Nissan Joseph, CEO, Metro Brands, says “the fortunate thing we have is in India the population and the growth is so much that it is really not a zero sum game where I can’t grow as competition opens up. It really is an end game where we can all grow. It is a matter of us being available for consumers in markets, in real estate that is accessible and exciting for our consumers.”
Let us just discuss the kind of revenue growth momentum that we have seen, because in Q1, no doubt it has been a bit subdued. What is the demand trend really looking like?
First of all, Q1 was subdued and it is not a fair comparison. It really was a normalisation quarter. In the previous year, there was so much pent-up demand, wardrobe refreshes, and not so much pressure on the discretionary dollar or the discretionary rupee on spent expenditures. Today, air travel is up big, restaurants are up big, vacations are up big. So the discretionary dollar is being spent in more ways than it was spent last year. That is normal. So it really was a normalisation quarter. We really did not see the subdued demand, although we did know we were lapping those numbers from the previous quarter that demand trend has continued for us. We saw growth in premiumisation products that were over Rs 3000 that climbed up to an all-time high of 44% for us and so that is one factor that we are looking at. We continue to see good demand across the sectors that we sell in.
The other thing is we also know that coming into the festival season, in the October period, a lot of the weddings that did not happen in Q1 now have auspicious dates in the October season. So we are seeing that as a condensation of wedding season dates and festival dates coming into October-November with Diwali, of course so that also bodes well for retail in general.
Underscoring all of that, of course, is the premiumisation in India. The amount of consumption that goes on and bigger screen TVs than before, bigger cars than before, better scotch liquors than before. That trend continues and we see that also in our business. The good news, however, is also we are seeing it across categories and price points. So it is not just driven by a particular price point or a particular agenda or a particular category. Overall we feel good about the robustness and the spread of the demand.
We are seeing a lot of consumers shift to the higher end, people willing to spend. But at the same time, the margin picture did not quite spell out this healthy projection of demand. I just want to understand, what really hurt your margins in Q1? Do you think that a 30% EBITDA margin is achievable for FY24?
Yes. We have always guided with confidence about a couple of numbers there. One is that we would have our gross margins in the 55% to 57% range. It might blip up. Sometimes it might blip down. Q1 blips up a little bit. Q2 blips down simply because of the end of season sale. But overall, we are very confident that we will achieve 55% to 57% gross margins.
In line with that, we would have EBITDAs north of 30%. I am quite confident that we would continue to have EBITDAs north of 30%. Do not forget, we also have the Cravatex acquisition that in the first four quarters of the combination and consolidation of those numbers, it is going to have a negative impact on some of our numbers. But overall, the business is very stable and very sound.
How is the demand in tier two and three cities because when it comes to tier one cities and metros, clearly the tilt towards premiumisation is evident but is that the case in the smaller towns too?
The portion of people that buy premium products is substantially lower in a tier two town. We know that once you have that base locked in, then we look at the growth over that base. And, we do not see any less demands going on. In fact, one of my colleagues made a comment that their family would not buy a luxury car in one of these tier three towns because they could not get it serviced. Notice it was not because they could not afford it right.
So, it is evident to us that the premiumisation of India, the aspiration for better brands globally is across the tiers. And thanks to the Internet and thanks to the proliferation of mobile phones across tier ones to tier four cities. Our consumers in our sector are very aware of what the global trends are and have the same aspirations as people in tier one cities. They are just not as many of them, but they still have the same aspirations.
Absolutely. But tell me what happens to your market share in the times to come because along with an increased tilt towards that aspiration that you rightly highlighted and across the board, there is also increased competition because there is room for many?
I think competition is always good because it increases the size of the market. It increases the awareness of your products and the awareness of better products for consumers to have right. So overall, competition in our industry, as a country is much needed because it validates the sector.
It creates high streets, it creates malls and these are all shopping places and avenues which create more shoppers in the long run right. So in a tier three town, if a high street became vibrant because there was a proliferation of global brands going in there with stores, that is really good for all of us and, the fortunate thing we have is in India the population and the growth is so much that it is really not a zero sum game where I can’t grow as competition opens up. It really is an end game where we can all grow. It is a matter of us being available for consumers in markets, in real estate that is accessible and exciting for our consumers.
In Fila, what is the current status? How much of the inventory has been liquidated and when will the new collection launch?
We are still through the process of working through the clean-up of inventory as we have guided. We think it is going to take a good three to four quarters since acquisition. We are finishing up our second quarter roughly of the acquisition. So we know that this year it is going to be a clean-up year. You know, next year is going to be resetting the brand and third year is the acceleration plan. So it is going to continue to be a little bit of a drag on us. Having said that though, I think we are also starting to see some exciting things happening with the brand as we look to the spring summer season that we believe that we will start setting the pace for the brand in the right way.
I wanted to know how e-commerce is shaping up for you. What is your average selling price? Is it margin accretive? Are you seeing traction there?
Yes, the e-commerce business is on pace. We had a great 60% growth last quarter in our e-commerce and that continues and we are excited about it. It also has come at a time when brick and mortar has come alive. So we are not seeing a cannibalistic effect or a trade-off effect. People are not buying in brick and mortar instead of e-com. They are buying both places which is always good.
The margins of e-commerce are distinctly different from the rest of our business. In India, specifically that the e-commerce space is a discount space and that is why we have never really pushed that pedal really hard because it is not really much of a full price game as we would like. We do like the omni-channel business that we do. And it is 25% of our digital sales. We love that business because it is full price. But it is still a discount seeker.
Having said that, though we are distorting a lot of investments into the digital space, not because we want it to be about e-commerce but we also know that the consumer is going to start their journey on digital and then end it in an offline era, especially when it comes to shoes. Shoes are really hard to buy online because the fit does not have much tolerance compared to a shirt. You can wear a shirt a little loose. You cannot wear a shoe a little loose or a little tight.
But at the same time, we understand that the consumer is digitally savvy and wants to start the journey of the digital space which is why we distort and have focused our investments to ensure that we are digitally savvy when a consumer comes looking for Metro brands.
