Aditya Vision Ltd (540205) Earnings Q4 2023 Telephone Conversation Transcript | alpha street (2023)

Aditya Vision Ltd (BSE:540205) May 4Q 2023 Earnings Conference. 19, 2023.

Corporate participants:

Jaszowardhan SinhaPresident and CEO

Yosham VardhanDirector of Strategy and Corporate Planning

analysts:

Nikhil ShettyNuvama Group - Analyst

pritesh chhedaLucky Investment Managers - Analista

Akszat MehtaSameeksha Capital Private Limited — analysis

Praveen Ranjan SahayPrabhudas Lilladher—analysis

Devang PatelSameeksha Capital — analysis

agastya daveCAO Capital - Analyst

shah warriorEnvision Capital — analityk

Vishal PrasadVice President Capital - Analyst

Ankusz Agarwal— Analyst

kryszna cancerMolecule Ventures — Analityk

Chirag FialokeShree RatnaTraya Capital Partners — Analityk

Presentation:

Operator

Ladies and gentlemen, good morning and welcome to the Q4 2023 earnings call for Aditya Vision Limited. [Operator Instructions] Please note that this conference is recorded.

I now turn the conference over to Mr. Nikhil Shetty of Nuvama Group. Thanks and to you.

Nikhil ShettyNuvama Group - Analyst

Thank you. Hello, everyone. On behalf of Nuvama Professional Clients Group, I welcome you all to Aditya Vision Limited's Q4 and Full Year 23 earnings call, so we take this opportunity to thank Aditya Vision management for allowing us to host this profitable call. From the leadership we have with us today, Mr. Yashovardhan Sinha, President and CEO; Ms. Yosham Vardhan, Director and Strategy, Corporate Planning.

I now call on management to share a brief introduction to the company and key results, after which we will open up a discussion in a question and answer session. Thank you and you, Sinha, sir.

Jaszowardhan SinhaPresident and CEO

Thank you Nihil. Good afternoon ladies and gentlemen. Hello everyone involved in this inaugural Aditya Vision earnings call. As this is our May deadline, I would like to discuss Aditya Vision's trip followed by FY23 strategic updates. Our investor presentation has been placed on the stock exchange and we hope you have also had the opportunity to see her

Our company Aditya Vision Limited was established in 1999 with a vision to provide the people of Bihar with high quality electronic products at competitive prices and exceptional customer service. For us, every client is our guest and we believe in building trust relationships with them, as symbolized by our slogan "Sambandh Bharose Ka". I myself am a first generation entrepreneur and have been working at PHU Bank for almost 20 years. Aditya Vision rarely started in 1999 with the establishment of a unique showroom in Patna, Bihar based on a simple yet unique business model.

We started spending in Patna from 2006 to 2013. Then with the improvement of rest and energy situation, part of Bihar. In 2014, we started expansion from Bihar, Patna District, into another Bihar District Headquarters. In 2016, when we had 16 showrooms, we went public, raised INR 5.8 crores and were listed on the BSE. We have not raised funds since this launch. After the initial public offering, we saw remarkable growth and increased the number of stores to 43 for fiscal year 2020 and during the COVID period in fiscal years 21 and 2022, when the work was in progress - the world was in state of shock and danger, we seize it, we take it as an opportunity. and added 36 stores to reach 79 stores in RO'23.

In line with our strategy, we have expanded our presence to 105 stores in under-penetrated markets in the heart of Hindi, Bihar, Jharkhand and Uttar Pradesh. We stayed in Bihar from 1999 to 2021, strengthening and consolidating our presence. It wasn't until RO'22 that we entered Jharkhand, where we currently have 17 stores. Then, in fiscal year 23, we entered Eastern UP with four stores, bringing our total to 110 stores per day. In Bihar, we have achieved a significant market share of more than 50% as reported by people.

Jharkhand and Eastern UP are continuous markets with cultural affinities where the name Aditya Vision is known. It offers a large, under-penetrated consumer market and a lack of organized competition. In time, we anticipate that these areas could become as large as our main market, Bihar. Our success is due to our unwavering commitment to a customer-centric approach by prioritizing the needs and preferences of our customers. We were able to better understand the requirements and build relationships with them. This customer focus has resulted in increased customer loyalty and retention.

We constantly strive to ensure that the services for our clients meet their specific needs, further strengthening interest in us with license fees. This approach not only fosters customer loyalty, but also gives us confidence in further development and growth in the future. We are proud of our dedicated customer service center called Aditya Seva with a team of more than 30 qualified employees to deal with our customer complaints in the shortest possible time in three states. Our business model is focused solely on the retail sale of pure products. We buy from OEM and do not commit to private label.

We have cultivated long-term, reputable OEMs, enabling us to offer our customers a wide range of products. These OEMs not only help us meet the needs of our customers, but also provide full support for our statewide expansion plan. In 2016, the year of our initial public offering, our revenue was INR 140 crore and PAT of just INR 1 crore. Since then, we have increased revenue to INR 1,322 and PAT of INR 64, which corresponds to a 7-year cumulative growth rate of 28% of revenue and 77% of PAT. Several investors with an article circulating on social media asked a few questions. We think it's unfortunate that they publish them without consulting us, as many of the issues raised there could easily have been clarified.

