Good day and welcome to the TCNS Clothing Company Limited Q2 FY 2022 Earnings Call. 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 risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in 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. Anant Daga, Managing Director, TCNS Clothing Company Limited. Thank you and over to you, sir. Thank you. Good evening, everyone, and welcome to our Q2 and H1 FY 2022 earnings Conference Call to discuss operational and financial performance for the quarter and half year. I am joined by Amit, our CFO, and SGA, our investor relations advisors. First of all, I hope you and your near ones are safe and healthy. The number of cases have sharply declined, but we must keep our guard up and continue to remain disciplined and take all necessary steps to contain the pandemic. Amit can share the latest financials. Let me share some key highlights of Q2, our perspective on the situation, progress on key focus areas for FY 2022 and beyond. It's heartening that Q2 saw a progressive, sustained recovery vis-à-vis Q1, despite starting with a severely impacted July. Overall, Q2 revenues grew sequentially to 2.5x compared to Q1, with both online and offline showing strong traction. What's encouraging is that it is much more widespread between different channels, geographies and type of stores. For Q2, the offline channel recovered to reach closer to 75% levels against pre-COVID on a like-for-like basis. In online, business continues to see robust growth on a significant base that we have already achieved. On consumer secondary sales basis, the online business grew by 0 to over 1.25x vis-à-vis last year, with our D2C business contributing more than half of the overall online revenues. As on date, our overall revenue numbers are tracking near pre-COVID levels. We are encouraged by the market trends, including gradual easing of restrictions on public celebration and events and offices reopening for physical attendance. We have also embarked on an aggressive store expansion program which will help build on these numbers. Online continues to demonstrate significant traction and MBO business is also getting back on track. With all this, we are gunning for business to hit pre-COVID levels and go beyond in H2 FY 2022. Now coming to key focus areas for FY 2022. The first area shared is growth of online business. As shared above, the business has continued to grow across own website and marketplaces. Omnichannel store fulfillment, which was launched last quarter, has scaled up well to cover most of the large demand centers and is now contributing to over 5% of revenues for select channels already. As communicated earlier, we are working on an online-only collection which got launched recently. The newer channels added last year have built up well and have grown to 2.5x over last year. Second focus area this year is an accelerated store expansion plan. As shared, our target this year is to add 60+ EBAs. We have an aggressive store opening pipeline in place, and we are on track to open 1 new store every third day in H2. This will take the total EBA count to over 600 for the first time. I'm particularly excited about Project Rise, our initiative of upgrading presence in key markets. We have already opened 5 such stores so far, and I'm happy to share that within a short time, these stores are already clocking at an average of 1.5x of pre-COVID sales numbers. Project Rise will massively increase our brand presence and consumer experience across some of the most important retail spaces in the country and give a chance to present all our new categories and brand extensions in full glory. Third focus area is cash conservation and cost control. We are happy to share that Q2 has been a cash accretive quarter. Overall, three out of the last four quarters have been cash accretive, taking the reserves to INR 160 crores from INR 110 crores in the same period last year. We have significantly reduced our working capital from INR 400 crores as on last September to INR 350 crores this September. On cost front, we expect to see at least 20% reduction against our regular rent commitment. The full impact of the same has not been considered in H1, as many of the deals are still in process of getting signed. Some of this will flow in Q3 as well. As we prepare for next level of growth, we continue to invest in people, processes and infrastructure, and hence one should not factor any major savings on these heads. On the focus area of shift from floor to shelves, we are moving nimbly on all initiatives. Our automated inventory management system, consolidation of warehousing operations, express replenishment mechanism and design incubation shelf are all fully on track. Now with focus clearly back on growth, I would like to share a few initiatives from a medium-term perspective. We have spoken about creating strategic growth levers and last 18 months have been extremely eventful on this front. With a clear purpose of empowering the contemporary Indian women with her fashion choices and building on our inherent strength and understanding the Indian women consumer product capabilities and omni-channel play, we have been incubating new brand product lines in different categories, which are all in different stages of evolution. Let me talk about 3 of them. We have built a differentiated footwear range, which has found great acceptance with our consumers. Despite COVID disruption and the loss of learning time therein, the footwear range is already contributing close to double-digits numbers in a number of EBO stores. We are also set for a full-scale rollout of footwear in SS22, with presence across more than 150 EBOs, select LFS counters and online portals. Folksong is a new addition, which is a slow fashion, authentic craft inspired fusion wear range, which has been piloted through 20 W stores. We are seeing good traction, and now this will be rolled out to 70+ W stores, select LFS counters and leading online marketplaces in SS22. As of now, this is part of W identity, but certainly has the potential to be an independent identity in the long- term. Elleven, our bottom wear foray, it fared better as the GTM channel chosen was standalone stores, and this got launched one month before COVID struck. Now with expansion plans back in focus, we are all set to have 15 stores for Elleven by SS22. We will also be testing the same out in select LFS stores. Full scale pilot in SS22 will pave path for future growth strategy. This is one initiative that can be scaled massively in a short time, post a successful pilot. In keeping in line with our vision to transform W to a complete lifestyle brand, we are also piloting a beauty range in select EBOs and online. We have got a huge thumbs up from our consumers during our research and have co-created