V I P Industries Ltd

NSE:VIPIND

Earnings Call Analysis

Revenue Growth Lags Amid Optimism for Q3

The company reported a modest quarter 2 revenue growth of 6% against a stronger volume growth of 10%, with the trade channel outperforming at 13%. E-commerce channel sales surged by 50%, reflecting focused digital efforts. Gross margin reached the target of 55%, providing room for increased revenue growth investment. However, EBITDA improvement didn't materialize this quarter due to higher e-commerce investments, strategy consulting costs, and increased freight and warehousing costs, attributed to high inventory levels. These costs are expected to stabilize in the coming quarter. Despite current underperformance and capacity constraints in hard luggage affecting revenue, the company is positive about a turnaround. Fundamental demand indicators remain strong, and significant events like a large wedding cohort in quarter 3 suggest a potentially excellent upcoming quarter.

Optimization of Production Capacity and Capital Expenditure

The company is steering its strategic focus towards solidifying its presence in the hard luggage sector, distinguishing from its prior emphasis on soft luggage. A capital injection of INR 50 crores is planned to bolster this hard luggage capacity, with an outlay of approximately INR 80 to 85 crores anticipated for the fiscal year. The organization's existing capacity hovers around 17 lakh pieces, with aspirations to elevate this to 20 lakhs in the immediate future.

Marketing Expenditures and Operational Costs

The company's Advertising & Promotions (A&P) spending has surged to INR 56 crores, an increase from INR 30 crores in the preceding year. This is supplemented by a further INR 15 crores in freight and handling charges. Moreover, there has been a substantial commitment of INR 25 crores towards performance marketing, aimed at enhancing e-commerce sales.

Growth Projection and Financial Guidance

A significant EBITDA margin enhancement is envisaged in the second half, predicted to ascend by 500 basis points compared to the first. Gross margin is anticipated to dwell within the range of 53% to 55%, notwithstanding potentially rising crude prices and expenses related to performance marketing.

Market Dynamics and Brand Strategy

The industry has witnessed a growth spurt of 20% to 25%, fuelling optimism for premium product segments. The company, aligning with consumer trends, is positioning to launch six innovative and luxury luggage products, seeking to capture higher-end market demand. This initiative is part of a larger strategic shift, which channelizes focus on premiumization, leveraging the brand equity of its marquee brands.

Supply Chain Optimization and Leadership Stability

The company has executed a pivotal shift in its supply chain strategy, transitioning away from reliance on China to an emphasis on Bangladesh. While this move aspired to create long-term efficiency gains, it initially hindered the ability to deliver premium products promptly but is now rectified. Additionally, management stability has been underscored as a critical factor for continuity and execution going forward.

Forward-Looking Plans for Caprese Brand

Plans are afoot to augment the Caprese brand's visibility and market presence. The tactical approach includes integrating Caprese in all V.I.P. stores and dedicating space in exclusive Carlton stores, with 50 exclusive Caprese kiosks slated for execution. This year ten kiosks are operational, with an expectation for substantial growth in the following year.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good evening, and welcome to the Q2 and H1 FY '24 Earnings Conference Call of V.I.P. Industries Limited. [Operator Instructions] Please note that this conference has been recorded.

I now hand over the conference over to Mr. Snighter Albuquerque from Adfactors, Investor Relations team. Thank you, and over to you, sir.

[Snighter Albuquerque]

Thanks, Malcolm. A very good evening to everyone. We have with us the senior management, Mr. Radhika Piramal, Executive Vice Chairperson; and Ms. Neetu Kashiramka, Managing Director designate and Chief Financial Officer. Before we begin the conference call, I would like to mention that some of the statements made during the course of today's call may be forward-looking in nature, including those related to the future financials and operating performances, benefits and synergies of the company's strategy, future opportunities and growth of the market of the company's services. Further, I would like to mention that some of the statements made in today's conference call may involve risks and uncertainties.

Thank you, and over to you, Radhika.