Our company paid taxes and duties very conscientiously. Our company has already clarified in a letter dated July 3, 2021, which was sent to the exchange, that there was only one delay in the submission of the ESG statement for the period from April 2018 to July 2018, which, due appreciate, was the implementation of the initial phase of GST. The matter was resolved by filing a return using only our entry credits. We are proud to say that even though we are 23 years old, there is no pending litigation with any statutory governing body, not even in any court or tribunal.

We are extremely proud that since the company was founded, including the years of the COVID-19 pandemic, no stores have closed. On the contrary, we see the pandemic as an opportunity not only for expansion, but also for a comprehensive modernization of all of our existing stores, including adding new flows and upgrading air conditioners and other electronic equipment. We have also added new streams and renovated our headquarters. We also migrated to a newer ERP system with the latest ability to capture the serial numbers of our SKUs at various points of purchase and sale, creating the need for additional computers, printers, barcode scanners for each store and in warehouse and merchandise. store.

New laptops are provided at various points of need to employees at headquarters and branches working from home during the pandemic, resulting in higher gross income. In FY22, we conquered the states of Jharkhand where we opened a shop and started a full-scale hospitality business aiming to leave a lasting impression on our customers, making us irreplaceable against future competitors and competition with increasing geographic focus. of the company This is very important when opening new stores and celebrating new achievements together with employees and customers.

We are also taking our annual Buy & Earn Loyalty and Rewards program to the brand stage and expanding its reach at each of our outlets to welcome and serve all of our existing customers, which has led to a increase in hospitality spending and we continue: and we expect that we will continue to do so. To support our employees during the pandemic, when stores were closed or operated for a limited number of days, we provided advance payments, which are now being corrected. your salary We also have adjustable advances to owners for adaptation of premises, several premises that were under construction at that time to keep up with the growth rate of our store.

We migrated to Ind AS 116 from RO'21 and it took some time to adjust to the new accounting standard for our company operating in the geographic area. Although we have adopted IAS 116, the rules are new and constantly evolving, and the approach to accounting under it continues to become clearer over time. To ensure the accuracy of our financial statements and, in particular, the impact of IFRS 116, I am pleased to announce that we have engaged Grant Thornton to calculate and implement IFRS 116, as well as our additional work to review our consolidated financial statements for 23 years. In the same year, his revision took into account the nature of classification and grouping.

The Company reclassified some amounts presented as of March 31 and 22. The reclassification was made to align it with the presentation used in the financial statements as of March 31, 2023 in accordance with IAS 7, the statement of cash flows and the requirements established in the dividend [illegible] 2 of the Companies Law 2013. These classification changes do not affect the company's total cash flows, but rather allocate cash flows among operating, investing, and financing activities. We remain deeply committed to the highest standards of corporate governance.

In our experience, one of the main reasons retail businesses failed was excessive growth and deteriorating unit economics. That's why we believe in calibrated expansion coupled with an extreme focus on economics at the store level. We make sure your store breaks even in six months with a payback period of three years. Our goal is 150 stores by fiscal year 2025. In fiscal year 2024, we have already opened five more stores and signed leases for another 20 stores. We are sure that we will achieve our goal if we do not improve it.

Ultimately, we believe that one of the key pillars of our success is our employees. Our company culture determines this testimonial. Personally, I take the time to ensure that we promote the right policies and culture within our organization with the goal of sharing our success and aligning long-term incentives for our employees. We have awarded the ESOP to more than 300 employees around the world, including not only senior managers, but also store managers, cashiers, warehouse managers, and service managers.

I am delighted to welcome our two directors appointed to our Board today, Ravindra Zutshi, appointed as an Independent Non-Executive Director, has more than 45 years of sales, marketing and operational experience in the durable goods and consumer electronics industries of India. He is a respected veteran in the consumer durables field who spent 19 years at Samsung India as an Associate Managing Director, where he played a key role in establishing the brand in India. Until 2020, he also worked for LG Electronics India Private Limited as a Senior Director of Trading Companies in India. Most recently, he served for Havells India Limited as Chairman of Business Development and Corporate Affairs from 21-23. We are delighted to have him on our Board and look forward to future guidance and strategic insights from him.

Along with Mr. Zutshi, I welcome Yosham Vardhan to the board as a full-time director. Yosham joined Aditya Vision in early 2021 as Director of Corporate Strategy and Planning and has played an important role in the growth and expansion of our company. Prior to joining Aditya Vision, she was a partner at a leading Mumbai law firm with over nine years of experience advising corporations on cross-border M&A and private equity transactions. I am pleased to announce that our company has exceeded your expectations with an impressive - In terms of this financial result, I am pleased to announce that our company has exceeded your expectations with an impressive 47% revenue growth and an 82% increase in PAT for all exercise 23.

As for the fourth quarter, January and February revenue was strong with year-over-year growth of over 35%. However, March sales were affected by unseasonable rains, which greatly affected our quarterly results. Thanks to our strong sales, we saw a notable increase in same store sales of more than 38% in the fiscal year. In the fourth quarter of FY23, our PBT increased by more than 128% from INR 6.20 crores to INR 14.15 crores, but PAT was lower year on year due to income tax adjustments as there was a reversal of the PAT in the fourth quarter of the fiscal year. '22 due to the restatement of quarterly figures due to the implementation of IAS 116. Thus, the impact affected only income tax.

