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Edited Transcript of PAGEIND.NSE earnings conference call or presentation 24-May-19 10:30am GMT

Q4 2019 Page Industries Ltd Earnings Call

Hongasandra, Begur Hobli, Bang Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Page Industries Ltd earnings conference call or presentation Friday, May 24, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Vedji Ticku

Page Industries Limited - Executive Director & CEO

* Chandra Sekar

Page Industries Limited - CFO

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Presentation

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [1]

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So, good afternoon once again. This is Vedji here. I just gave a quick update about financial 2019. The revenues for financial 2019 grew by 12% and throughput was kind of flat. Volume from 2019 grew by 5.6% and Q4 grew by 1.1%.

The financial year was pretty below our expectations. The reasons, economy at the micro level has not been at its best through the last 18 months now. Post the GST the inventory [building] by most (inaudible) has been reduced because of stricter compliance requirements.

Liquidity issues persist in retail. Investors who have been following us or our business would know that Q4 has been typically a weaker quarter for us and this year in particular was on a very, very high base of last year. I would like to refrain from commenting on a quarter-to-quarter, but our long-term outlook and optimism for future remains as confident and bullish as ever.

So, outlook going forward for the financial 2020 and beyond, while I just said that 2019 was below expectations, this only makes our results stronger when we look at financial 2020 and beyond. Based on our estimates in the relevant potential target market of 120 million consumers we have a market penetration of 19% to 20% in the premium men's underwear and around 5% to 6% in the women's underwear.

Similarly on the athleisure or the outerwear business our penetration is between 6% to 8%. The good news is the premium market is growing in double digits percentage. For the (inaudible) available we can only grow across all these segments.

On marketing side our plans have got only bigger and better. We have good plans across our various media, [VTV], digital, [autophone], print and [VTL], which we feel is the most important investment at the point of sale.

Coming to capacity planning, to support the aggressive growth plans going forward we are working towards doubling our installed capacity from current [260] million pieces in the next four to five years. We have two (inaudible) projects coming up, one [800 pool in Andopanesh] and the other one near Mysore in Karnataka. While the Karnataka project will commence production by Q3 of 2020, (inaudible) will commence by Q4 of financial year 2021.

On the new products and to focus on the categories, we will continue our focus -- focused approach on our core business, verticals of men's underwear, women's underwear and athleisure businesses, including socks and towels. The [beachwear] business is going to be a special focus area for us. This business is poised for exponential growth. Accordingly we have realigned our sales and marketing strategy for the JOCKEY Junior business.

We have gone ahead and invested in an independent sales team across the country, almost 100 people strong, to create a focus on this business. So, we also have a special marketing plan to support this business. I don't know whether some of you have already seen the ads that are (inaudible) the outdoor and then the print as of yesterday.

So, [out and out] our outlook for future remains bullish. So, I'll now hand it over to our CFO, Mr. Chandra Sekar, to give you a little bit more in-depth on the financials.

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Chandra Sekar, Page Industries Limited - CFO [2]

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Good evening, ladies and gentlemen. As far as the full year, it was already explained that we have grown by about 11% to [INR2,008 crores] of revenue. So we also have reached a [PAC] of INR394 crores for the year. That's why if you have been observing Page over the years, we operate on a very predictable strong financial model which is 22% EBITDA and 13% PAC. This year the growth has been a bit low on the lower side as far as revenues are concerned. But the financials continue to deliver consistent results.

There are some exceptions you may have questions on the Q4 comparison. We generally tend to compare -- do not compare quarter to quarter like that. Last year we had some (inaudible) incentive reversal and also some [DSD] planned credit. So, we did explain to the analyst and investor community last year also that the 25% EBITDA and 16% PAC of last year per quarter is not sustainable because of the exceptional items.

Similarly, because of various annual schemes which got finalized in Q4 this year we have an extra [excited]. So, therefore it looks like minus 20%, but on an apples-to-apples basis it should have been like 10%. On a full-year basis we have delivered 22.9% EBITDA and 13.8% PAC. And the impact of individual [index] (inaudible) on the revenues was also discussed last time. It has an impact of only 0.7% of revenues.

Now, that is as far as the financial update is concerned. So, if you have any questions you can either type it in here, because there are more than 100 people on the call. So therefore, if you are able to type in your message we will be able to answer one by one.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [3]

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We closed the year at 620 stores this year. The online -- go ahead and read the question.

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Questions and Answers

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Chandra Sekar, Page Industries Limited - CFO [1]

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The question is what is your sales mix off-line and online?