a vegan, cruelty-free, vitamin-rich color cosmetics range. This positions W a step closer to emerge as a go-to brand for consumers offering a complete top-to-toe look. We are excited to see initial traction on these initiatives and others that we have taken, which could add meaningfully in the long- term, help us build stronger relationship with our consumers, and drive our brands in realizing full potential. I will now request Amit to take you through key financial highlights for Q2 and H1. Thank you. Thanks, Anant. Good evening, everyone. I'll be giving you an update on our financial performance of Q2 and H1. I'll start with the Q2 performance. Our Q2 revenue was INR 239 crores, which is a growth of 66% over last year's Q2, and a growth of 155% over our Q1 revenues. Our gross margin has improved to 62.7%, which is a significant improvement over last year's Q2 gross margin of 51.6%, and this year's Q1 gross margin of 55.8%. In Q2, we accounted for rent concessions of INR 17 crores under Ind AS 116 accounting. With this, we have so far accounted for INR 20 crores of rent savings in the current year, and are on track to get an annual 20% savings on our rent bill. Some rent concession deals are still under discussion and will be accounted for as and when they are finalized. Our spends on employee costs and other expenses reflect the investments that we have made in people, processes, and infrastructure. As we have mentioned earlier, we expect limited savings on these heads for the full- year. In Q2, the company generated a positive EBITDA of INR 45.1 crore, whereas vis-à-vis a loss of INR 6.9 crore in Q2 of last year, and a loss of INR 20.4 crore in Q1 of this year. PBT for the quarter was also positive at INR 14.1 crore versus a loss of INR 38 crore in Q2 of last year, and a loss of INR 49 crore in Q1 this year. PAT was INR 11.1 crores this quarter versus a loss of INR 27.6 crores in Q2 of last year, and a loss of INR 36 crores in Q1 this year. During the quarter, we opened 17 new stores and closed nine stores, taking our net store count to 557 stores. We have embarked on an accelerated store expansion plan and based on the pipeline of store sites, we will be opening 60+ net stores the current fiscal, which will be in line with what we set out for at the start of the year. Now I'll be talking about H1 performance. Our FY 2022 H1 revenues were INR 333 crores versus INR 176 crores in H1 of FY 2021, which translates into a growth of 89%. EBITDA in H1 FY 2022 was a positive INR 24.7 crores versus a loss of INR 33 crores last year. PAT for H1 FY 2022 was a loss of INR 24.9 crores against a loss of INR 72.9 crores. Our working capital as of September end was at INR 350 crores versus INR 352 crores as of March 31, and INR 400 crores as of September 2020. Our cash reserves as on date are INR 160 crores. This is in addition to the unutilized bank limits. Thank you. We are now open to questions. Since we are the only listed entity in our segment, we might not be able to share granular details that could be competitive information. We request your understanding on the same. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use the handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Anyone who wishes to ask a question may please press star and one. The first question is from the line of Nihal Mahesh Jham from Edelweiss. Please go ahead. Yes, thank you so much, and good evening, Anant and Amit, and congratulations on the performance. Three questions from my side. The first is, you know, it's good to see that the gross margin, which is a number we keep discussing about, that has always seen quite a good improvement. At the level it is at, it is nearly similar to what we used to do, say, pre-COVID. Just the slight difference that exists versus pre-COVID, is it right to say, put it that everything else is the same, just that the channel mix being towards e-commerce could be the reason that we see this small difference versus pre-COVID? Nihal, good evening, and yes, because of the slightly higher e-commerce sale, the margins would be lower. 62%-64% is what we believe would be the margin range overall, so it's much closer to that. Having said that, with sales increasing, December could have been slightly higher. Understood. The second question is that, see, on the online sales, we see that you've maintained the traction. I just wanted to understand that, is there any portion of sales in this where you would have shipped already in the other model to your e-commerce marketplaces? Or this sales mainly reflects more or less the sales you've done till September and all the festive sales that are gonna happen now will reflect in Q3 only. Nihal, it's a mixed model, and as we have discussed earlier also, it has two areas. One is marketplace, which is direct to consumer, and second is B2B. There always will be this mix. That's the reason in our commentary we mentioned that our secondary sales increased by 25% vis-a-vis this number. There will be some overlap. There will be some overlap. Sure. Yes. My last question was on the brand extension that you mentioned about W. Now, beauty seems an interesting category. Just wanted to say that other than footwear and beauty, are there any other categories you've identified which you can discuss about? Given that you are looking at brand extension, is it that W as a format in the future will see larger store sizes going forward and maybe from the current store format, you're gonna ideally keep it bigger up to accommodate more of the initiatives in the future? Yes, Nihal. You know, when we talk about top-to-toe look, obviously there are categories like footwear, fashion jewelry, there are bags and cosmetics and other such products. We have all that on radar, but we just want to take it one by one. There are more areas. For example, plus size again, we can also extend the business in plus sizes. We are doing a small pilot. In Aurelia, we are doing kids. These are smaller other initiatives which we thought are really in infancy, so we'll again speak about it in coming quarters. There are these areas which we'll be investing in. In terms of store size, yes, one of the biggest constraint we faced in the markets were, you know, 800-1,000 sq ft current size of stores. In Project Rise, the endeavor is to at least, you know, increase these sizes to 1,500-3,000 sq ft range, depending upon the market. Those are the stores where you'll see all these categories being represented fully. In smaller stores, we'll have to, you know, depending upon the size, probably leave out one or two categories. These bigger stores, as we open more and more, you'll see full brand representation. That's helpful, Anant. I have two questions. I'll come back in the Q&A later. Thank you. Thanks. Thank you. Anyone who wish to ask