Ladies and gentlemen, good day and welcome to Q3 and Nine Months FY2023 Earnings Conference Call of Electronics Mart India Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bajaj, CEO of Electronics Mart India Limited. Thank you, and over to you, sir. Thank you. Good evening and a warm welcome to everybody present on the call. Along with me, I have Mr. Premchand Devarakonda, CFO and Strategy Growth Advisor, and our Investor Relationship Advisor. We have uploaded our results and investor presentation for the quarter and nine months on the stock exchange and the company's website today. Hope everyone had a chance to go through the same. On 17th October 2022, Electronics Mart India Limited got listed on BSE and NSE. It was a momentous day for all of us, and thank you to all the stakeholders who have believed in us. In the nine months of FY2023, we have opened 19 new stores. Currently, we have 122 stores, 109 of which are multi-brand stores and 13 are exclusive brand outlets. Out of 122 stores, 102 stores are leased, 12 are owned, and eight are partly owned and partly leased. As on date, we are present in 38 cities across four states, and we have recently entered Kerala as well. We continue to focus on deepening our presence in the regions we operate in before venturing into the new market, which has led us to establish brand presence in Telangana and Andhra Pradesh markets. This enables the target customers to identify with our brands as well as with our product portfolio and aids our understanding of the market segment and the customer demand preferences. We believe that this approach also enables us to achieve significant market share and dominance in the market we operate in. We plan to continue to deepen our store network in Andhra Pradesh and Telangana, and also gradually plan to expand our network in the new region that we ventured, that is Delhi NCR, in pursuing our defined cluster-focused expansion strategy. We plan to open 26 MBOs in NCR, 22 MBOs, and 10 exclusive brand outlets in Andhra Pradesh and Telangana in the coming future, and adopt a methodical approach in evaluating and selecting locations. We believe that our local market normals, supply chain efficiencies, and effective inventory management have enabled us to attain higher cost competitiveness and consistent profitability. Our customized product assortment and comprehensive product portfolio enables us to achieve better visibility, brand recognition, deeper market penetration, and increased customer base. We have nine large centrally located warehouse facilities now, which are backed by individual store areas to individual store storage areas at store level of varying sizes to cater to individual stores or a group of stores. Coming to Q3, we have delivered strong growth of 17% revenue year-on-year at INR 1,482 crores compared to Rs. 1,265 crores of last year, with a 17% growth and a 32% year-on-year for the nine-month FY2023 at INR 4,118 crores. On account of investments made to open new stores in the new geography that is Delhi NCR, the company has increased investment in brand building, sales, marketing, and these investments have lowered the EBITDA margins, which are expected to improve as revenue throughput from new geographies increases. To conclude, I would like to say that after having established a leadership position in the Andhra Pradesh and Telangana retail electronic market, we have now entered Delhi NCR, where we plan to capture significant market share over the few years. In the southern region, we plan to expand our footprint in places like Vijayawada, Tenali, Guntur, Kurnool, Nellore, and more Tier 2, Tier 3 cities in the existing clusters. By the cluster-based distribution network, diversified product portfolio, strategically located logistics warehousing facilities, we overall will give us a competitive advantage in the existing market as well. With this, I request our CFO, Mr. Premchand Devarakonda, to update you on the financial performance of the company. Thank you. Thank you, Karan sir. Good evening and warm welcome to all the participants. Now I would like to present the financial overview of Q3 of FY2023. The total revenue for Q3 of FY2023 stood at INR 1,482 crores as against INR 1,265 crores of Q3 FY2022, with a growth of 17% year-over-year. For nine months of FY2023, our revenue stood at INR 4,118 crores as against INR 3,119 crores of nine months FY2022, with a growth of 32% year-over-year. EBITDA for Q3 of FY2023 stood at INR 72.8 crores as against INR 77 crores of Q3 of FY2022. There is a degrowth of 5% year-over-year. Whereas, for nine months of FY2023, EBITDA stood at INR 245.2 crores as against INR 203.2 crores of the corresponding period of FY2022. There has been a growth of 21% year-over-year. EBITDA margins for Q3 of FY2023 stood at 4.9%, whereas for nine months, it stood at 6%. As already mentioned by our CEO, our initial operating and branding expenses while expanding our operations in the new territory, that is NCR, have impacted these margins. PAT for Q3 of FY2023 stood at INR 21.9 crores as against INR 27.7 crores of Q3 FY2022, a degrowth of 21% year-over-year. For nine months of FY2023, PAT stood at INR 86.7 crores as against INR 68.6 crores of base period. It had a growth of 26% year-over-year. Annualized ROCE and ROE for nine months of FY2023 stood at 12.7% and 9.8% respectively. The working capital days as on 31st December stood at 49 days. The gross debt to equity is 0.4x, and net debt to equity is at 0.1x, which was a considerable improvement on account of IPO. Our net debt to EBITDA stood at 0.66x. Our cash flow from operations before working capital changes for nine months of FY2023 stood at INR 244 crore, which is almost equivalent to our EBITDA. During the reporting period, our same-store sales growth rate stood at 23.5%. During nine-month period, the composition of sales of electronics and consumer durables has been 48% from large appliances, 37% from mobiles, and 15% from small appliances, IT products, and others. Out of the total sales, around 98% have been from retail segment, and top five brands contributed around 64% to our sales revenue. With this, I would like to open the floor for questions. Thank you one and all. Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star, and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star, and 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. The first question is from the line of Krisha Kansara from Molecule Ventures PMS. Please go ahead. Hi, sir. Thank you for taking my question. Sir, my first question is regarding Delhi NCR. So if you could just give a brief about the size and the number of stores opened in this new geography. Also, sir, what is the current run rate of sales coming from Delhi NCR, and have we achieved break-even there? That is my first question. Thank you. Hi, Krishna. So Delhi NCR, as we talk, we are operating 12 stores there. So eight stores were launched on the 14th of August, and four other stores were launched the 22nd of October. So right now, we would look at these stores performing after a certain gradual growth that we would be expecting. So post-Diwali, we saw these stores stabilizing a little bit. And then the biggest season there is actually summer, which would start off from April. So Delhi, on a whole, as a scenario right now, so usually when we look at 12-14-month break-even in the existing market, we were assuming that Delhi would break-even for us in the period of 18-20 months, a little higher because it's a new geography and a new brand altogether. But what we expect for a store to perform on a year-one average of the INR 25+ crores, so the throughput on those lines is on track. And once we get through the summer season, that is when we would be looking at the initial growth of year-one, year-two, and year-three, which would be higher, and then the stores stabilizing and maturing after year-four onwards. So that is the trajectory that we've seen in the past in the existing market. And we are hoping that in the Delhi market also, we would be on the same track. Currently, what percentage of sales would be coming from these Delhi NCR stores? Q3, the sales percentage that added up in Q3 was around INR 54 crore. For the first nine months, because there were a few weeks of Q2 also that added up, so the first nine months, the total revenue from Delhi that was generated was around INR 84 crore. Okay. Okay. Got it, sir. And sir, so you've recently opened a few kitchen stores, specialized stores. So currently, how much do they contribute to the top line? So kitchen store is a specialized store format, and we have one store in Visakhapatnam and two in Hyderabad. We have recently taken over the operations of the Kerala store as well. But the store that we are about to launch will be launching in the month of April. Technically, today, the store is not operational in Kerala, but we are booking sales there. Apart from that, the existing stores that we have in Hyderabad and Visakhapatnam, they deliver very minuscule sales because it is a specialized store only for very high-end categories of kitchen appliances. It is a tie-up between the German modular kitchen brand Häcker. For that reason, we run incubation stores where the gross margins are much higher than our regular stores. Here, we would look at a lesser throughput. The average stores would do around INR 15 crore-INR 18 crore for these specialized store formats. INR 15-18 crores per store? Yeah. Okay. Okay. Got it, sir. And sir, how many more such stores do you plan to open in the near future? So we're not looking at opening more of these stores because this has to do with the tie-up for the kitchens as well. So probably one or two more stores in the coming few years. Nothing on the plans to expand the store format. Okay. Okay. Okay. Got it. And sir, one last question. So currently, contribution from mobiles is around close to 40%. So I just want to understand, key, how has this contribution changed over the years? And can we easily expect that this contribution will remain in this range of 30%-40% going forward also, or in your opinion, will it increase? No. So what happens is basically a few months, if suppose it is the quarter of summer where the cooling products like refrigerators, air coolers, and air conditioners are a category which start delivering more, so automatically, mobile as a category, the percentage of share on this product needs to reduce. Whereas a few months where it's December or November or post-summer, a few of the months, you would look at a higher share of these categories. So the lowest would be as low as 30%-33%. And again, the highest would be around 40%. So if we average it out on an annual basis for the nine months, it comes around 35% or 36%. So that is the number that we look at for a mobile category to contribute to the total revenue. Got it. Got it. Okay. And sir, are we seeing any demand slowdown in this segment? Sorry? Can you repeat your question? Are we seeing any slowdown in demand in this mobile segment? Mobile, no, not at all. In fact, we just are about to launch the Samsung S23 as well, and we've seen quite a good demand coming in for that model. We saw good demand coming in for the 14 series of Apple as well. In fact, post the 5G launch completely, we were expecting there would be a lot of churn in the next coming few quarters, which would definitely bring in a little more growth in this category in terms of ASP going up because the 5G devices