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Edited Transcript of RYMD.NS earnings conference call or presentation 15-Sep-20 10:30am GMT

Q1 2021 Raymond Ltd Earnings Call

Ratnagiri Sep 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Raymond Ltd earnings conference call or presentation Tuesday, September 15, 2020 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Amit Agarwal

Raymond Limited - Group CFO

* Ganesh Kumar

Raymond Limited - COO of Lifestyle Business

* J. Mukund

Raymond Limited - Head of IR

* K. Mukund Raj

Raymond Limited - CEO of Real Estate

* Suman Saha

Raymond Limited - COO of Branded Apparel Business

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Conference Call Participants

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* A.S. Harish

* Abhijeet Kundu

Antique Stockbroking Ltd., Research Division - VP

* Siddarth Mohta

* Umang Shah

* Vaishnavi Mandhaniya

Anand Rathi Financial Services Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Raymond Limited Q1 FY '21 Earnings Conference Call hosted by Antique Stock Broking. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Abhijeet Kundu from Antique Stock Broking. Thank you, and over to you, sir.

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Abhijeet Kundu, Antique Stockbroking Ltd., Research Division - VP [2]

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Yes. Thanks. On behalf of Antique Stockbroking, I would like to welcome all the participants in the earnings call of Raymond Limited. I have with me Mr. J. Mukund, who is the Head of Investor Relations of Raymond Limited.

Without taking further time, I would like to hand over the call to Mr. Mukund. Over to you, Mukund.

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J. Mukund, Raymond Limited - Head of IR [3]

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Thank you, Abhijeet. Good evening, everyone, and thank you for joining us for 1Q FY '21 earnings conference call. I hope all of you would have received a copy of our results presentation. I would like to urge you to go through this along with the disclaimer slides.

Today, we have with us Mr. Amit Agarwal, Group CFO; Mr. Vipin Agarwal, President, Corporate; Mr. Ganesh Kumar, Chief Operating Officer, Lifestyle Business; Mr. Suman Saha, Chief Operating Officer, Branded Apparel Business; Mr. K. Mukund Raj, CEO of Real Estate Business.

I will now hand over the call to our Group CFO, Amit, who will give you the summary of results before we open up for Q&A. Over to you, Amit.

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Amit Agarwal, Raymond Limited - Group CFO [4]

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Thank you, Mukund. Good evening, ladies and gentlemen. These are testing times, and I hope you and your near and dear ones are safe. Thank you for joining us today on this earnings call to discuss our results of first quarter of fiscal '21.

In the first quarter fiscal '21, COVID-19 pandemic posed unprecedented challenges, which impacted both domestic and global economy. In India, it led to a series of nationwide lockdowns, which resulted in markets being closed, serious restrictions in movement, muted celebrations or limited gatherings and postponement of summer wedding season. We all witnessed and accepted new norms of working while staying at home. However, with the lockdown 3.0 and subsequent unlocks, various cities across various states started taking progressive steps to reignite the economy and normal channels of trade, including retail outlets, started opening up.

The government also came up with a huge stimulus package under Atmanirbhar Bharat Abhiyan, which primarily focused on a self-reliant and self-sufficient India. A few of measures under this package, coupled with anticipation of good agricultural harvest, is expected to give us impetus to consumer spending.

Now let me talk about Raymond, which we undertook various steps and focused on the major points. First, health and safety measures for all our customers and employees is important for us. The well-being of our stakeholder is core to us, and we kept -- set up processes to regularly sanitize and disinfect plants and offices, compulsory health checkups at all locations, enabling our people to work from home.

From customers' perspective, alcohol spray has been given, and we created shopping -- safe shopping experience. As of 30th June, our 80% of the stores, that is 1,332 stores, have opened, complying to stringent safety guidelines and with contactless payments.

Second, active engagement with our channel partners, franchisees, LFS partners and MBO partners. Steps were undertaken, not only for collection, but also extended support, including credit extensions to our channel partners who have been with us for decades and are part of larger Raymond family.

In terms of cost optimization, in spite of the severe impact of pandemic, we took upon ourselves and challenged every single line item of cost and question the need for incurrence of such costs. This enabled us to restructure organization and to further improve efficiencies and overall productivity on an ongoing basis. We have undertaken cost rationalization, various cost-control measures related to sales and marketing, manpower, rental and others.

As far as the store rental costs, we adopted a collaborative approach with landlords, mainly through combination of rent waivers during lockdown as well as realigning the rental. For the full year, the rental cost savings confirmed so far have been close to INR 48 crores.

In the profit and loss statement of the first quarter of fiscal '21, savings of INR 17 crores has been reflected in other income, in line with the Ind AS accounting standards. The manpower cost was also reduced through graded salary cuts and rationalization. In the first quarter of fiscal '21, the cost was at INR 171 crores, lower by 27% over the fourth quarter fiscal '20.

We have rationalized outsourcing costs, administrative overhead and reduced discretionary spend, including advertisement and sales promotion. All of the above effort has led to achieving an operating cost at INR 275 crores, lower by 50% on quarter-on-quarter basis from INR 551 crores in the fourth quarter of fiscal '20 and lower by 44% on a year-on-year basis against INR 491 crores -- INR 494 crores in the first quarter of fiscal '20. With these cost-reduction initiatives, we expect to reduce full year OpEx close to 30% to 33% compared to the fiscal FY '20.

In terms of conserving cash and managing liquidity, the company has undertaken various requisite measures to manage liquidity, including cost reduction and working capital management. Also with prudent cash management, we have been able to be positive free cash flow and operating cash flow during the quarter. Our operating cash flow was INR 121 crores and free cash flow was INR 63 crores. Reduction of net working capital by INR 305 crores was driven primarily due to collection of our receivables.

CapEx reduction as well as deferment of store openings, renovation and technology upgrades has been implemented. With these efforts, we have been able to maintain June end liquidity similar to March levels. Our net debt stood at INR 1,827 crores, lower versus March '20 net debt of 1,859 crores. Our gross debt was also a shade lower at INR 2,423 crores vis-à-vis INR 2,430 crores as of end of March '20. The average interest cost was marginally higher at 8.68% as compared to 8.57% in March '20.

Our focus has been also on enhancing our digital capabilities. Let me talk about the omnichannel, integrating our online and off-line offerings, with the entire EBO offering available online, revamped our own website and launched MyRaymond.com.

We took care to the customer -- we have taken the store to the customer for virtual shopping through Raymond Home Assist. We introduced a few digital interventions such as sales pitch through video call, tailoring subscription program, store reopening communications, virtual tools for ease in shopping as well as other facilities.

We have moved from physical trade shows to digital platforms, introduced digital swatch books, catalog, flipbooks in Branded Textile and Branded Apparel segments.

