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V I P Industries Ltd
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Good evening, ladies and gentlemen. A very warm welcome to the VIP Industries Limited Q4 and FY '22 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] Please note that this conference is being recorded.
I now hand the conference over to Mr. Anindya Dutta, Managing Director, VIP Industries Limited. Thank you, and over to you, sir.
Good evening, everyone. A very warm welcome to all of you. Thank you for taking out time and joining this call. Given the circumstances now, I'm hoping that very soon, we could be doing this call -- not a call, a meeting in person.
At the outset, I just wanted to remind all of us that the pandemic has been a very hard journey for industries like us, which has to do with consumers going outdoors, and the revival has been nothing but a rollercoaster ride. We saw Q3, which had a rapid progress within the month in terms of the demand revival. However, we saw the wave 3 happening in Q4 in Jan and part of Feb. While this wave spiked very sharply, thankfully, it was very short-lived also, and the impact of our business was significantly lower compared to any of the previous waves. In fact, the way the industry -- our industry's demand withstood the wave gives us a lot of confidence going forward on the sustenance of demand for our products.
For the quarter, our revenues were at INR 356 crores. While this was lower than the previous quarter by 10%, possibly owing both to the usual seasonal swing as well as the impact of the third wave, however, compared to the same quarter in FY '20, where we were up by 14%. Even if you correct this for the pandemic that hit in the mid of March 2020, I would say we have come to parity to prepandemic levels. In quarter 3, our revival was at 92%. So therefore, steadily, we have come through all the quarters of the year and ended the quarter with the parity to the prepandemic levels.
In fact, the barometer that we use for our demand, which is the airline passenger traffic, also witnessed a sharp decline in Jan-Feb. It was almost 40% lower than -- sequentially lower than November-December. And this was the first dip since June '21 in the airline passenger traffic.
Some highlights from our revenue performance. The first call-out would be on the value segment, represented by our brand, Aristocrat. It had a great performance for Q4 and for the overall year. Aristocrat brand salience in our overall business now stands at about 36%, this was at 25% pre pandemic. We have seen the value segment growing much faster even in the prepandemic time, and it has seen significant acceleration during the 2 years of pandemic, possibly also due to the conversion from unorganized.
The Aristocrat brand portfolio has been growing faster than also the peer companies or brands in the same segment. We saw in this quarter a year-on-year growth of almost 61%. And if I look at the full year, compared to just the previous year, it was 140% growth. The Aristocrat brand and the value segment has been a focus area for us as several initiatives, including product engineering and making the right supply and the right manufacturing cost is starting to work for us.
While we have put a huge trust on value segment, it was always imperative for ourselves to strengthen our core, which was the mid-premium business, represented by the VIP and Skybags brands. I'm happy to share that VIP and Skybags has also seen a very good result in Q4 on the back of much improved availability, all kinds of demand activations that we did and also a few of large barrage of new products that we launched in these 2 brands.
In VIP and Skybags, this was the quarter where we came back with a lot of demand activations, both online all year as well as offline. And largely, it has been the digital campaigns that has worked very well for us. If you would have noticed whether the VIP Workation campaign or the Skybags My Drip campaign got a lot of hits among the consumers. Q4 saw almost 40% of our annual advertising spends.
Also, a call-out here would be the hard luggage PP strategy that we were on, and that also in Q4 saw gaining traction. Hard luggage within the whole Uprights business now accounts for almost 60%, which was at about 50% just before the pandemic, and that's been a steady increase. And we are extremely well poised to drive that growth forward with the investments that we have done in expanding our luggage capacity. In the last quarter call, I announced that we spent about -- we had invested about INR 35 crores to INR 40 crores in capacity expansion of hard luggage in both our India, which is in Nashik, and in Bangladesh facilities.
Along with the backend, we have continued to invest behind the downstream improvements, which is in our distribution and our number of point of sale has come back to the pre-COVID level. And in fact, we have started very strongly rebuilding our own exclusive business outlets.
And last point on revenue that I would want you to note that our average selling price today stands about at 115% of what it was in the quarter prepandemic, and that also is helping us gain back our sales value as well as our margins.
And on the margins, moving on, I am happy to announce an improvement in gross margin in Q4 over Q3 by about 4 percentage points. This has happened basis some fundamentals, which is about improvement on our mix, and also our Bangladesh own manufacturing strategy is starting to show results here. While the inflation was a spoilsport but we had taken some price increase in November, which kind of helped us in the quarter. But really, the high impact of inflation started happening towards the later part of the quarter. And therefore, another price increase which, hopefully going forward, kind of should negate -- or large part of the inflation could get negated basis the price increase that we have taken.