Our net income, our business has an element of seasonality, with the first quarter traditionally being very strong due to vertical growth in demand for air conditioners, refrigerators, room air conditioners and other refrigeration products. Like we said, as part of our business strategy, we take an aggressive approach to new customer acquisition to reward out-of-stock situations. From the beginning of the fourth quarter, we started stocking, especially compressor products, in order to be well prepared for the sudden demand of the summer season in the first quarter of next year. Also at the end of the year we received very good offers from OEMs, which we trust to settle easily in the first quarter.

As a result, our inventories remain at their highest level at the end of March. Our inventory grew 39% in FY23, matching our 47% revenue growth and 26 new store openings during this period, as we also had to stock additional seasonal items in the new stores. Overall, the company had an exceptional year with outstanding results and we are sure that our performance in the coming years will continue in the same way as in previous years.

I will now give Yosham Vardhan an overview of the financial highlights of the year. Yosham?

Yosham VardhanDirector of Strategy and Corporate Planning

Thank my Lord. Good morning ladies and gentlemen. We are happy to report strong financial results for fiscal year 23. Here is an overview of our financial results. In fiscal 23, our revenues grew 47% year-over-year as a result of expanding our business. We successfully maintained a gross margin of 15.96% thanks to an optimal product mix. Profit after tax for the year increased by 82% to INR 64 crore, mainly due to strong 60% year-on-year EBITDA growth. As mentioned above, our number of stores reached 105 in FY23. We started this FY23 with the opening of five new stores in Bihar, Jharkhand and Uttar Pradesh, bringing the total to 110 stores to date.

Our gross debt is INR 270 crores and our net debt is INR 185 crores. Therefore, our net debt to EBITDA was 1.39 times, while net debt to equity was 1.4 times. We have always focused on generating the highest ROE. ROCE and ROE for the year amounted to 28% and 60%, respectively.

Now we can open the discussion to questions.

Questions and answers:

Operator

[Trader Instructions] The first question is from the Pritesh Chheda line of Lucky Investment Managers. Please go ahead.

pritesh chhedaLucky Investment Managers - Analista

Yes ma'am, how will SSG be in Q4? Can it be assumed that due to the expansion of the store in the first - fourth quarter, there is no SSG?

Jaszowardhan SinhaPresident and CEO

SSG was calculated for the full year, not the fourth quarter.

pritesh chhedaLucky Investment Managers - Analista

So what's going to happen in the fourth quarter, sir?

Jaszowardhan SinhaPresident and CEO

We will contact you about the fourth quarter. Our IR will contact you.

pritesh chhedaLucky Investment Managers - Analista

Alright. Sir, just my other question. I'm just looking at the cash flow from adding inventory at around INR 84 crore compared to store expansion, could you help us understand this? Because your PPT says a certain number of inventory per store and I'm just trying to correlate to that number INR84 crore.

Jaszowardhan SinhaPresident and CEO

As I mentioned earlier, we opened 26 new stores during this period, as well as several pipeline stores that are yet to open. And above all what has been said that for the summer season we need to stock up on air conditioners, refrigerators, air coolers and other refrigeration products. So we have quite a high inventory at the end of the financial year, where we also get good discounts from the OEMs. This led to increased inventory and the impact of new stores, and we had to maintain additional inventory of compressor products.

pritesh chhedaLucky Investment Managers - Analista

So usually your inventory rotates late to mid year, how will it be different sir?

Jaszowardhan SinhaPresident and CEO

We are very high at the end of the year, there is no doubt, because we have already discussed that it also coincides with the end of the year and also coincides with the beginning of the summer season. This is the case for all OEMs: their financial year ends in March of this year. So what happens is that they also really want to give us a very good deal. And we are entering very, very busy days. Therefore, we have a high stock so that we can make the most of our profit margins.

pritesh chhedaLucky Investment Managers - Analista

So will your inventory turns less than double if I have to look at the year-end number?

Jaszowardhan SinhaPresident and CEO

Are you talking about the whole year?

pritesh chhedaLucky Investment Managers - Analista

So.

Jaszowardhan SinhaPresident and CEO

No, inventory days are coming...

pritesh chhedaLucky Investment Managers - Analista

No sir, no inventory days. I'm looking at the sale after inventory, sir.

Jaszowardhan SinhaPresident and CEO

From the moment of inventory, if you said, it is 80 days.

pritesh chhedaLucky Investment Managers - Analista

Alright. I'll unplug it. And my last question is, sir, how do you see the season going?

Jaszowardhan SinhaPresident and CEO

The season is good. There are, of course, there are off-season rains, but we are confident that we will achieve our goals.

pritesh chhedaLucky Investment Managers - Analista

And what revenue growth are you seeing in fiscal year 24?

Jaszowardhan SinhaPresident and CEO

We will definitely strive to exceed 20%.

pritesh chhedaLucky Investment Managers - Analista

Yes sir. Alright.

Operator

Thank you. The next question comes from the Akshat Mehta line of Sameeksha Capital Private Limited. Please go ahead.

Akszat MehtaSameeksha Capital Private Limited — analysis

Hola.

Jaszowardhan SinhaPresident and CEO

She, Axat.

