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V I P Industries Ltd
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Good evening, ladies and gentlemen and welcome to the VIP Industries Limited Q1 FY '23 Earnings Conference Call. From the senior management, we have with us today Mr. Anindya Dutta, Managing Director and Ms. Neetu Kashiramka, Chief Financial Officer. [Operator Instructions]
I now hand the conference over to Mr. Anindya Dutta, Managing Director, VIP Industries Limited. Thank you, and over to you, sir.
Hello and good evening. Thank you for joining this call late in the evening. We've been putting late evenings ourselves to bring out our results faster and I believe this is the fastest we have been till now and hopefully will strive and we will improve further beyond this. Before we talk about the results, firstly I would like to tell you that at VIP, the whole team is very happy to have a disruption-free quarter one, the peak season quarter, which we were eagerly awaiting for the last 2 years, which were completely washed out because -- the quarter ones were washed out because of the pandemic. And with the conducive environment and more importantly with all the hard work that the team has put in, I'm quite delighted to announce the results, our revenues were at INR 591 crore, which is the highest revenue quarter that we have ever reported. This is also a 5% growth over the pre-pandemic quarter one, which was FY '20.
Just to contextualize the environment, on one side, travel opened up in a very nice way. We saw sequential growth in airline passenger traffic both in April and May. However, the level of domestic passenger traffic was not same as what was in Q1 of FY '20, it was slightly lower. And we also saw a slight decline in the month of June. International travel has also opened up, while it's still gaining momentum, we didn't see much of a corporate travel coming back and that's not something that we were expecting to happen.
By and large I think travel is coming back and that's quite helpful for us. The wedding season, we had no complaints, there were enough wedding dates within the quarter and I think it was celebrated the way it should be and we got the benefit of that. So did the schools and colleges opening helped us in terms of the sale that is dependent on the consumption, because of schools and colleges.
So, overall, a very good conducive demand environment, but while we say that, I think there were equal or newer headwinds that we were facing, one from the inflation side. We are dealing with an inflation that we have not dealt almost in one decade -- for the last one decade. We are almost at a 24% inflation over the same time last year. This inflation is not only putting pressure on our profitability, but also could be a potential demand dampener.
Besides inflation, one more key callout here is the Future Group and the closure of stores and the transition. I think it had a big impact on us, almost 430 stores of Future Group across all its banners, only 44 were operational in quarter one for our business. We have a high -- we had a high dependence of -- on this one account, almost 15% of our revenues used to come from Future Group stores, all banners put together pre-pandemic and that was extremely constrained in this quarter and we had to look at avenues to regain the demand that would have happened because of Future Group.
We are expecting this revival to happen by quarter 3 hopefully. However, in spite of the headwinds, as you can see, the result has been quite good. Modern trade, if I were to talk about the performance in channels, modern trade which was the largest hit in this whole thing, because of Future Group did make up at least 50% of the loss through other accounts within the same -- within modern trade. And a large part of results was also made up by other channels.
Retail in particular, when I say retail, I mean my exclusive business outlets has performed very well. It has come back to the same revenue as it was in quarter one of FY '20 with almost 100 stores lower than what was in Q1 in FY '20. Even general trade expanded and got the business very well. In fact, one of the things that general trade is taken on is to see how do we penetrate further down cost rate. And we had in the quarter 68 new towns opening up for us.
Equally, e-commerce performed well in driving the growth, but e-commerce is a place where we always have much higher potential than what we are possibly getting, largely because of coming from relatively lower share in e-commerce. So by and large, I think all revenue streams in terms of channels performed very well. In terms of our brands and categories also, we had great performance both in the value segment, as well as in the premium segment.
VIP and Skybags brands created good buzz in the market with high visible campaigns. In fact, we were the only brand active on TV in the last 3 months. Campaigns like the Wedding Collection campaign using with protagonist Vaani Kapoor or Chase The World campaign with Varun Dhawan really did well for us. Even on Caprese, we went back on air with digital and print brand activation and the Caprese brand as well has come back to its pre-pandemic level.
Besides the brand activation, many new launches were done in this quarter and I'm very happy to share that some of our new products whether it is in the tech themes which was launched in the quarter or it is in the high fashion zone that we had launched, all the new products have done extremely well during the quarter for us.
So overall, the revenue has been pretty good. When we look at the gross margin, that's a bit of a dampener from what we were expecting, largely coming from the inflation that we experienced. We saw a gross margin -- gross profit of 49 -- sorry, is it 50?
