Ladies and gentlemen, good day, and welcome to the Arvind Fashions Limited Q4 FY23 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will 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, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Arora, Head of Investor Relations. Thank you, over to you, sir. Thanks, Rico. Hello, welcome everyone. Thank you for joining us on Arvind Fashions Limited earnings conference call for the fourth quarter and fiscal year ended March 31, 2023. 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 had been mailed across to you yesterday. 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 fourth quarter and full year. He will be followed by Shailesh, who will share insights into key highlights and financial performance for our fourth quarter and full year. At the end of the 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. Thanks, Ankit. Very good afternoon to you all. Thank you for joining us for the Q4 results. We are very pleased with the strong operational performance this quarter. Despite tough market conditions, the company was able to register a growth of 24% in revenues and 45% in EBITDA. This was made possible by strong like-for-like growth and sell-throughs, which led to a significant GP expansion. Over the past two years, we have focused extensively on re-energizing our brand franchises, and those efforts are now clearly bearing fruit. FY 2023 has been an exceptional year for AFL. Our sales grew by 45%, adding more than 1,350 crores to the top line. Growth in EBITDA was far higher at 100%. Overall, EBITDA margins increased by 330 basis points. The key drivers for this significant expansion in EBITDA are increased sell-throughs and productivity in our retail channel, the turnaround in Arrow profitability, and operating leverage due to a much larger scale. As we exit the year, we feel confident that we will continue to see a significant expansion in our EBITDA margins moving forward. A very significant milestone for us is achieving a return on capital employed of close to 15%. We had stated a medium-term objective of reaching a return on capital employed of 20%, and that objective is now well within reach. Our North Star at AFL will be to achieve a high return on capital employed and strong operating cash flow, and hence all the decisions we have taken in the past many years are towards achieving this objective. We exited unprofitable businesses, reduced asset intensity by increasing the share of franchising in our business, significantly improved our gross margins through better full price sell-through, and dramatically reduced our gross working capital days. Strong controls on inventory have improved our inventory turns to more than four times, and by pivoting to a consignment model in our franchise network, rather than the buy-and-sell model, we have optimized our receivable days as well. We could have had an even higher EBITDA had we not made these business model changes, but these changes have resulted in a more robust business model, where we have full control over our inventory in the franchise stores, and hence, much better turns and lower receivables, and therefore higher return on capital employed. Our gross working capital days are the lowest in the company's history and have gone down by 22 days over the last year. This strategy of investing strongly behind our power brands and scaling them up, in this asset-light, consignment-driven business model in retail, will ensure a strong growth with strong operating cash flows in the years to come. The customer demand remains soft. We believe we have many growth drivers to scale up our business. We will increase our retail penetration with a healthy store opening plan. Our direct-to-consumer online business is showing great promise. Our new category expansion into footwear, kidswear, and innerwear is gaining momentum. Our percentage EBITDA should continue to improve, driven by better productivity and sell-throughs, improvement in profitability of brands like Arrow, and higher operating leverage. While we enter the new year with cautious optimism, we remain confident with the strength of our brands and our execution capabilities to navigate this environment. I would like to now hand it over to Shailesh to take us through the specifics and more details about the financial performance. Thanks a lot, Kulin, good afternoon, friends. Two years back, during the COVID pandemic, we at AFL went on a path of decisive focus to put our entire weight behind re-energizing profitable growth. We built one of its kind and very powerful portfolio of market-leading brands like U.S. Polo Assn., Tommy Hilfiger, Calvin Klein, Arrow, and Flying Machine. With this decisive focus, AFL has doubled its revenue in the last two years, going from nearly INR 1,900 crores to now nearly INR 4,500 crore. It's a swing of INR 2,500 crores in two years. In these two years, the growth in EBITDA has been even higher. In the previous year, FY22, AFL saw INR 140 crores swing in EBITDA, and now in just completed FY23 year, AFL EBITDA went up by another INR 260 crores. AFL EBITDA has doubled in FY 2023, with gain in EBITDA percentage margin of 330 basis points. The growth in EBITDA in the last two years is INR 400 crores. Power brand EBITDA is at a healthy place at 12.6% at end FY 2023, delivering PBT swing at AFL of nearly INR 240 crores and a PAT swing of nearly INR 300 crores. Q4 saw good results, starting with January, which finally saw the onset of peak winter, and with a strength in winter wear, we saw a very good full price sell-through of winter goods that time and for the entire full season of fall holiday 2022. Q4 revenue at INR 1,140 crores meant a growth of 24%, aided by like-to-like growth in retail of 17%. Department store grew 60%, and MBO channel grew by 50%. USPA in the whole year grew by nearly 600 crores in NSP. Arrow also is now a sharpened avatar now and with an impressive swing in EBITDA, which is based on healthy full price sell-throughs and strong like-to-like growth. Tommy and CK have continued their path of excellence and have crossed revenue scale of 1,000 crore in this JV with extremely healthy margins. These brands lead the industry in retail experience and business KPIs. Flying Machine saw a new brand logo, launch of a new brand logo and a new brand architecture, and they are leaving no stone unturned to take FM scale to the desired ambitious levels in the next few years. Footwear business is showing very encouraging traction with its market leading position and growth in 40%-50% range, with very healthy margins. We are also premiumizing all our brands and their touch points in order to offer a differentiated brand experience to consumers. In addition to very profitable growth of brands, we have kept a keen eye on working capital that resulted in 10 days improvement in inventory and 12 days improvement in debtors in quarter four. The supply chain initiative of last two odd years, including focus project on core line, has started to pay early dividends. In the current market condition, we continue to keep a keen eye on execution and operational rigor, so that we continue to gain profitability through better retailing standards and higher full price sell-through. We see large growth potential in our brands. We'll continue to grow scale and gain scale leverage and make our brands more profitable. In our build versus buy strategy, capital efficiency will remain the key priority. Thank you. Vigo, we can open it up now for Q&A. Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Nishid Shah from Ambika Fincap. Please go ahead. Yeah, thanks for taking my question. Congratulations on a very, very good set of numbers. My first question is relating to the Sephora. You know, on the online side, I think one year back, we discussed about it, that we should be seeing some initiative. Can you elaborate on this now? What's the situation and how do we see it going forward? Hi, sir. The situation on Sephora is, there is a status quo there. We don't have anything incremental to add. It remains currently a very prestigious offline business selling market, brands to women consumers. We haven't sort of launched a new online initiative as yet. The experience at the store is excellent. In fact, it is much better than shopping at any of the international airports, duty-free shops. I was just wondering, what is stopping us from launching Sephora online in India? It is there on nnnow.com, but, you know, if you have it as Sephora, it makes a whole lot of a difference. There is a competition catching up with Nykaa and Reliance also launching onto it. I'm sure that must be on the mind and you are working on it. We had, you know, updated this earlier as well, that this is one of the discussion points which we have, you know, with our partners. As Shailesh mentioned, we don't have an update on that yet, but of course, it is an area which we are in constant discussions with the global Sephora team. My second question is relating to the overall size and the direction. You are right now at about 4,400 crores. Going by the normal growth rate that you would expect to achieve over the next three years, you will be almost a $1 billion or maybe $1 billion plus. Would you like to elaborate on that? You know, Mr. Abhi, we won't sort of comment what our current strategy is to grow the brand's profitability. We don't see any change of, you know, strategy. We continue to grow our business at 20% to 15% CAGR. That's our guidance to market. We stick to that guidance that, you know, in the medium term, all our growth engines are still firing. We on store expansion, build our medium building, marketplace capability online. Also, continue to focus on sell-through and grow the full, like-to-like growth of our store. Our agency, adjacent categories are, you know, doing well. We will continue to grow the way we've grown in last two years. Wherever it takes, it takes, we will stick to our strategy. Kulin Lalbhai, 12%-15%, actually, 12% is the nominal GDP growth. If you look at 7% inflation and 6%-7% growth, real growth, we are talking about 13%-14% nominal GDP growth. If you say 12%, then you are going to actually be losing out on the market share. You talked about so many initiatives, so many new category additions and all, then we should be at least aiming for at least 18%-22% kind of a growth, isn't it? No, what you're saying is fair. I mean, if you look at our last few years, we have been growing fast, even adjusted for COVID. No decision we will take in the company will, you know, not maximize the growth potential. The only thing we will always do is, we are wanting profitable growth, where growth gets converted into very healthy operating cash flows. You have been seeing how we have been delivering on that. As long as we are able to grow with the healthy opportunity, there won't be a stone unturned that the company will, you know, use every means possible to grow in a healthy fashion. With 15% as being our kind of median, you know, projection over the next three years, whether it is, you know, plus, some percent points or minus percent points, depends on, you know, market conditions at that given point. I think, even the numbers which you have said, if the markets are very responsive, even, you know, we have been growing at 18% in the past. I think what we want to be very clear about is that we want healthy growth in the company, and we will not take decisions to accelerate growth at the cost of, you know, strong bottom line and operating cash flows. Yeah, thanks a lot for good answer on that. I'll get back into the queue. Thank you very much. Thank you, sir. Thank you. Our next question is from the line of Darshil Jhaveri from Crown Capital. Please go ahead. Good afternoon, sir, thank you so much for taking my question. Firstly, sir, congratulations on a great set of results. With respect to margin, now you finally, you know, doing consistent double-digit margin. What kind of further leverage that, you know, we can see, because we have a good array of premium brands. What would be our take in terms of our margins? Like, we said, we want to do it better, but some kind of a range that, you know, where our target is, maybe, you know, over the next two, three years. Yeah. On the margin side, I will say first, you know, what are the inputs that will drive our margins, and then we can talk about some percentages. You know, if you look at a lot of our focus is on the operational rigor, efficiency. We look at both the product side and the retail side margin improvement. On the product side, improving full price sell-through, reducing discounting, buying better, you know, a lot more focus on that side, and we see an opportunity to grow our margin on the product side. Also, on the channel mix, we are looking at getting higher business from more profitable channels, and we're also trying to, you know, reduce our discounting. Overall, the efficiency, the product rigor and the retail rigor, offline, online, both, is likely to give us some uptick in the gross margin. In addition to that, we have the second bucket of, you know, turning around profitability of some brands even more. Happy that Arrow has turned around in FY23 and has a very large EBITDA swing from FY22. That's helping grow the GP for AFL. We see that both Arrow and Flying Machine need to build higher scale. They're building top scale currently, and as they go in their journey for bigger scale, we will also get more margin coming from