Ladies and gentlemen, good day, and welcome to the Arvind Fashions Limited Q3 FY23 Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there'll be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Arora. Thank you, and over to you. Thank you, Mike. Hello, welcome everyone, and thank you for joining us on Arvind Fashions Limited earnings conference call for the third quarter and nine months ended December 31, 2022. I'm joined here today by Kulin Lalbhai, Vice Chairman and Non-Executive Director, Shailesh Chaturvedi, Managing Director and CEO, and Girdhar Chitlangia, our Chief Financial Officer. Please note that results, press release and earnings presentation has been mailed across to you yesterday, and these are also now available on our website, www.arvindfashions.com. I hope you had the opportunity to browse through the highlights of the performance. We'll commence the call today with Kulin providing his key thoughts on our business performance for the third quarter. He will be followed by Shailesh, who will share insights into our financial and business performance. At the end of management discussion, we will have a Q&A session. Before we start, I would like to remind you that some of the statements made or discussed on this call today may be forward-looking in nature and must be viewed in conjunction with risks and uncertainties we face. A detailed statement of these risks is available in this quarter's earnings presentation. The company does not undertake to update these forward-looking statements publicly. With that said, I would now turn the call over to Kulin to share his views. Thank you, and over to you, Kulin. As well as an improvement in profitability. Sorry to interrupt, Mr. Lalbhai. We were unable to hear your intro. If you could repeat that. Can you hear me now? Yes, sir. We can hear you now. A very good afternoon to you all. Thank you for joining us for the Q3 results. Q3 was a very strong quarter for AFL, where we saw industry-leading growth and an improvement in profitability. Revenues grew 17% year-on-year, with strong like-for-like growth of more than 12% in the retail channel and a more than 40% growth in the department store channel. Better full price sell-throughs led to lower discounting, which improved our gross margin and led to a lift in our EBITDA margin by 110 basis points year-on-year. I would like to also specially mention the great work that is happening on the supply chain transformation, which was initiated last year. It has yielded strong results, and our stock turns continue to sustainably stay beyond four. Along with that, we see the improvement in gross working capital, which has led to cash flow generation and a quarter-on-quarter reduction in our debt. This is the second consecutive quarter where our annualized return on capital employed is at 15%, and we look forward to further improving this in the years to come. We enter quarter four with a re-energized brand portfolio and look forward to continuing momentum in the business. I would like to now hand it over to Shailesh to take us through the specifics and more details on our financial performance. Thanks, Kulin. Good afternoon, everyone. Let me start with welcoming Girdhar Chitlangia, our new CFO, who is joining AFL industry call for the first time. Welcome, Girdhar. Good afternoon, everyone. AFL continues its path of decisive focus, revitalizing performance of our exciting brand portfolio and making our brand bigger, really large and more profitable and making AFL a much stronger AFL. With no distraction, we continued our focus in Q3 FY23 on execution, more focus on sell-through improvements, full price like-for-like growth, reduction in discounting, all leading to increase in GP margin and EBITDA, and better EBITDA. With nearly INR 1,200 crore top line, we saw the highest ever quarter similar to quarter two with EBITDA of INR 136 crore. The growth in top line is 17% and much higher growth in EBITDA at 30%. Fall holiday 2022 season saw continued good performance on our brands on sell-through with industry leading full price sell-through that led to healthy 12% like-for-like growth in our retail and expansion of gross margins by 160 basis points. EBITDA percent also has gone up by 110 BPS, with 60 basis point gain coming from lower discounting in retail channel and 50 basis point gain coming from scale leverage linked to efficiency in employee cost. The increase in our brand EBITDA is 140 BPS. At end December, in the nine months of this financial year, AFL has reached nearly INR 3,300 crore top line with 53% growth over last year. The EBITDA at December-end is nearly INR 370 crores, is more than double of last year. There's improvement of 400 basis points in EBITDA percentage at December-end over last year. This fall holiday season spanned out very interestingly with equal business in Q2 and Q3. With early Puja and Diwali dates, we completed majority of our wholesale billing for the season in Q2 itself. Q2 saw 100% growth in MBO trade channel in Q2. Online B2B wholesale business also saw robust business in Q2 with more online power events which were lined up towards September-end and early October. While Diwali retailing started by September-end, majority of the Diwali retailing happened in October. The contribution of retail channel increased by a huge 10% in our revenue mix in Q3 over Q2 revenue mix. This was an increase of 110 crores in retail channel value in Q3 over Q2. With wholesale peaking in Q2, we realized the large part of our margin in Q2 and our EBITDA grew by 90% in Q2. The wholesaling in our revenue mix dipped in Q3 as expected, with MBO trade delivering single-digit growth in Q3 because they had already shipped out goods in Q2 in time for the festival season. Retail channel did very well in Q3 and our like-for-like retail sales grew by an impressive 12% in Q3. Two big quarters, Q2 and Q3. Q2 saw a bigger, larger growth in EBITDA of 90% due to early Diwali billing, and Q2 also reached the same level of highest ever revenue and EBITDA value of the same INR 136 crore because of healthy margin gain from retail channel. There was a slowdown in onset of winter season this year. Winter started late, because of which the normal repeat orders of winter goods that we typically get in Q3 did not happen this year. Fortunately, winter finally arrived in January and all our brands eventually saw very healthy sell-throughs of winter wear by end January. We resisted the temptation of going early with EOSS in December because we were witnessing good sell-throughs. We consciously decided to postpone EOSS, which helped us lower discounting in Q3 because of which we got additional 0.6% EBITDA in Q3. We have this unique situation of both Q2 and Q3 being similar level of top line and EBITDA. If winter had set in at normal time and we had not consciously decided to postpone EOSS, Q3 would have been even bigger in both revenue and EBITDA value. We continue to focus sharply on balance sheet deleverage, and we are ensuring tight control on working capital. Very happy to see reduction of further 3 days in GWC, with gains coming from reduction in debtor days. We saw a reduction of nearly INR 