are going to be on the higher price segment. But one advantage that we have is last six months, we've been already selling a major number of 5G devices. So we are already there showcasing the 5G technology in our stores. believe that post the rollout of 5G completely in the existing markets that we are operating, we would look at definitely a churn coming in for devices from 4G to converting to 5G devices. Okay. Okay. Got it. Got it. And sir, in your presentation, you've mentioned that currently, you're just 12-owned stores, right? So how will this number move going ahead? Will we be opening more such-owned stores, or will those be on lease only? Yeah. So it is more like an 80/20 split right now, whereas 80 properties are approximately leased. Around 20 properties, around 12 properties are completely owned by us, and eight properties are partially owned, which means that if suppose we have two stores in that building, one is owned and one is leased where we are operating the stores. Out of that, seven to eight stores are what we actually decided to buy in Delhi NCR. That was a major investment that we did in the last 12 months. And out of the three stores that are operational, five more stores of the properties that we have bought are yet to get operational in Delhi, which will get operational in the next few quarters. So going forward, it is going to be a majority or mix of leased-out properties and very few selective locations we will be buying out. That Delhi expansion was planned on buying out the bigger ones, and we've already done the buying out in Delhi. So we don't see a major requirement of buying out properties in the existing markets. Okay. Got it. Got your point. Yeah, that's all from my side, sir. Thank you. Thank you. Thank you. Participants who wish to ask a question may press star, and one. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead. Hello? Yep. Thank you very much, sir, for the opportunity. So I just wanted to understand. I mean, you mentioned that this margin decline this quarter was because of the increased investment. So is it possible to kind of quantify the investment that we would have done in brand building of sales and marketing in this particular quarter? Yes. Yes. Yes, Deepak. So Deepak, one major change that we did compared to the last year was INR 4.5 crores of cashback that we had paid out for all the financing and the cashback that we do on the floor during the festival period. So that was a major spend that we did of INR 4.5 crores. And if you look historically versus the marketing spend that we did, that was another major spend that would include the Delhi launch and all the lucky draws and all the other offers that we do. So that was two major spends that we did. And even when all calculated in Delhi, it was expected to burn a little initially because it takes a little time for the stores to stabilize. What I can say is that in terms of what our expectations were in stabilizing the stores, I think we are on track on doing that. Once we open a few more stores in Delhi and stabilize there, the marketing cost, again, would be in hand with our sales revenue. We're not expecting anything out of the box to go wrong in Delhi right now. Everything under control there. The spend majorly would be pertaining to the cashback of INR 4.5 crore approximately and the marketing spend. That would directly affect our EBITDA. What would that total be? 4.5 crores is the cashback, and the Delhi launch incremental investment would be how much? Sir, only Delhi, Delhi incremental. And plus, there was an incremental in our spend in the Tier 2, Tier 3 cities in Andhra and Telangana as well. So the bifurcation would be given to you. I'll ask the team to send you the bifurcation as well. But the total amount was around INR 10 crore spent between the existing market and Delhi, which was an incremental cost during that quarter. Total marketing spend is about INR 7 crore, right? Sorry? This total sales and marketing spend is about INR 7 crore. Out of that, about Delhi launch would be included there. No, no. It would be much higher. It is not INR 7 crore. It is much higher. The spend was around 42? 45 crores. Nine months. Yeah, for the nine months. Okay. No, I was just trying to understand the third quarter, not the nine months. Third quarter, what the spend would be? Third quarter was around INR 22 crore. 22 crore. So that is our marketing spend, right? And that would include our Delhi launch? Yes. How much was this spend in second quarter? Second quarter, the spend was around INR 10 crore. Incremental, we can say that INR 12 crore would have come, right? I mean, on a quarter-over-quarter basis. So [Foreign language] INR 10 crore [Foreign language], that was the incremental spend that we did. In addition to that would be INR 4.5 crore cashback, right? That would be additional spend. 45 crore का cashback [Foreign language] Okay. Fair enough. It was actually, we didn't carry out any cashback last year for the same period. Fair enough. 