Akszat MehtaSameeksha Capital Private Limited — analysis

Yes. Thanks for the opportunity. [Illegible] Just one question, sir, if you can answer it. Going further, you're saying you'll have revenue growth of about 22% going forward that's added to the stores -- 25 stores in a year, or about 30%. I mean, can you explain why the overall revenue growth was lower than the [illegible] store plugins?

Jaszowardhan SinhaPresident and CEO

No, no, what I said we will not do easily, it will increase by 20%. It is not limited to 20%. Akshat, we are the target, in fact we have been historically, we have grown at a rate of about 27%, 28%. Therefore, in my opinion, there is no reason why we should not achieve what we have achieved in the last 10 years. So what we are, our goal will be to achieve, to stick to that. And I said that when I meant that with a minimum increase of 20 percent, you have to look, move on.

Akszat MehtaSameeksha Capital Private Limited — analysis

Alright. My second question is about the new stores you have opened in UP and Jharkhand, can you bring some color to these stores? Are they similar to Bihar? You know the market very well. And also, what will be the stock that will require stock rotation in these stores? If you can give a little color to this?

Jaszowardhan SinhaPresident and CEO

I heard Akshat that you want to know how our stores in Jharkhand and UP are doing. AND…

Akszat MehtaSameeksha Capital Private Limited — analysis

What about the inventory that's supposed to be required there, the inventory per store required at those stores? And how does it compare to Bihar?

Jaszowardhan SinhaPresident and CEO

No no, I would say it is very similar to what we have in Bihar. And because it's a different state and, but our billing is also centralized from the OEMs. So inventory because as I always said in very large stores like 4000 to 6000 square foot stores we have stocks around INR 3 crores. So, and these stores in Jharkhand, they're doing really well, let me tell you, we've started off with a bang in Uttar Pradesh as well. At the moment, we have opened 17 stores so far in 14 districts of Jharkhand, and there are four stores under construction in four districts. Similarly, we have opened – we have already opened four stores in eastern Uttar Pradesh which is Varanasi and one in Jaunpur and 10 stores are under construction. And the stock level is almost the same as Bihar because I was talking about traditionally, culturally, seasonally, all these states are similar in nature.

Akszat MehtaSameeksha Capital Private Limited — analysis

Alright. I think one more question if I may add. In fact, we look at the gross margin over the last two years at around 16%. Going further in his PPT, he said that stores would have a 12% to 15% margin. So is there a structure given that going forward your boards are throwing up and [Illegible] on gross margins or [Illegible].

Jaszowardhan SinhaPresident and CEO

We always provide scope guidance. We cannot give you an exact guide on the margin we are looking for...

Akszat MehtaSameeksha Capital Private Limited — analysis

NO. The range is 12% to 15%, while earning 16% in the last two years. So even the high end of the range is less than what you are currently doing. That's why I was...

Jaszowardhan SinhaPresident and CEO

It is also good for the company and investors. So we're in the upper range right now, the upper range of the band. But our guidelines will always be between 14% and 16% of gross margin. And if we hit 16%, then we are -- our company is doing very well. Alright. And whatever clues we give, those clues also come from historical data.

Akszat MehtaSameeksha Capital Private Limited — analysis

Alright. I'll be back in line, sir. Thank you.

Operator

[Operator Instructions] The next question is from the Praveen Ranjan Sahay lineage of Prabhudas Lilladher. Please go ahead.

Praveen Ranjan SahayPrabhudas Lilladher—analysis

yes hello sir Congratulations on a good set of numbers. The first question is about your average sales price, which is steadily increasing year over year if I look at it. So can you give it some color? Is it because of the high value products you are constantly adding or because of the product differentiation in the new stores you are developing? This is why? What is the exact reason?

Jaszowardhan SinhaPresident and CEO

Praveen, the reason is that I already said that people are moving towards premium products. And contrary to what it seems that in this part people will prefer the most economical range or the par model, it is not for that reason. In this part, people really want to buy something valuable. That's why they always try to buy the best model, even more premium products like us, because it's very surprising that we sell the most five-star air conditioners. Our share of our rating on all air conditioner sales. The numbers are going, the median sales price is only going up because [illegible]. For the rest, as you know, very easy financing has also arrived and all the finances are there. Retail finance is. It becomes easy for them to improve the product, so our customers can easily improve their product. So the average sales price and that's what we expect the average sales price to trend up.

Praveen Ranjan SahayPrabhudas Lilladher—analysis

Is it because of the product that the average sale price improves significantly?

Jaszowardhan SinhaPresident and CEO

NO. What I said is two things and people prefer premium products to low end models and also better their purchases due to the ease of financing.

Praveen Ranjan SahayPrabhudas Lilladher—analysis

I understand, sir. I see. The second question refers to EBITDA per store. I see you add stores aggressively year after year. So if I look at 43 stores in 2020, that's now 105 stores. Even the addition of stores is quite strong. Its EBITDA per store is also growing steadily. So just like with newer stores, you get a similar kind of EBITDA in the existing store than before. Is that so or…?

