil Agrawal, executive]

For the whole year, yes, because H2 is really higher revenue and cost as a percentage of revenue drops because it's a fixed nature, airtime cost. The percentage expense as a percentage of sales dropped -- and for next year, H2 may be higher than 18% and H1 may be higher than 8% and H2 will be lower than 1%.

[Unknown Analyst]

Okay, got it. And sir, out of this INR 150 crores, can you split this between TV and digital so that we understand exactly what part will grow and what will not.

[Nitin Panwad, executive]

Yes. Out of 11% is related to airtime cost and rest 7% related to the digital marketing cost.

[Unknown Analyst]

Sure. And the 7% is digital and where exactly and platforms like Meta and you can read that down a little bit?

[Nitin Panwad, executive]

Yes. So majority spend through meta. But there's some portion in different affiliates, SCO, Google but majority of spend through meta. Okay.

[Unknown Analyst]

And business wise, is it possible to split the 7% between the mint stores and the U.S. business, U.K. and Germany?

[Nitin Panwad, executive]

Yes. Internally, we do like mindful seals is a pure B2C company, which has a higher digital marketing costs compared to U.S. and U.K. business. So model is it different in the other brands. So percentages varies between the different brands.

[Unknown Analyst]

Sure. Would it be fair to say that half of the 7% probably goes to ample sir?

[Nitin Panwad, executive]

Not exactly half, but good amount of portion to [indiscernible].

[Unknown Analyst]

Okay. Okay. And on infusors, can you tell us what was the Y-o-Y and Q-o-Q revenue and volume growth?

[Nitin Panwad, executive]

Mindful soul is Q-o-Q is flattish for what we are seeing right now. But month-over-month, in recent months, we have seen started seeing improvement and mindful. And profitability is also getting better with the regional supply chain has started from -- benefited from October onwards. And then the upcoming season events that we are seeing and different -- 4 different new products we have launched in a couple of months back subscription program. So expecting the subscription numbers will improve, which will reflect an improving of our quarterly and monthly revenue going forward. .

[Operator]

Sorry to interrupt Mr. Lamberti to please rejoin the queue. The next question is from the line of Anuj Sharma from M3 Investments.

[Unknown Analyst]

A couple of questions. If you look at the broadcasting cost, basically the airtime over a long period of time, what is the inflation we can expect in this this particular cost?

[Sunil Agrawal, executive]

So the per home cost doesn't go up unless we take the home in a better channel position and also, the number of homes is not really expanding. So from cable is shrinking, but we are moving from cable to OTA homes over the air home. So those homes can be in more expensive than the cable. So as the mix changes, then the cost may move a little bit, but per home, wherever we are, hasn't really gone up to us per home basis.

[Unknown Analyst]

Okay. Okay. And then there is a shift in the mix from TV to OTA or OTT, what's the inflation or what's the premium you have to pay per household suppose?

[Sunil Agrawal, executive]

So depends on channel position, from cable, the normal cable we used to have in the 100s and OTA usually is in 30th the cost is almost double or sometimes even more than double. But that universe is smaller than cable. Cable is about 60 million homes in the U.S. and OTA is about 22 million million. This was 1/3 giving us.

[Unknown Analyst]

Got it. Got it. And also, we have been investing in digital. But can you just explain how do you go about budgeting this digital spend, how do you really forecast or what we say in deciding the budget or musical that will be helpful.

[Sunil Agrawal, executive]

Yes. So digitally is linked to productivity of the spend. So if you see the spend, productivity is coming down, then we ramp down the spend. And if you see the productivity is strong based on our criteria, what is the as we look at different platform and different or retain and Google branded is very different. We will take opinerent affiliated wise. So we look at those productivity measures and ramp up and down. Overall, we look at the total band of if we have $1 million budget for the month for all the brands put together some banks sometimes spend more because they see more productivity. Some brands trendline. But overall, we are pretty close to our position.

[Unknown Analyst]

Okay. Okay. And this question are on the budget scheme. So what this incentive a customer has. So assuming there is no interest and there is option for 2 installments, 3 installments, 5 installments and outright pay would it be logical from the customer, you're going to take 5 installments or the maximum installment? And do you see that shift happen? I mean, people from upfront going to let go the maximum possible installment, which is free of interest. How is that sitting up?