2023 [Foreign language], so we didn't come out with cashback. And majorly, this marketing, even for Andhra and Telangana stores, because that is where we have not stabilized and the stores are maturing, so we have started spending in those territories as well. And these Tier 2 markets and all are very heavy on vernacular newspapers majorly. So that is the only major medium for us and theaters. And these are two expensive mediums. So we don't have too many options in terms of marketing because we don't have outdoor hoarding, radio in these Tier 2, Tier 3 cities. So the major spend goes through and marketing goes through either theaters or through newspapers. So both of them are quite heavy in terms of the money required for advertising that region. Fair enough. I understood. And sir, this margin front, I mean, we have always been saying that 7% is a kind of a steady-state EBITDA margin for us, right? Now, this quarter was around 5%. So I mean, this journey towards 7%, would you expect that to kind of achieve in FY2024 as a whole? I mean, some understanding on that would help. Yeah. So Deepak, if you look at the nine-month number, it is around 6%. So we don't see a drastic drop there, number one. Number two, FY2023 Q4 also, I would say that because we've already passed six weeks under the Q4 quarter, and we know significantly how the product mix is going and how the demand for cooling products are coming in. And then you can check historically how your Q4 would deliver. So we are on track on achieving the numbers that we had given out in the market earlier in terms of our estimations. And FY2024 also, we are expecting because the stores in Andhra and Telangana would mature, we'd be opening new stores as well. Delhi also would be stabilizing by Q2 after the April, May, June, summer period. So we were expecting that even things would be in line for FY2024 as well. Okay. Fourth quarter, as well as FY2024, we are expecting that 7% EBITDA margin band. Would that be a fair to kind of understand? Sir, I would not say that, sir. I'm not exactly pointing out there a certain number. But what I would say was it would be in line of what our expectations are. And there would not be a drastic jump or high or low in that number. But we would definitely try to achieve because it would depend on the product mix as well. Maybe cooling products like AC refrigerator and air coolers would give us a higher gross margin, and that would automatically help us increase the number. Fair enough. I understand. My last question is on your revenue. I mean, we have been talking about maybe, what, 20%-25% revenue CAGR, right? I mean, two to three years. We are holding onto that? Yes. So if you look at the first nine-month number, we are upwards of 32% growth. Though the Q3 of FY2023 was at 17%. But post-Diwali, if you see, the markets were down real bad. But we were still able to achieve a good throughput during December as well. And we're quite confident on how the operation is stabilizing across the new geographies also. So I think we'll be on track for that as well. On track for that. Okay. That's it from my side, sir. All the way through, thank you so much. Thank you. The next question is from the line of Sameer Gupta from IIFL Securities. Please go ahead. Hi, sir. And thanks for taking my question. First question, is the SSS growth of 10.5% this quarter that you have clocked? So we are basically witnessing a slowdown across consumer discretionary categories, especially after Diwali. So just trying to understand this 10.5% SSS growth in that context, is it because after October, the sales for you are anyways very low in this quarter, and that is why you're not seeing any slowdown brunt, or is it that you have bucked the trend and performed really well? So yes, the 10% approximate same-store growth has come in for Q3 alone. But that has not been there for Q2 and Q1. So I mean, in terms of Q4 also, we would look at a different trajectory. But definitely, yes, it was a major slowdown. So usually, we would see a slowdown for a couple of weeks after Diwali. But then this time, that got a little more delayed for another three or four weeks. So it went up till almost December first week. But then we were averaging out what numbers that we would do. So that brought down the SSG as well during that period. But then I don't see that one of the incidences happening during that period. But we are back on track again on Q4. So we would see a much higher SSG coming in the future as well. Just to follow up on this, so are you seeing any sort of? I see, SSS growth viability can be misleading because there is an Omicron in the base, and all those anomalies are there. But on a sales per store, something like a metric which is better to track, are you seeing any better traction in the fourth quarter, or things are more or less similar? There would be a different trajectory coming in for Q4 because we've already passed six weeks, so we know what is happening. Most of the stores so there was nothing additionally done apart from the Delhi stores as an expansion. The SSG eventually would be coming in for the majority of them would be coming from the mature stores. We are quite happy with what we're delivering, and we see a performance coming in from our mature stores as well as for the new stores. Once the new stores stabilize, we're definitely looking at a much higher SSG coming in in the near future. Got it, sir. Second question is this 5% margin that you have reported. And my sense is that a large part of this is because of the Delhi 12 stores that you have added during the year. Now, out of the 19 stores that you have added, 12 are in Delhi. And you just mentioned that a Delhi store typically will take 18-20 months for break-even versus the normal 12-month trajectory for your other stores. Now, with the growth construct being similar going forward, that two-thirds of the additions will be in Delhi, how are you so confident that you'll get back to the 6.5% EBITDA margin trajectory? I mean, just by the math of this bigger break-even period for Delhi should actually skew the margin to the lower side, right? But for me, that would even see they definitely initially, there might be a drop of 1% or 2% in the gross margin levels in Delhi operations. But then not necessarily that Delhi is contributing to a much higher number of revenue coming in from there initially. So. High margin for us, so. Yeah. And for me, one more thing is that this product