Jaszowardhan SinhaPresident and CEO

I would say it becomes more like a basket, I would say because EBITDA obviously stores [illegible]. And as you know, we only operate in under-penetrated markets. We are not, and we are present in markets that are very, very poorly penetrated. So, the EBITDA margin and you take -- be clear that our EBITDA margin is holding up. But again, it becomes a basket of the year, because in many places our EBITDA may be lower. It can be higher in some places. So it's on track, overall, EBITDA is quite satisfactory.

Praveen Ranjan SahayPrabhudas Lilladher—analysis

Alright. Thank my Lord. I'm going online.

Operator

Thank you. The next question comes from Devang Patel of Sameeksha Capital. Please go ahead.

Devang PatelSameeksha Capital — analysis

Sir, first of all, I wanted to congratulate you on the best PBT reveals this time. Sir, my question was about including him in the basket, our margins are very satisfactory. Just wanted to know if we ever look only at our main market of Bihar, do you see our profitability here increasing from now on?

Jaszowardhan SinhaPresident and CEO

I don't think our margin will increase further. We will strive to keep it at the same level.

Devang PatelSameeksha Capital — analysis

Alright. Sir, I just wanted to clarify the cash and bank balance, there are some changes in the accounts. So what is our total cash and FD together?

Jaszowardhan SinhaPresident and CEO

Our total cash is around INR82 crores.

Devang PatelSameeksha Capital — analysis

Alright. And some color wide investment of INR30 crore which only comes after spending what we plan to spend next year?

Jaszowardhan SinhaPresident and CEO

Can you repeat that? I didn't hear it clearly.

Devang PatelSameeksha Capital — analysis

Sir, in general, what capital expenditures did we make in fiscal year 23 and what expenditures do we plan to make in fiscal year 24?

Jaszowardhan SinhaPresident and CEO

Alright. In FY23 our capex was around INR22 crore and we expect that actually it will depend on how many stores we can add as we are adding stores quite quickly. So looking at what's left and a lot of it, we're actually at the beginning of the year. So it will be very difficult for me to give guidance, but it cannot be less than INR 12 crores, maybe INR 15 crores. Everything will depend on how many stores we can add.

Devang PatelSameeksha Capital — analysis

Alright. Sir, he mentioned earlier that basically our margins will remain the same. Are we seeing new competition entering our core market? See how the biggest players come here? What are you waiting for? How do you anticipate the course of the competition?

Jaszowardhan SinhaPresident and CEO

We don't care so much about the competition because we have confidence. We were, as I told you, we know the central market of all this geography as Bihar and even since then Jharkhand is also very similar. And so the UP is also very similar where everywhere people are aware of the Aditya View. And it wasn't really that there was no competition and there wasn't. There has always been competition in all of these markets. In fact, very large modern retailers are also present in most states [Indecipherable]. But even so, we could reach such a result. That's why I don't worry so much about the competition and we believe that our business model is completely different from the others.

Devang PatelSameeksha Capital — analysis

Yes sir. I will be back online and thank you very much and I wish you all the best.

Jaszowardhan SinhaPresident and CEO

Gracias.

Operator

Thank you. We have another question from Agastya Dave of CAO Capital. Please go ahead.

agastya daveCAO Capital - Analyst

Am I heard?

Jaszowardhan SinhaPresident and CEO

Yes, you are heard, Aditya.

agastya daveCAO Capital - Analyst

Agastya, sir, yes sir. Thank you very much, Sinha, for his opening words. I appreciate the clarification you have given on the accounting issue. Sir, [Speaks in a foreign language] the physical stores that everyone has been asking for. My question is about the e-commerce that you handled, e-com sales. They were, I guess they must have grown up during the corona phase. How are they behaving and falling from where they were before? Can you reveal some numbers there?

Jaszowardhan SinhaPresident and CEO

I won't reveal these numbers, but I can say one thing that, as you rightly said, it was quite high during the pandemic. But then it fell off drastically because at this point, anyone who doesn't have it can feel like no one is ready to buy. And in fact, and because we are present in most places, people prefer to come to us and then buy. So I put it this way that we're doing our e-commerce at the same time. But at the same time, our territory is closely connected with the hearts of people.

agastya daveCAO Capital - Analyst

Yes sir. Sir, how do you see an increase in same store sales in the upcoming season? Increase in same store sales in Bihar especially old stores in Patna? Do you expect double-digit growth in the first 10 stores you had? [Foreign language].

Jaszowardhan SinhaPresident and CEO

[Foreign speech] They will be single digits. Of course, double-digit stores will not show up in Patna, because they are already very, very mature stores, because they are already 24 years old. These are the stores that give us single-digit store growth and we don't expect them to give us double-digit growth.

agastya daveCAO Capital - Analyst

[Foreign speech] for the store to reach such a level of maturity that the growth of the same store will fall below 10%? Does it take five or six years.

Jaszowardhan SinhaPresident and CEO

No, it is not a 10% stake. In fact, my explanation is that in three years, generally three, three full years, each store matures. So it's clear to me that at least now they're at a level where it can really turn out to be a comparable same-store sales increase. Otherwise, because they are -- in fact, growth was very, very fast and fast during this period in the first three years. So again, all of the stores, let's just say what we are, from the last, let me say it to the 23rd, the last nine years, still giving us double-digit growth.

agastya daveCAO Capital - Analyst

Minister, last question [Foreign Language]. You said that January-February was quite slow for you, but April or May [foreign speaking]. Can you give any ideas [Foreign Speech]?

