Shailesh Chaturvedi, MD & CEO, Arvind Fashions, says “the markets are behaving the way they were behaving in Q3 and we hope that we will continue to grow our offline channel at close to 10% growth. We have done a destocking in our B2B online wholesale business and that has led to a one-time sales drop and that may continue for a quarter or so. But overall, most of our channels are growing well and online, our marketplace model, that we call B2C model, is growing double this year over last year.”
It is a decent show when I look at Arvind Fashions individually. But when I compare it with the peers, you have reported muted numbers. Are you losing market share and what is the guidance going forward in terms of the business?
Shailesh Chaturvedi: If I look at our like-to-like growth in the offline world, it is probably on the higher side of the industry. We are at 2% and this is on the back of 12% like-to-like growth same quarter last year and previous quarter also 9%. So we believe our market position would have strengthened in this. Our offline channel which includes our retail plus department store plus MBO channel has grown at 11% in this quarter.
It is much higher than the industry growth rates where this was a muted quarter because of the cricket impact during the Diwali. And also then early US’s in the season. So we are pretty confident of our performance. Competently, our EBITDA growth has been 18%, our EBITDA margins have grown at 150 basis points. So this whole strategy of profitable growth is panning out for us currently.
Talking about consumer demand, the company has seen weak consumer sentiment despite festive season, as you also indicated. How do you see the sentiment on demand front improving or taking shape in the fourth quarter? Are you witnessing some revival?
Shailesh Chaturvedi: The markets are behaving the way they were behaving in Q3 and we hope that we will continue to grow our offline channel at close to 10% growth. We have done a destocking in our B2B online wholesale business and that has led to a one-time sales drop and that may continue for a quarter or so. But overall, most of our channels are growing well and online, our marketplace model, that we call B2C model, is growing double this year over last year. A lot of our channels are firing and we are doing a conscious destocking of our wholesale online B2B. So we hope and we believe that the trends will continue in Q4 as well.
The other trend that we witnessed in Q3 was margin expansion, partly on account of premiumisation and also, of course, lowering of discounts. Do you believe there is more scope for margin improvement going forward in this overall trend of premiumisation?
Shailesh Chaturvedi: EBITDA has grown in value by 18% and it has gone up by 150 basis points. So it is a very healthy and very encouraging margin profile and our guidance is to grow every year by 100 basis points. Now, this gain has come because of lower discounting. It has come because of better sourcing efficiency and it also comes because the right channel mix has grown and that is why our profitability has gone up. And most of these factors should continue in Q4 also.We are confident that our margin will sustain at the current level of 53.3% which is a sharp nearly 480 basis point improvement. And we strongly believe that it will continue in Q4 also. As far as premiumisation is concerned, we have seen a good traction that people are wanting more elevated, little more differentiated product and a lot of our brands, be it Tommy Hilfiger, Calvin Klein or the 1851 line of Arrow or the premium part of US Polo, they are all doing really well and they are doing higher growth and higher pull price sell through. So we will continue to push the agenda on premiumisation and that will be a reason for our better than industry growth rates and better than industry improvement in margin.Your company has set a target of about 20% on your ROCE going forward. What is the key strategy to achieve and what are the levers are you talking about which will contribute to 20% plus kind of ROCE?
Shailesh Chaturvedi: Our strategy is profitable growth. We have always opted for profitability over revenue growth if required. That is leading to such a large increase in our margin. Our EBITDA has grown 18% by 150 basis points in this quarter and that increase in the profitability will continue. We have also been very, very tight on the balance sheet for this quarter also.
So further five days reduction in our gross working capital, debtors came down by seven days. We consumed more than Rs 200 crore inventory in this quarter. So overall, if you look at the numerator, the profitability, the margin going up and also very tight control on working capital, the sum total of the two will be basically an increased ROCE and we have gone now more than 15%. And with further improvement in our sales and margin and tight control on working capital, we are hoping that we will be in the medium term crossing ROCE of more than 20%.
