Arvind Fashions: Factors Impacting Working Capital | NDTV Profit
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00:00 Welcome, I have with me Mr. Sailesh Chaturvedi, who is the MD and CEO at Arvind Fashions to
00:17 talk to us about Q4 numbers, all the trends playing out in retail as well as FY25, what
00:23 we can expect.
00:24 Well, first off, welcome Mr. Chaturvedi, I want to quickly try and understand from you
00:31 how Q4 has gone for you as a quarter itself and just in terms of volume versus value,
00:39 what's the kind of growth numbers that you've clocked, just the break up in terms of volume
00:44 versus value.
00:45 So, Harsh, thanks for having me.
00:48 I'm happy to report a very strong quarter for us and also the strong full year FY24
00:55 for us.
00:56 Our revenue in these muted market conditions grew 4%, supported by 4% for like store sales.
01:02 Our EBITDA grew 17% and we delivered 13.5%, EBITDA reached 148 crores.
01:10 So very good performance and our mantra of profitable growth is playing out and the full
01:16 year, our scale reached 4300 crores.
01:19 As far as the question on volume and value, our pricing is very stable currently.
01:26 So most of the growth has come from the volume.
01:31 Understood.
01:32 So going forward into FY25, how do you see trends playing out?
01:39 We've already maybe halfway through the first quarter.
01:43 So how are trends playing out for FY25?
01:46 Are they largely stable?
01:48 Are you still seeing solid growth come through?
01:51 See, when we are Q4 end, I'm very confident there'll be a strong uptake in growth for
01:58 AFL.
01:59 The revenue growth will go up because a lot of our growth engines are firing.
02:05 The Square Foot expansion likely to be higher in FY25.
02:08 Like to like growth, that engine of retail is working well and as the market improves,
02:15 we're going to grow even higher than 4% like to like growth next year.
02:20 Also online, B2C, direct to consumer business is growing really well.
02:26 Last year it grew by 100%.
02:28 So that is going to grow.
02:29 And finally, our adjustments category that we have developed in our five brands, including
02:35 footwear, children's wear, women's wear, innerwear, they are quite ready and market
02:42 improves slightly.
02:43 The growth can be very high.
02:45 Otherwise also, we're very, very confident that there will be a strong uptake from where
02:50 we are at quarter four.
02:52 Right.
02:53 And with regard to store growth, you've beaten what your guidance was at the start of the
02:58 year.
02:59 Where do you see that go in FY25?
03:03 We opened close to 148 gross stores.
03:07 We also had a one time large closure of stores because we want to, we shut down a lot of
03:14 small unprofitable loss making stores.
03:16 But going forward, that 148 should grow.
03:20 Our philosophy is to grow our Square Foot from where we are today, the base, to grow
03:25 by around 15%.
03:26 And that's the plan we have.
03:29 So we see that the Square Foot expansion will be higher in FY25 from what we saw the net
03:34 expansion in FY24.
03:37 And how do you see various brands start to penetrate these stores?
03:41 Of course, not all brands are present in all stores.
03:44 What's the strategy here?
03:45 And as those brands start to grow outward into the stores, what's the kind of efficiency
03:51 that you expect to kick in?
03:53 Our biggest brand is USPA.
03:57 So USPA had a very good quarter, Emita grew handsomely in quarter four.
04:04 We expect that US Polo will continue to build its leadership as the men's largest casual
04:11 wear brand in the country.
04:12 And the large investment has happened in marketing and in retailing.
04:17 So we started opening recently very large, iconic flagship stores, full building, multi-storied.
04:24 And it covers all the lines of US Polo from men's wear to women's wear to kids wear.
04:29 We opened two of these stores in Bangalore, one at Jain Nagar High Street and at Indira
04:33 Nagar High Street.
04:34 We opened a store in Goa.
04:36 And similarly, many more stores are in the pipeline as we talk.
04:41 And this will help US Polo go forward in its journey as even a stronger girl brand in India.
04:48 On the super premium side, we have brands like Tommy Hilfiger and Calvin Klein.
04:52 They had a record-breaking year in FY24, very strong quarter four results and they continue
04:58 their market leadership journey in FY25 as well.
05:02 Okay.
05:03 I want to switch over to gross margins.
05:05 Your gross margins have declined a bit, but nonetheless, you've been able to hold on to
05:08 your EBITDA margin, which is the more meaningful number.
05:11 Talk to us about both these trends playing out.
05:14 Is there scope for gross margin expansion in FY25?