50.
A gross profit of 50%, which was sequentially lower than the previous quarter largely because the previous quarter had price increase kick in. However, the cost increase or the inflation really took place in this quarter. So price increase was designed to cover part of the inflation and we -- it was designed to take a slight hit on gross margin this quarter because as we go ahead, we would possibly with other cost reductions, we will neutralize -- we will hopefully neutralize the impact of the inflation.
With all that, very happy to say that our EBITDA is at 18.3%. The control on all other fixed cost was in line with what we had planned. And therefore it gave us EBITDA of 18.3% and a PBT of INR 100 crores that we are reporting. We continue to stay strong on our fundamentals, whether it is building the channels or building the brand and more importantly building our supply chain.
We've spoken about our own manufacturing and control manufacturing share as part of whatever we are selling and that scaled up to a 79%, which was -- which is quite heartening to see. Going forward, we are quite confident about the demand environment to remain stable. While the inflation and the areas on some of the channel like Future Group we spoke about will continue to put pressure on us, but as the overall environment stabilizes, we are more confident to work through these constraints and make sure the fundamentals that we are building helps us to continue to deliver good results.
With that, thank you and I would now open the session for questions.
[Operator Instructions] First question is from the line of Karan Khanna from Ambit Capital.
Mr. Anindya, can you first talk about what's been the volume recovery versus pre-COVID during the quarter? And as a follow-up, what's been the revenue loss which the Company would have seen during the quarter, given the impact on Future Group?
So, the volume growth, Karan, is 8% on the base, which is FY '20 and the Future Group, while it's difficult to quantify what is the loss because the stores were not open, but overall the consumer demand was caught in other avenues and other channel. So we had a plan to look at the catchment area wherever the store is shut and we activated our own stores or MBOs nearby. We also took up fest and everything in and whatever possible in all -- especially in malls where these stores were there.
So if you see overall, I would think that we've kind of almost recovered of whatever the Future Group loss was in most of the other channels. But one cannot say for sure, there could be some loss, overall, I think given the performance that we've had, it seems that large part at least or what could have potentially happened through Future Group was captured in other channels and other stores.
On the raw material front, Anindya, if you can just talk about how is the situation now versus previous quarter? And what's your take in terms of going forward, is it -- what your prices were to cool off, will that -- will the benefit be passed on to regain market share, which has been lost over last 2 years?
Yes, Karan, so it's a little mixed bag in terms of what we're seeing in the market right now as far as raw material is concerned. There is some softening that we're seeing, but there is continued -- the same high inflation in many other components and raw material that we have. In the immediate quarter, I think we are already covered for the raw material, so we expect the inflated conditions to remain for us in the immediate quarter. However, slightly more in the long-term, it's quite volatile for me to predict right now what benefits could come in from where we are right now.
And as the benefit comes in, I think our strategy on competitiveness and profit remains the same, where we continue to walk a tightrope as long as -- we will continue to strive to gain share, while we have healthy gross margins and overall profit.
And on the supply chain front, while your dependence on China has reduced to around 11%, can you give us some sense if there has been any disruption with respect to raw material procurement, given the current long-term situation in China? And also what happened with the supply for backpacks, handbags and premium luggage were just still imported from China?
So, on the raw material front, yes, there has been quite a difficult condition in terms of disruption from China. Part of it was covered through a little bit of pre-planning and some bit has happened. So a lot of the way you deal with a volatile situation, right, you're trying to bent things here and there to make the ends meet. So that's -- it's going on, but as China stabilizes, I think the flow will kind of -- will stabilize. As far as buying finished goods from China, yes, on the high fashion portfolio, which is Caprese and backpack, it will -- part of it will continue to happen from China. And barring the disruption of days and weeks whenever we have had in the past or if we have to happen in the future, we are trying to cover that up with having extra inventory in some of the core areas that we believe will be high sellers.
Sure. And lastly in the recent Annual Report, you mentioned you're looking to add 120 to 150 this year via asset-light expansion. This roughly implies quarterly run rate of around 30, 35 stores per quarter. With respect to this, can you help us understand if you're on track for this and how much -- how many stores would have opened since April?
So, just to reveal some numbers here in this quarter, we have added 21 stores and we have signed up 23 more stores within this quarter. So I'm quite sure that we should be able to maintain the run rate.
The next question is from the line of Bharat Chhoda from ICICI Securities.