Jaszowardhan SinhaPresident and CEO

Certainly this out-of-season rain, which had little impact, was a little debilitating, very disturbing. But still, I want to say that we are fine.

agastya daveCAO Capital - Analyst

Alright. [Foreign language] is holding up, isn't it? Is demand adjusted for this unseasonal rain still strong?

Jaszowardhan SinhaPresident and CEO

Yes. From now on, we are, in fact, our geography is very vast and vast. So let's say if it rains in eastern Uttar Pradesh, our Jharkhand will manage anyway. Bihar will continue to do well. There is a muffler Bihar, Jharkhand is doing well. So we've reached state level 3. Our store layout is pretty even now, as is the breakdown by region.

agastya daveCAO Capital - Analyst

Well sir. Thank you very much for the opportunity. Sir, one last thing [Foreign speech] I have seen many developers selling shares. There were several rounds. Can you assure us that there will be no more sales? If there is a sale, I would ask you why you mentioned that you want to be one of the best in corporate governance. My suggestion would be if there is a need for a family of promoters, if it can be reported well in advance [foreign speech], there will be a sale because we need funds for our own use. That's perfectly fine, but suddenly, if a sale happens, it's [foreign speech], especially when there's an article that questions accounting rules and so on. So that's my only suggestion, sir. If you can shed any light, if there are any further plans to sell your stake, are you done for now?

Jaszowardhan SinhaPresident and CEO

And then I can share my thoughts with you. Whatever the sale was, it had already been done, it was all strategic. Nothing was done to raise money for any type of purchase because our equity interest was very small at the time; we also wanted good investors on board. So it was on a strategic basis and there is no funding requirement for any developer.

agastya daveCAO Capital - Analyst

So no more sales there?

Jaszowardhan SinhaPresident and CEO

No, what I said could just be a strategic slip, without disturbing any markets. We are not assuming anything at the moment. Nothing is available right now, but what I'm trying to tell you is that strategic selling to good investors can always be.

agastya daveCAO Capital - Analyst

Well sir. Thank you for the opportunity, sir. Good traders can always buy in the market because everyone does. But thank you very much and I appreciate your answer and clarity. Thank my Lord,

Jaszowardhan SinhaPresident and CEO

Actually, it's one thing that stocks aren't that liquid. Of course, if they buy from the market, they will never come to us.

agastya daveCAO Capital - Analyst

Normal. Well sir. Thank you so much. I really appreciate that. Happy Birthday Sir.

Jaszowardhan SinhaPresident and CEO

Gracias.

Operator

Thank you. The next question comes from Envision Capital's Varship Shah line. Please go ahead.

shah warriorEnvision Capital — analityk

Thank you for accepting my questions. Our debt is constantly growing, so the OCF is negative. Is there a sustainable level of debt that we aspire to? Because in the future [illegible] slowdown in sales. Maybe it did: our leverage could increase significantly a few years down the road, especially as we're expanding stores everywhere.

Jaszowardhan SinhaPresident and CEO

So I'm going to say most of the debt, almost 90% of the debt is short-term working capital. So, as you know, the use of working capital depends on your stock for inventory. So I don't anticipate anything as such, because long-term debt is very, very small and limited in our balance sheet and working capital needs, whenever we open stores, we don't raise capital. But then we will have to get working capital loan reports from the bank and these are very temporary and greatly affect short-term loans. It all depends; in fact, when you look at it on the balance sheet, you might find that we've used a lot of it. But maybe most of the time the usage is very low since these are all cash loan limits.

shah warriorEnvision Capital — analityk

Alright. So this phenomenal growth that we see, I mean, we have a unique model, but what's to stop a competitor, say Crom or Reliance Digital, from introducing a similar model? So the question is, is our growth more due to profits in mom and pop stores or because the market is growing so strongly in Bihar, UP and Jharkhand?

Jaszowardhan SinhaPresident and CEO

Yes, I'll say it's not Mom and Dad's expense, because Mom and Dad were; there are very few mom and pop stores in this sector. And it will be located at very, very small block levels and very, very small resources [illegible] and municipalities and so on. So really, our growth model is definitely demand driven, increasing demand. When I always say these markets have very very low penetration, if you look at our investor presentation you will find that this is one of the lowest penetrations in Bihar or even Jharkhand or Eastern UP. When you compare with the whole UP, you will find that the eastern UP has a penetration level similar to that of Bihar and the population is huge. Bihar is the third most populous state in all of India. Similarly, the eastern UP is as big as Bihar in terms of population. So they drive the demand and the big modern retailers have been present in Patna or let's say the surrounding towns and district offices for many years but we are very strong. We have some - we believe in the concept of some - our way of serving our customers is different. Our model is different. So we don't think it's a [illegible] cost because the market is expanding, there's no question about that.

shah warriorEnvision Capital — analityk

It's ok sir. Thank you for accepting my questions.

Jaszowardhan SinhaPresident and CEO

Gracias.

Operator

Thank you. The next question comes from VP Capital's Vishal Prasad line. Please go ahead. Vishal Prasad, the line with you has been disconnected. You can continue with your question.

Vishal PrasadVice President Capital - Analyst

Hello. Can you hear me, sir?

Jaszowardhan SinhaPresident and CEO

So go ahead.