mix in Delhi initially today, when you compare to our existing market where you see a 35%+ mobile phone contribution, which is one of the lowest gross margin categories with 7% coming in from IT, whereas we have the larger products selling better in Delhi today for us. And we've not even completed the summer season, which is one of the largest contributing seasons in Delhi as a region. So only after we complete one season of summer or one complete year of different seasons of all four quarters, that is where we will be able to completely in-depth tell you and analyze and tell you the complete detail of that. It is too early for us to comment. It has hardly been five and a half months of operations for eight stores and three and a half months for four stores. It will be too early for us to comment. But what we can look at right now in Delhi as an overall strategy is that we are able to achieve a certain decent throughput for us to be on the path of achieving INR 25 crore+ for every store. That is more important for us initially where the attraction is there. And it is not a burn purchase, but it is an attraction that we're looking at right now. And then it will eventually stabilize and then create a market presence for itself. That is more important for us initially. Sorry, I didn't get that number. INR 25 crore sales per store on an annual basis in Delhi, that's what you're targeting? Yes. So whenever we open a new store, for me, historically, what we look at is whenever we open a new store, how we look at the calculation of break-even is that if it's an existing market, we look at a INR 30 crore throughput for year one, then gradually increasing in year two, and then year three, and then stabilizing or maturing after year four onwards. So usually, it takes around four years for it to mature. But in the existing market, at a INR 30 crore number, we would break even between 12-14 months. That is the number historically what we've delivered. So looking at that, Delhi, because we do competitive markets, we position ourselves at INR 25 crore for year one. So that is the number that we look at. Because of the throughput being INR 25 crore, we look at a higher break-even period, which is around 18-20 months. That is why these numbers are given out. These are all conservative numbers. But on track, few of the stores might achieve that much sooner. Few of the stores might take a month or two later. But in line with what we would be looking at. Understood, sir. Understood. Thank you. Thanks. All that's all. Thank you, Sameer. Thank you. Participants who wish to ask a question may press star one. The first question is from the line of Rakesh from HDFC Mutual Fund. Please go ahead. Yeah. Thank you for the opportunity. Just wanted to understand this other expenses line slightly better. This is roughly about INR 21 crore increase on a quarter-on-quarter basis and roughly about INR 22 crore if I look at your third quarter last year, right? If you can help us understand how much of this is in terms of break-up marketing, what has contributed to this increase, maybe that will help us understand your margin profile slightly better. So I'll give you a detailed breakup on this. So the major numbers that we looked at where the expenses have increased, a few of them are directly proportionate to the sales itself, which are sales promotion, Dealer Buy Down charges, credit card charges, and all, which have increased around INR 7 crore. And marketing expenses have increased a little bit. Maintenance, power, and fuel because we added up new stores. So electricity cost, fuel cost for generators, and all of that, that increased a little bit. That is around INR 1.7 crore. Other expenses, which would include all of these other things like sales promotion, DBD, credit card charges, cashback offers, all of that put together has brought in the major increase. Out of this, 50% of the major increase is only coming from the marketing and advertising front. 50% is the extra spend you have done. Would that be a fair understanding of how the cost is working out? Just to add in. Sir, if I give you the first nine-month numbers, around INR 28 crore approximately was the marketing spend for the first nine months, which is usually directly to INR 45 crore. So this would include the lucky draws, the INR 1 crore cash prize, the cars, the INR 50 lakh cash prize that we started in Delhi also. So from INR 28 crore, directly jump of INR 45 crore to INR 45 crore was in marketing itself. And the sales promotion cost from, say, INR 71 crore increased to INR 106 crore. So that was another major spend around INR 30 crore is what was directly proportionate to the sales because credit card charges are now customers' cash transactions have reduced a lot. Customers are buying everything on credit card, debit card. So every transaction, there is an MDR charge that the bank charges around 1.2%. Then all the cashbacks on the UPI payments and all of that. All of this includes under the sales promotion, even the paper financing cost that we bear, which is interest cost, the dealer buy-down cost. All of these costs have directly gone up in the expense report. No, so can you help us understand this slightly better in the sense that what is the cost which is, let's say, not proportional to your sales, which has gone higher because of which the margin is looking lower, and what would be a normal trajectory going forward? So if I look at, let's say, your cost, right, as a percentage of sales, your other expenses as a percentage of sales has been roughly about 5.6%-5.8% third quarter or the previous quarter. And currently, it's sitting at 6.3%. There's about 50 basis point or 70 basis point increase if I look at it on a like-to-like basis