We continue to focus on our fundamentals both in brand and in channel in building our revenues. We are extremely focused and poised to build our VIP, Skybags and Caprese brand going forward. And also, we are investing behind strengthening the channels where we are already quite strong.
We continue our commitment towards our upstream strengthening. Our whole manufacturing has scaled up to almost 2/3 of the total what we sell in Q4. And if I were to add the exclusive and dedicated manufacturing partner that we have, our controlled manufacturing stands at about 85%. As we look at full-scale growth potential in the coming financial year, I would like us to keep this 85% intact, and as the benefit of this should start flowing in. We've also streamlined and strengthened our supply chain, and with a notable increase in our overall availability for the quarter and looking ahead.
Most importantly, with respect to building our people capability and making ourselves future ready, our team and structure is almost where we want it to be in terms of employee strength and talent. While we have sequentially added headcount, our ideal team size will be lower than prepandemic levels, accounting for our efficiency efforts.
For the coming quarter and way ahead, as of now, all indicators of consumption points towards a very positive demand environment, with domestic travel coming back to prepandemic levels, the resumption of international travel, pandemic-free wedding season and school, college reopening. However, we can't have it all, so there is enough headwinds -- there are some headwinds, at least, that we need to navigate ourselves through. One of the bigger ones is the inflation in our commodity or in our input materials, and navigating it through, on one side, price increase, and the other side, keeping a balance to make sure that it is not a demand spoiler.
Also a call-out here would be relevant of the transition that is undergoing in the Future Group, which is one of our largest accounts. Almost 15% of our revenue would come from Future Group prepandemic, and that's something that we are watching very closely in terms of the transition. But I think this is -- we're going to sail through that as well.
So overall, I think we are quite positive about the future. And I think overall, VIP Industries is quite poised as well to make good of the opportunities coming ahead of us.
Thank you. That would be the opening remarks, and I would be happy to take all questions related to Q4 and for the annual performance.
[Operator Instructions] The first question is from the line of Tejash Shah from Spark Capital.
My first question is the price increase that we spoke about. So how much price increase we would have taken in 4Q and FY '22 in total?
So Tejash, we took about 4% price increase in November and about the same in -- towards the end of March.
And one in first quarter.
Okay. And you also spoke about inflation being higher than the pricing [ inflation ] we have taken. So what is the RM inflation for the period?
For the full period 6.5%.
When you say for the full period, you mean for...
FY '22, yes.
About 6%, yes.
And this last -- sure. And the last 4% that you just spoke about, this is the price hike that you said will have to take again? Or is it the one which we have already taken and we need one more price hike to pass on the full inflation?
So as of right now, we have taken the price hike that we intended to take to get over the inflation that we have. But we are watching the inflation closely, and it's a continued volatile environment. So as of right now, we don't have plans to take further increase. But having said that, we will have to keep watching how the raw material and input cost goes ahead of us right now.
Fair enough.
Second question was around GM inflation, which is actually the highlight of the quarter's performance at least to us. And then you spoke about the mass end of the market and the portfolio did very well. Price increases both taken, which you have taken at least at the fag end of the quarter and inflationary pressure was heightened throughout the quarter. So 3 out of the 2 factors are actually not -- or should not contribute to GM expansion, mix change or [indiscernible]. Then product engineering or the channel mix change, what actually contributed to such a healthy GM improvement?
Let me first clarify on the price increase. So the November price increase did help in cover up the part of the inflation or large part of the inflation that kicked in our products in Q4. And the further inflation, because inflation is also not happening at one point of time, it's gradual. The next price increase in March is going to help us tide over the overall inflation that is going to get applied in the coming quarter. So that's the perspective of price increase versus inflation. So this is kind of offsetting each other to some extent to a large extent in Q4.
The underlying shift in the [ GC ] has happened, let's say, because of our Bangladesh manufacturing, which was always an advantage over buying from China, fundamental advantage. And also the mix sequentially has become better with VIP and Skybags and other high-margin products starting to kick in.
Okay. And you spoke about product engineering also. So is it moving from PC to PP, is it also helping in hard luggage? Or that is yet to kick in in the numbers?
No, absolutely. That is part of this because even within Aristocrat, as we have really propelled forward in terms of playing hard in the value segment, the shift in hard luggage to PP, which is a lower cost raw material, and making good and great products out of PP has actually helped a lot. And that's what I was saying that we are pretty happy with the PP strategy starting to play up in our results.
