V.I.P. Industries Limited (507880) Earnings Call Transcript
February 12, 2020
Earnings Call Speaker Segments
Ladies and gentlemen, good day, and welcome to the VIP Industries Q3 FY '20 Conference Call hosted by Edelweiss Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shradha Sheth from Edelweiss Securities. Thank you, and over to you, ma'am.
Thanks, Ayesha. On behalf of Edelweiss, let me welcome you all to the Q3 FY '20 earnings call of VIP Industries. From the management today, we have Mr. Dilip Piramal, the Chairman; Ms. Radhika Piramal, the Executive Vice Chairman; and Mr. Sudip Ghose, the MD. So without any further ado, I'll hand over the call to Mr. Piramal for his initial comments, post which we'll open the floor for Q&A. Thank you, and over to you, sir.
Good afternoon, everyone. The last quarter has been a mixed bag. Sales have been absolutely flat at INR 432 crores, which is obviously not a very good performance. We have ceded market share. However, the good part is that our margins have gone up by 500 basis points over the same quarter last year. In fact, this has been the trend in all the 9 months of this year: loss in market share, but gain in margin. My colleagues will give you -- will elaborate in a few minutes on this. But we will definitely take steps to regain our market share and keep our margins at the higher level. The EBITDA margin have also increased from 9.4% to 16.1% over the last quarter, and that has also been the trend in the whole of the 9 months of this year. Our profit after tax has gone up substantially from 23.8% last year -- sorry, INR 23.8 crores last year, last quarter and -- to 34.2% (sic) [ INR 34.2 crores ], an increase of 43%. Obviously, the 10% reduction in tax has been one major boost, but now our Bangladesh operations have also started contributing a little bit more. So that has been a helpful point. With that, I now pass on the mic to the floor for questions and answers.
[Operator Instructions] The first question is from the line of Chirag Lodaya from Valuequest.
My first question is on growth. So as you mentioned, we have ceded market share. If you can throw some light, what is the reason for the same? And what steps we are taking to revive this growth back?
Radhika?
Sure. Thanks for the question. There are some external factors and some internal factors. We've lost market share in a few specific large orders where we were not willing to come down on price. That's one issue. The second is, we have had some internal challenges also in terms of a new software system we have been implementing, as the majority of that implementation was in Q3. So that has been an internal factor that we have almost resolved. And the third, I will say, strategic reason why we have currently lost a bit of market share is that our efforts in e-commerce, I will admit, are not up to the mark. We have -- we as VIP have a very large share in the general trade channel and the monetary channel: hypermarkets, independents. So as a percentage of total sales, e-commerce sales are low for us, which means as an organization, as a culture, perhaps we don't give it the importance it deserves. And it's the fastest-growing channel. And one of the reasons the competitors are growing faster than us is because some of their, I'm going to say, efforts in e-commerce have been more successful with consumers than us. So it's something that we're very aware of and are working on. So obviously, these will be the 3 main categories. Sudip, would you like to elaborate any further?
No, I think last year we said the right things. Our quest to keep the margins up because last year, we went through a situation where the margins were quite low, and it was a mandate. In fact, I just kept on saying in all the investor calls that we need to keep the margins up. And therefore, you also see a margin growth, a healthy margin growth of close to about 20% in spite of a flat top line. We have held the margins. We could have let go of certain margin to get top line, but we felt that it was a sluggish market. We would -- if we do that, then maybe we would lose margin and not get the sales share. And therefore, we held on to the margin, which I think is a right strategy. But yes, as I said, particular channels needs to be actioned and the sales team is working on it, and I'm sure we'll come back very strong. We have a history of very high sales growth in a couple of years, and it's not that -- we understand the market and we'll get back to it.
So again, on margin, two-pronged question. One, we have seen sharp improvement in gross margin, almost 300 basis points. And when I compare like-to-like numbers, our operating margins are up by just 100 basis points. So employee cost has grown at a substantial pace despite lower growth. In past, we used to say, it is linked to channel. So channel is growing as well as employee cost is growing. So this year, again, there was no growth, but employee cost has significantly gone up. How one should look at this?
Let me answer that. The employee costs have gone up because our manufacturing -- our own manufacturing has increased substantially. So that is something which doesn't impact our top line because our manufacturing is for our own consumption. But the number of employees we have is much more, but this is reflected in the bottom line also. So this is reflected in the employee cost goes up, but our bottom line also goes up. So you have to finally understand this.
Okay. Lastly, sir, if you can just help us understand what would be the impact of coronavirus? So we have large sourcing from China. So till what time we are protected? And what is the situation right now?
Okay. I'll give a very broad answer on that, and then my colleagues will elaborate, if required. This is a very unusual, unprecedented, unexpected phenomenon which is happening. And because our -- the entire luggage industry is dependent on China for its sourcing, it impacts us greatly. Definitely -- and let me also explain to you that the first quarter of the year, April to June, is our largest quarter. And we have to start planning for that right from October. The whole of January this year was holidays in China because of their annual new year. There is a lunar new year. This year, the lunar calendar was a little bit ahead. Every 3 years, it sort of goes back by 20 days, as you might be aware, as like our Diwali. And so this year was very early, and they were supposed to come back. So the whole of China manufacturing virtually closes. All these manufacturing factories, especially in the low end, like what, luggages, all the labor is migrant labor. So they go back to their homes, which might be hundreds or thousands of kilometers away or wherever. And then they come back at the end of the holidays, which was to be on 1st February. So nobody has come back till now. Some factories are expected to open on Monday, that is the middle of February, and some will open only in March. We had -- we have already ordered about 60% before the factories closed, so all that is being shipped. 60% of our first quarter requirement. February production, which was going to be very high, is absolutely lost. So nothing is going to be made in February. So definitely, there is going to be some shortfall. We are, I think, the best placed amongst the Indian companies -- luggage companies because our own manufacturing also is now quite substantial. It is nearly 50% of our overall sales. Of course, in the first quarter, it might not be so much, not 50%, could be 40%, 45%. But I think we are better placed than any other company in India. So -- and we will make efforts to see that every -- we don't lose much sales. But I think, in a way, it can be a good opportunity for us because -- no, I don't think the other companies have so much of their own manufacturing.
Sir, just a follow-up. In case -- till what time, if factory resumes, we can get our, say, inventory at time and we'll be able to...
See that is very uncertain. Nobody has an answer to that.
What is the lead time, generally? Once you order, how much time it takes?
Radhika?
The normal lead time is 3 months. In this situation, it's a bit different. We have placed our orders a long time ago. Some factories would have purchased raw materials and are just waiting for the labor to come, then they can produce it right away. Other factories who have even their raw material is in process, it might take longer. So it is -- I know you -- it is the important question, but it's difficult for us to give a clear time line. In another 4 weeks, we will have so much more information but, unfortunately, our call is today, when we don't have enough information. What we can say is we are pretty secure for April sales. And then May and June, we just have to see how we go. We have -- if things go well, we should have enough supplies. If things go very badly, we might be a little bit short stocked.
Okay. And just lastly, can you -- I mean can one expect a substantial price increase because of this disruption happening in coming months? Is it a fair assumption? Or...
See, at this point, we've just discussed how our margins are healthy and that loss of market share is a management concern. So in that scenario, regardless of stock position, I'm not sure that increasing prices is what we are seeking.
The next question is from the line of Tejash Shah from Spark Capital Advisors.
First is, if you can help us with split between volume/value growth for the quarter.
Yes, so the volume/value growth, since we -- as the price increases have not been too large, so the volume/value growth would be similar to -- the volume growth will be a little more definitely, not as flat, but the value growth is flat.
Okay. So as a strategy, Sudip, when we started this year, we clearly called out that our focus will be on margins, and it actually played out that way. Now when we see the current demand scenario, which we actually didn't built in, in the beginning of the year, can we derive growth holding on to current margins? Or there will be a tradeoff between the 2?
See the -- like the previous caller had asked us the same question whether we would -- we're definitely not looking into an immediate price increase currently because, as I said, the margins are healthy. In terms of stocks, we are still covered quite a bit in quarter 1. So trading off margins to get market share, I've never been a big supporter of that. What we have done is, we have done some working -- like last time when we had spoken, working on how to get the market share without compromising on margin. And something that I am very -- we are very keen on, and I think that is what you will see in quarter 1. So to answer, would I cut my margins and do top line? No, I would grow top line by giving products in the market where my margins are still better, and we are better to sell. Bangladesh is going to be a big support for us in that terms because there we do make an -- we can make competitive products at a good margin.
Great. That's helpful. Lastly, 1% growth also means that some channels, and Radhika elaborated on in the beginning, it also means that perhaps some channels would have degrown. So you called out e-commerce, but how is the performance in other channels?
Just to clarify, e-commerce is not -- I mean, it has not declined, but -- e-commerce has not declined, no?
It has not grown to the maximum.
Yes, it has not grown...
Okay. Okay. Okay. So there's a deceleration there.
Yes, yes, yes, it's not declined. Most of the channels are flat actually. If you ask me whether they've degrown, no, there's no major degrowth in each, but we are...
There were 2 channels that were growing very fast, that is modern trade and e-commerce. So the earlier growth of VIP. If we were growing -- let's say, if the company was growing at 10% or 15%, some channels were flat, some channels were growing at 30%. So that 30% growth in some channels is what we are missing out on right now.
I think institutional sales is one area where -- which is not -- like, no, it's not a retail channel. I think that is where we have ceded some orders.
Yes.
Correct. These are large orders, gifting orders. It's a price market.
Again, the same price margin issue.
So just one follow-up on this one. We are seeing some -- we're hearing from a lot of established consumer companies, which has a decent GT exposure, general trade exposure, already. There's a trade conflict between GT and e-commerce in the recent past in terms of pricing and merchandising. Sir, are we also experiencing any such conflict?
Yes, we are.
Yes, we are. And in fact, that is one of the reasons where our -- I mentioned earlier in the call that our percentage of e-comm to our total sales is much less than our competitors. And therefore, when we manage channel conflicts, the way we make some tradeoff, we do manage our general trade as well.
The trick is to grow e-comm without impacting the general trade, and that is where we have to think and strategize and we have some answers ready. So hopefully, we will see some numbers happening there without the -- yes, the channel conflict is a big issue to manage these 2 channels together.
Sure. And sir, any comment on CSD because...
It continues is as normal. No change.
No change.
No change. And what was the debt on book as on 31st December?
We'll have our balance sheet published in March.
Zero. No debt.
No debt.
The next question is from the line of Girish Joshi (sic) [ Jinesh Joshi ] from Prabhudas Lilladher.
In the opening remarks, you mentioned that...
Sir, sorry to interrupt. Girish (sic) [ Jinesh ] I would request you to speak a little louder, please.
Is this better?
Speak in the mic.
Yes.
Hello?
Yes, yes, go ahead.
Yes. So in the opening remarks, you mentioned that for the April month, we are more or less hedged as far as our sales are concerned, but there could be some shortfall for the month of May or June. But if I believe, we had some soft luggage inventory on books, which was lying idle. So will that not be sufficient to meet any demand which comes up in 1Q?
Not the entire quarter, because it's our largest quarter. But yes, we are relatively well positioned.
Okay. Okay. And if I understand correctly, we have recently expanded Caprese's scope beyond handbags to luggage as well. So what was the broader thought of launching a women's travel luggage brand -- I mean, women's travel luggage under brand Caprese? And do we have any internal targets for this category?
Yes. So our consumer research has always shown that today, especially with more of the working women and the number of women traveling for work increasing, there's a demand of luggage, which not only looks, but also caters to women when they travel. And therefore, that was the insight for which we decided to launch, and we're the only company which has women-specific luggage under Caprese. And yes, we would like to -- the targets -- as I said, the internal numbers we never discuss on public forum, but when we launch a product, obviously, the expectations are very high. And the general market, the feedback has been very good. So I guess, there is a market available for women and women-specific luggage.
Okay. But gender categorization, does it really exist in luggage? I mean, I'm a bit surprised on that front.
Yes. If you ask your lady friends, they would...
That's how we expand the market and create a new market segment.
Okay. Lastly, can you share the sales and PAT figures for Bangladesh operations for this quarter?
We don't do that independently.
But every quarter we share the figure, Bangladesh obviously...
Do we?
Yes, sales and PAT numbers. We do that...
No. Consolidated we do.
But not this time.
Not this time, so...
The next question is from the line of Abhijeet Dey from BNP Paribas.
Sir, one question. In terms of the sourcing from Bangladesh, what is the overall potential? And as a percentage of your overall raw material sourcing, how much can come from Bangladesh in the future?
When you say raw material, what do you mean? You mean because we...
I mean, finished goods, yes, basically.
No, they are 2 different things. Okay. There is no percentage. I mean, if we increase our production in Bangladesh, our -- that portion will increase, the percentage will increase. It also depends on how much are -- in the past, what has happened is that our sales have increased so much that -- and our Bangladesh base was so small that even though we doubled our capacity in 1 year, but our percentage was hardly -- of imports from Bangladesh was just 5%. Now of course, in the current year, our sales are flat and our production has gone up. So that sourcing has increased, but it's yet under 20%. It's still quite low. Generally, our aim is to increase it gradually.
Okay. And the rest would be largely China?
India also. We make about 25% of our luggage in India, in our own factories, and we have outsourcing in India also. So it's a broad mix.
The next question is from the line of Ronak Vora from AUM Advisors.
Can all these new brands which are coming up, say, by AmazonBasics and everything hamper our sales and how much?
So the question -- private label in non-e-commerce channels has not really been super successful in India. Now the question is, can it be successful in e-commerce? On scale, I'm not sure. Does it provide pricing pressure for how we launch our brands in e-commerce? Yes. At this time, it doesn't affect -- see, it's not like it reduces our sales or it's a significant competition that takes market share. But it affects our sales growth in terms of how fast we can grow in e-commerce. Does that answer your question?
Yes. One way, yes. The second is, they do not affect your sales in terms of volumes. But yes, don't they put pricing pressure on you?
I just said that...
That's what, that's what Radhika said that yes, it does.
I just said that. It does put pricing pressure. Therefore, it affects how -- which brands we launch where in e-comm, which affects our sales growth as a company, but it's not like specifically the scale of the private label in e-commerce is enough to take share from us. But I will say the organized competition remains a larger competitor. Although there is much more competition in e-comm from private label than there is in other channel.
Okay. And can you just give me the breakup as in segment-wise, say, backpacks would be how much percent of your revenue, say, Caprese or luxury or economic?
No, we don't really give these splits. If anything, we can give a slightly more detailed update in our annual Q4 performance. At this time, no.
The next question is from the line of Ravi Chandran, an individual investor.
I have a couple of questions. While going through your numbers, I find that your stock in trade is down almost 50% year-on-year, which means that the amount of traded goods in your overall revenue is in a declining trend. And when I look at your inventory, it appears to be lower than what it used to be in the month of December. As we are getting into season in Q1 of next financial year, it appears that we are going with lesser inventory or perhaps lesser than what it's supposed to be. So in the last 2 conference calls, Radhika talked about how she is pushing the Chinese suppliers to reduce the price, increase the volume and all these things. So how are you planning to mitigate this? Assuming that -- considering the low inventory level and then the issues in the China, what...
Yes, thank you, thank you. I think we should look at inventory in terms of number of days rather than the amount. So if anything, I will say, if you look at the last 24 months, starting from around 12 months ago, we had excessively high inventory levels, which we have been gradually bringing down. So I will say, right now, in terms of inventory days, we are still higher in inventory days than we would have been in December...
See, there was a flaw -- Radhika, just one second, there was a flaw in the question that the inventory is lower than what it should be. I mean, how do you assume what should be?
No. There was an increase in inventory in the published results for December last year as compared to this year. This year, only decrease is inventory.
Yes. No, no, but you said it is lower than what it should be. There is no should be.
No, no. There is no should be.
It was higher than what should have been. Understood? So it is the other way around.
It's just my interpretation. You can call it misinterpretation, perhaps.
Yes, so that is wrong. That is what I want to correct. What inventory we had, like, even in March '19 was very high. And also in December, what you're referring to, I think, last year, was a higher level. So in most of the calendar year '19, we've had higher inventories than what was the ideal level. Okay? So it was our effort to reduce the inventory and because of the flat sales, that was a little bit of a challenge.
Right. Yes, that is on inventory part. And as far as Q1 of next year is concerned, your best quarter, historically...
We already addressed that thing in the beginning of the -- that was the first question that was asked, how we're dealing with the coronavirus issue and the production in China, so that -- we already covered that and there's no need to repeat that now.
The next question is from the line of [ Vaibhav Kukreja from BN Financial Services ].
I wanted to ask that in the beginning of the session, sir mentioned that we'll be looking to increase our market share in the e-commerce sector. So I wanted to ask that considering the pricing pressures, will you be able to retain our margins if you want to increase our share in the e-commerce sector?
Yes, I think it will be totally doable because we have to slightly improve our product lines and our overall strategy for e-commerce. Plus e-commerce as a channel is not so big as a percentage of our sales. That pricing pressure in e-commerce is something that brings down the margins of the whole company. So I don't see any conflict with improving our market share in e-commerce whilst maintaining our current margins.
Okay. Secondly, I just wanted to ask if you could give a bit of insight on the industry like which channels are more preferred in terms of the products that we sell.
So yes, to define that, it's a question of channel growth, channel profitability, the base. So all channels are important. Some channels are small but growing faster. Some channels are big but growing less fast. Ultimately, it's important for the market leader in India to address all consumers through our all channels. So for us, I think managing channel conflict effectively, having the correct price points and the current brands and the current categories across all channels is very important. We cannot say XYZ channel is more important than the other.
The next question is from the line of [ Abhishek Agarwal ] from Gem Quest Capital.
Sir, just -- I had -- I just have one question. Hello?
Yes, go ahead.
Yes, go ahead.
Yes, sir, I've been observing since 2 months now, we've been getting into different categories under our brands like Footloose by Skybags and Carlton London. So I just wanted to understand, do we have specific plans with respect to getting into different categories like footwear and wallets and stuff?
Let's just separate the 2 brands you mentioned. One is Carlton, where we continue with our strategy, which has been aimed at the, sort of, new age business traveler. We have a range of products that includes luggage, but it also includes business bags, backpacks, wallets. At this time, there is no plan for shoes in Carlton brand. It is bags, backpacks, wallets, luggage. With respect to Footloose and Skybags, I will let Sudip elaborate, please.
Yes. So we have launched Footloose by Skybags on a very specific purpose which, currently, we are unfolding the strategy. So you will get to see the reason why we have launched it. At this point of time, I would not be in a position to actually say or diverge anything. But yes, it's been launched with a particular purpose and over the next 6 to 9 months' time, you would see the reason would get clearer how we will manage this.
[Operator Instructions ] The next question is from the line of Mithun Soni from GeeCee Investments.
Would you be able to share how are each of your brands like broadly doing? Like which one is growing faster, not growing faster and in different channels?
Yes, I'll answer that. There's no major difference from the past. Really, I will say the reason for a flatter sales is more a question of channel management and market more than one particular brand being weaker or stronger. So as before, Carlton and Aristocrat in luggage grow very fast or faster than VIP and Skybags, but VIP and Skybags are much larger brands. And then Caprese also grows faster because it's smaller. So we have 3 smaller brands, which are Carlton, Aristocrat, Caprese. They grow faster than VIP and Skybags. VIP and Skybags are the much larger brands with much larger bases.
Second question is in terms of scalability, in terms of the size, do you feel that the -- among the 4 brands, the Caprese and the Carlton also have the potential to be a very big brand like VIP or Skybags? And it will be fair to divide the resources, the advertising money on all 4 of them or you would like to focus on the 2 or 3 main ones, which you can -- you believe can really scale up in a big way?
Yes, it's a good question. So the potential for Carlton and Caprese is, to some degree, driven by their pricing strategy. As long as we keep the prices higher, they cannot -- they may not be the same value size as VIP and Skybags. And then the questions, should we advertised all 4 or just focus on 3 or 2? In an ideal world, one will definitely advertise all 4 because to create new brands or to grow new categories, so -- branded ladies handbags is still a relatively new category in India. Premium luggage from the house of VIP is still relatively new for us. We're not so strong in the premium segment. So therefore, these new brands need advertising. However, in a subdued market demand scenario, will we advertise all 4 brands, given that we want to keep our ad spend as at sort of -- maintain it at 5% to 7% of sales is a question mark. So we are in a process of looking at our annual budgets and our annual ad spends. So more on that as and when we continue.
In the sense, the reason I'm asking is, we see majority of the companies have started following, I don't know what you call, as an umbrella brand strategy. They started to identify 1 or 2 brands. That is the only way you stand out despite spending the full advertising budgets.
Can you give an example?
If you look at Titan, okay, everything -- it is all by Tanishq, okay, or it is Titan and Fastrack. They have only 3 brands which they focus on. If you take the FMCG companies also, they are consolidating their brands among the few top brands, and then they will bring sub-brand, but the idea is that they will have their own umbrella brands, which is like the top 8 brands, which they want to focus on. That helps in consolidating the ad budget, and it becomes more impactful.
Their top 8 brands?
Yes, mainly. If you look at all the companies...
Eight is a very large number. 8 is a very, very large number.
If you look at their size. Just look at size-wise. So from that perspective, my argument is that since we have 4. Now Skybags is a very clear proposition, very different from VIP. Carlton is at a much premium, much expensive value, and there is a specific market for that. But if you look at VIP and Skybags, there is a much bigger potential. I don't know how big the potential maybe in Caprese.
It's something that we definitely evaluate on an ongoing basis. And sometimes, you can see what we do based on the kind of output or campaigns we run every quarter. So all I can say at this point is, we hear your point, we evaluate it every time, and we will take a balanced decision.
The next question is from the line of Ankit Kanodia from Smart Sync Services.
Hello?
Yes.
Yes, please go ahead.
Yes. As you have already said that channel management is the most crucial aspect to get back to growth in terms of volumes, how do we see the e-commerce channel as a percentage of our total volumes, say, about a year or 2 from here?
It's too early for us to comment. I will answer that question but maybe after 3 months or 6 months.
Okay. And what is the consumer pattern we are seeing right now in terms of, say, total market as in, say, if there are 100 bags being sold in the total market, how many are being sold through e-commerce channel? If you would like to comment on that.
So luggage, there are 2 parts to it. One is the luggage and one is the backpack. So there is one voluminous, which is the 4 -- basically the suitcase, as we say it, the luggage. And then there's a backpack. So if you see the luggage market, I think, anything between 7% to 12% to 15% to -- maybe 12% is being sold, luggage. But if you see the backpack, I think about 30% of backpack is now getting sold from e-comm. So backpack is...
This, you are talking about your company or the total market?
No, no, no, the market.
I'm talking about the market.
[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky investments.
Sir, what would be the ballpark growth rate for the industry in quarter 3 and 9 months, if you have any indicative number?
It's difficult for us to comment. We have Safari's numbers foreknown. We have some estimates of Samsonite and American Tourister, but they are estimates. And we, again, have very rough estimates of unorganized and private label. So I can say that definitely, Safari's is also known. They've grown faster than us. We've lost some market share. It's difficult for us to comment on the industry as a whole.
9 months, any indicated estimated number, if possible?
It's really -- I can't give you a number. I can tell you that the overall demand is less in the last 9 months than the previous 9 months, and I can say that a good proxy for our industry would be domestic air passenger volume. You can use that as a proxy. Beyond that, I cannot share a figure.
That's about 4%, 5%. Okay. My second question is, I couldn't get your comments on the channel growth rate, so you said that e-comm has declined, but the other...
No, no, I did not say that. I said it's not grown as fast as it should have. E-comm has definitely not declined.
Okay. Okay. So e-comm has not grown as fast as the other channels and you're not worried...
No, no. I didn't even say that. I said e-comm...
Listen, I think it is -- e-commerce in our company is our fastest-growing channel. Fastest growing, but its base is very small, okay?
Okay. Okay. And on the brand side, your comments were that there's no major difference among profit within your brands. That were your comments on the brand, right?
No, no, not among profit. Radhika, please clarify it. Did you say profits?
No, no, I didn't say that. I said from previous year -- there's no change from previous year in the growth rates of various brands. They -- whatever growing -- they were growing before, they've all slowed down a bit. I've said the main issue is a channel issue, not a brand issue. When I said that our smaller brands are growing faster and -- which are Caprese, Carlton, Aristocrat, and that our larger brands, VIP and Skybags, because of their high base and their good penetration are growing a little bit slower than these other 3 brands. But that is the same situation which has been in our company for the last 4, 5 years.
The next question is from the line of Sivakumar from Unifi Capital.
Just wanted to know whether there will be an improvement in margins due to the recent sell-off in crude oil prices, especially in the hard luggage segment.
At this point, we are pretty happy with our margins, and we would like to focus on recovering our market share. Therefore, if we see any opportunities on cost, we might tweak our product mix to offer some aggressively priced products.
And let me add that the correlation between plastic raw material prices and oil prices is very little. And the component of plastic raw material also is very little in our overall -- in our sales value -- as compared to our sales value.
Got it. Sir, should we expect any increase in ad expenses as you try to regain your market share?
Not as a percentage. No.
Not as a percentage. And any comment on the employee expenses? They seem to have come down on a quarter-on-quarter basis. Would you be able to hold it at these levels?
Yes.
The next question is from the line of Kamlesh Kotak from AMSEC.
Sir, I wanted to understand how much investment we are planning to make in our sourcing in Bangladesh or maybe in India.
Yes, there's been a process of firming up our CapEx plans. In the last 3 or 4 years, we've been spending INR 30 crores to INR 50 crores per year. We expect those levels to continue. I understand it's a range, but it's in that range.
No, but INR 30 crores to INR 50 crores is not only for sourcing. That's -- in fact, it's -- a smaller portion is for sourcing, the major portion is for our marketing and distribution expenses and software, more in the administration of the company. Our [ office ] takes a very small part. Today, our gross block in Bangladesh is hardly INR 45 crores, and net block is about INR 32 crores.
Okay. So I just wanted to understand, sir, that the current situation the way China is now into, can we get some bet -- higher sourcing from our Bangladesh first facility? Do we have that much of utilization availability and -- so that we can get that kind of advantage in the current scenario?
We can't get higher utilization. We are producing at the maximum of that. So unless we increase the capacity, we cannot produce more.
Okay. Okay. My second question is regarding Caprese. How that distribution channel has been expanding in that? Or how we see that growth traction? We were talking of that is still under-penetrated channel. So how has been the trend there?
So the Caprese distribution has kind of changed over last 12 months to 18 months. Earlier it used to sell maximum from departmental stores followed by general trade. When I say departmental stores, it's more of the organized premium stores. Now we have seen a large shift of Caprese or ladies handbag sales moving from the traditional trade to e-comm. And more and more women are actually buying Caprese or other handbags from e-comm. So most of our sales now is coming from the e-comm channel and that's how the shift has happened.
So distribution will be the smallest of the channel in that category?
General distribution will be the smallest, yes. But then, most of the ladies handbag is now getting sold in departmental stores like Shoppers Stop or Lifestyle or a Central or a Pantaloons. And majority of it is getting sold at e-comm.
Okay. And secondly, about the modern trade channel, are we present across all the markets in terms of pan-India presence as well as Tier 1, Tier 2, Tier 3 cities? Or still there is...
So that's one of the things that we -- there are certain channels where we had not been present earlier, primarily, because of price reasons. We were present, but not -- say, if this channel had about 200 outlets, we were not going to all outlets. Currently, we have managed to, as I said, work on products. And this year, we would like to be present in across all channels -- all the channels available in the hyper trade. Majority of the channels, we are there. But there are certain channels where competition is there and a lot of unorganized gets sold at a price point which is pretty aggressive. And since we now have the products, we would attack those channels, yes.
The next question is from the line of Vivek Shah, an individual investor.
Do we have any plans to have in-house manufacturing in India of soft luggage?
Not -- sorry, could you repeat the question?
Yes, what was the question?
Sorry. So my question was, do we have any plans to manufacture soft luggage in India? Or it will be sourced only from China and Bangladesh?
Currently, we source from Bangladesh, China and also from India, but we don't manufacture our own soft luggage in our own factories in India. We are continuously evaluating that option.
The next question is from the line of [ Nidhi Agarwal ] from Sunidhi Securities.
One clarification on China imports. Are we sourcing from the Guangzhou in China, which is in southern part?
No, no, we are -- you mean, Guangzhou. I think, no. We purchase our luggage in a region that is west of Shanghai.
Okay. West of Shanghai. So I mean like how is the coronavirus impact there? You are saying that people have not come from leave.
We have discussed everything now. Why do you want to repeat it? We cannot give you any more information. I think we discussed that for 10 minutes...
Yes, yes, yes, I've listened to that. But I just wanted to understand that what is the impact -- if sourcing from China cannot be done, what alternative arrangement can be made?
We are working on it. We, I will say, have a decent stock level or cover at the moment. We are working on what alternate supplies we can get. It is really too premature for us to comment now.
And I don't think we can add anything to what we have already told.
The next question is from the line of Bhavesh Chauhan from IDBI Capital.
Can you share the mix between soft and hard luggage for the quarter?
As I said it before, we're not giving the specifics. At the year-end call, we can give some broad outlines of, over the year, whether hard/soft has changed.
Generally, the trend is in the entire luggage industry is that the hard luggage share is increasing.
Right. So as I understand, you guys produce your own hard luggage. And with this issue in China, there will be a problem in sourcing, in case there is. Do we see constraint to manufacturing hard luggage in India also? Because I understand that a lot of components are actually imported from China for hard luggage as well.
Much fewer constraints, if anything. That is the opportunity that Chairman was referring to in terms of us being relatively better placed because our hard luggage capacities are the largest in our industry. And there is a good appetite from consumers shifting from soft to hard. So that is -- when you talk about alternate supplies from China, hard luggage is one good area that we can look at.
I now hand the conference over to Ms. Shradha Sheth from Edelweiss.
Thank you very much. Radhika, if you would just want to give some closing comments in terms of outlook. In terms of sourcing, already much has been discussed. Any closing comments?
Thank you, Shradha. And thank you, everyone, for joining this call. I can say, as Chairman started, that it's a mixed bag. I think the flat sales and the loss of market share is deeply disappointing. It's something we have -- the team is working hard to correct. However, in terms of margins, we're pleased with the progress we made. And we feel confident that with the right channel strategies in place and with solving some of the internal operational issues we've faced in the last couple of months, regardless of market sentiment, market demand, we can improve our growth rate in the next few quarters and despite coronavirus. So we have some alternate plans.
And I would like to add something that because of this coronavirus, I think we are the best placed amongst the Indian companies because of our higher manufacturing facilities -- our own manufacturing facilities, we are the best placed to face this problem.
I'll just add one more comment. So just in terms of the timing, whether or not this growth resumes in Q4 or Q1, that remains to be seen, but definitely flat sales growth is not something that is in line with our expectations. So we are looking forward to the growth, and we have some plans. Now whether we are able to actualize them in Q4 or Q1 is a question and we are working on it. And that is regardless of coronavirus and external market demand or economy situation. Thank you.
Thank you. On behalf of Edelweiss Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
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