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [2]

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The sales mix is (inaudible) online sales is close around 4% now.

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Chandra Sekar, Page Industries Limited - CFO [3]

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We have sold close to 19 crore pieces this year. Sorry, 17.4 crore pieces this year. The question is product mix between innerwear, athleisure and outerwear.

There is a question on the product mix. As far as this year the men's is about 50%, the athleisure and sports is about 15%, women's is about 16% and the rest is all bras, socks and the JOCKEY Junior. The next question is any push to online while focusing on off-line only?

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [4]

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No, our push will be -- obviously we'll give (inaudible) standards while online is obviously becoming -- increasing its percentage business year on year, we'll be pushing both sides of the business going forward.

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Chandra Sekar, Page Industries Limited - CFO [5]

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The next question, is there -- the competitive intensity in menswear? How is it?

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [6]

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The menswear market is characterized by many regional and local banks. There have always been (inaudible) existing and new in the market and many entrants have come and gone and entered this business. This certainly provides consumers a wider choice. We continue to be the leading brand by far in our category. We are the single largest selling clothing brand in India as of today.

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Chandra Sekar, Page Industries Limited - CFO [7]

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The next question is why is there a sharp divergence between volume and value growth during the quarter? So, as I have explained that we report the next sale, which is net of the sales incentive scheme. So, because of that impact there is a different value growth.

The question is would the current gross margin trajectory be sustained? The answer is yes.

The next question is are you confident on moving back to 20% growth levels seen earlier?

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [8]

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(Inaudible) of the Company has always believed that going at both levels is not something which is very difficult. It's just that the headwinds have been pretty strong in the past year and, as all of us know, there is a [deliberate] slowdown both at the secondary and the tertiary level. So, we understand that.

We have got our learnings from this year (multiple speakers). We will do a lot of changes (multiple speakers) which should help us to achieve those numbers. And it is always 20% plus kind of a growth.

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Unidentified Company Representative [9]

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(Multiple speakers) we have [spent] [INR70 million crore] as the CapEx (inaudible) the last financial year. We continue to recapitalize the upcoming manufacturing (inaudible). We will continue to invest in manufacturing and other areas in line with our business strategy.

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Chandra Sekar, Page Industries Limited - CFO [10]

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Is our aggressive [EPO] expansion leading to cannibalization of other channel sales?

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [11]

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Yes, let me repeat the other question is the one-off in the current quarter and the previous quarter (inaudible) some results for that. The one-offs are these sales schemes, the incentives (inaudible) credit for the GST. These are the items which benefited the previous year quarter.

This year we had the same sales incentives which actually went up compared to our estimates for the full year. So, it has had a double impact on the growth rate. Otherwise, as I said, the EBITDA percentage of 23% and [12]% to 14% have been maintained for the quarter also.

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Chandra Sekar, Page Industries Limited - CFO [12]

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(Inaudible) about growth areas (inaudible).

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [13]

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So, somebody has asked about the market share details. So, (multiple speakers) based on our estimates, in development -- potential target market of 120 million consumers, our understanding from the number of pieces we sold the last financial year, we have a market penetration of around 19% to 20% in the men's premium innerwear, about 5% to 6% in the women's innerwear, and around 6% to 8% in the athleisure or outerwear business.

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Chandra Sekar, Page Industries Limited - CFO [14]

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How do you see the industry shift from organized -- unorganized to organized? How is the branded segment (inaudible) increasing in the industry as a whole?

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [15]

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If you look at this industry as a whole, it's mostly been branded because there have been some name of other which has been given to the (inaudible). So, it was never that this business was an unvalued kind of a business. Since we have been in business with this company there have been brands around.

So, there's not a huge shift which I can say is from the unorganized, but yes, there is a huge shift of people who are looking forward and going up the ladder, which is sort of good news for JOCKEY as a brand.

The next question is growth across the segment. I think that was -- Mr. Chandra Sekar had just -- already said that.

Any qualitative information on how has been the volume performance of menswear for FY19? So, the menswear is obviously our largest piece of the pie. So, we also had many other new ranges which got launched. And so, it is definitely one of the menswear -- we like to push the market this year.

And we understand that men's -- the growth of the men's business is going to be very important for us to have the order number which all of us are expecting from JOCKEY. So, it's a business which is very close to our hearts and we understand the men's business has to keep pace if we have to continue growing 20%.