Sure. And then last one from my side. So we have exited after last 2 painful years on a healthy margins this year, but still much lower than what we have posted pre-COVID. So what will be our margin aspiration for the next 12 months? And what are the possible headwinds which can actually derail [indiscernible] from achieving that target?
So Tejash, I don't have a number for you. It's a goal that we are constantly chasing to improve on the margins. We have fundamental tailwinds in terms of our own manufacturing, which should add a lot to the efficiencies and other areas that we are working on.
However, as we speak, the inflation is the biggest spoilsport, and that's again a very difficult thing to pinpoint for a period like for the full year. So it's going to be a constant play, and we are only using price increase to cover up for the inflation that we are not able to cover up through our own efficiencies.
Great. That's all from my side.
The next question is from the line of Amandeep Singh from AMBIT Capital.
So firstly, in terms of recovery. So while FY '22 revenue stacked up at 75% of FY '20, can you help us understand how much of this would have been a recovery in terms of volume? And also, on a like-to-like basis, do you see complete recovery on the volume front this year versus FY '20? Also, how this would stack up in value terms given the price hikes and mix? Any sense on this?
So on the volumes, just give us a minute, and we're going to kind of come back to you.
So on part of the business, which is Uprights, the volume seems to have come back to the same level as FY '20. But overall volume was not equal to FY '20, and it was lower. I could give you in some time the exact number in terms of the volume recovery.
In terms of projection going forward, we would like to believe that the current environment that we see continues. There are no disruptions, and if that was to happen, then we should be looking at least a demand environment which is bringing us back to an FY '20 in terms of value, if not fully on volume.
That's helpful. So till the time the volume numbers get -- can I continue on the second question?
Please go ahead.
Yes. Secondly was on the supply chain. So since you have fairly high closing inventory, so will it be fair to say that the supply chain initiatives taken over the last 2 years are now showing results? And consequently, you are in a relatively better situation to cater the demand?
Yes. Compared to the last 2 years, we are definitely in a much better situation. At this stage, I think it's important to realize that we took the hard way out of the pandemic revival. We have used this time to really go into the basics and make our own manufacturing work for our supply chain. So therefore, instead of now buying for a forecasted demand of 6 to 9 months period ahead in terms of FG, we are into planning our raw materials in a regular cycle and we are producing to demand with a certain lag, which is not as high as 6 to 9 months.
So from an availability point of view, we have the manufacturing capacity and capability to take care of demand. So therefore, we feel confident that depending on how the demand ramps up going ahead, we should be in a much, much better situation than what we were in the last 2 years in terms of meeting the demand.
And Amandeep, just to come back to your earlier question in terms of value. Overall, in terms of volume, overall, we are -- a number of units basis, we were at about 83% revival in FY '22 compared to FY '20.
So this was really helpful. And just coming on to the provision which you took during the quarter, so will it be fair to assume this was largely on the account of Future Group? And also, if you could help us understand how much amount would still be outstanding for which provisioning will be required? And any outlook on what would be the business for this channel here on?
So in terms of the provision, it was entirely Future Group, and 100% of that has been provided in the last financial year. And a large part of it happened, obviously, in the last quarter.
In terms of Future, how it is going to look like with the account, I would not want to comment on it. We are watching out very, very intensely and eagerly to see how things unfold. It's a very important account for us, and we would hope for its full-fledged revival as we go ahead.
One last bookkeeping question, if I may. So any update on the receipt of the insurance play?
So it's in the final stages, actually. It should come in the next 1 or 2 days.
That's great, congrats.
The next question is from the line of Manish Poddar from Motilal Oswal Asset Management.
This Just 2 questions. The first one is, this price increase which has taken, does this offset all the cost inflation?
Not entirely, I would presume. We -- as I said, we took a price increase in November, and -- to tackle the inflation, which really started in September, October, significantly high. Inflation was there prior to that also, but a sharp increase happened. Along with that, the ocean freight went up very sharply around that time. So in November, the price increase that we took did cover for the inflation that was to get applied in our business in Jan, Feb, March. So that was covered largely, though a very small percentage is not covered possibly.
But going ahead, as we speak, in the coming quarters, with the price increase again in March, it covers most part of it, but we will not be able to put a number, whether it is 100% covering or 70% or a little bit more. So that's something that we'll be able to analyze only once the quarter is over.
Okay. And in terms of supply, how is the situation now?
Sorry, Manish, I could not get your question.
I was trying to understand in terms of the supply, given that large part of China was closed down, and in the [indiscernible] Bangladesh, just wanted to understand a little bit in some part of the RM [ consumption ] now. So how is the -- in terms of inventory for finished goods, how are we stacked up? Do you have enough inventory in terms of [indiscernible] for this quarter?