that. The third side on the margin is the operating leverage. As we grow the scale, like we have doubled our business in last two years, and we continue to hopefully grow at market leading growth rates, that will also flow into our additional margin EBITDA. These are the broad sort of direction where the EBITDA is flowing. I talk to the specific guidance. We have a guidance for company that we need to grow our EBITDA close to 1.5% to 2% on an annual basis. That's a minimum sort of a guidance from our side, and we see that we will be able to continue to grow that pace, and if the markets are better, even at higher pace. In power brands, we will need to achieve double-digit EBITDA soon, and we are working very hard to that, and we have internal goals to reach that quickly. Those are the guidance that every year we need to take the EBITDA at least 1.5% to 2% in that zone. I think more like 1.5% growth. That will lead to the level that, you know, we'll be happy with in next one to two years. Okay, sir, thank you so much for the detailed answer. Sir, with respect to, I think you've mentioned, you know, we might see some softening of demand. would that, how are we seeing the, you know, in we have now two months in the year. What is the consumer sentiment that, you know, we could see that, you know, what are we expecting? Is the demand issue that is why we are, you know, maybe focusing on 20%-15% growth? Because we've been growing at a very substantial rate. You know, could you just help me understand how the environment is currently? I would say, the current market conditions are tough, and I would say despite the market condition, given the strength of our brands and our confidence in our ability to execute strongly, we are likely to deliver very competitive growth going forward. As the market sort of improves, which likely to be from festival time, the growth rates will likely to go up further. We will stay focused on our, you know, growth drivers, like I said, store expansion, building online marketplace, improving like-to-like growth in our store, growing adjacent category like footwear, and kidswear, et cetera. We will continue to fire on all sort of cylinder. We want to build our these brands to mega brands and continue to focus on growing the businesses. Okay, that helps. If I may, Sir, one more question. I just wanted to understand about our tax rate. Will we, because of our prior losses, will that help in our taxation, or how would that, you know, just happen? Hi, this is Girdhar Chitlangia here, Girdhar Chitlangia. Yes, you are right. Our accumulated losses will help us in our tax in the future. Going forward, what would be the effective tax rate? Because I think this year we've still shown as 30%, so. You know, there are two things here. One is the tax regime, and whether it's, you know, ultimately, we pay our tax. Two different questions here. We are currently in the current tax regime only, and in future, I mean, we keep evaluating. As and when we get an opportunity to move to a new regime, we will. Of course, we have the option of continuously utilizing our past losses. Okay. If I, like, if I can understand, we're not paying out cash profit, it's just a book entry currently, if I could, you know? Yes. That could make sense. Yes. Okay. Thank you so much, sir. Thank you so much for answering all my questions. All the best for the future. Thank you. Our next question is from the line of Ankit Kedia from PhillipCapital. Please go ahead. Sir, my first question is regarding the working capital. I think excellent work on, you know, the inventory days and collection period. Just wanted to understand, have you changed accounting with the franchisee owners or wholesalers to reduce the inventory, or it's status quo on that front? See, over, there's nothing dramatically done in last one quarter, but over the last two, three years, we've been gradually changing the model to maximize ROCE and capital conversion. We used to do a lot more outright billing in the past, but now we have moved, like the industry has also moved to a consignment model. It's been done gradually. It's not like a one-off in quarter four. We believe that's the right model because the cash collection is faster there, our ability to manage the assortment of merchandise and price the full price store in a more scientific, automatic, automated way is better. We, we like industry, we've also made some changes, but they have been very gradual on this. Sir, is this the inventory is on our books or on the franchisee books, and on accounting and practical could be two different things, right? If you can explain the, you know, buy and sell model historically and now consignment model, how is it different on paper and actually? Yeah. In the past, when the outright model, the title of inventory gets transferred at the time of billing to the franchisee, and then that franchisee is supposed to pay back to us as per the terms we have with the party. After that, the whole experience and the whole scientific rigor of ensuring very healthy sell-through as with the franchisee, all the tools are get transferred also to franchisee. Don't even at time have visibility of cycle level detailing. We have moved to consignment model, where the goods, the title remains with us, with the company, and based on the sale, every day the sales get collected, so it's transferred back to us. At a pre-decided margin, commission, we pay him on a monthly basis, the commission. The inventory, which is reduced, is sitting on our books, and despite that, the inventory days have come down. Is that the right way to look at it? That's the right, you know. Also, what happens is that, you're right, that with all this back end being a little more scientifically handled, automated replenishment, the throughput of the inventory gets in our way, and it's a scientific knowledge, and now machines are doing it, you know, so we need the whole inventory pool to be guided by the machine learning. Second part is that when the inventory is with us, it also gives the opportunity for us to do the omnichannel business, because since we have a clear visibility of omnichannel, then it gets sort of through our own omnichannel method, gets exposed to the consumers online, and then we push the full price sell-through to the omnichannel conversion also. In our stores, a lot of our stores, the omnichannel contribution is in high single digits. That's a further push into full price business. You're right in a way that despite the inventory being on our books, we are seeing much faster turns in our business. Like we mentioned, the stock turn has crossed four now. Because of that, from a revenue recognition perspective, now we are looking full revenue and the expenses, the