05:18 And where do EBITDA margins go as you continue to build on efficiencies on the cost side
05:26 of things?
05:27 In the last year, our gross margin went up by 300 basis points.
05:35 So we've been able to grow the gross margin with lower discounting and pricing power of
05:43 brand and sourcing efficiency.
05:44 As far as this particular quarter four is concerned, you're right that we had a 200
05:50 basis point drop in GP because there are two reasons to that.
05:55 One reason was business related.
05:57 So we had improvement in GP from better retail channel mix, but there was higher discounting
06:02 also in this quarter because we delayed the USS and it had discounting happening Jan-Feb,
06:07 previous year was also in December.
06:09 So because of higher discounting, but with better channel mix, we got a net 0.4% for
06:15 40 basis point drop in GP from that ground because the US has got pushed to this quarter
06:20 fully.
06:21 Also, there was a 1.6, 160 basis point drop in GP because of a model change and we changed
06:29 a couple of our key customers from SOR model to OR for better reconciliation of accounts
06:35 and inventory.
06:36 Because of that, there was a technical drop in GP by 1.6%, but there was a corresponding
06:44 drop in other expenses.
06:45 So it was actually EBITDA neutral in a way.
06:47 So at a GP level, you see drop, but at a margin level, at EBITDA level, it neutral, other
06:53 expenses also went down correspondingly.
06:55 So we continue to grow at annualized level at GP went up by very strong 300 basis point.
07:01 So, coming to your question on EBITDA, our EBITDA have grown by 15% in value last year
07:07 to 544 crores.
07:08 Also, there was an improvement of 120 basis point in this year FY24.
07:13 Our guidance going forward is that we want to grow our EBITDA through our profitable
07:19 growth strategy by around 100 basis point as we move along.
07:24 I don't see the reason why we should not be able to grow by further 100 basis point from
07:30 where we are in FY24.
07:32 Okay, so another 100 basis points from FY24 that margin expansion story seems like will
07:38 continue.
07:39 Take your point also, I want to talk about top line growth in terms of a number.
07:45 We've seen our top line growth roughly 5 to 7 odd percent in this financial year as a
07:51 whole.
07:53 You still have some price hikes, which you could afford to make because you haven't taken
07:59 any as you correctly mentioned.
08:02 What's the kind of growth that you are projecting for FY25?
08:06 To start with, one is that our price will remain stable, conditions are subdued.
08:14 So we have had increase in prices in the past, but currently our pricing is stable.
08:20 We are premiumizing, so there is some average price increase, but for the like to like product
08:24 it will be stable in the short run.
08:28 Any question?
08:29 Sorry, I missed your second question.
08:34 On the top line count, what's the kind of growth?
08:37 Thanks for reminding me.
08:38 As far as the top line is concerned, we are at quarter 4 at 4% and annualized at FY25
08:45 at 5%.
08:46 Our growth engines are working well and whatever I've seen of the few weeks of this quarter,
08:53 we are very confident there will be a strong uptick in growth at AFL in this year.
09:00 And I'm expecting that it should hit a high single digit in all probability.
09:05 If the markets are very optimistic, then it could be slightly higher.
09:10 If markets are dull, that could be 1 or 2% lower, but we are gunning for at least high
09:14 single digit from 4 to 5% where we are right now.
09:18 Understood.
09:19 And what's caused the compression in other expenses?
09:23 I mentioned there was a change of model and when we converted some key accounts from SOR
09:29 to OR, the GP comes down, but the other expenses also come down because of that model change.
09:36 Fair, fair.
09:37 Okay, I take your point.
09:38 And with regard to working capital, we saw a bit of compression in Q3, which is a positive.
09:44 Has that continued through Q4 as well?
09:47 Talk us through some of those trends and therefore, how would ROCE go?
09:52 Yes, please.
09:53 See, our working capital, if you look at our last three journey, we were very, very tight
09:57 on the hygiene and we've done a fairly good job of maintaining the hygiene on inventory,
10:03 on debtor, etc.
10:04 Our gross working capital has remained, they have remained steady at 140 days.
10:09 There is a two-day reduction in debtors through tight control in MBO channel.
10:14 Also, the share of the revenue from the retail channel going up where the cash conversion
10:19 happens faster, the debtor days are lower.
10:21 So we remain very stable on GWC at around 140 days and two days reduction in debtor.
10:27 And we will continue this journey of very tight balance sheet control.
10:32 Understood.
10:33 Your aspiration to bring US Polo to 2000 crore in terms of top line over the medium term,
10:42 define medium term for us.