Yes. For this quarter, yes. The supply disruption that has happened was largely in our raw material. We were not buying finished goods. So that did create a disruption, and therefore, the inventory levels of RM has gone -- has become -- has been volatile in this quarter, but we are working on it to streamline as soon as the things have opened up. Whether it is in the ports or in the factories in China, it is starting to come back.
But yes, we've had some disruption, but I don't as of right now have a quantitative implication of that. But it will play out mostly not in this quarter, but in subsequent quarters, if at all.
Okay. And just one last one, what is the CapEx outlay for FY '23?
Sorry, Manish, you were not clearly audible.
Sorry, about CapEx outlay for FY '23?
CapEx outlay for the current financial year, FY '23?
Yes.
It will be anywhere between INR 30 crores to INR 35 crores as of now.
Okay. And this new capacity which was coming up, is that expected in Q1?
It is expected in Q1, both in India as well as in Bangladesh, towards the end of Q1, yes.
The next question is from the line of Bhargav Buddhadev from Kotak.
Just continuing on the...
Sorry to interrupt you, Bhargav. May I request you to come on the handset mode and a bit closer to the phone?
Yes. Can you hear me now?
This is better.
Yes. So just continuing on the Future Group, so are we sort of doing zero business now? Or we are still continuing the business with the group based on payments or on an immediate basis?
No. April was so you could say nearly zero. It was a very small part of the group through Brand Factory and Central was operational. But it is -- as we speak, it is opening up one by one at a very slow pace right now. So April was nearly zero, but we are hoping that June would be better.
And in terms of payments, will we be taking advance payment? Or how does it work now?
No. So part of the relationship moved to Reliance in some of the Big Bazaar outlets that started. So it restarted with Reliance, with the payment terms that we had before and on the terms that we had. So it won't be on cash or in advance, it will be having a payment term that we usually give to a chain like that.
Okay. And there's no risk of receivables on the business which we do as of now?
As of now, we don't see a risk of receivables. We have provided entirely for the risk that we saw, which came on to the business for the last 2 years.
Okay. Understood. In terms of market share where there is also Safari, since the time we've taken initiatives towards strengthening our e-commerce and also sort of developing the value brand, which is Aristocrat, we seem to be gaining market share versus Safari since the third quarter. So do you think this is sustainable? I mean, going forward and then, how do you raise this?
So certainly, we are focusing on fundamentals and rebuilding ourselves. We have not fully come on to chasing market share as of now. So I would assume that as long as we kind of focus on what the consumer is looking for and deliver it better than competition, we should be on the right side of consumer preference.
In terms of procurement from Bangladesh, would that number be close to 30%? And for last -- how much of this procurement can it increase? Because you mentioned that it is margin accretive procuring from Bangladesh.
Yes. So a little excess of 40%. In fact, about 65% to 66% is completely our own manufacturing, which is in the 2 sites in Maharashtra, Nashik and Sinnar, and Bangladesh. These 3 accounts were almost 2/3 of our -- what we sold, let's say, in Q4.
So the share of Bangladesh do you think will increase from here on as we enter FY '23?
No, the shares won't increase because our volumes are hopefully going to go up, so share will remain at that, and -- but the volumes from Bangladesh will grow. So in terms of salience, it would remain around that similar.
Okay. Okay. Understood. Because I was looking at your subsidiaries' numbers in Bangladesh, and employee cost has seen a significant increase in Bangladesh, almost 100% employee cost has gone up. So I was wondering how much more capacity are we adding over there? Is it possible to share some quantitative numbers?
Well, I can share you with a monthly volume kind of a thing. In fact, March, we did our highest for almost 700,000 units in excess of that in the month of March. So the rated capacity there right now is about 6.5 lakh. And in the coming year, with hard luggage coming in there and with some changes, we are further going to increase the capacity.
So the capacity, now, increase will get driven by what the demand numbers that we are seeking -- seeing going forward. And we are going to evaluate in terms of which location makes better sense to manufacture, whether it is Bangladesh, whether it is Nashik or whether it is any other facility within India.
And my last question is on your inventory days. So inventory days seems to be on a higher side as far as number of days is concerned. Is this because of expectation of strong revenue growth going ahead?
Yes. So usually, in quarter 1, the demand is much higher than what capacities you would keep throughout the year, so there is an inventory buildup for -- preparing for quarter. In fact, this used to be always higher in the time when we would procure from China. So along with both RM and FG, the inventory is usually higher in the beginning of the quarter, for quarter 1, especially.