Now we have also leveraged our capabilities and took go-to-market initiatives as we repurpose our garment factory to manufacture PPE product for the garment, hospitals and the corporate sectors. Our FMCG team was swift in identifying the need in the market for high-quality products in sanitizing and hygiene categories and developed FMCG products such as hand cleaners, hand wash, high alcohol content cologne and floor cleaners and utilize our channel of distribution to achieve decent level of sales.

Now let me talk about the quarterly financial performance. As we all are fully aware that Raymond has seamlessly positioned to an Ind AS with effect from 1st April 2019. Now for ease of reference and comparison, consolidated and segment numbers for current year as well as previous years have been presented on post Ind-AS 116 basis.

Our consolidated financials for the quarter is revenue stood at INR 222 crores with an EBITDA loss of INR 167 crores and resulting in a net loss of INR 242 crores. As per the Ind AS accounting, revenue and EBITDA include INR 17.4 crores on account of rent concessions recognized as other income on the basis of the MCA notification dated 24 July 2020.

On Raymond stand-alone financials for the quarter reflected a revenue of INR 68 crores with an EBITDA loss of INR 92 crores, thereby a net loss of INR 119 crores.

Now let me talk about our various segments. In terms of Branded Textile, as we are very well present across 630 cities through the 20,000 point of sales, with adequate inventory available across our channel partners, which caters to practically every segment of the society. However, lockdown and related closure of markets and stores impacted our sales. Both primary and secondary sales were impacted due to these lockdowns as still large buying in this segment is done through the brick-and-mortar trade. The wholesale channel, [whichever] is our key primary channel, was completely closed as the whole logistics was not operational during the lockdown phase. The retail channel was practically not open. And also with restrictions on wedding and celebrations, sales were severely impacted.

In terms of our Branded Apparel, our segment, the retail channel EBO store network, which has more or less equal presence in malls and high street stores, were regulated by local lockdown and most LFS counters, which are mostly present in malls, were not operational as well during the quarter. Our primary sales to trade partners were impacted as they were carrying adequate inventory. However, as due to lockdown and related closure market and point-of-sale that is retail outlets limited secondary sales also happened.

Overall, there was limited sales through our EBO network due to lockdowns, supported by sales through online and LFS network. However, the reported sales is net of returns and credit notes, which is in the normal course of business.

In terms of our Garmenting segment, we have reported a net sales of INR 100 crores, led by significant contribution of over INR 50 crores from PPE, which we have been manufacturing and supplying to various government agencies, hospitals, corporates.

Let me talk about the Engineering business, where our Tools and Hardware segment, the production resumed from May onwards and to mainly cater the service -- the pending orders. About 50% of the revenue was from exports, mainly to LatAm and Africa.

In Auto Components segment, the production resumed in May to service pending orders mainly to service export orders in Europe.

As far as our Real Estate business is concerned, we were swiftly able to transfer bookings from off-line to online through virtual tool launches, received 13 bookings during the quarter, resulting in a total of 963 bookings till June '20, that is over 60% of our total inventory is booked in the 6 towers launched, having 1,530 units, with a booking value of close to INR 970 crore. As for the sales relaxation and the post government allowed construction work, the company initiated pre-monsoon preparedness activity at the site.

Let me update you about the demerger. Demerger has been an important step towards value creation of the group. We have received approval from stock exchanges and already filed application with NCLT. However, as the entire process requires regulatory approvals, which has been delayed due to closure of offices and government department resulting from COVID-19-related lockdown. As and when we have a meaningful update, we will inform accordingly.

Now let me talk about the current status as we see of our operations. In terms of our retail network, we are happy to note that 95% of our entire store network, ranging from the TRS and EBO are currently operational, which we are adhering very strict norms in terms of the COVID-19-related guidelines both for our employees as well as per customer.

Also, our TRS network, which is very unique channel, spread across 630 towns and cities, and their sales provide us key insights and is a true consumer pulse barometer for us. The sales are back to 50% of previous year levels in TRS network, driven by better recovery in the Tier 3 to 6 markets. Lower-tier markets, Tier 3 to Tier 6 cities, have shown a better recovery as rural economy indicatively has been doing better than an urban economy in the last quarter or in the current quarter as well.

It is a second consecutive year of strong agriculture output, driven by good rain, increase in MGNREGA enrollments from migrant labor, indicators such as uptick in demand in the auto sector and lower lockdowns due to lower COVID-19 impact in rural areas.

With the onset of festive season, coupled with winter wedding season, we expect an improvement in the demand for our products in the second half of this fiscal, especially in the Branded Textile segment, with current inventory levels and also our plants have resumed operations in order to meet both domestic and export demand.

In Branded Apparel segment, our homegrown brands have a good mix of formal and casual wear, catering to the large consumer demand. Our EBO network, with 95% of the stores being operational, are currently achieving 30% to 35% sales compared to the previous year level.

We are witnessing a good pickup from our loyalty members, which has a base of 8.2 million members coming back and doing high-ticket purchases. There has been an increase in average member spend along with the increase in the average transaction value as well.

We expect the customer initiative such as tailoring subscription program; garment exchange program, which has witnessed good response from customers post pan-India launch in TRS network and enhanced omnichannel capabilities to help in driving sales.

We have also recently launched an antiviral technology-based fabric called [Vera Safe], which protects against bacteria and virus and is also anti-odor and sustainable.

Let me talk about the exports, which is also a key segment for us and how the markets are behaving. Global demand is recovering, especially Europe, market has opened up. Also, as the clamor for the global manufacturing supply chain to move away from China is getting louder by the day, this is an opportune moment for India to emerge stronger as it seizes the opportunity to become the preferred manufacturing destination. We have witnessed some of our large B2B customers indicating and evaluating shift in supply chain from China and we becoming sort of natural choice to them.

We see a good development in our Tools and Hardware and Auto Component business from this perspective as well. Our Tools and Hardware business has recovered well both in the domestic and international markets and clocking revenues to the tune of 95% compared to the previous year level. In our Auto Components business, as the auto sector is reviving, the business is also operating around the 90% level compared to the previous year, led primarily by the domestic demand.

In the Garmenting business, despite certain European and U.S. retailers faced bankruptcy, our garmenting orders are not getting much impacted as our B2B customer is of -- B2B customers business is operational. And being -- we as a preferred partner, we expect business continuity with them. The bulk and MTM orders for U.S., Japan and U.K. markets are gradually increasing. We expect to receive further orders on PPE for our India operation. We are also producing PPE coverall and gown products in Ethiopia to the Ethiopian government and local hospitals.

In terms of the real estate, to address the constraints caused by the lockdown pandemic, Real Estate business was quick to adapt digital enablers. And since June 2020, we have been offering virtual product walk-through to our potential customers. The team has worked on strategies, which include launch of developer bank subvention scheme to improve sales. In terms of construction, the seventh flow slab is in progress for tower A, B and C, while place is in the progress with tower D. Construction work is picking up, and we will further progress as well when the migrant labor is returning back to normal.