year-on-year basis, right? What has contributed to the 70 basis point of incremental spend because that will not be linked to the proportion of the sales? Sorry, not 100% of it, but different heads over the smaller portion. But the majority of them is what I told you. I'll just ask Prem, sir, if he's able to get in detail with you on that right away on the call and explain it to you. Sir, Prem, please. Yeah, okay. Please go. Sir, permanent PER is one of the major expenditures. That is for the nine-month period. This has been 0.69% of the revenue during the current financial year as against 0.6% of the previous financial year. Then another major expenditure is the maintenance. So that includes the housekeeping as well as what and what. So this has gone up by I mean, it is during the current nine-month period of the current financial year, it is 0.66% as against 0.63% of the previous year of the revenue. Then advertisement has already been mentioned. So it has been 1.19% of the revenue as against 0.95% of the previous financial year. Then we have business promotion expenses, which is nothing but the lucky draws and other launching activities, which we carry out. That has been 0.22% during the current nine-month period as compared to 0.09% of the previous financial year. Apart from that, sales promotion expenses, which has been 2.81% during the current nine-month period, which has been 2.46% during the previous financial year. Okay. Now, so. Yeah. This is as a person. Going forward, how should we look at these three big head items, equities, and business promotions, and the sales head marketing, right? All of these costs have gone higher in this quarter. So what I'm trying to understand is going forward, what would be a normal trajectory? Is the third quarter what you've seen last year or this year is going to be a normal trajectory going forward? So do you expect these numbers to come down as a percentage of sales? That's right, sir. Once the store throughput improves in Delhi NCR, so obviously, these costs as a percentage of sales will come down. Okay. So in that scenario, I mean, how will you achieve 7% EBITDA margin in FY 2024? Because if. So, sir, back to, let's say, your rental house has a manpower expense, which are directly proportionate to the sales throughput first of all. Right now, a lot of the rental costs that we proportion, for example, or the advertising costs or sales promotion, all of these work for a limited number of stores. Say, for example, if I'm doing a INR 50 lakh draw next year in the same quarter, I would have 25 stores in Delhi or 20 stores in Delhi. The number of spend or the number of advertising that we would do in the same quarter would remain the same but would get divided, or the increase of stores would give us a higher throughput or higher revenue overall. So in that proportion, it will definitely come down. But initially, because it is Diwali and Dussehra, it was a period during that quarter, we had to with the new market players, we had to be at par with advertising with the larger players. So we could not step back from that. So this was all calculated initially when we started our operations in Delhi. So Hyderabad, and AP, Telangana, and the existing market, there was not an incremental increase in advertising. Just to give you a number there, the proportion that we spend on advertising and all other aspects of marketing was definitely much lower than what our sales percentage would be. So that is in line. Same thing would happen in Delhi, but not probably this quarter. Probably next year in the same quarter, we would definitely look at a similar spend with higher throughput coming out from that market. Understood. One last question. What is the seasonality in your business in this, especially in terms of gross margin? This year, this quarter, gross margin is 13%. Last year, same time, was 13.3%, but that was also, I believe, one of the lowest quarters during the four quarters. How should we generally think of gross margin seasonality going forward for the four quarters? Which quarters would be higher typically at what range so that we get some sense of what is a normalized margin for the year? You would still maintain I would assume that you're still guiding 14% gross margin for the year as a whole? Yeah. So, Rakesh, sir, majorly, the highest growth range category or the product category that we sell is AC and coolers. So this season, AC coolers will pick up automatically. We're looking at a higher gross margin during that period. But summer would, again, or the weather would, again, play a very important role for us. So, for example, because this year, we would, in, say, Q1, we would look at a longer summer for us because Delhi also would add up few numbers coming in. Not a very big number, but some numbers coming in from that region as well because the summer is elongated there and would go as long as June, July. So if you're lucky enough, with the weather support, sir, we've been able to deliver a higher throughput for AC cooler as a category. So we would look at the quarter where the cooling products would give us a higher GP. So blended GP for those quarters would definitely be higher if you look at historical data also. Number 1. Number 2, Diwali or festival period definitely, on paper, would give you a higher margin. But then, again, that is one of the only periods where the discounting becomes the highest as well because it is the most competitive cutthroat market that happens from the customer point of view where everybody's got an ad, everybody's running an offer. So though you get an extra margin or an extra benefit during the festival period from the brands who negotiate better, but then eventually, it boils down to