franchisee commission comes as expenses, because of this accounting. That way, over three years, you know, if the transition has happened over the last two, three years, the revenue is bumped up by that percentage of the franchisee commission. Gross margin and the revenue do get slightly increased, but also the franchisee commission will come below the GPM and other expenses, you know, profitability comes. Percentage EBITDA comes down in this model because the revenue recognition is at the MRP-ish level, whereas the margins are, you know, after reducing the expenses. While the denominator goes up, but overall, we see in the medium term, the our ability to sell full price and lower discounting goes up, that's what overall our EBITDA goes up. Basically, this is a model which is optimizing return on capital employed. ROCE is the North Star, and this method gives us the opportunity to do faster stock turns and improve ROCE. Sure. So in channel-wise, can you just help us with channel-wise margins on a ballpark basis, what they would be? How are we looking at the mix here, you know, online, MBO and retail business now? Let me first give you a sense of, we are fortunate, we have multiple, very well-developed channels, be retail, department store, trade, online, and within online, we have both wholesale as well as our own marketplace. At an annualized level, our retail contribution now is around 43%, which has gone up by 4% in last year. Department store is at that 12%-13%. That also because department store took some more time to recover, so this year we'll see further continuing growth in department store percentage, and they are now at around 13%. Trade tends to be on an average at 15%. We are at around 17%, but between department store and trade, that we get around 30%. We have a healthy online. We are the leader in the online space, where our contribution has been between 20%-25%. Then we have small other channels like export or, you know, liquidation, which is like 4%-5% of the business. This is the whole sort of a channel mix. You know, our entire effort is to drive channels which give us better opportunity to give experience, be it the retail channel, be it the online marketplace model. We prefer where, we have a larger say on, things like consumer experience, product assortment, discounting, and faster stock turn. That's where our philosophy on the channel is currently. From a margin perspective, then retail would give you the full control end-to-end. Is it fair to assume that the retail is the highest margin, while trade would be the least? Actually, I believe trade gives the best margin, right? Where you still don't have control. If you can just help us. Every channel has its own dynamics on margin and expenses. It will not be fair to answer that question. Our priority is to focus on experience right now. On online, you know, own website versus, you know, third-party marketplace, you know, a lot of there, we are seeing, you know, companies shifting to omni and not, you know, outright. How is that movement in online happening, and how does that impact margins? That's a major, you know, strategy for us to, you know, divert the online demand for our exciting brands to marketplace model. In this quarter, our marketplace business grew by 75%. What happens is that in marketplace, the whole assortment of inventory, we do it very scientifically. We create a lot of exclusives and very strong linkages with our stores on omni side. Overall, we are building this marketplace model very strongly, and we're putting a lot of resources and energy behind that. today, it is 50%? Getting this model a bit very simplistically. In the older buy and sell model in online, you would sell actual inventory to the partners, and then the control of how they sell it, at what price they sell it, you know, it's with them. It also meant that your inventory then is in different places with different partners. In a marketplace model, the inventory all is with us, in our warehouses and our stores. Because the inventory is centralized and all the demand comes to one centralized pool of inventory, we not only control the pricing and the presentation, but the same inventory pool is, you know, catering to all the demand. It is a much more efficient way to even get inventory sell-through to happen. I think the pivot towards marketplace is a very strategic one. It means our company has to also obviously develop capabilities around not only fulfilling the orders, along with the, I mean, from our stores and warehouses, but also maintaining the listing, creating demand. These are all now very scientific, new age capabilities, and those capabilities have been built by the company over the last two years. We are pivoting even our online business from a buy and sell to more of a marketplace model, where we take full control. That is the strategic significance of the shift we are making. Sure. If I can ask one last question. This quarter, there is some discontinued operations around INR 1 crore loss. Any brand, you know, Ed Hardy and all other Aéropostale we are talking of, you know, letting the license go, is it to do with those businesses? Ankit, just to clarify, you know, we had our old inventory for the discontinued operations, which is what we had done over the last two years. We have completely cleaned that in this quarter, and it's just a minor loss which is coming on account of that, and there is nothing else apart from that. Understood. Thank you so much, and all the best. Thank you. Thank you. Before we take the next question, a reminder to all participants that you may press star one to ask a question. Our next question is from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead. Hello, sir. Congratulations for the growth and the balance sheet, inventory terms. I am still unable to understand what is the pre-Ind AS bridge or pre-Ind AS margin that we would have at this scale of business, vis-à-vis the scale of business that we had pre-COVID? If you could give those two numbers, it would be very helpful to understand your margin movements. See, the post-Ind AS result that we declared, typically, the pre-Ind AS numbers are there's a gap of the difference of around 4%, and you can, you know, calculate that yourself. You know, if I look at the last two years, our EBITDA growth, we have done really well. I mean, we suffered in the last financial year itself, in terms of our ROCE, debt level, EBITDA level, we've been probably at the healthiest we have seen. From pre-COVID to now, we have seen major changes. We have driven some of those changes ourselves in terms of change of model, from outright to consignment model, and a lot of those things are clean now. If you look at last two, three years, we've been