The next question is from the line of Prerna Jhunjhunwala from Elara Capital.
So wanted to understand your digital strategy, how much did online sales contribute to and how are you faring there as compared to prepandemic times? And what will be your strategy there going forward?
So online and largely, online is the portal sales that we have. For the year FY '22, we clocked almost 16% of our revenue coming from there for the year. But this also, in the last 2 years, had a spike a little more than what it would be possibly going forward because other channels are also coming up and people have resumed going to stores to buy. So we see a good increase even in our exclusive retail stores or in our modern trade stores. So what I think, anywhere between 12% to 15% is where the online sales should stabilize in the near future. This was as low as 6% to 9% in prepandemic stage.
Okay. And how much are you going to increase your EBOs to? And what will be the expansion that you were looking at in the MBO channel?
So in terms of EBO prepandemic, we had roughly about 450 stores, both our own company-run stores as well as franchisee-owned, franchisee run. We are roughly at about 400 right now. The idea would be to, by the end of this financial year, to surpass the number that we had in the past, which is a 450 number. Internally, we are gunning for the milestone of 500, but that may take a little bit more than this financial year. So that's the expansion plan on EBOs.
In terms of our MBO, obviously, there is -- that is more about how many MBOs are out there who are not stocking us. And there is a constant push if there is -- there are any outlets where VIP is not stocked. But that's not really a plan that we can have in terms of opening MBOs, so it is about converting an MBO which is not today dealing in VIP products. And there are not a large population of such larger MBOs, but we continue to be watchful of any MBOs where we could -- one get -- if we don't have entry and more importantly, I -- what is the share that we have within the MBO.
Okay. Okay. And sir, my last question is on Caprese. What is your strategy going forward now that the -- that we are fully open as an economy today, so?
So to be honest, Prerna, we don't have a very big strategy on Caprese right now. And the fact that what happened in the last 2 years, our supply was completely broken. And what we have first done is to get -- to mend that problem where we got our supplies right. As we speak right now, we have a new collection, and supplies are fully available for us. We are working on the front end in terms of building back the consumer franchise as well as building back the channels that we are selling.
So first, in Caprese it is going to be getting back to what we were, and then we will, from there on take a bigger leap forward. But that is going to come in the next few quarters, not as yet.
Sir, last question, a follow-up on Caprese. You were looking forward to getting into the mass segment as well. Because you are, right now, in the premium when we launched the brand. And what about the luggage segment for a product expansion in Caprese? So how are you planning to get that?
So I see 2 questions there. One, we are taking the Caprese brand extension into the mass segment, and that's something that we will see in the coming quarter. That's part of the plan. However, taking Caprese into luggage or any other category, I think it is a little bit of a distant future. We would like to focus Caprese on handbags and strengthen also really well there before we extend the brand.
However, what we are doing in Skybags is actually launching a range and a slew of products which is more designed in a way that it would appeal to possibly women more and the younger generation women more than otherwise. And we're not calling it an exclusive women's selection or something, but there are products and designs that we have launched in Skybags which are more designed towards appealing to the choice of women more.
The next question is from the line of Jinesh Joshi from Prabhudas Lilladher.
Yes. Sir, I have a question on our CapEx outlay. If I heard you correct, you guided for a CapEx number of INR 30 crores to INR 35 crores for FY '23. Now if I look at FY '22, we have already spent about INR 36-odd crores, which effectively means that our expansion at Nashik is more or less complete. So just wanted to understand, I mean, where are we going to spend this additional number of INR 30 crores to INR 35 crores? I heard that we are expanding in Bangladesh, but is a further expansion at Nashik also lined up?
Yes, possibly. While we have budgeted that CapEx, but we are mindful of the fact that we may want to expand our hard luggage capacity even further. Also, a part of this CapEx is a lot of maintenance CapEx that we spend. So roughly about 50% is going to go towards capacity expansion, which is doing infrastructure and machines, which is for purely capacity expansion, and maybe about half of that is towards maintenance and all other activities.
Sure. And I also heard that the PP strategy is playing out really well for us. And you mentioned that from 1Q, the expansion will kind of actually play out in terms of production and all. So by what -- by when do we expect the capacity to be optimally utilized? I mean will it be 2Q or 3Q of this financial year?
So Jinesh, capacity is already optimized -- optimally utilized as far as Q1 demand is concerned. So in fact, we don't have a headroom, and that's what we will need to create as we go forward. So optimum utilization of capacity is not a concern. It is the seasonality that we need to always manage, because the seasonal swing between a quarter 1 and quarter 3 is something that reduces the capacity utilization, and that's something needs to be managed as we go along operationally.