discounting that on the floor. Otherwise, cooling product category, AC cooler affiliate, would be the highest growth in product category at any time of the year for us. Okay. Thank you very much and all the best. Thank you, Rakesh, sir. Yep. The next question is from the line of Tushar Sarda from Athena Investments. Please go ahead. Yeah. Thank you very much. You mentioned that Delhi will achieve breakeven at around INR 25 crore sales per store. So if you can explain the store-level economics in Delhi and also for the Delhi cluster, how the economics would work out because some of the costs like advertisement marketing would be common. So if you can just broadly explain, that would be very helpful? Okay. So, sir, if I've understood your question correctly, so Delhi market, though the market size of Delhi is much bigger than our existing market that we've been in, so that was one of the reasons that we entered that market. INR 25 crore was a very conservative number that we calculated our breakeven at because, obviously, we didn't want anything to go out of hand because the margin that we control is not in our hand. But the expense is what majorly we can control. So we didn't want to take a very high rental or a very high manpower cost strategy there in Delhi. So we want to make sure that everything is in line till the time the brand stabilizes there. And then we can look at a reduction of increasing our margins in that region. Right now, INR 25 crore is what we look at for the delivery happening in year one. Our costs are all calculated against that. That is why we calculated an 18-month breakeven period where even if our gross margins, which are 13%-14%, are lower to 11%-12% also in year one, we're still able to deliver a breakeven in 18-20 months. That is the calculation, sir. That would increase the CapEx as well as the OpEx, sir. What is your store cost in Delhi individually per store? Roughly, should we assume INR 2 crore a year, INR 3 crore a year, including rentals and salaries and other overheads? Yeah. Yes, sir. So you are talking about the gross profit per store there in Delhi? Yeah. Yeah. Store contribution. Yeah. It will be in that line, sir. But again, as I told you, that only after we complete the summer season because AC and cooler are actually a longer period season. Only after we understand that period once because we have not gone through that period in Delhi and cooling products being one of the highest growth in product categories for us. So once we go through that churn, we see how the market is. We actually see how the competitive the market is, whether we are still able to deliver a much higher gross margin that we would do in Hyderabad or AP and Telangana, how the competitive scenario there is. Those things would only play out after the end of Q1 or Q2 in FY 2024. Once that is done, once we do a complete churn, a year's churn, we'll be able to understand the market better and then comment better on that market, sir. You have 12 stores now in Delhi, right? Sir, 12 stores. So 13th is soft launch is done for that store in Noida Sector 18, where the official launch will be happening in the next couple of weeks, sir. Okay. How much do you plan to spend on marketing next year in Delhi? Sir, Delhi marketing plan would be in line with the revenues that we would generate. It would be around in the line of INR 10 crore-INR 12 crore, sir. Okay. Okay. Thank you. Thank you. Thank you. Thank you, Tushar, sir. All the best. Thank you. Thank you. Thank you. The next question is from the line of Akshat Mehta from Sameeksha Capital. Please go ahead. Mr. Mehta, please go ahead with your question. Yes. So my question was on your expenses, on your operating expenses. As you said that your advertising expenses is around INR 10-12 crore on average. In this quarter also, your ad expenses have been around INR 22 crore. So that forms around 1.5%-2% of your overall revenues. But if you look in past data in 2021, 2022, your ad expenses formed more than 3%. So how will I mean, why is there a declining trend in your advertising expenses? Or is there because of Delhi that we are spending less amount there, or what is the scenario there? Mr. Mehta, I didn't understand your question. Can you repeat it once again, please? My question was that if you the numbers that you've given right now for quarter two, quarter three, your ad expenses in those quarters, it forms around 1.5%-2% of your overall revenues for the quarter. But in the past few years, 2021 and 2022, your ad expenses in your annual report have been more than 3% of your revenues. So why is there a fall in advertising expense as a percentage of your revenues going forward? I mean, is this something because of the Delhi side that we are spending less in terms of as a percentage of revenues marketing in Delhi, or what is the trend here? No, Mr. Mehta. In fact, the advertising expense in the previous historical years has been around 0.8%-0.9%. In fact, the COVID years, we were spending one of the lowest amounts in advertising. So if you look at that advertising cost for FY 2022 versus the revenue, it should be around 0.8%-0.9%. I don't know. Could be some had added under the FY 2022 number where you're seeing a 3% advertising spend. Whereas, as you correctly said now, because of Delhi being added, the marketing spend from 0.8%-0.9% would be looking at upwards of 1.3%-1.4% for this financial year. Okay. You must have added sales promotion to our advertisement because sales promotion is not our advertisement. The sales promotion expenses include dealer buy-down charges and other incidental expenses. Okay. Okay. So what would be your quantum of that in these two quarters? If you can share that? So Mr. Mehta, if I tell you FY 