a question at this time, you may please press star and one. The next question is from the line of Jignesh Kamani from GMO and Company. Please go ahead. Hi, Anant. Just on the festive season, I think many weddings lined up, so is the Diwali occasion. How is your performance for the season in the Wishful right now? Sorry, the line was not very clear. Could you please repeat your question? Sure, sure. Now after a gap of almost 1.5-2 years, many wedding seasons have been tied up with a lineup in it. How is the performance or the section in the Wishful collection? You know, as we have discussed last quarter also, we had dialed down on Wishful till spring/summer. Monsoon festive, we have again built it up, and as we speak, in festive we saw a significant spike in Wishful sales. Hopefully, you know, with the wedding season in December, you are right, we should see probably higher spike in Wishful numbers this season. In October, we already saw a spike. Understood. What are the learning from the Elleven and have we finalized the models, I mean, store size, the right SKU mix, color combination, or still we are evolving the business dynamics on the Elleven? In the pilot there were a couple of attempts. One, obviously to find the right product customer fit, and second was to test the commercial and economic model for our distribution. On the first part of product, we have got enough and more learning. In fact, you know, the new ranges that we have launched is incorporating all the learnings that we had from customers. As far as the economic distribution model validity is concerned, that we'll be testing out in next few months when we open 15 odd stores. Any feedback from the customer in terms of the footfall, repeat purchase or any other parameter you take? See, for Elleven it's too early, frankly, because there has been a lot of pilot and it has all been very, very structured so far. Give us another 3-4 months, maybe we'll have much more meaningful data for you. Understood. Once you finalize, you can easily open the 60-100 store annually because of small store size and the early feedback, right? Yes. Once the successful pilot is done. See, we are also taking a cluster approach. We have picked the four markets to experiment this, and then we have to replicate it. Frankly, from a product point of view, from supply chain and from retail experience, we have all the know-how, so it can be scaled up very fast. In the supply chain side, right now your supply chain is more focused towards the North. On the Elleven it will be more focused towards South India because it's more oriented to loungewear and there the supply chain is clustered around the South. See, when you talk about bottom wear, of course there's a big part which is mixed. For which, you know, even in north you have Ludhiana, in south obviously you have Tirupur and other markets. It will be a mix. For non-mix, which is woven, obviously all our existing business also work very well. Okay. Thank you. Thank you. The next question is from the line of Varun Singh from IDBI Capital. Please go ahead. Thanks for the opportunity, sir. I just wanted to ask, you know, a couple of questions on this. The first time we have mentioned in our presentation that we are aiming for, you know, top 2-3 category. There are lots of categories which we can kind of venture into. As you mentioned that we'll be picking one by one. Just wanted to understand why, you know, we are shifting our focus, you know, from a very niche kind of category to now almost every category including cosmetics, and as you pointed out, bags and accessories, footwear, et cetera. Even increasing the size of stores, as you mentioned, 1,500-3,000, so that you can have, you know, kind of a full presentation. My question is why now? Why were we not doing this earlier? The objective is to understand that. What kind of aggression in revenue growth that you wish to drive for? How are you thinking in terms of driving the category, the entire category growth? Also, you have given a very nice presentation on the industry data front in terms of, you know, all the different categories. But, you know, why to lose focus and kind of venture into every other category instead of driving aggressive growth in the areas where we were already present? Varun, I think there are multiple parts to your question. Let me try to answer them. See, first of all, we have to figure out what are distraction and non-related categories and what makes perfect sense. For that we need to put a consumer lens. I don't think business lens works there. From a consumer lens, she is looking for a top-to-toe look. This is coming out of our research. This is very clearly demonstrated in her purchasing behavior across channels. If you look at it, what are we trying to do? We are trying to give her the fashion choices in under the same roof. Footwear, jewelry, fashion jewelry, cosmetics, all become part of a coordinated look. That is why we are getting into those. You know, the consumer herself is answering this question. The way our footwear sales have picked up, it was a latent demand. It was clearly an opportunity for a brand like W to give that look. That's why we are building these categories. Now, if you look at the evolution of W over years, see, W probably 10 years back was just a summer cotton kurta brand. We added a whole new bunch of fashion bottoms. We added a category called Fusion. We have moved into winter wear. There are a lot of those additions which have happened over years. Now, at that point in time, one could have taken a view that, you know, western fusion bottom wear is not core of ethnic, but today it's core of ethnic. I think this is a journey which W has set itself much earlier. Frankly, again, all these initiatives, while it's occurring at the same time to outside world, those have been incubated at different point in time. Footwear got incubated almost two- years back. Cosmetics is just getting incubated. Talking about, you know, bigger stores, of course, when we have these categories which we can build up and, you know, in the five, while we have a very small sample size of five Rise stores, but look at the kind of contribution new categories are doing and overall revenue. I think it's a very natural consumer-led demand, which I think a brand like W should fulfill. That's the whole idea frankly behind this. Right. That's, I mean, that's quite interesting. This will also change the business economics in terms of, you know, margins and revenue growth, et cetera, that we were targeting earlier compared to the way we would be looking forward to now. It will be very useful if you can share in terms of, you know, any change, objective change in these growth and margin numbers. That will be very helpful. See, what we have said is, you know, if