Just to add, Jinesh, there are certain hard luggage cases which we are actually outsourcing, so that will become in-house.
Okay. One last -- yes. One last question from my side. I think a new brand call Uppercase was launched very recently, and I believe it is predominantly a D2C brand launched by one of our ex-employee. So just wanted to kind of take a sense as to how do you see the competitive environment shaping up post its launch? Any thoughts on that?
We know as much as you know about the upcoming launch. I would like to say that not only this, there are several other D2C brands and brands that are coming up. So we have to be mindful and watchful of all new entrants into the industry, and our strategy has to take account of continuous buildup of competition in the sector. So I think we would be continuously keeping that in mind and working towards it.
But will it have any impact on our e-com share, which was at about 16% in FY '22, which you just mentioned? I mean, can it lower our e-com share, which is the fastest-growing channel for the entire industry? So I just wanted a perspective on that side.
Well, I don't think so. And our attempt would be not to let that happen with every might that we have. So let me just put it that way because right now we can't -- we have very little information to know what exactly is going to be the strategy and how will they play it. But yes, obviously, we have to be apprehensive of such steps that will be taken by all kind of competition into the market and defend ourselves in e-commerce as well as in all of the channels.
The next question is from the line of Pulkit Singhal from Dalmus Capital Management.
So the first question is just to understand the fourth quarter revenues. When I look at the 3 years preceding COVID, fourth quarter revenues have always been similar or, if at all, slightly higher than third quarter. Whereas for us, this time, it's almost 10% lower in the third quarter revenues despite a price hike of 4%. So I'm just trying to understand how much of this is because of COVID impact, which may have probably impacted Jan quite a bit? And how much of it could be maybe some market share loss?
So I think it's -- I can't comment on the market share loss as yet. We don't seem to be further losing market share. Market share has been a problem area for us in terms of trying to gain back what we lost during pandemic, and I think we are kind of holding fort there. A large part of our quarter 3 to quarter 4 revenue shift onwards is to do with the pandemic.
And also a bit of correction, we have seen last few years, so quarter 4 over quarter 3. If not a big drop, it is usually at parity or slightly lower in some of the years. So as I said, it could be a mix of a little bit of seasonal downstream, but largely it is the third wave, which kind of took out, I think, about -- it's very difficult to kind of put a quantitative number on it, but our intuitive judgment is it took out about 2 to 3 weeks of revenues because of the demand disruption due to the pandemic.
So 2, 3 weeks of revenue is easily 20% of your quarterly revenues, right?
Yes, something like that.
Okay. And just in terms of understanding this market share loss. So if I take out the top 3 players in the luggage industry, are we gaining share versus the other players? Or they have bounced back quite sharply, and their supply chain was actually not that badly impacted, and to that extent we were impacted?
Pulkit, I don't think so. While there are no exact numbers and evidence to back it up, but I don't think the smaller and the regional players, barring a few e-commerce-specific players, may have gained a lot of eyeballs because of the high level -- high decibel activity on digital space that they're doing. But fundamentally, the supply chain was quite badly broken for the smaller players as much as it was broken for the larger players. So I don't think that would have played up, and we would have lost the share.
Largely, our share loss happened from Q3 of the first year of pandemic. That's where our supply really broke. And we changed our strategy from getting our pipeline filled from China to doing it ourselves and that took us about 4 quarters at least to get back to some level of sensibility. And I think from there, from Q3 onwards, we are better off. And with every quarter going by, we are building up strength there, differently from how we used to be before. So that's the underlying point that I have for you.
Okay. And last question, sir. I mean, if you could give some flavor as to how April and May are going, some quantitative flavor? Because we understand demand is obviously coming back up strongly. We just don't know how much is it. Maybe if it's for the industry, if you can talk about, if not, for VIP.
Yes. So Pulkit, I can't share VIP numbers with you but I can only tell you that we are feeling good about all the hard work that has gone in as far as April is concerned. And May and June should also look good. The only concern, if at all, I have is on the large accounts that I talked about in Future Group in terms of how they will -- how will that game unfold in the next 4 to -- or whatever, 6 weeks that we have left. That's a big one that we have. It's not a small account at all, for the overall industry, not only for us. But we need to be mindful that we were a significant market leader in that particular group in the prepandemic era.
The next question is from the line of Sameer Madia from Edelweiss. [Operator Instructions]
Firstly, congratulations on the results. I just wanted to ask a couple of questions. How much is the exports of the total sales reported? And do you see exports as a good driving factor at the current situation of what China is going through?