Sir, despite there is a raw material inflation, it is credible that you have maintained gross margin at 50% level. But if you look at EBITDA margins, then probably it is at 17.4% compared to probably Q1 FY '20 where we had a margin of around 22.2%. So what has been the reason for this EBITDA margin being lower?
Firstly, I think EBITDA margin is 18.3%, if the number is correct. We have converted our self to our own manufacturing and that has added -- that has changed the cost line from gross margin to more overheads and fixed cost. So, as we expand manufacturing, our own manufacturing that cost is not coming below the GC line. So really the pressure is not in the -- in below GC, the pressure is really in the gross margin line and which is purely happening because of the completely unprecedented very high level of inflation that we are dealing with.
Just to add, there were one or 2 additional expenditures like exchange rate fluctuations, which impacted the EBITDA margins, 2% of EBITDA margin is actually impacted because of exchange rate fluctuation. If you see the slide we have given other expenditure details, you will get that information.
Okay. Related to this, probably for the full-year, what kind of margin are we looking at, probably this quarter margin would be the number we are looking or -- at that or we are looking at improvement in the EBITDA margin for this year, for FY '23 overall?
We would love to maintain this for sure, but, Paras, to be honest, it's quite volatile for us to kind of predict right now. But given the conditions stabilizing, I think anywhere between 18% and 20% is what we should aim for in the second half of the year.
Okay. And sir, one question on this clarification about the volume growth, you said is around 8% vis-a-vis Q1 FY '20, is that correct?
That's right.
But if you look at then the value growth totally for that period is around 5%? So probably is my number correct, because we are...
You're absolutely right, the mix is in favor of the value portfolio, which is changing the value-volume equation to that extent.
25 to 30.
The next question is from the line of Tejash Shah from Spark Capital.
Sir, in the opening remarks, you sounded a bit disappointed, but I'm not sure if I read it correctly, but is it that there was a part of demand which was there and we could not cater to? Or were you slightly disappointed with the demand itself, because you also spoke about air passenger traffic not going back to pre-COVID level in the quarter?
Tejash, on a lighter note, I think you should see the time on the watch and decide is it disappointment or fatigue? We just finished a long meeting, but absolutely not disappointed. I think it's a brilliant performance, much awaited that we were wanting to get to. And this has added a lot of confidence in the team.
Yes, there are many moving parts in the business and we got to manage all of them. So the big good news is that as we speak right now, whether it is fourth wave or not, I think the consumption of our products has become steady.
And this itself is going to multiply all the efforts that we have been putting in, in the last 8 quarters to stabilize our business. So, I'm quite optimistic and confident about the future and quite happy with what had happened, so please don't read -- repeat it.
Yes, yes, that helps, sir. Sir, second I think, Neetu ma'am also spoke about it in the previous question that visibly Aristocrat Alfa largely -- the contribution pre-COVID to post-COVID has actually picked up materially. And as you also mentioned while answering previous question that it is the reason of margin dilution also. But just wanted to know, is it -- is this focus largely consumer demand-driven also or we were highly under-indexed in the segment and that's why we have put a disproportionate focus on this part of the segment?
No, I think it's a brilliant question, because yes, it is coming from an under-indexed past in the value segment. Also what is happening is that there is a higher tailwind in the value segment which pandemic has brought in with maybe unorganized market yielding into organized. So, definitely, from every reason you see it is very important to address that from a share gain and also from a growth point of view, because that's where the market is growing faster.
In fact, our approach and our strategy was to see how do we cater to this more profitably and therefore the hard luggage and within that the hard luggage made out of polypropylene is what we went after and we put capacities, we invested capital behind it and that's something is helping us right now to not only cater to that demand, also maybe relatively of then what we would have otherwise done, we are doing it slightly more profitably.
Sure. And sir, similarly backpacks, if we see the saliency there, it has wide gap between pre-COVID to now. So very intuitively, we would have thought that the pent-up demand of school and back-to-school and back-to-office would have normalized in this quarter, but it is not visible in backpacks saliency going back to the pre-COVID numbers. Any insights if you can share?
So, yes, on backpack, I think -- no, you're, first of all, right, the demand with all the demand drivers has come back. I think what has happened from our side, which has not really fully worked for us was the delay in the launch of the new collection that we had. So there was a miss from our side in terms of a slight delay in the launch of that and possibly we didn't get enough of what the demand brought to us in the last quarter. But again fundamentals in place I think which is just a correction and in the series of many correction, this is a slightly delayed correction that you've had.