So, what is the overall adjustable market size in men's, women's and kids' category and how do we see growth going forward given competition increasing in the premium category? We do not have any secured or formal information about the market size, but we do an estimation. So, based on our estimate in the relevant target market of around 130 million consumers, we are in a market position of 19% to 20% premium men's innerwear and about 5% to 6% women's and 6% to 8% in athleisure.

Our next question is what is the three-year vision for market share across segments? So as we have said that we do not comment on the future. We continue to target an initial -- target internal volume growth plan of 10%.

Our next question, for FY19 our growth of 13% at the company level, can do clarify revenue growth, men's (inaudible) or women's, others? So, (inaudible), given the competitive factors and the fact that (inaudible) signifies growth parameters, we have also not been sharing any key [segment growth figures].

Our next question, has (inaudible) reduced for us in India for us in last one year due to higher competitive intensity?

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Chandra Sekar, Page Industries Limited - CFO [16]

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Actually with the increased push from our side it's actually gone up. We have pushed the most productive stores -- I will not be able to tell you the number, but the number of stores which give us 50% of our business our sales pace has gone up in those stores.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [17]

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Next question, please explain the [velocity] in this as well as the previous quarter, we would like to understand. So, we already answered this question.

Why are the inventory days moved up? So, typically we, as in our internal policy, maintain a stock of around 100 to 130 days in (inaudible) to quarter end. This quarter, yes, the (inaudible) days has gone up from (inaudible) 166 days, but that's more in the preparation of the next quarter. So, there is an increase in the (inaudible) holding in preparation of the current quarter sales.

Our next question was what was volume number of pieces in men's innerwear during FY19? So we do not give categorized volume information.

Next question is (inaudible) segment in FY19? You already address that. [In place] cost as a percentage of revenue has increased 30% (inaudible) to 16% FY18. And do you see other reason for increasing volume costs? So, basically there is an increase in the number of employees. Also, as our quarter end process there's an actual evaluation of (inaudible) only. So, based on that the expanded have gone up in the Q4. But overall as a yearly basis the change in play cost is not significant.

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Chandra Sekar, Page Industries Limited - CFO [18]

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But on a full-year basis the employee cost remains at around 16%.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [19]

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(Inaudible) FY19, what is the (inaudible) expansion leading to cannibalization of sales?

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Unidentified Company Representative [20]

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Actually that's a question which is strange to ask because if you are adding EBO it can only help to grow sales. It cannot cannibalize sales. And our experience has been because the EBOs help us to showcase the entire range. It actually forces the retailers around these EBOs to keep most production (inaudible) as they tend to lose the sale otherwise. So, it can actually be (inaudible) around because it helps us to improve the sales both at the EBO and the MBOs.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [21]

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On the next question on CapEx, we already addressed that. So, we (inaudible) 47 gross in the previous year and based on the business requirement the next year's CapEx may be around that.

[Menswear convention competition], half of this business, how will it grow going forward? As we said (inaudible), we do not give a categorized future report in our business. Revenue (inaudible) stores. So, as per our estimate, the [previous] contributed around 16% of our total turnover. When we say all stores we don't own these stores, these are managed by distributors.

By which quarter can we expect growth coming back to 15% to 30%? So we do not have this precise estimate as to which quarter, but the growth will come back. But yes, as I have stated [here]. As far as Internet plans, we improved (inaudible) volume of 10% [last year].

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Chandra Sekar, Page Industries Limited - CFO [22]

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As you noticed that the inner market in terms of consumption (inaudible) there has been a slowdown. And there are some liquidity issues in the retail. So, as soon as that corrects we should be back to the growth trajectory.

A question on (inaudible).

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [23]

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A question on one-off issues getting over. As we have said, these one-off issues are (inaudible) very important. (Spoken in foreign language) (multiple speakers).

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Chandra Sekar, Page Industries Limited - CFO [24]

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We have been pretty strong as far as the financial results in FY19 also. Maybe some of the growth would return as we go forward.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [25]

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I think there are some repeat questions regarding the volume growth, so we have already addressed that. What has been the impact of our higher incentive (inaudible)? How are your incentives likely to be going forward? Every company has its own policies, so we have incentive policies which has worked for us over two decades. We will continue with what our plans are. Other companies have the right to do what they want to do.

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Chandra Sekar, Page Industries Limited - CFO [26]

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I think some questions are repeating, maybe some of the new [joinees] that are raising the same questions so we are skipping that.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [27]

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Other question, in your review how much has the destocking in FY19 and how do you estimate -- how much can (inaudible) would have grown? Is that process still continuing in the March quarter and are you confident that there is not further destocking?