So Sameer, exports is very small, it's about 3%. But I think we are very close to where we left it in prepandemic as of right now in terms of getting our scale back in whatever little exports that we had.
For the immediate future, I don't think exports will be a big part of our strategy in terms of growth. As I said that we are extremely focused on the fundamentals, extremely focused on the domestic market to gain back our share, gain back our profitability. Yes, that's an opportunity we'll continue to eye, but somehow it's just not the right time to put our energy and resources behind exports fully.
Okay, sir. And just last question. You already mentioned this, but if you could repeat -- if you could probably answer, what is the bad debt provision for this year?
So it is INR 21 crores for the full year, out of which INR 11 crores is for quarter 4.
The next question is from the line of Niket Shah from Motilal Oswal Mutual Fund.
I had 2 questions. So first is on the profitability side. Our gross margins have been extremely good in this quarter. Is it safe to assume that as a player, we aren't aggressively going behind market share at the cost of profit? And in terms of that, we are okay even if you lose 1% or 2% market share, but ensuring that our profit remains healthier. So how should one think about that?
So, Niket, no. The philosophy is to do a good balance between profitability and market share. It is not one versus the other. In an extreme volatile environment like this, gauging the inflation and taking a corrective price increase versus taking the right price from a market share point of view is always a tightrope walk. But as far as what I can answer you in terms of our orientation and our philosophy, I think a good balance is what we are seeking. And therefore, we constantly will keep on correcting ourselves in either ways wherever it swings. So we will gain market share, and we will be profitable as well. That's the idea.
Sure. And whatever market share we would have lost would have been in which segment or which channel?
Mostly, the segment where we lost market share was -- larger part was in the value segment. That is the segment which grew much, much faster than the rest of it prepandemic as well as significantly accentuated during pandemic. So everything that we are doing in the value segment, Aristocrat brand is helping us gain back towards what we lost.
Also the supply issues on VIP and Skybags also led to our possible share erosion in the mid-premium, which I would presume is easier for us to correct because that was a strength area before, and we have corrected the supplies and we are going back in terms of exercising the strength that the brand had prior to the pandemic.
Got it. And just one question on the first quarter, which is underway. Obviously, you can't share numbers, which is understandable. Would it be possible for you to directionally let us know that, with May still underway, was April month one of the best months ever for VIP? Because this is obviously some pent-up and some travel and all of that coming back. So qualitatively, can you tell us was it the best ever April for you or that's not case the here?
Well, underlying the word qualitatively, yes, and it could be coming from numbers as well as coming from how we feel about a difficult journey and then finally you have a month which kind of makes you feel things are back to normal and you're back in the game.
Got it. So best April ever, and obviously, we have to monitor May and June as we go forward, perfect. Okay.
The next question is from the line of Smart Sync Services.
My question -- this is Ankit from Smart Sync. First of all...
We cannot hear you. Ankit, please speak up a bit louder.
Is it okay now?
This is better. Please go ahead.
Okay. So first of all, before asking a question, I had one comment related to the presentation. So first, in the last few quarters, you have been sharing your presentation, which is very helpful. And each quarter, we see some really good data points which you add. But there is one thing which I would like to request is that even in today's call, once the call began, we saw the presentation on the exchange filing. So if you can release the presentation along with the results a day before, that would really help. That's just a request. Okay.
Yes. The feedback is taken and we will make sure that we do this going forward.
And moving on to questions. So Q1 historically has been our best quarter. And in the last 2 years because of -- in the first year, it was because of lockdown, and then the second year, it was because of the second wave. This Q1 FY '23, is it fair to assume that there is a chance that we can reach to somewhere between INR 500 crores, INR 600 crores of turnover, wherein we were in June 2019?
Ankit, once again, I'll answer that qualitatively. I don't want to put a number there. But yes, I completely share the same thought that you have that last quarter 1 is our best quarter for the consumption of the products that we sell, and the last 2 years has seen a washout of the quarter. We are definitely feeling far more confident, buoyant and optimistic about how we are seeing this quarter going, with only one silver lining, which is the inflation. The Future Group and the inflation possibly, these are the 2 call-outs, if at all there is a spoilsport there.
Yes. And one -- next question would be related to our Bangladesh operation. So from where do Bangladesh source their raw materials? Is it completely in-house or from Bangladesh only, or they resort to China in terms of the raw materials?
Ankit, the majority of the raw material comes from China. They are all import materials.
All imported from China. Okay.
Yes.
So don't you think that the dependency on China still remains even if we are having our operation in Bangladesh? Or what changes with our operation in Bangladesh?