Sure. And sir, last question on the business model change that you spoke about that after almost 10, 15 years, the focus is also coming back on domestic production and that also means that, that part of the value chain profit will be captured in our P&L. But at the same time, how should we think about capital return ROCE going forward, because CapEx intensity should increase logically from here on. So if you can, share some thoughts there?
Neetu?
So, our business per se is not too CapEx heavy, so payback is 18 to 24 months. So from that point of view, if you see, return on capital employed is around 30%. So it should not be...
And ma'am, if you can share CapEx plan for this year and next if you have?
So this year we have a CapEx plan of around INR 50 crores.
And this will be for Nasik facility or?
Need not be only Nasik, it is a mix of all Bangladesh, Nasik, Sinnar, as well as some more.
Our next question is from the line of Jinesh Joshi from Prabhudas Lilladher.
I have a question on exports. I understand the share is at about 3% to 4% currently, but given the fact that most countries are now looking to kind of diversify their supply chain from China post the pandemic. Are we seeing any increase in inquiries over there? I mean, basically the reason I'm asking this question is because in the past exports will be about 10% to 12% of our topline. So can we expect to reach that level in the near future?
So, Jinesh, firstly, I think, international business could mean a very large opportunity for us, which we haven't exploited or explored in the past to that magnitude, but we would like to do eventually in the future. But we had a certain export business in the past, pre-pandemic. Firstly, I think in this quarter, we've not only come back to that level, but we have surpassed that level.
Quarter one export stands about 5% of our revenues and this is not only the China and the supply, but also the export and the front-end team is working hard to reopen every country and every sector that we had. We had about 20-odd countries to which we were selling in the past, we have exceeded that in the last quarter.
So, 2 parts to that to see, one is to reactivate what we had in the past, I think we have reached like in all other areas reached and surpassed that base. With some gap from now, we would look at possibly going into international with a much bigger game plan.
Sure. Any specific geography you would want to highlight?
So, in our existing business, I think Middle East and largely GCC is where the core of what we are doing lies. We had a change of channel partner in UAE, we have just about now entered the Saudi market. So GCC countries are yielding well for us in the previous quarter and what we see in the near-term, we should be doing -- getting better and better there. And exports into many other countries in Southeast Asia or some European countries that also resume what we had before.
Sure. And secondly, I have a question on CapEx. I know this sounds a bit repetitive, but if I recollect properly, in the last call, we had stated that we have plans to incur CapEx of about INR 30 crores to INR 35 crores, but in the Annual Report that figure was mentioned as INR 65 crores. And in response to the previous question, Neetu ma'am gave a figure of INR 50 crores odd. So, I mean, I just want to kind of to lead the numbers in a better way with respect to what exactly and in which area are we spending into and the reason for divergence in numbers as well.
This is for the previous year?
No, FY '23.
So, we will come back to you on the number part.
Yes, Jinesh, I will call you.
Yes, on the difference in number in whatever sources you're looking at, but what Neetu said right now it is order of the magnitude of INR 50 crore is what we have outlaid for this year.
Yes.
No problem, we'll take it offline. One just small clarification, I think we had some exceptional gain of INR 15 crores with respective to fire insurance claim, but I think total amount which we were supposed to receive was approximately INR 48 crores. So any specific reason why we have received a partial payment and not full payment in this quarter?
So, the survey report is not completely out, this is an interim payment which has come and we have accepted, because at least now it justifies that the claim is legitimate. So we are expecting around INR 41 crores to INR 45 crores of claim -- recovery on this, which will come only by quarter 3, the balance money.
Our next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.
Sir, my first question is offsetting the...
Request you to use the handset mode.
Yes. Can you hear me now?
Yes, Bhargav, we can hear you. Go ahead, please.
Yes. Yes, my first question is that offsetting the loss of the Future Group, which was about 15% of revenue has been a commendable effort. So if the Future Group comes back, do we see this as additional revenue or how should we look at it?
No, it won't be. See, the way I said that there is an overall demand in the market and shifting between stores or channels is quite possible. So, as I said, the way we made up for it is by having our catchment area strategy. When it comes back, I think it will reorganize itself to that, but there is always, Bhargav and it's very difficult to quantify that always a particular retail chain or a store does drive the demand further overall for the category.
And yes, to that extent, once it's fully functional, I'm hopeful that it will add something more than whatever because wherever else we are getting that kind of a traction may also continue at a higher base. There is no perfect science to this, because finally it is a consumer demand met through various stores or by different channels and there is a lot of fungibility between them.
