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Barbeque Nation Hospitality Ltd. (BARBEQUE) Q4 2021 Earnings Call Transcript

BARBEQUE Earnings Call - Final Transcript

Barbeque Nation Hospitality Ltd. (NYSE: BARBEQUE) Q4 2021 earnings call dated May. 24, 2021

Corporate Participants:

Kayum Dhanani — Managing Director

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Amit Betala — Chief Financial Officer

Kushal Budhia — Head of Strategy and Investor Relations

Analysts:

Percy Panthaki — IIFL Securities Limited — Analyst

Manoj Menon — ICICI Securities — Analyst

Avi Mehta — Macquarie Group — Analyst

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Prakash Kapadia — Anived Portfolio Managers Pvt Ltd — Analyst

Anand Shah — Axis Capital — Analyst

Shirish Pardeshi — Centrum Capital — Analyst

Manish Dhariwal — Fiducia Capital Advisors — Analyst

Ashish Kanodia — Ambit Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Barbeque Nation Hospitality Q4 FY ’21 Conference Call hosted by IIFL Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Percy Panthaki from IIFL Securities Limited. Thank you and over to you, sir.

Percy Panthaki — IIFL Securities Limited — Analyst

Hi. Good evening, everyone, and welcome to this maiden conference call of Barbeque Nation. It’s my pleasure to host that. On today’s call we have with us Mr. Kayum Dhanani, Managing Director; Mr. Rahul Agrawal, CEO; Mr. Amit Betala, CFO; and Mr. Kushal Budhia, Head of Strategy, IR and Business Development. Mr. Dhanani will provide us with an overview of the performance and key events followed by a detailed discussion on financial performance by Mr. Agrawal. And then we will open the floor for Q&A session.

I would like to hand over now to Mr. Dhanani for his opening remarks. Thank you and over to you, sir.

Kayum Dhanani — Managing Director

Thank you very much. Good evening to all and welcome to the first earnings call of Barbeque Nation. Hope you and your family, loved ones are safe and healthy. As you all know FY ’21 was a challenging year, but also a year of lot of learnings, resilience and strength. Barbeque Nation had a difficult start for the year due to pandemic-related nationwide lockdowns. In fact, multiple lockdowns in multiple cities.

As you are aware that for the significant part of quarter one FY ’21 all — literally all economic activities, including restaurants, were completely closed, followed by a gradual reopening of the business. At the beginning of the FY ’21, our business model was –predominantly dining and delivery sales were very limited which had an impact on our cash flows and liquidity position. However, the strength of our brand and resilience of our team ensured a robust recovery for the business. We are pleased to announce that in the last quarter of the financial year we recorded a revenue growth of 19% on year-on-year basis. During the year, we emphasized on adding delivery as a new line of business, a new channel of business, on top of our dining business. We focused on product menu and delivery experience. We pioneered in launch of yet another innovative product Barbeque-in-a-Box to cater to the growing delivery segment. And the initial response from the — for the Barbeque-in-a-Box has been very encouraging and it is continuous — in continuation to our brand efforts for value, variety and celebration. We have been able to enhance our growth prospects by creating new channels and increasing our digital reach to enable our consumers to consume our offerings to multiple mediums. Launch of Barbeque-in-a-Box and offering deliveries through our own app have been some of the initiatives taken by our team. The organization has also demonstrated agility in managing its cost, which is very paramount in such testing times and was successful in cost optimization across many levels. A long-term relationship with our landlords and vendors have led to obtaining rental waivers and restructuring of vendor contracts to compensate for the slowdown in the general business sentiments. And I must say that everyone has been very cooperative because of our long-standing relationship with all the vendors. The recovery in dining business coupled with our focus on growing delivery business enabled us to restrict operating losses for the year to only INR5 crores. We are happy that despite the challenging external operating environment, we were successful in completing a capital raise of rupees INR330 crores and are thankful to our investors for their trust and belief in the brand and our organization. Our strategy focus on growing the delivery channel and strong balance sheet will help us overcome the short-term challenges posed by the second wave of the pandemic. We are ensuring that our employees are safe and also closely working towards vaccinating all our employees as an organization. This was an unexpected unusual year and we had to close three restaurants in the first half of the year which was a first in the history of Barbeque Nation in India. However, we opened three restaurants during this — during this year — within the year. And as a result of our store count remain unchanged at 164 restaurants.

Various strategic initiatives undertaken during the year coupled with our stronger positioning compared to the last year gives us the confidence to continue our growth momentum. We plan to open 20 new restaurants during the FY ’22 and further enhance our footprint.

I will now hand over for more details to Rahul who will take you through the performance of Q4 for FY’21. Over to you, Ralph.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Thank you, Kayum. Good evening all and hope you and your family are safe and healthy. With reopening of economic activities and easing out restrictions in H2 of the financial year we have seen robust revival of our operating performance. In addition, improvement in customer confidence helped us to restore month-on-month increase in sales from both dining and delivery channels.

Our consolidated revenue from operations were INR226 crores in quarter four FY ’21, an increase of 18.5% over quarter four in the previous year. Delivery channel has grown approximately six times in quarter four versus previous year. The delivery channel continued to grow even after the recovery of our dining business which was very encouraging. We continue to focus on further growing the delivery business and plan to go it to two times in FY ’22.