[Nitin Panwad, executive]

So we leave the result to the customer. We offer that customer has the option. We -- if we are offering for [indiscernible] we would like that customer can opt it because margin of the product decide based on that. But it's up to customer if they want to pay a full amount or go for a UI. Now the customer, they don't want to take a risk for collide default, which may take their rate ratings slower, the petrol amount. But it's up to us to the customers who want to take the budget options or not. But we offer for the iris for the products for all the customer, not distinguished from the tiger product, vertical customer based on whatever credit score.

[Unknown Analyst]

Okay. But logically, if it's interest-free, don't the customers gravitate towards the maximum installment option?

[Nitin Panwad, executive]

Yes. We are -- logically, you're right, but -- and we see that customer also majority customer growth for the project, but some of the customers are also they don't go for [indiscernible].

[Unknown Analyst]

Okay. But do you -- would you disclose the breakup between the 2 installment, the 3 installment and 5 installment and how they have shaped up? Would a period of...

[Nitin Panwad, executive]

We do put the product, 2 installments, 3 installments, 5 installments, customer can select based on the available installments.

[Unknown Analyst]

No. No, I'm saying from an investor viewpoint, a shareholder, would you classify what percentage of that 40% is availing the 5 installment versus the installment as a bucket.

[Sunil Agrawal, executive]

So it depends on how much we offer it. So every product has a unique feature of -- from 2 to 5. And whatever we are offering, they can either take that or they have to pay for about 40% customers, we offer saber. Some products we don't even offer anything. For that product, they have to pay full any design to buy, especially in lower-priced products. Product, it won't offer any million times.

[Unknown Analyst]

Okay. And my last question is, let's give a customer default. What are the recovery options we have? Generally, what process we follow for recovery? And when do we generally give it up saying that the cost of recovery is higher than the estimated recovery amount?

[Nitin Panwad, executive]

So the system already built accordingly after how many days the payment need to be retried after how many days of interval payment need to be adoptive acceptance or card update or open up data happens. And after how many days that we send the reminders to the customer via e-mail or physical meter later on transferred with the debt collection as we see. So this was the process, pretty long process, robust process that we have that we follow for the Wales failure in the install which we met. .

[Unknown Analyst]

Okay. And my last point is if the customer really defaults, his credit scores are impacted. Is that correct?

[Nitin Panwad, executive]

Yes. So we don't -- unless we pass on to the debt collection agency, then is core impacted. And we don't transfer that if it's a really substantial amount to the but only impact once we transfer to debt collection, yes. Otherwise, it doesn't impact the customer can go out there. But internally, as soon as customers do a default then customers can no longer buy on the budget option, while they can buy a full tenant.

[Operator]

The next question is from the line of Pradeep Mari from AGI Meditec Private Limited.

[Unknown Analyst]

I have a couple of questions. My first question is what is the gross margin for digital revenue? Can you comment any exact number?

[Sunil Agrawal, executive]

Gross margin for Meta products or saving Google products is anywhere from 65% to 75% depending on pole.

[Unknown Analyst]

Okay. Actually 1 on about total actually average gross margin, total digital revenue.

[Sunil Agrawal, executive]

Nototal digital venue has a lot of components because we also have rising ocean under auction, where we sell products at 5% to 7% margin on the there is a clearance mechanism because we come up with 100 new products every day. And the small quantities are not sufficient to sell on television, we sell through auction.

[Unknown Analyst]

Even in gross margin is our digital revenue. .

[Sunil Agrawal, executive]

Yes sooon I think including are they excludin our yes. So I'll have. I'll pull out that number in the meantime, you can ask some other questions. .

[Unknown Analyst]

Okay. How in the digital revenue become 50% of total revenue? .

[Sunil Agrawal, executive]

Yes. So our rising option will be limited because it won't rise as a percentage. But the other margin, other component, there is a fixed price catalog or meta or Google product overall margin will grow up even further. We are not giving separate guidance on that, but that margin will go up higher.

[Unknown Analyst]

Okay. And my second question is why companies sold by NK Private Limited? What is the issue with that company?