Vishal PrasadVice President Capital - Analyst

Alright. There were some problems. So Yashovardhan ji, it's very nice to see a Patna company doing so well. What is the revenue of our top five stores?

Jaszowardhan SinhaPresident and CEO

The first five, ours; we can talk to you in a moment. We usually don't disclose our store sales for obvious reasons.

Vishal PrasadVice President Capital - Analyst

Normal. I'll try to turn it off, sir. Thank you. And sir, the second question, I visited some of our stores and I saw TVs that cost INR 5-10 lakh. India is a cash driven market and Bihar even more so. So if someone comes in and wants to buy INR12 lakh TV by paying cash, do we entertain these customers?

Jaszowardhan SinhaPresident and CEO

No, how can we have fun? When it is mandatory for us, above INR 2 lakh we cannot get anything in cash. So they finance it. They get it by sending money to the bank through LBTR and other things.

Vishal PrasadVice President Capital - Analyst

GOOD.

Jaszowardhan SinhaPresident and CEO

Above INR 2 lakh we cannot - our billing system is registered. In fact, we are unable to invoice more than INR2 lakhs in cash.

Vishal PrasadVice President Capital - Analyst

Alright. So sir, I understand we never close shop. This is quite unusual for our industry. Could you talk about what helped us achieve 100% success in our stores?

Jaszowardhan SinhaPresident and CEO

Let me put it this way, there are two things. One of them is that we have also cemented our place in what I already said in my introductory remarks. We strengthen our position in the markets where we find business and do not give it competition. So - hello, hello.

Operator

Sir, we hear you. you can continue.

Jaszowardhan SinhaPresident and CEO

So, we never closed any stores because our locations were chosen very, very carefully. And as I said before, the demand is very high and the demand here is very high. The demand is also growing at such a fast rate. So maybe our choice of locations, territories is still very good, and otherwise they're under-penetrated markets. It really is a very satisfying and even wonderful feeling that we have not closed a single store from the beginning.

Vishal PrasadVice President Capital - Analyst

Sir, to take an example, I visited the Kulharia House [phonetic] store. I think it was probably in 2015, '16. Kankarbagh was doing pretty well at the time, and Kulharia wasn't doing so well. So my question to you is, you must have come across a scenario where a certain store is not working as expected. Since we haven't closed any of our stores, we needed to take some corrective action to help us increase sales at this particular store. Could you tell us about our approach to changing the store and maybe use a specific example?

Jaszowardhan SinhaPresident and CEO

I can say that it is very simple in this way, yes, all stores cannot work in the same way. But we also know that such a store must be profitable. Only then does it exist: vitality is also very necessary. Then what do we do? If we assume that some store is not working well, then we focus more on those stores and we focus on the main thing, it will be the human resources, the most important thing that I am going to say. That is why we understand that human resources are the most important thing. We train them, what's up, we take experienced people there. Sometimes we put a very experienced coach in there to see why he doesn't play as well and it's always paid off. As now, Kulharia is doing very well. What you said 15, 16, you said is that you thought Kulharia was not doing as well as Kankarbagh. He will never do as well as Kankarbagh. But Kulharia itself has improved a lot, where we have achieved very good sales growth.

Vishal PrasadVice President Capital - Analyst

Yes sir. And sir, last question so far most of the senior executive hires have been through the promoter group and promoter letters. So we're developing very aggressively and we're doing pretty well. Could you share your thoughts on building our senior leadership by bringing in professionals?

Jaszowardhan SinhaPresident and CEO

When we feel that there is such a requirement, then we will see, we will look at it, and we will not dismiss it. But when it is really necessary, we will.

Vishal PrasadVice President Capital - Analyst

So, sir, what is the division of roles between you and your directors? They are both on the board and work very closely with you.

Jaszowardhan SinhaPresident and CEO

You realize that I am the president, I do everything, including setting policies and so on. And there is a possibility that Prabhakar, who also runs the operations, is the director, the 24/7 director. And now Yosham has also joined the board to support the company.

Vishal PrasadVice President Capital - Analyst

Yes sir. Thank you.

Jaszowardhan SinhaPresident and CEO

Gracias.

Operator

[Operator Instructions] The next question is from the [Illegible] line of Rajmahal's reversal. Please go ahead. [Illegible] the line for you has been disabled. Continue your question. Because there is no response from the current participant in the queue. We will move on to the next question, which will come from the Ankush Agarwal lineage of [Illegible] Capital. Please go ahead.

Ankusz Agarwal— Analyst

Hello. Am I heard?

Operator

Yes, you are heard, sir.

Ankusz Agarwal— Analyst

Yes. Sir, just a clarification regarding accounting. So, have all of Grant Thornton's suggestions been implemented, or should more reclassifications be expected in the coming quarters?

Jaszowardhan SinhaPresident and CEO

No, no, they were all completed in FY23.

Ankusz Agarwal— Analyst

Alright. So, sir, any ideas about modernizing our accounting and auditing firms are more like the big four or the big five because now we're expanding and we've also become a multi-state firm. Do you have any idea about this?

Jaszowardhan SinhaPresident and CEO

Yes. We are: these are the things that we always keep in mind and we will make the right decisions when necessary.

Ankusz Agarwal— Analyst

Alright. But nothing to the point right now.