10:43 We are close to it.
10:44 We don't need medium term.
10:45 It will happen sooner than that has happened.
10:46 We are already close to 2000 crore top line in US Polo.
10:51 I think now we should talk about when 3000 crores.
10:55 Okay, excellent.
10:56 Excellent.
10:57 So, so when can we expect that?
10:58 Is that an FY28 kind of a number?
11:02 I wouldn't put a number year to that because market conditions are what they are.
11:07 But we are putting wholehearted investment behind this mega brand US Polo.
11:12 We did investment in marketing, we've increased our ad spend by more than 100 basis point.
11:18 We did a very big mega event in Bombay in August.
11:21 We did a campaign of legends last year.
11:24 We are investing behind detailing.
11:25 I mentioned we are opening last size flagship store.
11:28 Then we are investing behind the existence category, women's wear, kids wear, footwear,
11:32 innerwear.
11:33 So, you know, all cylinders are fighting and consumer salience of this brand are very,
11:40 very high.
11:41 So top of the mind leadership, leader brand in men casual space.
11:46 So all signals are green.
11:48 We just waiting for market conditions to improve a little bit and the journey should be smooth.
11:54 Excellent.
11:55 Thank you so much, sir, for this interaction, for speaking with us so candidly.
11:59 And it's a pleasure speaking with you.
12:02 Thank you, Harsha.
12:05 Right.
12:06 That is, of course, the management of Arvind Fashions talking to us about Q4 numbers as
12:10 well as how the journey towards premiumization as well as how growth is looking in FY25.
12:16 Well, one stock that is on our radar today is Metro Brands.
12:20 It came out with its results yesterday where revenue was up around 7 percent.
12:25 EBITDA was up around 10.5 percent.
12:27 Margins have improved YOY at 27.2 percent.
12:32 And net profit has shown a significant growth of 156 crores from 69 crores compared to Q4
12:38 FY23.
12:39 But to discuss more about how Q4 and FY24 has spanned out to be for Metro Brands, we
12:46 have with us Mr. Nisan Joseph, CEO of Metro Brands, who joins us now.
12:50 Welcome to NET Profits, sir.
12:52 Good morning, Mayuva.
12:53 Good morning.
12:54 My first question to you is, you know, can you take us through the trends as to how Q4
13:00 and FY24 has spanned out to be?
13:02 Was it as per your expectations?
13:04 Has it beaten your expectations?
13:05 Give us some color on that.
13:08 Sure.
13:09 I think the key word is, did it meet our expectations?
13:12 Yes.
13:13 Was it an easy year?
13:14 No.
13:15 You know, the biggest issue we had, Mayuva, was we were going against the pandemic boost
13:19 that we received post-pandemic last year, the year before that, right, so FY23.
13:25 So those numbers were a little tough to compare to.
13:28 But you know, we made it through the year.
13:29 We as a business consolidated, had 11 percent sales growth on top of an amazing year the
13:35 year before.
13:36 And more importantly, you know, we look at the fact that our profits and our EBITDA continue
13:41 to run at a certain rate and a rate that we guide it to, right?
13:44 So for a consolidated level, our path for the year was 17 percent.
13:50 And you know, that was a growth of about 13 percent.
13:53 The other thing I want to point out, though, is that I do want to give the non-consolidated
13:57 report because it gives you a glance at how Metro did.
14:02 In both those cases, you know, both for the quarter and for the year, we were up 11 percent
14:07 in revenue and our path was in the 17 percent range, both, you know, 16.7 for the quarter
14:13 and it was about 17.2 for the year.
14:15 So our numbers have maintained in that range that we've guided to.
14:19 So we feel good about that.
14:21 We always wish it was more, but we feel good about where we were last year, given the fact
14:25 we were going against some very tough numbers from the year before.
14:28 So overall, we're seeing the consumer continues to want to premiumize their product and likes
14:34 the shopping experience of offline just as much as they do online.
14:37 Right.
14:38 Absolutely.
14:39 So, Mr. Joseph, I want to understand, you know, when you say 11 percent growth in terms
14:43 of revenue, was this led by volume or value?
14:47 Where did you see the growth coming from?
14:49 Yeah.
14:50 So it was definitely led by, well, the value segment was also helped because we did see
14:57 some ESP increases, but it was both.
14:59 It was both volume and value as a combination of the two.
15:03 You know, overall, I would say the value drove it a little bit more because of the premiumization
15:08 factor.