So when it comes back, it is going to be quite a -- it will be a very welcome situation when Future Group fully becomes operational.
Secondly, on the LFS side, we understand that VIP had [Technical Difficulty] competitors...
Mr. Buddhadev, request you to please repeat your question, your audio broken.
Sorry, we couldn't hear you.
Yes, your voice is quite disturbed. There's a lot of...
Yes, can you hear me now? Can you hear me now?
Yes, it's better.
Yes. I'm saying that on the LFS side, earlier VIP wasn't that aggressive and they were giving our businesses to competitors, but now we understand that their team has become fairly aggressive and they have started increasing their share on the LFS side. If you can sort of elaborate briefly on this side in terms of what is the penetration and the opportunity over here?
Sorry. Can you help me understand LFS, what do you mean by that?
Shoppers Stop and all such kind of formats.
Okay. Okay. The lifestyle stores, you mean?
Yes, yes.
So, what I...
Hello?
Yes, yes. No, I was just trying to understand your question. So I don't have -- I don't share the same perspective that we were not very aggressive and we're aggressive now. We are aggressive across and the LFS side does represent for us the premiumization agenda that we have, whether it is with Caprese or whether it is with luggage and therefore VIP and Skybag, that channel, that sector for us is more high-yielding for premium and more fashion-related range within our brands.
So, we will continue to be aggressive on that and it's more about segmenting it right and putting the right agenda, the right strategy behind each of these channel segments that we have.
Okay. My third question is, which areas of talent in your opinion are we still shorter and what are we doing to sort of fill these gaps?
Extremely relevant question which is something that we've been working very hard in the last 4 quarters in terms of building up the team. We are at I would say relatively much better position than what we were about a year back. But we continue to look for better and more higher talent in e-commerce, definitely that's one area. And including also along with that in the innovation side and therefore design and product development side.
So these are areas which are very strategic and these are going to be our newer journey for us going ahead and therefore that's an area which is more under focus for talent build from here onwards. And other areas that were under priority has kind of been done.
And my last question is that now with currency depreciation being so sharp and we've been more sort of backward-integrated and also sort of manufacturing more in India, is it fair to say that we are now fairly well-placed as opposed to our competition both organized and unorganized?
I would say we are relatively better, but there is -- glass is still half-empty. There is lot to do in terms of our raw material, in terms of finding out alternate sources of raw material. We're still dependent on China for a large part of our raw material and streamlining all that. So the agenda isn't over. I think we have made a very solid big start, we could be ahead. But what we see is that there is still some more to go before we can really say that we have consolidated on this one strategic shift that we had done in the organization.
The next question is from the line of Ankit Kedia from Phillip Capital. [Operator Instructions]
Sir, just wanted to understand how has been the online performance for the quarter?
So, Ankit, the online performance was good both sequentially, as well as on the base that we had both the last year and the '19-'20 base we have handsomely grown by excess of 50% on all accounts. So, as I said, while having said that, we think that it could always be better because this is where we are -- we do not have the share that we have in other channels or even our overall share in the market. So there is a catch-up game that we're playing as far as e-commerce is concerned, mostly in the marketplaces.
Sure. And sir, my second question is, what is the learning from the Future Group which we have had having a high dependence on one group. So incrementally would Reliance also have a high-single digit market share of ours or revenue contribution for us along with canteen sales? So, are we derisking ourselves to a particular group or we continue to have high dependence on particular channel or group?
No, I don't think we can see it like that because a particular retail chain depending on how big the retail chain is brings us a certain opportunity. And the idea is to maximize in each one of these channels in terms of our share and salience. So it is not about in our hands to derisk by saying that if a chain is doing very well, we don't want to have high share because we want to have low dependence, that doesn't make sense.
So, yes, the situation that has happened in the last quarter is unfortunate, I could only say unfortunate, because of our high dependence, but one cannot have a strategy of lower dependence on a chain, which would only happen if you decide to have lower share in that chain.
And sir, what would be our dependence on Reliance today, because lot of the stores would be taken over by Reliance now?
Yes, so when that happens, we will get a sense of what volumes they are stabilizing, what is now -- this question would be more to Reliance in terms of where they are seeing the Big Bazaar volumes overall and for my category how much they will come back to, but that's something only future will tell us.
Sure. And sir, my last question is on the A&P spend. The quarter we have had around 5.5% of A&P spends, do you think for the full year around 5% would be the ballpark number we would maintain our A&P spends at?