[Nitin Panwad, executive]

So for the NGs that we are finding that earlier our idea was to get China plus 1 strategy and get a cheaper packaging products, which we use in U.S., U.K. and Germany for the end consumer. Now we are finding that many of the products is available out there in China itself with even lower pricing after duty. So -- and the margin is not in line with what we guided to our investors. -- above double-digit margin that we are guiding to investor is not coming with that business. That is why we decided to exit that and sources from the third party China.

[Sabyasachi Mukerji, analyst]

Okay. And with that last 1 question. What was its acquisition cost, when we bought that our company bonded and what is its selling cost?

[Nitin Panwad, executive]

Yes. So we bought -- we invested this country roughly around INR 4 crores, and we sold that in round in 5 lakhs. that means INR 3.5 crore approximate the company lost in that acquisition.

So we yes, yes, right. And we already booked. But the in March 24 -- 24 accounts. .

[Operator]

Next line of Ana adder from Samena Capital.

[Manish Poddar, analyst]

First question is in our cash flow statement.

There's a grant also impairment of loan of around INR 1 crore. Can you throw some -- can you throw some light on these 2 line items? .

[Nitin Panwad, executive]

Sure, sure. So this was the loan related to the MKS packaging, which was outstanding for a long time. It is the same loan that we have done a mortgage of the property line with the NGS packaging, the land and building and plant and machinery. Though the mortgage and the property valuation was coming and fully covered with the loan outstanding. But for the conservative accounting, we have taken a loss and booked the impairment of INR 1>1 crores for this outstanding loan.

[Sunil Agrawal, executive]

For the Alfa Okay. And my second question is on the inventory days, it has increased from 72 to 86 days.

[Manish Poddar, analyst]

I know it's due to the upcoming festival season. But fair to assume these are the base going forward? Or if not then what can we take as a sustainable inventory rise,

[Sunil Agrawal, executive]

Yes. So we expect the after season, that is at the end of December as well as end of March, the inventory comes down because we run 2 clearances on December place and we run March clearance and inventory strategy comes down. So from the base point of view, so you should look at the last year's deals as a guidance for your future position.

[Nitin Panwad, executive]

Yes. And even if you refer the cash conversion cycle, -- so we have maintaining around 170 days cash convergence cycle in payable, receivables and days -- and this we -- internally, we are keeping the similar kind of cash to middle cycle for upcoming period around 170 days. .

[Unknown Analyst]

Okay. So at the clearance of December in March, just will the gross margin have impact on the -- will we have impact in that quarter?

[Nitin Panwad, executive]

Yes. So yes. So that is why our first quarter margin was pretty healthy 66 And the second quarter and the full quarter -- full year guidance that we have given a 200 basis point improvement in last year. So full year, we are guiding 64 million. So that guidance was incorporated in Q3 and Q4 clearance that we have planned. So it is building on.

[Operator]

The next question is from the line of alarm geo [indiscernible]. So taking was when the customer buys from your platform? -- doesn't have a repeat purchase. So do you offer them any incentives for the retention of the customer?

[Sunil Agrawal, executive]

Yes, definitely. We have pretty robust e-mail text flows in place to get the customer back -- so we increasingly increase offers for them to come back. The first offer is to offer a complementary product. We more complement is complementing product to what we bought. The second is for the free gift and then percentage discount and $10 gift card and the $20 is card. So we have a lot of these processes in place to get the customers back. So my next question is a target or gas 50-plus age group. And you are considering investing in the OTT platforms also. So have you been able to convert the audience in the or other new customers in the organization platforms? .

Yes. So that's a good question, Richard. Now we have a lot of OTT sales and sales growth is also pretty robust. But we have not been -- we have been able to move many of our existing customers over to OTT. But to acquire new customer OTT, it still is a new area there is -- we get a lot of app downloads, but still, there is no ecosystem to convert those downloads into customers. So the new customer acquisition already is relatively low. -- but the customer conversion and you see customer conversion over the OTT who are buying from us and have convectorect connection or even existing customer work is still buying some television or e-com and then then buying or otitis critical.

[Unknown Analyst]

Sir, just on the customer part of it, what is more important for you? Is it adding new customers or the conversion of the customers from 1 platform to...

[Sunil Agrawal, executive]

We both have KPIs on both fronts. So if see slow down the new customer acquisition, then the funnel will dry. So we don't want for them to dry up -- so we want for them to be fully populated. And then once the customer comes in, we want to retain it within the customer and then also move them to other platforms so that the lifetime value goes up. And when we move from 1 platform to other LatAm very short up quite substantially.