200 crore of inventory value in Q3, as compared to Q2 end, and the inventory levels remain healthy at 88 days, with stock turns at 4.2, in line with our guidance of taking stock turns above 4. Receivables also came down by nearly INR 100 crores as our partners paid their dues as per credit norms with good consumption of inventory in the season. There was also sharp reduction of nearly INR 300 crores in payables. This was done as per the payment terms with our vendors. Post supplies in Q2, these payments were due in Q3. We made payments to reduce payables by nearly 19 days over last Q3. Overall, good control on working capital on all aspects. With increase in EBITDA and sharp control on working capital, we saw continued good performance on capital efficiency. We delivered a ROCE annualized ratio, or ROCE, of 15%. We continue to focus on our goal of improving profitability towards double-digit EBITDA for power brands in the next year. We remain confident of this journey because we are seeing higher efficiency in our reduced execution. There's a reduction in discount coming from higher sell-through. There's improvement in some of our brands' profitability, especially Arrow. power brands ebitda of 12.5% in cumulative in the nine months of this year, we are very close to that double-digit pre-IndAS EBITDA objective for our power brands, and we are confident that we are moving in the right direction. With our portfolio of very strong brands and continued momentum in our growth engines, we remain optimistic about our guidance of 12%-15% CAGR. The key growth engines include robust like-for-like growth through superb execution of store experience. We delivered industry leading 12% like-for-like growth in Q3. The growth engines include store expansion, and we added nearly 60 new stores in Q3, in line with our guidance of opening 200 new stores annually. The growth engines include leadership in digital opportunity. In Q3, online business got a very healthy 23% mix of our revenue. The growth engines also include buildup of adjacent categories. We have seen more than 45% growth this year in kids wear and footwear. The revenue contribution of adjacent category in our key brand USPA is in mid-teens percentage. We continue to focus on developing adjacent category in each of our brands. With presence of strong brands like USPA in our portfolio, which is likely to reach close to INR 1,800 crore NSV this financial year, AFL is poised to deliver revenue growth of close to INR 1,200 crore versus last year, this year surpassing INR 4,000 crore NSV mark in this financial year. AFL is also poised to deliver an increase in EBITDA of more than INR 225 crores in this financial year, 12 months versus last year. The focus remains singularly on reaching pre-IndAS ebitda in power brands next year. We have seen continued momentum in January due to winter season and Pongal post festival in South, also the energy of USS. There are good retail days ahead with wedding season in South in February and March. There is Eid festival coming up in mid-April, for which the business will gain energy from mid-March. Hence we remain optimistic about momentum going forward. With this, I hand over the mic to Ankit. We can open it up now for Q&A. Thank you. We will now begin the question answer session. Participants who wish to ask a question may press star 1 on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question on line of Pritesh Chheda from Lucky Investments. Please go ahead. Thank you for the opportunity. Sir, what is the operating cash flow that you would have generated for the nine months that has gone by? Hi, Pritesh. How are you? I'm good. How are you, sir? Pritesh, the operating cash flow will be close to INR 150 crores. INR 150 crores. Our debt, the net debt and the gross debt figure. This INR 150 crore is after working capital, right? Yes. Yes. Okay. What is the gross debt and the net debt now we have as of nine months? Pritesh, Ankit here. We have a net debt of INR 372 crores as of December end, and a gross debt of closer to about INR 570 crores. Has this, increased QoQ, the gross debt number? The gross debt number would have come down by about INR 20 crores, QoQ. Okay. I was trying to locate the pre-IndAS number or margin that you would have done now for the nine months and the quarter four, but I think your presentation doesn't tend to report it. If you could share what will be pre-IndAS margin that you would have done in the nine months and the quarter four. Pritesh, we have guided to the street in the past, and I'm sure as to what you would be aware, there is a 400 basis points difference between post-IndAS reporting pre-IndAS reporting, and that is something which is what stays constant or around the similar levels, and that would have been there for nine months as well and Q3 also. Q3, you know, we reported 11.6% EBITDA. You can, you know, subtract about 400 basis point from there to arrive at pre-IndAS number and similarly for nine months numbers as well. Lastly, versus your, you know, old, the margins where you used to do at about 8% pre-IndAS at about INR 800 crore of business, and now we have already moved to about INR 1,200 crore, INR 1,170 crore, INR 1,180 crore, INR 1,200 crore of business, but the pre-IndAS margin hasn't changed. On a nine-month basis, if you could help us understand this performance of ours from the margin perspective of pre-IndAS, considering that the scale of operations have obviously gone up. Pritesh, if you really look at for the nine months, if I look at the post-IndAS EBITDA, there is a 400 basis point increase in the EBITDA, Pritesh. You know, typically the way the improvements are happening now and the EBITDA percent improvements are likely to happen in future are on two, three grounds. One is there is a execution where we are focusing on full price sell-through. This quarter, we have received, you know, out of 1.1% EBITDA gain, 0.6% gain has come from lower discounting from retail channel. That's one focus that we want to continue to focus on full price sell-through and reduce discounting. Second point is that there is a scale leverage coming in. In this quarter also we received a 0.5%, 50 basis point improvement on EBITDA margin coming from scale leverage on the employee cost. As the scales are going up and if you look at last two quarters, our employee costs have remained flat and there is a 0.5% additional EBITDA going in which is adding up to 1.1%. Third, reason of this 400 basis point increase in last nine months is a couple of our brands, for example, Arrow have turned around. Compared to past, today, you know, Arrow sell-throughs are very good. We started having positive EBITDA. Still it's in the low single digits, but it is last three quarters Arrow has been EBITDA positive. You know, some of the brands are, you know, profitability is going up. Also in power brands also, as the business scales up, profitability is coming up. Through, you know, efficiency, through better performance of the brands where our profitability is little suppressed and is improving like Arrow, and through scale leverage, we want to take this, you know, the cumulative power brands, for