really focused on increasing our EBITDA. Last year itself, our EBITDA has gone up by 330 basis points. We are on a healthy trajectory, and we expect that our drivers of margin improvement will continue to go forward. We are in that sense, ahead of the COVID every time, you know, you look at our company results overall on, you know, our debt level, on inventory level, top ten level, EBITDA level, we are moving forward. If your pre-Ind AS margin are 6%, your reported is 10 minus 4, 6%. For a scale of business of INR 4,500 crores, you know, we have competing players who have a fairly higher pre-Ind AS margin. What all steps are still needed? Or if you could tell us the bridge, you know, why are the margins still single digit? See, our EBITDA for the full year is 12.1%. It's, you know, you can calculate the pre-Ind AS number, and we've really moved forward. Yes, there may be some players who have a higher EBITDA margin than us, and we will continue to improve further than. Couple of dynamics, it could be in terms of royalty payments, it could also be, you know, need for us to turn around Arrow and profitability further, to scale up Flying Machine further. There are a lot of levers and job for us to do, friend. We will stay focused on that, and we are very confident and working hard towards improving our EBITDA further every year. What is the drag which comes from Arrow and Flying Machine and the emerging businesses in your EBITDA? If you could give us that, it would be very helpful for us to understand what is the EBITDA margin of the residual business. Let's see, Arrow as a brand. COVID was really tough for the formal brand and that business and very largely retail-driven business went into losses. What we have done now is that by making a lot of changes to Arrow, which we have spoken a lot in our past investor call, we've turned around this brand. This FY 23 end, it is now low single digits. It used to be, you know, loss-making earlier, and the last thing in Arrow. Arrow is at a low single digit. Many of our brands are at a pre-Ind AS, double-digit EBITDA already. You look at our power brand portfolio, EBITDA in Q4 itself, you see is at 13.1% post-Ind AS. You can calculate where it is. Tommy Hilfiger, Calvin Klein, U.S. Polo, footwear, I mean, overall, U.S. Polo is all in double digit EBITDA already. You know, the brand like Arrow, we've turned around, we're happy about it, but there is a journey ahead to improve its scale further and improve its profitability further. Okay. The emerging brand, what is the drag now from the emerging brand to your EBITDA? If you really see the full year, the emerging brand EBITDA has gone up from 2% earlier to this year is around 5.9%. The emerging brands have improved, and that's largely coming from Calvin Klein. The other brands in that group are Sephora, where the EBITDA margins have remained stable, and discontinued brands like Ed Hardy, IZOD, and Aéropostale, where we have a INR 5 crore-INR 7 crore royalty hit for next one to two years, and that's the drag that we have currently. When you report 6% in your PPT, in emerging brand, minus 4, emerging brand is at about 2% pre-Ind AS margin. You know, if you say your pre-Ind AS double-digit, is it right that your pre-Ind AS double-digit margin in U.S. Polo, and Tommy, and you're losing some money in, let's say, Flying Machine and Arrow? Is that the interpretation? I would say, the interpretation is that Tommy, Calvin Klein, U.S. Polo are double digits, pre-Ind AS. Arrow and Flying Machine are at a stage where they have low profitability, and we believe they're subscale, once we improve the scale of these brands, they will also become higher profitable. Okay, sir. Thank you very much. Thank you. Thank you. Our next question is from the line of Shreyansh Jain from Swan Investments. Please go ahead. Hello? Yes, sir, please go ahead. Your line has been unmuted. Congratulations on a great set of numbers, sir. My first question is again. Shreyansh, may we request you to use the answer? Hello, is it better? Yes, sir, go ahead. Yeah, congrats on a great set of numbers. My first question is, last quarter when we had done the call, you had told us about how operating leverage will now start kicking in. Now if you just look at your gross margin and EBITDA margins, your obviously EBITDA margins has improved, but the kind of leverage that we were expecting has not actually come through. One is on the other expenses bit, and I think last quarter you had also mentioned that as retail grows, other expenses also tend to grow. Just wanted some more granularity in the sense that quarter-on-quarter, last four quarters, we've seen this number from INR 300 to it's now at INR 400 odd crores. When I look at some other companies like Aditya Birla, their% of other expenses to sales is not as high as ours. Just wanted some fundamental understanding of what is driving this increase in other expenses. Yeah. Let's see, let's start with GP, to EBITDA and other expenses we'll cover in that. First point is that we are getting a healthy scale leverage already. In the full year, we've seen more than 2%, 200 basis point improvement in EBITDA coming from scale leverage in FY 2023. Even in the quarter 4, we've seen, out of our growth in EBITDA of 1.9%, 190 basis points, 0.5% improvement in EBITDA out of that has come from scale leverage. Scale leverage is kicking in, and it will continue to grow. That's the one sort of statement of fact. If you look at our GP for quarter 4, our GP has gone up by 7%. Out of that, 2% is because of a technical model change in Tommy Hilfiger, where we went from operate on outright to consignment, and that happened early April. This is the last quarter where, you know, from year-to-year comparison, you will see that change in other expenses, because almost INR 25 crores of that expense has come as higher GP, and then it's coming as higher operating expense also. 2% out of that 7% is one-off technical. I mean, we changed this in April, now it will continue, in comparison from last year, will not come from the quarter one. That's one technical reason, that 7% actually is a 5% GP growth, which is in our way as per target healthy growth. Look at 5% GP increase. Out of that, close to 2% has flown into EBITDA. The balance 3%, what has happened is that as the sale is increasing and we have grown, like, really at a healthy pace of 45%, other expenses are also growing, you know, because lot of franchisee commission, royalty, supply chain costs, like, warehousing and freight, et cetera, come below that. Out of that 3%, 2% is going as variable. A lot of it is basically commission, 1%, half percent is select. Out of the 3%, 2% comes as variable. We have scale leverage coming in from lower manpower cost, which