In terms of liquidity, with the sales expected to improve in the second half of this fiscal festive season, coupled with winter wedding season, cost-optimization measures already undertaken, which is expected to reduce our cost by 30% to 33% on a full year basis, our focused approach on working capital management and lower CapEx, we expect to maintain adequate liquidity in the system.

I reiterate our utmost priority remains health and safety of our customers and employees, liquidity management and cost optimization in the current post-COVID-19 scenario. We are laying a strong foundation in the current year to reap the benefits in the coming year.

It is our passion for excellence that has propelled us to navigate numerous storms in our 95-year-old history. We are once again geared up to maneuver through the tough times with our renewed agility and our core strength of manufacturing excellence, deep network penetration, strong channel partnerships and strong brand recall.

Thank you very much. Now we will be taking the questions.

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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 [Vivek Joshi], an investor.

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Unidentified Participant, [2]

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I just wanted -- I have 2 questions. Can you just give me some color on the Real Estate business? I could not find much information.

And second is, regarding the demerger, there are some AGMs -- shareholder meetings to happen on the 18th of September via the court order. So are the notices for that being sent? Or is the process on schedule? Or has that been delayed?

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Amit Agarwal, Raymond Limited - Group CFO [3]

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No. On the demerger first, let me respond. I don't think that there is any plan of the AGM because we are waiting for certain approvals from the regulatory authority. And upon receipt of such information and approval, only we can progress. So I don't know from where there's a confusion. There might be some confusion around the 18th of -- September 18.

As far as real estate is concerned, my colleagues, Mukund Raj is there. So I'll ask Mukund. Mukund, why don't you take up and give a brief synopsis on the Real Estate business?

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K. Mukund Raj, Raymond Limited - CEO of Real Estate [4]

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Yes, Vivek. The real estate, I mean, we -- as you heard Amit in his opening statement, because our experience center was closed until end of -- close to mid-June, we started a digital contact with prospective customers, and we were doing a complete walk-through on a virtual mode and having e-meetings with the customers and trying to sell -- I mean, quite a lot of developers had migrated to this new way of doing business. And we were very, very quick to adopt, and we did that. And till the quarter-end, we did about 13 bookings and reached a cumulative figure of about 963 units sale, close to about INR 970 crores of sales value. And the total inventory is about 1,530, so it's about 60% of the inventory is already sold out.

And subsequent to the quarter, things are looking better, 2, 3 positives, which have happened. One is we were one of the very few developers -- I believe there are just a couple of them -- who have been given a bank subvention scheme. Otherwise, as for [RBS] regulation, banks have stopped the subvention scheme for most developers. So we were able to get it from ICICI Bank an approval, which happened towards the first week of August. And we have a 2-year subvention scheme, which is going to be a very useful tool during these times when prospective customers have challenges of cash flows, pay cuts and business uncertainties and all that.

And second, the stamp duty reduction, which happened, the 3% reduction in the stamp duty. This definitely will be used by the serious home buyers who are actually waiting for an opportunity. I think this is a good one because it saves about 2 lakhs to 2.5 lakhs, 3 lakhs savings would be direct savings and whatever outgo.

So we are seeing all these serious home buyers coming towards us. And in the last 1.5 months of this particular quarter, 2.5 months of the quarter, things are looking better. Definitely, our walk-ins to the experience center have increased. People have started coming out of the home, though home is not -- is a very discretionary product, we are still seeing some interest coming in both due to the stamp duty, the -- whatever we have a subvention.

Third, even the bank interest rates are on a low for home loan rates. So all these 3 are propelling some amount of a demand and interest. Things are looking better. And I think by the time we get into the festive season a month from now, I think things should improve further.

Construction has picked up a good pace. June, we started with just about 40, 45 labor because, you are aware, the migrant labor had all gone back to their villages and towns, but they have started coming back. We had to put in a lot of effort to bring the labor back.

And now from a strength of 40, we have reached close to 500 labor strength now. Laborer strength -- I mean, construction has picked up, and we are close at -- we are at the 7th floor. In fact, we are completing the 7th floor today. So it's picked up pace. I think, next month, we should see the construction moving at a much brisker pace.

So on both of the fronts, we have done well. Collection, slight challenges because of the customers, again, job losses, pay cuts. But still, I think we have done pretty well with prospective collections. We have been able to collect substantial amount of money from our customers. So that's a position, Vivek. If anything specific beyond this you would like to know, just let us know.

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Unidentified Participant, [5]

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Yes. Just a small follow-up on the demerger. This is the NCLT order of the 6th of July 2020?

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Amit Agarwal, Raymond Limited - Group CFO [6]

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Yes. Yes. So basically, what happens is, in this, there are certain COVID-related issues. Because of that, the meeting has been clearly postponed, and there are certain regulatory hurdles to be cleared. And that is why we are saying that once the COVID-19 impact gets solved and regulatory approvals are available, then we will have the meeting and follow through the process.

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Unidentified Participant, [7]

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So basically, if this order has become contingent on some approvals? That's what I'm saying.

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Amit Agarwal, Raymond Limited - Group CFO [8]

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Yes.

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Unidentified Participant, [9]

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So this is with the NCLT? Or which approval are you waiting for right now?

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Amit Agarwal, Raymond Limited - Group CFO [10]

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NCLT.

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Unidentified Participant, [11]

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So some further orders are needed, despite this orders?

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Amit Agarwal, Raymond Limited - Group CFO [12]

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Yes.

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Unidentified Participant, [13]

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Okay. So is it regarded to COVID? Or like general? Like because this quarter, there's nothing -- because there was nothing contingent in this order.

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Amit Agarwal, Raymond Limited - Group CFO [14]

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Because of the COVID, there are certain delays, which needs to be completed.

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Unidentified Participant, [15]

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Okay. So this order has like been pushed back because of COVID?

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Amit Agarwal, Raymond Limited - Group CFO [16]

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Yes.

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Unidentified Participant, [17]

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So basically, you'll send a notice. Everything will happen in that order, right?

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Amit Agarwal, Raymond Limited - Group CFO [18]

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Yes. Yes, we will obviously do the follow -- the process.

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Unidentified Participant, [19]

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What is the time line? Any update on like 18th September is now expected when like?

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Amit Agarwal, Raymond Limited - Group CFO [20]

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We will come back to you based on the -- what is the latest information available.

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Operator [21]

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We'll move on to the next question that is from the line of [Abhishek Jain] from [VP Wealth].

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Unidentified Analyst, [22]

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Actually, I have a question -- 2 questions. First question is on Ethiopia business, if you can throw some light on this, how the things are moving on. I've joined like -- if you have made any opening statement to it, so I'm extremely sorry.

Second question, you're talking about job losses. And so are you facing some kind of cancellation because of this?

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Amit Agarwal, Raymond Limited - Group CFO [23]

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Okay. As far as the Ethiopia is concerned, as I mentioned, very clearly, we are working well with the Garmenting business, which we use the Ethiopia facility as well as got a decent PPE order, so that we are supplying to the local Ethiopian authorities, the hospitals there. So we are working our way in the Ethiopia facility, mainly at this juncture, to supply to some one-off customer in the U.S. as well as for the PPE supply.