example, we are at 12.5% post-IndAS, and to reach 14% or so where it become double-digit, That's what the focus has been, Pritesh, now. From INR 2,800 crore of business going to INR 4,000 crore of business already, let's say on an annual [INR 100] or let's say on a quarterly basis, let's say from INR 700 crores to now INR 1,000, the pre-IndAS margin has actually not moved. You know, you were making pre-IndAS 8%, now you're making pre-IndAS 6% or 8% number. If I take Ankit's 12%, which is including the other income and -4%, then it is 6%. Now if you look at our pre-IndAS Shailesh, the question is, has the discounting increased because of which the margin is not coming in? No, no. There are two ways, Pritesh. Margins are coming in. There is a, in nine months, 4% increase in EBITDA post-IndAS, and that shows pre-IndAS also. Assume that there's no margin increase. There's a significant margin increase, Pritesh. That's point number one. Point number two, like I said earlier in this call, that discounting has come down in quarter three by 0.6%, and that's leading to higher EBITDA. Definitely there is a increase in EBITDA, and there is a reduction in discounting as well, Pritesh. My question was actually pre-COVID numbers. What you are comparing is last year's number. I was actually trying to compare with the business margins pre-COVID at INR 2,800 crore of sales. Yeah. You know, Pritesh, what happens is that In pre-COVID time, there was a large amount of rent waiver sometimes, you know, the quarter-to-quarter, the lockdowns would have been different, the rent waiver was coming. This year there's no rent waiver, our profitability has definitely gone up by 400 basis points compared to last year. If I look at steady growth in our business, we are far more profitable than we ever been, Pritesh. If you look at our PBT performance, you can see quarter by quarter, second half of last year onwards, we've started delivering PBT positive that trend has continued to grow. Today, in these nine months of this year, and you look at the overall, I'm saying in this year, post-IndAS ebitda will go up by almost like INR 225 crores of increase in EBITDA, Pritesh. If I could just add, one point here. You know, one difference between many years ago when you might be comparing to today is that our retail, mix has significantly gone up. You know, wholesale versus retail mix changing changes the percentage EBITDA somewhat, but at an absolute level, our EBITDA's are going up, which shows generally how much the profitability of the business is improving over time. The kind of absolute EBITDA's you are seeing are amongst the highest the business has ever delivered. The percentage EBITDA's have changed because in that the channel mix four, five years ago was a little different from what it is today. Has the retail increased in the channel mix? Has your own COCO stores increased? It's a 47% retail, which is the highest it has been, and we generally have a FOFO, you know, model. The percentage EBITDA. Pritesh, give you another data point. If you look at the PBT swing in this nine months over last year, the swing is INR 212 crores, Pritesh. Okay. PBT. Okay. I don't know, you know, where. See, look at little broad numbers, Pritesh. We are talking about more than INR 1,000- odd crores increase this year. We are talking about 225 crore additional EBITDA. We are talking about in these nine months already a PBT swing of 212 crores. Look at our, the way our debt levels have come down, the cash has been generated. I don't know, you know, which part of the business we are looking at differently, Pritesh. Okay. Thank you very much, sir. All the best. Thank you. Thank you. We have the next question on the line of Shreyansh from Swan Investments. Please go ahead. Hello, can you hear me? Yes. Yes, we can hear you. Just wanted to understand one thing. If I look at your QoQ other expenses, your revenues are largely flat, but we see an about 8% increase in your other expenses. Could you just explain what has driven this increase in the other expenses? you know, other expense, I'll take little time to explain a little more elaborately because this is a point that is being discussed regularly. Look at our quarter three, the other expense is a value which is INR 370.83 crores. What constitutes this other expense? 2/3 of this other expense is linked to the sale. Basically, it is largely related to retail sales for things like commission to the franchisee, royalty that we pay on the sale, the marketing cost that is really 3.7% or 3.5% of sale. There's a activity on warehouse and freight linked to the sale. you know, a large part of this INR 370 crores, 2/3 is linked to increase in sale. As the sales will keep growing up, this expense, other expense, will also grow. As the retail part of our business grows, the other expenses will go further because almost like 26%-30% of our sale we pay as franchisee commission. Every INR 100 [crore] increase in our retail sale, there will be a INR 28 crores increase in other expenses. I give you a quarter by quarter number on other expense. Look at quarter one, this other expense was at INR 297, which was 31% of our NSP. This, in the current quarter, Q3, is INR 370 crores, which is also 31% of our NSV. Wherever the retail sales are high, so like quarter one had high retail contribution of 46%, Q3 had a higher retail contribution of 47%. In these two quarters with very high retail sales, the other expenses remain around 31% of NSV. Look at quarter two, which is a more wholesale-driven quarter, where the retail mix was only 37% versus 47% in Q3. The other expense came down from average 31% to 29% because retail contribution was less. In quarter one, the other expense 31%, quarter two 29%, quarter three 31%. At a nine-month average, this NSV, this other expense is 31% of overall sales. As the sales grow up, as the retail sales grow up, the other expenses will keep coming up. The other 1/3 is where we will strive for leverage. I'll give another example of Q2 versus Q3. In Q2, our other expenses were at INR 342 crores, in Q3, our other expenses are INR 370 crores. The retail sales in Q3 was higher than Q2 by INR 110 crores. If I take on this additional INR 110 crores of retail sales, if I take a weighted average 28% commission, it comes down to INR 30 crores of additional commission, that is precisely the difference between the Q2 other expense of INR 342 crores with Q3 other expense of INR 370 crores. There is a clear trend of close to 31% of NSV, it covers things like commission, royalty, marketing expenses, freight and warehouse, you know, the retail staff cost in department store, et cetera, et cetera. Whenever the retail contribution comes down, like in Q2, it comes down to things like 29% of sales. When the retail is high, like in quarter one and quarter two, it goes up to 31%. The delta is 2%. Q2 to Q3, the entire delta is because of higher INR 110 crores of retail sales, which in terms of commission is higher by INR 30 crores. That's the [more than more than] math on the other expenses. It's only going up in line with sales, and there's no other reason of other expenses going up. As the business