is around 0.5%. We had in this quarter, slightly lower other income than in the past, because of that, there was a little bit of drop of EBITDA. Out of that 5.3, you know, is flowing in. There are some expenses, there is a scale leverage of 0.5, which actually leads to 1.9% EBITDA. Coming specifically to other expenses, I will just give you a little more color on the other expenses of quarter four versus quarter three. One reason clearly is because of the sale increase, and there's a one-off technical reason of Tommy Hilfiger around INR 25 crores moving from, when we moved from outright to consignment model early this year. Girdhar, our CFO will explain a little more about the other expenses. You see, quarter-on-quarter, the other expenses have gone up largely because our department store sales have gone up, which significantly, you know, corresponding higher increase in commission expenses. In Q4 last year, we were a little subdued on our expenses, and, you know, most of our expenses are now back to normal levels. That has also impacted slightly our expenses. Last January was COVID, so most of the retail, everything was shut, right? The retail selects also was lower on that basis. Now this year we have grown on January because of COVID not there, and but then our other expenses have also grown in proportion to the sale. Okay, so, sir, just coming back to this. When we guide for about 12-15% odd top line growth, is it a fair understanding that we should build in a 10-12% growth in your other expenses, component as well? ...Yeah, in the channel where their commission comes in, for example, a lot of our monobrand store is retail, and marketplace also has a commission. In terms in line with the sale, but a slightly lower percentage of that will come as our expenses. Not all our expenses are fixed in nature, so you'll surely get some leverage, on the time. No, but, sir, higher the channel sales, then higher the commission and brokerage, right? Yeah, I understand. That is, of course, variable, but what I'm saying is, of all the other expenses, not everything is fixed or variable in nature. There are surely fixed expenses, which we will surely get leverage on. All right. All right. Somewhere in the call, you mentioned that Arrow has now turned profitable, and now just looking at your profit for the full year, we've done about INR 50 odd crores profit in the Tommy CK JV. That in itself would have been INR 100 odd crores, because 50% is our share. When I look at your profit before minority interest for the full year, it's at about INR 87 odd crores. Is there an INR 13 crore loss that is still sitting that you've done in this year? I mean, is that from Flying Machine? Is that understanding correct? Shreyansh Jain, Ankit here. What you are seeing is a swing in from negative INR 267 crore to plus INR 36 crore in PAT after minority interest. You are right, as to what Shailesh earlier explained, is, we have brands like Arrow and Flying Machine, which are low on profitability, and of course, the drag on account of our discontinued brand, which is there is a fixed cost. That does have a drag on PAT for FY 2023, but as what you can see, there is a significant stride, which is what we have made from FY 2022 to 2023, and we expect this momentum to continue in the years to come, and you will see that in FY 2024 as well. Okay. All right. Just last question on the tech bit, sir, I see in your cash flow, we've increased debt by about INR 130 odd crores. Just wanted some clarity on that, because I think we were on the debt-reducing spree, but all of a suddenly, we've gone and increased debt, so. You see, largely our endeavor, so indeed to reduce debt. We expect it to have a downward trajectory. FCF for the year, will be used to pay down our debt. This is like, this is what is going to be our. See, our debt levels, if you look at in FY23, ending close to INR 600 crore, it's gone up by INR 100 crore. Our sale growth is so much higher. If you look at our working capital days have come down. This increase in debt is largely linked to the increase of scale and our inventory levels, so are healthier and, you know, we've dropped 10 days in inventory. We are higher by almost INR 100 crore, because the kind of growth, 45% growth we have seen, in that, the value of inventory has gone up by almost INR 100 crore, and our debt levels are also gone up by close to INR 100 crore because of that. If you look at the, you know, the scale of operation that has gone up, our overall, you know, the inventory days have come down significantly. Our total GWC and NWC terms have become better, and we think that, you know, we will grow our CapEx, et cetera, from our internal accruals, and we don't have any organic plans, so our debt levels are gonna be very similar or maybe a little lower as we go along forward. Okay. All right. Thank you so much. Thank you. Thank you. Our next question is from the line of Jatin Sangwan from Burman Capital. Please go ahead. Thank you for taking my question, congrats for the amazing set of results. I noticed that in your balance sheet, your right-of-use assets have increased substantially from March 2022 levels and even from September 2022 levels. What is the reason behind this, and would it have any effect on the depreciation and the interest component that will come in FY 2024? You see, we have opened 39 stores, okay, and which is basically leading us to this higher number on the balance sheet. I don't see any increase in interest outgo on account of this. Of course, I mean, the India accounting will have to happen for these leased, newly leased properties, but apart from that, there is no cash outflow. If you look at Tommy Hilfiger business, it's a very high cash-generating business, growing really well and profitability growing even fast, higher. As a part of our capital allocation strategy, we see takeover store, because we're sitting on cash in the bank, is a very good because the IRR you get in the Tommy store is very, very high. It's very proven from a capital allocation strategy to use that cash lying in the bank to build stores and get a higher, you know, return on that investment into the stores. Okay, got it. How many stores of Tommy Hilfiger are currently on COCO model, and what is your target rate? Around close to 35 stores. Tommy has more than 100 odd stores, out of which 35 around we have done now, takeover COCO stores. What's the target for FY 2024 and 2025? you know, we will wait and watch. We will evaluate it. I don't have a ready answer to give you, but we will explore opportunity to increase our profitability by every other mean. Okay, sure. Also I noticed that employee expenses have increased around 10% QOQ. Is it because the retail, share of retail channel has