Well, the dependency on China as a source for raw material continues, but raw material has far degrees of freedom in terms of what we can do in terms of efficiencies as far as sourcing is concerned. And the conversion of raw material to finished goods is a large part of it. And once we control that, we control that part of the cost efficiency. So that's definitely in place.
Also somewhere in the future, we would also look at how we could look at. And it's not about just China as a source because from here, as you are doing your own manufacturing, what opens up is what you can -- your freedom of where you want to buy from, could be any other country. So our sourcing philosophy would be to look at the cheapest source possible and within the realms of quality that we have.
To just add to this, I think there's a point what you asked about, therefore, what is the benefit? When we bring into Bangladesh, there is no custom duty for the raw material. And when we bring in FG into India, there is no custom duty. So that's an underlying advantage compared to buying FG from any other source, especially in China.
That really helps. So that really helps. And one last question. In regards to our competition, and both from the old competitors and also from the new D2C branch, which we have. So how do we -- I mean what is our strategy in that? In terms of other listed competitors, what we can see is that they are far more aggressive in terms of getting the market share. And probably for them, number 1 is market share and number 2 is margins. Is it fair to assume that for VIP, it is number 1 is margin and number 2 is market share in terms of preferences?
I don't think that is a fair assumption. What I would want as a takeout is that we are going to go for both. A balance is absolutely important because we are not here for a 1 year, 1 quarter business. So just having a margin focus is not going to help, or just having a market share focus is not going to help.
So we are focusing more on the fundamental strengthening of the business, and that should play out both as we go along. It could be a little slower but a steady gain back in market share because that's what we have lost. And what you're seeing possibly is a faster scale-up in margins. But that, again, is to do with internal reorganizing of how we do business. It's helping us scale up margin, but it will eventually help us. At least, that's the ambition or that's the goal where we would like to regain and grow over what we had before, with a healthy bottom line.
And the second part, the D2C brands, the competitive intensity from them, the new D2C brands?
That's a strong watchout we have. D2C and e-commerce is not the largest part of it now, but definitely not undermining the possibilities there. And therefore, we'll watch it very closely, and we are also building our e-commerce as well as on the portal as well as otherwise business, or at least the thoughts on that. So you will see -- as and when things happen, you will see us preempting it or reacting to it.
I would request Mr. Kanodia to rejoin the queue for follow-up questions.
The next question is from the line of Tejash Shah from Spark Capital.
A couple of follow-ups. What will be the share of modern trade and CSD for the full year?
We share our modern trade and CSD in our business?
Yes, yes. [ company will share ].
So modern trade would be at about 30-odd percent and CSD would be about 15-odd percent.
Even in FY '22, modern trade was at 30%?
Yes, it would be.
And you said large part of this was Future Group for us?
I'm sorry, I didn't get the last part.
You said that large part of this modern trade exposure was Future Group for us. Is that correct?
That's right. It didn't play up in FY '22. Hopefully, it only started the issue. Largely started in terms of complete store closures and all that towards the end of March -- mid and end of March, yes.
Yes. And last question, in many categories where there is a large share of participation by unorganized players, we are seeing that the supply chain has got disrupted more badly than the organized players. So -- and the fact why I put it organized players are getting at least more [indiscernible]
Sorry to interrupt you. Sir, your audio is not clear, Mr. Shah. We cannot understand your question clearly.
Is this clear? Should I -- hello?
If you can repeat the question and speak a bit slowly, please.
Sure, sure. So my question was, in many categories, we have seen that the supply chain for unorganized category has got restricted very badly and perhaps the impact will last longer than what it will last for organized players. Are we seeing any benefit of that in favor of mass and brands in our portfolio? And then do you see that any of this disruption can be structural in nature for some of these unorganized players?
Yes. So I get your question, Tejash. I think what you're saying is should be happening. Not that we see a huge spike happening because of that, but logically speaking, the supply, which was part from China, at least into the domestic market through the unorganized sector, we know for a fact that it is not fully there where it used to be. And I think somewhere the -- as the value segment of the overall category is growing is because of one of the factors is that as well.
How it plays up going forward is something that we need to watch. But what we decided was to be ready if that was to happen with both our products, our pricing, our whole mix as well as the supply chain.
Ladies and gentlemen, due to time constraints, that was the last question for today.
I now hand the conference over to Ms. Neetu Kashiramka for closing comments. Thank you.
Thanks, everyone, for joining this call. Looking forward to see you after the quarter 1 results. In case you have any further questions, you can call [ Desikan ]. Thank you. Bye.
Thank you.
Thank you. On behalf of VIP Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.