[Radhika Piramal, executive]

Thank you so much. Thank you, everybody, for attending the call and making the time. I believe most of you, all of you might have received the performance highlights that been shared. I would like to begin by saying it's not our best performance. Our MD, Neetu Kashiramka, will walk you through the financials shortly. I wanted to take the opportunity to just mention some highlights, which is primarily the gross margin. Definitely, the sales growth and the absolute profits were not in line with our own expectations. But the gross margins has been good, and that gives us confidence because achieving gross margins to a good level takes longer structurally than addressing fixed costs, which can be addressed over a period of time.

Neetu will talk in much more detail about all of these. I just wanted to take this opportunity to also talk about the change in senior leadership that we've had here in V.I.P. We had quite a sudden resignation of Anindya Dutta, post which the Board met and actually very quickly took a unanimous decision to promote Neetu from CFO to MD. And since that decision, it has been about 60 days since that decision, and we feel very confident in that decision.

So looking at what the sort of -- the way Neetu looks at the company, the future of the market, vendors, customers, et cetera, I feel as well as -- she's not an industry outsider, she's a company -- she's been in our company for many years, and she's seen it through all the challenges we've had in the last 2 or 3 years, which have been significant. So taking all that experience plus her natural energy and ambition, I personally am very excited about the future.

So with that, Neetu, over to you.

[Neetu Kashiramka, executive]

Thanks, Radhika. Good evening, everyone, and thanks for joining the call. We just announced our results and the presentation is already with you. I know the growth has not been great. But yes, this is what it is. So quarter 2 revenue growth of 6%. However, volume growth is 10%, which is good. If I have to speak on the channel-wise performance, our trade channel, which comprises of GT, MT online actually is 13% growth. So what has dragged is actually CSD CPC. And quarter 1, we spoke about a refreshment of portfolio for CSD; future, it will be good, but it's just taking some time for this refresh to convert into revenue.

International also suffered mainly because of the demand slowdown across in the international markets. We have been hearing that also. The supply chain in China has improved quite a lot, and that's also impacting our international business. However, our concentrated efforts with BCG and along with the organization, the e-comm channel is beginning to show some results. This quarter, we grew 50% on e-commerce. Also the channel salience in e-commerce is 30%, which is close to the industry. So in the BPD season, the industry revenue for this category is around 35%, and we are coming close there.

And distribution expansion journey is on. We added 57 towns in this quarter. We have opened 37 EBOs all through FO route. Also, you will soon see us in key airports. So we have signed up for 6 airports already for exclusive Carlton stores. Aristocrat brand did better than all the other brands again. Skybag, however, is following up. So Skybag growth was 12%. After a long time actually Skybag has shown good growth. That also shows that our new launches are picking up.

Caprese also picked up in this quarter with new launches and a lot of activations, which happened. Salience on premium brands for this quarter was better by 2 percentage points as compared to quarter 1. Soft luggage growth also picked up in quarter 2 mainly because of Bangladesh debcale which was there in quarter 1 got started.

Radhika also already mentioned about gross margin, but yes, we are happy that we have reached our target GC of 55%, which we have been talking for the last 2 quarters. And this also gives us a leeway to -- now with 55% of gross margins, it helps us to look at growing revenue. So I can then have more money to spend and then see a good growth business. So that's something which we'll be doing going forward.

EBITDA improvement did not happen in this quarter, mainly because of, I would say, three reasons. One, we spent more on the e-commerce channel; the second one, there is an outflow of around INR 6 crores on the BCG. There's also increase in the freight for us overall, freight as well as there's some retention mainly because we are carrying high inventories. We had anticipated a very high growth in quarter 1 and quarter 2 for this year, which did not happen. With that, we have high inventories and therefore to store that inventory, we have taken more warehouses. So I think in 1 quarter or so, this unusual freight and warehousing cost should stabilize.

Fundamental demand indicators like passenger traffic, hotel occupancy is all positive. In quarter 3, there is a large wedding cohort and industry experts are talking about a great quarter 3. I am looking forward for that. And hopefully, I can have share of -- my fair share into the growth is what I'm looking forward for.

With that, I conclude and open for Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Jinesh Joshi from Prabhudas Lilladher Pvt Ltd.