Yes, somewhat like that, yes.
Sure. And sir, just a feedback, thank you for the excellent presentation and the Annual Report. Hope to continue getting these data points. If you can just add channel-wise data also in the presentation, it would be very helpful.
Thank you, Ankit. I take that feedback, we'll see what we can do.
The next question is from the line of Akhil Parekh from Centrum Broking.
Sir, my first question is on, what is the share of PP-based hard luggage and the PC-based hard luggage, sir?
Sorry, Akhil. Can you come back on that question? I quite didn't understand what you are looking for?
No, I'm saying the contribution of polypropylene-based hard luggage through the total sales and polycarbonate-based hard luggage through the total sales.
Total sale of hard luggage?
No, in that breakup...
Or the overall Company sales?
No, no, within that, the breakup of polypropylene-based hard luggage and polycarbonate-based hard luggage.
We can share the data, don't have it ready right now, maybe offline we could connect with you and give you that data. If you want a ballpark, I can give you some understanding, it's roughly between hard luggage itself 70-30 kind of a split. But precise numbers, I can share at a later time with you.
Okay. And if you can highlight margin differential between PP and PC level?
Well, margin is a price dependent variable, but I can tell you what is per kg cost difference between a polypropylene and a polycarbonate, that's almost -- polycarbonate is almost 70% more than a polypropylene on a per kg basis of the raw material.
But margin-wise it doesn't differ much, it is 1%, 1.5%.
Yes, because the pricing is different.
Pricing is different.
Right, so we are using polypropylene to more fight in the value game and polycarbonate more is in the Skybag and VIP in the premium segment. So margin is a derivative as I said of pricing.
Sure. This is helpful. Second question is in the difference between say, landed cost of a Chinese manufactured luggage vis-a-vis in house manufactured luggage in India, how much that would?
Again, difficult to give one number on that, but I could tell you from Bangladesh manufacturing and this I think, I would be repeating, we've spoken about this in previous calls, in Bangladesh, the raw material and the duty arbitrage overall on a apple-to-apple comparison is about 15% for us.
And sir, my third question is on the value segment growing at a faster pace. You had briefly alluded that there is a transmission which is happening from unbranded to branded. But would it -- it will be possible like there is a down-trading happening where a VIP consumer is kind of going for a Aristocrat product, given that the RM inflation is very high and we are observing that in many of the categories wherein value-conscious consumer is moving towards a lower priced product. So would that be a possibility by any chance?
Yes, I cannot deny a possibility and knowing that there is a possibility we from our side do everything in our product mix that we create to make sure that looking at the target audience who should be buying a VIP and Skybags, the features that we put on that and the way we sell it, the way we market it, make sure that we retain the VIP and Skybags customer in VIP and Skybags.
And we try and get the affordability segment consumer in Aristocrat back, but that being the strategy, it cannot be 100% watertight, there could always be a possibility of cannibalization happening in terms of down-trading.
Okay. Okay. Fair enough. And if I can squeeze last question, if you can mention or broadly allude to the average selling price of across the 3 e-brands basically, VIP, Carlton and Aristocrat.
No, Akhil, I won't have that right now. It varies from channel to channel and from range to range, there is no one average number that can be put as a reference here.
The next question is from the line of Chirag Lodaya from Valuequest.
Sir, my first question is on understanding this gross margin improvement because of structural shift to own manufacturing and third-party versus China sourcing. So what are the sustainable gross margins according to you going ahead? I understand currently there is bit of inflation, but in a normalized scenario if we have to assume versus pre-COVID, what kind of improvement one should expect?
So, you are right, as of right now from where we are seeing the volatility makes it difficult for us to put up specific number. But an underlying 53% to 55% GC is what we should -- we are aiming at in a stable environment. Given the construct we have, I think 55% is quite possible on a consistent basis, once the volatile situation eases out.
Okay. Okay. And you mentioned this Bangladesh manufacturing landed cost is 15% cheaper versus China sourcing coming to India. How it would be -- when it is compared to third parties sourcing in India?
So, I'll tell you how that Bangladesh 15% is coming, I gave you a very simple, very broad-based duty arbitrage when raw material comes into Bangladesh versus finished goods coming into India. The India duty is 15%, whereas in Bangladesh raw material has no duty, assuming that my conversion cost is same as China, which ideally should be lower in Bangladesh, then the 15% at least remains as an advantage over the China finished good import.