grows, the royalty will go up, franchisee commission will go up, marketing investment at 3.5% of sale will continue to go up. it's a part of the business that will show, you know, growth as the top line and as the retail sales are growing up. Sir, if I have to think about the future as you grow your retail business, should we build in like a 29%-30% of other expenses that will continue to be there? The 1/3 that you're talking about, the leverage that will come in, how will you drive that? Because those expenses are basic office expenses where there's no room for a lot of leverage to come in. Just wanted to understand what will drive the operating leverage in the business. That's a very interesting question. If you like to look at 1/3 of, you know, Q3 in three months, our other expenses are at INR 1,000 crore roughly. The 1/3 of that is, you know, INR 330 crore. If we strive for even 5% efficiency there, which is possible, you will see a lot of leverage coming in. Our entire focus, if you look at this year's this quarter results also, our employee cost, which don't come in other expense, it's a separate row item, we have saved 0.5% of EBITDA coming from the people side. If you look at our marketing cost, which used to be close to 4%, now we are at 3.5%, while we are actually spending more dollars or rupees of marketing. Since the scale is coming up, we are saving. We almost got a 0.5% saving on marketing cost currently. Also, as the scale goes up on warehousing, on transportation, we are able to negotiate better with our partners. There is almost like 2/3 is a variable component, but the other 1/3, which is large value, nine months itself is, you know, INR 330- odd crores. We will strive to gain as much of leverage and efficiency there as possible. Okay. My second question is, if I go back three years, I'm looking at Q3 FY 2020, where we used to do about... You've given in the presentation that we've grown about 40- odd% versus Q3 FY 2020. If I just go back in time and look at your profitability then, and this is after adjusting for Ind AS. At that point in time, our operating profit, excluding other income, was INR 113 crores. This number, sir, includes your Unlimited losses. Whereas you look at Q3 FY 2023, our numbers are ex of Unlimited. What I'm trying to really understand is, even after selling off Unlimited, we haven't been able to see a lot of the leverage. You know, what you've been saying in the past, those numbers don't seem to come, seem to come through. Question is, how is this gonna change, and when is it gonna change? If I again repeat what I just said sometime, this year we are looking at at least like INR 225 crore additional EBITDA over last year in this financial year. In nine months, the swing in our PBT is INR 212 crore. Every quarter, we have improved our EBITDA. These 9 months over last year, our EBITDA has gone up by 400 basis points. Look at our scale of our brand. We are, you know, top line just now is about INR 4,000 crore. There are efficiencies kicking in every day in our business. You know, I'm not able to visualize minus Unlimited, minus Megamart. If I look at existing businesses, the existing portfolio of power brands and the emerging brands, overall portfolio, we are far healthy. Our stock turns are first time crossing four. Our working capital, I mean, there is a improvement of more than 10 days in our business. We're so tight on working capital. Our interest costs. You know, net debt levels are at close below INR 400. They used to be more than close to INR 1,400 crores. All around this business is very healthy, efficient, and bigger and more profitable. I'm, you know, not able to imagine a situation what you are looking at to what I'm looking at. I'll just explain, sir. We did about INR 830 crores or INR 836 crores in Q3 FY 2020 ex of Unlimited. From INR 836 crores, you've reached about INR 1,200- odd crores. That's almost a delta of about INR 400 crores in top line. When I look at your operating profits, excluding other income, you used to do INR 113 crores, including Unlimited losses. Now ex of those losses, we are at INR 120, you know, so that, your profits have not really changed. I don't know what, I don't know which numbers are you are referring to, but most of our numbers have been restated to make them apple to apple. The number you are talking before would also possibly not have Unlimited. I'll check with you offline. I'll take that offline. Okay. The last question is, if I just look at your profitability, for our parent, you know, we've done about INR 8 crores of profit this quarter. If you see the minority interest is INR 14- odd crores. Broadly, that gives you INR 28 crores of profit from the CK and the Tommy subsidiary. INR 28 crores profit. If you look at the PAT before minority interest, it's about INR 22- odd crores. There's a INR 6 crore loss that you've done in the other businesses. If you look at this QoQ, it's almost a INR 14 crore delta that has come in. What is really happening in the other subsidiaries? Let's look at PAT number for the cumulative nine months. If I look at the PAT number, which is close to INR 60 crores, and it's a more or less an equal split between the PVH business and the all other brands of AFL. It's a healthy sort of a 50-50 split between the two sets. In quarter two, quarter three, you know, PVH brands, Tommy, CK, and I've been running those business for 16 years. I know that they are, you know, pure retail businesses, so they tend to do better in the retail quarters of quarter three This quarter three, when it's a winter season, the winter was little late there, still the winter in sale was coming through in October, November. The Tommy and CK do much better in winter business than the other brands of Arvind and also the industry. If I really look at the sum total of their strength in winter season and also the fact that it's a pure largely a retail business compared to our brands which have a very healthy wholesale business which had peaked in quarter two, like I said in my opening comments. If I really look at normalizing it, more or less equal split, and I'm looking at quarter four now. I think quarter four you'll see normalization again. You know, in a full year basis, it will be a kind of a equal split, not the kind of skew you are seeing in the quarter three season. Okay, sir. That helps. Thank you. Thank you. Thank you. We have the next question on line of Jatin Sangwan from Burman Capital. Please go ahead. Good afternoon, sir. Thanks for taking my question. If I look at quarter-on-quarter basis, your EBITDA has remained same, there has been a lot of difference at the PBT level. Could you please explain why that has happened? See, if you look at items below EBITDA, basically it's the interest cost and the depreciation. When I look at last year, last quarter interest rates, there is a 85 basis point increase in interest rates since there was an announcement in September end, and then there was a recent announcement. The interest rates have gone up by 0.85%. And that's the main reason why the below EBITDA, the interest component has gone up. Actually, if you look pre-IndAS operating expense, the