[Jinesh Joshi, analyst]

Madam, I have a question on our growth prospects vis-a-vis competition. So if I look at Samsonite India, they have set a pretty decent growth guidance for about 40% in CY '23 and about 30% to 35% in CY '24. While our other listed peers also did pretty well in the last quarter by putting about 45% growth in top line. But if I look at our performance, in 1Q, we were at about 7% growth. And in 2Q, we are at about 6% odd. So there has been a considerable underperformance on the top line side. So can you just highlight what has been the problem area for us? I mean, is it product? Is it the channel or pricing? And how do we plan to address this concern basically?

[Neetu Kashiramka, executive]

So you are absolutely right that we have not been able to capture the market growth. I would attribute this to our own internal problems and nothing else. However, I am also confident that we should be able to get to the market growth immediately, but in 1 or 2 quarters. So we need to do some work on the product. So I would say that, yes, we did not do too much work on our products.

Also, some of the things which are, for example, international didn't do well because of the China coming back. Now those things are external, but still 80% of the problems are internal, and I'm looking forward to solve it. In the next 3 to 4 months, we are adding 26 new launches lined up. I am also looking at premiumization as a theme because India is growing towards premiumization. So with all this, I am definitely confident.

The other piece which we have been talking a lot about our fill rates and supply chain overall. I think that is something, which we are on the track to solve. So basically, once our fill rate improves, I think we should be there. We're also looking at upping our hard luggage capacities because hard language demand is higher than what we can service at this point of time. And that's also converting into a loss of revenue, which we are addressing immediately.

[Jinesh Joshi, analyst]

Sure. Just one follow-up. You mentioned about upping your hard luggage capacity. I think in the past, we had mentioned that we spent about INR 200 crores to expand our capacity. So where are we on that currently?

[Neetu Kashiramka, executive]

So that INR 200 crore capacity, which we have talked about was mostly actually soft luggage, one additional soft luggage plant in India and then Bangladesh. However, we are changing that. And now all the additional capacities will be only on hard luggage and for that, we need INR 50 crores. So that's where we are. So soft luggage, we don't need to increase at this point of time.

[Jinesh Joshi, analyst]

Got it. One last question from my side. So if I look at our other expense in this quarter, it was at about INR 184 crores. And in the previous quarter, which typically is a very strong quarter for us, we were at about INR 167 crores. Now I understand that in this quarter, we had this INR 9 crore of one-off relating to payment to BCG and certain marketplace activations, which we have done on the e-comm channel. But beyond that, is there any one-off which you would want to call out? And also within this INR 184 crores, if you can explicitly share what is the A&P spend, which we have done in this quarter?

[Neetu Kashiramka, executive]

So overall A&P spend is around INR 56 crores vis-a-vis INR 30 crore in the previous year. So that's an increment of INR 26 crores. There is a INR 6 crore payment to BCG. There is an incremental INR 5 crore on warehousing and -- what is that?

[Radhika Piramal, executive]

It has been INR 15 crores.

[Neetu Kashiramka, executive]

INR 15 crores. So overall, INR 15 crores additional on freight and handling charges.

[Jinesh Joshi, analyst]

Okay. So INR 6 crores to BCG and INR 15 crores is something, which is over and above that.

[Radhika Piramal, executive]

Yes, INR 15 crores is actually additional freight and handling charges.

[Operator]

The next question is from the line of Tejash Shah from Spark Capital.

[Tejash Shah, analyst]

Neetu, you spoke about gross margin revival and that seems to be very healthy in this quarter. Was just curious to know which all factors would have contributed to the same?

[Neetu Kashiramka, executive]

So mainly, there was a better mix. I said 2% premium mix. The second is the reduction in -- so basically, the crude reduction, what happened 6 months ago, the full impact is visible in this quarter.

[Tejash Shah, analyst]

Okay. And if we see the trade-off between gross margin and EBITDA, it has not played out. Obviously, you called out the one-offs, which are there. But you also mentioned some e-commerce spend. So what will be that amount, which will be part of other expense?

[Neetu Kashiramka, executive]

So that is an additional increment of INR 25 crores.

[Radhika Piramal, executive]

INR 23 crores.