[Operator]

The next question is from the line of Rupesh Patia from Intelligence Capital. .

[Unknown Analyst]

My question is, let's say, for INR 4,000 crores sales whenever we reach what would be the content spend velocity would we need? Is INR 600 crores spend enough? Or we have to go to, let's say, INR 20 crores, INR 50 crores kind of number?

[Sunil Agrawal, executive]

So the television broadcasting, we expect that to stay literally flat. It may go up a little bit but relatively flat. -- but the digital cost may go up because as we scale up our digital customer acquisition and retention, so that may go up. So as I mentioned earlier, in longer run, this 18% may stay natively flat. So our internal operation is showing 17% to 18%, but guidance I want to give to you is relatively flat the leverage will come from HR cost, SG&A and margin improvement.

[Sachin Kasera, analyst]

So just to summarize, even at INR 4,000 crores, do you expect 17% to 18% containment broadcasting cost? So there is a guidance to give .

[Sunil Agrawal, executive]

Because it may go lower, but at this time in our journey. I don't want to give a guidance below 17 months.

[Sachin Kasera, analyst]

Okay. And then, sir, I mean, if I look at the model from gross margin to EBITDA walk, right? I mean 60% gross margin, 20% employee cost, 20% content broadcasting cost, 10% maybe manufacturing packaging shipping all that cost. So 60% gross margin results in 8%, 9% EBITDA margin. And I mean whatever operating leverage you're talking about in HR and all that is like 1%, 2% kind of thing. So to meaningfully see a jump from 10% to 15% margin. To me, it looks like gross margin is the biggest lever. I mean your gross margin, I think, has to go above 65, probably close to 6 and only then we can see the mid-to kind of margins. So what are your thoughts on that?

[Sunil Agrawal, executive]

First lever is the HR cost. We have 2 new businesses in Germany. -- and ideal word, and we staffed substantially for these 2 new businesses. And as we scale up, the HR cost will drop down quite substantially across the group. And we also believe earlier creating efficiencies through AI, will gain efficiencies in our knowledge or cut across the group as well. So you'll see substantial gain in HR costs from currently 19%. So it has a potential to go down as we were 13%, 14% in years to come. Now the affiliate cost, there is the content in medcasting cost, which is currently -- we expect it to be 18%. That may -- and G&A, as we scale up, we'll see leverage here because as is see the shipping costs go down, the other -- as goes down as well. The rents of our expenses go down substantially. And so margin may go up from 64% that we are projecting for this year. It may go up a couple of percentage of maybe 2% or 3% over the years. but other areas will also have away opportunities.

[Operator]

The next question is from the line of Parana Investor .

[Unknown Analyst]

Slide, we have mentioned there are 4 new products for the quarter. And earlier, I think Nitin has said that a lot of expense goes in there. So .

How to read this only 4 new products for the quarter, whereas our U.S. U.K., you said that we have a big churn like 100 new products a day.

[Sunil Agrawal, executive]

Yes, mindful so is subscription business. or subscription business, there's a lot of thought and a lot of promotion that goes into a new product launch. Rather than on television, you get -- you make some changes to the wing or tenant or hearing based on the stone that you have or exemptions we have or the color of the cat you have -- so you gain a lot -- you get a lot of velocity coming in for division because that customer watches us ours every day. So we constantly need to bring new for them without a lot of depth that a subscription business as -- and the provision cost for the new products that we get in is very low or almost nonexistent on Canadian business. There is on e-com business, we have to promote a lot before the customerp the product gains traction. So a bit different business model and not really comparable television to subscription model.

[Unknown Analyst]

Okay. So the 1 product that is mentioned is the subscription products.

[Sabyasachi Mukerji, analyst]

Correct. .

[Unknown Analyst]

Okay. And for -- sir, do we have budget pay in Germany?

[Sunil Agrawal, executive]

The same setup that we have for other 2 regions. Yes. We don't have budget pack. Actually, it is a pay by invoicing. So it is 21 days payment after receiving the item. So installment payments, we have -- we don't have that in just the payment is credit to the customer for a by investing .