increased, or it was some part of one-time bonus payment? Second question is on what the steady level of employee expenses we should look at? You see the Q4 expenses have gone up, as you rightly picked up, because of the bonus and variable payment in Q4. On a steady state, our salaries and overheads will be between, sorry. Jatin, Ankit here. Just to clarify, you should look at the employee cost on a year-on-year basis, which has gone up from INR 237 crore to INR 268 crore. It will, you know, increase in line with inflation, so you should probably build around 10% of increase in employee cost for FY 2024. Okay, sure. Thank you. That was the last question from my end. Thank you. Thank you. Our next question is from the line of Ankit Kedia from PhillipCapital. Please go ahead. What is the overall store opening guidance, you know, across brands for next two years? If I also look at the city count, you know, in U.S. Polo, we are present in around 175 odd cities. Tommy, for last five years, we are present in sub 40 cities. CK is sub 32 cities. Arrow, you know, the store count is on a reduction, city is also on a reduction. Flying Machine, also now you're planning to, you know, relaunch the brand. Sephora, there has been no store addition. How should we look at this, you know, over the next two years now, and which model, each of these brands, on the store plan? Store expansion is a key growth driver for our brands, all our brands. We see huge opportunity and untapped potential to expand in the big city and the suburbs of big city, as well into smaller tier towns. Now, our guidance is to open close to 200 stores, that's our guidance for FY 2024 as well, that we opened close to 175 stores in last year. We will continue to focus on that because our traction in our store is good. Our share of revenue coming from our EBO channel is going up, it's doing good business for us. We see opportunity to grow, you know, in these stores. As we stand today, the numbers that city you count, now you're giving, our numbers have really gone higher. Just to clarify that U.S. Polo has now crossed 200 towns. Tommy is available in now 70 towns. The store count also has gone up, city. Sorry, what I meant is city. Tommy is available in 70+ cities, U.S. Polo is available in more than 200 cities. The numbers from the last time, the data you're seeing, our numbers have gone higher, and we continue to grow sensibly our store count. What is the CapEx guidance? Because, you know, you said, look at the maths, you know, debt has gone up. You know, you suggested that from a free cash flow, we plan to pay our debt. If the CapEx of a 200 stores, assuming, you know, 60%-70% would be on FoFo model and, you know, 20%-25% could be on CoCo model, still there will be, you know, substantial CapEx in the business. How much debt over the next two years can we pay down with 200 store expansion every year? Ankit, we are expecting our CapEx for next year to be around INR 100 crore, a large part going towards refurbishing some of the stores, and also we are spending some money on upgrading our IT systems. All this we are expecting to do with our internal accruals, and I don't expect any further debt to be taken on account of this. Yeah, sir, debt reduction is also important. Do you see debt reduction happening, if not debt, increasing? I, we earlier answered that question, and we said, you know, any further SPF will actually go towards reduction of debt. Girdhar just mentioned that, you know, largely we are hoping that our debt will remain very consistent, and if at all, it will actually go down. Over the next two years, we are looking to maintain these debt levels or marginally reduce if we generate free cash flow? We are quite confident of cash generation from our business. Our CapEx needs are for, you know, just specific needs, so there's no major because our expansion is asset-light through partners. You know, in stable market condition, I'll be very confident of our debt level going down in the next two years, because we are very confident of generating further cash from our operations. Sure. One last question, what is the pre-Ind AS rental you would have paid this year? Rental? Yes. Ankit, that number would be somewhere in the range of about INR 180-INR 200 crores. Which is lower than last year's absolute rental number? I will have to check that. It would have gone up in my assessment, purely on account of because FY 2022 was impacted by COVID. Of course, we have opened a lot more stores and the retail, you know, expenses coming back. My assessment is, the rent would have gone up from 2022 to 2023. I'll take this offline. Ex the other income or one-time rental benefit, I believe the rentals would have come down, but I can take it offline and discuss it with you. Sure, we will do that. Thank you. Thank you. Our next question is from the line of Dhviti from Molecule Ventures. Please go ahead. Hello, sir. Congratulations on a good set of numbers. My first question is regarding USPA. In the PPT, you have mentioned about doing INR 2,000 crore of NSV. What has it been in FY 2023, and what will be the delta in the brand going forward? USPA has done very well in terms of growth. The delta this year in FY 2023 over previous is close to INR 600 crores. It's almost like size of a big brand that's added in one year. It's still not reached INR 2,000 crore, let me clarify that, but it's in a journey where it should hit INR 2,000 crore top line very soon. It is a leading player in the men casual segment in the country. It'll continue to dominate that segment. Okay. Sir, the adjacent categories, if you could give annual revenue break up for each of your kids wear footwear, innerwear. See, you know, we will be in the brands where we have big adjacent category like U.S. Polo or Tommy Hill, because the number we will hit close to, you know, double-digit revenue share very soon. The growth rates in these brands are in this segment is very high. Footwear is growing at 40%-50%. Kidswear has been growing at around 25%. You know, we continue to pilot some new categories as in the background, doing some small piloting all the time. These categories will continue to grow very rapid pace. Also, sir, USPA, can we assume that it has done around INR 1,800 odd crores in FY 2023? Very close to that. I mean, you know, give and take INR some crores here and there, but you are very close to that number. Okay. Next question is regarding Arrow. Last few quarters, we have been talking about the brand turning EBITDA positive. What will be the EBITDA margins for FY 2023, and how do you look those going forward? Like I said, COVID was harsh to this category. This year did a large swing in EBITDA, very, very large, and it's turned EBITDA positive. But still the