[Neetu Kashiramka, executive]

INR 23 crores.

[Tejash Shah, analyst]

This is in addition to the ad spend that we would have done, is it?

[Neetu Kashiramka, executive]

So this is basically the performance marketing for e-commerce. And our e-commerce revenue in this quarter was 31% of -- the salience of e-commerce was 31%.

[Tejash Shah, analyst]

Okay. And performance marketing is not part of COGS, we actually put it as other expenses.

[Neetu Kashiramka, executive]

It is not part of COGS. I understand some companies are doing that. So maybe we'll look at something around that in the next quarter. So I will also just be inquiring when the other companies do because they are spending 25% versus we spending 18%.

[Tejash Shah, analyst]

Sure. And now looking at the margins that we achieved at gross level, what will be your near- to medium-term guidance on EBITDA for the rest of the year and perhaps FY '25, if you can give some visibility?

[Neetu Kashiramka, executive]

So I can say that the second half EBITDA improvement should be around 5%.

[Tejash Shah, analyst]

500 basis points versus first half?

[Neetu Kashiramka, executive]

Yes.

[Tejash Shah, analyst]

Okay. And last question. So looking at our inventory, and this is slightly for immediate -- the current quarter also and if I ask you kind of see for last 3, 4 years also, we have been, and this is based on the commentary that you have shared on the call, we are either undershooting or overshooting our demand estimates and that's visible in volatility that we are seeing in inventory. Just wanted to know what are the steps that we are taking so that we are not that kind of missing the targets on either side, A?

And B, looking at the inventory that we're entering with as on quarter end and then for the second half, should we expect that there'll be much more aggressive discounting and hence, this gross margin might not be sustainable because inventory looks -- at least on balance sheet, it looks very high for the balance of the year?

[Neetu Kashiramka, executive]

Yes, you are right. So there are a few steps which we have taken. So in the past, the forecasting was in the hands of the sales people. However, we have now changed it slightly by moderating at the HO. So now the forecasting has to be somebody in HO, the marketing and sales together have to own it up. So that's one change.

The second change is, yes, whatever inventories are there, we are definitely looking at reducing it, but not at deep discounts. So the way we are looking at is the backpack season is approaching. A large part of our inventory is backpack. And I may delay my launches on backpack instead of doing a deep discount. So that's what we are going to do.

And hard luggage, I have no problems in the inventory. So the large inventory, which we have is on the backpack and soft luggage at price. And soft luggage prices anyway, there are no new fashionable designs, well that's anyway simple. So we can live with what we have. So we are not producing to a large extent more on soft luggage at this point of time.

[Operator]

[Operator Instructions] The next question is from the line of Karan Khanna from AMBIT Capital.

[Karan Khanna, analyst]

Congratulations, Neetu, on the elevation. So Neetu, my first question, some of us have heard while Managing Director and your predecessor and the one prior to that as well. But clearly, we haven't seen the numbers reflecting the sort of optimism in the commentary. So if you could help us understand, last 2, 2.5 months since you've taken over as the Managing Director designate, what initiatives have you taken internally, which should give us confidence that your narrative around market share improvement and margin improvement should play out in the next 1 to 2 years? That's question number one.

[Radhika Piramal, executive]

Radhika here, allow me to answer that. I think it was already in this call laid out her immediate focus areas. And in terms of what the predecessors did what is her -- I think we have been saying the same things over many quarters now. It's the time for actions more than words. So I don't think there's anything I could say more on this topic, which shows our confidence. I think the thing that will give the confidence is performance over the coming quarters. So we look forward to that.

And all I can say is that many of you are investment professionals. You all have known, some of you have known Neetu for many years. So everybody can make their own view as to the likelihood of her success. Personally, I remain extremely confident.

[Karan Khanna, analyst]

Sure. Just a follow-up. Neetu, if you talk about the gross margins, so like you mentioned that despite -- just curious to understand, despite higher salience of the value portfolio, the gross margins were at 55% and now with focus on the premium segment and improving the product portfolio, especially on the premium side, how should one think about the gross margins going forward? Is there further room for improvement? Or do you think that 55% is the number you're comfortable with?