we keep doing more of the same and the market is growing at a double-digits kind of number, obviously you can grow at 1.5x to get your fair share of that. All these categories should really add to those, and these are independent. Independently, these are all big segment in itself. Right now, you know, let us do a proper rollout and then talk about how big these can be. If you look at from a 18-24 month perspective, things like Folksong, things like footwear, they all can be easily INR 75 crore-INR 100 crore business, which could be built over the normal growth rate that we have. That's the intent. In terms of margin, see some of these opportunities are more margin accretive. Some of them are marginally lower. Overall level, I don't think is going to make a huge change to the margin profile. I mean, still, Anant, if you can give some objective guidance, like net profit margin 8%-10%, 10%-12%, can we make an assumption of roughly 100 basis points net profit margin expansion? I mean, any anything on that front? If you can give some guidance, that will be helpful. Varun, at this stage of evolution of all these initiatives, I would refrain from giving any guidance. Frankly, see, whenever we get into a business, we are very clear that it should stand up to our existing metrics, and that's the kind of range and that's the kind of offering that we have for our consumers. Maybe let this business scale up meaningfully, and this should happen in the next couple of seasons. Maybe we'll have a better answer on that. Sure, that's helpful. Just last question on Project Bharat. You mentioned that we are looking forward to expand network in tier three, four markets through a franchisee-led model. So just, you know, two parts to this question is currently what percentage would be a franchisee model in our total store portfolio? And why we are obsessing about franchisee-led model expansion into tier three, four markets? And will that not be a risk of diluting a customer experience the way we want, you know, customer to experience our brand? Yeah, that's the last question. Thank you. Yeah. As of now in our business, about 35%-37% odd is franchisee stores and balance is company-owned. Now, question, 2 questions that you have asked: one, why in tier 3 to tier 4 through franchisee route? Again, here you'll have to take the consumer lens. See, the idea is to open stores through a model which can best service our customers. In bigger cities, we have the entire infrastructure within the company to, you know, give that experience. In smaller towns where, you know, our reach would be limited, it's best that we find the right franchisee who already has a knowledge of running marquee brands in those markets. We are partnering, we are very selectively choosing our partners, the right franchisee, who has that exposure, and from that city standpoint, they run best retail. Obviously, there would be some difference in a tier four experience and a tier one, but in tier four also it will be a differentiated superior experience. That's the reason why we are going through that route. How we are going to ensure it is through consistent design, through training, through all the VM help that we extend to our franchisees and choosing the right partner to run these stores. That's very helpful, Anant. Thank you very much for such a detailed answer. Sure. Thank you. Thank you. Before we take the next question, I'd like to remind the participant to limit their question to two per participant. If time permits, you may join the queue for any follow-up. The next question is from the line of Ankit Kedia from PhillipCapital. Please go ahead. My first question is regarding the franchisee stores. How do we do the accounting for the franchisee? Do we book the full revenue and the commission is accounted in distribution expenses or we net out their share and then we book the revenues? Hi, Ankit. This is Amit. Ankit, it will depend on the model that we follow with the franchisee. Most of our franchisee stores work on a outright model where the revenue is recognized net of the margins that we pass on to them. There may be a very small proportion of our franchisee stores which also are on SOR model, where the revenue gets recognized on the consumer sales basis and the margin gets recorded under selling and distribution expenses, but that will be a smaller part of the overall franchisee network. Is it fair to assume that the MRP sales or the revenue which we show, brand sales could be at least 10%-15% higher than what is reported, number? Yeah. When you talk about brand sales, you're talking about the consumer sales, the price that the consumer paid for our products, right? Yes. Yes. That will be higher. By 10%-15%. Yes, that will be higher for even MBO channel for franchisee stores because these are all recorded after netting of the margins. You are right. Sure, sir, my second question is regarding the beauty, you know, the photograph which you have shared in the presentation. You know, it is like a kiosk out there. Do you think the manpower in the store out there, you need a separate beauty salesperson to, you know, be with the consumer out there to help them, and that would also entail extra cost to you or the same apparel salesperson has been given training to actually sell beauty at the stores? Ankit, as we speak, we are experimenting with both models. There are few stores where we are taking beauty advisors, and there are few stores where we have trained our existing staff to do. Depending upon, you know, how much difference we see, we will select a model going forward. Having said that, when we have created the economics for every store and its kiosk sales, we are taking beauty advisor cost into account. Sure. Sir, my last question is- Right now just to give you another input, we have launched in very few stores, and right now a lot of them don't have beauty advisors. Our existing team is very excited, and they are also doing a reasonably good job. We will see. We'll see. Sure. Sir, my last question is regarding, you know, quality real estate available in the market. You know, all the retail companies are guiding for big stores expansion over the next 1.5-2 years. According to you, is there quality real estate available in tier 2, tier 3 cities along with metros? Because we are also guiding for, you know, big stores expansion plans. Where do you think is the challenge for the retail industry in terms of quality real estate or it is in abundance for everybody to take? No. Ankit, it's very market specific question. We understand there are few markets. For example, let me just take example of Mumbai. In Colaba it's not very easy, but in Linking Road it's not a challenge at all. You know, we'll have to see this market by market, and in most of the places you'll find quality