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Chandra Sekar, Page Industries Limited - CFO [28]

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So, the destocking at the retail level, I won't have a percentage to it. It does vary from zone to zone, from area to area. But if I had to just -- more of a guesstimate rather than an estimated call, it has been in the range of 20% to 40% from area to area and from region to region.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [29]

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On the question that has there been any [increment] demand for first quarter, does the underlying demand remain weak? So the economy continues to be sluggish. We have not yet seen any immediate uplift in the last two months. We're expecting to improve going forward.

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Chandra Sekar, Page Industries Limited - CFO [30]

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Yes, there is a good question relating on the macro only to be able to go back to 30%. So there is a lot of initiatives which pertain to the business.

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Unidentified Company Representative [31]

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So, as I said in my initial briefing, one macro for sure is going to help but that's not -- we're not going to sit back and wait for the macros to change. There are a lot of plans for each of the regions which we have put into place. And most important, as I said, the JOCKEY Junior business is something which we are going all out and are pushing [back] out of the business because that discounting just on top of whatever we're doing currently.

Another question on the (inaudible) of the call, we will internally deliberate and we'll come back on that.

On the discussion about pricing environment, will you be able to see the (inaudible) in FY20? As we have told in our (inaudible), our price increase is more driven by our input cost (inaudible). So, if we find inflationary trends they (inaudible) our prices by being conscious about competitive factors. And yes, these (inaudible) cost benefits, the same is passed on. So we maintain an EBITDA of 21% to 22% and accordingly that's the prices.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [32]

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So on the question of the key learnings from the previous year, we all understand and you guys being in the business would also know about many of the companies which are around. There is a general slowdown, one as I said in terms of the stocking up has sort of -- retailers have sort of hung onto their inventories. Two is the walk-ins into these stores. Also has been not on a very, very friendly side for the last entire year.

So, going forward, while we understand that, so the (inaudible) impact of while we can do what we can do with our existing stores, we will need to spread more over and beyond what we are doing directly in terms of the retail footprint.

So, while we have close around 55,000 stores, where we can directly announce 650-odd EBOs, we understand that we will have to more aggressively keep on pushing [up sales] on the retail footprint. That's one of the key initiatives along with the JOCKEY Junior business which I just discussed 5 minutes back. Those are the two major pushes for us through the year.

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Chandra Sekar, Page Industries Limited - CFO [33]

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Pricing action in FY19 will increase the gross CapEx at least 4% to 5% in Q3.

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Unidentified Company Representative [34]

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So how is (inaudible) liquidity impacting our innovative demand? As far as the general petition since last two quarters there's a liquidity trend in the market and yet it has impacted our retailers' offtake. So, [the whole situation] will be improving the next quarters.

To the next question, would you prefer top-line growth on margin given a chance? I think as a policy we focus on both and we'll continue to do so.

How is JOCKEY Junior seen from previous experience?

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [35]

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So, JOCKEY Junior is a business which we actually started, although we had a very small market range within our large portfolio for all these years, we were a little more aggressive moving from last two years when we launched the boys' range and last year we launched the girls. And this year we also launched the athleisure, which is the outerwear for both boys and girls.

And they almost also said initially we are setting up a complete separate distribution for this business because we understand that it's a huge business for us. So our estimate on the kids business is that there are close to [15.5] million children who are in the (inaudible) families who can be the target -- or potential target market going forward. And the number of pieces we sold last year for the entire business actually gives us just 1.9% target share in this segment. So, we are very, very bullish on this business.

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Unidentified Company Representative [36]

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So, coming to our growth in Speedo, I think the Speedo growth has been negligible, but (inaudible) the market was (inaudible) at a nascent stage and we are kind of shaping up this segment. So we have several measures in place to improve this category and the business. So, in the coming years we hope that the Speedo business will be doing much better. So are there any other questions?

On the sustainable margins that we have maintained, we have been doing so since [early years]. We targeted an EBITDA margin of around 21% to 22% and we aim to maintain the same.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [37]

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So, there's a question about do you believe (inaudible) has beaten your market share in the last one year? Okay, this is just a repeat of the same. So, I am not sure where this question is coming from. Just to give you -- this is not the first time that there has been a competition in this market. Without taking names, there are brands of which this is the third attempt at this business.

And the kind of market, as I said earlier, with a market share of around 19% to 20% in the men's innerwear and then overall if I take the weighted average of all the categories we have, we have around 8% or 9% market share. With that as a market share there's hardly anybody who (inaudible) to eat into your market share. They can only eat into the overall market share.