interest rates are not very different. It's almost like a INR 2.5 crore difference. post-IndAS, there are a lot of entries come, you know, so that's as per the accounting policies. If you really look at our gross debt, there's a small... It's more or less the same number given the size of the business and the impact of higher repo rate of 0.85 is coming into the interest, and that's what is making the difference. Depreciation also, if I look at the quarter to now, it's gone up slightly in terms of operating depreciation of the real business actually slightly lower. With indebted entries, it's looking slightly higher from INR 59 crore going to INR 60-odd crore. The sum total of these two things, that is the interest and depreciation is what leading to a slightly higher minus over EBITDA. Sorry, according to me, your gross debt would be around INR 500 crores. You have mentioned that interest has increased by 85 basis point, that would explain the difference of INR 1 crore in interest expenses. If I look at overall interest expenses, they have gone by more than INR 6 crores. If you really see, we also taking over, you know, close to 23 stores of PVH, we're buying back from the franchisee in order to improve our margin. There is a bit of a block going there also. You know, that immediate payment to the franchisee and the block coming in. Actually, if you really see the interest cost, it's not going up. Also there are some other costs in the, what you call it, finance charges. There is a security deposit of the franchisee that we pay also, that and then there are some commissions also come in. It's not just the block, but there are other expenses also in the finance charges. Sir, what would be the breakup of this depreciation of INR 63 crores into amortization of ROU and depreciation of PP? You are basically asking the breakup of interest on lease liability and normal interest. Is that your question? yes, and the same breakup for depreciation. Right. Interest on the normal interest cost is close to about INR 21 crores and normal depreciation is about INR 20 crores. The rest is on account of interest on lease liability and depreciation ROU. Got it. Thank you. That was the last question from my end. Thank you. Thank you. We have the next question from Mythili Balakrishnan from Alchemy Capital Management. Please go ahead. Sure. A couple of questions here. Just wanted to check with you on. Sorry to interrupt. Your audio is not very clear, ma'am. If you could kindly come closer to the microphone. Is this better? It's still the same, ma'am. If you could go off the speaker phone, maybe. I'm not on the speaker phone. I'm on the handset only. Now it's clear, ma'am. Okay. Just wanted to check with you on this other income. What is the components of it? If you look at FY, the quarter three number, the total amount of other income is INR 15.9 crores. Almost INR 8 crores out of that is what we call is the provision no longer required. We had, for example, security deposit with a franchisee, which in the past we had written off. We had some money lying with the landlord which we had made provision in the past, and we got a genuine recovery of those money in the deposit, et cetera, no more those provisions are required. The bulk of this almost INR 16 crores, INR 8 crore is the provision that is not required. Second component of that other income is we have interest coming on some of our bank deposits. We have INR 3.3 crores of interest income from the deposit that we have made. There's also a rent recovery of INR 2.5 crores. What happens in some of our businesses, we pay the rent to the mall, and this goes as a rental expense in our books. We recover from the franchisee later. That recovery is at INR 2.5 crores, where accounting-wise it comes as other income. It's not other income, but the way the accounting is done, that we make the payment to the mall first and then we recover from the franchisee. These are the, you know, main heads. There is some assessment and then security deposit, fair value, which is around coming to INR 2 crores. If I really make a summary of this, there is INR 16 crores of other income, out of which INR 8 crores is largely the provision that we don't require. There is a rent recovery of INR 2.5 c rores. There's an interest on our deposit with the bank. We've got INR 3.3 crores of income on that. Then there is INR 2 crores on reassessment and fair value of security deposit. Got it. On a more recurring basis then it is, probably, the number would be INR 3-5 crore on a quarterly basis. Currently, if I see it, more close to like INR 10 crores than like INR 3-4 crores. Last quarter, you know, was little higher because there was some gain on assessment, and this is a one-off. I mean, provision will happen. I shouldn't say one-off because INR 8 crores is a larger amount, but I think around INR 10 crores of this kind of entry would be normal for the scale of our business. Got it. In terms of the raw material prices, are you seeing any pass-through in terms of lower cost, inventory coming to us? Sorry, I, lower cost? Yes. Basically. You mean reduction in the cost of goods? Yes. Yes. Yeah. it's a very I meant the perspective of the cotton prices, coming off. Yeah. Understood. Yeah. Understood. Thank you. Yeah. See, you know, let me first answer in the first part. Then I'll come to your point. Our world in, at this current quarter three, we have never seen the kind of cost push we ever saw. The cotton prices went, you know, INR 1 lakh per candy. The China import shipment cost went up. The dollar depreciated. We had to take higher cost in imports. There were a lot of things in Q3 that, you know, are at a higher level. We're still able to improve our EBITDA by 1.1%. I look forward, the kind of lead time we work on our spring summer goods were good, where there was slight softening, not full softening. After that the prices, cotton prices come down to maybe INR 65,000 to the peak of INR 1 lakh. Most of this, you know, reduction likely to happen by fall holiday 2023 goods, which we are booking right now with the market. The roadshows are on. The lower cost structure likely to become material in our books from fall holiday deliveries, which will start from July onwards. Got it. Also wanted to check with you on the state of Arrow. You mentioned the fact that it's got a low, single-digit EBITDA margin. Wanted to check with you on the trajectory that you see there, you know, the quality of sales. What do you see as the more steady state for this business? We are very pleased with the progress on Arrow and where the Arrow is sitting today. Mm. Today, we have seen three quarters of positive EBITDA in Arrow. COVID was very tough for a formal brand like Arrow and also a larger retail business, so it got impacted more. In the last three quarters, the brand has come out very strongly. You know, we did a lot of things, and I don't want to go back again, but I just want to say that we re-energized the brand, improved the product quality. We logoized it. We got a new retail identity done. We improved the sports line, which is a little more work from home or casual side. We got Hrithik Roshan, new