retail real estate space. Now, the thing is, you know, till about last quarter the rentals were far lower. Right now it's building up, but even then, finding the right space at right rental from a near-term perspective should not be that big a issue barring few markets. Understood. Thank you so much, sir. Thank you. Thanks, Ankit. The next question is from the line of Susmit Patodia from Motilal Oswal AMC. Please go ahead. Hi. Good evening, Anant and team, and belated wishes for Diwali. My first question is, you know, the number of days the stores were open was 90%, as you have illustrated, while the top- line is still quite distant from its peak. Just wanted to understand how are you tracking this? How should we look at this? Because unfortunately, there's no market share data that's out there. Are you happy with the performance? Just wanted to understand that perspective. Sure, Susmit. Wish you a belated- Yeah. Diwali. See, if your question is are we happy? Of course, we are not happy because, obviously we were running for more. Having said that, you know, you'll have to. As you rightly said, there's no comparable data. If you look at the ethnic wear space, I think we have posted a reasonably strong performance. Whatever little data is in public domain clearly shows that ethnic recovery has slightly lagged behind other categories like casual, kids, inner wear. Obvious reasons we all know, right? Even now, not all the restrictions from celebration events have been lifted. Offices have just started to open. Some of these things impact ethnic wear slightly more than other categories. When you look at broader market, I think ethnic itself has lagged. Within ethnic, I think we have done a reasonable job. Overall, ethnic should move build on from here. 2, something which is more internal. If you look at it, our recovery rates are right now, you know, on base of slightly depleted EBO presence. If you compare to, you know, September 2020, we still don't have the equivalent amount of stores. We have all planned it for H2. Hopefully, you know, you should see numbers building on that account also in the coming months. Okay. My second question is, you know, first of all, congratulations on this whole strategy roadmap sharing with us. It's like, looks very exciting. Wanted to understand probably some of the categories that you're now talking about from a supply chain perspective is very different from, you know, what you have done in the past. So, any initial thoughts on supply chain or it's easy, these are all outsourceable and it's not a worry? Susmit, if you look at some of the categories like, say, footwear, cosmetics. Yeah. What we have done is to start with, we have got a team of experts who have been doing this for years. We have picked people from leading companies in these segments, and we have got the team who understand product supply chain to come and build it afresh. For example, footwear, because we are making a slightly differentiated product, we realized that we need to have an exclusive development center which can work for us all time, so this is what we have established now. In terms of other suppliers, obviously right now the quantums are lower, so there's some challenge in terms of, you know, costing and timeline. Given the scaling up, we already have quality suppliers ready. Same with cosmetics. These are good international suppliers we have access to, and that should not be a big challenge in the medium to long- term. My third question is, you know, just want to understand what is the rental expense, because again, you know, FY 2022 looks like a big saving year. Can you point it out from the balance sheet? There is a right-of-use assets that you disclose. What percentage of that would be normalized rental going forward? I'm sure that if my understanding is right, if that is the base to look at. Susmit, actually, it is very difficult to correlate the rental base by looking at the How are you? You know, right-of-use assets. Okay. I think, when you look into our... You know what essentially happens is when the rental savings that we get, during the COVID period, whether we talk about this quarter, last quarter or any period, essentially all the rental savings get knocked off against the rental expenses and whatever is remaining gets recorded in the other income, right? Whatever rent or the larger part of the rent, which is the standard rent that we used to book pre-COVID, still gets recorded under depreciation and interest expense nature. There you will be able to build a straight line in terms of what would be our standard rental and, you know, we disclose in our notes what kind of a rental saving we recorded, how much of that got recorded in rental versus other income. I think the better number to look at is the interest and depreciation, you know, which practically is standard across different quarters, even during the COVID time, and separate out the rental savings. Did I answer your question? Thank you. Mr. Patodia, I would request you to join the queue for any follow-ups. The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead. Hi. Thanks for the opportunity and season greetings to the entire management team. My question is on recovery seen during festive season. You indicated getting back to pre-COVID levels. If you could also share the channel-wise recovery and region-wise recovery during the festive season, it would be helpful. If you look at offline recovery was close to 90%. In terms of regions, South did well. West, barring Mumbai, was good. In terms of regions we didn't do as well was frankly North. These are the broad trends that we saw. Sure. Secondly, D2C is now more than 50% of our online channel, and even the share of own website is also increasing. Just wanted to pick your thoughts on how does this increasing share of D2C help our P&L and balance sheet? See, margins are more or less comparable. While we make slightly higher margin on marketplace, it's not very significant, so I don't think it's going to make a big impact. In terms of balance sheet, obviously, you know, when we bill it under B2B, the inventory goes out of book. Out there, it's still there in our stock. But again, yeah, it also gets somewhat set off with debtors. Not too much of a difference. Amit, you want to add anything? Yeah. I think, you know, from a balance sheet perspective, you know, the fastest way we have to look at it is when we do B2B billing, inventory goes out of our books, but there's a receivable equivalent that sits in our book depending on the commercial term that has been agreed. Could be 60 days, 90 days, right? In case of marketplace, essentially inventory continues to be with us at our warehouse or store and the receivable period is lesser, right? It's typically between 13 to 20 days. I was