Jaszowardhan SinhaPresident and CEO

I said that we are considering all the options and we will make the right decision at the right time.

Ankusz Agarwal— Analyst

Alright. That's all, thanks. Thank you.

Operator

Thank you. The next question comes from the line of Krisha Kansara of Molecule Ventures. Please go ahead.

kryszna cancerMolecule Ventures — Analityk

Hola.

Jaszowardhan SinhaPresident and CEO

So.

kryszna cancerMolecule Ventures — Analityk

Yes. Sir, my first question is about the lawsuit. This is what has been said recently about the support of the lawsuit [illegible]. How do you complete an application when viewing [Illegible] from ground level? What kind of [Illegible] have you currently taken?

Jaszowardhan SinhaPresident and CEO

You mean that the demand for air conditioning is falling like you said. Can you speak clearly? You couldn't hear very well.

kryszna cancerMolecule Ventures — Analityk

Yes sir. I asked about the weakening of demand in the air conditioning segment. I just wanted to know your opinion on this.

Jaszowardhan SinhaPresident and CEO

There is, I will not say that there is a decrease in demand for air conditioning. What I will say that it was the non-seasonal rains; in fact, the peak of summer is here and the seasonal rains are approaching, which definitely dampens the spirit to buy a compressor. But even if that's the case, we think it will be: If the tariffs went into effect in March, then this year's summer will extend beyond June of this year. So we're very, pretty confident that we'll hit our goals for AC. And that's what we do: we take all aspects into account. In fact, we have demand from others. We also have programs such as cash back or a very good exchange policy. Let's go for a free installation. So we keep coming up with very easy financial terms and so on. So these are our [illegible] and will give us the result.

kryszna cancerMolecule Ventures — Analityk

Alright. Sir, I understand.

Jaszowardhan SinhaPresident and CEO

Actually, what I want to say is that the demand for air conditioning has not decreased, maybe some unseasonal rain or some seasonal reason may be there, but we are trying to deal with these unseasonal rain or let's say the weather as well for programs like finance. money back free installation full warranty, very good exchange. That's right, and actually all the OEMs have our back too.

kryszna cancerMolecule Ventures — Analityk

Yes sir. Sir, my next question is about entertainment, as we are now moving into new geographies, how much did our advertising cost for this quarter and for all of FY23?

Jaszowardhan SinhaPresident and CEO

In fiscal year 23, our advertising cost is approximately 0.8% of our sales.

kryszna cancerMolecule Ventures — Analityk

Yes sir. 0.8% of their sales. Hello?

Jaszowardhan SinhaPresident and CEO

0.8% will be - in fact, 0.8 to 1% of sales, which we also aim to achieve in the future.

kryszna cancerMolecule Ventures — Analityk

Alright. 0.8%, right sir?

Jaszowardhan SinhaPresident and CEO

In fact, from 0.8 to 1%.

kryszna cancerMolecule Ventures — Analityk

GOOD.

Operator

Sorry to interrupt, please come back to the queue for more questions. The next question comes from the Chirag Fialoke line of Shree RatnaTraya Capital Partners. Please go ahead.

Chirag FialokeShree RatnaTraya Capital Partners — Analityk

Hello. Good evening, Mr. Sinha, Yosham. Thank you for the opportunity. Congratulations on continuing with the implementation. I am very happy to see how things are going. My most sincere congratulations, sir. Just a question, I wanted to know a little more about the new stores that we are opening. And I can say that it will be very useful to compare some of the new stores with our existing old Bihar stores in four aspects. A medium store. Second, what kind of income potential do you see overall? They are similar? Third, in gross margins due to some sort of assortment difference or difference in pricing strategies in a new geographic location? And four, for rental expenses. So just compare the new and old stores in these four.

Jaszowardhan SinhaPresident and CEO

The sizing is definitely that we're now entering stores with a larger size compared to what we've had in the past. Secondly, revenue, of course, we have a very good response, as I have told you. And because it's a new store, revenue increases month-over-month, and even quarter-over-quarter or year-over-year. So we get a very good answer like this one thing.

So, and what gross margins, I'll say we are, actually getting the margins is something I would say as a basket. So the margins depend on where exactly you operate and in what competitive environment you run that store. It depends on. Management is very careful to keep secret how they operate when it comes to margins.

Finally, you asked for a rental. So rents are definitely on the rise and wherever we go we are good to experience high rents compared to what we had before in Bihar. But for such a long period our rents are almost comparable because rents have gone up everywhere. And, but I would still say that parts of India have low rents.

Chirag FialokeShree RatnaTraya Capital Partners — Analityk

Perfect. Thank you so much. Excellent. Thank you so much. Always a pleasure.

Jaszowardhan SinhaPresident and CEO

Gracias.

Operator

Thank you. Ladies and gentlemen, due to the positive weather, this was our last question for today. I would now like to turn the conference over to management for final comments. to mr.

Jaszowardhan SinhaPresident and CEO

Thank you. Yosham, can you close the forum?

Yosham VardhanDirector of Strategy and Corporate Planning

This shows that we have satisfactorily answered all your queries. If you have any unanswered questions, feel free to contact our RI agency, Go Advisors. They will be happy to help you further. Thank you so much.

Operator

[Final operator comments]

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