V I P Industries Ltd

NSE:VIPIND

Earnings Call Transcript 2023-Q3

[Operator]

Good evening, ladies and gentlemen. A very warm welcome to the VIP Industries Limited Q3 and 9M FY '23 Earnings Conference Call. From the senior management, we have with us today Mr. Anindya Dutta, Managing Director; and Mr. 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.

[Anindya Dutta, executive]

Good evening, everyone. Thank you for taking out time and joining the call. I would -- I'm assuming all of you have received a copy of the presentation and would have -- would have had the time to glance through it. I'm just going to take you through some of the highlights that I have [ referential ] in the presentation. At the outset, I'm quite happy to announce a good set of results. Our growth continued to be at a high.

We had a 32% revenue growth over last year. And even when we compare it with base, it is quite impressive at 22%. Quarter 1 saw just a 5% growth thereafter in quarter 2, we scale it up to 25%, and we now continue to be at 20% plus. In fact, the volume growth on the business has been also quite good, 25% year-on-year and almost 18% over base. And just the fallout here, this kind of volume growth is happening on a completely altered supply chain at VIP.

The revenue performance that I spoke about, if you would have noticed, it's quite well rounded. It's good across brands and channels. Talking about brand first, we would have seen some exciting launches that happened in our portfolio during this quarter. Skybag did a FIFA collection, which did very well. In VIP, we had a Highlander, which is a rugged hard luggage. In [ Kaizen ], we launched a couple of soft luggage, premium soft luggage range. And I think all the take was our launch in Caprese with a range of products by Manish Malhotra.

Not only the launches, the activation has been very strong. FIFA was activated with advertisements using endorsers as Kartik Aaryan and many other celebrities. You would have seen some of these activations in Mumbai. We try to go quite high visible on it. In fact, the Manish Malhotra launch was far bigger than just the volume, but it was more to drive the [ imagery ] on the brand. And I would believe that in the beginning, we would have much more coming up on Caprese as we go ahead.

Overall, at VIP premium portfolios have started to kick in as we had gone into a very high on driving the value portfolio. That was one key point on [indiscernible] when I talk about channels, once again, all channel has played its role in the growth. In fact, not only the revenue growth but also adding the strategic element and the task that each of the channel has to do. General grade is leading us into driving penetration and accessibility. It increased its town penetration by 80 more tons in this quarter. Now we stand at about 942 towns. We are aiming to be in every town, which is 50,000 plus population.

Equally, in EBOs, we have come back to a number of 443 EBOs. This does not include the 42 we have under [ printouts ] right now. Hopefully, we will cross the 500, which we have taken the [ transit ] for the year before March 31. Pre-COVID, this was the highest store count was 485. Modern trade another call out. We had some challenges pressure due to this in quarter 1 because of the Future Group issue that has kicked in. It's still there. But the good news is modern trade is moving beyond its expected numbers in the year and also above with base without Future Group. And in addition to that, by the end of December, a large part of the Future Group stores that got shut has started coming up, just to give you some broad numbers, 279 Big Bazaars were used to be there, today has come up as Smart Bazaars in terms of 235 in numbers, right?

So almost 3/4 of what stores used to be there has come in, and therefore, that's going to hopefully help us in the coming quarters. We were strong in these stores, and we should continue our dominance and our relationship with the stores and channels. Along with modern trade e-commerce is also fired well. Although this is here where we don't think that we have reached our full potential or we are ahead of what our expectation is.

So there is a lot that's going on and that would continue to happen on e-commerce. On the side note, we also have launched our direct-to-consumer Caprese website. And this has kicked in about 4 weeks back, so we are live and we are -- we have started to get good we would say green shoes at least on the whole D2C business [ on ] Caprese. In fact, the business is also doing quite well in its own way. Our strategy of going deeper in our high potential market seems to be working. And the growth that we are seeing is largely coming from lesser number of countries, but far more deeper.

For example, as of now, in UAE, we are starting to get double-digit market share in chains like Carrefour and [ Lulu ]. Sorry, so that's why on channels [ you can ] briefly talk about our category performance, well, [indiscernible] continues to terminate in the recent past, but we have started seeing some early change of that in terms of soft luggage coming up.

And with our supplies peaking up in soft luggage, I think that's quite promising. Backpack in particular, is doing is looking quite well for us in quarter 3 as well. Net-net, overall good [ revenue ] growth and highlight here would be as I started by saying this is completely on a remodeled supply chain, and I would like to give you some numbers there.

Currently, 72% of our volumes in quarter 3 was supplied by our own manufacturing facility in India and Bangladesh. In a way this has been the highest ratio reported in any quarter. Our capacities as of right now has increased 65%, our own manufacturing capacities have increased 65% since pandemic -- and this year, we seem to be -- we would be investing almost INR 100 crore in this financial year only to increase our capacities. And not everything of this has been spent but in terms of actioning the spend and increasing the capacity is underway.