Comparing with India sourcing, it all depends on whether the RM is coming from -- if you were to assume the RM is coming from China, then the 15% definitely remains because Bangladesh production cost in terms of people and other cost is lower than India from where we are producing. But there could -- the comparison is not always apple-to-apple, because India sourcing could have India raw material sources, depends on product, depends on specification and many things like that. But overall, as I said, I give you the comparative numbers from largely coming from duty point of view.
Okay. So basically, you're trying to say that Bangladesh manufacturing, we are as competitive as China despite China having massive scale. So, is that fair understanding?
Only on the conversion cost, if you keep the raw material side because if you're buying the raw material still from China and there is a freight cost, right, that is happening for the raw material to come in. So that freight cost partially is getting off-setted by the labor cost advantage that we have in Bangladesh. But again, given the current situation and the freight cost, that equation does not work out in setting -- netting it off completely. But pre-COVID freight cost if you were to say and the lower labor cost in Bangladesh, I think offset each other and to that extent, it brings us at least to the parity or maybe slightly lower because we still buy raw material from China.
Okay. Got it. Got it. Clear, sir. And with current freight rates, what would be the arbitrage? Is there a arbitrage or today we are nullifying that because of higher export?
No, the freight rate is higher, there is not a perfect set of that is happening.
Thank you, Mr. Lodaya. Request you to join the queue for any follow-up as there are several participants waiting for their turn. [Operator Instructions] The next question is from the line of Kirti Govind Dalvi from ENAM AMC.
Just couple of questions, first, if I see the tax rate on consol, as well as on a standalone level, seems to be little higher. So is there any one-off? And second thing, what is the sustainable tax rate we are seeing it for the '23 and '24?
So, this is high on account of dividend which we have received from Bangladesh. When we give dividend from VIP India, this will get offset under Section 80M. So that impact is 5%.
Okay. So for the year as a whole probably the tax rate will revert to normalized rate, 25%, ma'am?
Slightly lower, because Bangladesh tax rate is 15% and India will be 25%, so blended it is going to be around 22.5% to 23%.
Okay. Also second question, obviously, Q1 had some base impact of last year, but would it be fair to assume a mid-teens kind of growth probably balance here given probably all your future stores will come back and we're seeing little uptick in the travel as well?
So, we are looking at a similar growth if you take the base as a -- normal base -- on normalized base. Kirti, you got it?
It seems we have lost the line for Kirti. We will move to our next question, that is from the line of Niteen Dharmawat from Aurum Capital.
As you mentioned that we have shifted operations to Bangladesh and we heard some economic issues over there. So what is the risk that we see in case there is some disproportionate economic issues faced by Bangladesh economy? And what will be our fallback option in such scenario?
Once again, this whole economic situation that you're talking about in Bangladesh is not something that we are aware about. In fact, it's all in the news that Bangladesh economy in the last 10 decades has done the best, ranked among the highest. So overall, it seems like a very progressive economic environment. Yes, there -- I mean, overall, the -- any source of manufacturing or any country does have a risk and we will evaluate the risk and continuously prepare for that. China was -- would have been also a risk in a pandemic environment when the sourcing that we were doing from China prior to the pandemic. So I don't think the risk is high or something that needs to be addressed as of right now or in the near future.
Got it, sir. Thank you so much. It's a very recent news, actually it has come today only. So we might not have got the attention to it, but that's okay. We'll discuss it later on.
Yes, yes. No, as you were talking, I'm being...
A week ago we read that it is the fastest growing economy in the world over last one decade.
We take the next question from the line of Ankit Kanodia from Smart Sync Services.
Sir, we have already addressed most of my question, just one question related to, if we step back and look beyond, say, maybe a couple of quarters or maybe 4 quarters, looking at directionally where we are today and as we see currently for this quarter our contribution from Aristocrat and Alfa is bit higher which is of lower margin product, right? And maybe inflation pressure also ease out and by that time, probably some of our problems of Future Group also subsidize. And if the travel direction continues to be strong, so how do we see our self in that, because they are also doing -- spending a lot on our advertising and promotion. So how do we see that reflecting, say, when we look -- I'm not looking at any numbers, but directionally and any qualitatively if you would like say 3 to 4 quarters beyond, how do you see VIP?