Our consolidated gross margins were 66.6% for quarter four FY ’21, an improvement of 100 basis points compared to the previous quarter. This improvement was driven by recovery in the dining business and increased efficiency of the booking leading to reduction in food wastages. Our consolidated restaurant operating margins increased from 9.7% in quarter four last year to 20.5% in quarter four this year. The improvement was on account of strong sales recovery, higher gross margins and various other cost optimization measures undertaken by the Company. Our international business has stabilized now and have reported double-digits operating EBITDA margins in quarter four FY ’21. This is without INDAS 116 impact. [Indecipherable] also continues to deliver double-digit operating EBITDA margins again without INDAS 116 impact. The reported EBITDA was INR56.1 crores in quarter four FY ’21 versus INR24.6 crores in quarter four FY ’20. The operating EBITDA without the impact of INDAS 116 was INR31.3 crores in quarter four versus INR2.1 crores in quarter four of the previous year, thereby reporting strong growth. We reported adjusted profit after tax of INR9.2 crores in quarter four FY ’21. Cash flow from operations continues to be strong in quarter four and with the capital raise in April 2021 and repayment of debt, the drag on cash profits from interest expense will reduce.

We continue to remain focused on investment in our own digital platform covering reservation, delivery and loyalty. The share of business coming from our own digital platforms increased from 20.1% in quarter four FY ’20 to 24.7% as on quarter four FY ’21. Our loyalty program Smiles has grown significant acceptance and traction from our customers. With the onset of second wave of COVID-19, subsequent lockdowns and temporary store closures, our dining channel in the current ongoing quarter has been impacted. However, we remain optimistic of a strong and positive recovery in subsequent quarters. We also remain committed undeterred focus on guest and employee safety. We will continue to focus on our cost optimization, growing our delivery channel and further enhancing the core Barbeque Nation brand with 20 new store openings in FY ’22.

With that I hand over this to the moderator for questions and answers. Thank you.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Manoj Menon from ICICI Securities. Please go ahead.

Manoj Menon — ICICI Securities — Analyst

Hi, team. It’s been great to listen to the presentation. Congratulations on a good IPO and it’s great to reconnect after a long time. So I’ve only a couple of questions to begin with. One, just maybe I missed the first minute or two, if at all, sorry for that. Just wanted to understand a little more about the BBQ-in-a-Box concept, which has been an absolute stunner as a consumer. What are the — let’s say, what’s your medium-term on that if I take a three, five-year view, where it could kind of stabilize and what are the good and bad part of the BBQ-in-a-Box? So that’s one.

The second aspect is when I think about the margins in the medium term, one mathematical question is the way you look at it, what is the minimum SSD needed to ensure that your margins are stable?

Kayum Dhanani — Managing Director

So I will take that or you’re taking that?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yeah. Yes, yes. Please.

Manoj Menon — ICICI Securities — Analyst

Okay. So — hi, Manoj. On that Barbeque-in-a-Box, this is a concept that we launched in June 2020 during —

Operator

Hello, sir. Your voice is not audible.

Kayum Dhanani — Managing Director

Hi. Can you hear me now?

Operator

Yes, sir. You may go ahead. Thank you.

Kayum Dhanani — Managing Director

Okay. So the concept of Barbeque Nation — Barbeque-in-a-Box is very similar to Barbeque Nation’s concept of providing value, variety and experience. Barbeque Nation — Barbeque-in-a-Box is an assembly of a good set of starters, desserts, main course, biryanis, and we still strive to cater to the celebration segment of our consumer needs in the delivery segment. And we have seen that they are done pretty similar to our dine-in business. So overall that business contributes to almost 60% to 70% of our revenues from our delivery business. And as the — as we try and increase our presence across the country these sales point will also grow. We are also exploring whether we can take this outside of our core Barbeque Nation brand with some extension kitchens and further increase that. Delivery also is a larger market and right now I think we have just entered it very recently. And the growth numbers that we’re at least expecting this is going to be very good.

In terms of your second question on margin profile, so you will see that over last three years we have been opening almost 25 to 28 outlets every year, which is approximately 25% of our existing base. And these stores mature pretty much in two to three years and so if you look at FY ’19, FY ’20 some of these stores are still maturing. They were putting some pressure on our margins. And then subsequently obviously COVID event happened. On a normalized basis, I expect that margins at store level should be between 22% to 23% and the back end cost drag should not be more than 5%, 5% to at the max 6%. And overall increasing the margin profile from current around 13.5%, 14% to at least 15% should not be a challenge. And if you look at our cohort of older stores, they continue to report that margin profile.

Also delivery is incremental to us. Delivery business doesn’t cannibalize our existing dining business. We’ve not seen that over last so many months now. And we expect that everything beyond gross margin and contribution margin, there’s a lot of variable costs there, including your packaging and your commissions that you pay to aggregators plus your own delivery fleet. But even apart from that, the margins are accretive. So with that, at least, we expect it to be — the margins overall to increase by at least 100 bps to 150 bps going forward. And this is obviously in a normalized state. Right now you will also see a lot of noise around because of COVID shutdowns, lockdowns, multiple things still being there.

Manoj Menon — ICICI Securities — Analyst

Understood. And one follow-up and that’s the last one and I will come back in the queue. About the Barbeque-in-a-Box concept, which has been, as I said, an absolute stunner as an analyst or as a consumer when I think about it. I never really thought a few years back that if there is a possibility of something like this. What I’m just — the only one thing which to the extent you may be able to comment in a public call given the competitive sensitive nature, but I still go ahead and ask this question. I leave the option of responding or not responding to you. What I’m trying to understand is the sort of cohorts or the consumers who actually would have used the BBQ-in-a-Box concept in the last, let’s say, year, what proportion of them would be your current set of consumers? What I am trying to understand is is there a genuine case of, let’s say, awareness higher than availability, which is driving growth or how do you look at this?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

It’s very difficult to answer that question because some of our deliveries also happen to aggregators and there is data masking there. But in general our empirical belief is that most of the consumers who have tried us are our loyal customers. We’re also seeing increasing orders coming from our own app on the delivery platform as more and more people are getting aware about that. I think awareness is one which obviously is clearly improving. But the other thing also is the distribution point. So if you look at metro markets like Bombay or Delhi, this is also restricted because of the fact that we only have between 15 to 17 outlets in these cities and the other delivery points. And we are trying to also ensure that some of the larger markets like metro markets, how can we further have more point of sales and add extension kitchens which will help in giving that growth that should come in. Otherwise, I think while the numbers are growing well, I still see that the delivery market is pretty big and also most importantly the Indian cuisine market is among the largest, right. And we operate in that. So going forward, at least we are excited to tap this opportunity here.

Kayum Dhanani — Managing Director

Just one more point Rahul, just to add to Rahul, the Barbeque-in-a-Boxis also addressing one more point for us, is the acquisition of a customer. You see a lot of — if you have experienced Barbeque-in-a-Box you would notice families — typically families order Barbeque-in-a-Box where a family of six people will order only three boxes because the food is so abundant in that box that the cost per person becomes quite viable. So the people who generally are also not able to come to restaurant because it’s very — it’s expensive, for them it works for us as a consumer acquisition. So people, then they will start consuming Barbeque Nation and then they will start coming to the restaurant. So it’s a good — it will create a good pipeline of new consumer for us, that it works for us that way as well.

Manoj Menon — ICICI Securities — Analyst

Very clear. I’ll come back in, sir. Thank you.

Operator

Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie Group — Analyst

Hello. Hi, Kayum. Hi, Rahul. I just had two questions. First, essentially is on the — one of the strengths that you have is the ability to get customer feedback through — at the dine-in or the post dining follow-ups. How do you kind of replicate this in the delivery in a box while I kind of agree that it’s a great concept? It kind of gives us another leg for growth. I just wanted to understand how do you look at that aspect.

And second was essentially on the 20 store — restaurant additions that you are planning. Could you give us some more color on, A, that is in existing or new cities and B, are you kind of rethinking on the store design? That’s all from my side. Thank you.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Sorry. I had missed something. Did you ask that how do you collect feedback on delivery?

Avi Mehta — Macquarie Group — Analyst

Yeah. I mean, see you do a lot of work on that, right. I mean, I just wanted to know how does the call center get used or is it — how do you kind of use that strength to sustain or spread that — one of the things is you have a lot of word of mouth spread that happens. How does that work in the box concept and how do you kind of get the feedback to ensure that it kind of generates a positive feedback loop going forward as well?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

So it’s evolving. And if you look at it it’s a pretty young product, not even one-year old. And the organizational DNA has been always dine-in, right. And delivery business is slightly different and we are ensuring that on a daily basis we work towards that to improve on the experience of our customer be it in terms of value, variety, quality everything, right. And in terms of the feedback, like I said a large — a substantial portion of these businesses now also being driven from our own app, which gives us access to immediate feedback, which gives us even in those orders we are now doing almost 50% of calls to those customers so that we get as much variety of feedback as possible. You would remember that we only do 20% of transaction calls in our dine-in business but as of now in this business we’re doing 50% of the calls. And as and when we are getting more and more feedback across the country, we are incorporating that in our daily operations.

In terms of new store expansions, like they have always maintained for us signing a restaurant deal with the right rental is more important than just ensuring that we have to be in that market. We work with that strategy. As of now like we’ve also discussed in the past we believe that our penetration in metro markets is still very low, right, in a place like NCR, Delhi, Bombay, Bangalore, we still are in double digits — early double-digit numbers, right, between 13 to 15,17 stores. And some of the markets which are already there which we have not gone in the past because of substantially higher rentals, right now we are seeing that at least these rental deals are softening. And given that the restaurant industry in particular has suffered a lot and lot of landlords are also very reasonable in their expectations, which helps us to give and look at some of these markets. So if I had to put a number and this may be completely off because it also depends on what set of final negotiations they do, but my feeling is that out of 20 new stores that we are looking to open, at least 50% to 60% of these will come in metro markets and the balance will come in tier 1, tier 2 markets.

Avi Mehta — Macquarie Group — Analyst

Okay. Okay. And if I may, Rahul, just one bit is we are essentially in a very uncertain kind of — from a demand point of view. I mean, I would love to kind of get your kind of view on how you look at it. But how do you look at restaurant openings now? The point I was trying to get to is I understand the margin trajectory a little more because you will have to do it differently across different stores. So what is the underlying part on cost control versus reopening? How do you kind of work on that balance? And what is the margin trajectory that you would look — you would kind of aim for as we go forward? If you could kind of give us some sense, that’s all from my side. Thank you.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Look, short term is going to be extremely challenging and uncertain because it’s very difficult for anybody to predict how the economy will reopen in various states. And now the nature of lockdown has been more district wise and state-wise. So it’s actually very difficult to plan, but we have done that in the previous year. And two major costs that you have to look at is your — is the lease cost and your manpower cost. And we have a very close eye on this and we are trying to also optimize that and making it as much as — as much variable as possible in the current year also like we did in last year. Right. And likely saw in the last year, quarter one, quarter two, margin percentage in numbers are actually not meaningful to talk about. But what’s important to see is that as the business started to shape up in H2 of last year, be it quarter three and by February last year we had actually [Indecipherable] what we did in February previous year despite the fact that this year February was one day less, which is almost 3% of your total February top line, right. So we are hopeful that this should happen even this quarter, even this year and post I think quarter one and hopefully if by June end cases go down and selectively some of the states start opening up and give us permission to start our dine business, I think that recovery should help us to build it. But in nutshell, I mean it’s very difficult to predict short term —

Avi Mehta — Macquarie Group — Analyst

No, I just kind of appreciate that. Thank you very much, Rahul.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Thanks a lot.