[Neetu Kashiramka, executive]

I think 55% number I'm comfortable with. And if there's any additional thing, then I may look at using that money to revive growth?

[Karan Khanna, analyst]

Sure. And lastly, just to understand more on the CapEx plans. You did indicate in the first quarter earnings call that you've delayed your INR 2 billion CapEx plan. So any update on that? What would be the CapEx number for FY '24 and '25?

[Radhika Piramal, executive]

So going forward, we have plans to spend INR 50 crores mainly on the hard luggage capacity expansion.

[Karan Khanna, analyst]

So this is for FY '24?

[Radhika Piramal, executive]

So I think INR 25 crores, INR 30 crores we have already spent. So for the year, it will be around INR 80 crores, INR 85 crores.

[Operator]

The next question is from the line of Lokesh Maru from Nippon India Mutual Fund.

[Lokesh Maru, analyst]

My question is more on the gross margin front. So if we adjust the INR 23 crores spend on performance marketing net-net, I think the gross margin would be 51%, right? So again, if you account for the lower cost inventory or like you said, the crude price correction reflecting this time, I just wanted to understand if this is -- crude has been only rising after that, what we saw 2 quarters back, right? So do you expect 51% to continue? Or do you expect this to correct to 49%, 50% on a sustainable basis after accounting for the performance marketing cost?

[Neetu Kashiramka, executive]

Yes, it should be in the range of 53% to 55%. Also this performance marketing, e-commerce quarter is heavy in quarter 2. It's not every quarter as salience for e-commerce is not going to be 30-plus. So from that point of view, 53% to 55% is the range in which our gross margin will play out.

[Lokesh Maru, analyst]

Okay. So basically, net of it, you're expecting standard 200 basis points of an improvement in subsequent quarter?

[Neetu Kashiramka, executive]

Yes. But we will also as well be looking at more premium going forward.

[Lokesh Maru, analyst]

Just 1 more question on that. When you look at your gross margins channel-wise, is there any difference in e-commerce and traditional channels?

[Neetu Kashiramka, executive]

So our gross margins are highest in the retail channel, followed by GT. MT and e-commerce is similar, which is on the lower end.

[Operator]

[Operator Instructions] The next question is from the line of Jigar Jani from B&K Securities.

[Jigar Jani, analyst]

So firstly, when you say INR 56 crore of A&P spend, performance marketing is over and above that, right, INR 23 crore in the quarter?

[Neetu Kashiramka, executive]

It's part of this amount.

[Jigar Jani, analyst]

It is part of this amount, okay. And the INR 200 crores CapEx which was expected on soft luggage, that is now put on hold? Or is it doing...

[Neetu Kashiramka, executive]

Put on hold.

[Jigar Jani, analyst]

It's put on hold, okay. And thirdly or lastly, there has been news reports of the company being on the block for sale. Could you comment on that, whether there is any sanctity to that news or whether there is actually some plan going on, on that front?

[Radhika Piramal, executive]

Yes, Radhika here. Let me answer that question. My father has over the years, decades even, received many different offers from different PE funds. It's a continuous process, it keeps happening. I understand that Uma mills is particularly strong at this time. And it's possible that ultimately, a sale might happen some time in the future. But I can tell you it's not happening today, not happening tomorrow. And Neetu is fully focused on improving the performance of this company for short term, medium term and long term. See, as a long-term plan, we have a long-term vision. So there's no question of Neetu and myself being distracted by any such rumors.

[Jigar Jani, analyst]

Just last one. On the other expenses side, would it be fair to assume that this performance marketing would be a one-off and obviously, some moderation in the warehousing and freight costs could also happen. So probably INR 160-odd crores would be the number we would be looking at over the next couple of quarters?

[Neetu Kashiramka, executive]

So as a percentage of revenue, I would say it should be coming down.

[Operator]

The next question is from the line of Shobit Singhal from Anand Rathi.

[Shobit Singhal, analyst]

So how much growth are we expecting in second half revenue-wise? And how many stores we have opened in the first half? And in the second half, how many we are expecting to open?

[Radhika Piramal, executive]

Let me just answer the growth question. I think it is too early to give guidance at this time. Neetu has just taken charge in a new role, very recently. So at this time, she will not be able to share any specific numbers. In 1 or 2 -- after 1 or 2 quarters, she might be able to give guidance for the following year, fiscal year. Stores, please answer.

[Neetu Kashiramka, executive]

Yes. 63 stores in first half, and we intend to open around 40 stores more. So maybe additional stores in this year is going to be 100.

[Shobit Singhal, analyst]

And these are all franchisee, right?

[Neetu Kashiramka, executive]

Yes, all franchises. It is 5, 6 will be our own, but the remaining will be franchisees.

[Operator]

[Operator Instructions] The next question is from the line of Akhil Parekh from Centrum Broking.

[Akhil Parekh, analyst]

My first question is on the -- have you taken any price cuts since tieback because our channel check, at least on the e-commerce side, were indicating that the pricing of tiebacks were trending in line to likes of Safari and Kamiliant, which is a value brand for Samsonite? And has that led to good growth in e-commerce?

[Neetu Kashiramka, executive]

I don't think we have reduced our prices in Skybags. However, there are 1 or 2 SMUs, which are products specifically made for e-commerce, which is not same as Safari. But however, in Safari the highest end product can match with Skybags, Loren, something like that.

[Akhil Parekh, analyst]

Okay. So it's only the specific 2 SKU, that is okay.

[Neetu Kashiramka, executive]

Yes. Specific SKU, which is not there in other than e-comm.

[Akhil Parekh, analyst]

And the second question is on the inorganic growth front. Are we exploring any of the D2C brands to grow at a faster pace in the premium side?

[Neetu Kashiramka, executive]

I cannot talk on this question at this point of time.

[Akhil Parekh, analyst]

But are we open for acquiring outside that? Or we still want to focus more on the organic front?

[Radhika Piramal, executive]

We keep evaluating both.

[Akhil Parekh, analyst]

Okay. The third and last question, I mean, maybe Radhika can highlight. Are there specific reason for constant churn in the top level management? This is I think now the second instance in the last 4, 5 years that we have seen an exit? So if you can throw some light on it?

[Neetu Kashiramka, executive]

I don't think there's any specific reason. It's definitely luggage industry for us has been volatile because COVID happened, that was a big shock, and there can be many high-performing individuals who don't want to go through this down and up of -- it was a big setback, right, in 2020. Sudip Ghose has been with our company in 2013 and in 2020 due to no fault of his, the revenue was back to pretty much when he joined the company. That can be tough.

And in terms of frequent change, I think we -- thinking about the past doesn't help. Let's talk about the future and the terms of the future, I think Neetu has got a good grasp of the company. She has seen it at its worst. She joined our company in February 2020. So she has gone through the whole pandemic.

And then with her business-oriented approach as a CFO, she understands everything, and I think has had a view on what immediate actions to take. And I think you should see a better picture play out in the next couple of quarters. But as I said before, I am fully aware that we have said this before. So let's see the performance and go from there.

[Operator]

[Operator Instructions] The next question is from the line of Nihal Mahesh Jham from Nuvama.

[Nihal Jham, analyst]

One question from my side. Neetu madam, you mentioned about the gross margin profile for the e-commerce channel. Now if you look at the amount you spent on, say, performance marketing to get a certain level of scale, which is impressive, how does the EBITDA or the contribution margin of this channel compare versus the other channels?

[Neetu Kashiramka, executive]

So there is a performance marketing spend, which happens in e-commerce. There are 2,000 people in modern trade channel for us. So if I have to compare net margin for both the channels, it will be different by 2, 3 percentage only. It's not much of a gap. As I said, in modern trade we have 2,000 people. So the margin of modern trade is equal to e-comm.

[Nihal Jham, analyst]

So you're saying the contribution margin for modern trade is equal to e-commerce.

[Neetu Kashiramka, executive]

Same as e-commerce, yes.

[Nihal Jham, analyst]

And even in terms of, say, the inventory or any of the working capital, is it similar versus the other channels? What I'm just trying to understand is that, say, as you tried targeting scaling this channel up further, how different do you, say, our performance looks in the future? Maybe our margins would go down slightly because it's a slightly lower-margin business. How would the working capital move in that situation?

[Neetu Kashiramka, executive]

Working capital has no major impact because, in fact, modern trade pays later than e-commerce. So if I have to -- see, we can't compare it with general trade and retail trade. It has to be compared with modern trade. And modern trade versus e-commerce, working capitals are similar.

[Nihal Jham, analyst]

And if you are to just compare, say, the margins of EVOs and GT versus e-comm, how different would that be?

[Neetu Kashiramka, executive]

It will be around 10 percentage different.

[Nihal Jham, analyst]

So from our side, this is a channel that we still believe even as it scales up, it will incrementally positive and not that it is as much of...

[Neetu Kashiramka, executive]

Yes, definitely. Today also it is positive only.

[Operator]

[Operator Instructions] The next question is from the line of Devesh from Magenta. Devesh, are you there? I think we have lost him. [Operator Instructions] The next question is from the line of Sayan Das Sharma from Bajaj Asset Management Limited. Please go ahead.

[Sayan Das Sharma, analyst]

Couple of questions. First, the 6% top line growth, right, can you give us some background of how the industry has done in this quarter, Q2?

[Neetu Kashiramka, executive]

Industry has grown around 20% to 25%.

[Sayan Das Sharma, analyst]

Okay. And my second question is on the product mix, or the brand mix, so to speak. So basically, if I look at the last few quarters, the value end of the market was doing better. We have also seen Aristocrat and Alfa do better than your V.I.P. and Carlton. For this quarter, like you highlighted, your premium products have grown by, again, th salience of 2 percentage points, right? So is there a trend reversal that premium is now coming back and the value growth that we saw a lot of shift from unorganized, that kind of stopped.

[Neetu Kashiramka, executive]

I would say also it's to do with what we want to do. So basically, my focus going forward will be to capitalize on our brand equity, on our great brands like V.I.P. and Skybags also Carlton. And India is moving towards premiumization is another theory. So as we move, the second half, I'm actually targeting a much better premium mix.

I have 6 luggage launches lined up between February and March, which are lightweight. I have products which are getting launched in luxury. I have products which are getting launched in innovation. And all this will be in Skybags, V.I.P. and Carlton.

[Sayan Das Sharma, analyst]

That's interesting actually because if I'm not wrong, the perception was that this industry has a large unorganized still present. And there is a shift steadily towards branded driven and that first comes to the value space, where we were traditionally a little weaker. So that strategy is not no longer there, right, because I think one of the tenets that BCG was also helping us explore was that value segment and e-commerce, all that, right? So slightly surprising to see this.

[Neetu Kashiramka, executive]

Also that keeps continuing. I would say that instead of focusing only on Aristocrat, we need to focus on everything, and that's going to be the strategy. And today, India is moving towards premiumization and therefore, V.I.P. needs to capture that. And this organization has always been strong in premium, and therefore, we know this better than anybody else.

[Operator]

The next question is from the line of Akhil Parekh from Centrum Broking.

[Akhil Parekh, analyst]

Thanks for the followup opportunity. My first question is a slightly broader question. If I look at last, I would say, 3, 4 years, right, since onset of pandemic and till date, like our growth rate has been slower as compared to our peers, right? And if I look at V.I.P., it's a pan-India brand. We have brands across price points. And we have fairly good recall value if I look at it. But still our growth has not been to satisfaction. I'm not just talking about the last 2 quarters, but over the last 3, 4 years, and I'm sure a lot of brainstorming would have happened internally in the team.

So what were the key challenges basically, right? I mean, is it at the channel front? Is it at the product front? Or is it at the sales team level where we are not able to capture the growth, which has come, especially after the pandemic?

[Radhika Piramal, executive]

Let me take that, Radhika here. I'll answer that. I'd say there's 2 really big, broad reasons. The first is that we made the decision during COVID to use that opportunity of very low sales to change our whole supply chain and the back-end process. So we moved out of China and relied totally on Bangladesh, which we maintain as an excellent longer-term strategy, medium-term strategy.

But in terms of delivery -- of Bangladesh's delivery to V.I.P. across all brands when the pandemic ended and we reopened, there was a delay since Bangladesh's ability to make the premium products were not as we expected. And that has led to an adverse brand mix that is now helping V.I.P. Given its overhead structure, it's important that we sell a certain number of premium or mid-premium brands. So that is one cost chunk.

The second piece, of course, is the management issue. So we all know that a frequent change of Managing Director does not lead to like longer-term strategy, even execution, morale, et cetera. So we all understand that. We have lived through the past, and we are looking forward to a much more steady and stable leadership going forward.

[Akhil Parekh, analyst]

Sure. So I mean growth in the mass segment is not much to do with the macro situation, but you are saying V.I.P. didn't have the required infrastructure to manufacture the premium products, especially during the last 2 years. And that's why we have not grown in the premium segment. Is that correct?

[Radhika Piramal, executive]

To support our manufacturing ability. It's to do with Bangladesh's ability to match up with Chinese manufacturing excellence. And China has been doing this now for 30 years. We tried to do within 1 year.

[Akhil Parekh, analyst]

Fair enough. And if I could, just a last question on the unorganized segment, right, which you have seen in the last 3 years has taken a big hit. Have we seen any changes? Like are the Chinese products, especially on the soft luggage side, coming back into India? Or the situation remains strong for organized side of things?

[Radhika Piramal, executive]

It is stable. So it's -- they are not becoming stronger, it remains. So maybe the shift, which we have seen in the last 3 years about unorganized to organized may not happen to see now, but it's not deteriorating.

[Operator]

The next question is from the line of Pranay Shah from Anand Rathi.

[Pranay Shah, analyst]

I just have one question on the capacity. So what is our current count on the capacity front? And after we invest on our hard capacity front, what would be the end number looking like?

[Neetu Kashiramka, executive]

Our capacity is around 17 lakh pieces. Immediately, we are taking it to 20 lakhs.

[Operator]

The next question is from the line of Jigar Jani from B&K Securities.

[Jigar Jani, analyst]

So just wanted to check what was our performance marketing spend in the Q1, first quarter?

[Neetu Kashiramka, executive]

First quarter was very low. Just give me a moment, I'll give you the number. INR 12 crores.

[Jigar Jani, analyst]

INR 5 crores, right?

[Neetu Kashiramka, executive]

INR 12 crores.

[Jigar Jani, analyst]

INR 12 crores, okay. And the guidance of 53% to 55% gross margin, this is excluding the performance marketing spend that we saw...

[Neetu Kashiramka, executive]

It is as it stands.

[Operator]

[Operator Instructions] The next question is from the line of [ Devesh from Magenta ].

[Unknown Analyst]

My question is more around Caprese. We recently read in the news that Lavie has raised some private equity capital, and they are now closer to INR 350 crores, INR 400 crores in sales, purely in women handbags, whereas Caprese, as a brand, has been around INR 80 crores or so for the last 4 or 5 years. So there's not been any significant growth in that category either. So what is the overall brand strategy to grow Caprese and capture more market share in this vertical?

[Neetu Kashiramka, executive]

So we have done quite a lot of work on the product at this point of time. We are also looking at increasing our presence and visibility in Caprese through 2 ways; one, all our V.I.P. stores will be having Caprese; the second, all our exclusive Carlton stores are having one side wall on Caprese; and the third one is exclusive kiosks for Caprese. So this year, we'll be having around 50 Caprese kiosks, 10 are already up and running. So we definitely look forward for a high growth in Caprese starting from next year onwards. A lot of base work has already happened.

[Operator]

[Operator Instructions] Since we have no further questions, I now hand over the conference over to Ms. Neetu Kashiramka from V.I.P. Industries Limited for the closing comments. Please go ahead, ma'am.

[Neetu Kashiramka, executive]

Thanks for joining the call. I know we have been showing subdued results for some time. I will not give you big promises. However, I can only say that I work hard, and let's see the results together. Thank you.

[Radhika Piramal, executive]

Thank you.

[Operator]

Thank you very much. On behalf of V.I.P. Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.