This is almost equally split between India and Bangladesh in terms of INR 50 crore each. We would have added almost 200,000 square feet of manufacturing space in this year alone. All this is leading to good gross margin, sequential improvement of almost 1.3% and Y-o-Y improvement of 0.5%. This is largely happening on account of raw material prices and thankfully ocean freight. Overall, in terms of our pricing and realization, we've been positive. In terms of overall expenditure, fix cost expenditure, I think it has been in line with our increased revenue, increased business. Advertisement expenditure increase is a conscious decision, and I think that's an investment that's going very well into our brands and for our future.

So overall, EBITDA margin flow through from above has been lowered one large reason other than increasing in advertisement is the provision we did on the Future Group [indiscernible]. That's almost taking out 1% out of the EBITDA. The [ provision bit ] was INR 6 crores.

Last week, I think we expect positive demand environment to continue in the current quarter or the going quarter. We hopefully would continue on our growth trajectory to end the financial year on a good note. And I note in terms of concerns, there is the COVID situation in China, which erupted certainly. We have high dependence on China. However, it seems like it is passing off quickly.

Our teams are working on mitigating the risk. And quarter 4 is more about not just quarter 4 but also preparing for a very big quarter 1. So that's underway. With this, thank you. I conclude my opening remarks, and I open the floor for questions.

[Operator]

[Operator Instructions] First question is from the line of Karan Khanna from Ambit Capital.

[Karan Khanna, analyst]

So Anindya, my first question is on your gross margins. So I think they continue to lag as against your expectation of 50% to 55% range, which you've highlighted in the past. So is it fair to assume that the majority benefit because of cooling of raw material prices is yet to play out in your margins?

[Anindya Dutta, executive]

Yes, Karan. The answer is yes.

[Karan Khanna, analyst]

So -- and second, as a follow-up, what I wanted to understand is that -- so you have 443 EBOs today. Can you help us understand the split between VIP and Carlton EBOs? VIP and Carlton EBOs?

[Anindya Dutta, executive]

VIP and Carton EBOs is not part of our strategy. We are not doing a Carton separately. We had done a few more as an experiment. I can tell you the strategic [ bit ], which is company-owned and franchise, which is what we are driving. So 443 is -- [indiscernible] is 160 and 283.

[Karan Khanna, analyst]

160 and 283, so you think that there is room for perhaps improvement [ or ] cost efficiencies there and both VIP and Carlton EBOs perhaps can be clubbed in one in certain geographies where you have both the EBOs in the same location?

[Anindya Dutta, executive]

Karan, that are extremely few. So therefore, that's not something that we are looking at in terms of separately. There are a few that we have done Carlton and maybe yes, there could be opportunities. But we are talking in the order of magnitude of single-digit numbers.

[Karan Khanna, analyst]

So what I'm trying to understand is that despite the roughly perhaps 10 percentage differential in gross margin versus your nearest domestic competitor, I think your EBITDA margins are largely in line with your competitors. So in light of this, perhaps what are the initiatives which you could take to further drive cost efficiencies?

[Anindya Dutta, executive]

Yes. So I think we were benchmarking our business and our P&L from that point of view. Revenue growth is absolutely important. Investing behind that growth in a more sure-footed manner, which is building our supply chain and strengthening that is absolutely important. We have a mix of brands and other than the value brands, the other brand needs to be advertised both in the form of brand-building advertising as well as transaction rising advertising, which is more e-commerce.

So I think one is in relation to competition, one is in relation to what is the right thing for the business. And I think this is why in the right direction. I think as the scale goes up, some of these ratios will start playing up better, and that's what in the long run one is looking for.

[Karan Khanna, analyst]

Sure. So my second question is on the e-commerce vertical. So we've seen that last quarter, e-commerce was 22% in terms of revenue contribution this quarter is 13%. So I understand there's some seasonality also in this, but can you help us understand if that -- there has been market share, any change in the market share in the e-commerce segment?

[Anindya Dutta, executive]

So to answer the first question, you're right, there is a strong seasonality, seasonality in the sense that maybe more property and retail property driven. So the big days and all that are really big for e-commerce. So it's not only for one company. I think for overall fashion for a larger same quarter, larger sector or industry, the quarter 2 is far bigger in the year as far as e-commerce is concerned.

So e-commerce overall gain salience in overall market during quarter 2, for luggage industry. So to that extent, if you have more share in a gaining in a sector which is gaining salience, you may tend to lose overall share, but it is if it is for that quarter, it would even out over a period of time.

[Karan Khanna, analyst]

Sure. And then last question is for Neetu. If you can help us understand what's the balance receivable from the Future Group. And what was the deferred tax income that was credited to the P&L, if you could explain that and the lower current tax rate during third quarter?