That's exactly is the space where we are wanting to reach, given the situations that we have been dealing with. Yet, we have been focused on more difficult things like changing our supply chain and all that. Value end growing is a necessity for us right now, because that's where the market is growing, that's where share is to be given. Equally, we have to look at how do we get our costs right, so that the value end is played profitably as well, relatively lower than the premium segment and finding the right balance, because as we go ahead and in the scenario that you're painting, what was very core to us, which is represented in the VIP and Skybags brand should come back in terms of not relative salience, but in overall absolute throughput and in growth terms.
So that will be quite a good -- that what we are aiming for to get and hoping some of the environmental things will settle down as you go along, which will settle down, I'm pretty confident in the future. So, I think, we'll emerge much more stronger than what we were before the pandemic as things stabilizes from here on.
Great. Sir, one last follow-up for this as in, how do we see competition evolved pre-pandemic and post-pandemic, because post-pandemic we might have seen some of the unorganized players such shop and they've seen a lot of problems. How is the competition in the organized space right now and how different it is from the pre-pandemic if you would like to give some color there?
No, I think the competition is only intensified, given the one constraint in the demand environment that is bound to happen. And therefore a lot of pressure on profitability and all that comes in, because in a constrained demand the large players put in everything that they have to get to revenue. So as that eases out, I think overall the industry profitability will stabilize, but competition I would see will only intensify going forward in this space. It's one of the -- it was a faster -- it is a very small category compared to if you see overall India and all other consumer categories, it's a smaller category, the penetration was low, given where we -- our country and economy is, I think the penetration is only going northwards from here. And with that, I think, as the overall industry grows, the competition will only intensify and I think whatever we are doing is to ready our self to participate in that with a better strength than what we had before.
The next question is from the line of Pulkit Singhal from Dalmus Capital.
Sir, my first question is regarding the seasonality in the business. There used to be a certain level of seasonality pre-COVID where second quarter was down 20%, 25% and then gradually picks up and first quarter is the best. This time around, do you expect it to be somewhat different, given some kind of pent-up demand, et cetera? I mean, the level of seasonality to be lower or do you think it will be the same level as seen previously pre-COVID?
I think the seasonality from a demand point of view will have a similar pattern. But just an interesting insight that if you were to really look at the slightly longer horizon, the acuteness of the seasonality over a period of time has kind of reduced. And I think that's also happening because, let's say, one of the vectors of growth is holiday and travel, and that has changed a lot from only summer vacation to many, many vacations and marriage dates are becoming more freer than what it used to be before and all that. So it's a gradual change, which is also been visible if you see in our seasonality over the years. But in the near-term and just about the past pre-pandemic, I don't think it will -- I don't see any reason why it will be very different for the industry overall.
Right. No, I was just checking from a pent-up demand perspective as well, because sometimes people travel entirely in first Q and may look to probably travel in second quarter as well. I was just wondering whether that is kind of playing out.
We don't know that, but we will hope for that and we are ready for that for sure.
Right. And in terms of market share, I know, Piyush ji, I mean, last quarter he talked about low-40s. How are things progressing in the marketplace? Are we still around similar levels given the impact of modern trade, I mean, Big Bazaar and, I mean, Future Group and are we improving now or -- can you share something there?
No, I think we are definitely holding share overall, but it's a feel. And as number starts coming out for the industry, we will also get a sense of how that is happening. So, yes, I think definitely holding on to the share that we had is what we are hoping for, if not improving.
Okay. And lastly, I thought high inflationary environments are typically bad for unorganized players, and that allows the organized people to kind of take share from them. Is that understanding incorrect or they have kind of managed it lot better or you are seeing that kind of happening?
Are you saying between organized and unorganized players?
Yes, yes.
This market share that we are talking about is, let's say, in the top 3 companies relative market share basis for specific data that comes out. So correlating number is difficult to what you're saying, but yes, inflationary environment, disruptions and supply situations all favors large players, always has been for all kind of businesses and categories. And to that extent, we would be having the tailwind -- have had the tailwind the organized players and may continue to do so, because if China was a source of products for unorganized players directly or indirectly, I mean, finished goods or raw material, that is going to go through some -- is going through some disruption. It will be some time before it resumes fully.
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Ms. Neetu Kashiramka from VIP Industries for closing comments. Thank you and over to you, ma'am.
Thank you, everyone for joining this call and sorry about being so -- keeping this call so late this time. Next time, we'll definitely try and make it to your timings. Thanks. In case you have any other questions, you can definitely connect with me. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of VIP Industries Limited, that concludes today's call. Thank you all for joining us and you may now disconnect your lines. Thank you.