#Q3WithNDTVProfit | A Good Quarter For Go Fashion - video Dailymotion

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#GoFashion Q3 revenue up 15%, net profit down 4%   Watch Alex Mathew in conversation with ED & CEO Gautam Saraogi. #Q3WithNDTVProfit

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00:00 We are speaking with the management of GoFashions. We have got Gautam Sarogi, who is the ED and

00:05 Chief Executive Officer of the company joining in. Gautam, thanks so much for taking the time.

00:10 Top line growth quite significant in the quarter gone by 15 percent, EBITDA growth of 13 percent,

00:15 but the PAT has shrunk marginally and I think that is on account of a shrinkage of or contraction in

00:21 the EBITDA margin. Can you take us through the key highlights as they stood out to you?

00:26 Yeah, hi. Thanks for having me on the show. I think this has been a good quarter for us.

00:30 We reported a good top line growth of 15 percent on a YOY basis. In fact, this quarter, we have

00:35 also seen an increase in our gross margins. We have seen 100 to 150 increase in our gross margins.

00:40 However, our operating margins have taken a small hit this time around. That is largely because of

00:48 our same store sales growth being flattish. And because our same store sales growth has been

00:53 flattish, those costs in those historical stores have been slightly higher this quarter

00:58 as a percentage of revenue. And that is why we have seen our operating margins

01:03 taking a hit to the extent of 200 to 250 bps. What you are saying is that the new stores that

01:09 you are opening are effectively more efficient than the earlier stores? Is that how to understand

01:16 this? No, no, that is not the right way of looking at it. See, the new store, usually when we open a

01:23 new store, it goes through a maturity period. So, the new stores what we have opened during

01:29 this quarter have done fairly well. It is just that the historical stores what we have, have not

01:34 seen a big revenue jump on a YOY basis. It has been flattish. And that is why the costs in such

01:39 stores have been higher. Understood, understood. But there is quite a substantial increase in the

01:44 number of stores you are introducing as well. As I understand it, you are planning to add as many

01:50 as 120 to 130 every year. What is the kind of cost that you are setting aside to set this up? And

01:57 how many are you planning to open in the last quarter? So, see, our original plan for this

02:04 year was about 120 to 125 stores. We will be falling short of that a little. So, we would be

02:09 ending up with 100, 105 to 110 stores net additions this year. Last year, we had opened about 120,

02:17 125 stores. This, for a very long time, we have been opening 120 stores every year. We feel there

02:23 is a large runway for the number of stores we can add. Today, we are at about 700 stores. As a brand,

02:28 we see opportunity of having more than 1500 GoColor stores across the country. So, keeping that large

02:33 vision of number of stores in mind, I think 120 plus stores a year is a good healthy number for

02:38 us in terms of additions. You have explained why there was a bit of a contraction in the EBITDA

02:43 margin. But I am also curious about the finance costs, which on a year-on-year basis have risen

02:48 quite a bit. What explains that? See, this finance cost is nothing but actually rent.

02:57 See, according to India's 116 accounting standards, we need to show our rental expense as

03:01 depreciation and interest. So, effectively, there is no finance cost in the business because we are

03:07 having cash in the balance sheet. It is just that according to India's 116 accounting standards,

03:13 we have to show rent below the line in depreciation and interest.

03:17 Understood. Another factor is a 29% increase in the other expenses. What does that consist of,

03:24 Gautam? So, this other expenses has been largely because in quarter 3,

03:29 we had higher advertising spends in quarter 3 on a YOY basis. If I take a 9-months comparison,

03:36 last year 9-months comparison, our advertisement cost has actually been lower. But as an individual

03:41 quarter, we have spent a little higher on advertising in quarter 3.

03:44 Okay. Now, going back to the mix, and I see from your presentation that about

03:51 three quarters of your sales takes place through the stores that you open, and only less than 3%

03:57 is through online sales. Why is it such a small amount that is in online? And is this part of

04:03 the strategy going forward as well? Are you not going to be thrusting too much towards online?

04:09 No, no. See, online is a very important channel. And very rightly you asked. See,

04:12 we are seeing a more than 30% growth on a YOY basis in the online channel.

04:17 Currently, our online channel is very small because of the number of colors we are offering

04:21 in a product category. See, we are having more than 100+ colors. So, consumers find it very

04:25 difficult to identify and match those shades on a digital screen. But having said that,

04:32 the channel is growing very fast. Today, we are at probably at 3%. Maybe after 4-5 years from a

04:38 revenue mix perspective, online will be 7-8%. 7-8% but it's...

04:42 But offline would be largely our largest channel because of the kind of colors and product category

04:48 we are in. So, but I'm just trying to understand the scale of this, right? If you're saying 3%

04:53 right now of the sales mix, and it will maybe triple to the most that it can grow in 4-5 years,

05:00 but the base itself is going to grow, the pie itself is going to grow for you, right, the revenue.

05:04 So, I'm just trying to understand how that is going to progress. If you're adding about 100,

05:09 would you say another 100 stores next year? So, can you give me a perspective on how you expect

05:14 the sales growth to happen as well? Yeah, see, so next year also,

05:18 we're going to be adding 120+ stores next year. From a sales perspective, next year, we would be

05:24 looking at a 20%+ growth. See, usually if you take our last history of so many years,

05:30 we have been growing at 20%+ growth. This year, growth has been muted because the overall demand

05:36 and environment has been a little soft. So, on a long-term basis, we are going to continue to

05:40 grow at a 20%+ scale. And from a revenue mix perspective, today, our own stores are contributing

05:48 to about 73-74% of our business. In the long term, we see our own sales going up to about 85%,

05:58 online coming to about 6-7% and the balance would be the other channels.

06:01 Okay. This I'm talking from a longer

06:03 perspective, not short term. Any costs involved in ramping up

06:08 capacities at all or is this more or less going to be funded through what you have right now? Or

06:16 not funded but then the growth that you have, is it going to be based on what you have right now?

06:20 No, see, I think look, our business has been generating good operating cash flow.

06:25 I think this year, for the 9 months also, we have generated about 80-90% of our operating EBITDA,

06:32 we have converted into operating cash flow. So, our operating cash flow is very strong and is

06:38 good enough for us to support the expansion. We see over and above an expansion that we will

06:42 generate free cash. Fair point. Pleasure speaking with you,

06:47 Gautam and thanks for the insight that you have given us today and look forward, of course,

06:50 to talking to you at the end of the financial year as well.

#Q3WithNDTVProfit | A Good Quarter For Go Fashion

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