Operator

Thank you. The next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead.

Percy Panthaki — IIFL Securities Limited — Analyst

Hi, Rahul. Just wanted you to address one of the concerns in the investment community regarding cannibalization between dine-in and your delivery business. So if you can just give some data to sort of show us how the dine-in versus the delivery sort of business has trended over the last couple of quarters. Like this quarter you did INR28.5 crores of delivery. How much was that number in Q3, if you could give us an idea? And then sort of the purpose of this question is to just figure out that as the dine-in proportion has increased and all the restrictions have gone away and in Q4 you are close to normal in terms of dine-in, did the delivery business go down as people sort of went to the restaurant and therefore they did not need to get their home delivery?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yeah. Hi. Can you hear me?

Percy Panthaki — IIFL Securities Limited — Analyst

Yeah, yeah.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Hello. Hello.

Operator

Yes, sir, we can hear you. Please go ahead, sir.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Okay. Great. Yeah. So — we have not seen any sort of cannibalization between dine and delivery business. Between quarter three and quarter four, obviously our dine-in business has grown and so has our delivery business. And fundamentally, my view is that it is from Barbeque Nation. Dining in Barbeque Nation is a very experiential concept. You come and have obviously great value, you don’t consummate alone, you come and celebrate something. And I think whatever you might say a lot of our consumers and guests, they want to celebrate it in Barbeque Nation because of the overall experience that they get, be it from light bill or be it from the live counters or be it unlimited options that they get and obviously service that they get, right. And that I don’t think can be compensated by delivery business. Delivery serves a different need which is convenience. And that’s what we have been now trying to tap. And if you look at — look at our growth at the level that we are in, I think the base is pretty small as compared to what the market has to offer. So I’m not particularly worried about any cannibalization happening between the two businesses. In fact, as we were discussing in the earlier part of the call, we are now seeing how to increase our presence in the market so that we can tap the opportunity more, which is what the focus would be.

Percy Panthaki — IIFL Securities Limited — Analyst

So Rahul for Q4 your dine-in was — sorry, your delivery was about 12%, 13% of your sales. So, in a normal situation going ahead, let’s say, assuming no restrictions on dining, etc. once COVID is over, where do you expect this percentage to stabilize, your delivery as a percentage of your total sales?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Frankly we don’t look at it that way. What we look at is delivery is a big market and like we have also mentioned and Kayum also just mentioned, we will target to grow delivery business almost two times at least this year. Dine-in business has still not recovered to obviously its pre-COVID levels, right. And that will depend on how the lockdown rules are relaxed. But in long term what we are seeing is, how can you increase the ADS which is average daily sales per restaurant from the delivery business. So we actually don’t look at this percentage. This percentage, if you look at quarter one was almost 80%, then quarter three this number came to around 15%, quarter four because of recovery in delivery business, dine-in business had went up to around 13%. But what is important is that this segment should continue to grow and my belief is that given that the base is still lower, this will grow on an annual basis at least definitely more than the banking business.

Percy Panthaki — IIFL Securities Limited — Analyst

Right. So you mentioned ADS and I’m also coming from the same perspective. So how we analysts look at it is total sales per restaurant on a yearly basis which pre-COVID would have been somewhere close to INR6 crore, not exactly, but somewhere in that region. Maybe a little lower than INR6 crores. Now if I add this 12% to 14% kind of contribution from delivery as an extra, assuming that there is no cannibalization from dine-in then we would reach closer to INR7 crores per restaurant. So is this thought process in the correct direction? I mean, logically speaking what I’m saying, does it make sense?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yes. So if you’re only taking it 15%, 16% on a stabilized basis, I think we should be able to do that. We have done that in the previous quarters also. Yes, that’s the right path. [Phonetic]

Percy Panthaki — IIFL Securities Limited — Analyst

Okay. That’s all for me, Rahul. Thanks.

Operator

Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Hi. Thanks for the opportunity. So my question is also slightly an extension of the earlier questions. So like in many businesses we have seen in the last year that many tactical measures led to structural insights and then perhaps re-managing the whole business again. And then you alluded also that DNA wise you are more of a dine-n organization then a delivery.

So once things normalize, how do we plan to rationalize the bandwidth on capital to chase, or accommodate both the formats, or it will be back to dine-in as a priority and delivery will be the paradigm measure of a growth?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