As far as the job losses is concerned, if you look at it, at this juncture, the economy is opening up. And we see very clearly because of the festive demand coming up, we look at that demand recovery is going to happen. And you know the products of Raymond has been widely distributed across the country with over 20,000 point of sale. So people will come back in terms of the festive season and the wedding season to come and pick up our products.

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Unidentified Analyst, [24]

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Okay. One more question, sir. One, just a follow-up question on the theme. Sir, how rural -- how the rural sentiment right now when you do the [challenges], especially in the Tier 3 and 4? And when you're talking to -- second question, when you're talking to your U.S.-based clients, or maybe Europe-based clients, where -- how you see what percentage of utilization you are seeing right now vis-à-vis Y-o-Y basis right now? Is there any pent-up demand you are seeing right now?

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Ganesh Kumar, Raymond Limited - COO of Lifestyle Business [25]

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You want me to answer?

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Amit Agarwal, Raymond Limited - Group CFO [26]

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In terms of the rural demand, you see very clearly, because of the good agriculture harvest, which we have seen, and back-to-back good monsoon has helped us to really come back strongly on the rural demand.

In some of the 4 -- Tier 4 to Tier 6 cities, even we have seen the demand picking up to the level of 75% to 80% vis-à-vis the pre-COVID scenario. So very good demand picking up in that segment.

Now I will ask Ganesh to respond on the U.S. and the EU markets in terms of how the demand is picking up.

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Ganesh Kumar, Raymond Limited - COO of Lifestyle Business [27]

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Okay. So as we all know, U.S. market, a lot of retailers have gone through Chapter 11 process, which is whether it is JCPenney, whether it is Tailored Brands, et cetera. But what we are also seeing is, post the Chapter 11 processes being adapted, there is also demand which is coming up.

In fact, if I may use the example of our Made to Measure, which we exclusively supply to Tailored Brands through their Men's Wearhouse outlets, retail outlets, we are seeing improvement in the demand. We have already up to about 350 to 400 suits a day, which is about 40%, 45% of the peak that we have done of our capacity.

Similarly, we are also seeing certain demand which is coming up from the European suppliers and the Japanese suppliers. In fact, the Japanese customers have also started in raising the demand with every passing week. And we are looking at business coming back.

And what has also happened is that we have worked with a couple of the suppliers during this last 8 to 10 months period. We have been selected as one of their preferred strategic partners to supply their garmenting operations. That has enabled us to actually recover from some of the losses that we have seen out of the COVID situation.

But how is the economy going? Everybody is trying to look at the recovery in a phased manner. What you see is, come December, there is also the Christmas and the New Year period, where there could be some pent-up demand, which will push us to make -- to operate our plans on increased capacities. Thank you.

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Unidentified Analyst, [28]

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Sir, just lastly a follow-up question. How -- right now, we have seen second wave of COVID-related wave in Europe. So do you see any like slowdown again coming up after the pickup?

Second question. When -- sir, one -- this question is fine right now, like if something else is there like I'll let you know.

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Ganesh Kumar, Raymond Limited - COO of Lifestyle Business [29]

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Okay. See, the second wave of COVID is basically coming across different parts of the world. But I think my view and the way what we are seeing from our customers is the government and the countries are better equipped to handle the second wave as compared to what they were when the first wave came in. So there could be a marginal, temporary setbacks, but I think the demand would continue to go. Anyway, the demand levels have gone down so much that it is only has an upward movement as from hereon.

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Unidentified Analyst, [30]

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And sir, are you getting benefited from anti-China sentiment from globally right now? Are you talking to -- like you have any discussion with Japanese or maybe U.S.-based suppliers? They want to have that second supply. Are you getting...

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Ganesh Kumar, Raymond Limited - COO of Lifestyle Business [31]

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So to answer to this question, we have identified about 18 partners around the world, and we are working closely with them. In fact, in the fashion space, there is a process which follows. Once we agree to partner, we have to work on, build a collection, submit the samples, they go through their own evaluation and then comes the sample order and then the main order. So discussions have already been started with about 18 partners around the world, and we are hopeful that we will track some opportunities with a few of them.

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Operator [32]

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The next question is from the line of Umang Shah from Edelweiss.

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Umang Shah, [33]

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First of all, kudos to your understanding of the business in such short span of time. But sir, I have one basic question. So now that things are opening up, we are back to 85% of store levels opening up. What is our strategy going ahead to bring back the customers which are not shopping right now or who have started shopping, but how do we attract them? What are we looking at?

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Amit Agarwal, Raymond Limited - Group CFO [34]

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So thanks, Umang. Actually, if you look at it, what I mentioned was 95% of our stores are open. And look, the fundamentals behind this is that our stores are so uniquely positioned across the country that people who want to buy a product will step up into a store.

And I will also give you an example that the kind of brand recall which we enjoy, practically, it has become a household name in the country. If you want to make a wedding wear, it has to be a family out of Raymond, which you would end up buying. So there were very clearly, even if somebody wants to pick up, previously, one would go and pick up 4 shirts. Today, maybe because of income and everything, maybe he will go out and pick up 1 shirt or 2 shirts. And then he will choose to buy a particular branded product. And we are right there.

We are a typical India-created homegrown brand. This is very, very phenomenal success with an unparalleled network which we have created. Do you want to add something?

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Ganesh Kumar, Raymond Limited - COO of Lifestyle Business [35]

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Yes. Yes. This is Ganesh here, just to add a few things. Your question is very apt, what do we do to, a, either rebuild the confidence of the customer? Or how do we take the shop to the customer? So we have a series of programs that we operate in terms of -- we have something called as virtual shopping, which we offer to our CRM network customers, where we actually enable the customer to go through the shop, the products, et cetera, through a video call. And then if necessary, they -- the concierge service follows up. We're taking some of garments to the customers and then signing a deal. In fact, we did a deal yesterday in one of the markets where a customer wanted to do a certain set of formal fabrics collection to be converted into suits. And a single order of about, I think, about INR 5 lakh was something that we operated.

Second, we also had -- we are doing something called as a garment exchange program, which is in collaboration with (inaudible) that we are operating. What we are trying to tell is that as a society, while some of us may be privileged to be able to afford new garments, et cetera, there is also a section of society in this period of time to whom we can take care of. So that is where the garment exchange program comes. We collect the garments, sterilize it, sanitize it and then we pack it and distribute it through goods.

Then we also have our online channel, which is MyRaymond.com, which I will urge each one of you to visit. It is a very interesting channel, which is curated from the demands of the consumers at this point in time. And we have made it relevant to what we need, whether it is a work-from-home collection or whether it is a Zoom party collection or whether it's a loungewear collection, so that we can remain relevant to them. And we ship it through our partners. We have collaborations with a few partners who help us in the logistics services.