15:09 But, you know, it's not like we saw a decline overall in our in our volume growth either.
15:14 So in terms of value growth, were there any price hikes taken during the quarter and FY
15:20 24 overall then?
15:21 No, there were not.
15:23 It wasn't driven by price hikes as much as it was driven by the mix of goods.
15:27 So consumers buying more premium products, those products were not necessarily more expensive
15:32 than the year before, like for like comparison on a similar product.
15:37 But they definitely were buying more of the premium products.
15:40 So that that's where you see the lift happen, right, from the on the ESP side.
15:45 Understood.
15:46 And in terms of price hikes, can you give us more color as to where you took the price
15:49 hike in terms of I mean, what percentage were the price hikes for?
15:53 Yeah, so on an average, you know, we increase our prices anywhere between three and five
15:57 percent a year.
15:58 But, you know, some of that is also caused because we upgrade our designs.
16:01 We tweak our core products from time to time.
16:04 It's not necessarily anything significant of a spike hike, a hike in prices of raw materials.
16:12 All things have an inflation to them of somewhere between three and five percent.
16:15 So just from a natural organic standpoint, our prices go up three to five percent every
16:20 year as well.
16:21 So that's just it in a nutshell.
16:23 Understood.
16:24 And Mr. Joseph, in Q4 FY24, we saw that there's an exceptional gain of around 170 crores.
16:32 Can you throw some light as to, you know, what this exceptional gain is related to?
16:37 Yeah, I think a lot of that has to do with the fact that we demerged the Fila business
16:43 from one of our subsidiaries, Cravotex, and put it into the main Metro Brands Holdings
16:48 Corporation.
16:50 That had a lot of tax adjustments and other things that go with it, which is where we
16:54 got the lift.
16:55 And that's why, Mahima, this quarter we have pointed out to our standalone numbers,
17:01 excluding the effect of the demerger, where, you know, for the quarter, our profitability
17:05 on PAT was 16.7 percent, and that was 17 percent over last year, excluding the effect of Fila.
17:12 So that's how the Metro business itself did.
17:14 And when I say Metro, I mean Metro, Mochi, Walkway, Crocs, and Flip Flops, which is,
17:19 you know, 90 percent of the business, 95 percent of the business.
17:22 Understood.
17:23 And, you know, also to understand in terms of same-store sales growth, you know, for
17:29 the quarter gone by and for FY24 overall, what were the trends like?
17:33 Yeah, it was a tough trend.
17:35 You know, we were going against huge gains from the year before because of pent-up buying,
17:40 wardrobe refreshing, ribbon shopping, whatever you might want to call it.
17:43 So that was a very challenging year for a comp-basis comparison.
17:48 But I also think, you know, it's a little hard to compare that kind of a blip.
17:52 What we look at is, you know, a period of time.
17:53 So if you go back to FY19 and compare it to where we are today, we're seeing about the
18:00 kind of comp growth that we'd like to see in our business, which is, you know, somewhere
18:02 in the mid-single-digit range.
18:05 But last year, if you pull it out as a standalone year, it definitely was very, very challenging.
18:10 But not unexpected.
18:11 Okay.
18:12 And in terms of stores growth, you know, your net stores added during this year were around
18:16 97, which is very near to what you guided for 100 stores.
18:20 And you know, in your previous interview, you also mentioned that, you know, you plan
18:23 to grow another 100 stores in FY25 as well.
18:28 You know, has that changed so far or you still stick to that 100-plus number?
18:32 Yeah, you know, I think, so first of all, you know, we're quite opportunistic, but we're
18:37 also quite disciplined in our new store approach.
18:40 You know, we don't try to chase a target number as saying we want to get to that target number.
18:45 We're going to open as many stores as we feel is the right amount of stores to open.
18:49 And the right amount comes from, you know, does it have the right financial metrics,
18:54 is it the right location and what have you, right?
18:56 So that's number one.
18:57 On the other hand, though, I think we see more and more opportunities for growth.
19:01 We feel strongly about continuing that guidance for the next couple of years.
19:05 So we guided for the next two years.
19:08 So that would be it ended this year.
19:10 So this year, we definitely are comfortable with the guidance again.
19:14 And if you add up for the last two years, we've averaged over 100 pairs of 100 stores
19:19 in the two previous years.
19:21 But you know, we're very comfortable with that guidance of 100-plus stores for the next
19:25 two years as well.
19:27 And this 100 stores is apart from Phila and Foot Locker.