No, that’s not the way we are looking at it. Obviously, we are looking at a much detailed both management bandwidth and time on the delivery business. And that’s also because our dine-in business is pretty stable, have been around for 15 years. Over last five years we have added store count at a CAGR of almost 23 percentage, 24 percentage. So that’s a business that we are, I think, very comfortable with. Obviously it has short-term challenges because of COVID, but we don’t get — I think the market opportunity is still large and we will continue to focus on that. On top of that, our store network of almost 115 that’s complete today is also an added advantage right now, right. And that’s what we want to leverage more to add on on delivery opportunity. So if the question is, will the focus go away. No, absolutely not. This particular business we have been able to add without practically zero capital investment, right. And it is incremental to us, both in terms of asset turn and also in terms of incremental absolute EBITDA being added to the stores. And also most importantly the direction of the market also is moving towards that, right. So not to say that dine-in will not grow but delivery is growing very well. And given that we’re one of the leading players in this industry, we would like to capitalize on that. And that’s one of our strengths also.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Yeah. And second, usually we have seen in dine-in outlets versus delivery that the catchment area of both the formats are slightly different, obviously delivery being higher or wider. So does it mean that our store expansion plan in light of this new capability that we are developing will be relooked? And obviously again our store outlet or the layout, the way we design our store size, we need to actually recalibrate the same accommodating both delivery and dining options.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

On the catchment side, we have — pre-COVID we have experienced that our guests doesn’t want to come to a restaurant if it is beyond 15 minutes of your value time, right. And the reason being that they typically spend almost 1.5 hours in the restaurant. And overall, they don’t want to spend more than 2 hours, be it our corporate clients or be it our friends and family clients, right. So I think with the — and these are all pre-COVID scenarios. With a great traffic, we’ve seen that the catchment area for the brand is approximately within 5 kilometers radius of that present location, which means that, at least in metro markets we have much, much more opportunities coming on phase to expand. So — and that continues. Obviously how things shape up post COVID, our expansion in that will continue in the same direction as previously.

In terms of store layout, obviously, once you have to look at dine-in and if that numbers are growing. We are making changes in our back-end restaurant operations so that they are dedicated space for delivery, which is very convenient from the store operating team perspective. So those changes are already being done in a few of the restaurants and in the — and has already been completed in the new designs in all our new feature restaurants.

Tejas Shah — Spark Capital Advisors (India) Private Limited — Analyst

Great. Thanks and all the best.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Thank you.

Operator

Thank you. The next question is from the line of Susmit Patodia from Motilal Oswal Asset Management Company. Please go ahead.

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Hi. Good evening, everyone, and congratulations on a good quarter, Rahul. My first question is, you’ve mentioned that your net debt is still INR11 crores. I am sorry, I didn’t understand that because if you could explain that, your net debt was INR230 crores in FY ’20. You did a INR320 crore raise. And —

Operator

Sorry to interrupt Mr. Patodia. This is the conference operator. There is airy disturbance coming from your line, sir.

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Airy disturbance. [Indecipherable]

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Okay. Please go ahead.

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Yeah. If you could explain the debt number because I thought you should have been a net cash company bye now.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yeah. Amit do you want to take that?

Amit Betala — Chief Financial Officer

Sure, Rahul. Okay. So we have raised an IPO of around INR180 crores and we have raised another pre-IPO of INR150 cores. So total was INR330, right. We had a debt of around INR250 crores on a consolidated basis as on March 20, right and the proceeds we’re going to utilize, I believe that we could pay down a large amount of debt and would be left with debt of around INR35 crores.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

So, sorry, Susmit, I think I’ll try and explain it differently. Yes, we raised around INR330-odd crores. Out of that broadly there were issue expenditures also which would be to the tune of around INR15 crores. So that’s around INR315-odd crores. And then last year there were interest expenditures of approximately I think INR30-odd crores give or take couple of crores. So you should reduce that from this, which is INR285 crores. There was the operating loss net of around around INR5 crores, which was INR280 cores. And then we have another — sorry, capex done previous year of approximately INR15 odd crores. So that’s around INR265 crores. And we have reported — as Amit said the number was INR250 crores as on — as of March, right, of debt including other working capital lines that were drawn post — I think post November. So overall, that’s how INR12 crores net number comes into the books.

Kushal Budhia — Head of Strategy and Investor Relations

Susmit, this is Kushal here. Just one more thing was that the IPO money which was INR180 crores had come in April and the number that you’re looking at end of March ’21, right. So INR150 crores of the IPO there which is sitting on 31st March and the remaining —

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

So today — okay, okay, got it. So today you would be a net cash company?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yes.

Kushal Budhia — Head of Strategy and Investor Relations

Yeah.

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Got it. Got it. Yeah, yeah, okay, got it. Sorry, so that’s my mistake. Okay. The second question, Rahul, is your operating cash flow after subtracting lease payments was a small positive or close to zero for FY ’21 which is a top line of INR500 crores. So is that the new cash breakeven for the Company?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

It’s very difficult to look at that in that manner because some of these also include some of the one-time levers that we received from our landlord partners, right. And also on the employee cost there is some sort of lag effect in terms of when the restaurant gets shut downs and when you could also change it to a variable sort of structure, right. So broadly if you ask me cumulatively for the full year, we see — if we do say INR500 — same dine-in business, I’ll say, an incremental delivery business that we were doing right now, it should be positive at the overall level and we should not be losing any operating cash last year, like we did in FY ’21.

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Okay. And my last question is you have a bold target of doubling delivery revenue this year. Is this — what would be the drivers, menu expansion, geography expansion what are the drivers here, if you could just give us?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Right now I think it is the increasing penetration in the existing markets itself which is delivery from all our 50 channels. On a run rate basis we have done in quarter four almost INR30-odd crores right, so that itself annualizes INR120 crores. And we have been — we are only saying INR150 crores, which is nothing but 25% growth on the annualized number that we did in quarter four, right. So that 25% growth in average daily sales from existing market itself is doable, very well. And then we are also exploring how we can further expand our point-of-sales for delivery business, which can be supported by the main Barbeque Nation outlet. So with that, I think we should be able to achieve what we are looking at.