EBITDA margin in Arrow in FY 2023 is low single digits. The idea is to take it to mid-single digits very, very quickly, because once our model is working and the consumers are buying that model with newer categories like Super Premium 1851 or new smart casual line called Arrow Sport. A lot of things are trending really well. The like-to-like growth and sales growth in Arrow are very, very healthy. We've also done up-gradation of retail identity, and we are opening more and more stores with that identity. With that energy that Arrow has, we are, you know, gunning for very high growth, and with that scale, we are also gaining leverage along with the efficiency. The next milestone is to hit mid-single digit EBITDA in Arrow in near future. Sir, if you could give the OPM for current quarter in Arrow? Uh. If that's possible. We don't give brand-specific details. Okay, okay. Sure, sir. Thank you. Thank you. Thank you. Due to time constraint, our last question is from the line of Gautam Rathi from CWC. Please go ahead. hi, this is Nishit. Am I audible? Hi, Nishit. You are audible. Hi. Hi. Great set of numbers, guys. Just a question. I just wanted to understand. I could not understand the debt comment actually made by the CFO. Actually, because, you know, in my understanding, you know, you guys have done a very decent OCF this year, despite, you know, 150 crores, 130 odd crores that was used in working capital, right? You are guiding for EBITDA's margin expansion going forward on the overall revenues, which will basically give you even further ammunition. Your OCF may not accrue, your working capital may not increase at the same level because you may not add the same amount of absolute revenue that you are talking about. I just, you know, am I missing something? Are you know, it just appears to be, it just doesn't, you know, it doesn't add up, right? I can't see any reason why we shouldn't be, you know, reducing debt substantially every year, right? Even this year, like, we've accrued cash, right? We, our net debt is flat. Our gross debt has increased for some reason, our net debt is flat, right? Going forward, shouldn't we be accruing at least INR 100 crores of FCF, if not more? This is Girdhar here. You are very right that with the increase in profitability and now, you know, last year was a one time where we saw almost a 50% revenue growth because of COVID base. Now with a naturalized natural growth rate and a much improved profitability and a small CapEx amount, the business will be generating free cash flow. Let me be very clear in stating that, but the environment is a little uncertain, so we are kind of being a little cautious in our guidance, but definitely debt will be going down. It has a downward bias, and at every year, we believe the amount of FCF the company will be generating will be going up significantly. Yeah, fully, I fully understand. Basically what you're saying is, if your other guidances hold, which is improved profitability and steady growth rate, then you will generate this. Now, the only scenario in which you don't generate FCF is, let's say, the environment deteriorates sharply. Even there, the growth will slow down, the working capital will get controlled, and you will control CapEx. And/or the growth goes through the roof, wherein, you know, you again consume some working capital, but again, you will generate much better profitability, right? So most of the scenarios going forward from here, if your guidance are better ROCEs, which means we will be getting much better OCF to FCF conversion, better CF conversion, right? That's right? No, you are right. I mean, there is no scenario where we see debt going up. In terms of its downward bias, it will, as you explained, or as you mentioned, it will be a function of, you know, how the scenarios play out. In a scenario where the markets are good, which we do believe that the markets, you know, are going to pick up, in the next few quarters. We do believe that the free cash flow generation in the company should be healthy, and thereby, debt should go down. Kulin Lalbhai, in your assessment, you know, I'm not holding you for... You know, you guys are thinking to become a debt-free company sometime, right? Where would you say that, you know, is it two years, three years? Where would you be disappointed not getting to that number? No, I think, that is the stated objective, that we are going to generate very healthy cash flows. as per, you know, a three-year kind of vision, it definitely we can be very close to being net debt zero. That is very, very positive. I think you guys have done a really good job, you know, from where we were to generating, you know, a very healthy OC. We've now at least we are generating a healthy OCF. Just another, you know, this is something that keeps coming up, and I really want to appreciate the fact that now, you know, you are looking at your PAT excluding the minority interest, right? You know, it's very stark, right? Somehow it appears that Tommy Hilfiger is already an INR 100 crore PAT business, right? Is it fair to assume that, you know, U.S. Polo will be in a similar kind of range, if not better? US Polo, as Shailesh also mentioned, is a double-digit pre-EBITDA profitability, so it's in a very healthy profitability and also an extremely healthy return on capital employed. That is very heartening to hear again. Whenever we look at the bank loan numbers, excluding the subsidiary numbers, the profitability somehow doesn't show up. That you're saying there are two components. One is partially the drag of some of the brands which are discontinued, and partially as some of your brands like Arrow scale up, then the true profitability of U.S. Polo at some point of time starts showing up, right? Yes, definitely. Thank you so much. I mean, this 193, 190, this increase in Q4, every quarter you should expect to see the operating leverage continue. No, I think you guys have I think this year, you know, I think with the balance sheet and the cash flow and managing all of that, with all that discipline to manage the growth was great. Looking forward to next year, you know, I hope, you know, the only thing now left to see is this, is healthy FCF generation and, you know, we're hoping to see. I'm sure we get there. Thank you. Thanks a lot, guys. Thank you. Thank you. That was the last question of our question and answer session. I would now like to hand the conference over to the management for closing comments. Thanks, 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, I'll be happy to answer them offline. Thanks for your time, look forward to again interacting with you in the next quarter. Thank you. On behalf of Arvind Fashions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect.