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Edited Transcript of ADIA.NS earnings conference call or presentation 13-Aug-20 10:30am GMT

Q1 2021 Aditya Birla Fashion and Retail Ltd Earnings Call

MUMBAI Sep 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Aditya Birla Fashion and Retail Ltd earnings conference call or presentation Thursday, August 13, 2020 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ashish Dikshit

Aditya Birla Fashion and Retail Limited - MD & Director

* Jagadish Bajaj

Aditya Birla Fashion and Retail Limited - CFO

* Sangeeta Pendurkar

Aditya Birla Fashion and Retail Limited - CEO of Pantaloons Division

* Vishak Kumar

Aditya Birla Fashion and Retail Limited - CEO of Lifestyle Brands

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Conference Call Participants

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* Aditya Gupta

Goldman Sachs Group, Inc., Research Division - Associate

* Aliasgar Shakir

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Ankit Kedia

PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst

* Avi Mehta

IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary

* Garima Mishra

Kotak Securities (Institutional Equities) - VP

* Nihal Mahesh Jham

Edelweiss Securities Ltd., Research Division - Research Analyst

* Richard Liu

JM Financial Institutional Securities Limited, Research Division - Research Analyst

* Tejash Shah

Spark Capital Advisors (India) Private Limited, Research Division - VP of Research

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Presentation

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Operator [1]

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Ladies and gentlemen, good day. And welcome to the First Quarter FY '21 Earnings Conference Call of Aditya Birla Fashion and Retail Limited. The call will begin with a brief discussion by the company's management on the quarter's performance, followed by a question-and-answer session. We have with us today Mr. Ashish Dikshit, Managing Director; Mr. Jagadish Bajaj, CFO; Mr. Vishak Kumar, CEO, Lifestyle Business; and Sangeeta Pendurkar, CEO, Pantaloons. I want to thank the management team on behalf of all the participants for taking valuable time to be with us.

I must remind you that the discussion on today's earnings call may include certain forward-looking statements and must be viewed therefore in conjunction with the risk that the company faces. Please restrict your questions to the quarter and yearly performance and to strategic questions only. Housekeeping questions can be dealt with separately with the IR team.

With this, I hand the conference over to Mr. Jagadish Bajaj. Thank you and over to you, sir.

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [2]

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Thank you. Good evening, and welcome to the earnings call for our company. The quarter under review has been the most difficult quarter in the history of the company. The business saw an unprecedented disruption in the months of April and May, since the bulk of our network was closed. The e-commerce channel too started only in the third week of May. Over 2,500 stores accounting for roughly 8% of our retail network resumed partial operations in the month of June, and it was in this month that the bulk of our quarterly revenue was booked. July and August have been better than June, and we are seeing a partial albeit recovery of business compared to pre-COVID levels.

Now let me give you a snapshot of the financial performance of our company. The quarterly revenue are just not comparable with the previous quarters of FY '20. The company has recorded INR 323 crore revenue, which was down as expected but significant 84% over the same quarter, leading to a decline in EBITDA. This is in no way a reflection of the potential of the business and is not a permanent condition, as we all know. The quarterly sales are just a reflection of accessibility of shops for consumers given the restrictions imposed on movement since the pandemic struck. It is noteworthy that April and May months together registered just 8% revenue compared to the same months a year ago, mainly because of the lockdown restrictions in order to contain the spread. Monthly sales recovered to approximately 26% of pre-COVID levels in June as the country opened up. Needless to say that the company has taken cognizance of the market realities and external environment and embarked upon measures to optimize cash flows and improve liquidity.

Over the course of the quarter, our company has initiated a deep and comprehensive cost reduction exercise also. The first priority was to cut fixed costs, majorly rent for our retail network, manpower costs and other discretionary spends like advertisement, travel, et cetera. The second priority was around optimization of working capital in line with the scale of business effected through steps such as repurposing existing inventory, scaling down buying for spring/summer and autumn/winter. We took concerted efforts on significant reducing our rental expenses, most of which have been borne fruits. Our rental savings have partly been locked-in during Q1. As part of this exercise, our attempts with our real estate partners was to agree on a predominantly variable cost structure for this year. We have achieved savings through a combination of increase in share of variable rental and reduction in minimum guarantee for the year.

The overall rent cost reduction in quarter 1 is INR 237 crore, placed in 2 locations in published results, INR 159 crore in other income and INR 78 crore in rent item. I would like to highlight and again reiterate that the other income this quarter majorly consists of INR 159 crore towards rent concession. Hence, it should be treated as rent reduction.

Our actions on manpower cost optimization were initiated from the month of June. However, in line with our overall group systems, we maintained the existing salaries and wages of our extended employee base fully for the month of April and May. The cost were rationalized at 2 levels. First, in the month of June, the company carried out a comprehensive salary reduction across the organization with varying level of intensity across levels, with most of the reduction arising in senior and middle management for this financial year. This involved reduction in fixed and variable pay as well as reduction in other incentives. Two, the company also decided to go for a hiring freeze, including not to backfill the natural attrition of 15% to 18% of frontline staff without compromising on our quality of customer services.

In Q1, cost reduction on employees' cost is INR 35 crores from Q4, which is 12% lower than Q4 FY '20. The bulk of the savings in manpower cost will start accruing from Q2 onwards to the end of the year.

It is important for me to say on behalf of entire management team that our employees are our biggest strength and the way they have supported the organization to gain strength during this unprecedented time is exemplary. On the other discretionary overhead, other than salaries, we are reducing our cost drastically as compared to last year. This includes costs such as advertising, travel, staff welfare and office costs.

In Q1, other discretionary overhead seen reduction of INR 183 crore from Q4 FY '20.

On the inventory front, as we explained in Q4 FY '20 investor call, we will be focused on using the fresh merchandise, which were received in our stores and warehouse before the lockdown for sale till November. We will supplement this with much reduced buying in festival period and winter wear. Accordingly, our inventory buys consequently will be severely controlled. And hence, on a net basis, we expect cash release from liquidation of inventory.

Finally, as a means to bolster the liquidity in the company and to set right our balance sheet, the company successfully embarked on a INR 1,000 crore rights issue, which was fully subscribed, INR 500 crore of which has already been received. The company will additionally call INR 250 crores in January '21 and the balance in July '21.

Rising up to the challenge, all our brands were swift to adapt to the new normal by accelerating their digital initiatives. Each of our brands worked towards fortifying their e-commerce capability by servicing their customers through the brand website and e-com partners. Some of our brands launched their mobile apps in Q1, while others are working towards launching their mobile apps in the coming months. Targeted digital marketing initiatives have resulted in sharp increase in website traffic and e-commerce sales across our business segment. Our brands also work towards providing their customers on omnichannel experience enabling them to interact with the brands in a physical environment. We are already experimenting with the hyper model -- hyperlocal model and buy online ship from store model across our brands to make this possibility.

Our sales executives are also pursuing customers through WhatsApp commerce assisting them virtually. We also started reaching out to our consumers' neighborhood through pop-up stores, ensuring their shopping never stops.

I will now take you through the performance of individual business, starting with Lifestyle Brand business. Lifestyle business has quickly capitalized on this opportunity by creating work-from-home category; number two, conceptual products such as tulsi, neem-treated garments; number three, quickly ramped up partners' e-commerce sales; and number four, also exhibited leadership and rising to the challenging occasion by creating masks, PPEs for frontline healthcare staff.

In my view, the business displayed tremendous leadership in all aspects during these testing times. Business also collaborated well with various real estate partners to bring down rental cost to reduce the adverse impact due to lower convergence. It gives us immense satisfaction within our wide network of approximately 2,200 stores, we have not been compelled to take any drastic closure actions. Business also helped frontline staff improve their utilization levels by making them work on a temporary basis with other companies and also in turn, fulfill immediate manpower need in essential categories of other businesses. In line with its continued focus on delighting customers, business took its leaps in transforming itself digitally, keeping brand at the core of its business strategy. The business promoted digital interactions with its consumers through launch of new brand apps and digital marketing campaigns, both of which were met with significant success. Brands also discovered new ways to engaging with consumers through their wide store network, whether it was the buy online and ship from store model or through hyperlocal delivery format so stores serve this customer in its catchment by opening the store inventory for shopping and delivery within the same day.

E-commerce share of business, which has historically been around 6%, grew to 21% during this quarter, predominantly driven by partners' e-commerce, along with significantly higher traction at our own brand.com. There was a rise of 166% of e-com orders through various platforms and through launch of Van Heusen and LP apps. Many such innovations, both around products as well as way to serve customers, are the highlight of our business during these trying times. It shows the level of involvement and passion through which our brand managers, product experts, warehousing team and retail staff, they left no stone unturned to keep serving and delighting our customers.

During the quarter, we managed to open about 80% of our retail network across the country in phases. We also evaluated many new store options and the fact that a lot of prime real estate is presenting itself to us is also a testimony to the strength of our brands. During the quarter, revenue of Lifestyle business were INR 190 crore with an EBITDA loss of INR 67 crores.

Moving on to Pantaloons business. Being a large-format store, Pantaloons took longer to resume operations as per the guidelines of the local authorities and hence, bulk of our network remained shut for the quarter. However, that did not deter Pantaloons in reaching out to consumers. Pantaloons displayed tremendous leadership in connecting with consumers through various digital methods to take care of their fashion and apparel brands. Video calling from stores gained sufficient consumer traction, while pop-up stores proved to be easy excess shopping point for Pantaloons customers. Business also piloted store-on-wheels concept where kiosks were set up at societies, localities to display a wider range and take bulk orders, a concept that showed tremendous promise. Pantaloons remarkably accelerated its e-commerce presence with average daily orders growing at 4.2x on pantaloons.com, which was launched last year, gained strong traction during this quarter with 75% higher traffic and robust growth in orders. Revenue for the quarter of the business was INR 82 crores with an EBITDA loss of INR 72 crores.

Other business, innerwear and athleisure. Let me rekindle the optimism that all of us need during these times. It gives me immense pleasure to inform you that on a run rate basis, our innerwear and athleisure business has been the quickest to bounce back close to pre-COVID levels. As of June, the sales are 83% of June last year and the strong trajectory has continued through July as well. The success of this recovery is driven by strong pent-up demand for innerwear, new found obsession with athleisure and activewear and large part of sales moving to digital channel. My heartfelt congratulations to our dedicated field force that ensured distributor expansion through strong billings even during this constraint and challenging environment. We added 400 distributor outlays in this period.

International brand. Our international brands business also turned back to normalcy almost as quickly as innerwear. End of Q1, sales through e-commerce and omnichannel had reached pre-COVID run rate, while most of the quarter had lackluster growth on account of store closures and most of these stores are in malls, which had the most delayed reopening. The e-commerce and omnichannel sales covered up the losses to a large extent.

Coming to debt. The debt of the company as of June 30 was INR 3,250 crores. This net debt of INR 3,250 crores is expected to be the peak debt of the company. Utilizing the proceeds from the rights issue of INR 500 crores and future cash operations from future, we expect to close debt at approximately INR 2,000 crores at the end of fiscal '21.

Finally concluding, we are thankful to our investors for having reposed their faith in us during these trying times and making our rights issue successful. I would also like to thank our bankers and other financiers for standing beside us.

Many thanks to Aditya Birla Group for their strong support and guidance all through. I would also like to thank our dedicated employees who, despite the hardships and sacrifices, continued to work doubly hard to ensure our success as we pass through these difficult times. Let me assure each one of you that our belief and conviction on Indian consumption story and the large opportunity in Indian apparel space stays unpledged. It is very large opportunity, and we are here to build a large and profitable business, rooted on the philosophy of best brands and best in cost. We are committed to work hard and make all efforts to achieve each and every goal that we have set out for ourselves this year. Happy to take your questions now, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Avi Mehta from IIFL.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [2]

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Sir, I had 2 questions. And it's actually in respect to the current kind of what you've done. See, this quarter essentially shows the cost control initiatives part of it. Could you quantify a target for cost savings that you are likely to achieve for the year? Do you have anything you can share on that, sir?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [3]

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Avi, we are living in slightly uncertain times as we look ahead also. I think our effort is to get cost as far as possible in line with the way we see revenue shaping out. And we have taken initiatives. You can see some of the actions that we have taken in the results in quarter 1. We will keep watching as the time goes and keep pressing accelerator on various levers that we have with us.

The largest variable cost or in some ways semi-variable costs that exists in our business is the rental cost and the operations cost. Now we have taken one shot at it and achieved very significant savings, most of it with the help of an understanding of landlords. But if the things don't improve, then we'll have to perhaps look for steeper cuts. So I think it's hard at this point for this year, at least for next 6 months to predict 2 things, a very close sense of what the revenue would be, and therefore, consequently, what should the cost target be? So we are constantly moving that target as the situation evolves.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [4]

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So let me rephrase. What I was trying to understand is of the cost savings that we have been able to drive in the first quarter, how much do you think we can flow through or continue as we go forward? I understand the rental part, which is kind of clear. The other expenses bit is what...

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [5]

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If you look at -- I get that. If you look at our cost heads, there are 3 large cost heads. One is rental, which, as I said, is an ongoing conversation and will also depend to some extent on how the market shapes up. And we will keep pushing for as much alignment with the degree of sales that we are achieving. On the overhead side, which is a manpower cost, I think Jagadish briefly mentioned that our actions started from the month of June. So perhaps the impact of it, you will start to see more in Q2 and Q3 than what you have seen in Q1. In Q1, it's pretty muted because only 1/3 of the period was available for us to any correction.

On the other expenses, which is everything else from advertising to other administrative expenses, office expenses, travel, et cetera, you will continue to see this traveling right through the year.

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Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [6]

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Okay. Perfect. Lastly, I just wanted to get your sense on the discounting levels and how you see that trending in the industry, given that the industry is in a lot of pain, and there is a witnessed -- a slight bit of fear or aversion to make the trip to the store. How should I look at that? And if you could -- any guidance on that would be helpful.

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [7]

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I think, so far, as of now, the way it's played out, discounting this year has been lower than any time in past couple of years. The primary reason is that people are coming out, not coming out, not because there's no discount available or less of it. I think these are larger reasons. The elasticity to discounts at these times is much lesser.

Having said that, we are currently undergoing the end-of-season period. And there the discount is roughly similar to what existed last year at the same time. But overall, because most brands and retailers are trying to carry their inventory over to the next season, the level of discounting is much lower than any time before.

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Operator [8]

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The next question is from the line of Tejash Shah from Spark Capital.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [9]

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(technical difficulty)

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [10]

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Tejash, your voice is breaking. We can't hear you.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [11]

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Is it better, sir?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [12]

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Yes, this is better.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [13]

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Yes. So sir, as some of your read on this quarter, July and August, how consumer behavior has been, as I'm trying -- just an extension to what Avi asked that are they fearful to step out and this whole work-from-home impact on our formal wear? How are they behaving in this recovery phase?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [14]

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So I think the fear of stepping out, you and I know is the fear right across the country. The extent wherever the impact is higher like in bigger cities and metros where the fear is higher, you see the impact more. As you go down to smaller cities, to the extent that the impact of virus itself was less and the normalcy has got slightly more reduced, that impact is lesser. But overall, it is fair to say that the impact of this concern about going out continues to affect consumers. But having said that, I think more and more people are realizing that we're getting to deal with the situation better, we are seeing more traffic building up into our stores. Every month and every week has seen an increase in traffic. And perhaps you'll start to see some of that recovering happening from August, September onwards.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [15]

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Sure. Sir, second, on last call, you had mentioned that you don't want to actually go on ad hoc cost-cutting measures and you perhaps might see opportunity or utilize this crisis to push through some long, deep reaching on your reforms on cost. So you spoke about some of the immediate measures, but do you see that there is a way to actually redefine the business in terms of cost line items the way we have done it in past versus future?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [16]

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So some of that work is ongoing. And I think these opportunities get you to reflect over some of the costs, whether they are structural costs in terms of organization or costs in terms of retail costs, the rentals that you see, the size of the stores, the staff costs, et cetera. And we are continuously working on it. But these things don't happen overnight. These are journeys that we start at one point of time and actually start driving it over a period of time. There are other elements of costs, which are fixed cost in nature, and you -- once you learn to live with less, some of that sticks on. Having said that, our current effort is to really focus on what we can get in the short term. Because remember, we are going through a phase in which there was a time when 80% of the store were shut, and even in many places where stores started to open up, the shopping -- so it was a supply-side constraint, which was even larger than the demand situation that you're talking about. So we'll also have to see what normal looks like. And some of these cost reductions will perhaps be temporary in nature, but they are the deeper ones. There are some which will be more structural ones, but they will play out over a longer period of time.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [17]

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And sir, lastly, on this rent, so since the landlords are accommodating in this phase to us, does it mean that when the recovery happens, the nonlinearity that we expect won't be there, at least in the first phase, and they will get at least some recovery of the lost amount right now? And then perhaps in the second year or next year, we'll see that kind of nonlinearity coming in our numbers.

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [18]

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I didn't get your question, Tejash.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [19]

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So is there -- so in this phase when they are actually accommodating our concerns right now, landlords, is there a catch-up phase, which has been decided that till that time when the recovery happens, we will actually share a higher percentage of our revenue with them to meet good losses, which is happening in the recent quarter. And after that, we'll go back to earlier arrangement?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [20]

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No. Clearly, we see -- remember, all rental agreements are long-term contracts, anything between 9, 12 to 15 years. And therefore, there is a certain value to that contract. What we are negotiating now is the rental concessions for the period where the normalcy is not restored. Once the normalcy is restored, it is fair to assume you will go back to what the contract is. Of course, at that stage, there will be separate supply demand situation and rentals, as you know, are driven by multiple other factors in the market, and we will see how things will evolve. But these are not -- we're not restructuring rentals for 9 years, if that's your question. We are actually getting concessions for the part of the next 3 quarters, including quarter 1 to, in some cases, right through the end of the year. If situation continues to remain like this, we will have to go back and extend that.

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Operator [21]

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The next question is from the line of Aditya Gupta from Goldman Sachs.

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Aditya Gupta, Goldman Sachs Group, Inc., Research Division - Associate [22]

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A couple of questions. First, just continuing on the gross (technical difficulty) there's jump in the own label contribution of Pantaloons. Is that mostly because of availability of third-party brands? Or is there some shift happening? And do you think the ratio is probably going to come down in the near term, at least, given that consumers might preferred established brands going forward?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [23]

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So I'll get Sangeeta to come in to this question. Sangeeta, could you hear the question clearly?

Okay. Let me first give you a quick summary. So obviously, you noticed that the share of own brands has significantly gone up. A part of the reason from our assessment is consumers are looking, perhaps, for value from that -- at least those segment of customers, and the private-label brands offered that in ample. Also basic and simpler products, perhaps, which is really what is reflecting into it.

Another factor is that the share of kidswear, if you notice in the charts that we published along with investor results, share of kidswear has gone up and kidswear is primarily own brand system. So a combination of all this is what it is reflecting in. In the longer term, our direction to improve share of private label will be driven by the new businesses and new brands and products that we have introduced. Sangeeta, you will comment, the question was around the share of private business now, and what do you see happening over a period of time.

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Operator [24]

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Ms. Sangeeta, please unmute the line from your side?

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Sangeeta Pendurkar, Aditya Birla Fashion and Retail Limited - CEO of Pantaloons Division [25]

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Yes. Can you hear me?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [26]

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Yes.

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Sangeeta Pendurkar, Aditya Birla Fashion and Retail Limited - CEO of Pantaloons Division [27]

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Yes. I think just to add to what Ashish said, we are seeing consumers, of course, preferring products in certain categories like the kids and casual clothes, et cetera. And I think that provides an opportunity for the private label to go up. Also, I just want to remind you that if you recall in the last quarter of last year, we were on this tremendous journey of transformation in Pantaloons, whereby we had introduced many new categories as well, right? So we had introduced home, we had introduced saris. What we are seeing at this point in time is, of course, kids and casual clothes went up, but we are seeing a good traction on home.

Also all of these products are now also available on our website as we have strengthened our -- and accelerated our digital journey. So given the shift in consumer behavior where most people home has become our world and most people are spending time at home, there is a good amount of traction. All of this should effectively help us improve our private-label share further versus what we had anticipated. And in some ways, it will accelerate our journey of private label going forward, especially with the way we have planned our merchandise, the traction for consumer on private label and with the new categories that we have.

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Aditya Gupta, Goldman Sachs Group, Inc., Research Division - Associate [28]

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That's very clear. Next question was on the e-com side. I think you mentioned right now, there's a model wherein you're taking orders from the online -- your own website, at least the orders coming in from there are being fulfilled by local retailers also. So is that the model, which is probably going to go -- work ahead going forward also? And then in that case, who bears the cost of the last mile delivery in the orders. Are you going to compensate your partners for these costs? Or is it on the retailer's side?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [29]

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So let me, Aditya, correct a little bit. Both in Pantaloons and in Madura, wherever we are doing this omnichannel retailing, which is we take orders on the website and deliver through stores, both of these interactions are happening in our own ecosystem. So we're not delivering through third-party retailers. These are our own stores, which are actually delivering the product. So this is a complete value capture. It's not -- we are not distributing third-party retailers' products.

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Aditya Gupta, Goldman Sachs Group, Inc., Research Division - Associate [30]

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No, no. What I meant was, if it's your franchise partner who has a store in that particular geography where the order is coming from and...

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [31]

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We are doing it with our own stores. Our franchisee partner may have invested in capital of the store. Our franchisee partner may have been managing the staff of the store. But these are stores where inventory is ours. And therefore, its complete value chain is within ABFRL itself. There's no third party involved in it. Even if franchisee is there, he's there for running operations of the store, for investing in capital in the store. For all practical purpose, we are doing it in our own retail.

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Aditya Gupta, Goldman Sachs Group, Inc., Research Division - Associate [32]

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Okay, clear. And the last bit is on the normalcy expected by Q4 of this fiscal. So I mean, just looking for some color on how you define normalcy. Is that flattish growth in Jan-Feb compared to last year or the normal, let's say, double-digit growth that the business was delivering [in] COVID?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [33]

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Normalcy would be, at this stage, a sense of normalcy would be to grow over last year in Q4.

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Operator [34]

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The next question is from the line of Nihal Jham from Edelweiss.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [35]

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Sir, I had 2 questions. The first one was on the normalcy as you mentioned by Q4. What I wanted to understand is that how do you expect your channel mix to be at the end of Q4? Do you expect that online could be a much higher share than what it was at the end of last year?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [36]

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I think so. I think that's fair to assume, both because consumers are moving, but more importantly, our own effort. You heard -- you probably saw it in our presentation, we mentioned it, Jagadish has mentioned in the speech, on multiple fronts, refreshing our own website, using digital marketing more aggressively to drive traffic there, creating fulfillment options through stores, our stores getting customers because we -- remember, we have close to 30 million customer who are on our loyalty base between Pantaloons and all the brands in our portfolio. So there's a very large number of customers that we can reach out to and serve through multiple mechanisms. Stores are doing video calling, WhatsApp commerce. We are obviously driving a lot of traffic through our own website. Equally, we are working even closer because the third-party websites, they are also very keen to partner with branded players. And therefore, even that is accelerating much faster.

So I would assume that our e-com share will go up. But just to put it in perspective, e-commerce share last year in the branded business was around 8% to 9% -- 6%. And in Pantaloons business was even lesser than that. So even a 100% improvement, 150% improvement would be about 10% to 15%. That's the zone that it would operate at.

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Nihal Mahesh Jham, Edelweiss Securities Ltd., Research Division - Research Analyst [37]

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That's very clear, sir. Sir, the second question was on your debt reduction target. You mentioned that currently you had a net debt of INR 3,250 crore, which you're looking at to get down to INR 2,000 crore by the end of the year.

And obviously, considering that INR 750 crores will be the QIP infusion for this year. Just wanted to understand what is the kind of inventory or working capital liquidation that we're expecting, which will help in reducing this debt?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [38]

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So we expect our inventory itself to come down between INR 300 crores to INR 400 crores. That's the inventory number. And the rest of the working capital and debtors and creditors also will play a role in that.

We are looking to release close to INR 500 crores from working capital itself.

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Operator [39]

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The next question is from the line of Richard Liu from JM Financial.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [40]

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I actually have quite a bit there. So I'll just probably start bottom up. Number one is, if I look at gross margin for the quarter, can you help me understand how does one come to this level of gross margin of 41% for the quarter?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [41]

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So Richard, the largest reason for that is -- remember, let me first reiterate. This is the quarter of least discount in the industry and for us. So therefore, the loss in gross margin is primarily because in Madura part of the business, Vishak's business, we have a large manufacturing, which in good times allows us to keep our product per cost low, gives us tremendous flexibility in production. And unfortunately, at times like this, that cost actually comes back and sits in the product cost because it's part of the overall manufacturing cost because the volumes that we are producing is very small.

So that's the number one reason. There are other smaller reasons about channel shifts, but I think those are much incremental.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [42]

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Okay. So essentially, inefficient overheads absorption because of the scale of cost...

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [43]

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Under absorption of overheads due to -- of manufacturing overheads due to low production.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [44]

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Okay. And this will be permanent in nature, I guess. I mean, you can't -- it's not going to reverse or offset sometime in the future.

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [45]

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No, it will quickly offset. As soon as -- even the partial sense of normalcy comes back and we start producing it, this will come back to normal.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [46]

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No. It will come back to normal, but you won't recover what you have lost this quarter?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [47]

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Yes, yes, yes. This is already -- yes, this part wouldn't get recovered.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [48]

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Okay. And second, one more number question I have actually if you just allow me to get through with it.

Jagadish, you talked about this whole rental savings of INR 240 crores -- INR 237 crores, including the amount of INR 80 crore that you said in the rental line, right? But if I look at your rental lines, and correct me if I'm wrong, the rental expenses under IndAS that you still continue to report, is that not the part that is variable and linked to revenue?

So if your revenue was down 18%, is it not natural that your rentals will also be down? I mean, can you actually call this as saving?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [49]

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No. No. So Richard, you're right. That part of the rental is primarily because the revenue is down. So rental is down. You're right.

So the savings are sitting in the top line. In terms of renegotiated, recontracted. Yes.

The other part I would also say is in some of the cases, and it's not insignificant, we have converted a lot of fixed cost rentals into revenue share rentals for the period. And that's also flowing into it. So it's not just the structural revenue share arrangements. It is a lot of rental arrangements, which have got converted for a period of time from fixed cost to revenue share. And therefore, to that extent, that's also playing a role in keeping that down.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [50]

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And is this for the next nine months? Or is it for the 9-year period?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [51]

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No, not at all. I think most of the rental contracts at this point of time, landlords are willing to concede for a few quarters for us. In more cases than not, we have been able to take it to the end of the year.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [52]

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And including the conversion of fixed to variable?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [53]

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Yes. Yes. But the periods are varying different contracts for that.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [54]

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Okay. And so it's mainly for, let's say, a one -- up to 1-year period in terms of the fixed to variable conversion.

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [55]

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Yes.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [56]

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Okay. And if I understood from the notes to account regarding that INR 160 crores that you've taken credit for in other income, of which about -- I think you mentioned a number of about INR 59-or-odd crore that pertains to the future. I'm just trying to understand what the steady state per quarter rental savings that you had? And are this entire INR 160 crores that you've taken credit for already formalized by way of a written agreement with the landlords?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [57]

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So let me clarify to you. The savings that we have factored in and booked are only the ones where formal written contract has been entered into. There is -- as on June 30, there are a lot of ongoing rental conversations. There are discussions which will happen, continuing discussions. There are rental renegotiations over and above and differently from what has already got contracted in past because, in some cases, the delay has been longer. So all those things will flow.

Richard, at this stage, it will be difficult to predict. But I mean, fair to say that we are driving very hard to try and get our rentals as close to the kind of revenue shortfall that we are seeing.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [58]

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Okay. But I mean, to be fair, I think the rentals that you drove down for the quarter, not linked to sale is about that INR 95 crore number. Is that the right way to look at it? And is that the sustainable number?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [59]

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No. No. So there are 2 parts. See, when you sit down with landlord, ideally what should be happen if we had a purely variable model. You would have no rental in this quarter. And we would have to keep paying rental as the sales go up. But typically, what kind of arrangements we are able to get into landlords is how to phase out rental concession over a period of time, which eases a little bit of liquidity for them also. So while sales may be dramatically down in Q1 and maybe significantly recovered in Q3, it's quite possible our rental concessions in Q1 and Q3 might be same because landlords are also looking for a certain liquidity to come to them. And that's why they are phasing out some of these concessions over a period of time.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [60]

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Okay. So if I just put it a little more differently, out of that INR 1,250 crore intrinsic rentals that you have incurred in fiscal '20, right? Based on your negotiations and based on your expectation of future concessions that you could get, how much can be the savings that's possible? I mean, apart from the one that naturally happens because you're not selling?

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [61]

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No. So even not selling -- because remember, very few contracts -- buy contracts are pure revenue shared, very, very few. So even when you're not selling, a part of minimum guarantee comes in at some point of time. But the big number, which is INR 1,200 crores, which is actual rentals of last year, against that you can see, we have got about INR 230 crores or INR 240 crores of rent reduction as of now.

There are a lot of ongoing discussions happening. These rents were only the ones which were actually signed, formally sealed from both sides by 30th of June. And therefore, as you go, more will flow in the subsequent quarters.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [62]

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So that INR 159 crores is a cumulative impact of whatever you've got till now? I mean it's not a repeatable number every quarter.

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Jagadish Bajaj, Aditya Birla Fashion and Retail Limited - CFO [63]

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Yes, yes. It's not a repeatable number. It's a fixed number, whatever they have agreed at that point of time.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [64]

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Okay. And I just have 2 more questions, if I may.

Ashish, what's your view of the attitude of consumers towards the kind of clothings that you sell? How do you think they are looking at some of these at this stage? And why do you think innerwear, et cetera, did better versus the others in terms of the June run rate? And if you can let us know what's your take on the other kinds of stuff that's there in your portfolio in general and formalwear in particular?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [65]

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So I'll start with that. I think that's where your question is leading to. So I'll get Vishak to come in. On what we are doing in our brands, which is Louis Philippe, Van Heusen, Allen Solly, Peter England. And how are we responding to them? What current traction we're seeing? And how do we see at least the medium term? So Vishak, do you want to come in here?

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Lifestyle Brands [66]

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Yes, sir. So Richard, I think this has been a very -- it's been a phase of a lot of innovation. At one level, Richard, we've become very strong players in a whole lot of protective clothing, okay? So you have masks, and we are with very high market shares in masks as we speak. We have clothes which are antiviral treated fabrics. We have a lot of -- we have travel garments, which are for safe travel. So there is an entire range which is created around protection as the main benefit to consumer.

There's another, which has been built around work-from-home, comfort, athleisure, easy maintenance, easy ironing, easy dry and so on, which is another stream altogether, which has also grown significantly. What we are also seeing, however, on top of all of this is also the beginning of festive merchandise coming up significantly, people wanting to feel good with the clothes that they wear.

We also found very interestingly, Richard, that you would have thought that formal trousers are not going to sell too much in this period. But consumers are saying, look, for the formal trousers that I want to wear, these brands, I know the fit. And hence, I know that I can buy it without trying it. And that seems to be very important for them. So we have sold a lot of formal clothes like that. The only area where perhaps the scale will have to change as things change is the wedding wear. And that is a function of the number of weddings in society and so on. And as that changes, we should see traction in that as well.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [67]

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Okay. And I have one more, if I may. And Ashish, if you can help me understand how are you looking at competitive positioning in such a scenario? Since you are -- you've got your efficiencies. You are part of a large group. And obviously, you are definitely much more well placed compared to some of your peers in the space. And when I say peers, I don't necessarily mean the unorganized guys, including the other well-known brands. I mean, do you see some benefit arising out of this for yourself?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [68]

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Definitely. I think, Richard, as we see today, both because of the strength of the brand, the agility with which we react, the systems that they are, consumer franchise, strength of distribution and partners, we feel competitively we are just getting stronger than from the pre-COVID level. And at times like this, consumers go back to the brands that they trust more. So as it is, there's going to be a share gain for major brands. And amongst them, I think we feel we are extremely well placed to benefit from the overall competitive landscape as it emerges.

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Richard Liu, JM Financial Institutional Securities Limited, Research Division - Research Analyst [69]

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Would there be any specific illustration that you can give to help us understand? Or is it just that what you think is going to happen, in terms of people offering you more in your space or, let's say, your competitors not being able to pay rents or anything like that?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [70]

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So I think Jagadish had mentioned a little bit in his speech, but whether it's department stores, whether it's e-commerce players, whether it's retail franchisees who you want to open stores, whether they are franchisees who are running other brand stores now looking for more reliable partners, I think in all those dimensions, I won't call out specific, but in all those dimensions, we are finding that there's natural gravitation for stronger brands, more importantly, for stronger companies.

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Operator [71]

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The next question is from the line of Ankit Kedia from PhillipCapital.

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Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [72]

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Sir, my first question was on the gross margins. While you alluded to the fixed cost of operations of the factory's unabsorbed cost, the mix change which Vishak mentioned of wedding wear mix being lower and selling more essentials, how would that impact the gross margins for the rest of the year?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [73]

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No. So our gross margins are not necessarily a function of product mix, most products that we make, by and large speaking, depending on the brand's position, our margin structure is consistent. So if we sell t-shirts or blazers or suits or the marginal -- gross margin structure is pretty consistent depending on what brand it is, how it's positioned, et cetera.

So I don't think portfolio mix will shift -- within the brand will create a shift as far as gross margin mix is concerned. Our current gross margin challenges are coming from absorbing the fixed cost of manufacturing, as we are bringing down inventory and trying to make sure we use existing inventory. That's the period that we're going through. I think another 3, 4 months, that issue will go away. And our intrinsic gross margin, which is the cost of the product as well as the price at which we sell are both very intact, and we'll not see a shift simply because we sell more of one kind versus the other.

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Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [74]

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That's helpful. Sir, my second question is on the wholesale channel. We saw a steep decline in wholesale mix this quarter. In fact, the decline was more than 90% compared to 60% in the others given the online share out there. How is the 12-season model working there? And how is the liquidity for the buyers of the wholesale channel?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [75]

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Vishak, do you want to come in here?

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Vishak Kumar, Aditya Birla Fashion and Retail Limited - CEO of Lifestyle Brands [76]

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Yes, sir. So Ankit, first things first, the wholesale channel has probably taken the longest to reopen [full] stores. It so happens that department stores in the sequence of reopenings were quite late in the permissions to reopen. So that's -- and it's only last week onwards that many of the department stores are now at 70%, 80% reopening levels. Similarly, in multi-brand trade also many states, the multi-brand is yet to reopen. Even today, many parts of East are not yet open. There are markets where weekends are still not open and so on.

So that's one reason why that part of the business has taken longer to get back to some semblance of normalcy. Here in all of this, the monthly model is it's -- I'm so glad we have it because it allows both -- imagine if we had produced for all of these retailers based on an advanced booking model, all of that inventory would have been a huge challenge for everybody. The fact that we've got a monthly model helps a lot. The fact that we've got a digital model for booking is, again, a very, very strong boon for all retailers. Today, retailers don't really want to have a physical place where they come and book orders and so on, the fact that they're able to book digitally, the fact that they're able to book multiple times when they want to digitally, that is also helping them hugely.

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Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [77]

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That's helpful. And sir, my last question is on the online. By end of the year, we could see a low-teens number share from e-commerce. How does that change the business overall in terms of stores opening, given that the customer will now be more comfortable for online. So do you think we'll continue to open 400 stores in the Lifestyle business and another 50 to 60 stores in Pantaloons over the next 2 years, probably this year could be an aberration?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [78]

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Yes. So I think the fact that consumers are getting comfortable to online is a growing trend, which has got accelerated in the last couple of quarters -- last couple of months. So it's one -- a little bit of habit forming is happening in that. Having said that, India is a very large and very underpenetrated market even by off-line retail. So the kind of opportunity that we see, I don't see why this will not continue for many years. What might happen over a period of time is the role of store and online and off-line coming together, where you're able to get served in different formats. And some of them, we already mentioned on the call, we are piloting, whether you get served from the stores through video call, you get local delivery and in many cases, order online and get it straight delivered at home.

So those combinations will emerge over a period of time. But I do want to reiterate the share of e-commerce at this point of time is high single-digit number, getting into early teens as we move forward. And it's a long journey before you ignore the big 90% and focus only on the 10% that exists. I think the 10% will grow, and we are very well positioned, in fact, very keen to grow that share. But we'll have to be conscious that there is a very large market opportunity that continues to remain available for strong brands in this country.

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Operator [79]

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The next question is from the line of Aliasgar Shakir from Motilal Oswal.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [80]

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Ashish, just wanted to understand, you did mention June trends. How about July and now that in August, even a lot of malls have started opening, where would we be in terms of the number of stores being opened and the trends? I'm also asking this from the point of view that a lot of nondiscretionary has revived quite quickly. So I mean, what is the trend we see in terms of revival of kind of apparel sales in the months to come?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [81]

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So by August, we are beginning to see almost 90% of our network has opened, a little bit more than that. And whichever small markets, which are very concentrated markets, which are still left to open, I think will, over the next couple of weeks, will start to open. So I expect by the end of August, we should have nearly 100% of our network opening. This is -- in June, it had started to open. Towards the end of June, we had reached 70%, but that is only numerically 70%.

Effectively, what was happening is stores were allowed to work only for limited hours. There were a couple of weekends that the stores were not allowed to open. There's big conversation around odd and even. And therefore, there's many other challenges that stores were having in running the operations. I think we are now reaching a point where stores are running all days of the week. They're running till 8 o'clock wherever possible in most markets and wherever they're not, I think consumers are beginning to come out and adjust to that. Having said that, consumers will take time to come out as often as they did. And therefore, that perhaps is a lag, which will take longer time to correct.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [82]

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Okay. And where should we be today in July and August in terms of last year sales, if you can share some numbers around there?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [83]

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No, I don't think in this call, we want to share this quarter's numbers.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [84]

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Okay. Second thing, you did mention a little bit about store adds and the competitive intensity. I just wanted to understand from the point of view, is that -- do you see this phase as a good time to probably open stores with a better economic viability of the store with whatever, I mean, cost in terms of rent and the other factors. And therefore, it makes sense probably in the next 1 or 2 years to probably, I mean, kind of see store addition picking up. I'm also asking this on the point of view that one of your competitor did talk in one of their AGM, very aggressive store adds. So as a stronger brand, you mentioned you have a lot of advantage. Do you see taking benefit of that in the next couple of years?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [85]

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Absolutely. I think we have the strongest portfolio of brands by far. And the network effect of the portfolio of brands that we have in formats like Pantaloons to Madura brand portfolio to brands like Forever 21. I think if you look at the whole portfolio of the brands, we are perhaps best positioned to exploit opportunities as the market recovers.

And you have very rightly pointed out, there are a lot of questions around structural, how much rent will come down in existing contracts. I think the bigger question is, at what structure and what cost will we get the new real estate? And we are very keen to sort of exploit that opportunity. We think we are very, very well placed to do that. And that's why I feel at this point of time, while we are digitizing our operations, while we are learning to serve consumers through both online and off-line modes, it's also the time to actually look for attractive real estate, good opportunity in terms of rental deals and structure of rentals and build a more efficient and widest retail network more aggressively. So we would come back -- I mean, if -- our worst-case scenario would still be opening 200-plus stores in Lifestyle Brands and between 25 to 30 stores in Pantaloons. And as things evolve, we'll perhaps accelerate it towards the end of this year. But definitely, next year onwards, you will see a very -- I think, quickly accelerated distribution model.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [86]

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And what kind of, I mean, benefits you see in terms of range? Of course, I think it's early days, but do you see a very decent kind of -- I mean, 15%, 20% kind of benefit also coming in terms of rent and other costs for a store that you could see or it would be nominal?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [87]

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Difficult to predict at this point of time. What -- I think it's absolute rent as well as the structure of the rental contract, both would be useful. And one more important thing is, it's the high quality properties available at affordable rental. It's not just the rental, but it's the quality of properties that become available at times like this. That is another large factor. And I think on all 3 dimensions, we'll be very aggressively and actively looking for it. As I said, our network expansion ambitions will, even this year, play out towards the latter half of this year, but will definitely accelerate next year.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [88]

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Okay. And just last question is on the cost. Of course, we've seen quite a significant reduction and commendable cost reduction in this quarter. But I understand a lot of part of that reduction would also be because of the stores being closed. So what proportion of this cost do you see getting reversed in the coming quarters, while against which, of course, you'll also have, like you mentioned, some more cost benefits coming through. If you can just share some perspective on how the costs should trend going forward?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [89]

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See, I won't be able to give a number, but I can tell you our cost reduction plans will not slow down even as we move forward because there are a lot more rental contracts to be closed. There are many cases where we're going back and actually seeking larger concession because the markets have taken longer than what we had anticipated to open. So I think some of that will -- and the landlords also, as I mentioned at the beginning of the call, are more comfortable giving you phased out concessions instead of completely giving you concession all of it into one quarter or 2 quarters, et cetera. So I think many of them will continue to flow. And you will see similar trajectory even going forward.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [90]

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Okay. Also from the other, I mean, your SG&A costs have also been down nearly about 45-odd percent. So there, I see, of course, there will be some kind of reversal with stores now opening full-fledged?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [91]

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Yes. But I think if you look at the intrinsic elements of the cost, rent is already taken out. So that's showing separately. If you are mentioning rest of the SG&A costs, it exists, as I said of employee cost, where actually the cost savings will start to accrue only from Q2. Q1, we've got very little of that. And other expenses, whether it's...

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [92]

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You had other expenses, which I was saying is down by about 45-odd percent.

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [93]

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They will continue to remain low.

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Operator [94]

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The next question is from the line of Garima Mishra from Kotak Securities.

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Garima Mishra, Kotak Securities (Institutional Equities) - VP [95]

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So just please quantify the absolute amount of inventory that you had at the end of 1Q. And in your assessment, how much of this will you be able to very easily unwind over say the next 3 to 5 months because some of it may be, let's say, athleisure or casual wear or things of those sort. So I'm just trying to understand over what period do you think this can be totally unwound?

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Ashish Dikshit, Aditya Birla Fashion and Retail Limited - MD & Director [96]

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So Garima, as we mentioned, I mean, just first to answer your question in absolute terms. Our inventory hasn't moved much from Q4 end to this quarter, primarily because the sales are what they are. At cost, we would have sold maybe INR 150 crores, INR 200 crores, et cetera. So that's really marginal reduction.

At the same time, there was some committed inventory, which will be flowing in the system. So not much change as far as this quarter is concerned. But the good news is that as we are getting into the festive season, as our stores today, we haven't had to buy any inventory over the last 4 months. And therefore, what was fresh on 1st of March before we ran into COVID is very fresh inventory in 1st of August. We didn't even go through the discounting cycling, which we normally do and therefore, kept the -- extended the life of it.

I think most of our inventory in a country like India, most of our inventory is valid right through the year. What changes with season is somewhere around November, December, a little bit of winter comes in and very close to festive, last 10 days, 15 days, there is a certain sense of festive merchandise, which comes in. Weddings also start to play some role in that period. I don't see any part of our inventory being -- getting less relevant. There would be varying velocity, and that's really what we have prepared for. A worst-case situation will be, we will probably be carrying it for a couple of months longer, but we don't see any other impact. And that will be adjusted by producing less.

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Operator [97]

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Ladies and gentlemen, that was the last question.

On behalf of the management, we thank all the participants for joining us. In case of any further queries, you may please get in touch with Mr. Rahul Desai or Mr. Amit Dwivedi.

You may now disconnect your lines. Thank you.