So these are a few examples of what we are doing. There are many modes that we continue to operate.

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Umang Shah, [36]

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So sir, just to -- a question over here. So in August, I'm presuming that our government exchange program had started 15th August, if I remember right.

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Ganesh Kumar, Raymond Limited - COO of Lifestyle Business [37]

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Right.

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Umang Shah, [38]

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Was that -- what is the traction that you're looking at? So do you -- I mean, I'm sure that you will be looking at your sales daily. So in August versus last year August, what would have been the difference?

And for the upcoming season, that is maybe we can say mild season or festive season, how are we planning to up our game? Because we already have lost 1 season because of lockdown. Would we have an inventory line for that?

On top of it, we would be looking at another set of inventory for the upcoming season? So how are we planning to manage this? And if you can just give some color over that.

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Ganesh Kumar, Raymond Limited - COO of Lifestyle Business [39]

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Sure. So if we look at our August performance of the TRS stores and because our TRS Raymond shop basically operates both the fabric and the garment together, we were somewhere at about 45% of -- 45% to 47% on an average of the previous year's August sale. But if we look at our exclusive outlets, which are mostly still located in malls, there, we are at about 30% to 35%, okay?

Now after the garment exchange program, what we are also seeing is we are seeing a big pickup because in exchange of the garment, what we are offering is free tailoring service for a set of garment for them. And we are seeing an uptick, which is happening. An interesting phenomenon. And it is still to be tested post Sharad is that during Sharad, typically, we look at sales numbers going down as compared to August average. That was our expectation.

But the daily sales average actually has stood the ground and the test of times, and we are actually continuing with the same pre-Sharad average as well. So the hope is that the moment Sharad gets over, we have festive seasons coming across the country, there should be a positive uptick and the sentiments will help us to improve the sales.

On your inventory side, what we are very clearly looking at is why we have various inventories, there is also a portion of inventory which is not exposed to the consumer. Those are the inventories, which are fresh inventories, which will go along with our existing ones, and we will capture the demand.

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Umang Shah, [40]

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Okay. All right. Sir, sorry, one more last thing. So we are looking at -- I mean, we are talking about Tier 4 -- Tier 3 to Tier 6 looking good. I mean the revenue structure from there or the sales from that portion of society is looking good. But historically, what has been the percentage to the overall revenue from Tier 3 to Tier 6?

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Ganesh Kumar, Raymond Limited - COO of Lifestyle Business [41]

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Yes. You're absolutely right. In fact, Tier 3 to Tier 6, while it is a smaller segment of the business, about 30%, 35% of the overall revenue as compared to Tier 1 to 3. However, in this period, during the COVID times, while Tier 1 to 3 were going through challenges of erratic lockdowns and demand not coming up, Tier 3 to 6 were operating at a much better level.

Having said that, the way I am looking at the first 2 weeks of September, we are also seeing demand coming back in the Tier 1 to 3 towns as well. The rate of recovery is smaller. For example, Tier 3 to 6, it is at 70% to 80%, 85%. The Tier 1 to 3 is today clocking at about 40% to 50%, 55%. That's the difference.

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Umang Shah, [42]

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Okay. Okay. So in the remaining 9 months, we are looking at...

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Operator [43]

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Sorry to interrupt, Mr. Shah.

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Umang Shah, [44]

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Sorry, it's just a follow-up. Just one last follow-up. So for the remaining 9 months, we are looking at, on an average, maybe close to 80% of our last year? I mean sales competitively based on just 2 months -- I mean, just 2 months, August and September data.

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Amit Agarwal, Raymond Limited - Group CFO [45]

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So look, it is very difficult for us at this juncture to predict. As you rightly pointed out, that some of the European countries have seen a little bit of a second wave coming in, we don't anticipate that we would get faced any of this, possibly not. But at this juncture, it is little too premature because what we are looking is anticipating of decent festive season, followed by good wedding season.

So I think based on that, we would be more appropriate, maybe end of third quarter, to talk about how we see that the demand recovery is happening in which shape and form.

At this juncture, I think I have to leave with that fully. It would be very difficult for me to put a number to that.

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Umang Shah, [46]

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Sure, sir. I was just trying to look at one particular direction. That's it.

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Amit Agarwal, Raymond Limited - Group CFO [47]

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Direction is upward that for sure you can take it.

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Operator [48]

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The next question is from the line of A.S. Harish from Genius Investment Advisors.

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A.S. Harish, [49]

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Yes, I have 2 questions. First question is, when is the book to your debt for issuing Raymond Limited -- Lifestyle Limited shares to the existing shareholders of Raymond Limited?

And the second question is, the market cap of Raymond is around just INR 2,000 crores. And I can't believe this for a company with a very good brand and with 95 years of existence. So what is your strategy of the management improving the shareholder value?

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Amit Agarwal, Raymond Limited - Group CFO [50]

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Look, in terms of very clearly, the shareholder value, we strongly believe the inherent core value of this business. You look at it, the kind of asset which this company has is phenomenal. In terms of -- you saw the demonstration that the land bank, which this company has, is exceptionally in the most prominent area in the city of Thane. And we did a 20-acre sale, which fetched us INR 700 crores. And we are still sitting with 80 acres clean and a 20-acre development, which is happening as we speak today.

Number two, if you look at it, the main lifestyle core business is a very strong brand, as you rightly pointed out. And the effort from our side is to demonstrate the performance on a go-forward basis because at this juncture, you are a company, which is a typical branded retail textile company. So one has seen the impact of the COVID significantly for the sector. Nobody can deny it. You and me have not gone out for shopping any of the products during the first quarter. That's the reality of life.

Are we going to sit all of our lives sitting at home? Answer is also no. So therefore, it is very clear that we will come out, we will start having the shopping, we will engage ourselves into buying our products. So therefore, I see very clearly that there is a strong fundamental of this company. It is our job in order to reflect upon what we are capable of doing it, how we have delivered, and we have been delivering it for so many years. So we will redemonstrate. And you know when the demonstration has been there, we have got a good understanding from the investor side as well. And this is what I can tell you from our perspective, that is our very core job to stay -- bring the strength of the business clearly and demonstrating the positive in financial performance.

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A.S. Harish, [51]

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What about the book closure date for issuing Raymond Limited -- Raymond Lifestyle Limited share?

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Amit Agarwal, Raymond Limited - Group CFO [52]

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So as far as the demerger has not happened so far, so there is no book closure date for issuing the shares under the Raymond Lifestyle Limited.

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A.S. Harish, [53]

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Is that to be announced?

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Amit Agarwal, Raymond Limited - Group CFO [54]

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Yes.

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Operator [55]

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The next question is from the line of Siddarth Mohta from Principal India.

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Siddarth Mohta, [56]

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Sir, I joined this call a bit late, so pardon me for my repetition. Sir, first question is on our operating cost, which we have reduced in quarter 1 versus quarter 4 as well as the last year same quarter. And it is around 44% and 50%. You have given the 3 heading in your presentation, employment costs, advertisement and others. So sir, what can be a structural reduction or the permanent reduction that we can build in as far as operation cost reduction in this context. That is my question number one, sir.