2022, for the first nine months, we spent around INR 27.8 crore in advertising versus for the first nine months of this year, we spent INR 45.1 crore. So you will see a drastic change in advertising and promotion compared to nine months of that FY 2022 and nine months of FY 2023. If I give you a quarter-on-quarter number, Q3 of FY 2022, we spend INR 16 crore versus Q3 FY 2023, we spend INR 22.3 crore only on marketing and advertising. No, no. I was asking for sales promotion. Sir, sales promotion from INR 71 crore in FY 2022 for the first nine months; it went up to INR 106 crore for the first nine months of FY 2023. This is directly proportionate to the credit card, debit card, financing, paper financing charges that we borrowed there at the store level for customers. Okay. Okay. And my second question was on your gross margins. I mean, your gross margin in the past four years, it was 15.1% in around FY 2019. From there, it has come down to 13.7% FY 2022. And now it is in the first three quarters also, it is coming down to 13%. So what is driving that reduction in gross margins currently? Is there? Sir, definitely, yes. We were also a little surprised by 0.5% on a Q3 number because right after Diwali, we saw a major drop in the revenues for the first couple of weeks, which we had to take an impact on. So how 0.5% margin in our books would directly hit the bottom line is because your other fixed expenditure remains the same. Your rentals, your manpower cost, your cost of inventory, borrowing cost, and all remain the same. But that 0.5% also would impact us in terms of the number looking much higher all over. Whereas, historically, in 2019, 2018, 2017, or that kind of period, the contribution coming from IT and mobiles were quite low. Whereas, IT was never higher than in FY 2019 also. IT contribution was not more than 3%. IT contribution today stands at 7%, which is one of the lowest gross margin categories and even mobile phones for that matter. So mobile phones also stand at 35%-36% today. So if you look at the first nine months' number, the gross margin level looked much higher compared to the Q3 gross margin level. So once we cross in the Q4 period, which is January to March, when summer is setting early, we would look at the cooling products to start delivering a higher margin. So that is why we are a little confident on how the Q4 would turn up and that would eventually help us deliver the number for the annual number for 2023. As I understand, this is driving your account of the change in product mix that has changed a bit towards mobile as well as towards IT and other small appliances, correct? Thank you. Thank you. Thank you, Mr. Mehta. You're getting it right. Yeah. Yeah. That's right. Okay. Okay. Thank you. Thank you. The next question is from the line of Preet Jain from Blue Jersey Capital. Please go ahead. Hi, sir. Thank you. Hello. My first question is how is the response from Delhi NCR category? Are we facing any major competition there? Sorry, sir. We cannot repeat your question, sir. Hi, sir. How is the response from Delhi NCR category? Are we facing any major competition there? Sir, Delhi NCR definitely is one of the most competitive markets in the country. And there is no fun in not competing in the market if you're there. So we are getting, but it is not like a backlash that we can't maintain or we have to undercut a lot. But it is quite a reasonable market there because you have to look at expenses also because the retail scenario is a little different there compared to other southern or western organized markets. So you're competing a lot with brand stores, with a lot of mom-and-pop stores. So you have to make sure that you can deliver a better throughput. And the margin is definitely initially, yes, we were expecting it to be 10 basis points lower than what we would expect in our existing market. But then once we cover up all the season, once we understand the market, once we understand the preferences of the customers, then that is where we will tweak our strategy. And for the future, we should be ready for it. Yes, sir. Sir, my second question is, can you provide us the segmental margin profile of large appliances, small appliances, and mobile segment? Yeah, sure. So mobile phones give us a margin of around 9%. Large appliances would give us, so for televisions, televisions would give us around 17%. Washing machines, refrigerators would give us around 18%. ACs and coolers would give us around 20%. That is the historical margin that we generate out of the gross margin that we generate out of each category. Okay, sir. Thank you, sir. Thank you. Thank you, Mr. Jain. Thank you. Ladies and gentlemen, this will be the last question for today. I would now like to hand the conference over to the management for closing comments. I would like to thank everybody for joining the call today. I just want to give a little flavor of how things are working out. The revenue that we've generated for Q3, though we had a little downfall, the market was a little slower in November and December, but we've still been able to achieve our predicted numbers for Q3. The first nine months, we are on track. January and February, we've already crossed January and two weeks of February. Q4 is also in hand and control with us in terms of what is happening. We're quite confident in that once the summer sets in a little early, March also should be a good month for us. Eventually, we would be able to deliver a suggested number that we had given out during our IPO roadshows going forward as well. Thank you, everybody. I would like to thank our IR as well on the call. Thank you, everybody. Thank you. On behalf of Electronics Mart India Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.