[Neetu Kashiramka, executive]

Yes. So the lower tax sales is on account of the receipt of dividend [ of ] sluggish, which we are, in turn, giving it back to our investor -- shareholders. And therefore, we get the tax benefit. And that's why the effective tax rate is going to be around 18% to 19% for the year.

[Karan Khanna, analyst]

Sure. And on your Future Group any guidance?

[Neetu Kashiramka, executive]

We have around INR 12 crores of exposure for them.

[Operator]

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

[Tejash Shah, analyst]

My first question is a generic one. So if you can touch upon the overall demand environment, specific observations, if you have any on subtrends premium versus mass and then [indiscernible]. And last one, how the seasonality playing as in -- and most of the categories we are hearing that December -- by the time December came third quarter had a very tough time. So if you can touch upon the subtrends as well.

[Anindya Dutta, executive]

So Tejash on the demand part, I think till the -- as they say, fingers crossed, we are looking good. The demand seems to be good throughout the quarter 3. And it's getting driven by the same cost that has driven the industry in the past. There is increased amount of travel, outing. There is [ one ] expenditure or non-wedding.

We are also seeing things like a backpack and all that is slowly possibly getting more years around kind of purchase and there is repeat happening. So overall, the demand seems good for the industry. And hopefully, it seems like, at least in the near future, while there are talks about various [indiscernible] in the news and saying there are questions getting raised in the other sectors. I don't see it right now for our industry in the immediate short-term.

In terms of geographies, yes, there is a tad higher demand in Tier 2, Tier 3 and downward cities. It's more -- it's very measurable on my business, but qualitatively, we can getting a sense of that. Maybe that's also coming from the unorganized shift to organize, having a better play there or a bigger play there, a bit more dominance of unorganized in Tier 2 and down [ topside or ] cities. Did that answer your question? There was the last question on the [indiscernible].

[Tejash Shah, analyst]

And just expanding on the [indiscernible] has been one of the key drivers [indiscernible].

[Neetu Kashiramka, executive]

Your voice is breaking actually.

[Tejash Shah, analyst]

Is this better, hello? Yes. So just expanding it [indiscernible] wanted to know with China opening up, are you seeing or are you picking up any early trends of unorganized also bouncing back with China sourcing also getting sorted as we go on?

[Anindya Dutta, executive]

Honestly, not seeing a trend, but yes, keeping a watch out for that because, yes, that could be a possibility. It's not a major jump, but it will start fueling [ what ] was not fueled so well. So keeping a watch out, but no early signs right now.

[Tejash Shah, analyst]

Sure. And last one with the volatility that we have seen in margins in the recent past. How should we go for the -- [indiscernible] margins for this year? And if you can give some color for the next year as well, what would the guidance around margins?

[Anindya Dutta, executive]

So as I said, I can't give you a definitive number, but it seems in the right track. I think the fundamentals that I've been talking about and what is there on the presentation is -- continues to be pointing towards a better margin environment going forward in the coming year -- the overall commodity and raw material prices are softening. The ocean freight is down, is much more than before. So it may not have kicked in into the business as of now, but it will -- as we go ahead.

So on one side, the tailwind is prices coming down. On the other side, the headwind is also the mix and the value category growing and the unorganized [ success ]. -- pushing the growth further. So there will be some kind of a set of happening. And it's difficult to predict that part because the volatility is more there and margin is a result of that. What's happening is we are pretty sure clear that we will want to have a good balance between margin and share, right, and not trading off one for the other. And therefore, we [ love ] to pick and choose on [ battle ] depending on how the environment is. So anywhere between 52% -- 53% is what we would try and keep the ship on is how I stand committed.

[Tejash Shah, analyst]

Sure. And the last one, mainly a clarification. And you said that tax rate for this year will be 18%. And did I hear it correct?

[Neetu Kashiramka, executive]

Yes, you are right.

[Tejash Shah, analyst]

And then it will normalize by next year?

[Neetu Kashiramka, executive]

No, it will be in the range of 18% to 20%. Because we'll continue to do this.

[Operator]

The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.

[Bhargav Buddhadev, analyst]

Congratulations on a good performance. My first question is on the Caprese brand. So just wanted to know what price points are we sort of targeting when we are looking at significantly scaling up this brand? And also which channel when we do target into sort of scale up [indiscernible].

[Anindya Dutta, executive]

Yes, I think it's a very pertinent question because this is something that we are starting off now. So somewhere the Caprese brands may have been going towards, let's say, a price point of [ INR 1,000 ] and below. We are definitely looking at the mid-premium and slightly above range. So anywhere between [ INR 2,000 to INR 4,000 ] range is what will be the mid-part of what the brand should have once we get enough scale.

And we'll also do [indiscernible] which is above [ INR 5,000 ] as well. So I wouldn't say we are shifting from a big about [ A2B ]. -- we're just repositioning answer to what the brand started out with, which is where there is a -- there is a larger void, where there is a play of green design and great brands and therefore, there is a value creation happening. So that will be let's say sweet spot would be about [ INR 2,500 to INR 3,000 ] to narrow it down somewhat. That's on the brand and the pricing.

In terms of channel, we're going to -- we're looking at more direct-to-consumer involve form to begin with as we create penetration. So it's not only the e-commerce [ focused ], but that's why we started experimenting with not experimenting. We have launched our D2C website, and we've done all the preparation in terms of back end to enable a scale up. So that will be another key go-to-market tool. We could also be looking at. And then there are some pilots going on where we are looking at exclusive experience stores, which is will be in malls where we would bring in the Caprese [indiscernible] experience to the consumers. But as I said, [ that ] the current stage of. Commercially, that's something that we could scale up in a big way in the coming future.

[Bhargav Buddhadev, analyst]

Secondly, just wanted to know in terms of what has been the progress in terms of backward integration. So we were looking at manufacturing trolleys and [ wheels ] subsequently to further make ourselves more competitive. So where are we in terms of our gameplan?

[Anindya Dutta, executive]

I can't dilute the concrete stuff right now, but that's something that's on. There are a couple of pilots that has happened on that in terms of understanding of what model will work. But you will see me talking about it or rather doing it in the coming financial year, right? I think we are more focused on making sure that as I [Technical Difficulty] [ consumability ] and the whole supply chain was [ usually ] stressed in terms of first scaling up to the demand. And with every going quarter, I think the demand is higher than what we expected. And so therefore, that has been the big focus. But as we scale, as we cross that peak in the coming quarter, which is quarter 1. These are some of the priorities that will be taken out in a big way.

[Bhargav Buddhadev, analyst]

And lastly, on the e-commerce bit, I believe, we are #3 in terms of market share on the e-commerce side, which is lower as compared to offline. So any key learnings from some of our competitors where we can sort of take cue and sort of implement them to increase our market share? Or we want to continue to dominate offline and be third or the second largest player on the online [ side sir ].

[Anindya Dutta, executive]

So one, I think # 3 is not something that I see it as. But you're right that there is no definitive data to corroborate that. But one thing is share that we do not have our fair share, whatever I have shared in the other 4 channels. I have -- I don't have that, and I definitely don't have leadership in e-commerce. So whether it is #2 or #3 is not so important. I think what you're asking, and the answer is that everything we are doing is to make sure that we strive and get first to a majority share, to a leadership market share and then to aspire [indiscernible] their share within that channel.

[Bhargav Buddhadev, analyst]

So what are we doing to sort of boost up because essentially, we believe some of our competitors are spending a lot to acquire traffic. So are we going to go into that direction? Or we sort of focus more on product launches to create a differentiation?

[Anindya Dutta, executive]

No, I think we're doing all that is required, as I said. So therefore, if there is spend, and it's all about the intensity of spend and not about whether one is doing that [ a lot ]. So within the portals like Amazon, on Flipkart, are you spending more on performance marketing. So it would have noticed us feeding our brands through thematic advertising and other digital mediums, right? But you've not seen, let's say, competition doing too much of advertising in other mediums, let's say, till about quarter 3.

And possibly, most of that was getting into e-commerce. We are looking at that -- or rather, we have kind of made our plans to balance it out slightly more in favor of e-commerce going forward. So we will increase our intensity of spend in e-commerce. Then the other part is portfolio and pricing as well. So there is many -- so there is [indiscernible] continuously happening. The pivots are the same. I think the continuity and the intensity is important. And as we are going, we're continuously increasing that. So it's not about starting something. It's more about increasing the intensity over Q3.

[Operator]

The next question is from the line of Manish Poddar from Motilal Oswal AMC.

[Manish Poddar, analyst]

Actually just wanted to understand 3 further questions. One is, if I look at the manufacturing. So now 73% is by [indiscernible] what is the target, let's say, for FY '24-FY '25?

[Anindya Dutta, executive]

So this 73% is what is the -- what -- what sales have happened, how 73% of that has been manufactured in-house, right? So in terms of pure sourcing, we are looking at an [ enhanced ] split of about 60% in the coming year, right? And roughly about 20%, 25% will be, let's say, outsource within India and maybe have about 10% to 15% at the outer limit. This is including Caprese from China. That's a rough breakup, but it's not a limiting thing. So I think depending on what playing more commercial sense, the splits can get altered.

[Manish Poddar, analyst]

And so would it be a understanding, let's say, if I look at the delta change in manufacturing from pre-COVID till now, that large part of this which even if you are saving at least what duty arbitrage is there. A large part of that has got deteriorated by the mix of higher share of Aristocrat. Is that how it is?

[Anindya Dutta, executive]

Yes, and also the fact that this is the time that the ocean trade and the inflation was very high.

[Manish Poddar, analyst]

But would the larger part, be the mix part rather than the inflation part, that is what I'm trying to [ listen ] because if I do the rough maths for the margins?

[Neetu Kashiramka, executive]

Maybe 70% mix and 30% [ other factors ]? But we can examine this closely and we come back, but this is our immediate or intuitive [ definitely ].

[Manish Poddar, analyst]

Okay. Just 2 more questions. One is on this [indiscernible] retail stores or let's say, now under the new entity. So how many stores are we reaching now? Because you said 2/3 of your reaching out 3/4 of the stores. And I think earlier we were [indiscernible], I think, 400-odd stores. So how many stores do you reach – how?

[Anindya Dutta, executive]

No, we reach to everything that is open. What I was telling you is that under the banner of Reliance, out of the 279 Big Bazaars, Smart Bazaars, which is the Reliance banner is 235 stores and at each of the 235 as and when they are opening the stores, they intend to open all the 279 back.

[Manish Poddar, analyst]

Okay. So [ tell me ] from the beginning of the year, which was about 45 stores, now you're reaching to 235 stores.

[Anindya Dutta, executive]

You're right.

[Manish Poddar, analyst]

Okay. And just one booking. Neetu, I am just insurance, the balance meant. When is that expected to come across?

[Neetu Kashiramka, executive]

Hopefully in this quarter.

[Manish Poddar, analyst]

Okay. So there is no, let's say, continuity or anything like that? It's just depending [ of things ] the difference.

[Neetu Kashiramka, executive]

Yes. So it's last leg.

[Operator]

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

[Unknown Analyst]

On congratulations on a good set of numbers. I wanted to know when you increase your manufacturing, how much can gross margin expand because you will have other manufacturing costs, which will come and sit in the P&L, right? So just on the material side, the expansion should be a lot more.

[Anindya Dutta, executive]

Yes. So therefore, the comparison is versus not manufacturing and buying from China. So the labor cost advantage and the duty arbitrage, the duty arbitrage is largest. So it is more compared to our earlier supply chain that we were buying from China. Today, we bring in the raw material, make it in Bangladesh and bring it in India. The duty is not there. So there's a [ 15% ] advantage in the raw material [ part of it ], which is like you see about 50% of our business, right? So that definitely is advantage. Now there is a labor cost advantage, which could be offsetting with increase in freight or other areas. Right, so straight away, there is [ this advantage ] that is there in manufacturing at least.

[Unknown Analyst]

So I mean, what kind of gross margin will you target, I'm assuming that since you set up the facility, you will refer to [ manufacture dose ], given all other things are under cost in China really come down.

[Neetu Kashiramka, executive]

So like-to-like basis, if the raw material prices are paying for both China and Bangladesh, we will have a 3% to 4% benefit in all the other factors that [indiscernible].

[Unknown Analyst]

So what kind of gross margin one would look at, say, 3 years down the road, when things are normal -- right now, impression is distorting all the numbers.

[Anindya Dutta, executive]

Did you say 3?

[Unknown Analyst]

Yes, 2, 3 years down the road when things are normalized?

[Anindya Dutta, executive]

I think then going back to about 55% is what we have put as an ambition. We are [ bone-seeking ] that. And I think it's all about putting the right strategy at the right time in place to inch up there along with share and growth.

[Operator]

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

[Nihal Jham, analyst]

Sir, couple of questions from my side. First, on the e-com channel, as you aggressively target to scale that up, what is your experience still now being in terms of the kind of margins this channel gives? Because ideally, if you look at a lot of the other categories, there is a lot of discounting and a lot of old season product, which ends up, say, sold, which ends up impacting the kind of margins you make on this channel. So has your experience till now of the 20% sales that we have seen being similar or we have seen a different experience. And going forward also, we expect this channel to be non-margin [ value too ].

[Anindya Dutta, executive]

So you're right, there is a pressure on margins in some of channels, which is trying to gain, let's say, volume through attractiveness on price. However, when you see for my business, the net margin when I take out the direct selling cost in other channels using promoters and all that, I don't see the difference to be so big. In fact, in some quarters, the [ gross ] was the, e-commerce margin is at that better only.

So I think in the long run, this is something that is going to not only stay but will grow significantly. It will be a game of getting more scale here. And also to start the premiumization journey here to marketplace operation, right, where the pricing is [ done ] by the brands and you are listed everywhere. So it's a long year. It's not long, it's journey. And I think we -- this is not a channel that we had a head start at all. right? So compared to not only within the industry but others, I think we are catching up.

And what I see in the long term is to -- that this channel will become a large and a major channel for consumers to buy VIP products. And therefore, we have to get the margin and share both right in this [ channel ].

[Nihal Jham, analyst]

Got that point. Just a follow-up on this was that currently, what is the channel parity practices that we're following? Do we have a different range of [indiscernible] itself and you're trying to keep the pricing similar across our franchise, [ VPOs ] and the distribution channel.

[Anindya Dutta, executive]

So increasingly, the e-commerce and it is [indiscernible] set of products because that's where the channel conflict is higher because the price discovery is the easiest for anybody on [ e-com ]. But yes, within our other, let's call it, the physical channels also, there are ranges which are different. That does add to complexity. So we're trying to find the right balance between where we would like to see exclusives and where we want to see a common range there.

So it's a mix of both. There are some -- in non-ecommerce, there are some ranges, which are exclusive for that channel and the rest is common. This mix is only thing we are changing in favor of more of our products.

[Nihal Jham, analyst]

Understood. My last question was on Caprese. Do we still have the target of maybe wanting to reach INR 500 crores of top line in this segment in the next couple of years?

[Anindya Dutta, executive]

Well, I can't put a number to that, but what you're saying sounds too aggressive. We're trying to see it's a very, very fragmented market, right? So if at all anything in 3 years' time, I would like to take a vision of being in a fragmented market, the brand of choice, the market leader in this. Now that translates into what crores is something that we'll have to work out and either come back or maybe take as a management target here.

[Nihal Jham, analyst]

Just a follow-up, if I may. If I look at this category, which is the [indiscernible] segment has not seen any brand really stay up beyond the INR 100 crore-INR 150 crore kind of market. So what as per you have been the limitations and what are the aspects that we are targeting to improve, which can scale us to be a much bigger brand now specifically [indiscernible] mentioned.

[Anindya Dutta, executive]

I think go to market has been a limitation in this because this product needs [ that as exteriors ] as people buy it. So therefore -- and you also haven't seen very large companies coming into this category. So I think e-commerce, direct-to-consumer [ commerce ] is changing that. And also to that extent, we may not have been fully able to leverage our national network in the [ bank ] business into this, which possibly on other players may not have.

So go-to-market is possibly one key pivot on which scale up or a brand share in the category can go up on. Yes, but you're right that this is globally, this is a very fragmented market. So I don't expect consolidation it already happened. It is a very large space, right? So therefore, even getting within such a fragmented market a high share or market leadership will be a very, very strong [ vision ] to take.

[Operator]

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

[Akhil Parekh, analyst]

My first question is on the -- will you be at to highlight what was the price differential for a luggage, and for a unbranded luggage which is arriving from China, vis-à-vis say a large branded luggage [indiscernible]. And has the price differential between the 2 decline meaningfully over the last 2 years [indiscernible].

[Anindya Dutta, executive]

No, I do not [indiscernible] I don't think I will be able to give you a specific answer on that because we haven't tracked a particular product and compare it with this because the product -- 2 products are not alike. I mean this is the feature, it could be quite differently costed and differently priced therefore, right? But once again, I would think that it is -- there are a lot reasons to believe that the gap is [indiscernible]. Clearly, let's say, the large part of the bag making is high labor cost.

And for our labor cost in China and in Bangladesh and in India is significantly in favor of course, India and then Bangladesh. [indiscernible] be most favorable. So to that extent, that's definitely the difference that should change the cost. The other thing is productivity. Even if you keep the raw materials from China as say, raw material, right? If at the source, if the raw material price is same to all the 3, then there is an advantage to India and Bangladesh, you would both your labor cost. And today, we are seeing productivity coming at par. There is no major difference in technology. I think productivity is over [indiscernible] at least in [ both ] Bangladesh unit, I'm getting closer to China productivity already.

[Akhil Parekh, analyst]

Okay. Okay. Sure. This is helpful. And just a supplementary question to that is, like we have diversified our supply base and we have also found vendors with respect to India and Bangladesh. What are the challenges which unorganized players might be facing from diversifying the supplies because I believe that they were largely dependent on China prior to the pandemic -- and because of the disruption in China, they have not been able to get the enough supply [ base ].

So any specific challenges which they might be having and they might not be able to get their supplies from Indian and Bangladesh vendors?

[Anindya Dutta, executive]

Well, they need to then have manufacturers in India and Bangladesh who are scaling up to supply to the to the unorganized sector. So I mean, that's the challenge in terms of -- there is no ready to [indiscernible] take to take over. So this could be fueling many setting up a manufacturing happening. I mean that's something when I'm saying more of a vertical answer to your question that, that is the only way the surprises can happen. And the challenge for them would be to not finding vendors in India or who have the capacity to get in the products that [ China was king ].

[Akhil Parekh, analyst]

Sorry, if I understood correctly, you are saying because they don't have manufacturing base and the way they are not able to get it [indiscernible]?

[Anindya Dutta, executive]

Yes, that's right. We did continue [indiscernible] the past. That's why the whole industry was going to China.

[Akhil Parekh, analyst]

Got it. But any second and last question is on the gross margin front, right? The value segment continues to do well. Say hypothetically in Aristocrat and Alpha that 40% mark of the total sales, will we still be able to achieve that 50% to 53% of gross margin?

[Anindya Dutta, executive]

Yes, I think it should be given that the prices, raw material prices and our manufacturing efficiency is going up. The benefit of that will start kicking in, right, as we go on. So I think will go even if Aristocrat reaches to the mark that we are seeing. But -- as I said that these are things that are not with one change that will happen. I think it's a gradual change that, that needs to happen. And one is pushing things in that direction.

[Operator]

The next question is from the line of Harsh Shah from InCred Capital.

[Harsh Shah, analyst]

Sir, my question on a longer-term point of view. When I look at your presentation, see that there is a side there, which shows that the organized sector share has increased from 45% in [ Q1 '19 to 53% in Q1 '22 ]. But when we see, let's say, 3, 5 years from now, we are only expecting that to go to 60%. And secondly, even if we look at the penetration, we've covered a lot of ground over the last 3 years, our penetration being 90%. So when you look at our -- the growth in the luggage phase over the next 3 to 5 years, if you were to exclude, let's say, exports, how do you see a luggage commenting space grow over the next 3 to 5 years?

[Anindya Dutta, executive]

I think the industry in terms of value terms should easily grow anywhere between 15%, thereabout CAGR over the next 3 to 5 years. The underlying volume growth could be lesser. But I mean, this could be the aggressive side of the growth that I would put. But yes, expecting a 15% CAGR over the next 5 years, given the India's context should not be something that we could be shy of.

[Harsh Shah, analyst]

So 15% is something which you are targeting for the next [ 3 ] and not for the company, right? -- we can grow at a higher pace given the kind of building blocks we have in place?

[Anindya Dutta, executive]

Yes. And depending on the category, what share we have. And yes, of course. But if the industry is [ growing ] at that pace and given our share position that we would have and continue to have, which will define our growth objectives.

[Harsh Shah, analyst]

Okay. And then secondly, how do you look at the -- within the backpack space, how do you look at the mass segment and our participation and presence there because much of the -- I mean, unbundled player play there, and that's a big opportunity for us. But on the flip side, the margins there are quite low. So how do you think of the backpack -- the mass value backpack space?

[Anindya Dutta, executive]

No, you are right. Actually, in every category, the low price -- there is a low price segment and it is always the largest part of it. So that's why every category looks like a pyramid. But this is not where we would want to dive into the low price [ was ] to begin with the lower margin. I think for us, there is a huge opportunity to grow in [ movement] segment itself, right? And that's what we are targeting to begin with. But yes, there will be something that we will do to trigger people to upgrade from the low price to the mid price.

[Harsh Shah, analyst]

Okay. So we are not looking to replicate what we've done in Alpha, Aristocrat in the luggage space in the backpack space.

[Anindya Dutta, executive]

Well, yes, in simple terms, if I were to answer, no. [indiscernible]

[Operator]

Next question is from the line of Ankit Babel from Subhkam Ventures.

[Ankit Babel, analyst]

A couple of questions. So you people are targeting a gross margin of around 52% to 53% in FY '24. So what would be the EBITDA margins if you achieve those gross margins?

[Neetu Kashiramka, executive]

20%.

[Ankit Babel, analyst]

Okay. And if I remember correctly, you people were also planning a turnover of around INR 4,000 crores by FY '26, which is around a 25% CAGR. So can we see the traction of 25% revenue growth from FY '24 onwards?

[Anindya Dutta, executive]

I don't know which remark you are talking about -- I don't remember having spoken about FY '26 on this. I think it's been more a directional one. in terms of the growth. And I maintained what I said in the past. Today, the market is too volatile for us to have a good and a same prediction for that long. Yes, we are predicting where it could grow more to build our supply chain and all that point of view. And there, we are being aggressive so that we build supplies given a good growth rate. But I don't think it's fair to right now discuss in detail about whether it is INR 4,000 crore whether it is INR 3,500 crore, INR 4,500 crore for the plant.

[Ankit Babel, analyst]

Okay. But what are the export opportunities you people are foreseeing in the coming years?

[Anindya Dutta, executive]

As of right now, we are more focused on going deeper into the market we have, right? But we had roughly about INR 100 crore business in exports in [indiscernible] I think we are much more than that coming back in this year itself and closing out. So I think we will take very aggressive growth on this. But compared to what inside of the opportunity, it is not going to be like it's wanting to become -- take a share of the global market and [indiscernible] the focus is very, very large India and the India growth opportunity that all the markets that where we have either right to success or already a good foot in the door kind of thing is where we're going to go deeper. So it will be an aggressive growth in [ IP ] that will take in the coming years. Maybe we'll look at about INR 250 crore, INR 300 crore [indiscernible].