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Got it. Okay. So no menu expansion and you can just do it with this current offering to get to that INR150 cores?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yes. I believe so.

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Okay.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

And while we keep working on some of the menus right, and in some cases we keep testing some in some part of the country and not in pan-India. So that’s a continuous exercise. So on the Back Box product. I think it has stabilized now. And right now we are not looking at expanding that. It doesn’t make sense. It is deferred doing where you want to grow in the existing offering itself. But on a daily basis actually various menu research and it keep going on. But as of now, if you ask me, I would not — I have not taken that into account for the target of two extra weeks that just come out and given the outlook for.

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Okay, got it. And just my last question if I may, there is a cash inflow of INR5 crores at liabilities towards selling shareholders. If you could just explain that, please.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

This is as on March, right?

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Yeah, yeah, yeah.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Okay. Amit, go on.

Amit Betala — Chief Financial Officer

So this is nothing but — so this is the money which was lying in our anchor account, right, because we got the money from the public — in a public offer account on April 7. [Indecipherable] So there is nothing but the shareholders money.

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Okay. Thank you. Thank you very much.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Sorry.

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Go ahead. Go ahead, Rahul.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Frankly we completed our IPO between the two financial years, right. So that’s why [Indecipherable].

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

Yeah. Such a lot of confusion.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Slightly confusing. Yeah. Maybe we should have given numbers for April 2021.

Susmit Patodia — Motilal Oswal Asset Management Company — Analyst

But then you would have given P&L, so there should not have been [Indecipherable]. Thank you. Thank you and all the best.

Operator

Thank you. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.

Prakash Kapadia — Anived Portfolio Managers Pvt Ltd — Analyst

Yeah. Thanks for taking my question. I had two questions. Sir, if I look at employee costs, they were down around 31% for financial year ’21. So if you could give the employee count. Last year I think we had around 9,500 employees. What is the count as on FY ’21? And you know how to build some of these employee cost on a basic variable some metrics which you have introduced during the year because of pandemic? And secondly, you mentioned about the potential about scaling the delivery business. So by when we can have the extended delivery or some cloud kitchen kind of model, especially in metros, because I would guess Barbeque-in-a-Box would be more metro centric to sell any player to target these customer. What are the action plans on those?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Right. So on the — just continuing on the delivery stuff, given that you were talking about that in previous sessions also, these are still being evaluated. And also given COVID, the closure cycle of getting a site is actually taking longer right. And this is a new concept. So we want to be very sure about how we’re launching it. It’s still debated under discussion, but right now the focus is stabilizing this. And that’s why looking at a growth of almost 100% in a stable manner is what we are targeting. If this improves and we could escalate the centered kitchen concept that we’re talking about we will sort of come back. But as of now it’s very difficult for me to give you a firm timeline for that.

On the employee cost, historically it had been approximately — and we’re talking about store-level employee cost, between 21% to 21.5% of our top line. And during pandemic last year when we did a lot of work towards optimizing the employee cost at a particular restaurant and also reduce the number of manpower by almost 10%. We have seen that that number, and this is core employee cost at the store level, we have seen it come down by approximately 1.5 percentage points, right. So this is, I think on a stable state having employee cost of between 18.5%, 19% of the top line for us to — for the core operating stores is what we are looking at. And then there is — in terms of employee cost, there is incremental cost for the back-end employee cost, right. So that’s the way this will work out.

Prakash Kapadia — Anived Portfolio Managers Pvt Ltd — Analyst

One more thing on demand side, you know, historically we’ve seen more in terms of our geographical south India [Indecipherable] second wave. [Indecipherable] demand side or deferment [Indecipherable] down south and what is the scenario on the demand side? [Indecipherable]

Rahul Agrawal — Chief Executive Officer and Whole Time Director

I am sorry. Your question is not — yeah, go ahead.

Operator

Your voice was not audible. I would request you to move to a better reception area.

Prakash Kapadia — Anived Portfolio Managers Pvt Ltd — Analyst

Yeah. Is it better now? Am I audible? Hello?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yes.

Prakash Kapadia — Anived Portfolio Managers Pvt Ltd — Analyst

Yeah. I was trying to understand historically you had a decent presence down south. So what is the demand scenario in the second wave of COVID especially in south of India? I was trying to understand that.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Frankly, I don’t think that’s a correct statement to make that we are larger in down south. Our presence in North and Central India is pretty much equal, but in terms of the recovery during second wave on our — in our delivery business, we have not seen any particular regional increase or decrease in the country. And dining business unfortunately is still shut, right. So it’s very difficult to give an estimate of the regional behavior of the dining business right now.

Prakash Kapadia — Anived Portfolio Managers Pvt Ltd — Analyst

Okay. Lastly, on an ongoing basis, any plans of rejuvenating the Barbeque-in-a-Box menu because after a point of time people will get tiered and repeat purchases might be difficult.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

So I think early to say and like we have maintained that freshness of the brand in Barbeque Nation for last 15 years in dine-in business. I think, if required, whatever changes are required from the consumer perspective, from a guess perspective we’ll keep doing that. So that is the nature of how we operate. Any decision in Barbeque Nation is first taken from the guest perspective and employee perspective than anything else, right. So on that front rest be assured that if the feedback is that this is getting stagnated and we are not — and the product needs to be changed or upgraded or refreshed, we will definitely do that.

Prakash Kapadia — Anived Portfolio Managers Pvt Ltd — Analyst

I understood. Thank you. All the best.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Thank you.