19:31 So what is your strategy in terms of, you know, store growth and when it comes to Phila
19:35 and Foot Locker?
19:36 So you're right, it is not counting Phila.
19:40 It is counting Foot Locker, though they won't have much of an impact this year.
19:44 But you know, our store growth plans for Foot Locker are very simple.
19:46 We want to start with a couple of stores somewhere in Q3 of this year, open a few more in Q4
19:53 of this coming year, this fiscal year.
19:55 So you know, somewhere by the end of this fiscal year, we should be somewhere between
19:59 two and four stores of Foot Locker.
20:01 You know, these will be big stores.
20:02 They'll be in premium locations.
20:03 They'll be in premium cities to start with.
20:06 So that's what's happening there.
20:07 Phila, this is a reset year.
20:09 You know, we've closed almost every Phila store we wanted with the exception of one
20:13 that will close by the end of this quarter.
20:16 So we'll have two Phila stores left when we come out of this quarter.
20:20 And that's what we plan to keep and continue.
20:22 So they are ongoing Phila stores that we plan to continue.
20:25 So we will be on track with our plan.
20:28 And this is the year we plan to reset and reset the brand, which would include that
20:32 we would start opening up stores somewhere around late Q3, early Q4 of next year for
20:37 Phila as well.
20:38 Understood.
20:39 And, you know, with all these recent acquisitions of, let's say, Foot Locker and Phila, going
20:45 forward from a long term perspective, FY25, FY26 also, how much revenue contribution do
20:52 you think that these acquisitions will bring to the table as compared to the overall revenue?
20:59 As a percentage of overall revenue is not going to be significantly more, you know,
21:03 for two reasons.
21:04 One is, yes, they are going to bring revenue.
21:06 We fully anticipate on them bringing revenue.
21:08 But it's not like the rest of our business is not growing, right?
21:11 So had it been static, I think it would have had more of an impact on the contribution
21:18 of business from these brands.
21:19 But because the rest of the business is also growing, albeit, you know, when you grow from
21:23 one store to two stores, that's 100% growth, albeit not at the same pace, but as a percent
21:28 of contribution to the entire business, we're not going to see a significant shift.
21:32 In our core business, you know, in Metro Mochi specifically, we run 70% of the sales with
21:38 our own brands, right?
21:39 It's only 30% that comes from outside brands.
21:41 And we don't see that mix changing in the many years to come.
21:45 Understood.
21:46 And, you know, in terms of margin, from what I understand, that sequentially the margins
21:51 have declined a bit.
21:53 However, why the margins have remained positive?
21:56 So I want to understand that, you know, one, why have they sequentially declined?
22:01 And two, for FY25 going forward, what does the margin outlook look like?
22:07 So for Q4, actually, and again, I look at, I look at standalone, because, you know, if
22:11 you look at consolidated, there's a lot of numbers that can, they can, you know, point
22:17 to different directions.
22:18 Some of them better than they are, some of them worse than they really are, right?
22:21 So we look at the standalone numbers.
22:23 And you know, in the standalone numbers, our, our pat percentage was up 80 bps, you know,
22:29 so it wasn't like we went back in that.
22:31 It went from 82 crores to 95 crores in the last quarter and on a standalone basis.
22:37 So that's been doing well.
22:38 And year on year, it's gone down as a percentage of business, it went down from 18% and changed
22:44 last year, down to 17 and changed this year.
22:47 So that did go down a tad.
22:49 But if you look at the real crore rupees, it did grow there as well.
22:53 I think it went up 5% on a pure rupee basis.
22:56 So you and it was largely driven by a couple of factors.
23:00 You know, one of them is, of course, the fact that we were challenged on the on the life
23:03 of like growth for last year, because of the COVID bump, comparable number one, but number
23:08 two, there was also some India's reporting that we had to expand certain things in our
23:13 especially with our exhaustive new store openings that we had, that tends to be a little erosive
23:19 to your profit.
23:20 But in the long term, it all washes out, because whether you capitalize it or you expense it,
23:24 over the course of its life, it's going to even itself out.
23:27 Understood.
23:28 Well, Mr. Joseph, thank you so much for taking our time and speaking with us and at NDTV
23:33 Profit and giving us all those insights.
23:36 Thank you, Madma.
23:37 That was the CEO of Metro Brands speaking to us about how the quarter has gone by and
23:41 how FY25 shapes up for Metro Brands.
23:45 But it's all that we have on the show for now.
23:48 Stay tuned for more news and updates on NDTV Profit.
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