[Unknown Analyst]

Okay. So what is stopping us to, I mean, start the major pay set up there? Is there any regulatory limitation SP668504192 Yes. It is -- we're finding it is not easy to operate with the abiding -- and the other competitors are also not offering to the consumer .

[Nitin Panwad, executive]

While in U.K. and U.S., the combat competitive offering the jet -- so we are going until that until we see a profitability, good margins over there, then we can think of to offering installments to improve that. .

[Unknown Analyst]

Got it. Got it. Agreed. And in the same slide for Germany, it is mentioned immediate PM increased by 20%. So is this recent thing, anything that has happened recently? Or how are we comparing this 20% year-on-year? Or -- what is the time for you. .

[Nitin Panwad, executive]

So actually, so it means that when we started Germany, so comparing to U.K. U.S., where we have our existing market starting Germany has increased our addressable market .

[Unknown Analyst]

Got it. Got it. And final 1 from my side. So any other acquisition on the cards thing on the table with the management? .

[Sunil Agrawal, executive]

So not anything on the horizon. Our aim is to get mindful sold starting scaling up and Ariel word, giving us meaningful policy EBITDA before we go for a new one. .

[Unknown Analyst]

Sir, because there was this social media post somewhere, which said Weibo Global looking to acquire -- create and craft in U.K. So I don't know if there is anything to read in that? .

[Sunil Agrawal, executive]

No plans right now. SP668504192 No. Got it. That's it for me. .

Thank -- this will be the last question, which is from the line of Nirvana Laha from Badrinath Holdings.

[Sachin Kasera, analyst]

Sir, the digital growth this quarter Y-o-Y was only 11.8%. .

[Manish Poddar, analyst]

This was without mindful souls in the base. So next quarter onwards, we'll have that in the base. So what is your comment on this growth and organic digital growth, what kind of number are you targeting going forward?

[Sunil Agrawal, executive]

Yes. So we had some new airtime coming for ideal world for in U.S. So those new in give us more television growth. and digital was not as robust on that one. But going forward, we expect digital growth to be faster than TV growth. .

[Manish Poddar, analyst]

Sure, sir. So just doing some math, the numbers that you said about 18% content and broadcasting and 11% part remaining more or less fixed, which has to do with TV. So I think you're planning to grow the digital spend by 15% year-on-year for the next few years. So will the digital growth, therefore be higher than the 15% in line with '15? Or how will it be? .

[Nitin Panwad, executive]

Specially if you raffle that past 10 years, digital CAGR is 18%, it was actually without the aggressive investment on social media marketing. And we expect that this growth rate will continue to grow as we are investing more on social media marketing. So we are expecting that the growth rate will be higher than the investment of 15% that you mentioned year-over-year. .

[Manish Poddar, analyst]

Okay. Okay. And sir, when you say that gross margin for digital sales is higher than TV sales, what is it driven by? Are we able to spend cost our products via digital -- or how is the gross profit per unit going up in digital versus TV? .

[Sunil Agrawal, executive]

Digital ecosystem, even when we compare to say, Amazon or other BDC players, we find that the players have to absorb higher marketing costs. metal costs or global costs or senior costs. Therefore, the margin potential is higher in business space and telesion. .

[Nilesh Shah, analyst]

Okay. Sir, I'm not sure I understood the explanation. I'll take it offline. Last question from my side. Any plans on lightening the balance sheet, sir, I believe we are we invested -- we made some investments in land, et cetera, in the U.S., which we are not using since we have an ROE goal also along with margin. So any plans of working on the balance sheet to make it more slim?

[Sunil Agrawal, executive]

Yes. For that end, we are looking for rezoning of that land into partial commercial and partial warehouse come light office use. First, we have rezoning done and part of that land will sell for retail local retail and let me legend the balance sheet from that extent. And we don't foresee much CapEx in coming times. So balance sheet will continue to be lighter than we had in the past few years.

[Operator]

As this was the last question for today. I will now hand the conference over to Mr. Sunil Grewal for closing comments.

[Sunil Agrawal, executive]

Thank you. I want to thank all the participants for your time and great questions. If you have any further questions, please feel reach out to present a sort as the year or Amit Sharad Adfactors bear India, and we'll be happy to answer your questions. Thank you all again.

[Unknown Attendee]

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