assuming margins should also be better since we would be doing the entire cataloging and also maintaining the amount of discounts being offered. Doesn't that help our margins if we do more D2C? On a net margin, yes, it's slightly better. Gross margin would be little more. Gross margin is definitely better in case of marketplaces because their cost is below the gross margin. When we talk about net margin, it's only slightly better as compared to the B2B business. Sure. Lastly, PPT mentions that there's a plan to revamp the MBO business. What is the run rate that we can expect from this channel going ahead? Yeah. We have already mentioned in the past that, you know, we are taking a slightly more conservative view on the MBO channel, at least in the short to midterm. The new model that we have rolled out would be, you know, more focused on ensuring good credit quality and much more cleaner business, which is secondary sales focused. It's difficult to quantify the number right now. The model has just got launched, but we believe that, you know, the MBO business could contribute to about, you know, a mid-single- digit kind of number going forward, at least from a short-term perspective. Sure. I have more questions. I'll get back into queue. Thank you. Thank you. The next question is from the line of Rohan Nandu from Goldfish Capital. Please go ahead. Yeah. I hope I'm audible. Yeah. Yes, you are. Yeah. Two questions. One is that, you know, again, to this 90% store being operational in Q2, and we have a salience of online sales, that is 25% of overall revenue. Just wanted to understand that in the catchment areas or in the PIN codes where stores were operational nearly 100%, the drop in online sales, have it been significant, or has it, you know, have been sticky at a higher level? What I wanted to conclude was that, I mean, obviously in our COVID times, online sales as a percentage of whole is much higher, and it was expected to decline. Would it settle at much higher rate than what we had earlier in this half? Obviously, it could be higher than pre-COVID level, but even during the COVID times or even in the you know, would it settle at much higher rate than what we had earlier in this half? Sure. While I don't have exact numbers right now handy, but see, obviously during the COVID period when offline retail was not operational to the max, online numbers were abnormally high. Having said that, even you know, with gradual opening of stores, online final online share is going to settle at a significantly higher level than pre-COVID. If you remember pre-COVID, we were somewhere in the vicinity of 12%-13%. We believe stable state right now should be anywhere between 20%-25%. That kind of base should stay. Sure. I was not comparing with pre-COVID. I was saying that versus your expectation, right? I mean, of where it will settle. Is it going to settle much higher? Because, you know, I mean, despite 90% store operational, 25% number looks a bit encouraging. I mean, that was what I wanted to understand from you. Yeah. This is in light of, you know, offline coming back 100% operational levels. We believe online should still contribute 20% plus. A lot of this That's fair. That's fair. It's also, you see, it's also because a lot of effort has gone in creating this. For example, while we don't have exact number on a lot of our peers and, you know, other fashion retailers, brands, I think we already are sitting on a strong base, and that is because of all the investments that we have already made in online, only D2C, not only in front end but also in operations and back end. There has been a very conscious effort, and we surely expect it to settle at a higher rate. Sure. That's point taken. The second question is on this whole franchising model, and you said that currently 35% of our stores are on a franchisee level. Increasingly, that's the model that we intend to expand our EBOs. Just wanted to understand over the years, right, I mean, since we first started this franchising model, how has been our experience and how have we sweetened the deal for a franchisee owner in terms of IRR, in terms of meeting your expectation in terms of inventory turns, in terms of getting the merchandise at their stores in time? Could you just give some more granularity? just want to understand as to, you know, how attractive is it for a franchisee to go with TCNS and, you know, and that's the final proof of the pudding in some sense as to how the brand is perceived in some sense. See, first of all, let me just make a small clarification. It's not that majority of the stores will be franchised in future. I think there still will be a very, very healthy mix. In fact, most of the Project Rise stores and stores in bigger cities are all company-owned. Similarly, lot of tier two market stores are also company-owned. It's not that, you know, overall in terms of volumes or sales throughput, franchisee suddenly will become a much bigger share. That's one. Second, see, as you rightly said, the proof of the pudding is when the franchisees come and ask for more stores, and that's been happening with us for long now. I think in terms of, our store economics, see our payback period typically is short. Given the reasonable amount of investment, I think franchisees find it pretty attractive. Now, just to clarify another point on this, in a lot of tier four towns, in Project Bharat model, we are also opening franchisee stores on SOR. That again is very attractive from a franchisee point of view, and it also gives us the flexibility to, you know, shift stock from store to store. I guess, you know, the fact that we are getting franchisee inquiries, we are already signing more than 12-15 Project Bharat stores, we don't see much challenge in that. Thank you, Mr. Nandu. Request you to join the queue for any follow-up. The next question from the line of Jay Gandhi from HDFC Securities. Please go ahead. Yeah, hi. Thank you for the opportunity. Just one... a couple of things I want to understand. See, our gross margins are just about 200 basis points lower versus pre-pandemic, but our online share has nearly doubled from 12, 13 to 20. And since you alluded earlier also that it's likely to be 20% odd consistently. I just want to understand what has changed pre and post for gross margins to not meaningfully change. It's just about lower. Is it that you know, our product mix has changed, it's likely to be more margin accretive or is it that wholesale price has gone up? Is it likely to sustain that? No. See, on the negative side, you are right. The online channel share would be there. But in online also there's a marketplace and there's B2B, so that share also determines some level of drop. On the plus side, the raw materials have been lower because our inventories have come