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Amit Agarwal, Raymond Limited - Group CFO [57]

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Sure. No, look, as I mentioned, very clearly, the OpEx cost is something which we went through like a razor-sharp focus and said, we have identified every single line item. We will reduce the cost, whether it is really required, can we do without it. And obviously, first quarter, when you have such a lower revenue, some of the direct variable costs, which sits in the OpEx past is also not there.

So a portion of this we have already given a clear understanding to all of you. Expect in this year, fiscal '21 to fiscal '20, a reduction of 30% to 33% of OpEx cost reduction. Very clearly, we see that this 30% to 33% from a year-to-year basis based on a lower volume, which we have seen in the first quarter and a gradual recovery in the second and the third quarter and the fourth quarter, reflects about the direct variable cost sitting in the OpEx will be lower. So on a go-forward basis, we believe a significant portion of this savings we will be able to sustain as a permanent savings.

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Siddarth Mohta, [58]

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Okay. So you are saying that even one has to cash forward to maybe '22, '23 when the situation will become more normal? A large portion of that cost, it would be a structural cost savings?

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Amit Agarwal, Raymond Limited - Group CFO [59]

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Yes. Major portion would continue to be a structural part because we have come to in depth. There are certain rationalizations which has been done. So this is going to stay with us for some period of time.

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Siddarth Mohta, [60]

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Okay. Correct. Sir, I know, sir, it is still -- it can be a bit difficult to answer, sir, but one can assume that in between like INR 70 crores to INR 80 crores of a range, which is more of a structural cost reduction, I do understand that this particular range, we can keep on revising as and when it goes. But as of now, that number looks quite reasonable, which is more of a structural reduction in the cost.

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Amit Agarwal, Raymond Limited - Group CFO [61]

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Yes. No, absolutely. So today, as I mentioned, 30% to 33% is a reduction in this year. Some part of it is variable, which will correct itself based on the volume changes. But some of the structural changes which we have done in terms of the level of rentals in terms of advertisement, some of the sales promotions, like we have moved to a digital way of doing a trade show vis-à-vis the physical trade shows, which used to cost money. So some of these fundamental changes are there basically to enable us to continue to have the cost savings continue for a long period of time.

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Siddarth Mohta, [62]

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Correct. Sir, my second question is on this other segment, this is non-schedule layer lines and your associate company. Sir, year after year for this segment is continue to show loss. So is there any specific reason why we are holding to those 2 segments?

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Amit Agarwal, Raymond Limited - Group CFO [63]

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So look, it is a small business, and it is not right to say if some business has not done well, you just exit. There are some core that you continue to do that is specific into this. You continue to participate. And at the end of the day, you just cannot say I will exit if you say the business is not doing this. So you continue to operate maybe at some point of time in our call. And I'll tell you in terms of the denim business, we know very well that denim has been a capacity. There has been an overcapacity. But some of the successful players who have been in the business we know very well the value of the business. And at some point of time, it will get corrected in the market. Capacities go up, supplies go up, the demand is weaker. But at some point, the correction happens. So we think that it cannot be taken as a very short-term vision to say that the denim may be not doing so well. But at some point of time, we see a recovery back into this business.

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Siddarth Mohta, [64]

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Sir, my final question is on this MBO. If I have to just step back and see what has happened in quarter 3 and quarter 4, where we have taken a large corrective steps and which has impacted our EBITDA. But you have to just see your '17, '18, '19 number, Raymond was growing very fast in the MBO segment. And certainly, everything has got collapsed in a couple of quarters. So it's very hard to understand that what went wrong. And in terms of write-offs, whether it is revenue or it is EBITDA, it is quite large.

And in the last 10 years, sir, our Branded Apparel, we are simply struggling every year, sir, we are trying to just say that we are having 3-year goals, 5-year growth, but nothing is happening. It looks like that our auto and the tool, it is more consistent, and it is delivering healthy EBITDA rather than vendor reference. So what are the steps that we are taking to rectify this Branded Apparel? Or whether in short term and in any long term, FY '21? Is there any goal for us or we are still just struggling or finding what to do, what not to do in case of Branded Apparel?

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Amit Agarwal, Raymond Limited - Group CFO [65]

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Look, I'll tell you very simple. The businesses which we have, fundamentally, we have created these businesses, these brands, right from -- these are our Indian-owned brands, the likes of Park Avenue, ColorPlus and so on and so forth. We clearly have a strategy. And certain businesses do go up and down. And we have seen there has been a growth -- consistent growth in the revenue in the past few years. We have seen a dip because it was also a weaker economy, which had come in the last year, that has let.

Now I will also ask Suman to give a brief perspective how we are changing really remodeling this entire business and how do we look forward. Suman, why don't you give your...

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Siddarth Mohta, [66]

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Sir, meanwhile, if you can also quantify or give us a milestone that what we are looking in (inaudible) 22 or (inaudible) 24, so that it's become a little easier or some sort of a quantification.

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Amit Agarwal, Raymond Limited - Group CFO [67]

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So I'll tell you one thing very simple. At this juncture, any quantification would not be appropriate from our side because, first of all, you are not considering in a normal situation. You are coming out of a very difficult unprecedented time. Therefore, for us to give any number may not be appropriate at this juncture. It will be a high-level view that we are taking, how to move forward this business. But on a go-forward basis, let's say, in the 6 months from now, we will outline exactly the way we will have with number crunching in terms of saying what are we looking, how are we shaping this business in terms of next 2- to 3-year journey. I just -- now Suman will give you a high-level perspective in terms of how we have remodeled the business and how do we look to take it forward. Suman?

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Suman Saha, Raymond Limited - COO of Branded Apparel Business [68]

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Thanks, Amit. So, one of the things that you need to acknowledge across Branded Apparel industry, this was running on one kind of model that you sort of anticipated demand basis that you sort of have a trade from model where your customers come and book and annual supply. You hope that the sales forecasts are accurate, and that's pretty much the model that the industry has been living and growing for the last 5, 6 years.

So one of the things that is very clear with the volatility in the economy, with more and more exposure to the -- of consumers to the here and now kinds of products, that estimating consumer demand and estimating consumer taste is going to be one of the key things. And apparel companies and any consumer product facing industry cannot afford to have a large lead time of product reach. So one of the biggest thing that we have sorted out for ourselves is that can we shorten the reaction time of product reach. You must be familiar with that. We had 2 seasons for the spring. So this summer and another is winter. As a starting point, we have actually said we're going to split the first season into 2 seasons, which is spring and summer, and autumn and winter.

What it does is that it forces us to sort of look at the one in tranches? It gives you a little more time to factor in the change that is happening in the consumer space. Obviously, it is easier said than done in terms of reorganizing the supply chain, looking at how do you capture sort of demand signals, et cetera, et cetera. But this has been in operation for some time. However, with the increasing volatility in the economy, this is something that we have to do. So that, in essence, one of the big changes.