retail, and we did many things which we have been talking about, and the results of that have started to come in now. This year, full year, pre-IndAS, their delta in EBITDA of Arrow would be close to INR 65 crore-INR 70 crore from, you know, losses of last year to positive, almost low single-digit EBITDA. The swing is very significant. That swing is happening because in fall holiday, Arrow saw the best, or the highest improvement in sell-through. The sell-through went up by almost like 7%-8%, and the discounting came down because of that, significantly. Today, if you go to the market and talk to any big trade customer, Arrow is a strong brand, and everybody will acknowledge saying that Arrow has turned around, doing really well. The throughputs are good, sell-throughs are good. A lot of changes were made. We're seeing the results for last three quarters. This quarter it has the highest improvement in full price sell-through. The delta in EBITDA this year will be very, very material for the company going forward. From this place where, you know, this brand now has crossed more than INR 500 crore business and it reached a healthy EBITDA, low single digits. The interesting part is what we do with it going forward, and how do we now take it forward to the desired double-digit EBITDA in, let's say, two years or three years. I think the whole game in Arrow now is that in some part of Arrow it's subscale. For example, number of stores that Arrow has close to 200 compared to its competition, we are subscale. The most important thing in Arrow now is to how to open 100 good stores going forward. The earlier we can open those 100 stores, the better it will be for, you know, Arrow. It might take us one and a half years to do that, but that's the journey that now all the efficiency and the aesthetic sides are in place. Now we need to ramp up. We need to accelerate the expansion of Arrow fast and wherever there is a subscale nature of the business, we need to bring the scale back to that business. That's what we are doing. We are, you know, increasing the product lines from suits and blazer to formal trouser doing really well, to the channel side where we believe it should open 200 more stores in next twoo years or three years, so get to the scale that is it requires. We feel very confident of what we have done with Arrow in the last two odd years, and the recent performance has been very, very encouraging. We will now focus on increasing the scale in the right way for Arrow and take the journey to double digit. Next year, I feel it should hit the middle of, you know, mid-single digit EBITDA, and that would again be a very large, you know, swing in EBITDA for Arrow and will help AFL improve its overall profitability. Arrow is sitting on a very good wicket, and we just launched a premium line of Arrow called 1851. That got very good response, and it improves the, you know, revenue per square foot in store. A lot of good things going for Arrow right now and our job now is to, you know, having done the job, one of turning around, we need to now scale up profitability, reach, 5% or 6% EBITDA soon and then to double-digit EBITDA journey. That's the game plan on Arrow. Got it. You know, coming back to the margin question, which at some level, we are all looking at. You know, I just wanted to understand that in your view, what would be a more steady state, sort of EBITDA margins that one should look at for a business of our size and scale? Like, you know, by when do you think you can sort of like get there? I think, you know, we've been really obsessed with that guidance ourselves. We are saying we need to hit double-digit EBITDA pre-IndAS, in our power brands. You know, we used to say 18 months, now we're talking 12 months, now we're saying next year because, you know, we've gone through the journey. Our EBITDA, you know, in at a company level has gone up by 4%. In power brands also the EBITDA has gone up this year by 4%. Now we are at 12.5% post Ind AS, and if you are close to 14%, we will be where we want to reach at 10% double-digit EBITDA. Our game plan now, first step is to reach 14.5% post-IndAS EBITDA in power brands, which we believe we should reach next year, next financial year. That's the first stage of improvement. Then, you know, every year in our guidance as we grow business of, our, our guidance on revenue is between 12%-15%. As we keep improving the revenue and we keep turning around the brands like Arrow or make Flying Machine, Arrow, big brands, higher scale towards INR 1,000 crore revenue, we will get additional EBITDA. Those are the some of the things that we have to deliver, power brand, double-digit EBITDA, scaling up of the brands, and it will give us scale advantage. We will start getting leverage like in this quarter we got half percent additional EBITDA because of scale advantage on people cost. There are a lot of such opportunities will keep coming as we keep growing the revenue at 12%-15%. Got it. That's all from my side. Thank you very much. Thank you. Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question on the line of Sagar Parekh from One Up Financial Consultants. Please go ahead. Yeah, good afternoon, sir, and congratulations for a decent set of numbers. Thank you. Actually, my question was on Arrow only, which you answered it quite elaborately. Just on this Arrow thing, you know, at peak we used to do about INR 700, I think INR 750 crores kind of top line versus you mentioned that we'll end the year this year at around INR 500 crores. When do you think we'll probably reach the peak again? Once we reach the peak, do you think that we can, like, go to double-digit kind of pre-IndAS EBITDA margins in Arrow? Next year we should reach the highest ever revenue in FY 2024, and the double-digit EBITDA should be a journey one year later. We are at a low single-digit EBITDA. We should hit 5%, 6% EBITDA and then towards 10% EBITDA. Maybe like a two to two and a half year gain from now. What will drive this margin expansion from single digit? Apart from scale, anything else which will? Scale is very important. Also, in terms of our channel mix, you know, what happens is that there is a certain revenue that's coming from retail, which is a little higher, and some of the other channels, we need to increase the revenue of that. Also, the kind of brand Arrow is and the kind of prices, you know, on suit blazer and 1851, the retail profitability also can go up. Couple of things we have to do, scaling up. Second, channel mix to be a little more rounded. Third, the retail productivity, it has to go up. Overall, you know, the way we are doing for all other brands, the discounting also has to come down in Arrow. Like, like most of other brands, we are looking at full price sell-through focus, which should deliver lower discounting. Got it. Overall full price sell-throughs, for different brands, how would that be different from, let's say, Arrow versus U.S. Polo? Arrow is now competitive. Arrow is now a good sell-through. It's really in the last two seasons caught up with the remaining brands, so it's now a healthy sell-through. All brands can, you know, improve sell-through and