down. Also, there's an impact of channel and product mix which would give some basis point here and there. Right. Is this sustainable? I mean, what I'm saying, this 20% online consistently. Yeah, with 20% kind of even a stable state situation scenario, these gross margins are sustainable, and that's what we have been telling over last few calls. Right. Second question is, I don't know how to read this, but I'm getting conflicting, ideally in terms of, see, the inventory buildup if I compare the inventory is something INR 96-100 crores. It's flat, you know, pre Yeah. Yeah. Yeah. Yeah. I'm really sorry. We just lost you. Could you please repeat? Yeah, sure. I was saying I'm getting a little conflicted on how to look at this. If I compare your inventory for Q3 FY 2022, right? That's around INR 200 crore, which is the same as, slightly lower than pre-pandemic, 10% lower YoY. If I compare this to some of your peers, most of them have a handsome pickup in inventory buildup before the festival season. Is it that we are bearish on our demand outlook? That's one for the second half. The conflicting view is that you're adding 60-odd stores also in the second half. I was just trying to understand why the inventory buildup is so low relative to peers. Jay, that's a very fair question and, see, I'll try to answer this in two parts. One is, you know, before the. Hello? Yes, sir. Sorry, there's some disturbance in the line. Excuse me. Ladies and gentlemen, it seems we have lost the line for the management. We would request you all to stay connected while we reconnect them. Thank you. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, over to you. Please go ahead. Yeah. Thank you. Sorry. See, there are two parts to it. One is, of course, we took the opportunity of this COVID time to really down stock all old, bulk of old season inventories. There our ratio of fresh season to old season has improved. We have not really, you know, cut down on new season inventory, but the proportion of old season has come down. Subsequently, you can say that it was like, you know, one time down stocking kind of stuff that happened. Second, we have been speaking about, you know, express replenishment mechanism. We have also spoken about quicker turnarounds in the supply chain. I think all those things are now getting in action. Hence probably, you know, those could be few factors which makes our inventory look slightly lower compared to others. Frankly, it's very difficult to comment on what others would have done. Another reason is we have also dialed down on our fabric inventory right now because raw material prices have increased in the market and we have used significant amount of existing fabric therein, so that ratio has also come down. Probably, those are the factors that would have helped. Thanks. Thank you so much. Now, again, as we move in future quarters, obviously, you know, we are seeing a strong recovery and you might see some buildup coming in next couple of quarters in line with our expectations of, you know, spring, summer and monsoon festival thereof. Yes, sir. Sir, one last thing I want to ask you was your selling and distribution expense typically used to hover between 18%-19% in a typical year, pre-pandemic. It's moved consistently over the last 4-5 quarters to 23%-25%. Now, is it that we had to incentivize you know the channels more? This is not just us, but in general the ethnic wear category has seen this happening. Is it that we've had to incentivize sales more? No, I don't think, you know, that is the reason. If you look into the selling and distribution expenses, even for let's say the first three quarters of FY 2020, which is pre-pandemic, the selling expenses used to be in the range of 23%-24%. Now, obviously, there is some difference that happens because of change in channel mix. Now, what is also happening, as I mentioned earlier in the call, that, you know, when the D2C part of the online is also increasing and it is now more than 50%, there is some expenditures pertaining to that business which also sits under selling and distribution. But broadly, there has not been much of a change. 20% versus this quarter we have 24.2% as the selling and distribution expenses, which is in line with what we had even in the first three quarters of FY 2020. Thank you. Mr. Dhani requests you to join the queue for any follow-up. The next question is from the line of Ishpreet from Motilal AMC. Please go ahead. Hi, team. Just wanted to understand on the adjacent categories, what is the kind of investments that the company has already made in terms of your team, R&D that you're doing for the footwear, jewelry and the new cosmetic side that we are adding? Okay. While I won't have general details ready, but if you look at adjacent categories like footwear, jewelry or Folksong, or cosmetics, most of the capital has gone in building the team and investing in working capital. We have units which are very low cost, so there's not much CapEx out there. It's mostly working capital and the team cost. When you look at Elleven or when we open 15 stores, we'll be incurring a CapEx of about INR 5 crore-INR 6 crore, apart from the working capital and the team investment. Okay. Anything that you could sound out in terms of the team investments that you could have made for these categories? I'm again, sorry, your voice is not very clear. In terms of team investment, if you could specify as to what is the amount that you would have invested. No, at this point in time, we won't want to share very general details, but all these teams would consist of, you know, about 4-6 dedicated resources. Yeah, and balance, you know, the front end, the finance and support functions are all shared. Okay. Internally, what are the targets? I mean, when you think of entering into these new categories and now, you know, there are multiple of those. As you say, four, five years down the line, what would be the revenue from the core categories and these adjacent categories? Anything in mind that you have? See, all these opportunities, if done right, and if, you know, we get the right product customer fitment and get the distribution strategy right, could easily be, you know, INR 200 crore, INR 300 crore opportunities each from 4-5 years perspective. If you look at 18-24 month perspective, obviously these numbers should all clock at least, you know, INR 75 crore or INR 100 crore. Got it. Great. Just one on the bookkeeping side, on the rent to sales ratio, if Amit, you could help, in terms of our own EBOs, what is the ratio of rent to sales? Normalized rent, I mean, not in their rent. You know, it depends on the format tier. Typically, obviously, what we target is the payback period, because rental is one particular component and the sales potential could be very different. Broadly, you