[Ankit Babel, analyst]

Okay. And sir, lastly, what was the advertisement cost in Q3 versus last year Q3?

[Neetu Kashiramka, executive]

[indiscernible] versus INR 9 crores.

[Anindya Dutta, executive]

Yes, INR 29 crore versus INR 9 crore [indiscernible] INR 29 crore, now versus INR 9 crores plus last year.

[Ankit Babel, analyst]

Okay, okay. And as a percentage of sales, what kind of advertisement will you target going forward?

[Anindya Dutta, executive]

5% to 6%.

[Operator]

Next question is from the line of Pulkit Singhal from Dalmus Capital Management.

[Pulkit Singhal, analyst]

For the opportunity. Sir, the first question is on modern trade contribution, pre-CIVD, it was 30% and now it's 29%. Can you help us understand how much was the Future Group contribution back then? How much is it now in 3Q? And given that these stores are totaling up, should we expect a sudden bump up going ahead, 4Q onwards?

[Anindya Dutta, executive]

Yes. I'm just getting the numbers for you. But before that, yes, as the stores start, we are seeing the stores which are becoming operational fully, when I say fully means that in its full glory, hard sales are coming back. So there should be a big bump-up that we should get. But also what we saw when each of stores right now in the catchment area, the other stores were able to take the drop in this, and that was a conscious strategy. So I would expect to have this as a complete consumption growth, but it will kind of get into a new inclusive within the catchment area. But as far as your first question is concerned on what was the contribution of future growth to modern trade?

[Neetu Kashiramka, executive]

That is 44%.

[Anindya Dutta, executive]

Future growth to modern trade was 44% pre-COVID, what is now [indiscernible].

[Pulkit Singhal, analyst]

It's around [indiscernible].

[Anindya Dutta, executive]

It’s about 2020, but we can come back to you even more definitive number once we kind of look into this on [indiscernible]. Right now to answer [indiscernible], confirming INR 42 crore versus INR 22 crore as we speak now in Q3.

[Neetu Kashiramka, executive]

Yes.

[Pulkit Singhal, analyst]

And your market share, I mean, you have a dominant market share within this group, right, I mean that continues even now?

[Anindya Dutta, executive]

Yes, it continues in these [ twos ]. In fact, in modern trade, because of the future growth issues, the modern trade team was pushing gaining market share in weaker accounts like Vishal Mega Mart, we went as strong in Vishal Mega Mart before. And some more entry into some more regional [indiscernible] so that's also looking much better than what we were before in those weaker chains. But in the largest chains, we continue to have good share.

[Pulkit Singhal, analyst]

Okay. And the [indiscernible] I am forgetting the amount, that is still pending. Is that supposed to be written off in the future quarters?

[Neetu Kashiramka, executive]

Sorry, we are not able to hear your…

[Anindya Dutta, executive]

INR 12 crores.

[Pulkit Singhal, analyst]

The amount that we received the doubtful, I mean, that's supposed to be written off the future quarters?

[Neetu Kashiramka, executive]

So as of now, we don't have clarity, but there are some stock lying in which is coming back. So we get clarity only maybe that by end of next quarter.

[Pulkit Singhal, analyst]

Okay. And second is based on the [indiscernible] in cost. I thought that the benefits were supposed to play out third quarter earlier because prices picked up in second quarter. So if you can just help us understand where are the raw material costs right now versus what you have booked in third quarter. So we get a sense of how much of benefit can flow through all this and [indiscernible], I understand you [ buy ] some bit of it based on the market, et cetera, but then just to get a sense of where we are.

[Neetu Kashiramka, executive]

We got only 1/3rd of the benefit, so the benefit started actually coming only in the last month of the quarter. [indiscernible].

[Anindya Dutta, executive]

Also the fact that as of right now versus what we have with us in terms of stock and the prices and you know how luggage industry works is also we got to cover whatever [indiscernible] China, we've got to cover a little bit ahead in time because of the Chinese New Year and all that.

[Neetu Kashiramka, executive]

4 to 5 months of lag. Yes.

[Anindya Dutta, executive]

So there is -- people work on the exact percentage there, but it is lower, maybe about 4% to 5%, price overall weighted average price would be lower in the market today versus what we are operating on what we are using.

But don't hold me to this number, I think it's something that we can check on this and come back.

[Operator]

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.

[Neetu Kashiramka, executive]

Thank you, everyone, for joining the call, and Happy Independence Day. Any other clarification you can [indiscernible]. Sorry, Republic Day.

[Anindya Dutta, executive]

Thank you, everyone.

[Neetu Kashiramka, executive]

Thank you.

[Operator]

Thank you very much. Ladies and gentlemen, on behalf of VIP Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.