reduce discounting and that's what our focus will be. Also, you know, when we're talking about the kind of scale, you know, in next two years Arrow should get, I think maybe a lot of leverage on cost will come from better employee cost, you know, marketing cost as a percentage of sale will come down. I clearly see advantage on higher channel margin in Arrow's case, better scale, bringing in some more efficiency on leverage and higher EBITDA coming from there. Those are the things Arrow will have to do. We are very confident because you see all the metrics, the KPIs we work on, full price sell-through, discounting, growth of business, you know, it's passing the test. Now we need to scale up. We need to accelerate the expansion of this brand. Got it. When you say channel mix, you mentioned you are trying to say that more of retail channels rather than online? Yeah. Yeah. For example, a competitor will be having close to 350 stores. Arrow has 200. We need to add those 150 stores. What happens once you open more right stores, you could actually theoretically reduce the advertising cost because store becomes the brand advertisement. Also, Arrow could be a little more on online, we're building marketplace model, you know, for online business. We're linking all the Arrow stores with Omni linkages, which will further improve the linkage and the visibility of the Arrow inventory online. There are many things that we are doing to take Arrow forward. Got it. If I have to look at your overall portfolio of brands, let's say by next financial year, you will reach all... Obviously Arrow was an outlier, but you gave a very broad elaborate answer on Arrow. Apart from that, the other two laggards are basically Sephora and this Flying Machine in terms of margins at least. Where... I mean, if I have to look at the overall portfolio in double digits, we need to scale up these two, the margins of these two brands as well, right? Where are we in that journey? You know, I think your point is very valid that, let me leave Sephora aside, but I would say first talk about Arrow and FM, and both the journeys in FM also, it's a close to INR 500 crore business. In our business, you know, if we really want to be a double-digit EBITDA on a sustainable basis, we need to be much bigger and FM needs to be, you know. We just did a strategy where we are looking at FM as a INR 1,000 crore brand. At that scale, FM also like Arrow at INR 1,000 crores will deliver a kind of, you know, because there is a huge scale leverage in our business. Also, you know, to do that in, let's say for example, in Flying Machine, we are looking at channel modification and the product modification. On product side, we are looking at adjacent category like what we have done really well in U.S. Polo. We've just right now, launched the first line of footwear in Flying Machine, selling online fairly well. We are encouraged by that. We are looking at innerwear, we are looking at women's wear, probably kids wear. There are a lot of discussions going on with our partners to see how we can, you know, leverage new categories, and we are committed to that idea of making our brand bigger and more profitable through adjacent category. FM will also follow that strategy. On channel, FM is slightly weak in couple of regions. We are putting disproportionate energy in some of the regions. I don't want to mention the regions for confidentiality and competitive positioning in the call, we know some areas where there are regional gaps in Flying Machine. We are filling those regional gaps. Some channels are very big week, for example, stores. We've done some new work on a new store identity for Flying Machine and opened the first few stores, we want to now ramp up the store network for Flying Machine. In Flying Machine also, you know, the whole opportunity for new categories, opportunity on region side, opportunity on channel side that we can take it forward. This is our own brand, you know, this is where the opportunity to scale up in a sub-premium segment are enormous. Jeans is such a large segment in India that Flying Machine as an expert on jeans at that sub-premium pricing, it's a very good opportunity. Now we are gonna try to exploit that opportunity for Flying Machine. Arrow and Flying Machine would be, you know, clear game plan for us to push it towards higher profitability and bigger scale. Sephora? Yeah. You know, Sephora is a more niche, high-price business and it's offline, so that's how the brand is worldwide. It has a offline appeal with women consumer in a more mass reach, you know, prestige, not mass reach, but prestige segment. You know, we have 26 stores in big cities, and those stores do really well. If you go to any mall, ask which brand has the highest sales density, Sephora would come in the top brand for any mall in the big city. Now, we are in dialogue with the principal. To take it to the logical profitability in India, we'll have to see how we can expand into slightly smaller cities in India. Also add channel like online, where we are currently not playing the game with Sephora. We don't have the online rights. We are in negotiation with the licensor principal. That's a game where we have to sort of sit down and influence the principal. That will take more time. In Arrow and Flying Machine, it's a different ease to move forward. You know, here we are actively in a dialogue, and we'll see what comes out of those dialogues with the principal. We are profitable at EBITDA level in Sephora? It's a small, very low single-digit profitability. From the VIP- It's performing well. It's growing well. Like-for-like store growth is good. It's growing good in those 26 stores. What it needs to be redefined completely if it's online with smaller town expansion, et cetera, to reach a certain scale. We are engaged with the principal. Let's see what comes out of it. Yeah. I mean, we have been engaging with the principal since a long time now, nothing is coming out of it. Since it's been a while. Till what timeframe are you looking at probably engaging further before taking a call on, you know, what you did with other brands, which were not performing? We see, you know, value in this engagement because it's a powerful brand and we'll continue to put in the hard work of engagement. Signal not come from our side to look at it like that. Okay. Some time away then, before you take a call on that. Yeah. I mean, we are in active engagement. That's what I can say right now. Okay. Thank you, Shailesh and, wish you all the best for future. Thanks. Thank you. Appreciate. Thank you. Thank you. Participants who wish to ask a question may press star 1 on your touchtone telephone. We have the next question on line of Jatin Sangwan from Burman Capital. Please go ahead. Sir, during this time, there was a delay in winter and EOSS was also pushed to Q4. Should we expect Q4 similar to Q3? You know, Q3, you know, as per Diwali is the highest and the biggest quarter of the, you know, year. In the quarter four EOSS has a big impact, right? January and till middle of February, EOSS comes. You cannot compare, you know, quarter to. In our business, you know, sequential quarter