Operator

Thank you. The next question is from the line of Anand Shah from Axis Capital. Please go ahead.

Anand Shah — Axis Capital — Analyst

Yeah. Hi, Rahul and team. Thanks. Thanks for the opportunity. Just a couple of questions. So firstly, if you can throw any color on the dine-in recovery like what you have seen especially in Q4. I mean corporates obviously haven’t come back fully to that extent and you are launching corporate heavy. So any color on despite that you managed such robust recovery in dining and what is driving this and also color on —

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Sorry to interrupt you, Anand. Your voice is breaking in between. So I could not understand your question.

Anand Shah — Axis Capital — Analyst

Can you hear me now?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yes.

Anand Shah — Axis Capital — Analyst

Yeah. No I was just asking on the color of dining recovery, essentially given that you are lauching corporate heavy despite that you have recovered dining majorly in Q4. So what is driving this. That is one. And also if you can throw some color on metro Tier 1 trends and Tier 2, Tier 3 trends. I mean is this recovery all across or it’s more partly driven from Tier 2, Tier 3?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

So in terms of our corporate business, we saw at least mid corporate started to come back in quarter four. Large corporates were still not operating. They are opening from home. And that segment didn’t come back as much as it was earlier, but the friends and family segment coming back in a larger form. And in terms of tier mix, obviously Tier 2 and Tier 3 came back much faster and the recovery in those markets we started seeing from September 2 onwards. And that continued by till the end of last quarter before it all shut. And metro markets are also growing pretty much on double digits basis in these places. But yes Tier 2, Tier 3 had done slightly better than that.

Anand Shah — Axis Capital — Analyst

Got it. Got it. Thanks. And just one more question on your international business. I mean is it back to profitability at the middle level? I mean how is it tracking, any color there?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yes. On international business, I think we were extremely disciplined to not look at any sort of expansion for last two years and not that we are planning to do anything right now. We are focused on building back the customer demand and ensuring that it becomes profitable. At the store level this has been profitable, full year last year itself, but this year apart from H1, which also got impacted because of sudden shutdowns in those places, H2 was highly profitable. We were doing double digits core operating EBITDA margin. This is after the back end cost, right. And this is on the back of a very strong same-store sales within that market. So now that business is not losing any money. The depreciation is still higher. So at PAT level there is marginal negative number there, but that also on a pure cash on cash basis that business is profitable and generating cash now. I think that’s stabilized now and we’ve seen that now on the core operating numbers when it’s operational. We have seen those performances for a continued period of almost four quarters now. So I don’t expect any drag coming from that market.

Anand Shah — Axis Capital — Analyst

Thanks. Thanks. Thanks a lot.

Operator

Thank you. The next question will be from the line of Shirish Pardeshi from Centrum Capital. Please go ahead.

Shirish Pardeshi — Centrum Capital — Analyst

Yeah. Hi. Good evening, Kayum and Rahul. Thanks for the opportunity and thanks for a good set of numbers. I have a digital question, the attempt what you have said. So, you said you have 2.6 million downloads and the question which I’m wanting to ask is that, what is the increase if you look at December quarter versus March quarter? And what is the increase in terms of — traffic in terms of converting these orders?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

So I think we had 2.2 million in the month of December 2020 which had gone to around 2.6 million. And in terms of traffic increase, what we have noticed is that in quarter four, our dining recovery was stronger and we also saw that at this [Indecipherable] business has slightly increased. And in our experience, some of the larger group clients did prefer to call our call center and book rather than booking it through a digital platform. That behavior I think will change over time, but as the recovery happens, people tend to just call our call center. So that’s why we have seen that on the dining business the contribution of our app booking or app reservation has slightly decreased in favor of our own call center reservation, right.

And on the delivery side, we have seen that there is increased number of orders happening from our own app in quarter four versus quarter three.

Shirish Pardeshi — Centrum Capital — Analyst

Okay. That’s the related question which I wanted to ask. Barbeque-in-a-Box, through your own app and when you look at, are you also trying to do the food delivery competition? So what is the traffic growth you are seeing? I think the reason why I’m asking, you mentioned that there is no cannibalization. So I just wanted to look at from the data lens what was the Q3 number and what is the Q4 number. If you can say that in terms of delivery [Indecipherable].

Rahul Agrawal — Chief Executive Officer and Whole Time Director

So we don’t want to share that exact numbers and that’s why we also restrained from giving that in the presentation.

Shirish Pardeshi — Centrum Capital — Analyst

No, you can just confirm whether there is a growth and if you can quantify that growth number. I’m not asking the absolute number.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

So there has been growth. I will not be able to quantify that growth number. But as I’ve said, there has been growth between the share of business in delivery that has come from our own app in quarter three and quarter four.

Shirish Pardeshi — Centrum Capital — Analyst

All right. All right. My just last question, in terms of — in the current scenario price changes and other things that you have like a menu on your side. So given the scenario, are you facing there is an inflationary cost pressure. And the reason why I am asking, you have done good on the margin front. So is that the steady state margin which we can look at because broadly the cost lever what you have exercised last year would broadly remain for FY ’22 also?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

So in normal scenario definitely. So if you look at our gross margins, it was pretty less in quarter one, right, at 30%. But then the top line also was only INR10 crores, right. So such a small cost margin, such a small top line doesn’t impact overall, right. And as we have seen our business recovering, dine business recovering and better efficiencies of the buffets that we lay down, there is a natural advantage that comes to you in terms of gross margin, right. And that’s where [Indecipherable] in quarter one, quarter two, quarter three and quarter four, right. And if you look at our normalized business which is FY ’19 or FY ’20 without last quarter, you will see that our gross margins have been pretty stabilized around 66%. And it has — if you look at long terms, maybe, last five, six years, you will see that has grown from approximately 60% gross margin business to around 66%. That varies a couple of more percentage points to extract here, but we just saying, [Indecipherable] say that let’s maintain this and once this stabilizes and a lot of [Indecipherable] supply chain. Over a period of next three to four years, we will try and extract maybe a couple of percentage points more from here. That’s a constant improvement gain that you keep working on in your business.