Second, big changes is this entire adoption to digital. And I don't mean -- when I say digital, I don't mean e-commerce alone. I mean how do you sort of connect with consumers digitally? Amit just spoke about digital booking. Now we -- traditionally, we have all our customers coming in, sitting in one place, booking, and then we'll take a long time in collating orders and producing. How do you quickly sort of use digital medium to reach out to your stakeholders?

We reach out to consumers digitally. One thing is certain, some of the habits that are getting changed during COVID are going to permanently remain changed. And getting a higher digital influence in the purchase journey is given. So therefore, we are building up strong digital assets through our brands.

So in terms of summarizing for the changes, one, changing the business model; b, adopting digital methods of reaching out to customers and consumers. Obviously, the foundation of how do you create more winning products, how do you sort of respond to changing trends, how do you sort of play for more relevant categories obviously remain, but at the backbone of it is the changing of the business model.

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Siddarth Mohta, [69]

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Okay, sir. Sir, that was helpful, but there might be not now might be after a quarter or two with some clarity [in 8 months]. If you can just give us some of the milestones in terms of margin, in terms of what we are looking on in terms of working capital so that I can have a more clear picture. These are the strategic initiatives that you have taken. We appreciate that. But ultimately, it should be quantifiable for us actually to make it more meaningful, sir.

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Amit Agarwal, Raymond Limited - Group CFO [70]

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Absolutely. No, no, we are clear about it. See, we also have to run this business so we know we have to work with metrics, KPIs. And we strongly believe in performance management. So we have a clear identified way. But at this juncture to say, it's not appropriate. In a quarter or 2, you are right that we will talk about it.

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Operator [71]

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The next question is from the line of Vaishnavi Mandhaniya from Anand Rathi.

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Vaishnavi Mandhaniya, Anand Rathi Financial Services Limited, Research Division - Research Analyst [72]

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So I have 2 questions. The first question is, so if I look at the rents that we had of 3 India sites, so it's around INR 47 crores per quarter, ballpark number. So on this, have you gotten INR 17 crores of savings for this quarter, so that means like a 35% to 40% reduction? Is that right?

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Amit Agarwal, Raymond Limited - Group CFO [73]

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Yes. So clearly, the way this whole thing works is that you have -- as per Ind AS, you have to record your rental savings or concessions which you got into the other income level. So that is what it is there totally. And the INR 47 crores is an incidence of the rent which you have incurred in this quarter. So overall, as I understand, we are talking close to INR 55 crores to INR 60 crores of our rental savings, which we have targeted, and we are on top of achieving that.

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Vaishnavi Mandhaniya, Anand Rathi Financial Services Limited, Research Division - Research Analyst [74]

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For the full year?

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Amit Agarwal, Raymond Limited - Group CFO [75]

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For the full year.

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Vaishnavi Mandhaniya, Anand Rathi Financial Services Limited, Research Division - Research Analyst [76]

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So on the INR 180 crores, INR 190 crores, you will have around INR 50 crores of savings for the full year, right?

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Amit Agarwal, Raymond Limited - Group CFO [77]

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That is what we have achieved so far. As we say, we don't hold our breath on saying just that it is done. We want to continue to negotiate with the people. And as and when we get more, we will keep informing you more.

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Vaishnavi Mandhaniya, Anand Rathi Financial Services Limited, Research Division - Research Analyst [78]

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Okay. And my second question is basically on the gross margin level. Have we taken any inventory provisioning or anything like that. So -- because we have a dip of around 7% or 700 bps on a year-on-year basis. So is there any inventory provisioning that we've taken or any reason for such EBITDA -- I mean, gross margin decline?

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Amit Agarwal, Raymond Limited - Group CFO [79]

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No. No, absolutely -- I think you are absolutely spot on. In terms of this, when you have -- and we have done a net working capital reduction by over INR 300 crores. What we have done is we have got collections from our customers. And in certain cases, you had to go out and give certain cash discounts to your customers, which is a normal part of the process. And that gets netted off from your revenue line item. So that has reduced by INR 10 crores your revenue. And with a smaller revenue, this INR 10 crores makes a lot of difference in terms of a gross margin calculation.

Similarly, as you rightly pointed out, there is a certain stock each all provisioning, which we do as a policy. Again, considering that because of the low numbers, whatever provisioning you do as per the normal policy, that sits in the cost of goods sold, which, again, based on the smaller numbers, adds up. So therefore, these are the 2 reasons, which impacts your gross margin by 7%.

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Operator [80]

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The next question is from the line of [Kunal P.], an investor.

As there is no response from the current participant, we'll move onto the next. That is from the line of [Ron Mantri], an individual investor.

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Unidentified Participant, [81]

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Am I audible?

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Amit Agarwal, Raymond Limited - Group CFO [82]

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Yes, please.

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Unidentified Participant, [83]

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Yes. So I wanted to know, so what are the aspirations, like when can Raymond become a debt-free company, even the biggest company in India, which is Reliance Industries has become debt-free. Raymond is a well-known brand, every Indian knows it. I think we are spending too much on interest cost. But if we can sell, as you told -- rightly told that we sold 20 acres of land for INR 700 crores. If we sell the remaining, we can be debt-free. So what are the aspiration? When we can become a debt-free company?

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Amit Agarwal, Raymond Limited - Group CFO [84]

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No, I think it's a very good target to have. No doubt about it. But Ron, you know and I know, can I sell in today's market 80 acres of land, how many people -- I don't know, maybe I have to really count on finger, 1 or 2 I will get who would have the ability to pay INR 3,000 crores for this kind of a land?

So look, the intent is very clear. As we have stated and demonstrated that by the sale of the land in the month of February, we have been able to reduce the debt. And very clear focus for us, if you see in our demonstration as well during the first quarter June, that we maintained our net debt level very similar to March levels. We have maintained our liquidity as well and rather improved the liquidity by end of June. So very clear focus has been in the company that we need to correct -- reduce the debt and keep the liquidity level strong. And especially in these times, you look at it. In these times, if you are able to maintain almost 10% of your revenue as liquidity, which is a very strong proposition to have. And that is what Raymond has delivered very clearly.

But cash flow generation, and we are not shy away from monetization of assets. It is very, very well reflected in the history of Raymond. And I'm very new to this. I'm sure you guys may be tracking it far longer than I have. I have been told that in the year 1999, at 1 block we sold off of our cement business, our chemicals business and one of the synthetic business. And at that point of time, we made our company again, once again, at that point of time almost like a debt-free company. So I think the journey is on. We have demonstrated it, and we are very much there and committed to demonstrate it once again.