to quarter analysis is very difficult. In fact, right way we always do is to look at even high seasonality to compare with last year. If you say compare to last year quarter four, how do you see, you know, the performance, I can say. If you compare a Diwali quarter with a EOSS quarter, it will not be really correct to compare the two quarters. Got it. sir, just one data keeping question. What was the actual amount of rent that we paid in this quarter and for the nine months FY 2023? Let me just check. Jatin, we don't have the exact number right now available. I will probably be able to connect it back offline. Yeah, sure. Thank you. Thank you. Thank you. We have the last question on the line of Gautam Rathi from CWC. Please go ahead. Yeah. Hi. Hi, this is Nishit. just one question. I, you know, I was just doing a math. if you said roughly this year should be INR 1,200 crore higher than last year, which is roughly INR 4,200 crore-INR 4,300 crore of revenue. You said both Arrow and Flying Machine are around INR 500 crore brands. If I just work the back of the envelope, if I just think about it, Sephora are mostly at around INR 300 crore brand. The point I'm trying to make is roughly INR 3,000 crore worth of brands that we have are more than double-digit EBITDA and the balance brands are all single-digit EBITDA, right? Is my understanding right? Is what I'm saying, is that all right? If you look at power brands initiatives, we said we are at nine months, 12.5% post-IndAS EBITDA, right? You know, clearly Tommy Hilfiger, U.S. Polo, that zone is clearly double-digit pre-IndAS, right? It remains and growing in that pace. That's how I would read the data. Correct. Broadly, the only brand left out there is CK, right? Which is also doing really well, broadly. From whatever we see from the PVH balance sheet, if the combined PVH brands are double-digit. The point I'm trying to make, Shailesh, out here is that, you know, if broadly you see INR 3,000 crore is 10%+ EBITDA and INR 1,300 crore is low single-digit EBITDA, right? It just, if I just do the math, it should roughly work out to be around INR 300-350 crore around that EBITDA on the pre-IndAS side, right? Whereas we are at INR 225 crore for the nine months. It's impossible that we're going to do INR 100 crore EBITDA in the last quarter, which is the only reason I'm just trying to understand there is something which I'm not able to understand in this, right? There is something which is not, not fitting into the math out there. You know, what happens is that, this year, Arrow is a very low, like I said, like close to like 2% kind of, EBITDA, and you're comparing with, expectation of 10%. There is a big drag. Flying Machine also- No, I'm not taking Arrow into that account at all, right? I'm saying INR 4,003, INR 4,200 crore, which you mentioned, right? I'm taking out the INR 500 crore Arrow. I'm taking out the INR 500 crore Flying Machine. I'm taking out the INR 300 crore Sephora. I'm saying all of them, INR 1,300 crore put together is a 2% EBITDA, INR 25 crore at best. I'm saying the INR 3,000 crore EBITDA, the balance brands are only the Tommy, CK and CK, Tommy, CK, and U.S. Polo, right? Which are all 10%+ EBITDA, right? If I do the math, it should be barely INR 325 crore unless there is a loss somewhere which I'm not able to understand. I'll explain you that what is missing piece here. We have in our business couple of brands which are now not active. We have shut down the operation, that's brand like Ed Hardy, there's a brand IZOD, there's a brand Aéropostale, right? Till last year we were doing small business and we used to get small GP and we were paying minimum guarantee royalty. This year we have stopped that also. We have been focused on our, you know, efforts only on these six brands. We still have a royalty minimum guarantee which is around INR 5- odd crores, you know, royalty payment roughly around INR 20 crores a year on these brands for next couple of years. That is the missing piece. As we, you know, grow the business to much higher EBITDA, you know, going forward, like every quarter increasing, this around INR 18, 20 crores, INR 20 crores rupee EBITDA will become a smaller percentage of our overall. Because this is not gonna grow, and this will go away from our life in a couple of years. That's the only missing piece if it maybe that's what you are looking for. Which is fair, which explains my point. When do you think when should we put a sunset date for these payments going out? Maybe by FY 2025, FY 2026, when do they become zero? We have a two to three-year horizon on this. You know, it's a legal, you know, commitment, so we will have to honor. We are actively in partnership with all these brands, and if there is a way to sunset in some model earlier or so, we will explore that option. Currently this is a reality we are living with. No, that is perfect. Just, and one last question. You know, I know you guys are trying hard and trying to figure this out, right? There has been a lot of press about Sephora even, we heard, we've been reading a lot of articles, right? How should we think about it in our mind? Is there some kind of a timeframe that can be provided or it's just too vague and too? See, we look and respond to speculation. This is our business. We continue to focus on running the business. Like I said, we run these 26 stores quite well with the best productivity. This is our access to women consumers, beauty segment. We continue to run. We don't want to respond to market speculation. If and when on any of our brand something comes up, we'll always engage with our investors. Right now I have nothing much to add. No, no, Shailesh, just trying to understand that, you know, since, you know, the good part is we are hearing that speculation has been put to an end. The question I'm trying to understand is, you know, for us to get some kind of a response to take the brand to a logical conclusion, is there, can we expect anything in the near term or is it still uncertain? That's the question I'm trying to understand, that could you get some kind of an assurance from the brand to take it to a logical conclusion in the next three to six months or is it very uncertain? That's the question. We are in active engagement with all principals including with this brand. We always trying to, you know, better our business, deliver better profitability for our portfolio of brands at AFL level. We are in active engagement with all our principals, right? That is what I can say. Sometimes discussions on way forward take time, but I can't comment more than that on speculation. We are running the business and my focus is on running the business. Thanks a lot. Thanks a lot. Yeah. Thank you. Thank you. I would now like to hand it over to Mr. Ankit Arora for closing comments. Thank you everybody for joining us on the call today. If any of your questions have been unanswered, please feel free to reach out to me separately, and I'll be happy to answer them offline. Thank you and have a good day. Thank you. Thank you. That concludes the conference on behalf of Arvind Fashions Limited. Thank you for joining us. You may now disconnect your lines.