know, it could be as low as 17, it could be as high as 25. It really depends on the property. Overall, it's usually in the low 20s% or high teens%. With new kind of stores that we are opening, I think it will change somewhat. Thank you. Our next question is from the line of Pankaj Bobade as an Individual Investor. Please go ahead. Thanks a lot for taking my question, and congrats on the strategy you have put on board. I mean, complete revamp of the whole business strategy, taking into account of what has happened over the last 18 months. Just wanted to understand, do you foresee yourself this company as a sort of developing this company or maybe transform this company into platform where you'll be selling everything from clothing to all the needs of a woman over a period of time? And if yes, whether you'll be following asset light model or asset heavy model? If you permit me, yes, I would like to understand your vision for the company for next 4 to 5 years. You see, I think there are multiple parts to your question. To start with, we already said, you know, what the purpose of the organization is. It's very clearly empowering the contemporary Indian woman with her fashion choices. Now, talking about the categories and businesses that we get into, well, there are very clear guardrails. What we believe is in our understanding of Indian woman consumer, understanding of apparel and adjacent categories, and understanding of omnichannel play. Whatever comes in this gamut could be potential opportunity for the organization. Now, in how long- term we'll be able to take all those opportunities another question to be answered. In terms of vision three, we want to create the leading women's fashion platform. We want to create a multi-brand, multi-category, multi-channel business. That's where we are headed to. If you could share your internal target, if possible, what is the current share of clothing and non-clothing and what you would like to achieve it or take it to maybe four or five years down the line? You see, rather than talking about a company level, I think it will be too premature. If you look at our stores still about 18 months back, 100% of the sales in the stores or 99% was coming from apparel category. If you take the top 50 stores where we have experimented with footwear and others, we are already clocking 10%, close to 10% sales from non-apparel. Ideally, you know, for a fashion brand like us, given the right product in accessories and right representation, our expectation would be to at least get a contribution of 20%-25% plus from non-apparel. These I'm talking right now about the channels where we have launched these. We'll see how it breaks over time. Thank you. Our next question is from the line of Anuj Sehgal from Manas Asian Equities. Please go ahead. Yeah. Hi, Anant. Thank you very much for the opportunity. I just wanted to understand on the omnichannel front, you know, while you mentioned in your presentation that omnichannel fulfillment at the store level has stabilized and has scaled up. Can you give us a sense of how many of your stores are actually omnichannel enabled? And of that, 20% revenue contribution from the online business, how much of it is actually getting fulfilled from your stores? Anuj, right now in terms of number of stores, we have 100 stores across multiple cities which probably would cater demand in excess of 80% demand centers. In terms of contribution, 5% of that 20% is coming from omni. But this is just the first few months for us. As of now, we have our own website plus three leading marketplaces which are on omni module. We are adding more. Okay. Just to be clear, when you say 5%, does that mean almost one-fourth of your online sales are actually getting fulfilled from your stores? Sorry, we are saying 5%. Is that the right understanding? So five percent of twenty, so one percent. 5% of 20%. Not one-fourth of that. Okay. It's still very small. What I also want to understand is that, if it is 1% of the overall online sales, like what are the learnings that you have, you know, seen so far in these 100 stores in terms of enabling omnichannel fulfillment? And how do you see this part of the business, you know, growing as your online business stabilizes? And I also wanted to cross-check. Earlier you had mentioned that the online share of the overall business would settle at, was it 20%-25% or 30%-35%? No, in the immediate future should be 20-25. Okay. How do you think, you know, as I said, on the omnichannel piece, how do you expect this to shape up, let's say, over the next few years? You know, what are the learnings in the initial phase that you've seen and, you know, what are the challenges to sort of get this business up and running? Sure. Let me first start with learnings and challenges. You know, while it sounds very simple, Omni actually is an extremely complicated process. You need many interfaces to work with each other. You need many parties are involved. That's one challenge. As we speak, you know, for even the biggest, largest players, it's still evolving. There are a lot of learnings which is happening overall. One practical challenge that we face is staff training at EBOs. You know, all our EBOs are staff is trained to sell. They are not trained to run a mini warehousing kind of operation. That learning, that awareness also takes a lot of time. Data integration, again. These are some of the key learnings and challenges that we have seen as far as Omni goes. Where this could land, you know, it's a difficult question to answer right now because it'll also depend upon what our merchandising strategy is, what kind of models finally will evolve with our marketplaces, how our distribution centers would span out. To my mind, a double-digits number in next, you know, couple of seasons is the least that we should aspire for. That will mean, that will really help us in giving better consumer experience, faster tags, and of course, build on our inventory optimization as well. Right. When you say double- digits, meaning double- digits percentage of your online sales? Yeah, yeah. Right now I'm talking about online only. That's right. Yeah. Okay. Thank you. Thank you. Ladies and gentlemen, due to time constraint, that would be our last question for today. I now hand the conference over to Mr. Anant Daga for closing comments. Thank you, and over to you. Thank you. We take this opportunity to thank you for joining the call. We hope we have been able to address your queries. For any further information, please do get in touch with SGA. I wish you all a very, very happy festive season and a great year. Have a nice evening. Take care. Stay safe. Thank you. Thank you very much. Ladies and gentlemen, on behalf of TCNS Clothing Company Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.