So, the market is huge and there's nobody eating into each other's market share. And just to give an understanding, the entire turnover of the closest competitor is our monthly business. So, eating into our market share is a little far-fetched.

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Unidentified Company Representative [38]

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Share the difference in growth rates of different brands, different channels of EBOs and MBOs.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [39]

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So, the best part of this business is that whether we have EBOs or MBOs, the growth rates are more or less the same. If I look at EBOs in totality because of the new stores open, then yes, it is much more than the MBO sales. But if I look at like EBOs and MVOs, they are more or less the same.

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Unidentified Company Representative [40]

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On the question regarding our existing attrition issues, yes, we have attrition that are -- really are not level and some attrition at the start level, also this is in line with our industry (inaudible). At first we do not face any issues of quality resources.

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Chandra Sekar, Page Industries Limited - CFO [41]

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This is a question on how the 10% volume growth is linked to our targeted 20%. I think this has been demonstrated in the past also. There is a price increase which is largely cost and inflation driven. And there is a premiumization and mix change in favor of some of the athleisure and higher-priced categories. There is a 10% volume growth where most likely you will find the 20% top-line growth as well.

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Unidentified Company Representative [42]

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So, are there any other questions? (Spoken in foreign language). One minute. Employee benefits impact (inaudible) by what amount? So yes, (inaudible) value-based and accordingly we have reconsidered our salary and wages structure for FY19/20. We have a (inaudible) regarding that. The impact will be negligible.

So, regarding the question on how much minimum price and volume growth we need to sustain the EBITDA margin. Yes, we have been [stretching] the prices in the range of 3% to 5% every year. And together with a targeted volume growth of around 10% plus, we should be able to sustain the EBITDA margin.

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Chandra Sekar, Page Industries Limited - CFO [43]

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There's a question on the volume growth for the year which is 6%, the top-line growth is about 11%.

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Unidentified Company Representative [44]

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On the percent regarding inflationary change on key raw materials, we do forecast movement in raw materials periodically. And I must note the growth is not significant. New launches planned for athleisure?

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Chandra Sekar, Page Industries Limited - CFO [45]

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Yes, there are a lot of news launches planned for the athleisure business and (inaudible) season into two seasons in a year which is S1 and S2. And while the S1 is already out and in the market now and there we will be moving (inaudible) -- I'm not able to quantify the number. But yes, there continuously new launches will happen in that in the space.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [46]

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The question is about 10% market share. And total market (inaudible) crore, which means 1.3% growth. People are buying our products, so approximately each person buys 17.4, or around 20 piece. No, this calculation is not right. When I said 10%, I said the weighted average of 10%. The men's innerwear market, as I said, the premiums men's we have around 19% to 20% market share, and there the volume is much higher.

So, our understanding it's around 2 crore people who are buying our products. And when it comes to innerwear we assume around six pieces per person, which is (inaudible) three tops and three bottoms. And similarly for women's, we are around seven, and for the athleisure business we assume around four pieces. You also have socks and towels. So, when we take a weighted average then it comes to 10, but otherwise if you take each businesswise, it is varying between 28% for athleisure and around 5% to 6% for women.

There's a question around the kids' innerwear business. As I just explained earlier, it's a huge market. Because our understanding is that there are close to 15.5 million boys and girls in the (inaudible) markets which we are targeting. I wouldn't be able to give you the market share in other detail because those are -- this is private at this point of time. But yes, we are going very aggressive after the business.

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Chandra Sekar, Page Industries Limited - CFO [47]

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There is a question on the price hike in the first quarter. We only make a price increase once in a year and it happens either in Q3 and Q4.

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Vedji Ticku, Page Industries Limited - Executive Director & CEO [48]

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The question has there been some growth issues in the department stores for JOCKEY and has it dragged (inaudible) our growth? No, there is no growth issues and as a percentage of business it is pretty small to have a drag on the overall growth.

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Unidentified Company Representative [49]

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So, on the last question, what is our inventory clearance strategy in innerwear and athleisure? So, we have a dedicated channel for -- dedicated partner for clearing old non-moving or slow moving stock. And based on [periodic adjustments] of our inventory policy we do liquidate these stocks in selected areas through this partner.

So, thank you for participating in this earnings call. If you have any further questions you can reach out to me or to our CFO also later. Thank you.

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Chandra Sekar, Page Industries Limited - CFO [50]

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Thank you very much.