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Unidentified Participant, [85]

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So whatever the cash flow we'll be generating in the coming years, will it be used for repaying the debt? Because I see so like 2 to 3 years ago, you had set up a linen plant in number of (inaudible), which had cost us like INR 250 crores to INR 300 crores. Were you -- were thinking of spending maybe like INR 500 crores to INR 1,000 crores? So is the CapEx cycle over and cash flow can be used for repaying the debt and making the balance sheet cleaner -- or thinner?

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Amit Agarwal, Raymond Limited - Group CFO [86]

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Absolutely. There's no doubt the cash flow generation from the business will go towards a debt repayment. And very clearly, if you look at it, now Amravati plant, I'll give you one simple example. You see things have to be looked at perspective. You as a strong brand company with a significant channel of distribution available to you, why would you miss out on an opportunity of a linen production? And I'll give you, for your context, that very recently, linen yarn used to be having a duty element, but the linen fabric does not had any duty element when being imported out of China.

In the last, I think, a month or so back, we have heard that the government of India has imposed a duty to the tune of $2.40 on duty per meter on the linen fabric. Overnight, that changes the economics of the company -- this business. So therefore, it is very clear that the vision has been, you have to grow, you have to play on the strength and the strength which the company has in the Raymond brand. Obviously, it helps us to grow the business. So therefore, long story short, very clearly, our focus is all the cash flow generation will be primarily used for a debt repayment.

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Operator [87]

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The next question is from the line of Siddarth Mohta from Principal India.

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Siddarth Mohta, [88]

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Sir, in the last 4 to 5 years in case of Branded Apparel, we have been changing growth, and it was neither reflected in the quality of growth, it was not that great in the sense that it was neither reflected in the margin, neither in or not in the working capital, and we ended up in a big inventory, which we have written off in quarter 3 and quarter 4. So going forward, sir, we will continue to follow the same strategy, looking for the growth by complementing on the margin or working capital? Or this time, it will be more to do with the working capital margin and then the revenue? So what would be the hierarchy of the importance?

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Ganesh Kumar, Raymond Limited - COO of Lifestyle Business [89]

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Yes. So thank you for the question. It's very pertinent at this point in time. What we are looking at is how do we make this business sustainable? Because we have also been seeing that, over the last 5 to 8 years, we have been going through a roller coaster. There's been a lot of learnings. But today, we are focusing on sustainable profitability of the business, and growth will be driven by sustainable profitability.

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Siddarth Mohta, [90]

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Okay. So I assume not on sustainability profit as well as the focus on the working capital, so that (inaudible)

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Ganesh Kumar, Raymond Limited - COO of Lifestyle Business [91]

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Of course. That goes without saying that working capital is one of the [hygiene] factors of the business now.

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Amit Agarwal, Raymond Limited - Group CFO [92]

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We are very focused, very clearly how to look at every business in terms of cost as well as working capital management and liquidity. Very, very clear focus. And that is very well demonstrated. If you see that the company has been able to reduce the fixed cost, operating cost by 50% compared to the fourth quarter, that shows that there is the way where you can do and achieve this. Similar focus has been on the working capital. So I think that our focus as an overall, as a Raymond Group, will continue to be on these core areas.

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Siddarth Mohta, [93]

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Sir, you're answering this -- or you are saying this particular thing because external scenario is a bit tough, and we assume that might be in FY 2022, '23 when things had become a bit normal. So we will again relax our working capital condition, we will again compromise on the margin. Now we have to do because the things are a bit tough. But when the things it will improve, so we will compromise on those 2 aspects, which, today, we are not compromising, whether it is cost working capital or on the margin?

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Amit Agarwal, Raymond Limited - Group CFO [94]

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No, I don't think so because I would think that it is a very sweeping statement, so to speak, that one has made in terms of saying that we would go back to a situation where we would compromise. If we have to understand these businesses, I'll give you a simple answer on my fabric business, a fabric inventory at our TRS store really appreciates. And the people are happy enough to keep that inventory because they know that these inventory is going to appreciate. And it is also the range. It is a fashion business. It is not a commodity business where you can manage with a very low inventory level. Because you and me, if you have to go to a store to pick up a fabric, we would like to see 10, 20, 30, 50 fabrics and then make or decide whether I want to purchase or I don't want to purchase. And the likings of every individual is different. So therefore, it is very important to find the right balance between a working capital management as well as cost efficiency.

So we are very clear that we have charted out a program that this is the way to move forward with a tight control on the cost as well as all the working capital management.

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Siddarth Mohta, [95]

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Okay. So that was very helpful. Sir, a couple of more questions. In case of Ethiopia, where we are ramping up our operation, so -- but at the same time, we are making loss. So if you can just tell us the trajectory where we should be looking Ethiopia in -- might be '21 and '22? And similarly, for Ethiopia, where, again, we are having a loss of like INR 30 crores to INR 35 crores. So how we should be looking about this division?

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Amit Agarwal, Raymond Limited - Group CFO [96]

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So look, as far as the Ethiopia is concerned, as I mentioned to you, our clear desire is to improve the utilization of these facilities to cater to the market, especially in the Europe and North America. And we see with the kind of relationships which we have built upon. Second thing, we should also see that, today, there is a bit of anti-China, so to speak, I don't know how to word it properly, but yes, there is a bit of, what you call, sentiment, developing across the globe, where people who are trying to shift some of the buys, which used to be traditionally from a China would shift to other countries. And obviously, we are going to be one of the large beneficiaries. Very clear, no doubt about it.

As far as denim is concerned, today, you can say it is sitting on a little bit of an excess capacity. But is it going to be the case? Answer is that whoever is an efficient player over time, will -- what you call, continue to operate and run the business. Some of the people who are not most efficient and organized players may have to take a little bit of a consequence. So we are in that game. We know that we have built certain efficiencies and rather more efficiencies now more so. So based on this, I think we will have to wait a little bit more that demand pickup happens in the, what we call, denim business. And then this business also gets corrected.

And I'll give you one example. Again, the history speaks to itself, that we had the engineering business and the auto business gets a few years back, which was not doing well. Now we have put huge amount of effort and focus. And that has turned around itself, and it is doing phenomenally well. One of your colleagues did comment upon that this business is doing very well. So clearly, you see businesses go through ups and downs. There are cycles. One has to go through the cycle, but does not mean that 1 business in 1 year or 2 years does not do well, means this is a bad business.

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Siddarth Mohta, [97]

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Okay. That was. So sir, the only other thing is that do understand that -- yes -- but whenever cycle it turns, we should be prepared very well to make the best of those opportunities. So that is the...

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Amit Agarwal, Raymond Limited - Group CFO [98]

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Absolutely. No, I appreciate and I agree that we should be right there first on the road.

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Operator [99]

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Thank you. Ladies and gentlemen, that's the last question. I now hand the conference over to the management for their closing comments.

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Amit Agarwal, Raymond Limited - Group CFO [100]

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No, thank you very much, all of you for taking interest in Raymond, and we look forward talking to you in the next quarter as well. Thank you. Stay safe.

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Operator [101]

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Thank you. Ladies and gentlemen, on behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.