Shirish Pardeshi — Centrum Capital — Analyst

Just last question from my side. The loyalty program, so how long this loyalty program you have been targeting and if you can share some quantifying details what is the loyalty program base or what is the growth which you have been [Indecipherable] FY ’21 versus FY ’20?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

So this was launched in January 2020, which is just before the pandemic and the way to recognize your customer or the guest is with his mobile number and in the app immediately post your booking or post your delivery order that Smiles cater to you and we have now seen that approximately just closer to double digit — low double digit numbers is what you are seeing in terms of number of transaction that company which has got this Smiles points to be redeemed. So that has grown pretty well over last four, five quarters. Just when we launched this program, COVID happened, right. So despite that we seeing a good attraction. So I am certainly a long-term believer of this program and most importantly because this benefits our guests and our customers.

Shirish Pardeshi — Centrum Capital — Analyst

Okay. Okay. Thank you and all the best to you and the team.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Thank you.

Shirish Pardeshi — Centrum Capital — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Manish Dhariwal from Fiducia Capital Advisors. Please go ahead.

Manish Dhariwal — Fiducia Capital Advisors — Analyst

Yeah. Thank you for this opportunity. My question was [Indecipherable] I want to understand about delivery business. In the earlier part of this call, you mentioned that the delivery business will be added onto the store revenue. Am I coming correct? Are the delivery business being routed via from your — from each of your 164 [Phonetic] stores?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yeah. This is part of the stores.

Manish Dhariwal — Fiducia Capital Advisors — Analyst

Okay. Okay. [Indecipherable] delivery, all that personnel and all that [Indecipherable] getting added on at the store level?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

You mean the cost of doing that delivery is also added at the cost level?

Manish Dhariwal — Fiducia Capital Advisors — Analyst

Yeah. [Indecipherable].

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yes. Obviously. So all the entire — if that delivery is done from the same store, all the cost related to the delivery including any advertising, any commission, any food cost, any employee costs all are added to the same store level P&L.

Manish Dhariwal — Fiducia Capital Advisors — Analyst

Wonderful. And going forward also [Indecipherable] each individual store will drive their delivery business. Is that the way you are thinking about it?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

Yes.

Manish Dhariwal — Fiducia Capital Advisors — Analyst

Okay. Okay. Thank you so much.

Operator

Thank you. The next question is from the line of Ashish Kanodia from Ambit Capital. Please go ahead.

Ashish Kanodia — Ambit Capital — Analyst

Yeah. Hi, Rahul and team. The first question is when we talk about adding incremental stores in the metro cities and also when you talk about adding space for the delivery business, do you see a need to add another commissary because we currently are running Mumbai and Delhi. So do you see that?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

No we don’t need to. We don’t need to add any more commissaries. We are anyway moving towards more and more standardization as the business is expanding. And once we add more outlets in our existing metro markets those can be sourced out from our existing vendors. So, no at any point of time we are not planning to add any more commissaries in the country.

Ashish Kanodia — Ambit Capital — Analyst

[Indecipherable] see delivery becoming an incremental part of restaurant revenue and definitely drive incremental margins as well? So typically they have been always a lunch and dinner platform, right. But do you see a rice plate in the snacking [Indecipherable] delivery business for example, other than Barbeque-in-a-Box you have [Indecipherable] as well as a la carte model. So do you see an increased focus in the day part of the business to drive better revenue throughput and better margins at a store level?

Rahul Agrawal — Chief Executive Officer and Whole Time Director

We will evaluate that, but as I said earlier also in earlier part our delivery business is pretty young and also very small. And the market opportunity is large in the two biggest segment of lunch and dinner. So there is focus on optimizing that before we jump in to any other segment of day part. But like you said, the opportunity is there. And when you feel that this has now stabilized and this can be added, we will definitely work towards that. But is there a possibility, yes, there definitely is a possibility.

Ashish Kanodia — Ambit Capital — Analyst

Sure. And just last bit on so when we look at delivery business, right, so how well it had been doing in the metro cities? Recovery in line with what you have seen in the metro market or some qualitative color on that would be very helpful.

Rahul Agrawal — Chief Executive Officer and Whole Time Director

So in terms of delivery growth, we have not seen any remarkable distance between metro and non-metro. We are present across some 77, 78 cities today and if you exclude those metro markets, the average daily sale in these metro markets higher than the non-metro market on average. But in terms of growth numbers, it is pretty consistent. Across all these 78 cities [Indecipherable] to flag out okay this market has done remarkably well. Well, there are some markets that are very well, but not in terms of very outlier in the business.

Ashish Kanodia — Ambit Capital — Analyst

Sure. Sure. That’s very helpful. Thank you, Rahul.

Operator

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Kushal Budhia for closing comments.

Kushal Budhia — Head of Strategy and Investor Relations

Thank you, everyone for attending the call. We thank you for your time. And we look forward to a good reopening once the lockdown is over and resuming our business. Thank you very much.

Operator

[Operator Closing Remarks]

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